Registration No. 333-214021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM S-11
FOR REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OF SECURITIES
OF CERTAIN REAL ESTATE COMPANIES
Clipper Realty Inc.
(Exact name of Registrant as specified in governing instruments)
4611 12th Avenue, Suite 1L
Brooklyn, New York 11219
(718) 438-2804
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
David Bistricer
Co-Chairman and Chief Executive Officer
Clipper Realty Inc.
4611 12th Avenue, Suite 1L
Brooklyn, New York 11219
(718) 438-2804
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
Robert W. Downes | Daniel M. LeBey |
Sullivan & Cromwell LLP | Vinson & Elkins LLP |
125 Broad Street | Riverfront Plaza, West Tower |
New York, NY 10004 | 901 East Byrd Street, Suite 1500 |
(212) 558-4000 | Richmond, VA 23219 |
(212) 558-3588 (Facsimile) | (804) 327-6310 |
(804) 479-8286 (Facsimile) |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ |
(Do not check if a smaller reporting company) |
CALCULATION OF REGISTRATION FEE
Title of Securities Being Registered |
Amount
to be
Registered (1) |
Proposed
Maximum Offering Price Per Unit (2) |
Proposed
Maximum Aggregate Offering Price (2) (3) |
Amount
of
Registration Fee (4) |
||||||||||||
Common Stock, $0.01 par value per share | 8,176,321 | $ | 15.5 | $ | 126,732,975.5 | $ | 14,688.5 |
(1) | Includes 1,066,470 shares the underwriters have the option to purchase. |
(2) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. Includes shares of our common stock that the underwriters have the option to purchase. |
(3) | Includes the offering price of the 1,066,470 shares the underwriters have the option to purchase. |
(4) | Of this amount, $11,590 has been previously paid. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date or dates as the Commission, acting pursuant to said Section 8(a), may determine.
The information set forth in this preliminary prospectus is not complete and may be changed. We may not distribute these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS
Subject to Completion, Dated January 31, 2017
Clipper Realty Inc.
7,109,851 Shares of Common Stock
This is the initial public offering of Clipper Realty Inc. We are a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multi-family residential and commercial properties in the New York metropolitan area, with an initial portfolio in Manhattan and Brooklyn. We are selling 7,000,000 shares of our common stock, $0.01 par value per share, and the selling stockholders named in this prospectus are selling 109,851 shares of our common stock. We will not receive any proceeds from the sale of our common stock by the selling stockholders.
We expect the public offering price to be between $13.50 and $15.50 per share. Currently, no public market exists for the shares. We will apply to list our common stock on the New York Stock Exchange (“NYSE”) under the symbol “CLPR”.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, and will be subject to reduced public company reporting requirements.
We have been organized and operate in conformity with the requirements for qualification and taxation as a real estate investment trust (“REIT”) under the U.S. federal income tax laws. We have elected to be treated as a REIT commencing with our taxable year ended December 31, 2015, and we expect to satisfy the requirements for qualification and taxation as a REIT for subsequent taxable years. To assist us in qualifying as a REIT, among other reasons, our charter generally limits beneficial ownership by any person to no more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock or 9.8% of the aggregate value of all our outstanding stock. In addition, our charter contains various other restrictions on the ownership and transfer of shares of our stock. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”
Investing in the common stock involves risks. See “Risk Factors” beginning on page 25 of this prospectus.
Per Share | Total | |||||||
Public offering price | $ | $ | ||||||
Underwriting discount (1) | $ | $ | ||||||
Proceeds, before expenses, to us | $ | $ | ||||||
Proceeds, before expenses, to the selling stockholders | $ | $ |
(1) | See “Underwriting” for additional disclosure regarding the underwriting discount and expenses payable to the underwriters by us and the selling stockholders. |
We have granted the underwriters an option to purchase up to an additional 1,066,470 shares from us at the public offering price set forth in the table above, less the underwriting discount, within 30 days after the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Delivery of the shares of common stock is expected to be made in book-entry form on or about , 2017.
FBR | Raymond James |
Janney Montgomery Scott | Wunderlich |
The date of this prospectus is , 2017.
TABLE OF CONTENTS
None of us, the selling stockholders or the underwriters have authorized anyone to provide any information or to make any representation other than as contained in this prospectus or any free writing prospectus prepared by, or on behalf of, us. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date or as of another date specified herein. Our business, financial condition, results of operations and prospects may have changed since those dates.
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GLOSSARY
In this prospectus, unless the context otherwise requires or indicates:
· | references to “50/53 JV” are to 50/53 JV LLC, a Delaware limited liability company; |
· | references to the “Aspen acquisition” are to the acquisition on June 27, 2016 of the building located at 1955 First Avenue, New York, NY; |
· | references to “Berkshire” are to Berkshire Equity LLC, a Delaware limited liability company; |
· | references to “class A LLC units” and “class B LLC units” are to class A LLC units and class B LLC units in our predecessor entities, respectively, which have the terms described under “Description of the Limited Liability Company Agreements of Our LLC Subsidiaries”; |
· | references to “Clipper Equity” are to the real estate business of David Bistricer in which our company did not invest in connection with the formation transactions; |
· | references to “Clipper Realty” are to Clipper Realty Inc., a Maryland corporation; |
· | references to “Clipper TRS” are to Clipper TRS, LLC, a Delaware limited liability company; |
· | references to the “Code” are to the Internal Revenue Code of 1986, as amended; |
· | references to the “Columbia Heights acquisition” are to the proposed acquisition of the building located at 107 Columbia Heights, Brooklyn, NY; |
· | references to the “Company,” “our company,” “we,” “our” and “us” are to Clipper Realty and its consolidated subsidiaries; |
· | references to the “continuing investors” are to holders of interests in the predecessor entities who received class B LLC units or shares of our common stock upon consummation of the formation transactions; |
· | references to “continuing investors registration rights agreement” are to that certain registration rights agreement, dated as of August 3, 2015, by and among Clipper Realty and each of the Holders (as defined therein) from time to time party thereto; |
· | references to the “Exchange Act” are to the Securities Exchange Act of 1934, as amended; |
· | references to the “formation transactions” are to the series of investment and other transactions described in this prospectus that were consummated prior to and in connection with the private offering; |
· | references to “GLA” are to gross leasable area; |
· | references to “Gunki” are to Gunki Holdings LLC, a Delaware limited liability company; |
· | references to the “JOBS Act” are to the Jumpstart Our Business Startups Act of 2012; |
· | references to the “non-contributed properties and businesses” are to properties and businesses that are controlled by our continuing investors but that are not part of our predecessor entities and were not contributed to us in the formation transactions; |
· | references to the “offering” are to the initial public offering of our common stock as described in this prospectus; |
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· | references to the “OP units” are to units of limited partnership in our operating partnership, which have the terms described under “Description of the Limited Partnership Agreement of Our Operating Partnership”; |
· | references to the “operating partnership” are to Clipper Realty L.P., a Delaware limited partnership; |
· | references to the “predecessor entities” or “LLC subsidiaries” are to 50/53 JV, Berkshire, Gunki and Renaissance; |
· | references to the “Predecessor” are to our Predecessor, which consists of the predecessor entities; |
· | references to the “private offering” are to the private offering of 10,666,667 shares of our common stock, which closed on August 3, 2015; |
· | references to the “registration rights agreement” are to that certain registration rights agreement, dated as of August 3, 2015, between Clipper Realty and FBR Capital Markets & Co., as the initial purchaser/placement agent for the benefit of the investors in the private offering, as amended; |
· | references to “Renaissance” are to Renaissance Equity Holdings LLC, a New York limited liability company; |
· | references to the “SEC” are to the United States Securities and Exchange Commission; |
· | references to the “Securities Act” are to the Securities Act of 1933, as amended; |
· | references to the “selling stockholders” are to our stockholders named in the “Selling Stockholders” section in this prospectus; and |
· | references to “series A preferred stock” are to shares of 12.5% Series A Cumulative Non-Voting Preferred Stock issued by the Company on January 28, 2016 in a private offering pursuant to Regulation D under the Securities Act. |
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MARKET DATA
Market data used in this prospectus have been obtained from independent industry sources and publications as well as from research reports prepared for other purposes. While we are not aware of any misstatements regarding any market data presented herein, such data involve uncertainties and are subject to change based on various factors, including those discussed under “Cautionary Note Concerning Forward-Looking Statements” and “Risk Factors” in this prospectus.
BASIS OF PRESENTATION
In this prospectus, unless the context otherwise requires or indicates: (i) information regarding occupancy levels and rental rates is presented as of January 31, 2017; (ii) average rental rates per square foot are presented on an annual basis; (iii) references to square feet refer to leasable square feet; (iv) information assumes no exercise by the underwriters of their option to purchase additional shares of common stock; and (v) references to percentages on a “fully diluted basis” as of any date assume that the LTIP units and class B LLC units outstanding on such date are exchanged for shares of our common stock and that any restricted stock units outstanding on such date are vested and settled in exchange for shares of common stock.
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This summary highlights information contained elsewhere in this prospectus, but it does not contain all of the information that you may consider important in making your investment decision. Before investing in our common stock, you should read the entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere herein.
See “Glossary” for certain defined terms used, and “Basis of Presentation” for certain explanations with respect to the information presented, in this prospectus.
Overview
We are a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multi-family residential and commercial properties in the New York metropolitan area, with an initial portfolio in Manhattan and Brooklyn. The Company was formed to continue and expand the commercial real estate business of the Predecessor. Our primary focus is to continue to own, manage and operate our initial portfolio and to acquire and reposition additional multi-family residential and commercial properties in the New York metropolitan area.
Clipper Realty was incorporated on July 7, 2015. On August 3, 2015, we closed a private offering of shares of our common stock, in which we raised net proceeds of approximately $130.2 million. In connection with the private offering, we consummated a series of investment and other formation transactions that were designed, among other things, to enable us to qualify as a REIT for U.S. federal income tax purposes and we have elected to be treated as a REIT commencing with the taxable year ended December 31, 2015.
The Company owns:
· | two neighboring residential/retail rental properties at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of Manhattan, which we collectively refer to as the Tribeca House properties; |
· | one residential property complex in the East Flatbush neighborhood of Brooklyn consisting of 59 buildings, which we refer to as the Flatbush Gardens properties or complex; |
· | two primarily commercial properties in Downtown Brooklyn (one of which includes 36 residential apartment units), which we refer to as the 141 Livingston Street property and the 250 Livingston Street property; and |
· | one residential/retail rental property at 1955 1 st Avenue in Manhattan, which we refer to as the Aspen property. |
In January 2017, the Company entered into a letter of intent to purchase a residential property located at 107 Columbia Heights in Brooklyn, which we refer to as the Columbia Heights property.
These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation.
The Company’s ownership interest in its initial portfolio of properties, which includes the Tribeca House, Flatbush Gardens and Livingston Street properties, was acquired in the formation transactions in connection with the private offering. These properties are owned by the LLC subsidiaries, which are managed by the Company through the operating partnership. The operating partnership’s interest in the LLC subsidiaries generally entitles the operating partnership to all cash distributions from, and the profits and losses of, the LLC subsidiaries other than the preferred distribution to the continuing investors who hold class B LLC units in these LLC subsidiaries described below. The continuing investors own an aggregate amount of 26,317,396 class B LLC units, representing 68.8% of the Company’s common stock on a fully diluted basis (58.2% immediately following this offering). Accordingly, the operating partnership’s interests in the LLC subsidiaries entitle the operating partnership to receive approximately 31.2% of the aggregate distributions from the LLC subsidiaries (41.8% immediately following this offering). The Company, through the operating partnership, owns all of the ownership interests in the Aspen property.
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The table below presents an overview of the Company’s portfolio as of January 31, 2017.
Address | Submarket |
Year Built/
Renovated |
Leasable
Sq. Ft. |
# Units |
Percent
Leased |
2017 Base
Rental Revenue (in millions) |
Net Effective
Rent Per Square Foot |
|||||||||||||||||||||
Multifamily | ||||||||||||||||||||||||||||
50 Murray Street | Manhattan | 1964 | 395,848 | 389 | 92.8 | % | $ | 24.0 | $ | 68.48 | ||||||||||||||||||
53 Park Place | Manhattan | 1921 | 85,423 | 116 | 99.1 | % | $ | 5.4 | $ | 66.11 | ||||||||||||||||||
Flatbush Gardens complex | Brooklyn | 1950 | 1,734,885 | (1) | 2,496 | 97.1 | % | $ | 35.9 | $ | 21.52 | |||||||||||||||||
250 Livingston Street | Brooklyn | 1920 | 26,819 | (2) | 36 | 94.4 | % | $ | 1.3 | $ | 50.35 | |||||||||||||||||
Aspen | Manhattan | 2004 | 165,542 | 232 | 99.1 | % | $ | 5.5 | $ | 33.34 | ||||||||||||||||||
2,408,517 | 3,269 | 96.6 | % | $ | 72.1 | $ | 31.00 | |||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||
141 Livingston Street | Brooklyn | 1959 | 206,084 | (3) | 1 | 100.0 | % | $ | 8.2 | $ | 40.00 | |||||||||||||||||
250 Livingston Street | Brooklyn | 1920 | 294,144 | (4) | 1 | 100.0 | % | $ | 8.2 | $ | 27.88 | |||||||||||||||||
500,228 | 2 | 100.0 | % | $ | 16.4 | $ | 32.79 | |||||||||||||||||||||
Retail | ||||||||||||||||||||||||||||
50 Murray Street (retail) | Manhattan | 44,436 | 7 | 100.0 | % | $ | 2.3 | $ | 51.07 | |||||||||||||||||||
50 Murray Street (parking) | Manhattan | 24,200 | 1 | 100.0 | % | $ | 1.1 | $ | 44.06 | |||||||||||||||||||
53 Park Place (retail) | Manhattan | 8,600 | 1 | 100.0 | % | $ | 0.3 | $ | 39.19 | |||||||||||||||||||
141 Livingston Street (parking/other) | Brooklyn | 9,989 | (3) | 1 | – | (5) | $ | 0.3 | $ | 32.68 | ||||||||||||||||||
250 Livingston Street (retail) | Brooklyn | 990 | 1 | 100.0 | % | $ | 0.1 | $ | 83.45 | |||||||||||||||||||
250 Livingston Street (parking) | Brooklyn | – | – | – | $ | 0.2 | – | |||||||||||||||||||||
Aspen (retail) | Manhattan | 21,060 | 3 | 100.0 | % | $ | 0.9 | $ | 42.60 | |||||||||||||||||||
Aspen (parking) | Manhattan | – | – | – | $ | 0.3 | – | |||||||||||||||||||||
109,275 | 14 | 100.0 | % | $ | 5.5 | $ | 50.39 | |||||||||||||||||||||
Total | 3,018,020 | 3,285 | 97.2 | % | $ | 94.0 | $ | 32.04 |
(1) | Comprises 59 buildings. |
(2) | Conversion of floors 9-12 into residential units occurred in 2003-2005, 2008-2009 and 2013, with renovation of residential units on the 12 th floor from 2014 to the present. |
(3) | Measured according to Real Estate Board of New York (“REBNY”) standards. |
(4) | Has been remeasured to 353,895 square feet according to REBNY standards. |
(5) | Month-to-month. |
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The Tribeca House properties , purchased in December 2014, consist of two nearly adjacent properties in the Tribeca neighborhood of Manhattan. The Company manages the two related properties as a single unit and the residents of both properties share all services and amenities. They comprise approximately 480,000 square feet of leasable area with 505 residential apartment units and approximately 77,200 square feet of retail space (comprising approximately 53,000 square feet of street-level and mezzanine-level retail space and an externally managed garage).
· | The residential apartment units, featuring ceilings as high as 11 feet and extensive amenities, are approximately 94% leased at an average rental rate of approximately $68 per square foot, up from $61 per square foot at acquisition. The retail space, which includes a premium fitness club, is fully occupied at an average rental rate of approximately $49 per square foot, up from approximately $43 per square foot at acquisition. |
· | The Company’s primary goals for the residential portion of the Tribeca House properties are to improve service levels and quality of finishes in the buildings commensurate with those expected by residents in the Tribeca neighborhood. We believe that accomplishing this, as well as managing the re-leasing process more efficiently than the prior owner, will position us to achieve comparable rents in excess of $80 per square foot in the Tribeca neighborhood as of January 30, 2017, according to StreetEasy listings. |
· | We believe that our average rental rate of approximately $49 per square foot under in-place leases for the retail portion of the Tribeca House properties is significantly below market for comparable retail properties, based on current leasing activity in the surrounding Tribeca submarket. For example, on July 1, 2015, we signed a lease for a 3,186 square foot street-level retail unit at our Tribeca House properties providing for a rental rate of $140 per square foot, which is a 237% increase over the average rental rate under our existing retail leases. Similarly, according to a report by REBNY, the average asking retail rental rate in downtown Manhattan, which includes the Tribeca neighborhood, was $142 per square foot as of November 2016. Accordingly, we believe we will be able to significantly increase retail rental revenue from our Tribeca House properties as in-place leases (which have a current average lease term of 9.1 years) expire over time and are re-leased at higher market rates. |
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· | In addition, we have the opportunity to monetize apartment units through conversion to for-sale condominium or cooperative units, which we believe would have a potential market value in excess of $2,100 per square foot based on StreetEasy listings for comparable buildings in the Tribeca neighborhood as of January 30, 2017. This value compares favorably to the December 2014 purchase price of approximately $998 per rentable square foot. Any sales of condominium or cooperative units would be conducted by a taxable REIT subsidiary (a “TRS”), which would be subject to U.S. federal, state and local income tax on any gain from, and transfer tax from, the sale of the units. |
The Flatbush Gardens property complex , purchased in September 2005, extends over 21.4 acres and consists of 59 primarily six-story buildings containing a total of approximately 1.7 million rentable square feet and 2,496 residential apartment units, and space for approximately 240 vehicles in parking structures.
· | The property is approximately 97% occupied at an average rental rate of approximately $21.52 per square foot. The property is subject to rent stabilization, a form of New York City rent regulation that limits the amount of legally allowable rent increases. Current in-place rents are, on average, 17% lower than the legal maximum rent that may be charged pursuant to rent regulation. We believe this provides an opportunity to increase rents with increasing market rates before being limited by rent regulation. |
· | Since acquisition in 2005, our management team has undertaken a renovation and repositioning strategy that has included upgrades to both the exterior and interior of the buildings. These have included replacements or upgrades to building systems and components, including elevators, basements, boilers, roofs, parapets, facades, sidewalks and landscaping, as well as a refurbishing of apartment interiors on turnover of residents. As a result of our effort in managing the complex, including these upgrades, we have reduced outstanding New York City violations from over 8,000 at the time of the acquisition to approximately 577 currently, and substantially improved resident safety. In addition, our management team proactively attempts to remedy potential violations that are reported by residents. We have been able to consistently increase rents as a result of these efforts, as well as external market factors. Average rent per square foot increased from $18.88 (94.4% occupancy) at December 31, 2013 to $19.69 (95.6% occupancy) at December 31, 2014 to $20.63 (97.0% occupancy) at December 31, 2015 and $21.52 at January 31, 2017 (97.1% occupancy). Since acquisition in 2005, the average rent per square foot has risen from approximately $13.25 to approximately $21.52, a 62% increase. |
· | We estimate that approximately $16 million will be required to complete a comprehensive renovation and modernization program through the end of 2018, which may include enhanced landscaping on a renovated terrace area; restored, renovated, upgraded or new lobbies; elevator modernization; renovated public areas and bathrooms; refurbished or new windows; façade restorations; installation of revenue generating laundry and storage areas in restored basement areas; and modernization of building-wide systems, including security cameras and lighting. These improvements are designed to increase the overall value and attractiveness of the Flatbush Gardens complex and contribute to tenant repositioning efforts, which seek to increase occupancy, raise rental rates, increase aggregate rental revenue and improve tenant credit quality. We believe we will be able to continue to increase rents as leases expire and units are re-leased. |
· | Flatbush Gardens is currently not built to its maximum floor-area ratio (“FAR”) and therefore, subject to various regulations and approvals, may have expansion potential. In this regard, we are reviewing the regulatory, architectural and financial issues regarding building approximately 500,000 additional square feet by adding four floors above certain of our 59 buildings at Flatbush Gardens. However, there can be no assurance that we will be able to pursue this FAR expansion project or that if we are able to expand Flatbush Gardens, that the expanded buildings will provide a return to recover our investment. |
The 141 Livingston Street property in the Downtown Brooklyn neighborhood, purchased in 2002 along with the below-mentioned 250 Livingston Street property, is a 15-story, 206,084 square foot GLA office building.
· | In December 2015, the property’s main commercial tenant, the City of New York, executed a new 10-year lease at $40.00 per square foot, with effect as of June 2014. Under the lease, the tenant has an option to terminate the lease after five years; however, if it decides to continue to occupy the building at that time, the annual rent will increase by 25%, or $2.1 million, to $50.00 per square foot beginning the sixth year of the lease. |
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· | The lease requires us to refurbish the building’s air-conditioning system and perform other upgrades, which we estimate will cost a total of approximately $5.2 million. Additionally, we intend to spend a total of approximately $2.6 million through 2017 to make other improvements, including elevator replacement, boiler and roof replacement and building systems upgrades. |
The 250 Livingston Street property , purchased in 2002 along with the 141 Livingston Street property, is a 12-story commercial and residential building. It has 294,144 square feet GLA of office space and 36 residential apartment units totaling 26,815 square feet.
· | The leasable office space recently has been remeasured according to REBNY standards to approximately 353,000 square feet, an increase of approximately 33%. |
· |
The property’s sole commercial tenant, the City of New York, has two leases expiring in August 2020, with current lease rates that are approximately 50% of the rate recently negotiated at the 141 Livingston Street property with the same tenant. We recently entered into a lease renewal and amendment agreement with the City of New York for renewal of a lease covering approximately 36% of total office space that expired at the end of 2016 at $40.00 per square foot for increased square feet measured according to REBNY standards that increased annual rent by approximately $2.6 million. |
· | To more fully optimize available space, from 2003 through 2013, we converted the top four floors of the building into 36 apartment units, which are 94% leased at an average rental rate of approximately $50 per square foot. |
The Aspen property , purchased on June 27, 2016, is located at 1955 1 st Avenue, New York, NY in Manhattan. The property is a seven-story building which comprises 186,602 square feet, 232 residential rental units, three retail units and a parking garage.
· | The residential units are subject to regulations established by the New York City Housing Development Corporation (“HDC”) under which there are no rental restrictions on approximately 55% of the units and low and middle income restrictions on approximately 45% of the units. The residential apartment units are approximately 99% leased at an average rental rate of approximately $33 per square foot. The retail space is fully occupied at an average rental rate of approximately $43 per square foot. |
· | While the building is relatively new, the Company believes there is an opportunity to increase rents by improving certain of the finishes of the property. We believe there is an opportunity to increase rents over one to three years for the units with no rental restrictions (approximately 55% of the units, representing 58.4% of the residential square footage) from the existing $38 per square foot closer to comparable rentals in the immediate neighborhood which on average are in excess of $50 per square foot, as measured by StreetEasy listings as of January 30, 2017 for doorman rentals eight blocks north, four blocks south and three blocks west of the Aspen property. |
Proposed acquisition of the Columbia Heights property. In January 2017, the Company entered into a letter of intent to purchase the Columbia Heights property located at 107 Columbia Heights in Brooklyn for $87.5 million. The property comprises approximately 154,000 square feet, 161 residential units and an indoor parking garage. Following completion of the acquisition, the Company plans to create twelve additional residential units by converting various public areas on the property. Based on current market prices in the area, the units are expected to be leased at an average rental rate of $65-$75 per rentable square foot. Although the building was fully renovated in 2007, the Company also plans to spend approximately $10 million to $15 million on further renovations and improvements, focusing on unit flooring and fixtures. We believe these improvements will allow us to achieve maximum rents over time. While the Company believes the completion of the acquisition is probable, it is subject to substantial uncertainties and there can be no assurance that it will be completed.
The Company is led by David Bistricer, its Co-Chairman and Chief Executive Officer, who has over 30 years of real estate experience specifically in acquiring, expanding, renovating, repositioning and managing properties in our line of business. Mr. Bistricer, who has a strong reputation within the New York metropolitan area for real estate acquisitions, management, repositioning and marketing expertise, together with our senior management team, has developed our strategy with a focus on broker relationships and the cultivation of our track record of execution. Our senior management team averages approximately 21 years of experience covering all aspects of real estate, including asset and property management, leasing, marketing, acquisitions, construction, development, legal and finance.
Competitive Strengths
We believe that the following competitive strengths distinguish our company from other owners and operators of commercial and multi-family residential properties:
Diverse Portfolio of Properties in New York Metropolitan Area . Our current portfolio of commercial and multi-family residential properties in Manhattan and Brooklyn is located in one of the most prized real estate markets in the world. The combination of supply constraints, high barriers to entry, near-term and long-term prospects for job creation, vacancy absorption and rental rate growth make New York City an extremely attractive place to own real property. Our management believes that, in light of the land and construction costs, our current portfolio could not be replaced today on a cost-competitive basis. As described above, we own two primarily commercial properties in the Downtown Brooklyn neighborhood, one multi-family residential property complex in the East Flatbush neighborhood of Brooklyn, one primarily multi-family residential property group in the Tribeca neighborhood of Manhattan and one primarily multi-family residential property in a transitional neighborhood located just north of the Yorkville neighborhood of Manhattan. We have also entered into a letter of intent to purchase the Columbia Heights property, which, if completed, will add a residential property in the historic district of Brooklyn Heights to our portfolio. We believe that we are one of the only REITs with a portfolio solely composed of multi-family residential, commercial and retail properties in the New York metropolitan area. Further, our multi-family residential portfolio is diversified by tenant demographics (both luxury and work-force units).
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Expertise in Repositioning and Managing Multi-family Residential Properties. Our management team has substantial expertise in renovating and repositioning multi-family residential properties. At the Flatbush Gardens property, beginning in 2006, we have engaged in a property renovation program that includes replacement or upgrades to building systems and components as well as the refurbishment of apartment interiors. As a result of our effort in managing the property, including these upgrades, we have reduced outstanding New York City violations from over 8,000 at the time of the acquisition to approximately 577 currently, and substantially improved resident safety. At the 250 Livingston Street property, from 2003 through 2013, we converted the top four floors into 36 residential apartment units (approximately 94% leased at January 31, 2017) to more fully optimize available space. We believe that the post-renovation high quality of our buildings and the services we provide also attract higher income and credit-quality tenants and allow for increased cash flow.
Attractive Commercial and Residential Properties in Densely Populated Metropolitan Communities. Our commercial properties in Downtown Brooklyn are located in a premier commercial corridor that features convenient access to mass transportation, a diverse tenant base and high pedestrian traffic. The commercial portfolio consists of approximately 473,000 square feet (remeasured to approximately 560,000 square feet) leased to the City of New York.
Our residential properties in Tribeca are located in a neighborhood that has one of the highest average market rents in Manhattan and one of the lowest vacancy rates in Manhattan (based on a CitiHabitats market report as of July 2016 combining Tribeca with the adjacent SoHo neighborhood) as well as convenient access to mass transit. We believe that these favorable market characteristics, coupled with our plans to reposition the Tribeca House properties to provide better service levels and finishes, will allow for improved rents and financial results for the Tribeca House properties over the next two to three years.
Our newly acquired Aspen residential property in Manhattan is a relatively new building occupying a full city block in a transitional neighborhood located just north of the Yorkville neighborhood, which, according to StreetEasy, as of January 30, 2017, has average asking rents per square foot in excess of $50, as compared to the average existing rent in the Aspen property of approximately $33 per square foot. Additionally, the first phase of the new Second Avenue subway line was completed in December 2016, extending to within five blocks of the Aspen property. We believe these transitional activities and our plans to upgrade the finishes of the property will allow for improved rents and financial results for the Aspen property over the next two to three years.
Our residential property complex in the East Flatbush neighborhood is located in an entry-level, low-cost area that provides more reasonably priced housing than that in Manhattan and more upscale Brooklyn neighborhoods. The complex has convenient access to public transportation, including the Newkirk Avenue and Flatbush Avenue – Brooklyn College subway stations. Brooklyn College, Beth Israel Hospital and SUNY Downstate Medical Center are all within approximately one mile of the complex and a higher-priced condominium development has begun in East Flatbush. Additionally, surrounding neighborhoods are experiencing higher rents. We believe that these nearby improvements to the residential market, coupled with our ongoing renovation and repositioning strategy, will steadily allow higher rents, improved tenant credit quality and improved financial results for the Flatbush Gardens property.
Experienced and Committed Management Team with Proven Track Record over Generations. Our senior management team is highly regarded in the real estate community and has extensive relationships with a broad range of brokers, owners, tenants and lenders. We have substantial in-house expertise and resources in asset and property management, leasing, marketing, acquisitions, construction, development and financing, and have a platform that is highly scalable. Members of our senior management team have worked in the real estate industry an average of approximately 21 years, and David Bistricer and Sam Levinson, Co-Chairmen of our board of directors, have worked together for approximately 19 years. Our senior management and their immediate family members own shares of our common stock and LLC units of our predecessor entities that are exchangeable into shares of our common stock on a one-for-one basis, which will in the aggregate represent about 44.0% of our common stock on a fully diluted basis immediately following this offering. As a result, we believe the interests of management are aligned with those of our stockholders, creating an incentive to maximize returns for our stockholders.
Balance Sheet Well Positioned for Future Growth . We have established a target leverage ratio in the range of 45% to 55%. We define our leverage ratio as the ratio of our net debt (defined as total debt less cash) to the fair market value of our properties. We will seek to use the net proceeds of this offering, together with our cash on hand, which at September 30, 2016 was $41.6 million, pro forma for the refinancing of Tribeca House debt on November 9, 2016 and refund of an acquisition deposit on November 14, 2016 (actual amount as of that date was $82.1 million), to fund approximately $46 million of certain capital improvements to reposition and modernize our properties, including the Columbia Heights property, through 2018 and fund acquisitions of properties consistent with our strategy of acquiring multi-family or commercial properties in the New York metropolitan area, including the Columbia Heights acquisition. In addition, we expect to benefit from organic deleveraging through ongoing cash flow generation and increases in property values over time. As of September 30, 2016, we had total net debt outstanding, pro forma for the refinancing of Tribeca House debt on November 9, 2016 and refund of an acquisition deposit on November 14, 2016, of approximately $723.1 million (actual amount as of that date was $732.6 million), before debt issuance costs, all of which is property-level debt, indicating a leverage ratio of approximately 49.3%, which is within our target range. We are not obligated to maintain any specific leverage ratio and our leverage ratio may from time to time be higher or lower than our target level, which may be changed by our board of directors.
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As of September 30, 2016, pro forma for the refinancing of Tribeca House debt on November 9, 2016, our debt had a weighted average interest rate of 4.3%, a weighted average maturity of 5.5 years, and 46.4% of the debt was fixed-rate indebtedness. For the nine months ended September 30, 2016 and the year ended December 31, 2015, our pro forma adjusted earnings before interest, income tax, depreciation, amortization and stock based compensation (“Adjusted EBITDA”) was $34.5 million and $45.9 million respectively; and pro forma net loss available to common stockholders was approximately $1.5 million and $1.5 million, respectively. Following the refinancing of the Tribeca House debt on November 9, 2016, we have no debt maturing until November 2018.
Strong Internal Growth Prospects. We have substantial rent growth potential within our current portfolio as a result of the strong historical and projected future rental rate growth within our submarkets, contractual fixed rental rate increases included in our leases, incremental rent potential from the lease-up of our portfolio and anticipated rent increases resulting from our ongoing property repositioning efforts. For the 141 Livingston Street property, the main commercial tenant, the City of New York, entered in December 2015 into a new 10-year lease, resulting in an overall increase in annual rental revenue of approximately 149% as compared to the prior lease. For the 250 Livingston Street property, a property featuring a similar class of office space as the nearby 141 Livingston Street property, the same tenant has two leases expiring in August 2020. We recently entered into a lease renewal and amendment agreement to renew a lease covering approximately 36% of total office space that terminated in December 2016 on annual terms that increased rent by approximately $2.6 million. Should new leases for the leases expiring in August 2020 be entered into on the same annual terms (adjusted for the increase of rent under the 141 Livingston Street lease to $50.00 per square foot beginning the sixth year of that lease), the implied increase in annualized rent for those leases would be $9.4 million beginning in September 2020. For the residential Tribeca House properties, we believe we can achieve substantial increases in rents based on comparable rents in the Tribeca neighborhood and our intention to improve service levels and quality of finishes in the buildings commensurate with standards at comparable buildings in the neighborhood. Currently, residential rents in our Tribeca House properties average approximately $68 per square foot, whereas comparable residential rents in the Tribeca neighborhood average in excess of $80 per square foot (based on StreetEasy listings as of January 30, 2017), indicating an opportunity to increase our total 2016 rental revenue as of January 30, 2017 by approximately $7.1 million per year ($5.8 million predicated on attainment of market rents and $1.3 million on attainment of higher occupancy). As of January 29, 2017, 0.2% of the apartments in our Tribeca House properties rented below $50 per square foot, 14.2% rented between $50 and $60 per square foot, 36.9% rented between $60 and $70 per square foot, 33.1% rented between $70 and $80 per square foot, 12.2% rented between $80 and $90 per square foot, and 3.3% rented above $90 per square foot (compared to percentages of 3.4%, 23.8%, 42.2%, 23.6%, 6.3% and 0.8%, respectively, as of March 31, 2015, the end of the first full quarter following the acquisition of the property). (We also expect that real estate tax expense will increase by approximately $3.7 million as a result of cessation of certain exemptions and abatements and increased assessments). In 2016, we experienced an 11.5% increase in rents on approximately 181 new leases in addition to a 3.7% increase in rents for renewing tenants. At the newly acquired Aspen property, we believe there is an opportunity to increase rents over one to three years for the units with no rental restrictions (approximately 55% of the units, representing 58.4% of the residential square footage) from the existing $38 per square foot closer to comparable rentals in the immediate neighborhood which on average are in excess of $50 per square foot, as measured by StreetEasy listings as of January 30, 2017 for doorman rentals eight blocks north, four blocks south and three blocks west of the Aspen property. For the Flatbush Gardens residential complex, we believe we can achieve steady increases in rent approximating $1 to $2 million total per year as a result of our property renovation programs and increases in market rents already experienced in surrounding neighborhoods. In 2016, we experienced a 25.1% increase in rents on approximately 254 new leases in addition to a 3.4% annual increase in rents for renewing tenants. Average rent per square foot increased from $18.88 (94.4% occupancy) at December 31, 2013 to $19.69 (95.6% occupancy) at December 31, 2014 to $20.63 (97.0% occupancy) at December 31, 2015 and $21.52 at January 31, 2017 (97.1% occupancy). Since acquisition in 2005, the average rent per square foot has risen from approximately $13.25 to approximately $21.25, a 62% increase. As a result of the rent stabilization laws and regulations of New York City (including, in particular, a determination of the New York City Rent Guidelines Board in June 2016), effective for at least one year beginning October 1, 2016, increases for rent stabilized apartments, comprising approximately 46% of our apartments at our Flatbush Gardens property, will be limited to no increase for one-year leases and 2% for two-year leases.
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Business and Growth Strategies
Our primary business objective is to enhance stockholder value by increasing cash flow from operations and total return to stockholders. The strategies we intend to execute to achieve this goal include:
Increase Existing Below-Market Rents . We believe we can capitalize on the successful repositioning of our portfolio and improving market fundamentals to increase rents at several of our properties. At the 250 Livingston Street property, we have 294,144 square feet of leases with the City of New York that expire in August 2020, which have been remeasured according to REBNY standards to approximately 353,000 square feet and for which we believe we can achieve increases in rent similar to the increase achieved recently at nearby 141 Livingston Street, featuring a similar class of office space. We recently entered into a lease renewal and amendment agreement with the City of New York for a portion that expired on December 31, 2016, increasing GLA from the current 79,424 square feet at $21.50 per square foot to approximately 107,000 square feet at $40.00 per square foot, generating additional annual revenue of approximately $2.6 million. This lease terminates with the other lease expiring August 2020 presently covering 187,145 square feet at $20.68 per square foot. Should new leases be entered into at that time to the remeasured square feet of approximately 353,000 and rent of $50.00 per square foot (as indicated in the lease with the City of New York at our neighboring 141 Livingston Street property), we would realize additional aggregate annual rental revenue of approximately $9.4 million. We also believe that the significant growth in Downtown Brooklyn as a residential location offers a potential alternative to convert 250 Livingston Street and/or 141 Livingston Street to residential apartments, an activity for which management has demonstrated expertise. Our management will continue to evaluate alternative strategies for these buildings to maximize risk-adjusted returns to stockholders. At the Tribeca House properties, the buildings’ average rent of $68 per square foot is significantly below the average rent for other comparable Tribeca rentals in excess of $80 per square foot based on StreetEasy listings as of January 30, 2017. We believe we can achieve significant growth in rents over the next two to three years by improving service levels and quality of finishes in the buildings, and more efficiently managing the re-leasing process. We also believe that the average rental rate of approximately $49 per square foot under in-place leases for the retail portion of the Tribeca House properties is significantly below market, as evidenced by a lease we signed in July 2015 to rent our only then-vacant street-front retail space at the Tribeca House properties for $140 per square foot, a space that had been vacant since 2001. Two other leases comprising approximately 4,600 square feet expire in 2019. At the Flatbush Gardens complex, as a result of our renovation and repositioning strategy since 2006 and our intention to continue refurbishing the property, as well as improvements in the residential rental market in surrounding neighborhoods, we believe we can continue to improve tenant quality and increase rents, as demonstrated by the above-mentioned steady increase in aggregate rents per square foot and continued high occupancy levels. At the newly acquired Aspen property, we believe there is an opportunity to increase rents over one to three years for the units with no rental restrictions (approximately 55% of the units, representing 58.4% of the residential square footage) from the existing $38 per square foot closer to comparable rentals in the immediate neighborhood which on average are in excess of $50 per square foot, as measured by StreetEasy listings as of January 30, 2017 for doorman rentals eight blocks north, four blocks south and three blocks west of the Aspen property.
Disciplined Acquisition Strategy Focused on Premier Submarkets and Assets. Since 1979, David Bistricer has overseen the acquisition of multi-family residential and commercial properties, including our current portfolio, primarily in our targeted submarkets of New York City. We intend to continue our core strategy of acquiring, owning and operating multi-family residential rental and commercial properties within submarkets that have high barriers to entry, are supply-constrained, exhibit strong economic characteristics and have a pool of prospective tenants in various industries that have a strong demand for high-quality commercial space. We believe that owning assets within New York City, one of the best residential and commercial markets in the United States, will allow us to generate strong cash flow growth and attractive long-term returns. We will opportunistically pursue attractive opportunities to acquire multi-family residential and commercial properties, focusing our acquisition strategy primarily on multi-family residential properties in densely populated communities in the New York metropolitan area (primarily in Brooklyn and Manhattan) and, to a lesser extent, on commercial properties, where we will maintain a disciplined approach to ensure that our acquisitions meet our core strategy. Our strong balance sheet, access to capital and ability to offer operating partnership units in tax deferred acquisition transactions should give us significant flexibility in structuring and consummating acquisitions. We seek to acquire properties that will command premium rental rates and maintain higher occupancy levels than other properties in our markets. We are a highly active market participant that reviews numerous acquisition opportunities annually; however, we are highly selective in the properties that we ultimately acquire. We intend to strategically increase our market share in our existing submarkets and selectively enter into other submarkets in the New York City metropolitan area with similar characteristics. Our acquisition strategy will focus primarily on long-term growth and total return potential rather than short-term cash returns. We believe we can utilize our deep industry relationships and our expertise in redeveloping and repositioning both residential and commercial properties to identify acquisition opportunities where we believe we can increase occupancy and rental rates. Many of our Predecessor’s acquisitions were sourced on an off-market basis. As long-term owners and operators in our submarkets, we have a reputation among the broker community for moving expeditiously and for being a reliable counterparty.
Proactive Asset and Property Management. We believe our proactive, service-intensive approach to asset and property management helps increase occupancy and rental rates, manage operating expenses and maximize Adjusted EBITDA. We provide our own fully integrated asset and property management platform, which includes in-house legal, marketing, accounting, finance and leasing departments for our portfolio, and our own tenant improvement construction services. The development and retention of top-performing property management personnel have been critical to our success. We utilize our comprehensive building management services and our strong commitment to tenant relationships to negotiate attractive leasing deals and to attract and retain high credit-quality tenants.
Capital Program to Reposition Assets. We believe we can reposition our properties through a capital program to achieve rent growth in an expedited fashion. Together with the proceeds of this offering and our cash on hand, which at September 30, 2016 was $41.6 million, pro forma for the refinancing of Tribeca House debt on November 9, 2016 and refund of an acquisition deposit on November 14, 2016 (actual amount on that date was $82.1 million), we intend to set aside approximately $31 million to cover this program through 2018 (as well as to fund acquisitions of properties consistent with our strategy).
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Our Tribeca House properties will undergo an upgrade to common areas (media/conference room, game room, children’s room, basketball court and roof) and a redesign of our lobbies at a cost of approximately $5.0 million in 2016 and 2017—all with the goal of enhancing the experience of our renters as they first enter the building and utilize the common areas. To date, we have spent approximately $2.1 million on the common areas and lobbies project. Concurrently, we intend to redesign and replace floors, kitchens, lighting and appliances on the interior of apartments as new renters move in at a cost of approximately $4.2 million in 2017 and 2018, representing renovations of approximately 165 units, and approximately $1.5–$2.0 million per year thereafter, representing renovations of an average of 60 units per year. To date, we have spent approximately $4.9 million on apartment renovations. We expect the improved experience in common areas will support higher rents consistent with the rent levels in the neighborhood.
At our Flatbush Gardens apartment complex, which consists of 2,496 apartments in 59 buildings clustered around seven courtyards spread over 21.4 acres, we expect to undertake a significant modernization program. We have undertaken and expect to continue projects to landscape and waterproof a significant terrace area and refurbish a number of lobbies, stairwells and windows for tenant enjoyment, to upgrade outdoor lighting and install a comprehensive security camera network for enhanced security and to refurbish basement areas for installation of revenue generating laundry facilities and storage units at a cost of approximately $12.4 million in 2016 and 2017. Supported by these improvements to common areas, we then may perform substantial upgrades to an increasing number of apartments (floors, windows and appliances), which may cost approximately $3.8 million for up to 125 units in 2016 and 2017 in addition to more routine refurbishments of $1.7 million to up to 335 units. To date, we have spent approximately $10.9 million on the terrace and common areas improvements, and approximately $2.0 million on apartment renovations.
Our 141 Livingston Street property will have approximately $4.1 million of improvements in accordance with the new lease with the City of New York described above that has increased our rent from approximately $3.3 million per annum to approximately $8.2 million per annum. In addition, we expect to spend approximately $2.6 million to modernize elevators, replace a boiler and roof and install a modern building management system. To date, we have spent approximately $500,000 on improvements required in accordance with the new lease with the City of New York, and approximately $701,000 on elevator, boiler and roof upgrades. At our 250 Livingston Street property we expect to renovate the facade and entrance and build new penthouses at a cost of approximately $3.1 million. Lastly, at our Aspen property, while the building is relatively new, the Company presently expects to spend a minimum of $1 million to improve certain finishes of the property.
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Private Offering and Formation Transactions
In August 2015, we issued and sold 10,666,667 shares of our common stock, $0.01 par value per share, at an offering price of $13.50 per share, to various institutional investors, accredited investors and offshore investors, in reliance upon exemptions from registration provided by Rule 144A and Regulation S and pursuant to Regulation D under the Securities Act. 1,000,000 of the shares in the private offering were sold directly by us to members of our management and board of directors, and their friends, family members and affiliates. We received approximately $130.2 million of net proceeds from the private offering.
In connection with the private offering, we consummated the following formation transactions:
· | We formed our operating partnership as a Delaware limited partnership, of which we are the sole general partner. The holders of LTIP units, discussed below, are the initial limited partners of our operating partnership. |
· | We invested the net proceeds from the private offering in our operating partnership and our operating partnership invested such proceeds in the predecessor entities in consideration for class A LLC units in each predecessor entity. Our operating partnership became the managing member of each of our predecessor entities. |
As a result, we acquired an indirect ownership interest in the Company’s initial portfolio of properties (which continue to be owned by the predecessor entities) and have the exclusive power under our predecessor entities’ limited liability company agreements to manage and conduct the business and affairs of those entities and their properties through our operating partnership, subject to certain limited approval and voting rights of the other members, which are described more fully below in “Description of the Limited Liability Company Agreements of Our LLC Subsidiaries.” Our operating partnership’s interest in our predecessor entities generally entitles the operating partnership to all cash distributions from, and the profits and losses of, our predecessor entities other than the preferred distribution to class B LLC unit holders described below. Accordingly, our share of any distribution from any particular predecessor entity may differ from our share of distributions from other predecessor entities and from one distribution to another, based on the amount distributed by each predecessor entity.
· | Prior to the contribution by our operating partnership described above, our predecessor entities distributed approximately $15 million of available unrestricted cash to the continuing investors. |
· | The continuing investors had their LLC interests in the predecessor entities converted into class B LLC units in the predecessor entities. The class B LLC units entitle the holders to a preferred distribution equal to the lesser of (i) the per OP unit distribution paid by our operating partnership or (ii) a pro rata share (determined for this purpose without regard to any class A LLC units held by our operating partnership) of all of the cash flow of the applicable predecessor entity. The operating partnership, as the holder of class A LLC units in each of the predecessor entities, is entitled to the entire remaining distribution from each predecessor entity. The class B LLC units are exchangeable, together with one share of our special voting stock, for an amount of cash equal to the fair market value of a share of our common stock or, at our election, one share of our common stock, subject to certain adjustments and restrictions. In addition, we issued to one continuing investor 755,939 shares of our common stock. See “Description of the Limited Liability Company Agreements of Our LLC Subsidiaries.” |
The following table sets forth the number of shares of common stock and class B LLC units issued to our continuing investors attributable to the respective properties, debt attributable to the contributed properties as of August 3, 2015, and implied contribution value as of that date:
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Total Shares of
Common Stock and Class B LLC Units |
Value of Shares of
Common Stock and LLC Units at the Offering Price ($13.50/share) |
Plus: Debt
Assumed |
Implied
Contribution Value |
|||||||||||||
Tribeca House | 7,393,333 | $ | 99,809,996 | $ | 460,000,000 | $ | 559,809,996 | |||||||||
Flatbush Gardens | 8,753,335 | 118,170,023 | 170,000,000 | 288,170,023 | ||||||||||||
141 Livingston | 6,540,000 | 88,290,000 | 55,000,000 | 143,290,000 | ||||||||||||
250 Livingston | 4,386,667 | 59,220,005 | 36,000,808 | 95,220,813 | ||||||||||||
Total Contributed Properties | 27,073,335 | $ | 365,490,024 | $ | 721,000,808 | $ | 1,086,490,832 |
· | We issued a number of shares of our special voting stock to our continuing investors equal to the number of class B LLC units issued to them. Our special voting stock is a series of voting stock that does not share in any distributions to our stockholders, including distributions upon our liquidation, dissolution or winding up, but gives the holder thereof one vote per share on all matters on which our common stockholders vote (other than certain matters relating to special election meetings, as described in this prospectus). The special voting stock permits our continuing investors to vote in accordance with their economic interests, as if they had exchanged their class B LLC units for shares of our common stock. |
· | Our operating partnership formed Clipper TRS. We jointly elected with Clipper TRS for Clipper TRS to be treated as a taxable REIT subsidiary under the Code for U.S. federal income tax purposes. Clipper TRS and/or its wholly owned subsidiaries may provide certain services to the tenants of our properties. |
· | We granted to members of our senior management team a total of 290,002 LTIP units, and to our non-employee directors a total of 105,001 LTIP units, all of which are subject to certain vesting requirements. The LTIP units represent profits interests in our operating partnership, which are exchangeable for OP units in our operating partnership upon reaching capital account parity with OP units. |
· | We granted a total of 16,666 LTIP units to two Clipper employees (who are not members of our senior management team), all of which are subject to certain vesting requirements and represent less than a 0.1% ownership interest in our company on a fully diluted basis. |
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· | We entered into a tax protection agreement with our continuing investors pursuant to which we agreed to indemnify the continuing investors against certain tax liabilities incurred during the 8-year period following the private offering (or with respect to item (iv) below, certain tax liabilities resulting from certain transfers occurring during the 8-year period following the private offering) if those tax liabilities result from (i) the sale, transfer, conveyance or other taxable disposition of any of the properties of our LLC subsidiaries, (ii) any of Renaissance, Berkshire or Gunki failing to maintain a level of indebtedness allocable for U.S. federal income tax purposes to any of the continuing investors such that any of the continuing investors is allocated less than a specified minimum indebtedness in each such LLC subsidiary (in order to comply with this requirement, (1) Renaissance needs to maintain approximately $101.3 million of indebtedness, (2) Berkshire needs to maintain approximately $125.8 million of indebtedness and (3) Gunki needs to maintain approximately $34.4 million of indebtedness), (iii) in a case that such level of indebtedness cannot be maintained by the applicable LLC subsidiary, failing to make available to such a continuing investor the opportunity to execute a guarantee of indebtedness of the LLC subsidiary meeting certain requirements that would enable the continuing investor to continue to defer certain tax liabilities, or (iv) the imposition of New York City or New York State real estate transfer tax liability upon a continuing investor as a result of the formation transactions, private offering, this offering and/or certain subsequent transactions (including subsequent issuances of additional LLC units or interests, issuances of OP units by the operating partnership, issuances of common stock by Clipper Realty, issuances of common stock in exchange for class B LLC units or dispositions of property by any LLC subsidiary), or as a result of any of those transfers being aggregated. See “Risk Factors—Risks Related to Real Estate.” We estimate that had all of their assets subject to the tax protection agreement been sold in a taxable transaction immediately after the private offering, the amount of our LLC subsidiaries’ indemnification obligations under the tax protection agreement (based on then current tax rates and the valuations of our assets based on the private offering price of $13.50 per share, and including additional payments to compensate the indemnified continuing investors for additional tax liabilities resulting from the indemnification payments) would have been approximately $364.9 million. In addition, we estimate that if New York City or New York State real estate transfer taxes had been imposed on our continuing investors, the maximum amount of our LLC subsidiaries’ indemnification obligations pursuant to the tax protection agreement in respect of New York City or New York State real estate transfer tax liability (based on then current tax rates and the valuations of our assets based on the private offering price of $13.50 per share, and including additional payments to compensate the indemnified continuing investors for additional tax liabilities resulting from the indemnification payments) would have been approximately $74.9 million (although the amount may have been significantly less). We do not presently intend to sell or take any other action that would result in a tax protection payment with respect to the properties covered by the tax protection agreement. |
· | All of the previous employees of our Predecessor’s management companies who spent a majority of their time on matters related to the properties in our portfolio became our employees. We entered into two services agreements with entities that own interests in the non-contributed properties and businesses. One of these agreements is a services agreement under which the non-contributed properties and businesses continue to provide us with the services they previously provided to the properties in our portfolio and one is a services agreement with the non-contributed properties and businesses pursuant to which our employees continue to provide the services they previously provided for those non-contributed properties and businesses. We expect that the net amount paid by or to us under these agreements will not exceed $120,000 per year. See “Certain Relationships and Related Party Transactions—Non-Contributed Properties and Businesses.” |
· | As a result of the formation transactions and the private offering, as of September 30, 2016, we had approximately $732.6 million (or $723.1 million on a pro forma basis, giving effect to the refinancing of Tribeca House debt on November 9, 2016 and the refund of an acquisition deposit on November 14, 2016) of total net debt, before debt issuance costs. |
The completion of the private offering and the formation transactions resulted in material benefits to our senior management team, our directors and our continuing investors, including the following (all amounts are based on an initial public offering price of $14.50 per share, which is the midpoint of the price range set forth on the front cover of this prospectus):
· | David Bistricer, our Co-Chairman and Chief Executive Officer, beneficially owns 12.5% of our common stock on a fully diluted basis and 12.2% of the voting power in our company (10.6% and 10.3%, respectively, immediately following completion of this offering, or 10.3% and 10.0%, respectively, if the underwriters exercise their option to purchase additional shares in full), with a total value of approximately $69.3 million, represented by 4,278,058 class B LLC units, 4,278,058 shares of special voting stock, and 185,186 LTIP units (including LTIP units awarded in 2016) and 318,262 shares of our common stock purchased in the private offering. |
· | Sam Levinson, our Co-Chairman and the Head of our Investment Committee, beneficially owns 22.3% of our common stock on a fully diluted basis and 22.3% of the voting power in our company (18.9% and 18.8%, respectively, immediately following completion of this offering, or 18.4% and 18.4%, respectively, if the underwriters exercise their option to purchase additional shares in full), with a total value of approximately $123.7 million, represented by 1,119,415 shares of our common stock, 7,296,279 class B LLC units, 7,296,279 shares of special voting stock and 115,742 LTIP units (including LTIP units awarded in 2016). This amount includes shares of our common stock, class B LLC units and shares of special voting stock held by entities in which Mr. Levinson is the managing member. |
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· | Lawrence E. Kreider, our Chief Financial Officer, beneficially owns 0.2% of our common stock on a fully diluted basis (0.1% immediately following completion of this offering, or 0.1% if the underwriters exercise their option to purchase additional shares in full), with a total value of approximately $837,795, represented by 57,779 LTIP units (including LTIP units awarded in 2016). |
· | JJ Bistricer, our Chief Operating Officer, beneficially owns 0.2% of our common stock on a fully diluted basis (0.1% immediately following completion of this offering, or 0.1% if the underwriters exercise their option to purchase additional shares in full), with a total value of $918,343, represented by 63,334 LTIP units (including LTIP units awarded in 2016). |
· | Jacob Schwimmer, our Chief Property Management Officer, beneficially owns 6% of our common stock on a fully diluted basis and 5.8% of the voting power in our company (5% and 5%, respectively, immediately following completion of this offering, or 4.9% and 4.8%, respectively, if the underwriters exercise their option to purchase additional shares in full), with a total value of approximately $33.1 million, represented by 2,188,334 class B LLC units, 2,188,334 shares of special voting stock, 57,779 LTIP units and 35,000 shares of our common stock. |
· | We entered into employment agreements with David Bistricer, Lawrence Kreider, JJ Bistricer and Jacob Schwimmer providing for salary, bonus and other benefits, including certain payments and benefits upon a termination of employment under certain circumstances and the issuance of equity awards. Under those employment agreements, each of David Bistricer, JJ Bistricer and Jacob Schwimmer is required to spend such time on matters relating to our company as is appropriate and Lawrence Kreider is required to spend all of his working time on matters relating to our company. See “Management—Employment Agreements.” |
· | We entered into indemnification agreements with our directors and executive officers providing for the indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against such persons in their capacities with us and our subsidiaries. |
· | We entered into the tax protection agreement and the services agreements described above. |
· | David Bistricer and entities controlled by Sam Levinson were released from and otherwise indemnified for liabilities arising under certain guarantees and indemnities with respect to approximately $721.1 million of mortgage loans on our properties, which were assumed by us upon closing of the formation transactions in respect of obligations arising after the closing of the private offering. The guarantees and indemnities with respect to all of the indebtedness are, in most instances, limited to losses incurred by the applicable lender arising from acts such as fraud, misappropriation of funds, intentional breach, bankruptcy and certain environmental matters. In connection with our assumption of these mortgage loans, we have sought to have the guarantors and indemnitors released from these guarantees and indemnities and to have our operating partnership assume any such guarantee and indemnity obligations as replacement guarantor or indemnitor. To the extent lenders did not consent to the release of these guarantors and indemnitors, and they remain guarantors or indemnitors on assumed indebtedness following the private offering, our operating partnership entered into indemnification agreements with the guarantors and indemnitors pursuant to which our operating partnership is obligated to indemnify such guarantors and indemnitors for any amounts paid by them under guarantees and indemnities with respect to the assumed indebtedness. We believe that since we control the properties, it is appropriate, and consistent with market practice, for Mr. Bistricer and entities controlled by Mr. Levinson to be indemnified by our operating partnership to the extent the lenders did not consent to the release of these guarantors and indemnitors. In addition, in connection with future mortgage loans that we would enter into in connection with future property acquisitions or refinancing of our properties, we intend to enter into any necessary guarantees directly and neither Mr. Bistricer and entities controlled by Mr. Levinson nor any of our other directors, executive officers or stockholders would be expected to enter into such guarantees. |
· | We entered into a continuing investors registration rights agreement with certain persons receiving shares of our common stock and class B LLC units in the formation transactions, including certain members of our senior management team and the other continuing investors. The continuing investors registration rights agreement provides for the registration of such shares of common stock and shares of common stock that are issuable upon the exchange of class B LLC units. |
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Our Structure
The following diagram depicts our ownership structure following the formation transactions, the private offering and the recent Aspen acquisition and prior to the completion of this offering.
(1) | Purchasers of shares of our common stock in the private offering (including the selling stockholders) currently own 84.3% of our outstanding common stock. Continuing investors currently own the remaining 15.7% of our outstanding common stock. Immediately following this offering, the purchasers in the private offering (excluding continuing investors) and the public stockholders will collectively own 90.3% of our outstanding common stock (90.8% if the underwriters exercise their option to purchase additional shares in full). |
Continuing investors own 74.4% of our common stock on a fully diluted basis. Immediately following this offering, the continuing investors will own 62.9% of our common stock on a fully diluted basis (61.5% if the underwriters exercise their option to purchase additional shares in full).
Continuing investors currently own shares of our special voting stock giving them one vote per share on all matters on which our stockholders vote (other than certain matters relating to special election meetings, as described in this prospectus) for each class B LLC unit held by them, subject to certain adjustments and restrictions, meaning that such continuing investors currently generally have 74.8% of the voting power in our company. Immediately following this offering, the continuing investors generally will have 62.8% of the voting power in the company (61.4% if the underwriters exercise their option to purchase additional shares in full).
For additional information, see “Security Ownership of Certain Beneficial Owners and Management.”
(2) | We also have 132 shares of series A preferred stock issued and outstanding. |
(3) | The operating partnership’s interests in the predecessor entities entitle the operating partnership to receive approximately 31.2% of the aggregate distributions from our predecessor entities (41.8% immediately following this offering). The continuing investors own an aggregate amount of 26,317,396 class B LLC units, representing 68.8% of our common stock on a fully diluted basis (58.2% immediately following this offering). Our share and any continuing investor’s share of any distribution from any particular predecessor entity may differ from our share and that continuing investor’s share (if any) of distributions from other predecessor entities and from one distribution to another, based on the amount distributed by each predecessor entity. |
(4) | Indirectly held through Aspen 2016 LLC, of which Clipper Realty L.P. is the sole member. |
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Private Offering of Series A Preferred Stock
On January 28, 2016, we completed an offering of 132 shares of 12.5% Series A Cumulative Non-Voting Preferred Stock in a private offering pursuant to Regulation D under the Securities Act. Each share of series A preferred stock was sold for $1,000 and our net proceeds from this private offering were $109,500, which will be used for general corporate purposes. We sold the series A preferred stock in order to assist us in qualifying as a REIT by satisfying the 100 holder requirement under the REIT rules.
Refinancing of Tribeca House Debt
On November 9, 2016, the Company refinanced $460 million of loans due November 2016 secured by the Tribeca House property with a loan package comprising a $335 million mortgage and a $75 million mezzanine note agreement. The loans bear a combined interest rate of one-month LIBOR plus 3.75%, mature on November 9, 2018 and are subject to three one-year extension options.
Summary Risk Factors
An investment in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed under “Risk Factors” prior to making an investment in our common stock. The following is a list of some of these risks.
· | Unfavorable market and economic conditions in the United States, globally, and in the New York metropolitan area could adversely affect occupancy levels, rental rates, rent collections, operating expenses and the overall market value of our assets, impair our ability to sell, recapitalize or refinance our assets and have an adverse effect on our results of operations, financial condition and our ability to make distributions to our stockholders. |
· | All of our properties are located in New York City and adverse economic or regulatory developments in this area could negatively affect our results of operations, financial condition and ability to make distributions to our stockholders. |
· | We may be unable to renew leases or lease currently vacant space or vacating space on favorable terms or at all as leases expire, which could adversely affect our financial condition, results of operations and cash flow. |
· | Competition could limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities, which may adversely affect us, including our profitability, and impede our growth. |
· | We may from time to time be subject to litigation, which could have an adverse effect on our financial condition, results of operations, cash flow and the market value of our common stock. |
· | Present or future rent stabilization regulations may limit our ability to raise rents above specified maximum amounts and could give rise to claims by tenants that their rents exceed such specified maximum amounts. |
· | We depend on key personnel, including David Bistricer, our Co-Chairman and Chief Executive Officer, and the loss of services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business and diminish our investment opportunities, which could negatively affect our financial condition, results of operations, cash flow and the market value of our common stock. |
· | Our continuing investors (who include David Bistricer, our Co-Chairman and Chief Executive Officer, Sam Levinson, our Co-Chairman and the Head of our Investment Committee and Jacob Schwimmer, our Chief Property Management Officer) generally have the ability to exercise 74.8% of the voting power in our company prior to this offering, which means the continuing investors are able to significantly influence the composition of our board of directors, the approval of actions requiring stockholder approval, and our management, business plan and policies. |
· | Our stockholders’ ability to control our policies and effect a change of control of our company is limited by certain provisions of our charter and bylaws and by Maryland law. |
· | We have a substantial amount of indebtedness that may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs. |
· | Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our common stock. |
· | REIT distribution requirements could adversely affect our liquidity and ability to execute our business plan. |
Investment Policy
We will generally target wholly-owned multi-family and commercial properties located in the New York metropolitan area; however, we may also make majority or minority investments alongside partners.
Clipper Equity owns interests in and controls and manages entities that own interests in multi-family and commercial properties in the New York metropolitan area. Each of David Bistricer, our Co-Chairman and Chief Executive Officer, and JJ Bistricer, our Chief Operating Officer, is an officer of Clipper Equity and will continue to be involved in such capacity with Clipper Equity. Each of Sam Levinson, our Co-Chairman and the Head of our Investment Committee, and Jacob Schwimmer, our Chief Property Management Officer, have ownership interests in Clipper Equity and will continue to be involved in such capacity with Clipper Equity.
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We have adopted an Investment Policy that provides that our directors and officers, including officers involved with Clipper Equity, will not invest in any multi-family or commercial property (other than excluded assets) located in the metropolitan New York City area, unless the investment opportunity is first offered to our company and our board of directors (or an independent committee of our board of directors) determines that our company will not pursue the investment opportunity. Our officers and directors, including each of David Bistricer, Sam Levinson, JJ Bistricer and Jacob Schwimmer, can pursue investment opportunities related to excluded assets which include (i) for-sale condominium or cooperative conversion or development projects, (ii) projects that would require us to obtain guarantees from third parties or to backstop obligations of other parties, or (iii) land acquisitions, without first offering them to our company. Our charter provides that we renounce any interest or expectancy in, or right to be offered or to participate in, any business opportunity identified in any investment policy (including the Investment Policy) or agreement with any of our directors or officers unless the policy or agreement contemplates that the director or officer must present, communicate or offer such business opportunity to us. See “Certain Provisions of Maryland Law and Clipper Realty’s Charter and Bylaws—Competing Interests and Activities of our Directors and Officers.”
Our Tax Status
We have elected to be treated and to qualify as a REIT for U.S. federal income tax purposes beginning with our first taxable year ended December 31, 2015. We have been organized and operate in conformity with the requirements for qualification and taxation as a REIT under the Code, and our manner of operation has enabled us to meet the requirements for qualification and taxation as a REIT commencing with our taxable year ended December 31, 2015 and thereafter. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute at least 90% of our taxable income to our stockholders, computed without regard to the dividends paid deduction and excluding our net capital gain, plus 90% of our net income after tax from foreclosure property (if any), minus the sum of various items of excess non-cash income.
In any year in which we qualify as a REIT, we generally will not be subject to U.S. federal income tax on that portion of our taxable income or capital gain that is distributed to stockholders. If we lose our REIT status, and the statutory relief provisions of the Code do not apply, we will be subject to entity-level income tax, including any applicable alternative minimum tax, on our taxable income at regular U.S. corporate tax rates. Even if we qualify as a REIT, we will be subject to certain U.S. federal, state and local taxes on our income and property and on taxable income that we do not distribute to our stockholders. In addition, Clipper TRS will be subject to U.S. federal, state and local income tax on its taxable income. See “Material U.S. Federal Income Tax Consequences.”
Restrictions on Ownership of Our Capital Stock
Due to limitations on the concentration of ownership of REIT stock imposed by the Code, among other reasons, our charter generally prohibits any person from actually, beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock or 9.8% of the aggregate value of all our outstanding stock. We refer to these restrictions as the “ownership limit.” Our charter permits our board of directors, in its sole and absolute discretion, to exempt a person, prospectively or retroactively, from the ownership limit if, among other conditions, the person’s ownership of our stock in excess of the ownership limit could not cause us to fail to qualify as a REIT. Our charter contains certain other limits on beneficial and constructive ownership and transfer of our stock. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”
Distribution Policy
To qualify as a REIT, we must distribute annually to our stockholders an amount at least equal to 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to income tax on our taxable income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income are not distributed by specified dates. See “Material U.S. Federal Income Tax Consequences.” Income as computed for purposes of the foregoing tax rules will not necessarily correspond to our income as determined for financial reporting purposes. Accordingly, we generally expect to distribute a significant percentage of our available cash to holders of our common stock.
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On December 4, 2015, we paid a cash dividend of $0.043333 per share (totaling $494,976) and on each of March 11, June 3, September 2 and December 2, 2016, we paid a cash dividend of $0.065 per share (each totaling $742,469). Any future distributions we make will be at the discretion of our board of directors and will depend on a number of factors, including prohibitions or restrictions under financing agreements or applicable law and other factors described below. See “Distribution Policy.”
We cannot assure you that our board of directors will not change our distribution policy in the future. Any distributions we pay in the future will depend upon our actual results of operations, liquidity, cash flows, financial condition, economic conditions, debt service requirements and other factors that could differ materially from our current expectations. Our actual results of operations, liquidity, cash flows and financial condition will be affected by a number of factors, including the revenue we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our ability to pay dividends and make other distributions to our stockholders, see “Risk Factors.”
Registration Rights Agreement and Selling Stockholders
Pursuant to the registration rights agreement entered into in connection with the private offering, as amended, we are required, among other things, to use our commercially reasonable efforts to cause a shelf registration statement registering for resale the registrable shares (as defined in the registration rights agreement) that are not sold by the selling stockholders in this offering, to be declared effective by the SEC as soon as practicable (but in no event later than the earlier of (i) January 31, 2017 and (ii) 60 days after the closing of this offering; provided that if this offering occurs within the 60 days prior to January 31, 2017, such date shall be 60 days after the closing of the initial public offering of our common stock). See “Description of Capital Stock—Registration Rights.”
Pursuant to, and subject to the terms and conditions of, the registration rights agreement, persons who purchased shares of our common stock in the private offering and their transferees have the right to sell their shares of our common stock in this offering, subject to customary terms and conditions including underwriter cutback rights. We are including 109,851 shares of our common stock in this offering to be sold by the selling stockholders identified in this prospectus under “Selling Stockholders.” We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company,” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company, among other things:
· | we are exempt from the auditor attestation requirement in the assessment of our internal control over financial reporting; |
· | we are permitted to provide less extensive disclosure about our executive compensation arrangements; |
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· | we are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements; and |
· | we have elected to use an extended transition period for complying with new or revised accounting standards. |
We may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us as long as we qualify as an “emerging growth company.” We will, in general, qualify as an “emerging growth company” until the earliest of:
· | the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement; |
· | the last day of our fiscal year in which we have annual gross revenue of $1.0 billion or more; |
· | the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and |
· | the date on which we are deemed to be a “large accelerated filer,” which will occur after we first meet the following conditions as of the end of our fiscal year: (1) we have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (2) we have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (3) we have filed at least one annual report pursuant to the Exchange Act. |
Company Information
As of November 25, 2016, we had approximately 180 employees. Our principal executive offices are located at 4611 12 th Avenue, Brooklyn, New York 11219. Our telephone number is (718) 438-2804. Our website address is www.clipperrealty.com. The information on, or otherwise accessible through, our website does not constitute a part of this prospectus.
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Common stock offered by us | 7,000,000 shares | |
Common stock offered by the selling stockholders | 109,851 shares | |
Common stock outstanding immediately after this offering | 18,422,606 shares (19,489,076 shares if the underwriters exercise their option to purchase additional shares in full) (1) | |
Offering price | $14.50 per share of common stock (midpoint of the price range set forth on the front cover page of this prospectus) | |
Use of proceeds |
We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us, will be approximately $91.4 million, based on the mid-point of the price range set forth on the front cover page of this prospectus ($105.8 million if the underwriters exercise their option to purchase additional shares in full). We intend to use all or a portion of the net proceeds of this offering, together with cash on hand, which was $41.6 million at September 30, 2016, pro forma for the refinancing of Tribeca House debt on November 9, 2016 and refund of an acquisition deposit on November 14, 2016 (actual amount as of that date was $82.1 million), to (i) fund approximately $46 million of certain capital improvements to reposition and modernize our properties, including the Columbia Heights property and (ii) fund acquisitions of properties consistent with our strategy of acquiring multi-family or commercial properties in the New York metropolitan area, including the Columbia Heights acquisition. Pending application of the net proceeds, we will invest the net proceeds in short-term, interest-bearing securities that are consistent with our election to be taxed as a REIT for U.S. federal income tax purposes. Such investments may include obligations of the Government National Mortgage Association, other government agency securities, certificates of deposit, and interest-bearing bank deposits.
We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders.
See “Use of Proceeds.” |
(1) | Excludes (i) an aggregate of 26,317,396 shares of our common stock that we may issue in exchange for class B LLC units outstanding, (ii) an aggregate of 380,744 shares of our common stock underlying LTIP units we have granted to our executive officers and certain of our employees pursuant to our 2015 Omnibus Plan, (iii) an aggregate of 120,743 shares of our common stock underlying LTIP units we have granted to our non-employee directors pursuant to our 2015 Director Plan, (iv) 619,256 shares of our common stock reserved for future issuance under our 2015 Omnibus Plan, and (v) 229,257 of our common stock reserved for future issuance under our 2015 Director Plan. |
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Proposed NYSE symbol | “CLPR” | |
Ownership and transfer restrictions | To assist us in qualifying as a REIT, among other purposes, our charter generally limits beneficial ownership by any person to no more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock or 9.8% of the aggregate value of all our outstanding stock. In addition, our charter contains various other restrictions on the ownership and transfer of shares of our stock. See “Description of Capital Stock—Restrictions on Ownership and Transfer.” | |
Risk factors | Investing in our common stock involves a high degree of risk. For a discussion of factors you should consider in making an investment, see “Risk Factors” beginning on page 25. |
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Summary Selected Historical and Pro Forma Financial Data
Clipper Realty Inc. (the “Company” or “We”) was incorporated under the laws of the state of Maryland on July 7, 2015. On August 3, 2015, we completed certain formation transactions and the sale of shares of our common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLCs”) that comprise the Predecessor, as described below, in exchange for class A LLC units in such LLCs and became the managing member of each LLC. The owners of the LLCs exchanged their interests for class B LLC units and an equal number of shares of our non-economic, special voting stock of the Company. The class B LLC units (together with the shares of our special voting stock) are convertible into shares of our common stock and are entitled to distributions pursuant to the limited liability company agreements of the LLCs.
The Predecessor was a combination of the four LLCs, including one formed in 2014 in connection with the acquisition of the Tribeca House properties on December 15, 2014. The Predecessor did not represent a legal entity. The LLCs that comprised the Predecessor and the Company at formation were under common control.
As more fully described elsewhere in this prospectus, on June 27, 2016, we acquired the Aspen property. As a result, as of September 30, 2016, our properties included the following five properties:
· | Tribeca House properties in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 480,000 square feet of residential rental GLA and 77,236 of rental retail and parking GLA; |
· | Flatbush Gardens in Brooklyn, a 59-building multi-family housing complex with 2,496 rentable units; |
· | 141 Livingston Street in Brooklyn, a 15-story office building with approximately 216,073 square feet of GLA; |
· | 250 Livingston Street in Brooklyn, a 12-story office and residential building with approximately 294,378 square feet of GLA; and |
· | the Aspen property located at 1955 1 st Avenue, New York, NY, a 7 story residential and retail rental building with 186,602 square feet of GLA. |
Following completion of the private offering and the formation transactions, the operations of the Company have been carried on primarily through the Operating Partnership. The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprise the Predecessor.
The Company has elected to be treated, commencing with its 2015 tax year, and intends to continue to qualify as, a REIT for U.S. federal income tax purposes. The following table shows the summary selected consolidated historical and pro forma financial data for the Predecessor and the Company for the periods indicated. You should read the summary selected historical and pro forma financial data in conjunction with the more detailed information contained in the financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus. As disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Accounting Policies,” real estate assets held for investment are carried at historical cost.
The Company’s and the Predecessor’s historical consolidated and combined balance sheet data as of December 31, 2015 and 2014 and consolidated and combined statements of operations data for the years ended December 31, 2015 and 2014 have been derived from historical financial statements audited by our independent auditors, whose report with respect thereto is included elsewhere in this prospectus. The Company’s and the Predecessor’s consolidated and combined balance sheet data as of September 30, 2016 and 2015 and consolidated and combined statements of operations data for the nine months ended September 30, 2016 and 2015 have been derived from unaudited financial statements. The unaudited consolidated and combined financial statements have been prepared on a basis consistent with the annual audited consolidated and combined financial statements. In the opinion of management, the unaudited financial data reflect all adjustments, consisting of only normal and recurring adjustments considered necessary for a fair presentation of the operating results for those interim periods. The operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
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The summary selected pro forma consolidated and combined results of operations data for the nine months ended September 30, 2016 and the year ended December 31, 2015 give effect to this offering, the formation transactions and the private offering of August 3, 2015, the acquisition of the Aspen property and additional borrowings and repayments as if each had occurred at the beginning of the respective periods for the operating data and as of the stated date for the balance sheet data. The pro forma data is not necessarily indicative of what our actual financial position and results of operations would have been as of September 30, 2016 and December 31, 2015 or for the nine months ended September 30, 2016 and the year ended December 31, 2015, nor does it purport to represent our future financial position or results of operations.
(Dollars,
share and Class B LLC units
in thousands) |
||||||||||||||||||||||||
Nine months ended September 30, | Years ended December 31, | |||||||||||||||||||||||
Consolidated Statement of Operations |
Pro Forma
2016 |
2016 | 2015 |
Pro Forma
2015 |
2015 | 2014 | ||||||||||||||||||
Residential rental income | $ | 51,901 | $ | 49,405 | $ | 45,596 | $ | 65,907 | $ | 60,784 | $ | 31,413 | ||||||||||||
Commercial rental income | 14,444 | 13,843 | 13,042 | 18,489 | 17,256 | 12,382 | ||||||||||||||||||
Tenant recoveries | 2,988 | 2,969 | 2,651 | 3,514 | 3,477 | 2,415 | ||||||||||||||||||
Garage and other income | 2,594 | 2,550 | 2,315 | 3,175 | 3,087 | 1,562 | ||||||||||||||||||
Total revenues | 71,927 | 68,767 | 63,604 | 91,085 | 84,604 | 47,772 | ||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Property operating expenses | 19,659 | 18,885 | 17,691 | 24,855 | 23,283 | 19,673 | ||||||||||||||||||
Real estate taxes and insurance | 13,372 | 13,023 | 10,904 | 15,645 | 14,926 | 6,560 | ||||||||||||||||||
General and administrative | 6,317 | 6,317 | 3,266 | 6,870 | 5,296 | 2,358 | ||||||||||||||||||
Acquisition costs | – | 407 | – | – | 75 | 326 | ||||||||||||||||||
Depreciation and amortization | 12,095 | 10,646 | 9,656 | 14,594 | 12,521 | 4,472 | ||||||||||||||||||
Total operating expenses | 51,443 | 49,278 | 41,517 | 61,964 | 56,101 | 33,389 | ||||||||||||||||||
Income from operations | 20,484 | 19,489 | 22,087 | 29,121 | 28,503 | 14,383 | ||||||||||||||||||
Interest expense, net | (25,461) | (28,749 | ) | (27,728 | ) | (34,176) | (36,703 | ) | (9,145 | ) | ||||||||||||||
Net (loss) income | (4,977) | (9,260 | ) | $ | (5,641 | ) | (5,055) | (8,200 | ) | $ | 5,238 | |||||||||||||
Net loss attributable to Predecessor and non-controlling interests | 2,927 | 6,457 | 5,051 | 2,973 | 6,835 | |||||||||||||||||||
Dividends attributable to preferred shares | (12) | (11 | ) | (17) | – | |||||||||||||||||||
Net loss attributable to common stockholders | $ | (2,062) | $ | (2,814 | ) | $ | (590 | ) | $ | (2,099) | $ | (1,365 | ) | |||||||||||
Basic and diluted loss per share | $ | (0.12) | $ | (0.25 | ) | $ | (0.05 | ) | $ | (0.12) | $ | (0.12 | ) | |||||||||||
Weighted average per share / Class B LLC unit information: | ||||||||||||||||||||||||
Common shares outstanding | 18,423 | 11,423 | 11,423 | 18,423 | 11,423 | |||||||||||||||||||
Class B LLC units outstanding | 26,317 | 26,317 | 26,317 | 26,317 | 26,317 | |||||||||||||||||||
44,740 | 37,740 | 37,740 | 44,740 | 37,740 | ||||||||||||||||||||
Cash flow data | ||||||||||||||||||||||||
Operating activities | $ | 5,253 | $ | 5,722 | $ | 9,440 | $ | 7,472 | ||||||||||||||||
Investing activities | (130,833 | ) | (6,360 | ) | (9,025 | ) | (226,822 | ) | ||||||||||||||||
Financing activities | $ | 82,349 | $ | 118,446 | $ | 115,760 | $ | 224,707 | ||||||||||||||||
Non-GAAP measures | ||||||||||||||||||||||||
FFO (1) | $ | 7,118 | $ | 1,386 | $ | 4,015 | $ | 9,539 | $ | 4,321 | $ | 9,710 | ||||||||||||
AFFO (1) | 11,007 | 6,773 | 7,352 | 14,754 | 9,247 | 8,266 | ||||||||||||||||||
Adjusted EBITDA (2) | $ | 34,472 | $ | 32,202 | $ | 31,792 | $ | 45,934 | $ | 41,531 | $ | 18,482 | ||||||||||||
Balance sheet data | ||||||||||||||||||||||||
Investment in real estate, net | $ | 821,466 | $ | 821,466 | $ | $ | 726,107 | $ | 728,744 | |||||||||||||||
Cash and cash equivalents | 133,001 | 82,101 | 125,332 | 9,157 | ||||||||||||||||||||
Restricted cash | 14,196 | 14,196 | 9,962 | 5,876 | ||||||||||||||||||||
Total assets | 999,009 | 963,109 | 881,118 | 766,856 | ||||||||||||||||||||
Notes payable, net of unamortized debt costs | 752,861 | 807,893 | 713,440 | 708,228 | ||||||||||||||||||||
Total liabilities | 776,920 | 831,952 | 734,741 | 729,659 | ||||||||||||||||||||
Stockholders’ equity | 91,450 | 39,696 | 44,303 | – | ||||||||||||||||||||
Total equity | $ | 222,089 | $ | 131,157 | $ | $ | 146,377 | $ | 37,197 | |||||||||||||||
Property related data (unaudited) | ||||||||||||||||||||||||
Residential property rentable square feet | ||||||||||||||||||||||||
Flatbush Gardens | 1,734 | 1,734 | 1,734 | |||||||||||||||||||||
% occupied | 96.6 | % | 96.2 | % | 94.4 | % | ||||||||||||||||||
Tribeca House properties | 481 | 479 | 479 | |||||||||||||||||||||
% occupied | 90.7 | % | 83.5 | % | 94.5 | % | ||||||||||||||||||
250 Livingston Street | 36 | 36 | 36 | |||||||||||||||||||||
% occupied | 85.2 | % | 94.4 | % | 90.0 | % | ||||||||||||||||||
Commercial and retail property rentable square feet | ||||||||||||||||||||||||
141 Livingston Street (2015 data remeasured) | 208 | 216 | 159 | |||||||||||||||||||||
% occupied | 100 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
250 Livingston Street (2015 data remeasured) | 353 | 353 | 353 | |||||||||||||||||||||
% occupied | 100 | % | 99.7 | % | 99.7 | % | ||||||||||||||||||
Tribeca House properties | 77 | 77 | 77 | |||||||||||||||||||||
% occupied | 100 | % | 95.9 | % | 95.9 | % |
(1) | FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (computed in accordance with GAAP), excluding gains (losses) from sales of property (and impairment adjustments), plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO is consistent with FFO as defined by NAREIT. |
AFFO is defined by us as FFO excluding amortization of identifiable intangibles incurred in property acquisitions, straight line rent adjustments to revenue from long-term leases and amortization of costs incurred in originating debt.
Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO to be useful in evaluating potential property acquisitions and measuring operating performance. We further consider AFFO to be useful in determining funds available for payment of distributions. FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. You should not consider FFO and AFFO to be alternatives to net income as a reliable measure of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.
FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Further, FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO and AFFO.
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The following table sets forth a reconciliation of FFO and AFFO for the periods presented to net (loss) income before allocation to non-controlling interests, as computed in accordance with GAAP (amounts in thousands):
Nine months ended September 30, | Years ended December 31, | |||||||||||||||||||||||
Pro
Forma
2016 |
2016 | 2015 |
Pro
Forma
2015 |
2015 | 2014 | |||||||||||||||||||
FFO | ||||||||||||||||||||||||
Net (loss) income before allocation to non-controlling interests | $ | (4,977) | $ | (9,260 | ) | $ | (5,641 | ) | $ | (5,055) | $ | (8,200 | ) | $ | 5,238 | |||||||||
Real estate depreciation and amortization | 12,095 | 10,646 | 9,656 | 14,594 | 12,521 | 4,472 | ||||||||||||||||||
FFO | $ | 7,118 | $ | 1,386 | $ | 4,015 | $ | 9,539 | $ | 4,321 | $ | 9,710 | ||||||||||||
AFFO | ||||||||||||||||||||||||
FFO | $ | 7,118 | $ | 1,386 | $ | 4,015 | $ | 9,539 | $ | 4,321 | $ | 9,710 | ||||||||||||
Real estate tax intangible amortization | 1,429 | 1,186 | 996 | 1,813 | 1,328 | 238 | ||||||||||||||||||
Amortization of above and below-market leases | (1,367) | (1,357 | ) | (1,286 | ) | (1,736) | (1,714 | ) | (1,450 | ) | ||||||||||||||
Straight-line rent adjustment | (60) | (60 | ) | 55 | 109 | 109 | 513 | |||||||||||||||||
Amortization of debt origination costs | 2,731 | 4,253 | 4,496 | 5,310 | 6,036 | 704 | ||||||||||||||||||
Interest rate cap mark-to-market | (0) | 9 | 511 | 25 | 522 | 49 | ||||||||||||||||||
Amortization of LTIP awards | 1,891 | 1,891 | 284 | 2,033 | 709 | – | ||||||||||||||||||
Acquisition costs | – | – | – | – | 75 | 326 | ||||||||||||||||||
Recurring capital spending | (735) | (535 | ) | (1,719 | ) | (2,339) | (2,139 | ) | (1,824 | ) | ||||||||||||||
AFFO | $ | 11,007 | $ | 6,773 | $ | 7,352 | $ | 14,754 | $ | 9,247 | $ | 8,266 |
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(2) | We believe that Adjusted EBITDA is a useful measure of our operating performance. We define Adjusted EBITDA as net (loss) income before allocation to non-controlling interests plus real estate depreciation and amortization, amortization of identifiable intangibles, interest expense, net, acquisition costs and stock based compensation. Other REITs may use different methodologies for calculating Adjusted EBITDA, and accordingly, our Adjusted EBITDA may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use Adjusted EBITDA to evaluate our performance because Adjusted EBITDA allows us to evaluate the operating performance of our company by measuring the core operations of property performance and administrative expenses available for debt service and capturing trends in rental housing and property operating expenses. However, Adjusted EBITDA should only be used as an alternative measure of our financial performance. For a further discussion about our use of Adjusted EBITDA as a non-GAAP financial measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Adjusted earnings before interest, income taxes, depreciation, amortization and stock based compensation.” |
The following table reconciles Adjusted EBITDA to net (loss) income before allocation to non-controlling interests (amounts in thousands):
Nine months ended September 30, | Years ended December 31, | |||||||||||||||||||||||
Pro Forma
2016 |
2016 | 2015 |
Pro Forma
2015 |
2015 | 2014 | |||||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||||||
Net (loss) income before allocation to non-controlling interest | $ | (4,977 | ) | $ | (9,260 | ) | $ | (5,641 | ) | $ | (5,055 | ) | $ | (8,200 | ) | $ | 5,238 | |||||||
Depreciation and amortization | 12,095 | 10,646 | 9,656 | 14,594 | 12,521 | 4,472 | ||||||||||||||||||
Amortization of real estate tax intangible | 1,429 | 1,186 | 996 | 1,813 | 1,328 | 238 | ||||||||||||||||||
Amortization of above and below-market leases | (1,367 | ) | (1,357 | ) | (1,286 | ) | (1,736 | ) | (1,714 | ) | (1,450 | ) | ||||||||||||
Straight-line rent adjustment | (60 | ) | (60 | ) | 55 | 109 | 109 | 513 | ||||||||||||||||
Amortization of LTIP awards | 1,891 | 1,891 | 284 | 2,033 | 709 | – | ||||||||||||||||||
Interest expense, net | 25,461 | 28,749 | 27,728 | 34,176 | 36,703 | 9,145 | ||||||||||||||||||
Acquisition costs | – | 407 | – | – | 75 | 326 | ||||||||||||||||||
Adjusted EBITDA | $ | 34,472 | $ | 32,202 | $ | 31,792 | $ | 45,934 | $ | 41,531 | $ | 18,482 |
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An investment in our common stock involves a high degree of risk. You should carefully consider the following material risks, as well as the other information contained in this prospectus, before making an investment in our company. If any of the following risks actually occur, our business, prospects, financial condition, results of operations and/or cash flow could be materially and adversely affected. In such an event, the market value of our common stock could decline and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section of this prospectus entitled “Cautionary Note Concerning Forward-Looking Statements.”
Risks Related to Real Estate
Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets where our properties are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses, and the overall market value of our assets, impair our ability to sell, recapitalize or refinance our assets and have an adverse effect on our results of operations, financial condition, cash flow and our ability to make distributions to our stockholders.
Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions in the United States and/or globally may significantly affect our occupancy levels, rental rates, rent collections, operating expenses, the market value of our assets and our ability to strategically acquire, dispose, recapitalize or refinance our properties on economically favorable terms or at all. Our ability to lease our properties at favorable rates may be adversely affected by increases in supply of commercial, retail and/or residential space in our markets and is dependent upon overall economic conditions, which are adversely affected by, among other things, job losses and increased unemployment levels, recession, stock market volatility and uncertainty about the future. Some of our major expenses, including mortgage payments and real estate taxes, generally do not decline when related rents decline. We expect that any declines in our occupancy levels, rental revenues and/or the values of our buildings would cause us to have less cash available to pay our indebtedness, fund necessary capital expenditures and to make distributions to our stockholders, which could negatively affect our financial condition and the market value of our common stock. Our business may be affected by volatility and illiquidity in the financial and credit markets, a general global economic recession and other market or economic challenges experienced by the real estate industry or the U.S. economy as a whole. Our business may also be adversely affected by local economic conditions, as all of our revenues are currently derived from properties located in New York City, with all of our current portfolio being in Manhattan and Brooklyn.
Factors that may affect our occupancy levels, our rental revenues, our income from operations, our funds from operations (“FFO”) and adjusted FFO (“AFFO”), our earnings before interest, income tax, depreciation, amortization (“EBITDA”), our cash flow and/or the value of our properties include the following, among others:
· | downturns in global, national, regional and local economic and demographic conditions; |
· | declines in the financial condition of our tenants, which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or other reasons, and declines in the financial condition of buyers and sellers of properties; |
· | declines in local, state and/or federal government budgets and/or increases in local, state and/or federal government budget deficits, which among other things could have an adverse effect on the financial condition of our only commercial tenant, the City of New York, and may result in tenant defaults under leases and/or cause such tenant to seek alternative office space arrangements; |
· | the inability or unwillingness of our tenants to pay rent increases, or our inability to collect rents and other amounts due from our tenants; |
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· | significant job losses in the industries in which our commercial and/or retail tenants operate, and/or from which our residential tenants derive their incomes, which may decrease demand for our commercial, retail and/or residential space, causing market rental rates and property values to be affected negatively; |
· | an oversupply of, or a reduced demand for, commercial and/or retail space and/or apartment homes; |
· | declines in household formation; |
· | favorable residential mortgage rates; |
· | changes in market rental rates in our markets and/or the attractiveness of our properties to tenants, particularly as our buildings continue to age, and our ability to fund repair and maintenance costs; |
· | competition from other available commercial and/or retail lessors and other available apartments and housing alternatives, and from other real estate investors with significant capital, such as other real estate operating companies, other REITs and institutional investment funds; |
· | economic conditions that could cause an increase in our operating expenses, such as increases in property taxes (particularly as a result of increased local, state and national government budget deficits and debt and potentially reduced federal aid to state and local governments), utilities, insurance, compensation of on-site personnel and routine maintenance; |
· | opposition from local community or political groups with respect to the development and/or operations at a property; |
· | investigation, removal or remediation of hazardous materials or toxic substances at a property; |
· | changes in, and changes in enforcement of, laws, regulations and governmental policies, including without limitation, health, safety, environmental and zoning laws; |
· | rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs; and |
· | changes in rental housing subsidies provided by the government and/or other government programs that favor single-family rental housing or owner-occupied housing over multi-family rental housing. |
All of our properties are located in New York City, and adverse economic or regulatory developments in New York City or parts thereof, including the boroughs of Brooklyn and Manhattan, could negatively affect our results of operations, financial condition, cash flow, and ability to make distributions to our stockholders.
All of our properties are located in New York City, with all of our current portfolio being in the boroughs of Manhattan and Brooklyn. As a result, our business is dependent on the condition of the economy in New York City and the views of potential tenants regarding living and working in New York City, which may expose us to greater economic risks than if we owned a more geographically diverse portfolio. We are susceptible to adverse developments in New York City (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, terror attacks, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation). Such adverse developments could materially reduce the value of our real estate portfolio and our rental revenues, and thus adversely affect our ability to meet our debt obligations and to make distributions to our stockholders.
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We depend on a single government tenant in our office buildings, which could cause an adverse effect on us, including our results of operations and cash flow, if the City of New York were to suffer financial difficulty.
Our rental revenue depends on entering into leases with and collecting rents from tenants. As of January 30, 2017, Kings County Court, the Human Resources Administration, and the Department of Environmental Protection, all of which are agencies of the City of New York, leased an aggregate of 500,228 rentable square feet of commercial space at our commercial office properties at 141 Livingston Street and 250 Livingston Street, representing approximately 16% of the total rentable square feet in our portfolio and approximately 18% of our total portfolio’s annualized rent. General and regional economic conditions may adversely affect the City of New York and potential tenants in our markets. The City of New York may experience a material business downturn or suffer negative effects from declines in local, state and/or federal government budgets and/or increases in local, state and/or federal government budget debt and deficits, which could potentially result in a failure to make timely rental payments and/or a default under its leases. In many cases, through tenant improvement allowances and other concessions, we have made substantial upfront investments in the applicable leases that we may not be able to recover. In the event of a tenant default, we may experience delays in enforcing our rights and may also incur substantial costs to protect our investments.
The bankruptcy or insolvency of a major tenant may adversely affect the income produced by our properties and may delay our efforts to collect past due balances under the relevant leases and could ultimately preclude collection of these sums altogether. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages that is limited in amount and which may only be paid to the extent that funds are available and in the same percentage as is paid to all other holders of unsecured claims. If any of our significant tenants were to become bankrupt or insolvent, suffer a downturn in their business or a reduction in funds available to them, default under their leases, fail to renew their leases or renew on terms less favorable to us than their current terms, our results of operations and cash flow could be adversely affected.
The leases for the Human Resources Administration and the Department of Environmental Protection, which comprise 56% of the rentable square feet rented by the City of New York, will each expire in 2020.
Our portfolio’s rent is generated from five properties.
As of January 30, 2017, our portfolio consisted of five properties, our Tribeca House properties, the Flatbush Gardens complex, the 141 Livingston Street property, the 250 Livingston Street property, and the Aspen property, which accounted for 36%, 37.8%, 11.2%, 8.8%, and 6.2%, respectively, of our portfolio’s rent in the third quarter of 2016. Our results of operations and cash available for distribution to our stockholders would be adversely affected if any of these properties were materially damaged or destroyed.
We may be unable to renew leases or lease currently vacant space or vacating space on favorable terms or at all as leases expire, which could adversely affect our financial condition, results of operations and cash flow.
As of January 29, 2017, we had approximately 105,000 rentable square feet of vacant residential space (excluding leases signed but not yet commenced) and leases representing approximately 69% of the square footage of residential space at properties in our portfolio will expire in the twelve months between February 2017 and January 2018 (including month-to-month leases). As of January 30, 2017, we had no vacant commercial and retail space. We cannot assure you that expiring leases will be renewed or that our properties will be re-leased at net effective rental rates equal to or above the current average net effective rental rates. If the rental rates for our commercial and/or residential space decrease, our existing commercial tenants do not renew their leases or we do not re-lease a significant portion of our available and soon-to-be-available commercial and/or residential space, our financial condition, results of operations, cash flow, the market value of our common stock and our ability to satisfy our debt obligations and to make distributions to our stockholders would be adversely affected.
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The actual rents we receive for the properties in our portfolio may be less than market rents, and we may experience a decline in realized rental rates, which could adversely affect our financial condition, results of operations and cash flow. Short-term leases with respect to our residential tenants expose us to the effects of declining market rents.
Throughout this prospectus, we make certain comparisons between our in-place rents and estimates of market rents for the commercial, retail and residential space in our portfolio used for budgeting purposes. As a result of potential factors, including competitive pricing pressure in our markets, a general economic downturn and the desirability of our properties compared to other properties in our markets, we may be unable to realize market rents across the properties in our portfolio. In addition, depending on market rental rates at any given time as compared to expiring leases in our portfolio, from time to time rental rates for expiring leases may be higher than starting rental rates for new leases. A majority of our apartment leases are for a term of one year. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues for residential space in our properties are affected by declines in market rents more quickly than if those leases were for longer terms. If we are unable to obtain sufficient rental rates across our portfolio, then our ability to generate cash flow growth will be negatively affected.
We may engage in development, redevelopment or repositioning activities, which could expose us to different risks that could adversely affect us, including our financial condition, cash flow and results of operations.
We may engage in development, redevelopment or repositioning activities with respect to our properties as we believe market conditions dictate. For example, we plan to spend approximately $16 million to complete a comprehensive renovation and modernization program at our Flatbush Gardens property through the end of 2018, which will include improvements to the common areas of the complex and upgrades to individual apartments. In addition, our lease at 141 Livingston Street requires us to refurbish the air-conditioning system and perform other upgrades at an estimated cost of approximately $5.2 million. Additionally, we intend to spend a total of approximately $2.6 million through 2017 to make other improvements at our 141 Livingston Street property. We are also reviewing the regulatory, architectural and financial issues regarding building approximately 500,000 additional square feet by adding four floors above certain of our 59 buildings at Flatbush Gardens. Further development at Flatbush Gardens will require a significant capital investment.
If we engage in these activities, we will be subject to certain risks, which could adversely affect us, including our financial condition, cash flow and results of operations. These risks include, without limitation,
· | the availability and pricing of financing on favorable terms or at all; |
· | the availability and timely receipt of zoning and other regulatory approvals; |
· | the potential for the fluctuation of occupancy rates and rents at development and redeveloped properties, which may result in our investment not being profitable; |
· | start up, development, repositioning and redevelopment costs may be higher than anticipated; |
· | cost overruns and untimely completion of construction (including risks beyond our control, such as weather or labor conditions or material shortages); and |
· | changes in the pricing and availability of buyers and sellers of such properties. |
These risks could result in substantial unanticipated delays or expenses and could prevent the initiation or the completion of development and redevelopment activities, any of which could have an adverse effect on our financial condition, results of operations, cash flow, the market value of our common stock and our ability to satisfy our debt obligations and to make distributions to our stockholders.
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We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order to retain and attract tenants, generate positive cash flows or to make real estate properties suitable for sale, which could adversely affect us, including our financial condition, results of operations and cash flow.
In the event that there are adverse economic conditions in the real estate market and demand for commercial, retail and/or residential space decreases with respect to our current vacant space and as leases at our properties expire, we may be required to increase tenant improvement allowances or concessions to tenants, accommodate increased requests for renovations, build-to-suit remodeling (with respect to our commercial and retail space) and other improvements or provide additional services to our tenants, all of which could negatively affect our cash flow. If the necessary capital is unavailable, we may be unable to make these potentially-significant capital expenditures. This could result in non-renewals by tenants upon expiration of their leases and our vacant space remaining untenanted, which could adversely affect our financial condition, results of operations, cash flow and the market value of our common stock.
Our dependence on rental revenue may adversely affect us, including our profitability, our ability to meet our debt obligations and our ability to make distributions to our stockholders.
Our income is derived from rental revenue from real property. See “Our Business and Properties—Overview.” As a result, our performance depends on our ability to collect rent from tenants. Our income and funds for distribution would be adversely affected if a significant number of our tenants, or any of our major tenants,
· | delay lease commencements, |
· | decline to extend or renew leases upon expiration, |
· | fail to make rental payments when due, or |
· | declare bankruptcy. |
Any of these actions could result in the termination of such tenants’ leases with us and the loss of rental revenue attributable to the terminated leases. In these events, we cannot assure you that such tenants will renew those leases or that we will be able to re-lease spaces on economically advantageous terms or at all. The loss of rental revenues from our tenants and our inability to replace such tenants may adversely affect us, including our profitability, our ability to meet our debt and other financial obligations and our ability to make distributions to our stockholders.
Real estate investments are relatively illiquid and may limit our flexibility.
Equity real estate investments are relatively illiquid, which may tend to limit our ability to react promptly to changes in economic or other market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market conditions. Our inability to sell our properties on favorable terms or at all could have an adverse effect on our sources of working capital and our ability to satisfy our debt obligations. In addition, real estate can at times be difficult to sell quickly at prices we find acceptable. The Code also imposes restrictions on REITs, which are not applicable to other types of real estate companies, on the disposal of properties. These potential difficulties in selling real estate in our markets may limit our ability to change, or reduce our exposure to, the properties in our portfolio promptly in response to changes in economic or other conditions.
Competition could limit our ability to acquire attractive investment opportunities and increase the costs of those opportunities, which may adversely affect us, including our profitability, and impede our growth.
We compete with numerous commercial developers, real estate companies and other owners and operators of real estate for properties for acquisition and pursuing buyers for dispositions. We expect that other real estate investors, including insurance companies, private equity funds, sovereign wealth funds, pension funds, other REITs and other well-capitalized investors will compete with us to acquire existing properties and to develop new properties. Our markets are each generally characterized by high barriers-to-entry to construction and limited land on which to build new commercial, retail and residential space, which contributes to the competition we face to acquire existing properties and to develop new properties in these markets. This competition could increase prices for properties of the type we may pursue and adversely affect our profitability and impede our growth.
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Competition may impede our ability to attract or retain tenants or re-lease space, which could adversely affect our results of operations and cash flow.
The leasing of real estate in our markets is highly competitive. The principal means of competition are rent charged, location, services provided and the nature and condition of the premises to be leased. The number of competitive properties in our markets, which may be newer or better located than our properties, could have an adverse effect on our ability to lease space at our properties and on the effective rents that we are able to charge. If other lessors and developers of similar spaces in our markets offer leases at prices comparable to or less than the prices we offer, we may be unable to attract or retain tenants or re-lease space in our properties, which could adversely affect our results of operations and cash flow.
We are subject to potential losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.
Our properties are located in areas that could be subject to, among other things, flood and windstorm losses. Insurance coverage for flood and windstorms can be costly because of limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. In addition, our properties may be subject to a heightened risk of terrorist attacks. We carry commercial general liability insurance, property insurance and terrorism insurance with respect to our properties with limits and on terms we consider commercially reasonable. We cannot assure you, however, that our insurance coverage will be sufficient or that any uninsured loss or liability will not have an adverse effect on our business and our financial condition and results of operations.
We are subject to risks from natural disasters such as severe weather.
Natural disasters and severe weather such as hurricanes or floods may result in significant damage to our properties. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single catastrophe or destructive weather event (such as a hurricane) affecting New York City may have a significant negative effect on our financial condition, results of operations and cash flows. As a result, our operating and financial results may vary significantly from one period to the next. Our financial results may be adversely affected by our exposure to losses arising from natural disasters or severe weather. We also are exposed to risks associated with inclement winter weather, including increased need for maintenance and repair of our buildings.
Climate change may adversely affect our business.
To the extent that climate change does occur, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage or a decrease in demand for our properties located in the areas affected by these conditions. Should the impact of climate change be material in nature or occur for lengthy periods of time, our financial condition or results of operations would be adversely affected. In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties in order to comply with such regulations.
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Actual or threatened terrorist attacks may adversely affect our ability to generate revenues and the value of our properties.
All of our properties are located in New York City, which has been and may in the future be the target of actual or threatened terrorist attacks. As a result, some tenants in these markets may choose to relocate their businesses or homes to other markets or buildings within New York City that may be perceived to be less likely to be affected by future terrorist activity. This could result in an overall decrease in the demand for commercial, retail and/or residential space in these markets generally or in our properties in particular, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms or both. In addition, future terrorist attacks in these markets could directly or indirectly damage our properties, both physically and financially, or cause losses that materially exceed our insurance coverage. As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially. See also “—We are subject to potential losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.”
We may become subject to liability relating to environmental and health and safety matters, which could have an adverse effect on us, including our financial condition and results of operations.
Under various federal, state and/or local laws, ordinances and regulations, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances (such as lead, asbestos and polychlorinated biphenyls), waste, petroleum products and other miscellaneous products (including but not limited to natural products such as methane and radon gas) at, on, in, under or from such property, including costs for investigation or remediation, natural resource damages, or third-party liability for personal injury or property damage. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several. Some of our properties may be affected by contamination arising from current or prior uses of the property or from adjacent properties used for commercial, industrial or other purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials. We also may be liable for the costs of remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous substances at such facilities, without regard to whether we comply with environmental laws in doing so. The presence of contamination or the failure to remediate contamination on our properties may adversely affect our ability to attract and/or retain tenants and our ability to develop or sell or borrow against those properties. In addition to potential liability for cleanup costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons. Environmental laws also may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property. See “Our Business and Properties—Regulation—Environmental and Related Matters.”
In addition, our properties are subject to various federal, state and local environmental and health and safety laws and regulations. Noncompliance with these environmental and health and safety laws and regulations could subject us or our tenants to liability. These liabilities could affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of compliance with such laws and regulations or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise adversely affect our operations and/or cash flow, or those of our tenants, which could in turn have an adverse effect on us.
Certain of our properties have only temporary certificates of occupancy or are awaiting a certificate of occupancy which, if not granted, would require us to stop using the property.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material (“ACM”). Environmental and health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment.
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In addition, our properties may contain or develop harmful mold or suffer from other indoor air quality issues. Indoor air quality issues also can stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or to increase ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others if property damage or personal injury occurs.
We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make distributions to our stockholders or that such costs, liabilities, or other remedial measures will not have an adverse effect on our financial condition, results of operations and cash flows.
We may incur significant costs complying with the Americans with Disabilities Act of 1990 (“ADA”) and similar laws (including but not limited to the Fair Housing Amendments Act of 1988 (“FHAA”) and the Rehabilitation Act of 1973), which could adversely affect us, including our future results of operations and cash flows.
Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. The FHAA requires apartment communities first occupied after March 13, 1991, to comply with design and construction requirements for disabled access. For projects receiving federal funds, the Rehabilitation Act of 1973 also has requirements regarding disabled access. We have not conducted a recent audit or investigation of all of our properties to determine our compliance with these or other federal, state or local laws. If one or more of our properties were not in compliance with such laws, then we could be required to incur additional costs to bring the property into compliance. We cannot predict the ultimate amount of the cost of compliance with such laws. Noncompliance with these laws could also result in the imposition of fines or an award of damages to private litigants. Substantial costs incurred to comply with such laws, as well as fines or damages resulting from actual or alleged noncompliance with such laws, could adversely affect us, including our future results of operations and cash flows.
Multi-family residential properties are subject to rent stabilization regulations, which limit our ability to raise rents above specified maximum amounts and could give rise to claims by tenants that their rents exceed such specified maximum amounts.
Numerous municipalities, including New York City where our multi-family residential properties are located, impose rent control or rent stabilization on apartment buildings. The rent stabilization regulations applicable to our multi-family residential properties set maximum rates for annual rent increases, entitle our tenants to receive required services from us and entitle our tenants to have their leases renewed. The rent stabilization regulations applicable to our multi-family residential properties permit luxury deregulation of rent-stabilized apartments, generally providing that apartments that became vacant before June 24, 2011 with a legal regulated rent of $2,000 or more per month are made permanently exempt from rent stabilization. That amount was increased to $2,500 or more per month where an apartment becomes vacant on or after June 24, 2011. In 2015, New York City’s Mayor de Blasio released a series of proposals that, if enacted, would alter the rent stabilization guidelines and make it harder for property owners, such as us, to implement luxury deregulation of rent-stabilized apartments, including eliminating vacancy decontrol and eliminating vacancy allowance. These proposals were not enacted when the New York State legislature extended the current rent stabilization guidelines in June 2015, although subsequently the New York City Rent Guidelines Board determined that the maximum rent for expiring leases would be frozen for the next year. Although Mayor de Blasio’s proposals were not enacted for 2016, there can be no assurances that they will not be pursued in the future.
The limitations established by present or future rent stabilization regulations may impair our ability to maintain rents at market levels. For example, our Flatbush Gardens property is subject to rent stabilization and currently in-place rents are generally about 17% below the maximum rent that could be charged under rent stabilization. However, we have been able to consistently increase rents as a result of our comprehensive renovation and repositioning strategy, allowing us to realize an increase of approximately 25% in rent per square foot on new leases in 2016 and a 14.5% increase in rent per square foot on new leases in 2015, compared to expiring leases. If our current and planned renovation and modernization program at Flatbush Gardens is successful, certain apartments may reach the maximum rents permitted under rent stabilization, which could happen even sooner if rent increases continue to be frozen in subsequent years. Therefore our future ability to attain market rents would be limited until such apartments are eligible for luxury deregulation, which generally requires both a legal maximum rent of $2,500 or more per month and a vacancy (although we can apply to destabilize an apartment where the legal maximum rent is $2,500 or more per month without a vacancy if the tenant’s income exceeds certain levels). However, if Mayor de Blasio’s rent stabilization proposals are enacted in future years, luxury deregulation may no longer be available.
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In addition, we are subject to claims from tenants that the rent charged by us exceeds the amount permitted by rent stabilization. Although we believe that all of our rents are compliant with applicable rent stabilization regulation, tenants have in the past made claims that their rents exceed the maximum rent that could be charged under rent stabilization. These claims include claims that the annual increases in the maximum rent have in the past been inapplicable as a result of a failure to provide essential services by us or the prior owners. The number of these claims may increase as our rents approach the maximum rent that could be charged under rent stabilization. Tenants could also claim that our determination that luxury deregulation was applicable to their apartment was incorrect and seek a reduction in rent and/or return of rents paid in excess of the maximum legal rent. Finally, a tenant in an apartment eligible for tax benefits, such as Section 421-g of the Real Property Tax Law, could claim that rent stabilization applies to the tenant’s apartment while those tax benefits are available, even if the apartment is eligible for luxury deregulation.
The application of rent stabilization to apartments in our multi-family residential properties could limit the amount of rent we are able to collect, which could have a material adverse effect on our adjusted EBITDA and our ability to fully take advantage of the investments that we are making in our properties. In addition, there can be no assurances that changes to rent stabilization laws, such as those proposed by New York City’s Mayor de Blasio, will not have a similar or greater negative impact on our ability to collect rents.
As we increase rents and improve our properties, we could become the target of public scrutiny and investigations similar to the public scrutiny and investigations that other apartment landlords in Brooklyn and other neighborhoods in the New York metropolitan area have experienced, which could lead to negative publicity and require that we expend significant resources to defend ourselves, all of which could adversely affect our operating results and our ability to pay distributions to our stockholders.
Other apartment landlords in gentrifying neighborhoods in Brooklyn and other parts of the New York metropolitan area have come under public scrutiny, and in a few cases have been the subject of civil and criminal investigations, for their alleged treatment of tenants who cannot afford the rent increases that often result from neighborhood gentrification and landlord improvements to properties. It is possible that we or members of our management team could come under similar public scrutiny or become the target of similar investigations regardless of whether we have done anything wrong, which could lead to negative publicity and require that we expend significant resources to defend ourselves, all of which could adversely affect our operating results and our ability to pay distributions to our stockholders.
We may be unable to identify and successfully complete acquisitions and, even if acquisitions are identified and completed, we may fail to successfully operate acquired properties, which could adversely affect us and impede our growth.
Our ability to identify and acquire properties on favorable terms and successfully develop, redevelop and/or operate them may be exposed to significant risks. Agreements for the acquisition of properties are subject to customary conditions to closing, including completion of due diligence investigations and other conditions that are not within our control, which may not be satisfied. In this event, we may be unable to complete an acquisition after incurring certain acquisition-related costs. In addition, if mortgage debt is unavailable at reasonable rates, we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all. We may spend more than budgeted to make necessary improvements or renovations to acquired properties and may not be able to obtain adequate insurance coverage for new properties. Further, acquired properties may be located in new markets where we may face risks associated with a lack of market knowledge or understanding of the local economy, lack of business relationships in the area and unfamiliarity with local governmental and permitting procedures. We may also be unable to integrate new acquisitions into our existing operations quickly and efficiently, and as a result, our results of operations and financial condition could be adversely affected. Any delay or failure on our part to identify, negotiate, finance and consummate such acquisitions in a timely manner and on favorable terms, or operate acquired properties to meet our financial expectations, could impede our growth and have an adverse effect on us, including our financial condition, results of operations, cash flow and the market value of our common stock.
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Should we decide at some point in the future to expand into new markets, we may not be successful, which could adversely affect our financial condition, results of operations, cash flow and the market value of our common stock.
If opportunities arise, we may explore acquisitions of properties in new markets. Each of the risks applicable to our ability to acquire and integrate successfully and operate properties in our current markets is also applicable in new markets. In addition, we will not possess the same level of familiarity with the dynamics and market conditions of the new markets we may enter, which could adversely affect the results of our expansion into those markets, and we may be unable to build a significant market share or achieve our desired return on our investments in new markets. If we are unsuccessful in expanding into new markets, it could adversely affect our financial condition, results of operations, cash flow, the market value of our common stock and ability to satisfy our debt obligations and to make distributions to our stockholders.
We may acquire properties or portfolios of properties through tax-deferred contribution transactions, which could result in stockholder dilution and limit our ability to sell such assets.
In the future we may acquire properties or portfolios of properties through tax-deferred contribution transactions in exchange for partnership interests in our operating partnership, which may result in stockholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.
We may experience a decline in the fair value of our assets, which may have a material impact on our financial condition, liquidity and results of operations and adversely impact the market value of our common stock.
A decline in the fair market value of our assets may require us to recognize an other-than-temporary impairment against such assets under GAAP if we were to determine that we do not have the ability and intent to hold any assets in unrealized loss positions to maturity or for a period of time sufficient to allow for recovery to the amortized cost of such assets. In such event, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be other-than-temporarily impaired. Such impairment charges will reflect non-cash losses at the time of recognition. Subsequent disposition or sale of such assets could further affect our future losses or gains, as they will be based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale, which may adversely affect our financial condition, liquidity and results of operations.
From time to time, we may enter into joint venture relationships or other arrangements regarding the joint ownership of property. Our investments in and through such arrangements could be adversely affected by our lack of sole decision-making authority regarding major decisions, our reliance on our joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potential losses from the actions of our joint venture partners. Risks associated with joint venture arrangements may include but are not limited to the following:
· | our joint venture partners might experience financial distress, become bankrupt or fail to fund their share of required capital contributions, which may delay construction or development of a property or increase our financial commitment to the joint venture; |
· | we may be responsible to our partners for indemnifiable losses; |
· | our joint venture partners may have business interests or goals with respect to a property that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property; |
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· | we may be unable to take actions that are opposed by our joint venture partners under arrangements that require us to share decision-making authority over major decisions affecting the ownership or operation of the joint venture and any property owned by the joint venture, such as the sale or financing of the property or the making of additional capital contributions for the benefit of the property; |
· | our joint venture partners may take actions that we oppose; |
· | our ability to sell or transfer our interest in a joint venture to a third party without prior consent of our joint venture partners may be restricted; |
· | we may disagree with our joint venture partners about decisions affecting a property or a joint venture, which could result in litigation or arbitration that increases our expenses, distracts our officers and directors and disrupts the day-to-day operations of the property, including by delaying important decisions until the dispute is resolved; |
· | we may suffer losses as a result of actions taken by our joint venture partners with respect to our joint venture investments; and |
· | in the event that we obtain a minority position in a joint venture, we may not have significant influence or control over such joint venture or the performance of our investment therein. |
If there is a transfer of a controlling interest in any of our properties (or in the entities through which we hold our properties), including as a result of the private offering, this offering, issuances of our common stock in exchange for class B LLC units pursuant to the exchange right granted to holders of class B LLC units, sales of class B LLC units by the holders thereof or the issuance of LLC interests to our operating partnership in connection with the private offering or a subsequent offering of our stock, or as a result of any of those transfers being aggregated, we may be obligated to pay New York City and New York State transfer tax based on the fair market value of the New York City and/or New York State real property transferred.
Subject to certain exceptions, New York City and New York State impose a tax on the transfer of New York City and/or New York State real property or the transfer of a controlling interest in New York City and/or New York State real property, generally at a current combined rate of 3.025% of the fair market value of the New York City and/or New York State real property. A direct or indirect transfer of a 50% or greater interest in any of our properties (or in the entities that own our properties) generally would constitute a transfer of a controlling interest in real property. Certain aggregation rules apply in determining whether a transfer of a controlling interest has occurred. For example, transfers made within a three year period generally are presumed to be aggregated. Therefore, a transfer of a controlling interest could occur as a result of the combination of one or more of the private offering, this offering, other offerings of common stock by us resulting of an increase in our investment in the entities that own our properties, issuances of our common stock to our continuing investors in exchange for class B LLC units pursuant to the exchange right granted to holders of class B LLC units, sales of class B LLC units by the holders thereof, the issuance of LLC interests to our operating partnership in connection with the private offering or a subsequent offering of our stock, or as a result of any combination of such transfers being aggregated. In addition to any transfer tax that may be imposed upon us, we have agreed with our continuing investors to pay any such transfer taxes imposed upon a continuing investor as a result of the private offering and the related formation transactions (including subsequent issuances of additional LLC units or interests, issuances of OP units by the operating partnership or issuances of our common stock by the Company), issuances of our common stock in exchange for class B LLC units, dispositions of property by any LLC subsidiary, the issuance of LLC interests to our operating partnership in connection with this or a subsequent offering of our stock, or as a result of any combination of such transfers being aggregated. If a transfer of a controlling interest in an entity owning our properties occurs, New York City and/or New York State transfer tax could be payable based on the fair market value of the New York City and/or New York State property at the time of each such transfer (including any transfers that are treated as a part of the transfer of the controlling interest that occur prior to the transfer that caused the 50% threshold to be met). For example, if exchanges of class B LLC units resulted in our ownership of the entities that own our properties increasing to greater than 50%, we could be subject to New York City and New York State transfer tax at a current combined rate of 3.025% of the fair market value of such New York City and/or New York State properties. In addition, we may or may not be eligible to take advantage of the 50% reduction to the New York City and New York State transfer tax rates that could apply with respect to transfers of real property to certain REITs.
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Risks Related to Our Business and Operations
Capital and credit market conditions may adversely affect our access to various sources of capital or financing and/or the cost of capital, which could affect our business activities, dividends, earnings and common stock price, among other things.
In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available to us may be adversely affected. We primarily use third-party financing to fund acquisitions of properties and to refinance indebtedness as it matures. As of September 30, 2016, we had no corporate debt and $814.7 million in property-level debt. On November 9, 2016, the Company refinanced $460.0 million of loans due November 2016 secured by the Tribeca House property with a loan package comprising a $335 million mortgage and a $75 million mezzanine note agreement. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our acquisition, development and redevelopment activities and/or take other actions to fund our business activities and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. To the extent that we are able and/or choose to access capital at a higher cost than we have experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing) our earnings per share and cash flow could be adversely affected. In addition, the price of our common stock may fluctuate significantly and/or decline in a high interest rate or volatile economic environment. If economic conditions deteriorate, the ability of lenders to fulfill their obligations under working capital or other credit facilities that we may have in the future may be adversely affected.
The form, timing and amount of dividend distributions in future periods may vary and be affected by economic and other considerations.
The form, timing and amount of dividend distributions will be authorized at the discretion of our board of directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements applicable to REITs under the Code and other factors as our board of directors may consider relevant. See “Distribution Policy.”
We may from time to time be subject to litigation that could have an adverse effect on our financial condition, results of operations, cash flow and the market value of our common stock.
We are a party to various claims and routine litigation arising in the ordinary course of business. Some of these claims or others to which we may be subject from time to time may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have an adverse effect on our financial position and results of operations. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely affect our results of operations and cash flow, expose us to increased risks that would be uninsured, and/or adversely affect our ability to attract officers and directors.
We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire for which we may have limited or no recourse against the sellers.
Assets and entities that we have acquired or may acquire in the future may be subject to unknown or contingent liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for clean-up or remediation of environmental conditions, claims of tenants, vendors or other persons dealing with the acquired entities, tax liabilities and other liabilities whether incurred in the ordinary course of business or otherwise. In the future we may enter into transactions with limited representations and warranties or with representations and warranties that do not survive the closing of the transactions or that only survive for a limited period, in which event we would have no or limited recourse against the sellers of such properties. While we usually require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification is often limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses.
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As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that we may incur with respect to liabilities associated with acquired properties and entities may exceed our expectations, which may adversely affect our business, financial condition, results of operations and cash flow. Finally, indemnification agreements between us and the sellers typically provide that the sellers will retain certain specified liabilities relating to the assets and entities acquired by us. While the sellers are generally contractually obligated to pay all losses and other expenses relating to such retained liabilities, there can be no guarantee that such arrangements will not require us to incur losses or other expenses as well.
We depend on key personnel, including David Bistricer, our Chief Executive Officer, Lawrence Kreider, our Chief Financial Officer, JJ Bistricer, our Chief Operating Officer, and Jacob Schwimmer, our Chief Property Management Officer, and the loss of services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners and existing and prospective industry participants, which could negatively affect our financial condition, results of operations, cash flow and the market value of our common stock.
There is substantial competition for qualified personnel in the real estate industry and the loss of our key personnel could have an adverse effect on us. Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of key personnel, particularly David Bistricer, our Chief Executive Officer, who has extensive market knowledge and relationships and exercises substantial influence over our acquisition, development, redevelopment, financing, operational and disposition activities. Among the reasons that David Bistricer is important to our success is that he has a reputation that attracts business and investment opportunities and assists us in negotiations with financing sources and industry personnel. If we lose his services, our business and investment opportunities and our relationships with such financing sources and industry personnel would diminish.
Our other senior executives, Lawrence Kreider, our Chief Financial Officer, JJ Bistricer, our Chief Operating Officer, and Jacob Schwimmer, our Chief Property Management Officer, also have extensive experience and strong reputations in the real estate industry, which aid us in identifying or attracting investment opportunities and negotiating with sellers of properties. The loss of services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners and industry participants, which could negatively affect our financial condition, results of operations, cash flow and the market value of our common stock.
Breaches of our data security could adversely affect our business, including our financial performance and reputation.
We collect and retain certain personal information provided by our tenants and employees. While we have implemented a variety of security measures to protect the confidentiality of this information and periodically review and improve our security measures, we can provide no assurance that we will be able to prevent unauthorized access to this information. Any breach of our data security measures and/or loss of this information may result in legal liability and costs (including damages and penalties) that could adversely affect our business, including our financial performance and reputation.
Our subsidiaries may be prohibited from making distributions and other payments to us.
All of our properties are owned indirectly by subsidiaries, in particular our LLC subsidiaries, and substantially all of our operations are conducted by our operating partnership. As a result, we depend on distributions and other payments from our operating partnership and subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of our subsidiaries to make such distributions and other payments depends on their earnings and cash flow and may be subject to statutory or contractual limitations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Property-Level Debt.” As an equity investor in our subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in, or other lien on, their assets and to any of such subsidiaries’ debt or other obligations that are senior to our claims.
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Risks Related to Our Organization and Structure
Our continuing investors hold shares of our special voting stock that entitle them to vote together with holders of our common stock on an as-exchanged basis, based on their ownership of class B LLC units in our predecessor entities, and are generally able to significantly influence the composition of our board of directors, our management and the conduct of our business.
Our continuing investors hold shares of our special voting stock, which generally allows them to vote together as a single class with holders of our common stock on all matters (other than matters considered at a special election meeting, the removal or reelection of directors initially elected at a special election meeting, the expansion of the size of the board of directors and amendments to certain provisions of our charter and bylaws relating to any special election meeting or the vote required to amend such provisions) brought before our common stockholders, including the election of directors, on an as-exchanged basis, as if our continuing investors had exchanged their class B LLC units in our predecessor entities and shares of our special voting stock for shares of our common stock. In addition, several continuing investors own shares of our common stock. See “Security Ownership of Certain Beneficial Owners and Management.” As a result, our continuing investors are generally entitled to exercise 74.8% of the voting power in our company (62.8% immediately following this offering, or 61.4% if the underwriters exercise their option to purchase additional shares in full). In particular, immediately following this offering, David Bistricer will be entitled to exercise 10.3% of the voting power in our company, Jacob Schwimmer will be entitled to exercise 5% of the voting power in our company and Sam Levinson will be entitled to exercise 18.8% of the voting power in our company (10.0%, 18.4% and 4.8%, respectively, if the underwriters exercise their option to purchase additional shares in full). Even though none of our continuing investors is, by himself or together with his affiliates, entitled to exercise a majority of the total voting power in our company, for so long as any continuing investor continues to be entitled to exercise a significant percentage of our voting power, our continuing investors are generally able to significantly influence the composition of our board of directors and the approval of actions requiring stockholder approval, and have significant influence with respect to our management, business plans and policies, including appointing and removing our officers, issuing additional shares of our common stock and other equity securities, paying dividends, incurring additional debt, making acquisitions, selling properties or other assets, acquiring or merging with other companies and undertaking other extraordinary transactions. In any of these matters, any of our continuing investors may have interests that differ or conflict with the interests of our other stockholders, and they may exercise their voting power in a manner that is not consistent with the interests of other stockholders. For so long as our continuing investors continue to own shares of our stock entitling them to exercise a significant percentage of our voting power, the concentration of voting power in our continuing investors may discourage unsolicited acquisition proposals and may delay, defer or prevent any change of control of our company that might involve a premium price for holders of our common stock or otherwise be in their best interest.
The ability of stockholders to control our policies and effect a change of control of our company is limited by certain provisions of our charter and bylaws and by Maryland law.
Certain provisions in our charter and bylaws may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These provisions include the following:
· | Our continuing investors hold shares of our special voting stock and shares of our common stock that generally entitle them to exercise 74.8% of the voting power in our company (62.8% immediately following this offering, or 61.4% if the underwriters exercise their option to purchase additional shares in full), including in connection with a merger or other acquisition of our company or a change in the composition of our board of directors. As a result, our continuing investors as a group or individually could delay, defer or prevent any change of control of our company and, as a result, adversely affect our stockholders’ ability to realize a premium for their shares of common stock. |
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· | Our charter authorizes our board of directors to, without common stockholder approval, amend our charter to increase or decrease the aggregate number of our authorized shares of stock or the authorized number of shares of any class or series of our stock, authorize us to issue additional shares of our common stock or preferred stock and classify or reclassify unissued shares of our common stock or preferred stock and thereafter authorize us to issue such classified or reclassified shares of stock. We believe these charter provisions provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs that might arise. The additional classes or series, as well as the additional authorized shares of our common stock, will be available for issuance without further action by our common stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Although our board of directors does not currently intend to do so, it could authorize us to issue a class or series of stock that could, depending upon the terms of the particular class or series, delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for holders of our common stock or that our common stockholders otherwise believe to be in their best interests. |
· | In order to qualify as a REIT, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by or for five or fewer individuals (as defined in the Code to include certain entities such as private foundations) at any time during the last half of any taxable year (beginning with our second taxable year as a REIT). In order to help us qualify as a REIT, among other reasons, our charter generally prohibits any person or entity from owning or being deemed to own by virtue of the applicable constructive ownership provisions, more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock or 9.8% of the aggregate value of all our outstanding stock. We refer to these restrictions as the “ownership limit.” The ownership limit may prevent or delay a change in control and, as a result, could adversely affect our stockholders’ ability to realize a premium for their shares of our common stock. |
· | The provisions in our charter regarding the removal of directors and the advance notice provisions of our bylaws, among others, could delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for holders of our common stock or otherwise be in their best interest. |
In addition, certain provisions of the Maryland General Corporation Law (“MGCL”) may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including the Maryland business combination and control share provisions. See “Certain Provisions of Maryland Law and Clipper Realty’s Charter and Bylaws.”
· | The “business combination” provisions of the MGCL, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of our then-outstanding voting shares or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then-outstanding voting shares) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, imposes special appraisal rights and supermajority stockholder approval requirements on these combinations. As permitted by the MGCL, our board of directors has adopted a resolution exempting any business combinations between us and any other person or entity from the business combination provisions of the MGCL, if such business combination is approved by our board of directors, including a majority of our directors who are not affiliated or associated with the interested stockholder. |
· | The “control share” provisions of the MGCL provide that “control shares” of a Maryland corporation (defined as shares which, when aggregated with all other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (or the direct or indirect acquisition of ownership or control of control shares) have no voting rights unless approved by a supermajority vote our stockholders excluding the acquirer of control shares, our officers and our directors who are also our employees. As permitted by the MGCL, our bylaws contain a provision exempting from the control share acquisition provisions of the MGCL any and all acquisitions by any person of shares of our stock. |
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· | Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board. Such takeover defenses may have the effect of deterring a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-current market price. |
Each item discussed above may delay, deter or prevent a change in control of our company, even if a proposed transaction is at a premium over the then-current market price for our common stock. Further, these provisions may apply in instances where some stockholders consider a transaction beneficial to them. As a result, our stock price may be negatively affected by these provisions.
Our board of directors may change our policies without stockholder approval.
Our policies, including any policies with respect to investments, leverage, financing, growth, debt and capitalization, will be determined by our board of directors or those committees or officers to whom our board of directors may delegate such authority. Our board of directors will also establish the amount of any dividends or other distributions that we may pay to our stockholders. Our board of directors or the committees or officers to which such decisions are delegated have the ability to amend or revise these and our other policies at any time without stockholder approval. For example, we have established a policy for our target leverage ratio in a range of 45% to 55%. Under the policy, our leverage ratio may be greater than or less than the target range from time to time and our board of directors may amend our target leverage ratio range at any time without stockholder approval. Accordingly, while not intending to do so, we may adopt policies that may have an adverse effect on our financial condition, results of operations our ability to pay dividends or make other distributions to our stockholders and the market value of our common stock.
Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions that you do not believe are in your best interests.
Maryland law generally provides that a director has no liability in that capacity if he or she satisfies his or her duties to us. As permitted by the MGCL, our charter eliminates the liability of our directors and officers to us and our stockholders for money damages to the maximum extent permitted by Maryland law. Under current Maryland law and our charter, our directors and officers do not have any liability to us or our stockholders for money damages, except for liability resulting from:
· | actual receipt of an improper benefit or profit in money, property or services; or |
· | a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated. |
In addition, our charter authorizes us to agree to indemnify our present and former directors and officers for liability and expenses arising from actions taken by them in those and other capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each present and former director or officer, to the maximum extent permitted by Maryland law, in any proceeding to which he or she is made, or threatened to be made, a party or witness by reason of his or her service to us in those and other capacities. We are obligated to pay or reimburse the defense costs incurred by our present and former directors and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. Indemnification agreements that we have entered into with our directors and executive officers also require us to indemnify such directors and executive officers for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist. Accordingly, in the event that actions taken by any of our directors or officers impede the performance of our company, your ability to recover damages from such director or officer will be limited.
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Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of OP units and of LLC units in our predecessor entities, which may impede business decisions that could benefit our stockholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our operating partnership or any of its partners or our predecessor entities and their members, on the other. Our directors and officers have duties to our company under Maryland law in connection with their management of our company. At the same time, we, as the general partner of our operating partnership, and our operating partnership, as managing member of our predecessor entities, have fiduciary duties and obligations to our operating partnership and its limited partners and our predecessor entities and their members under Delaware and New York law, the partnership agreement of our operating partnership in connection with the management of our operating partnership, and the limited liability company agreements of our predecessor entities in connection with the management of those entities. Our fiduciary duties and obligations as the general partner of our operating partnership and managing member of our predecessor entities may come into conflict with the duties of our directors and officers to our company. We have adopted policies that are designed to eliminate or minimize certain potential conflicts of interest, and the members of our predecessor entities have agreed that, in the event of a conflict in the duties owed by us to our stockholders and the fiduciary duties owed by our operating partnership, in its capacity as managing member of our predecessor entities, to such members, we may give priority to the separate interests of our company or our stockholders, including with respect to tax consequences to limited partners, LLC members, assignees or our stockholders. Nevertheless, the duties and obligations of the general partner of our operating partnership and the duties and obligations of the managing member of our predecessor entities may come into conflict with the duties of our directors and officers to our company and our stockholders.
Our charter contains a provision that expressly permits certain of our directors and officers to compete with us.
Our directors and officers have outside business interests and may compete with us for investments in properties and for tenants. There is no assurance that any conflicts of interest created by such competition will be resolved in our favor. Our charter provides that we renounce any interest or expectancy in, or right to be offered or to participate in, any business opportunity identified in any investment policy or agreement with any of our directors or officers unless the policy or agreement contemplates that the director or officer must present, communicate or offer such business opportunity to us. We have adopted an Investment Policy that provides that our directors and officers, including David Bistricer, Sam Levinson, JJ Bistricer and Jacob Schwimmer, are not required to present certain identified investment opportunities to us, including assets located outside the New York metropolitan area, for-sale condominium or cooperative conversions, development projects, projects that would require us to obtain guarantees from third parties or to backstop obligations of other parties, and land acquisitions. As a result, except to the extent that our officers and directors must present certain identified business opportunities to us, our officers and directors have no duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we or our subsidiaries engage or propose to engage or to refrain from otherwise competing with us. These individuals also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. These provisions may limit our ability to pursue business or investment opportunities that we might otherwise have had the opportunity to pursue, which could have an adverse effect on our financial condition, our results of operations, our cash flow, the market value of our common stock and our ability to meet our debt obligations and to make distributions to our stockholders.
The consideration given by us in exchange for our interests in the predecessor entities in connection with the formation transactions may have exceeded their fair market value.
We did not obtain any third-party appraisals of the properties in which we have invested in connection with the formation transactions. As a result, the value that forms the basis for the consideration given by us for our interest in the predecessor entities may have exceeded the fair market value of those properties owned by such entities.
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We may have assumed unknown liabilities in connection with the formation transactions, which, if significant, could adversely affect our business.
As part of the formation transactions, we acquired indirect interests in the properties and assets of our predecessor entities, subject to existing liabilities, some of which may have been unknown at the time the private offering was consummated. As part of the formation transactions, each of the predecessor entities made limited representations, warranties and covenants to us regarding the predecessor entities and their assets. Because many liabilities, including tax liabilities, may not have been identified, we may have no recourse for such liabilities. Any unknown or unquantifiable liabilities to which the properties and assets previously owned by our predecessor entities are subject could adversely affect the value of those properties and as a result adversely affect us. See “—Risks Related to Real Estate —We may become subject to liability relating to environmental and health and safety matters, which could have an adverse effect on us, including our financial condition and results of operations” as to the possibility of undisclosed environmental conditions potentially affecting the value of the properties in our portfolio.
The terms of the formation transactions may not have been as favorable to us as if all of the terms were negotiated at arm’s length.
Certain of our directors and executive officers, including David Bistricer, our Co-Chairman and Chief Executive Officer and Sam Levinson, our Co-Chairman and the head of our Investment Committee, own interests, directly or indirectly, in our predecessor entities that own properties included in the Company’s initial portfolio of properties and as such had interests in the formation transactions. As a result, the terms of the formation transactions may not have been as favorable to us as if all of the terms were negotiated at arm’s length.
We may pursue less vigorous enforcement of terms of employment agreements with certain of our executive officers which could negatively impact our stockholders.
Upon completion of the private offering, certain of our executive officers, including David Bistricer, Lawrence Kreider, JJ Bistricer and Jacob Schwimmer, entered into employment agreements with us. We may choose not to enforce, or to enforce less vigorously, our rights under these agreements because of our desire to maintain our ongoing relationships with members of our senior management or our board of directors and their affiliates, with possible negative impact on stockholders. Moreover, these agreements were not negotiated at arm’s length and in the course of structuring the formation transactions, certain of our executive officers had the ability to influence the types and level of benefits that they receive from us under these agreements.
David Bistricer, our Co-Chairman and Chief Executive Officer, and Sam Levinson, our Co-Chairman and the Head of the Investment Committee, have outside business interests that will take their time and attention away from us, which could materially and adversely affect us. In addition, notwithstanding the Investment Policy, members of our senior management may in certain circumstances engage in activities that compete with our activities or in which their business interests and ours may be in conflict.
Our Co-Chairman and Chief Executive Officer, David Bistricer, our Co-Chairman and the Head of the Investment Committee, Sam Levinson, and other members of our senior management team continue to own interests in properties and businesses that were not contributed to us in the formation transactions. For instance, each of David Bistricer, our Co-Chairman and Chief Executive Officer, and JJ Bistricer, our Chief Operating Officer, is an officer of Clipper Equity and each of Sam Levinson, our Co-Chairman and the Head of our Investment Committee, and Jacob Schwimmer, our Chief Property Management Officer, has ownership interests in Clipper Equity. Clipper Equity owns interests in and controls and manages entities that own interests in multi-family and commercial properties in the New York metropolitan area.
We have adopted an Investment Policy that provides that our directors and officers, including David Bistricer, Sam Levinson, JJ Bistricer and Jacob Schwimmer, are not required to present certain identified investment opportunities to us, including assets located outside the New York metropolitan area, for-sale condominium or cooperative conversions, development projects, projects that would require us to obtain guarantees from third parties or to backstop obligations of other parties, and land acquisitions. As a result, except to the extent that our officers and directors must present certain identified business opportunities to us, our officers and directors have no duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we or our subsidiaries engage or propose to engage or to refrain from otherwise competing with us, and therefore may compete with us for investments in properties and for tenants. These individuals also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
We and members of our senior management may also determine to enter into joint ventures or co-investment relationships with respect to one or more properties. As a result of the foregoing, there may at times be a conflict between the interests of members of our senior management and our business interests. Further, although David Bistricer, JJ Bistricer and Jacob Schwimmer will devote such portion of their business time and attention to our business as is appropriate and will be compensated on that basis, under their employment agreements, they will also devote substantial time to other business and investment activities.
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We may experience conflicts of interest with certain of our directors and officers and significant stockholders as a result of their tax positions.
We have entered into a tax protection agreement with our continuing investors pursuant to which we have agreed to indemnify the continuing investors against certain tax liabilities incurred during the 8-year period following the private offering (or with respect to item (iv) below, certain tax liabilities resulting from certain transfers occurring during the 8-year period following the private offering) if those tax liabilities result from (i) the sale, transfer, conveyance or other taxable disposition of any of the properties of our LLC subsidiaries, (ii) any of Renaissance, Berkshire or Gunki LLC failing to maintain a level of indebtedness allocable for U.S. federal income tax purposes to any of the continuing investors such that any of the continuing investors is allocated less than a specified minimum indebtedness in each such LLC subsidiary (in order to comply with this requirement, (1) Renaissance needs to maintain approximately $101.3 million of indebtedness, (2) Berkshire needs to maintain approximately $125.8 million of indebtedness and (3) Gunki needs to maintain approximately $34.4 million of indebtedness), (iii) in a case that such level of indebtedness cannot be maintained, failing to make available to such a continuing investor the opportunity to execute a guarantee of indebtedness of the LLC subsidiary meeting certain requirements that would enable the continuing investor to continue to defer certain tax liabilities, or (iv) the imposition of New York City or New York State real estate transfer tax liability upon a continuing investor as a result of the formation transactions, private offering, this offering and/or certain subsequent transactions (including subsequent issuances of additional LLC units or interests, issuances of OP units by the operating partnership, issuances of common stock by Clipper Realty, issuances of common stock in exchange for class B LLC units or dispositions of property by any LLC subsidiary), or as a result of any of those transfers being aggregated. We estimate that had all of their assets subject to the tax protection agreement been sold in a taxable transaction immediately after the private offering, the amount of our LLC subsidiaries’ indemnification obligations (based on then current tax rates and the valuations of our assets based on the private offering price of $13.50 per share, and including additional payments to compensate the indemnified continuing investors for additional tax liabilities resulting from the indemnification payments) would have been approximately $364.9 million. In addition, we estimate that if New York City or New York State real estate transfer taxes had been imposed on our continuing investors, the maximum amount of our LLC subsidiaries’ indemnification obligations pursuant to the tax protection agreement in respect of New York City or New York State real estate transfer tax liability (based on then current tax rates and the valuations of our assets based on the private offering price of $13.50 per share, and including additional payments to compensate the indemnified continuing investors for additional tax liabilities resulting from the indemnification payments) would have been approximately $74.9 million (although the amount may be significantly less). We do not presently intend to sell or take any other action that would result in a tax protection payment with respect to the properties covered by the tax protection agreement.
In addition, David Bistricer and Sam Levinson may be subject to tax on a disproportionately large amount of the built-in gain that would be realized upon the sale or refinancing of certain properties. David Bistricer and Sam Levinson may therefore influence us to not sell or refinance certain properties, even if such sale or refinancing might be financially advantageous to our stockholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest, as they may wish to avoid realization of their share of the built-in gains in those properties. Alternatively, to avoid realizing such built-in gains they may have to agree to additional reimbursements or guarantees involving additional financial risk.
Our tax protection agreement could limit our ability to sell or otherwise dispose of certain properties including through condominium or cooperative conversions.
In connection with the formation transactions, we entered into a tax protection agreement pursuant to which we agreed to indemnify the continuing investors against certain tax liabilities incurred during the 8-year period following the private offering (or with respect to certain transfers occurring during the 8-year period following the private offering) if those tax liabilities result from the sale, transfer, conveyance or other taxable disposition of any of the properties of our LLC subsidiaries. Therefore, although it may be in our stockholders’ best interests that we sell one of these properties or convert all or a portion of the property into a condominium or cooperative and sell condominium or cooperative units, it may be economically prohibitive for us to do so because of these obligations.
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Deficiencies in our internal control over financial reporting could adversely affect our ability to present accurately our financial statements and could materially and adversely affect us, including our business, reputation, results of operations, financial condition or liquidity.
Effective internal control is necessary for us to accurately report our financial results. There can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. In connection with the audit of our Predecessor’s historical financial statements, our registered independent public accounting firm identified certain significant deficiencies in our internal control over financial reporting and we are taking steps to remediate them. As we grow our business, our internal control will become more complex, and we may require significantly more resources to ensure our internal control remains effective. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations that could require a restatement, failing to meet our reporting obligations and causing investors to lose confidence in our reported financial information. These events could materially and adversely affect us, including our business, reputation, results of operations, financial condition or liquidity.
Risks Related to Our Indebtedness and Financing
We have a substantial amount of indebtedness that may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.
As of September 30, 2016, we had approximately $814.7 million of total indebtedness, all of which was property-level debt. On November 9, 2016, the Company refinanced $460 million of loans due November 2016 secured by the Tribeca House property with a loan package comprising a $335 million mortgage and a $75 million mezzanine note agreement.
Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement our capital expenditure, acquisition and redevelopment activities, or meet the REIT distribution requirements imposed by the Code. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:
· | require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness, thereby reducing the funds available for other purposes; |
· | make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs; |
· | force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of the 100% tax on income from prohibited transactions, discussed below in “Material U.S. Federal Income Tax Consequences”) or in violation of certain covenants to which we may be subject; |
· | subject us to increased sensitivity to interest rate increases; |
· | make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events; |
· | limit our ability to withstand competitive pressures; |
· | limit our ability to refinance our indebtedness at maturity or result in refinancing terms that are less favorable than the terms of our original indebtedness; |
· | reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or |
· | place us at a competitive disadvantage to competitors that have relatively less debt than we have. |
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If any one of these events were to occur, our financial condition, results of operations, cash flow and the market value of our common stock could be adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hurt our ability to meet the REIT distribution requirements imposed by the Code.
Our tax protection agreement requires our operating partnership to maintain certain debt levels that otherwise would not be required to operate our business.
Under our tax protection agreement, we undertake that our LLC subsidiaries will maintain a certain level of indebtedness and, in the case that level of indebtedness cannot be maintained, we are required to provide our continuing investors the opportunity to guarantee debt. If we fail to maintain such debt levels, or fail to make such opportunities available, we will be required to deliver to each applicable continuing investor a cash payment intended to approximate the continuing investor’s tax liability resulting from our failure and the tax liabilities incurred as a result of such tax protection payment. We agreed to these provisions in order to assist our continuing investors in deferring the recognition of taxable gain as a result of and after the formation transactions. These obligations require us to maintain more or different indebtedness than we would otherwise require for our business.
We may be unable to refinance current or future indebtedness on favorable terms, if at all.
We may not be able to refinance existing debt on terms as favorable as the terms of existing indebtedness, or at all, including as a result of increases in interest rates or a decline in the value of our portfolio or portions thereof. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds from other capital transactions, such as new equity capital, our operating cash flow will not be sufficient in all years to repay all maturing debt. As a result, certain of our other debt may cross default, we may be forced to postpone capital expenditures necessary for the maintenance of our properties, we may have to dispose of one or more properties on terms that would otherwise be unacceptable to us or we may be forced to allow the mortgage holder to foreclose on a property. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Property-Level Debt.” We also may be forced to limit distributions and may be unable to meet the REIT distribution requirements imposed by the Code. Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would likely have a negative impact on our financial condition and results of operations and could adversely affect our ability to make distributions to our stockholders.
We may not have sufficient cash flow to meet the required payments of principal and interest on our debt or to pay distributions on our common stock at expected levels.
In the future, our cash flow could be insufficient to meet required payments of principal and interest or to pay distributions on our shares at expected levels. In this regard, we note that in order for us to qualify as a REIT, we are required to make annual distributions generally equal to at least 90% of our taxable income, computed without regard to the dividends paid deduction and excluding net capital gain. In addition, as a REIT, we will be subject to U.S. federal income tax to the extent that we distribute less than 100% of our taxable income (including capital gains) and will be subject to a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than a minimum amount specified by the Code. These requirements and considerations may limit the amount of our cash flow available to meet required principal and interest payments.
If we are unable to make required payments on indebtedness that is secured by a mortgage on our property, the asset may be transferred to the lender resulting in the loss of income and value to us, including adverse tax consequences related to such a transfer.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt.
Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured by property may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of our portfolio of properties. For tax purposes, a foreclosure of any of our properties that is subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hurt our ability to meet the distribution requirements applicable to REITs under the Code.
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Our debt agreements include restrictive covenants and default provisions which could limit our flexibility, our ability to make distributions and require us to repay the indebtedness prior to its maturity.
The mortgages on our properties contain customary negative covenants that, among other things, limit our ability, without the prior consent of the lender, to further mortgage the property and to reduce or change insurance coverage. As of September 30, 2016, we had $814.7 million of combined property mortgages and other secured debt. On November 9, 2016, the Company refinanced $460.0 million of loans due November 2016 secured by the Tribeca House property with a loan package comprising a $335 million mortgage and a $75 million mezzanine note agreement. The loans bear a combined interest rate of one-month LIBOR plus 3.75%, mature on November 9, 2018 and are subject to three one-year extension options. Additionally, our debt agreements contain customary covenants that, among other things, restrict our ability to incur additional indebtedness and, in certain instances, restrict our ability to engage in material asset sales, mergers, consolidations and acquisitions, and restrict our ability to make capital expenditures. These debt agreements, in some cases, also subject us to guarantor and liquidity covenants. Some of our debt agreements contain certain cash flow sweep requirements and mandatory escrows, and our property mortgages generally require certain mandatory prepayments upon disposition of underlying collateral. In addition, early repayment of certain mortgages may be subject to prepayment penalties.
Variable rate debt is subject to interest rate risk that could increase our interest expense, increase the cost to refinance and increase the cost of issuing new debt.
As of September 30, 2016, approximately $460.0 million of our outstanding consolidated debt was subject to instruments which bear interest at variable rates, and we may also borrow additional money at variable interest rates in the future. On November 9, 2016, the Company refinanced $460.0 million of loans due November 2016 secured by the Tribeca House property with a loan package comprising a $335 million and $75 million mezzanine note agreement. The loans bear a combined interest rate of one-month LIBOR plus 3.75%, mature on November 9, 2018 and are subject to three one-year extension options. Unless we have made arrangements that hedge against the risk of rising interest rates, increases in interest rates would increase our interest expense under these instruments, increase the cost of refinancing these instruments or issuing new debt, and adversely affect cash flow and our ability to service our indebtedness and make distributions to our stockholders, which could adversely affect the market price of our common stock. Based on our aggregate variable rate debt outstanding as of September 30, 2016 (pro forma for the refinancing of Tribeca House debt on November 9, 2016), an increase of 100 basis points in interest rates would result in a hypothetical increase of approximately $4.1 million in interest expense on an annual basis. The amount of this change includes the benefit of swaps and caps we currently have in place.
Hedging activity may expose us to risks, including the risks that a counterparty will not perform and that the hedge will not yield the economic benefits we anticipate, which could adversely affect us.
We may, in a manner consistent with our qualification as a REIT, seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements, and that these arrangements may not be effective in reducing our exposure to interest rate changes. Moreover, there can be no assurance that our hedging arrangements will qualify for hedge accounting or that our hedging activities will have the desired beneficial impact on our results of operations. Should we desire to terminate a hedging agreement, there could be significant costs and cash requirements involved to fulfill our obligations under the hedging agreement. Generally, failure to hedge effectively against interest rate changes may adversely affect our results of operations.
When a hedging agreement is required under the terms of a mortgage loan, it is often a condition that the hedge counterparty maintains a specified credit rating. With the current volatility in the financial markets, there is an increased risk that hedge counterparties could have their credit rating downgraded to a level that would not be acceptable under the loan provisions. If we were unable to renegotiate the credit rating condition with the lender or find an alternative counterparty with an acceptable credit rating, we could be in default under the loan and the lender could seize that property through foreclosure, which could adversely affect us.
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Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code limit our ability to hedge our liabilities. Generally, income from a hedging transaction we enter into either to manage risk of interest rate changes with respect to borrowings incurred or to be incurred to acquire or carry real estate assets, or to manage the risk of currency fluctuations with respect to any item of income or gain (or any property which generates such income or gain) that constitutes “qualifying income” for purposes of the 75% or 95% gross income tests applicable to REITs, does not constitute “gross income” for purposes of the 75% or 95% gross income tests, provided that we properly identify the hedging transaction pursuant to the applicable sections of the Code and Treasury regulations. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both gross income tests. As a result of these rules, we may need to limit our use of otherwise advantageous hedging techniques or implement those hedges through a TRS. The use of a TRS could increase the cost of our hedging activities (because our TRS would be subject to tax on income or gain resulting from hedges entered into by it) or expose us to greater risks than we would otherwise want to bear. In addition, net losses in any of our TRSs will generally not provide any tax benefit except for being carried forward for use against future taxable income in the TRSs.
A portion of our distributions may be treated as a return of capital for U.S. federal income tax purposes, which could reduce the basis of a stockholder’s investment in shares of our common stock and may trigger taxable gain.
A portion of our distributions may be treated as a return of capital for U.S. federal income tax purposes. As a general matter, a portion of our distributions will be treated as a return of capital for U.S. federal income tax purposes if the aggregate amount of our distributions for a year exceeds our current and accumulated earnings and profits for that year. To the extent that a distribution is treated as a return of capital for U.S. federal income tax purposes, it will reduce a holder’s adjusted tax basis in the holder’s shares, and to the extent that it exceeds the holder’s adjusted tax basis will be treated as gain resulting from a sale or exchange of such shares. See “Material U.S. Federal Income Tax Consequences.”
Risks Related to Our Status as a REIT
Although provisions of the Code generally relevant to an investment in shares of our common stock are described in “Material U.S. Federal Income Tax Consequences,” you should consult your tax advisor concerning the effects of U.S. federal, state, local and foreign tax laws to you with regard to an investment in shares of our common stock.
Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our common stock.
We elected to qualify to be treated as a REIT commencing with our first taxable year ended December 31, 2015. The Code generally requires that a REIT distribute at least 90% of its taxable income (without regard to the dividends paid deduction and excluding net capital gains) to stockholders annually, and a REIT must pay tax at regular corporate rates to the extent that the REIT distributes less than 100% of its taxable income (including capital gains) in a given year. In addition, a REIT is required to pay a 4% nondeductible excise tax on the amount, if any, by which the distributions the REIT makes in a calendar year are less than the sum of 85% of the REIT’s ordinary income, 95% of the REIT’s capital gain net income and 100% of the REIT’s undistributed income from prior years. To avoid entity-level U.S. federal income and excise taxes, we anticipate distributing at least 100% of our taxable income.
We believe that we are organized, have operated and will continue to operate in a manner that will allow us to qualify as a REIT commencing with our first taxable year ended December 31, 2015. However, we cannot assure you that we are organized, have operated and will continue to operate as such. This is because qualification as a REIT involves the application of highly technical and complex provisions of the Code as to which there may only be limited judicial and administrative interpretations and involves the determination of facts and circumstances not entirely within our control. We have not requested and do not intend to request a ruling from the Internal Revenue Service (“IRS”) that we qualify as a REIT. Moreover, in order to qualify as a REIT, we must meet, on an ongoing basis, various tests regarding the nature and diversification of our assets and our income, the ownership of our outstanding stock and the amount of our distributions. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT gross income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our gross income and assets on an ongoing basis. Future legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws or the application of the tax laws with respect to qualification as a REIT for U.S. federal income tax purposes or the U.S. federal income tax consequences of such qualification. Accordingly, it is possible that we may not meet the requirements for qualification as a REIT.
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If, with respect to any taxable year, we fail to maintain our qualification as a REIT, we would not be allowed to deduct distributions to stockholders in computing our taxable income. If we were not entitled to relief under the relevant statutory provisions, we would also be disqualified from treatment as a REIT for the four subsequent taxable years. If we fail to qualify as a REIT, we would be subject to entity-level income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate tax rates. As a result, the amount available for distribution to holders of our common stock would be reduced for the year or years involved, and we would no longer be required to make distributions. In addition, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and adversely affect the value of our common stock.
If our special voting stock and the class B LLC units are treated as a single stock interest in the Company, we could fail to qualify as a REIT.
We believe that the special voting stock and class B LLC units will be treated as separate interests in the Company and its predecessor entities, respectively. However, no assurance can be given that the IRS will not argue, or that a court would not find or hold, that the special voting stock and the class B LLC units should be treated as a single stock interest in the Company for U.S. federal income tax purposes. If the special voting stock and class B LLC units were treated as a single stock interest in the Company, it is possible that more than 50% in value of the outstanding stock of the Company could be treated as held by five or fewer individuals. In such a case, we could be treated as “closely held” and we could therefore fail to qualify as a REIT. Such failure would have significant adverse consequences. See “—Failure to qualify or to maintain our qualification as a REIT would have significant adverse consequences to the value of our common stock” above.
We may owe certain taxes notwithstanding our qualification as a REIT.
Even if we qualify as a REIT, we will be subject to certain U.S. federal, state and local taxes on our income and property, on taxable income that we do not distribute to our stockholders, on net income from certain “prohibited transactions,” and on income from certain activities conducted as a result of foreclosure. We may, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT. In addition, we may provide services that are not customarily provided by a landlord, hold properties for sale and engage in other activities through TRSs (as defined under “Material U.S. Federal Income Tax Consequences—Taxation of the Company as a REIT—Requirements for Qualification—Taxable REIT Subsidiaries”) and the income of those subsidiaries will be subject to U.S. federal income tax at regular corporate rates.
Dividends payable by REITs generally do not qualify for reduced tax rates.
The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are individuals, trusts and estates generally is 20% (plus a 3.8% Medicare tax discussed below under “Material U.S. Federal Income Tax Consequences”). Dividends payable by REITs, however, are generally not eligible for the reduced rates and therefore may be subject to a 39.6% (plus 3.8% Medicare tax) maximum U.S. federal income tax rate on ordinary income when paid to such stockholders. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates or are otherwise sensitive to these lower rates to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
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Complying with the REIT requirements may cause us to forego otherwise attractive opportunities or liquidate certain of our investments.
To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may, for instance, hinder our ability to make certain otherwise attractive investments or undertake other activities that might otherwise be beneficial to us and our stockholders, or may require us to borrow or liquidate investments in unfavorable market conditions and, therefore, may hinder our investment performance.
As a REIT, at the end of each calendar quarter, at least 75% of the value of our assets must consist of cash, cash items, government securities and qualified real estate assets. The remainder of our investments in securities (other than cash, cash items, government securities, securities issued by a TRS and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than cash, cash items, government securities, securities issued by a TRS and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total securities can be represented by securities of one or more TRSs (25% for taxable years ending on or before December 31, 2017), and no more than 25% of the value of our total assets may consist of “nonqualified” debt instruments issued by publicly offered REITs. After meeting these requirements at the close of a calendar quarter, if we fail to comply with these requirements at the end of any subsequent calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification. As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
We may be subject to a 100% penalty tax on any prohibited transactions that we enter into, or may be required to forego certain otherwise beneficial opportunities in order to avoid the penalty tax on prohibited transactions.
If we are found to have held, acquired or developed property primarily for sale to customers in the ordinary course of business, we may be subject to a 100% “prohibited transactions” tax under U.S. federal tax laws on the gain from disposition of the property unless the disposition qualifies for one or more safe harbor exceptions for properties that have been held by us for at least two years and satisfy certain additional requirements (or the disposition is made through a TRS and, therefore, is subject to corporate U.S. federal income tax).
Under existing law, whether property is held primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances. We intend to hold, and, to the extent within our control, to have any joint venture to which our operating partnership is a partner hold, properties for investment with a view to long-term appreciation, to engage in the business of acquiring, owning, operating and developing the properties, and to make sales of our properties and other properties acquired subsequent to the date hereof as are consistent with our investment objectives. Based upon our investment objectives, we believe that overall, our properties should not be considered property held primarily for sale to customers in the ordinary course of business. However, it may not always be practical for us to comply with one of the safe harbors, and, therefore, we may be subject to the 100% penalty tax on the gain from dispositions of property if we otherwise are deemed to have held the property primarily for sale to customers in the ordinary course of business.
The potential application of the prohibited transactions tax could cause us to forego potential dispositions of other property or to forego other opportunities that might otherwise be attractive to us, or to hold investments or undertake such dispositions or other opportunities through a TRS, which would generally result in corporate income taxes being incurred. For example, we anticipate that we would have to conduct any condominium or cooperative conversion of our Tribeca House properties and 141 Livingston Street property through a TRS.
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REIT distribution requirements could adversely affect our liquidity and adversely affect our ability to execute our business plan.
In order to maintain our qualification as a REIT and to meet the REIT distribution requirements, we may need to modify our business plans. Our cash flow from operations may be insufficient to fund required distributions, for example, as a result of differences in timing between our cash flow, the receipt of income for GAAP purposes and the recognition of income for U.S. federal income tax purposes, the effect of non-deductible capital expenditures, the creation of reserves, payment of required debt service or amortization payments, or the need to make additional investments in qualifying real estate assets. The insufficiency of our cash flow to cover our distribution requirements could require us to (i) sell assets in adverse market conditions, (ii) borrow on unfavorable terms, (iii) distribute amounts that would otherwise be invested in future acquisitions or capital expenditures or used for the repayment of debt, (iv) pay dividends in the form of “taxable stock dividends” or (v) use cash reserves, in order to comply with the REIT distribution requirements. As a result, compliance with the REIT distribution requirements could adversely affect the market value of our common stock. The inability of our cash flow to cover our distribution requirements could have an adverse impact on our ability to raise short- and long-term debt or sell equity securities. In addition, if we are compelled to liquidate our assets to repay obligations to our lenders or make distributions to our stockholders, we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as property held primarily for sale to customers in the ordinary course of business.
The ability of our board of directors to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and will be subject to U.S. federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on our total return to our stockholders.
Our ability to provide certain services to our tenants may be limited by the REIT rules, or may have to be provided through a TRS.
As a REIT, we generally cannot provide services to our tenants other than those that are customarily provided by landlords, nor can we derive income from a third party that provides such services. If we forego providing such services to our tenants, we may be at a disadvantage to competitors who are not subject to the same restrictions. However, we can provide such non-customary services to tenants or share in the revenue from such services if we do so through a TRS, though income earned through the TRS will be subject to corporate income taxes. Clipper TRS will provide certain services at our properties.
Although our use of TRSs may partially mitigate the impact of meeting certain requirements necessary to maintain our qualification as a REIT, there are limits on our ability to own TRSs, and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s assets may consist of securities of one or more TRSs (25% for taxable years ending on or before December 31, 2017). In addition, rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. Rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are treated as not being conducted on an arm’s-length basis.
Clipper TRS and any other TRSs that we form will pay U.S. federal, state and local income tax on the TRSs’ taxable income, and the TRSs’ after-tax net income will be available for distribution to us but is not required to be distributed to us unless necessary to maintain our REIT qualification. Although we will monitor the aggregate value of the securities of such TRSs and intend to conduct our affairs so that such securities will represent less than 20% of the value of our total assets, there can be no assurance that we will be able to comply with the TRS limitation in all market conditions.
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Possible legislative, regulatory or other actions could adversely affect our stockholders and us.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect our stockholders or us. In recent years, many such changes have been made and changes are likely to continue to occur in the future. We cannot predict whether, when, in what form, or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or decided, which could result in an increase in our, or our stockholders’, tax liability or require changes in the manner in which we operate in order to minimize increases in our tax liability. A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income and/or be subject to additional restrictions. These increased tax costs could, among other things, adversely affect our financial condition, the results of operations and the amount of cash available for the payment of dividends. Stockholders are urged to consult with their own tax advisors with respect to the impact that recent legislation may have on their investment and the status of legislative, regulatory or administrative developments and proposals and their potential effect on their investment in our shares.
Our property taxes could increase due to property tax rate changes or reassessment, which could impact our cash flow.
Even if we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay state and local taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. In particular, our portfolio of properties may be reassessed as a result of this offering. In particular, our portfolio of properties may be reassessed as a result of this offering. Therefore, the amount of property taxes we pay in the future may increase substantially from what we have paid in the past and such increases may not be covered by tenants pursuant to our lease agreements. If the property taxes we pay increase, our financial condition, results of operations, cash flow, per share trading price of our common stock and our ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected.
Risks Related to this Offering and Ownership of Our Common Stock
A trading market for our common stock may never develop or be sustained.
Although we intend to apply to list our common stock on the NYSE, even if such application is approved, an active trading market for our common stock may not develop on that exchange or elsewhere, or, if developed, that market may not be sustained. Accordingly, if an active trading market for our common stock does not develop or is not sustained, the liquidity of our common stock, your ability to sell your shares of common stock when desired and the prices that you may obtain for your shares of common stock will be adversely affected.
The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.
Even if an active trading market develops for our common stock, the market price of our common stock may be highly volatile and subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. The initial public offering price of our common stock will be determined by negotiation between us and the representatives of the underwriters based on a number of factors and may not be indicative of prices that will prevail in the open market following completion of this offering. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above your purchase price, if at all. The market price of our common stock may fluctuate or decline significantly in the future.
Our financial performance, government regulatory action, tax laws, interest rates and market conditions in general could have a significant impact on the future market price of our common stock. Some of the factors that could negatively affect or result in fluctuations in the market price of our common stock include:
· | actual or anticipated variations in our quarterly or annual operating results; |
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· | increases in market interest rates that lead purchasers of our shares to demand a higher yield; |
· | changes in market valuations of similar companies; |
· | adverse market reaction to any increased indebtedness we incur in the future; |
· | additions or departures of key personnel; |
· | actions by stockholders; |
· | speculation in the press or investment community; |
· | general market, economic and political conditions, including an economic slowdown or dislocation in the global credit markets; |
· | our operating performance and the performance of other similar companies; |
· | negative publicity regarding us specifically or our business lines generally; |
· | changes in accounting principles; and |
· | passage of legislation or other regulatory developments that adversely affect us or our industry. |
Broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations, including in recent months. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
The initial public offering price per share of common stock in this offering may not accurately reflect the value of your investment.
Immediately prior to this offering, there was no market for our common stock. The initial public offering price per share of common stock offered in this offering was determined by negotiations between us and the representatives of the underwriters. Factors considered in determining the price of our common stock may include:
· | the history and prospects of companies whose principal business is commercial and multi-family real estate ownership; |
· | prior offerings of those companies; |
· | our capital structure; |
· | an assessment of our management and its experience; |
· | general conditions of the securities markets at the time of this offering; and |
· | other factors we deem relevant. |
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There are restrictions on ownership and transfer of our common stock.
To assist us in qualifying as a REIT, among other purposes, our charter generally limits beneficial ownership by any person to no more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock or 9.8% of the aggregate value of all our outstanding stock. In addition, our charter contains various other restrictions on the ownership and transfer of shares of our stock. See “Description of Capital Stock— Restrictions on Ownership and Transfer.” As a result, an investor that purchases shares of our common stock in this offering may not be able to readily resell such common stock.
Investors in this offering will suffer immediate and substantial dilution.
The initial public offering price of our common stock will be substantially higher than the as adjusted net tangible book value per share issued and outstanding immediately after this offering. Our net tangible book value as of September 30, 2016 was approximately $112.79 million, or approximately $2.99 per share based on the shares of common stock and class B LLC units issued and outstanding as of such date. After giving effect to our sale of common stock in this offering at the initial public offering price of $14.50 per share (the midpoint of the price range set forth on the front cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2016 would have been approximately $204.19 million, or $4.56 per share. Therefore, if you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution of $9.94 per share, based upon the initial public offering price of $14.50 per share. Investors that purchase common stock in this offering will have purchased 15.6% of the shares and Class B LLC units issued and outstanding immediately after the offering, but will have paid 16.6% of the total consideration for those shares.
Future sales of our common stock or other securities convertible into our common stock could cause the market value of our common stock to decline and could result in dilution of your shares.
Our board of directors is authorized, without approval of our common stockholders, to cause us to issue additional shares of our stock or to raise capital through the issuance of preferred stock, options, warrants and other rights on terms and for consideration as our board of directors in its sole discretion may determine.
Pursuant to the registration rights agreement entered into in connection with the private offering, as amended, we are required, among other things, to use our commercially reasonable efforts to cause a shelf registration statement registering for resale the registrable shares (as defined in the registration rights agreement) that are not sold by the selling stockholders in this offering, to be declared effective by the SEC as soon as practicable (but in no event later than the earlier of (i) January 31, 2017 and (ii) 60 days after the closing of this offering; provided that if this offering occurs within the 60 days prior to January 31, 2017, such date shall be 60 days after the closing of the initial public offering of our common stock). See “Description of Capital Stock—Registration Rights.” Once we register the registrable shares, they can be freely sold in the public market, subject to any applicable lock-up agreements. See “Shares Eligible for Future Sale.”
In connection with this offering, we intend to file a registration statement on Form S-8 to register 1,350,000 shares of our common stock for issuance to our employees, consultants and non-employee directors pursuant to the Clipper Realty Inc. 2015 Omnibus Incentive Plan and the Clipper Realty Inc. 2015 Non-Employee Director Plan. We may increase the number of shares registered for this purpose from time to time. Once we register these shares, they generally will be able to be sold to the public market upon issuance.
Sales of substantial amounts of our common stock could dilute your ownership and could cause the market price of our common stock to decrease significantly. We cannot predict the effect, if any, of future sales of our common stock, or the availability of our common stock for future sales, on the value of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect the market price of our common stock.
In addition, our operating partnership may issue additional OP units and our LLC subsidiaries may issue additional LLC units to third parties without the consent of our stockholders, which would reduce our ownership percentage in our operating partnership or LLC subsidiaries, as applicable, and would have a dilutive effect on the amount of distributions made to us by our operating partnership and, if applicable, to our operating partnership by our LLC subsidiaries and, therefore, the amount of distributions we can make to our stockholders. Any such issuances, or the perception of such issuances, could materially and adversely affect the market price of our common stock.
Future offerings of debt securities or preferred stock, which would rank senior to our common stock upon our bankruptcy liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.
In the future, we may attempt to raise additional capital by making offerings of debt securities or additional offerings of equity securities, including preferred stock. Upon bankruptcy or liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to pay a dividend or other distribution to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control. As a result, we cannot predict or estimate the amount, timing or nature of our future offerings, and purchasers of our common stock in this offering bear the risk of our future offerings reducing the market price of our common stock and diluting their ownership interest in our company.
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We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, an extended transition period for complying with new or revised accounting standards and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1 billion, or (c) in which we are deemed to be a large accelerated filer, which means, among other things, the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
As a public company, we will incur additional costs and face increased demands on our management.
As a public company with shares listed on a U.S. exchange, we will need to comply with an extensive body of regulations that did not apply to us previously, including provisions of the Sarbanes-Oxley Act, regulations of the SEC and requirements of the NYSE. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, particularly after we are no longer an emerging growth company. In addition, these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance coverage. We cannot predict or estimate the amount of additional costs we may incur as a result of these requirements or the timing of such costs.
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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Various statements contained in this prospectus, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this prospectus speak only as of the date of this prospectus; we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including those discussed under “Risk Factors” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, contingencies and uncertainties include, but are not limited to, the following:
· | market and economic conditions affecting occupancy levels, rental rates, the overall market value of our properties, our access to capital and the cost of capital and our ability to refinance indebtedness; |
· | economic or regulatory developments in New York City; |
· | the single government tenant in our commercial buildings may suffer financial difficulty; |
· | our ability to control operating costs to the degree anticipated; |
· | the risk of damage to our properties, including from severe weather, natural disasters, climate change, and terrorist attacks; |
· | risks related to financing, cost overruns, and fluctuations in occupancy rates and rents resulting from development or redevelopment activities and the risk that we may not be able to pursue or complete development or redevelopment activities or that such development or redevelopment activities may not be profitable; |
· | concessions or significant capital expenditures that may be required to attract and retain tenants; |
· | the relative illiquidity of real estate investments; |
· | competition affecting our ability to engage in investment and development opportunities or attract or retain tenants; |
· | unknown or contingent liabilities in properties acquired in formative and future transactions; |
· | changes in rent stabilization regulations or claims by tenants in rent-stabilized units that their rents exceed specified maximum amounts under current regulations; |
· | the possible effects of departure of key personnel in our management team on our investment opportunities and relationships with lenders and prospective business partners; |
· | conflicts of interest faced by members of management relating to the acquisition of assets and the development of properties, which may not be resolved in our favor; |
· | a transfer of a controlling interest in any of our properties may obligate us to pay transfer tax based on the fair market value of the real property transferred; |
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· | a trading market for our common stock may never develop or be sustained; |
· | the market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders; |
· | the initial public offering price per share of common stock in this offering may not accurately reflect the value of your investment; |
· | investors in this offering will suffer immediate and substantial dilution; |
· | future sales of our common stock or other securities convertible into our common stock could cause the market value of our common stock to decline and could result in dilution; |
· | failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to holders of our stock; |
· | our common stock may be less attractive to investors given that we have reduced disclosure and governance requirements as an “emerging growth company”; and |
· | as a public company, we will incur additional costs and face increased demands on our management. |
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We estimate that the net proceeds to us from the sale of the shares of our common stock offered by us will be approximately $91.4 million, based on an assumed initial public offering price of $14.50 per share, the midpoint of the price range set forth on the front cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $105.8 million, after deducting underwriting discounts and commissions and expenses.
A $1.00 increase (decrease) in the assumed initial public offering price of $14.50 per share would increase (decrease) the net proceeds to us from this offering by approximately $6.51 million, assuming the number of shares offered by us, as set forth on the front cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of one million shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $13.49 million, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use all or a portion of the net proceeds of this offering, together with cash on hand, which was $41.6 million at September 30, 2016, pro forma for the refinancing of Tribeca House debt on November 9, 2016 and refund of an acquisition deposit on November 14, 2016 (actual amount as of that date was $82.1 million), to (i) fund approximately $46 million of certain capital improvements to reposition and modernize our properties, including the Columbia Heights property, and (ii) fund acquisitions of properties consistent with our strategy of acquiring multi-family or commercial properties in the New York metropolitan area, including the Columbia Heights acquisition. Pending application of the net proceeds, we will invest the net proceeds in short-term, interest-bearing securities that are consistent with our election to be taxed as a REIT for U.S. federal income tax purposes. Such investments may include obligations of the Government National Mortgage Association, other government agency securities, certificates of deposit, and interest-bearing bank deposits.
We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders. However, we have agreed to pay all expenses relating to the registration of the shares sold by the selling stockholders, other than any brokers’ or underwriters’ discounts and commissions.
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There is no guarantee that we will make quarterly cash distributions to holders of our common stock. We may make distributions only when, as and if authorized by our board of directors from funds legally available for distribution. Our cash distribution policy may be changed at any time and is subject to certain restrictions, including the following:
· | we may lack sufficient cash to pay distributions on shares of our common stock for a number of reasons, including as a result of increases in our operating or general and administrative expenses, principal and interest payments on our debt, working capital requirements or cash needs; |
· | our ability to make cash distributions to holders of our common stock depends on the performance of our subsidiaries and their ability to distribute cash to us and on the performance of our properties and tenants; and |
· | the ability of our subsidiaries to make distributions to us may be restricted by, among other things, covenants in the instruments governing current or future debt of these subsidiaries. |
As described below, U.S. federal income tax law requires that we distribute annually at least 90% of our taxable income (without regard to the dividends paid deduction and excluding net capital gains). As a result, we expect to generally distribute a significant percentage of our available cash to holders of our common stock. Therefore, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations. We expect that we will rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities to fund our acquisitions and capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow. To the extent we issue additional shares of common stock, our operating partnership issues OP units or our existing or new LLC subsidiaries issue LLC units in connection with any acquisitions or other transactions, the payment of distributions on those additional securities may increase the risk that we will be unable to maintain or increase our distributions to stockholders.
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On December 4, 2015, we paid a cash dividend of $0.043333 per share (totaling $494,976) and on March 11, June 3, September 2 and December 2, 2016, we paid a cash dividend of $0.065 per share (each totaling $742,469). Any future distributions we make will be at the discretion of our board of directors and will depend on a number of factors, including prohibitions or restrictions under financing agreements, our charter or applicable law and other factors described below.
We cannot assure you that our board of directors will not change our distribution policy in the future. Any distributions we pay in the future will depend upon our actual results of operations, liquidity, cash flows, financial condition, economic conditions, debt service requirements and other factors that could differ materially from our current expectations. Our actual results of operations, liquidity, cash flows and financial condition will be affected by a number of factors, including the revenue we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our ability to pay dividends and make other distributions to our stockholders, see “Risk Factors.”
U.S. federal income tax law requires that a REIT distribute annually at least 90% of its taxable income (without regard to the dividends paid deduction and excluding net capital gains) and that it pay U.S. federal income tax at regular corporate rates to the extent that it distributes annually less than 100% of its taxable income (including capital gains). In addition, a REIT is required to pay a 4% nondeductible excise tax on the amount, if any, by which the distributions it makes in a calendar year are less than the sum of 85% of its ordinary income, 95% of its capital gain net income and 100% of its undistributed income from prior years. For more information, see “Material U.S. Federal Income Tax Consequences.” We anticipate that our cash available for distribution will be sufficient to enable us to meet the annual distribution requirements applicable to REITs and to avoid or minimize the imposition of U.S. federal income and excise taxes. However, under some circumstances, we may be required to pay distributions in excess of cash available for distribution in order to meet these distribution requirements or to avoid or minimize the imposition of tax, and we may need to borrow funds or dispose of assets to make such distributions.
It is possible that, at least initially, our distributions will exceed our then current and accumulated earnings and profits as determined for U.S. federal income tax purposes. Therefore, a portion of our distributions may represent a return of capital for U.S. federal income tax purposes. That portion of our distributions in excess of our current and accumulated earnings and profits will not be taxable to a taxable U.S. stockholder under current U.S. federal income tax law to the extent that portion of our distributions does not exceed the stockholder’s adjusted tax basis in the stockholder’s common stock, but instead will reduce the adjusted basis of the common stock. As a result, the gain recognized on a subsequent sale of that common stock or upon our liquidation will be increased (or a loss decreased) accordingly. To the extent those distributions exceed a taxable U.S. stockholder’s adjusted tax basis in his or her shares of common stock, they generally will be treated as a capital gain realized from the taxable disposition of those shares. The percentage of our stockholder distributions that exceeds our current and accumulated earnings and profits may vary substantially from year to year. For a more complete discussion of the tax treatment of distributions to holders of our common stock, see “Material U.S. Federal Income Tax Consequences.”
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The following table sets forth our capitalization as of September 30, 2016, on an actual basis, on an as adjusted basis to give effect to the refinancing of Tribeca House debt on November 9, 2016 and on an as adjusted basis to give effect to the sale by us of 7,000,000 shares of our common stock in this offering at an initial public offering price of $14.50 per share, which is the midpoint of the price range set forth on the front cover page of this prospectus, less underwriting discounts and commissions and other estimated offering expenses payable by us.
You should read the following table in conjunction with the more detailed information contained in the financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus. As disclosed therein under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Accounting Policies,” real estate assets held for investment are carried at historical cost.
Clipper Realty Inc.
Actual and As Adjusted
As of September 30, 2016
(unaudited, in thousands)
September 30, 2016 | ||||||||||||
Historical | As Adjusted Subtotal (1) | As Adjusted | ||||||||||
Notes payable, net of unamortized loan costs | $ | 807,893 | $ | 752,861 | $ | 752,861 | ||||||
Stockholders’ equity | 39,696 | 39,554 | 91,450 | |||||||||
Non-controlling interests | 91,461 | 91,135 | 130,639 | |||||||||
Total capitalization | $ | 939,050 | $ | 883,550 | $ | 974,950 |
(1) Reflects the incurrence of $410,000 of mortgage indebtedness on November 9, 2016, bearing interest of one-month LIBOR plus 3.75%, net of cost of $5,500 and repayment of $100,000 and $360,000 of indebtedness, net of unamortized debt issuance costs of $468, together with cash on hand, as if all occurred on September 30, 2016.
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If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price in this offering per share of our common stock and the net tangible book value per share of our common stock upon consummation of this offering. Net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities divided by the number of shares of common stock outstanding, assuming all class B LLC units are exchanged for shares of common stock.
Our net tangible book value as of September 30, 2016 was approximately $112.79 million, or approximately $2.99 per share based on the 11,422,606 shares of common stock and 26,317,396 class B LLC units issued and outstanding as of such date. After giving effect to our sale of common stock in this offering at the initial public offering price of $14.50 per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2016 would have been approximately $204.19 million, or $4.56 per share (assuming no exercise of the underwriters’ option to purchase additional shares of common stock). This represents an immediate increase in net tangible book value of $1.57 per share to existing equityholders and an immediate dilution of $9.94 per share to investors purchasing common stock in this offering.
The following table illustrates this dilution per share assuming the underwriters do not exercise their option to purchase additional shares of common stock:
Assumed initial public offering price per share | $ | 14.5 |
Net tangible book value per share as of September 30, 2016, before giving effect to this offering
|
2.99 | |
Increase in net tangible book value per share attributable to this offering | 1.57 | |
Net tangible book value per share, after this offering | 4.56 | |
Dilution in net tangible book value per share to investors purchasing shares in this offering | $ | 9.94 |
A $1.00 increase (decrease) in the assumed initial public offering price of $14.5 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) our net tangible book value after this offering by approximately $6.51 million, the net tangible book value per share after this offering by approximately $0.14 per share and the dilution to investors in this offering by approximately $0.85 per share, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, as of January 31, 2017 the differences between the number of shares of common stock purchased from us, the total price and the average price per share paid by existing equityholders (including the selling stockholders and assuming all class B LLC units are exchanged for shares of common stock) and by the new investors in this offering, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $14.5 per share (the midpoint of the price range set forth on the cover page of this prospectus).
Shares of Common Stock Purchased | Total Consideration | Average Price Per Share of | ||||||||||||||||||
Number | Percent | Amount | Percent | Common Stock | ||||||||||||||||
Existing equityholders |
37,740,002 | 84.4 | % | $ | 509,490,027 | 83.4 | % | $ | 13.5 | |||||||||||
Investors in this offering | 7,000,000 | 15.6 | 101,500,000 | 16.6 | 14.5 | |||||||||||||||
Total | 44,740,002 | 100.0 | % | 610,990,027 | 100.0 | % | $ | 13.7 |
If the underwriters’ option to purchase additional shares of common stock is fully exercised, the net tangible book value per share after this offering as of September 30, 2016 would be approximately $4.77 per share and the dilution to investors in this offering per share after this offering would be $9.73 per share.
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SELECTED HISTORICAL FINANCIAL DATA
Clipper Realty Inc. was incorporated under the laws of the state of Maryland on July 7, 2015. On August 3, 2015, we completed certain formation transactions and the sale of shares of our common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies that comprise the Predecessor, as described below, in exchange for class A LLC units in such LLCs and became the managing member of each LLC. The owners of the LLCs exchanged their interests for class B LLC units and an equal number of shares of our non-economic, special, voting stock. The class B LLC units (together with the shares of our special voting stock) are convertible into shares of our common stock and are entitled to distributions pursuant to the limited liability company agreements of the LLCs.
The
Predecessor was a combination of the four LLCs, including one formed in 2014 in connection with the acquisition of the Tribeca
House properties on December 15, 2014. The Predecessor did not represent a legal entity. The LLCs that comprised the Predecessor
and the Company at formation were under common control.
As more fully described elsewhere in this prospectus, on June 27, 2016, we acquired the Aspen property. As a result, as of September 30, 2016, our properties included the following five properties:
· | Tribeca House properties in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 480,000 square feet of residential rental GLA and 77,236 of rental retail and parking GLA; |
· | Flatbush Gardens in Brooklyn, a 59-building multi-family housing complex with 2,496 rentable units; |
· | 141 Livingston Street in Brooklyn, a 15-story office building with approximately 216,073 square feet of GLA; |
· | 250 Livingston Street in Brooklyn, a 12-story office and residential building with approximately 294,378 square feet of GLA; and |
· | the Aspen property located at 1955 1 st Avenue, New York, NY, a 7-story residential and retail rental building with 186,602 square feet of GLA. |
Following completion of the private offering and the formation transactions, the operations of the Company have been carried on primarily through the Operating Partnership. The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprise the Predecessor.
The Company has elected to be treated, commencing with its 2015 tax year, and intends to continue to qualify as, a REIT for U.S. federal income tax purposes. The following table shows selected consolidated financial data for the Predecessor and the Company for the periods indicated. You should read the selected historical financial data in conjunction with the more detailed information contained in the financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus. As disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Significant Accounting Policies,” real estate assets held for investment are carried at historical cost.
The Company’s and the Predecessor’s historical consolidated and combined balance sheet data as of December 31, 2015 and 2014 and consolidated and combined statements of operations data for the years ended December 31, 2015 and 2014 have been derived from historical financial statements audited by our independent auditors, whose report with respect thereto is included elsewhere in this prospectus. The Company’s and the Predecessor’s consolidated and combined balance sheet data as of September 30, 2016 and 2015 and consolidated and combined statements of operations data for the nine months ended September 30, 2016 and 2015 have been derived from unaudited financial statements. The unaudited consolidated and combined financial statements have been prepared on a basis consistent with the annual audited consolidated and combined financial statements. In the opinion of management, the unaudited financial data reflect all adjustments, consisting of only normal and recurring adjustments considered necessary for a fair presentation of the operating results for those interim periods. The operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
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(Dollars, share and Class B LLC units
in thousands) |
||||||||||||||||
Nine months ended September 30, | Year ended December 31, | |||||||||||||||
2016 | 2015 | 2015 | 2014 | |||||||||||||
Consolidated Statement of Operations | ||||||||||||||||
Residential rental revenue | $ | 49,405 | $ | 45,596 | $ | 60,784 | $ | 31,413 | ||||||||
Commercial rental revenue | 13,843 | 13,042 | 17,256 | 12,382 | ||||||||||||
Tenant recoveries | 2,969 | 2,651 | 3,477 | 2,415 | ||||||||||||
Garage and other income | 2,550 | 2,315 | 3,087 | 1,562 | ||||||||||||
Total revenues | 68,767 | 63,604 | 84,604 | 47,772 | ||||||||||||
Operating Expenses | ||||||||||||||||
Property operating expenses | 18,885 | 17,691 | 23,283 | 19,673 | ||||||||||||
Real estate taxes and insurance | 13,023 | 10,904 | 14,926 | 6,560 | ||||||||||||
General and administrative | 6,317 | 3,266 | 5,296 | 2,358 | ||||||||||||
Acquisition costs | 407 | – | 75 | 326 | ||||||||||||
Depreciation and amortization | 10,646 | 9,656 | 12,521 | 4,472 | ||||||||||||
Total operating expenses | 49,278 | 41,517 | 56,101 | 33,389 | ||||||||||||
Income from operations | 19,489 | 22,087 | 28,503 | 14,383 | ||||||||||||
Interest expense, net | (28,749 | ) | (27,728 | ) | (36,703 | ) | (9,145 | ) | ||||||||
Net (loss) income | (9,260 | ) | $ | (5,641 | ) | (8,200 | ) | $ | 5,238 | |||||||
Net loss attributable to Predecessor and non-controlling interests | 6,457 | 5,051 | 6,835 | |||||||||||||
Dividends attributable to preferred shares | (11 | ) | – | |||||||||||||
Net loss attributable to common stockholders | $ | (2,814 | ) | $ | (590 | ) | $ | (1,365 | ) | |||||||
Basic and diluted loss per share | $ | (0.25 | ) | $ | (0.05 | ) | $ | (0.12 | ) | |||||||
Weighted average per share / Class B LLC unit information: | ||||||||||||||||
Common shares outstanding | 11,423 | 11,423 | 11,423 | |||||||||||||
Class B LLC units outstanding | 26,317 | 26,317 | 26,317 | |||||||||||||
37,740 | 37,740 | 37,740 | ||||||||||||||
Cash flow data | ||||||||||||||||
Operating activities | $ | 5,253 | $ | 5,722 | $ | 9,440 | $ | 7,472 | ||||||||
Investing activities | (130,833 | ) | (6,360 | ) | (9,025 | ) | (226,822 | ) | ||||||||
Financing activities | 82,349 | $ | 118,446 | $ | 115,760 | $ | 224,707 | |||||||||
Non-GAAP measures | ||||||||||||||||
FFO (1) | $ | 1,386 | $ | 4,015 | $ | 4,321 | $ | 9,710 | ||||||||
AFFO (1) | 6,773 | 7,352 | 9,247 | 8,266 | ||||||||||||
Adjusted EBITDA (2) | $ | 32,202 | $ | 31,792 | $ | 41,531 | $ | 18,482 | ||||||||
Balance sheet data | ||||||||||||||||
Investment in real estate, net | $ | 821,466 | $ | 726,107 | $ | 728,744 | ||||||||||
Cash and cash equivalents | 82,101 | 125,332 | 9,157 | |||||||||||||
Restricted cash | 14,196 | 9,962 | 5,876 | |||||||||||||
Total assets | 963,109 | 881,118 | 766,856 | |||||||||||||
Notes payable, net of unamortized debt costs | 807,893 | 713,440 | 708,228 | |||||||||||||
Total liabilities | 831,952 | 734,741 | 729,659 | |||||||||||||
Stockholders’ equity | 39,696 | 44,303 | – | |||||||||||||
Total equity | $ | 131,157 | $ | 146,377 | $ | 37,197 | ||||||||||
Property related data (unaudited) | ||||||||||||||||
Residential property rentable square feet | ||||||||||||||||
Flatbush Gardens | 1,734 | 1,734 | 1,734 | |||||||||||||
% occupied | 96.6 | % | 96.2 | % | 94.4 | % | ||||||||||
Tribeca House properties | 481 | 479 | 479 | |||||||||||||
% occupied | 90.7 | % | 83.5 | % | 94.5 | % | ||||||||||
250 Livingston Street | 36 | 36 | 36 | |||||||||||||
% occupied | 85.2 | % | 94.4 | % | 90.0 | % | ||||||||||
Commercial and retail property rentable square feet | ||||||||||||||||
141 Livingston Street (2015 data remeasured) | 208 | 216 | 159 | |||||||||||||
% occupied | 100 | % | 100.0 | % | 100.0 | % | ||||||||||
250 Livingston Street (2015 data remeasured) | 353 | 353 | 353 | |||||||||||||
% occupied | 100 | % | 99.7 | % | 99.7 | % | ||||||||||
Tribeca House properties | 77 | 77 | 77 | |||||||||||||
% occupied | 100 | % | 95.9 | % | 95.9 | % |
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(1) | FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Further, FFO and AFFO as disclosed by other REITs might not be comparable to our calculation of FFO. For a further discussion about our use of FFO as a non-GAAP financial measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Funds from Operations and Adjusted Funds from Operations.” |
The following table sets forth a reconciliation of FFO for the periods presented to net loss before allocation to non-controlling interests, as computed in accordance with GAAP (amounts in thousands):
Nine months ended September 30, | Years ended December 31, | |||||||||||||||
2016 | 2015 | 2015 | 2014 | |||||||||||||
FFO | ||||||||||||||||
Net (loss) income before allocation to non-controlling interests | $ | (9,260 | ) | $ | (5,641 | ) | $ | (8,200 | ) | $ | 5,238 | |||||
Real estate depreciation and amortization | 10,646 | 9,656 | 12,521 | 4,472 | ||||||||||||
FFO | $ | 1,386 | $ | 4,015 | $ | 4,321 | $ | 9,710 | ||||||||
AFFO | ||||||||||||||||
FFO | $ | 1,386 | $ | 4,015 | $ | 4,321 | $ | 9,710 | ||||||||
Real estate tax intangible amortization | 1,186 | 996 | 1,328 | 238 | ||||||||||||
Amortization of above and below-market leases | (1,357 | ) | (1,286 | ) | (1,714 | ) | (1,450 | ) | ||||||||
Straight-line rent adjustment | (60 | ) | 55 | 109 | 513 | |||||||||||
Amortization of debt origination costs | 4,253 | 4,496 | 6,036 | 704 | ||||||||||||
Interest rate cap mark-to-market | 9 | 511 | 522 | 49 | ||||||||||||
Amortization of LTIP awards | 1,891 | 284 | 709 | – | ||||||||||||
Acquisition costs | – | – | 75 | 326 | ||||||||||||
Recurring capital spending | (535 | ) | (1,719 | ) | (2,139 | ) | (1,824 | ) | ||||||||
AFFO | $ | 6,773 | $ | 7,352 | $ | 9,247 | $ | 8,266 |
(2) | We believe that Adjusted EBITDA is a useful measure of our operating performance. We define Adjusted EBITDA as net (loss) income before allocation to non-controlling interests plus real estate depreciation and amortization, amortization of identifiable intangibles, interest expense, net, acquisition costs and stock based compensation. Other REITs may use different methodologies for calculating Adjusted EBITDA, and accordingly, our Adjusted EBITDA may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use Adjusted EBITDA to evaluate our performance because Adjusted EBITDA allows us to evaluate the operating performance of our company by measuring the core operations of property performance and administrative expenses available for debt service and capturing trends in rental housing and property operating expenses. However, Adjusted EBITDA should only be used as an alternative measure of our financial performance. For a further discussion about our use of Adjusted EBITDA as a non-GAAP financial measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Adjusted earnings before interest, income taxes, depreciation, amortization and stock based compensation.” |
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The following table reconciles Adjusted EBITDA to net (loss) income before allocation to non-controlling interests (amounts in thousands):
Nine months ended September 30, | Years ended December 31, | |||||||||||||||
2016 | 2015 | 2015 | 2014 | |||||||||||||
Adjusted EBITDA | ||||||||||||||||
Net (loss) income before allocation to non-controlling interests | $ | (9,260 | ) | $ | (5,641 | ) | $ | (8,200 | ) | $ | 5,238 | |||||
Depreciation and amortization | 10,646 | 9,656 | 12,521 | 4,472 | ||||||||||||
Amortization of real estate tax intangible | 1,186 | 996 | 1,328 | 238 | ||||||||||||
Amortization of above and below-market leases | (1,357 | ) | (1,286 | ) | (1,714 | ) | (1,450 | ) | ||||||||
Straight-line rent adjustment | (60 | ) | 55 | 109 | 513 | |||||||||||
Amortization of LTIP awards | 1,891 | 284 | 709 | – | ||||||||||||
Interest expense, net | 28,749 | 27,728 | 36,703 | 9,145 | ||||||||||||
Acquisition costs | 407 | – | 75 | 326 | ||||||||||||
Adjusted EBITDA | $ | 32,202 | $ | 31,792 | $ | 41,531 | $ | 18,482 |
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PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated and combined financial information of Clipper Realty Inc. as of and for the nine months ended September 30, 2016 and for the year ended December 31, 2015 has been derived from the historical financial statements of the Company and our Predecessor included in this prospectus.
Our pro forma condensed consolidated/combined statements of operations reflect, for the nine months ended September 30, 2016 and for the year ended December 31, 2015, adjustments to our historical financial data to give effect to this offering, the formation transactions and the private offering of August 3, 2015, the acquisition of the Aspen property and additional borrowings and repayments as if each had occurred at the beginning of the respective periods.
We have based our unaudited pro forma adjustments upon available information and assumptions that we consider reasonable. Our unaudited pro forma condensed combined financial information is not necessarily indicative of what our actual financial position or results of operations would have been as of and for the nine months ended September 30, 2016 and for the year ended December 31, 2015, nor does it purport to represent our future financial position or results of operations.
You should read our unaudited pro forma condensed consolidated and combined financial information, together with the notes thereto, in conjunction with the more detailed information contained in our consolidated and combined audited historical financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus. As disclosed herein under “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Significant Accounting Policies,” real estate assets held for investment are carried at historical cost.
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Clipper Realty
Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2016
(in thousands)
Historical |
Debt
Repayment |
Subtotal | Offering | Pro Forma | ||||||||||||||||
Assets | ||||||||||||||||||||
Investment in real estate | ||||||||||||||||||||
Land and improvements | $ | 434,097 | – | $ | 434,097 | $ | 434,097 | |||||||||||||
Building and improvements | 430,008 | – | 430,008 | 430,008 | ||||||||||||||||
Tenant improvements | 2,986 | – | 2,986 | 2,986 | ||||||||||||||||
Furniture, fixtures and equipment | 8,892 | – | 8,892 | 8,892 | ||||||||||||||||
Total Investment in real estate | 875,983 | – | 875,983 | – |
875,983 |
|||||||||||||||
Accumulated depreciation | (54,517 | ) | – | (54,517 | ) |
(54,517) |
||||||||||||||
Investment in real estate, net | 821,466 | – | 821,466 | – |
821,466 |
|||||||||||||||
Cash and cash equivalents | 82,101 | (55,500 | )(1) | 41,601 | 91,400 | (3) |
133,001 |
|||||||||||||
15,000 | (2) | |||||||||||||||||||
Restricted cash | 14,196 | – | 14,196 | 14,196 | ||||||||||||||||
Accounts receivable | 3,927 | – | 3,927 | 3,927 | ||||||||||||||||
Deferred rent receivable | 3,941 | – | 3,941 | 3,941 | ||||||||||||||||
Deferred costs and intangible assets, net | 14,879 | – | 14,879 | 14,879 | ||||||||||||||||
Prepaid expense and other assets | 22,599 | (15,000 | )(2) | 7,559 | 7,599 | |||||||||||||||
Total assets | $ | 963,109 | $ | (55,500 | ) | $ | 907,609 | $ | 91,400 | $ | 999,009 | |||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||
Mortgage notes payable | $ | 807,893 | $ | 404,500 | (1) | $ | 752,861 | $ | 752,861 | |||||||||||
$ | (359,695 | )(1) | ||||||||||||||||||
$ | (99,837 | )(1) | ||||||||||||||||||
Accounts payable and accrued liabilities | 7,593 | – | 7,593 | 7,593 | ||||||||||||||||
Security deposits | 6,267 | – | 6,267 | 6,267 | ||||||||||||||||
Below-market leases | 7,269 | – | 7,269 | 7,269 | ||||||||||||||||
Other Liabilities | 2,930 | – | 2,930 | 2,930 | ||||||||||||||||
Total liabilities | 831,952 | (55,032 | ) | 776,920 | - | 776,920 | ||||||||||||||
Stockholders’ equity | ||||||||||||||||||||
Preferred stock | – | – | – | |||||||||||||||||
Common stock and additional paid in capital | 46,597 | – | 46,597 | 51,896 | 98,493 | |||||||||||||||
Accumulated deficit | (6,901 | ) | (142 | ) | (7,043 | ) | (7,043) | |||||||||||||
Total stockholders’ equity | 39,696 | (142 | ) | 39,554 | 51,896 | 91,450 | ||||||||||||||
Non-controlling interests | 91,461 | (326 | ) | 91,135 | 39,504 | 130,639 | ||||||||||||||
Total equity | 131,157 | (468 | )(1) | 130,689 | (1) | 91,400 | (3) | 222,089 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 963,109 | $ | (55,500 | ) | $ | 907,609 | $ | 91,400 | $ | 999,009 |
(1) | Incurrence of $410,000 of mortgage indebtedness on November 9, 2016, bearing interest of one-month LIBOR plus 3.75%, net of cost of $5,500, and repayment of $100,000 and $360,000 of indebtedness, net of unamortized debt issuance costs of $468, together with cash on hand, as if all occurred on September 30, 2016. |
(2) | Repayment of acquisition deposit on November 14, 2016 as if it occurred on September 30, 2016. |
(3) |
Represents the effect of issuance of 7,000 shares of our common stock at $14.50 per share for $101,500 of gross proceeds, net of underwriter and offering-related costs of $10,100, as if it occurred at September 30, 2016. |
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Clipper Realty Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 2016
(in thousands)
Historical |
Aspen
Acquisition (1) |
Refinancing
and Preferred Stock |
Subtotal | Offerings | Pro Forma | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Residential rental income | $ | 49,405 | $ | 2,488 | – | $ | 51,901 | $ | 51,901 | |||||||||||||||
8 | (2) | |||||||||||||||||||||||
Commercial rental income | 13,843 | 599 | – | 14,444 | 14,444 | |||||||||||||||||||
2 | (2) | |||||||||||||||||||||||
Tenant recoveries | 2,969 | 19 | – | 2,988 | 2,988 | |||||||||||||||||||
Garage and other income | 2,550 | 44 | – | 2,594 | 2,594 | |||||||||||||||||||
Total revenues | 68,767 | 3,159 | – | 71,927 | – | 71,927 | ||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Property operating expenses | 18,885 | 744 | – | 19,659 | 19,659 | |||||||||||||||||||
Real estate taxes and insurance | 13,023 | 106 | – | 13,372 | 13,372 | |||||||||||||||||||
243 | (2) | |||||||||||||||||||||||
General and administrative | 6,317 | – | – | 6,317 | 6,317 | |||||||||||||||||||
Acquisition costs | 407 | (407 | ) | – | – | |||||||||||||||||||
Depreciation and amortization | 10,646 | 1,449 | – | 12,095 | 12,095 | |||||||||||||||||||
Total operating expenses | 49,278 | 2,165 | – | 51,443 | – | 51,443 | ||||||||||||||||||
Income from operations | 19,489 | 995 | – | 20,484 | – | 20,484 | ||||||||||||||||||
Interest expense | (28,749 | ) | (1,420 | )(3) | 526 | (4) | (25,461 | ) | (25,461 | ) | ||||||||||||||
4,182 | (5) | |||||||||||||||||||||||
Net (loss) income before allocation to non-controlling interests | (9,260 | ) | (426 | ) | 4,709 | (4,977 | ) | – | (4,977 | ) | ||||||||||||||
Net (loss) income attributable to non-controlling interests | 6,457 | 297 | (3,283 | )(6) | 3,471 | (544) | (8) | 2,927 | ||||||||||||||||
Dividends attributable to preferred shares | (11 | ) | – | (1 | )(7) | (12 | ) | (12 | ) | |||||||||||||||
Net (loss) income attributable to common stockholders | $ | (2,814 | ) | $ | (128 | ) | $ | 1,424 | $ | (1,518 | ) | $ | (544 | ) | $ | (2,062 | ) | |||||||
Basic and diluted loss per | $ | (0.25 | ) | $ | (0.14 | ) | $ | (0.12 | ) | |||||||||||||||
Weighted average per share / OP unit information: | ||||||||||||||||||||||||
Common shares outstanding | 11,423 | 11,423 | 7,000 | (6) | 18,423 | |||||||||||||||||||
OP units outstanding | 26,317 | 26,317 | 26,317 | |||||||||||||||||||||
37,740 | 37,740 | 7,000 | 44,740 |
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Clipper Realty Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine months ended September 30, 2016
(in thousands)
Notes:
(1) | Represents pro forma results of the Aspen acquisition as if made at the beginning of 2016. |
(2) | Represents pro forma amortization of preliminary allocation of purchase price to identifiable assets and liabilities as follows: |
Amortization
Period in Years |
Balance | Amortization | Included in: | |||||||||||
Building | 43.7 | $ | 42,226 | $ | 483 | Depreciation and amortization | ||||||||
Site improvements | 1.8 | 91 | 25 | Depreciation and amortization | ||||||||||
Tenant improvements | 6.3 | 26 | 2 | Depreciation and amortization | ||||||||||
Furniture, fixtures and equipment | 4.0 | 304 | 38 | Depreciation and amortization | ||||||||||
Above market leases – retail | 10.0 | 448 | 22 | Commercial rental income | ||||||||||
Below market leases – retail | 10.0 | (493 | ) | (24 | ) | Commercial rental income | ||||||||
Below market leases – residential | 18.5 | (297 | ) | (8 | ) | Residential rental income | ||||||||
Leases in place – residential | 0.2 | 826 | 826 | Depreciation and amortization | ||||||||||
Leases in place – retail | 12.0 | 276 | 12 | Depreciation and amortization | ||||||||||
Lease origination costs | 6.3 | 800 | 63 | Depreciation and amortization | ||||||||||
Real estate tax abatements | 19.0 | 9,223 | 243 | Real estate taxes and insurance |
(3) | Pro forma interest and debt cost amortization on mortgage debt incurred in the acquisition of Aspen: |
Rate | Balance | Expense | ||||||||||
Mortgage debt | 3.68 | % | $ | 70,000 | $ | 1,288 | ||||||
Amortization of debt costs | (3,221 | ) | 134 | |||||||||
$ | 66,779 | $ | 1,422 | |||||||||
Less 4 days recorded | (2 | ) | ||||||||||
$ | 1,420 |
(4) | Pro forma interest and debt cost amortization adjustments due to refinancing the $55 million mortgage loan secured by the 141 Livingston Street property with a $79.5 million mortgage loan in May 2016. |
Rate | Balance | Expense | ||||||||||
New mortgage debt | 3.88 | % | $ | 79,500 | $ | 1,104 | ||||||
Amortization of debt costs | (1,350 | ) | 41 | |||||||||
Retired mortgage debt | Libor + 3.25 | % | (55,000 | ) | (720 | ) | ||||||
Amortization of debt costs | 951 | (951 | ) | |||||||||
$ | 24,101 | $ | (526 | ) |
(5) | Pro forma interest and debt cost amortization adjustments due to refinancing $460 million of loans due November 2016 secured by the Tribeca House property with a $410 million mortgage loan in November 2018. |
Rate | Balance | Expense | ||||||||||
Mortgage loan issued | 4.25 | % | (a) | $ | 410,000 | $ | 13,069 | |||||
Amortization of debt costs | (5,500 | ) | 2,063 | |||||||||
Mortgage loan repaid | 3.80 | % | (360,000 | ) | (10,530 | ) | ||||||
Amortization of debt costs | 2,137 | $ | (1,831 | ) | ||||||||
Interest rate caps | (7 | ) | ||||||||||
Mezzanine loan repaid | 7.78 | % | (100,000 | ) | (5,966 | ) | ||||||
Amortization of debt costs | 1,140 | (977 | ) | |||||||||
Interest rate caps | (2 | ) | ||||||||||
$ | (98,860 | ) | $ | (4,182 | ) |
(a) | Based on our aggregate variable interest rate, an increase (decrease) of 12.5 basis points in interest rates would result in a hypothetical increase (decrease) of approximately $512,000 in interest expense on an annual basis. |
(6) | Represents the reallocation of net (loss) income to noncontrolling interest. |
(7) | Represents dividends on preferred shares issued in January 2016 as if issued at the beginning of 2015. |
(8) | Represents the effect of issuance of 7,000 shares of our common stock at $14.50 per share for $101,500 of gross proceeds, as if it occurred at the beginning of the year. |
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Clipper Realty Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 2015
(in thousands)
Historical |
Aspen
Acquisition (1) |
Private
Offering |
Refinancings
and Preferred Stock |
Subtotal | Offering | Pro Forma | ||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Residential rental income | $ | 60,784 | $ | 5,107 | $ | 65,907 | $ | 65,907 | ||||||||||||||||||||
16 | (2) | |||||||||||||||||||||||||||
Commercial rental income | 17,256 | 1,228 | 18,489 | 18,489 | ||||||||||||||||||||||||
5 | (2) | |||||||||||||||||||||||||||
Tenant recoveries | 3,477 | 37 | 3,514 | 3,514 | ||||||||||||||||||||||||
Garage and other income | 3,087 | 88 | 3,175 | 3,175 | ||||||||||||||||||||||||
Total revenues | 84,604 | 6,481 | – | – | 91,085 | – | 91,085 | |||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||
Property operating expenses | 23,283 | 1,572 | 24,855 | 24,855 | ||||||||||||||||||||||||
Real estate taxes and insurance | 14,926 | 234 | 15,645 | 15,645 | ||||||||||||||||||||||||
485 | (2) | |||||||||||||||||||||||||||
General and administrative | 5,296 | – | 1,324 | (4) | 6,870 | 6,870 | ||||||||||||||||||||||
250 | (5) | |||||||||||||||||||||||||||
Acquisition costs | 75 | (75 | ) | - | – | |||||||||||||||||||||||
Depreciation and amortization | 12,521 | 2,073 | (2) | 14,594 | 14,594 | |||||||||||||||||||||||
Total operating expenses | 56,101 | 4,289 | 1,574 | – | 61,964 | – | 61,964 | |||||||||||||||||||||
Income from operations | 28,503 | 2,192 | (1,574 | ) | – | 29,121 | – | 29,121 | ||||||||||||||||||||
Interest expense | (36,703 | ) | (2,844 | )(3) | – | 493 | (6) | (34,176 | ) | (34,176) | ||||||||||||||||||
4,878 | (7) | |||||||||||||||||||||||||||
Net income (loss) before allocation to non-controlling interests | (8,200 | ) | (652 | ) | (1,574 | ) | 5,371 | (5,055 | ) | – | (5,055) | |||||||||||||||||
Net loss attributable to predecessor | 3,690 | (3,690 | )(8) | – | – | |||||||||||||||||||||||
Net loss attributable to non-controlling interests | 3,145 | 454 | (75 | )(8) | 3,524 | (551) | (10) | 2,973 | ||||||||||||||||||||
Dividends attributable to preferred shares | (17 | )(9) | (17 | ) | (17) | |||||||||||||||||||||||
Net income (loss) available to common stockholders | $ | (1,365 | ) | $ | (198 | ) | $ | (5,339 | ) | $ | 5,354 | $ | (1,548 | ) | $ | (551) | $ | (2,099) | ||||||||||
Basic and diluted loss per share | $ | (0.12 | ) | $ | (0.14 | ) | $ | (0.12) | ||||||||||||||||||||
Weighted average share / OP Unit information: | ||||||||||||||||||||||||||||
Common shares outstanding | 11,423 | 11,423 | 7,000 | (10) | 18,423 | |||||||||||||||||||||||
OP units outstanding | 26,317 | 26,317 | 26,317 | |||||||||||||||||||||||||
37,740 | 37,740 | 7,000 | 44,740 |
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Clipper Realty Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 2015
(in thousands)
(1) | Represents pro forma results of the Aspen acquisition as if made at the beginning of 2015 |
(2) | Represents pro forma amortization of preliminary allocation of purchase price to identifiable assets and liabilities as follows: |
Amortization
Period in Years |
Balance | Amortization | Included in: | |||||||||||
Building | 43.7 | $ | 42,226 | $ | 966 | Depreciation and amortization | ||||||||
Site improvements | 1.8 | 91 | 51 | Depreciation and amortization | ||||||||||
Tenant improvements | 6.3 | 26 | 4 | Depreciation and amortization | ||||||||||
Furniture, fixtures and equipment | 4.0 | 304 | 76 | Depreciation and amortization | ||||||||||
Above market leases – retail | 10.0 | 448 | 45 | Commercial rental income | ||||||||||
Below market leases – retail | 10.0 | (493 | ) | (50 | ) | Commercial rental income | ||||||||
Below market leases – residential | 18.5 | (297 | ) | (16 | ) | Residential rental income | ||||||||
Leases in place – residential | 0.2 | 826 | 826 | Depreciation and amortization | ||||||||||
Leases in place – retail | 12.0 | 276 | 23 | Depreciation and amortization | ||||||||||
Lease origination costs | 6.3 | 800 | 127 | Depreciation and amortization | ||||||||||
Real estate tax abatements | 19.0 | 9,223 | 485 | Real estate taxes and insurance |
(3) | Interest and debt cost amortization on mortgage debt incurred in the acquisition of Aspen: |
Rate | Balance | Expense | ||||||||||
Mortgage debt | 3.68 | % | $ | 70,000 | $ | 2,576 | ||||||
Amortization of debt costs | (3,221 | ) | 268 | |||||||||
$ | 66,779 | $ | 2,844 |
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Clipper Realty Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 2015
(in thousands)
(4) | Represents full-year effect on compensation expense from the issuance of $5,557 of LTIP units in the private offering on August 3, 2015 and restricted stock units to management, certain other employees and Sam Levinson, a non-employee director, that vest over three years, and the issuance of LTIP units to the other non-employee directors that vest over one year. |
(5) | Net increases in expenses after giving effect to the formation transaction. We expect to incur incremental general and administrative expenses following the private offering and us becoming a public company with shares listed on a U.S. exchange, including expenses associated with annual and quarterly reporting, tax return preparation and distribution expenses, compliance expenses, director and officer compensation expenses, independent auditor fees, legal fees, registrar and transfer agent fees, director and officer liability insurance expenses, annual and quarterly SEC reporting, Sarbanes-Oxley Act compliance expenses, expenses associated with listing on the NYSE and investor relation expenses. |
(6) | Interest and debt cost amortization adjustments due to refinancing the $55 million mortgage loan secured by the 141 Livingston Street property with a $79.5 million mortgage loan in May 2016. |
Term in
Years |
Rate | Balance | Expense | |||||||||||
New mortgage debt | 12 | 3.88 | % | $ | 79,500 | $ | 3,080 | |||||||
Amortization of debt costs | (1,350 | ) | 113 | |||||||||||
Retired mortgage debt | 1 5/12 | Libor + 3.25 | % | (55,000 | ) | (1,927 | ) | |||||||
Amortization of debt costs | 2,735 | (1,759 | ) | |||||||||||
$ | 25,885 | $ | (493 | ) |
(7) | Pro forma interest and debt cost amortization adjustments due to repayment of $460 million of loans secured by the Tribeca House property with a $410 million mortgage loan in November 2016. |
Term in
Years |
Rate | Balance | Expense | |||||||||||
Mortgage loan issued | 4.25 | % | (a) | $ | 410,000 | $ | 17,425 | |||||||
Amortization of debt costs | (5,500 | ) | 2,750 | |||||||||||
Interest rate caps | ||||||||||||||
Mortgage loan repaid | 3.80 | % | (360,000 | ) | (13,176 | ) | ||||||||
Amortization of debt costs | 4,580 | $ | (2,442 | ) | ||||||||||
Interest rate caps | (362 | ) | ||||||||||||
Mezzanine loan | 24 | 7.78 | % | (100,000 | ) | (7,635 | ) | |||||||
Amortization of debt costs | 2,442 | (1,303 | ) | |||||||||||
Interest rate cap mark-to-market | (135 | ) | ||||||||||||
$ | (48,478 | ) | $ | (4,878 | ) |
(a) | Based on our aggregate variable interest rate, an increase (decrease) of 12.5 basis points in interest rates would result in a hypothetical increase (decrease) of approximately $512,000 in interest expense on an annual basis. |
(8) | Represents the effects of the private offering, formation transactions and issuance of our common stock and OP units as if they occurred at the beginning of 2015. |
(9) | Represents dividends on preferred shares issued in January 2016 as if issued at the beginning of 2015. |
(10) |
Represents the effect of 7,000 shares of our common stock issued in the offering at $14.50 per share for $101,500 of gross proceeds, as if issued at the beginning of the year. |
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the more detailed information set forth under the caption “Selected Historical Financial Data,” and in our financial statements and the related notes thereto appearing elsewhere in this prospectus. The financial statements for periods and as of dates prior to the formation transactions represent consolidated historical financials of the Predecessor.
Overview of Our Company
We are a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multi-family residential and commercial properties in the New York metropolitan area, with an initial portfolio in Manhattan and Brooklyn. The Company was formed to continue and expand the commercial real estate business of the Predecessor. Our primary focus is to continue to own, manage and operate our initial portfolio and to acquire and reposition additional multi-family residential and commercial properties in the New York metropolitan area. The Company has been organized and operates in conformity with the requirements for qualification and taxation as a REIT under the U.S. federal income tax law and elected to be treated as a REIT commencing with the taxable year ended December 31, 2015.
Clipper Realty was incorporated on July 7, 2015. On August 3, 2015, we closed a private offering of shares of our common stock, in which we raised net proceeds of approximately $130.2 million. In connection with the private offering, we consummated a series of investment and other formation transactions that were designed, among other things, to enable us to qualify as a REIT for U.S. federal income tax purposes.
The Company owns:
· | two neighboring residential/retail rental properties at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of Manhattan; |
· | one residential property complex in the East Flatbush neighborhood of Brooklyn consisting of 59 buildings; |
· | two primarily commercial properties in Downtown Brooklyn (one of which includes 36 residential apartment units); and |
· | one residential/retail rental property at 1955 1 st Avenue in Manhattan. |
In addition, in January 2017, the Company reached an agreement to purchase a 161 residential unit building for approximately $87.5 million, 65% to 75% of which will be funded with mortgage borrowings secured by the property, with the remainder to be funded with available cash resources, including from the net proceeds of this offering. Following completion of the acquisition, the Company plans to create twelve additional residential units in the Columbia Heights property by converting various public areas on the property. These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation.
The Company’s ownership interest in its initial portfolio of properties, which includes the Tribeca House, Flatbush Gardens and Livingston Street properties, was acquired in the formation transactions in connection with the private offering. These properties are owned by the LLC subsidiaries, which are managed by the Company through the operating partnership. The operating partnership’s interest in the LLC subsidiaries generally entitles the operating partnership to all cash distributions from, and the profits and losses of, the LLC subsidiaries other than the preferred distribution to the continuing investors who hold class B LLC units in these LLC subsidiaries described below. The continuing investors own an aggregate amount of 26,317,396 class B LLC units, representing 68.8% of the Company’s common stock on a fully diluted basis (58.2% immediately following this offering). Accordingly, the operating partnership’s interests in the LLC subsidiaries entitle the operating partnership to receive approximately 31.2% of the aggregate distributions from the LLC subsidiaries (41.8% immediately following this offering). The Company, through the operating partnership, owns all of the ownership interests in the Aspen property.
The Tribeca House properties , purchased in December 2014, consist of two nearly adjacent properties in the Tribeca neighborhood of Manhattan. The Company manages the two related properties as a single unit and the residents of both properties share all services and amenities. They comprise approximately 480,000 square feet of leasable area with 505 residential apartment units and approximately 77,200 square feet of retail space (comprising approximately 53,000 square feet of street-level and mezzanine-level retail space and an externally managed garage).
· | The residential apartment units, featuring ceilings as high as 11 feet and extensive amenities, are approximately 89% occupied at an average rental rate of approximately $68 per square foot, up from $61 per square foot at acquisition. The retail space, which includes a premium fitness club, is fully occupied at an average rental rate of approximately $49 per square foot, up from approximately $43 per square foot at acquisition. |
· |
The Company’s primary goals for the residential portion of the Tribeca House properties are to improve service levels and quality of finishes in the buildings commensurate with those expected by residents in the Tribeca neighborhood. We believe that accomplishing this, as well as managing the re-leasing process more efficiently than the prior owner, will position us to achieve comparable rents in excess of $80 per square foot in the Tribeca neighborhood as of January 30, 2017, according to StreetEasy listings. |
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· | We believe that our average rental rate of approximately $49 per square foot under in-place leases for the retail portion of the Tribeca House properties is significantly below market for comparable retail properties, based on current leasing activity in the surrounding Tribeca submarket. For example, on July 1, 2015, we signed a lease for a 3,186 square foot street-level retail unit at our Tribeca House properties providing for a rental rate of $140 per square foot, which is a 237% increase over the average rental rate under our existing retail leases. Similarly, according to a report by REBNY, the average asking retail rental rate in downtown Manhattan, which includes the Tribeca neighborhood, was $142 per square foot as of November 2016. Accordingly, we believe we will be able to significantly increase retail rental revenue from our Tribeca House properties as in-place leases (which have a current average lease term of 9.1 years) expire over time and are re-leased at higher market rates. |
· | In addition, we have the opportunity to monetize apartment units through conversion to for-sale condominium or cooperative units, which we believe would have a potential market value in excess of $2,100 per square foot based on StreetEasy listings for comparable buildings in the Tribeca neighborhood as of January 30, 2017. This value compares favorably to the December 2014 purchase price of approximately $998 per rentable square foot. Any sales of condominium or cooperative units would be conducted by a TRS, which would be subject to U.S. federal, state and local income tax on any gain from, and transfer tax from, the sale of the units. |
The Flatbush Gardens property complex , purchased in September 2005, extends over 21.4 acres and consists of 59 primarily six-story buildings containing a total of approximately 1.7 million rentable square feet and 2,496 residential apartment units, and space for approximately 240 vehicles in parking structures.
· |
The property is approximately 97% occupied at an average rental rate of approximately $21.52 per square foot. The property is subject to rent stabilization, a form of New York City rent regulation that limits the amount of legally allowable rent increases. Current in-place rents are, on average, 17% lower than the legal maximum rent that may be charged pursuant to rent regulation. We believe this provides an opportunity to increase rents with increasing market rates before being limited by rent regulation. |
· |
Since acquisition in 2005, our management team has undertaken a renovation and repositioning strategy that has included upgrades to both the exterior and interior of the buildings. These have included replacements or upgrades to building systems and components, including elevators, basements, boilers, roofs, parapets, facades, sidewalks and landscaping, as well as a refurbishing of apartment interiors on turnover of residents. As a result of our effort in managing the complex, including these upgrades, we have reduced outstanding New York City violations from over 8,000 at the time of the acquisition to approximately 577 currently, and substantially improved resident safety. In addition, our management team proactively attempts to remedy potential violations that are reported by residents. We have been able to consistently increase rents as a result of these efforts, as well as external market factors. Average rent per square foot increased from $18.88 (94.4% occupancy) at December 31, 2013 to $19.69 (95.6% occupancy) at December 31, 2014 to $20.63 (97.0% occupancy) at December 31, 2015 and $21.52 at January 31, 2017 (97.1% occupancy). Since acquisition in 2005, the average rent per square foot has risen from approximately $13.25 to approximately $21.52, a 62% increase. |
· |
We estimate that approximately $16 million will be required to complete a comprehensive renovation and modernization program through the end of 2017, which may include enhanced landscaping on a renovated terrace area; restored, renovated, upgraded or new lobbies; elevator modernization; renovated public areas and bathrooms; refurbished or new windows; façade restorations; installation of revenue generating laundry and storage areas in restored basement areas; and modernization of building-wide systems including security cameras and lighting. These improvements are designed to increase the overall value and attractiveness of the Flatbush Gardens complex and contribute to tenant repositioning efforts, which seek to increase occupancy, raise rental rates, increase aggregate rental revenue and improve tenant credit quality. We believe we will be able to continue to increase rents as leases expire and units are re-leased. |
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· | Flatbush Gardens is currently not built to its maximum floor-area ratio and thus, subject to various regulations and approvals, may have expansion potential. In this regard, we are reviewing the regulatory, architectural and financial issues regarding building approximately 500,000 additional square feet by adding four floors above certain of our 59 buildings at Flatbush Gardens. However, there can be no assurance that we will be able to pursue this FAR expansion project or that if we are able to expand Flatbush Gardens, that the expanded buildings will provide a return to recover our investment. |
The 141 Livingston Street property in the Downtown Brooklyn neighborhood, purchased in 2002 along with the below-mentioned 250 Livingston Street property, is a 15-story, 206,084 square foot GLA office building.
· | In December 2015, the property’s main commercial tenant, the City of New York, executed a new 10-year lease at $40.00 per square foot, with effect as of June 2014. Under the lease, the tenant has an option to terminate the lease after five years; however, if it decides to continue to occupy the building at that time, the annual rent will increase by 25%, or $2.1 million, to $50.00 per square foot beginning the sixth year of the lease. | |
· | The lease requires us to refurbish the building’s air-conditioning system and perform other upgrades, which we estimate will cost a total of approximately $5.2 million. Additionally, we intend to spend a total of approximately $2.6 million through 2017 to make other improvements, including elevator replacement, boiler and roof replacement and building systems upgrades. |
The 250 Livingston Street property , purchased in 2002 along with the 141 Livingston Street property, is a 12-story commercial and residential building. It has 294,144 square feet GLA of office space and 36 residential apartment units totaling 26,815 square feet.
· | The leasable office space recently has been remeasured according to REBNY standards to approximately 353,000 square feet, an increase of approximately 33%. |
· |
The property’s sole commercial tenant, the City of New York, has two leases expiring in August 2020, with current lease rates that are approximately 50% of the rate recently negotiated at the 141 Livingston Street property with the same tenant. We recently entered into a lease renewal and amendment agreement with the City of New York for renewal of a lease covering approximately 36% of total office space that expired at the end of 2016 at $40.00 per square foot for increased square feet measured according to REBNY standards that increased annual rent by approximately $2.6 million. |
· |
To more fully optimize available space, from 2003 through 2013, we converted the top four floors of the building into 36 apartment units, which are 94% leased at an average rental rate of approximately $50 per square foot. |
The Aspen property , purchased on June 27, 2016, is located at 1955 1 st Avenue, New York, NY in Manhattan. The property is a seven-story building which comprises 186,602 square feet, 232 residential rental units, three retail units and a parking garage.
· |
The residential units are subject to regulations established by the HDC under which there are no rental restrictions on approximately 55% of the units and low and middle income restrictions on approximately 45% of the units. The residential apartment units are approximately 99% leased at an average rental rate of approximately $33 per square foot. The retail space is fully occupied at an average rental rate of $42.60 per square foot. |
· |
While the building is relatively new, the Company believes there is an opportunity to increase rents by improving certain of the finishes of the property. We believe there is an opportunity to increase rents over one to three years for the units with no rental restrictions (approximately 55% of the units, representing 58.4% of the residential square footage) from the existing $38 per square foot closer to comparable rentals in the immediate neighborhood which on average are in excess of $50 per square foot, as measured by StreetEasy listings as of January 30, 2017 for doorman rentals eight blocks north, four blocks south and three blocks west of the Aspen property. |
Proposed acquisition of the Columbia Heights property. In January 2017, the Company entered into a letter of intent to purchase the Columbia Heights property located at 107 Columbia Heights in Brooklyn for $87.5 million. The property comprises approximately 154,000 square feet, 161 residential units and an indoor parking garage. Following the acquisition, the Company plans to create twelve additional residential units by converting various public areas on the property. Based on current market rates, the units are expected to be leased at an average rental rate of $65-$75 per rentable square foot. Although the building was fully renovated in 2007, the Company plans to spend approximately $10 million to $15 million on further renovations and improvements, focusing on unit flooring and fixtures. We believe these improvements will allow us to achieve maximum rents over time. While the Company believes the completion of the acquisition is probable, it is subject to substantial uncertainties and there can be no assurance that it will be completed.
As of November 25, 2016, we had approximately 180 employees who provide property management, maintenance, landscaping, construction management and accounting services.
How We Derive Our Revenue
Our revenue consists primarily of rents received from our residential, commercial and, to a lesser extent, retail properties.
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Trends
During 2015 and the first nine months of 2016, the Company’s properties generally experienced increasing demand. At the Company’s commercial property at 141 Livingston Street, in the Downtown Brooklyn neighborhood, the Company entered into a new lease in December 2015, effective as of June 2014, that provides for a 94% increase in rent per square foot and a 29% increase in rentable square feet through a remeasurement. At the Company’s nearby commercial property, also rented to the City of New York, the Company recently entered into a lease renewal and amendment agreement for the renewal of a lease that expired in December 2016. Each City of New York lease expires in August 2020. At the Company’s Flatbush Gardens residential apartment complex, the Company increased average rent per square foot from $18.88 at December 31, 2013 to $19.69 at December 31, 2014, $20.63 at December 31, 2015 and $21.52 at January 31, 2017. The Company purchased the Tribeca House properties in December 2014, and although operating the property for a short period of time, has increased average rent from $61.09 per square foot to $67.78 per square foot. No retail properties in these buildings have been subject to renewal.
Throughout 2014, 2015 and the first nine months of 2016, we have continued to benefit from lower interest rates. Our average interest rate as of September 30, 2016 is approximately 4.3% per annum. Short term interest rates continue to be at historically low levels and, as a result, we expect a continuation of favorable interest rates in the near term with rates rising as the economy improves.
Factors that May Influence Future Results of Operations
We derive approximately 75% of our revenues from rents received from residents in our apartment rental properties and the remainder from commercial and retail rental customers. We believe we have expertise in operating, renovating and repositioning our properties. As we grow we will likely add personnel as necessary to provide outstanding customer service to our residents in order to maintain or increase occupancy levels at our apartment communities and to preserve the ability to increase rents. This is likely to result in an increase in our operating and general and administrative expenses.
A majority of the leases at our apartment communities are for approximately one-year terms, which generally enables us to seek increased rents upon renewal of existing leases or commencement of new leases. This may offset the potential adverse effect of inflation or deflation on rental revenue, although residents may leave without penalty at the end of their lease terms for any reason. Our ability to seek increased rents at our Flatbush Gardens property is limited, however, as a result of the rent stabilization laws and regulation of New York City. These generally limit the increase in rents we can charge at our Flatbush Gardens property upon lease renewal for approximately 47% of our tenants, effective October 1, 2016, to 0% for a one-year lease and 2% for a two-year lease. They also limit the maximum rent we can charge at our Flatbush Gardens property on new leases although, on average, the maximum rent is approximately 30% above our actual average rental rates for such leases. At our Aspen property, the residential units are subject to regulation established by the HDC under which there are no rental restrictions on approximately 55% of the units and low and middle income restrictions on approximately 45% of the units. There are no such rent stabilization restrictions at the Tribeca House properties and the 250 Livingston Street property.
We also incur costs on turnover of residents when one resident moves out and we prepare the apartment for a new resident. The costs include the costs of repainting and repairing apartment units, replacing obsolete or damaged appliances and re-leasing the units. While we budget for turnover and the costs associated therewith, our turnover cost may be affected by certain factors we cannot control. Excessive turnover and failure to properly manage turnover cost may adversely affect our operations and could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock.
We seek earnings growth primarily through increasing rents and occupancy at existing properties, and acquiring additional apartment communities in markets complementing our existing portfolio locations. Our apartment and commercial properties are concentrated in four neighborhoods within the boroughs of Manhattan and Brooklyn in New York City which makes us susceptible to adverse developments in these markets. As a result, we are particularly affected by the local economic conditions in these markets, including, but not limited to, changes in supply of or demand for apartment units in our markets, competition for real property investments in our markets, changes in government rules, regulations and fiscal policies, including those governing real estate usage and tax, and any environmental risks related to the presence of hazardous or toxic substances or materials at or in the vicinity of our properties, which could negatively affect our overall performance.
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We may be unable to accurately predict future changes in national, regional or local economic, demographic or real estate market conditions. For example, continued volatility and uncertainty in the global, national, regional and local economies could make it more difficult for us to lease apartment, commercial and retail space and may require us to lease our apartment, commercial and retail space at lower rental rates than projected and may lead to an increase in resident defaults. In addition, these conditions may also lead to a decline in the value of our properties and make it more difficult for us to dispose of these properties at competitive prices. These conditions, or others we cannot predict, could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock.
In connection with the purchase of the Tribeca House and Aspen properties and the private offering, we have incurred substantial, one-time general and administrative expenses. Upon us becoming a public company with shares listed on a U.S. exchange, we will incur increased general and administrative expenses, including legal, accounting and other expenses related to corporate governance, public reporting and compliance with various provisions of the Sarbanes-Oxley Act, related regulations of the SEC, including compliance with the reporting requirements of the Exchange Act, and the requirements of the national securities exchange on which our stock is listed.
Significant Accounting Policies
The accompanying consolidated and combined financial statements include the accounts and operations of the Company and its Predecessor. The entities that comprised the Predecessor have been combined on the basis that, for the periods presented, such entities were under common control.
Basis of Consolidation and Combination
The consolidated and combined financial statements of the Company and its Predecessor included elsewhere herein are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The effect of all significant intercompany balances and transactions has been eliminated. The consolidated and combined financial statements include the accounts of all entities in which the Company and its Predecessor has a controlling interest. All significant intercompany transactions and balances are eliminated in consolidation/combination.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management adjusts such estimates when facts and circumstances dictate. The most significant estimates made include the recoverability of accounts receivable, allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed and the useful lives of long-lived assets. Actual results could materially differ from these estimates.
Investment in Real Estate
Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy.
Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Predecessor allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. In estimating fair value of tangible and intangible assets acquired, the Predecessor assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
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The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Predecessor’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commission, legal and other related expenses.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset.
For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held for sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next twelve months. Real estate held for sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for sale properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held-for-sale properties are capitalized at cost. Depreciation is not recorded on real estate held for sale.
If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).
Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Building and improvements | 30 – 40 years |
Tenant improvements | Shorter of useful life or lease term |
Furniture, fixtures and equipment | 3 – 15 years |
Capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases.
Tenant and Other Receivables and Allowance for Doubtful Accounts
Tenant and other receivables are comprised of amounts due for monthly rents and other charges. The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. If a tenant fails to make contractual payments beyond any allowance, the Company may recognize additional bad debt expense in future periods.
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Deferred Costs
Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the combined financial statements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do not close are expensed in the period the financing transaction is terminated.
Revenue Recognition
Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Rental income attributable to residential leases and parking is recognized as earned, which is not materially different from the straight-line basis. Leases entered into by residents for an apartment unit are generally for a one-year term, renewable upon consent of both parties on an annual or monthly basis. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.
Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs.
Internal Controls and Procedures
We have had limited accounting personnel and systems to adequately execute accounting processes and limited other supervisory resources with which to address internal controls over financial reporting. As such, our internal controls may not be sufficient to ensure that (1) all transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and (2) the design and execution of our controls has consistently resulted in effective review of our financial statements and supervision by individuals with financial reporting oversight roles.
We are not currently required to comply with the SEC’s rules implementing Section 404 of the Sarbanes-Oxley Act, and are, therefore, not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Section 302 of the Sarbanes-Oxley Act, which will require our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. We will not be required to make our first assessment of our internal control over financial reporting until the year following the first annual report required to be filed with the SEC. To comply with the requirements of being a public company, we may need to implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff.
Further, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting for as long as we are an emerging growth company under the JOBS Act. Once it is required to do so, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed, operated or reviewed.
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Historical Results of Operations
Our focus throughout the years ended December 31, 2015 and 2014 and the nine months ended September 30, 2016 was to manage our properties to optimize revenue and control costs at each property while continuing to renovate and reposition certain properties. The discussions below will identify the specific properties contributing to the changes in the results of operations. The discussion will focus on the properties the Company held for the full period in each comparison. Results of the Tribeca House properties for the years ended December 31, 2015 and in 2014, for the 17-day period of ownership, and the Aspen property for the 96-day period of ownership during the nine months ended September 30, 2016, are separately identified in the tables that follow.
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Income Statement for the Years Ended December 31, 2015 and 2014 (in thousands)
Year ended December 31, 2015 | Year ended December 31, 2014 | |||||||||||||||||||||||||||||||
2015 |
Less: Tribeca House
FY 2015 |
2015
Excluding Tribeca House |
2014 |
Less: Tribeca House
15 days |
2014
Excluding Tribeca House |
Other
Changes |
% | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Residential rental revenue | $ | 60,784 | $ | 27,469 | $ | 33,315 | $ | 31,413 | $ | 1,381 | $ | 30,032 | $ | 3,283 | 10.9 | % | ||||||||||||||||
Commercial rental revenue | 17,256 | 3,170 | 14,086 | 12,382 | 159 | 12,223 | 1,863 | 15.2 | % | |||||||||||||||||||||||
Tenant recoveries | 3,477 | 310 | 3,167 | 2,415 | – | 2,415 | 752 | 31.1 | % | |||||||||||||||||||||||
Garage and other income | 3,087 | 1,589 | 1,498 | 1,562 | 59 | 1,503 | (5 | ) | -0.4 | % | ||||||||||||||||||||||
Total revenues | 84,604 | 32,538 | 52,066 | 47,772 | 1,599 | 46,173 | 5,893 | 12.8 | % | |||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||
Property operating expenses | 23,283 | 4,613 | 18,670 | 19,673 | 406 | 19,267 | (597 | ) | -3.1 | % | ||||||||||||||||||||||
Real estate taxes and insurance | 14,926 | 8,086 | 6,840 | 6,560 | 338 | 6,222 | 618 | 9.9 | % | |||||||||||||||||||||||
General and administrative | 5,296 | 1,063 | 4,233 | 2,358 | 66 | 2,292 | 1,941 | 84.7 | % | |||||||||||||||||||||||
Acquisition costs | 75 | – | 75 | 326 | 211 | 115 | (40 | ) | -34.8 | % | ||||||||||||||||||||||
Depreciation and amortization | 12,521 | 8,059 | 4,462 | 4,472 | 363 | 4,109 | 353 | 8.6 | % | |||||||||||||||||||||||
Total operating expenses | 56,101 | 21,821 | 34,280 | 33,389 | 1,384 | 32,005 | 2,275 | 7.1 | % | |||||||||||||||||||||||
Income from operations | 28,503 | 10,717 | 17,786 | 14,383 | 215 | 14,168 | 3,618 | 25.5 | % | |||||||||||||||||||||||
Interest expense, net | (36,703 | ) | (24,945 | ) | (11,758 | ) | (9,145 | ) | (1,078 | ) | (8,067 | ) | (3,691 | ) | 45.8 | % | ||||||||||||||||
Net (loss) income | $ | (8,200 | ) | $ | (14,228 | ) | $ | 6,028 | $ | 5,238 | $ | (863 | ) | $ | 6,101 | $ | (73 | ) | -1.2 | % |
Revenue . Residential rental revenue, excluding the Tribeca House properties, increased from $30,032 in 2014 to $33,315 in 2015 due to higher revenues on new leases, higher occupancy and routine annual increases on renewed rentals primarily at the Flatbush Gardens property complex. Base rent per square foot increased at the Flatbush Gardens property from $19.69 (95.6% occupancy) at December 31, 2014 to $20.63 (97.0% occupancy) at December 31, 2015. Routine annual rent increases on renewed leases at Flatbush Gardens were approximately 1%.
Commercial rental revenue, excluding the Tribeca House properties, increased from $12,223 in 2014 to $14,086 in 2015 primarily due to the new lease with the City of New York at our 141 Livingston Street property. The lease, executed in December 2015 and effective June 1, 2014, included an 82% increase in base rent per square foot and a 37% increase in rentable space through a remeasurement over the previous agreement with the City of New York. The lease has a 10 year term with a termination option by the City of New York at the end of the fifth year.
Tenant recoveries, excluding the Tribeca House properties, increased from $2,415 in 2014 to $3,167 in 2015 primarily due to terms in the above-mentioned new lease related to the 141 Livingston Street property.
Garage and other income, excluding the Tribeca House properties, was $1,503 in 2014 and $1,498 in 2015, primarily at the Flatbush Gardens property.
Property Operations Expense . Property operating expenses, excluding the Tribeca House properties, include property-level costs including compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping. Property operating expenses decreased from $19,267 in 2014 to $18,670 in 2015 primarily due to lower utilities expense at all of the properties.
Real estate taxes and insurance expenses, excluding the Tribeca House properties, increased from $6,222 in 2014 to $6,840 in 2015.
General and Administrative Expense . General and administrative expense, excluding the Tribeca House properties, increased from $2,292 in 2014 to $4,233 in 2015 primarily due to incremental legal, insurance and accounting costs incurred in 2014 and 2015 for the formation transactions and the private offering, including accounting and auditing fees.
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Depreciation and Amortization . Depreciation and amortization expense, excluding the Tribeca House properties, decreased from $4,109 in 2014 to $4,462 in 2015 due to fully depreciated assets, partially offset by additions.
Interest Expense, net . Interest expense, net, excluding the Tribeca House properties, increased from $8,067 in 2014 to $11,758 in 2015 due to higher outstanding borrowings on new loans obtained in September and December of 2014 secured by the Flatbush Gardens and 141 Livingston Street properties. Interest expense includes amortization of loan costs and change in fair value of interest rate cap of $753 and $2,317 in 2014 and 2015, respectively.
Tribeca House properties . Tribeca House properties net loss of $14,228 in 2015 included $8,059 of depreciation and amortization expense and $24,945 of interest charges of which $4,241 was amortization of debt issuance costs and interest rate cap mark-to-market.
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Net Income . As a result of the foregoing, net income, excluding the Tribeca House properties, decreased from $6,101 in 2014 to $6,028 in 2015.
Income Statement for the Nine Months Ended September 30, 2016 (in thousands)
2016 |
Less: Aspen
for 96 days |
2016
excluding Aspen |
2015 |
Increase
(decrease) |
% | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Residential rental revenue | $ | 49,405 | $ | 1,337 | $ | 48,068 | $ | 45,596 | $ | 2,472 | 5.4 | % | ||||||||||||
Commercial rental revenue | 13,843 | 305 | 13,538 | 13,042 | 496 | 3.8 | % | |||||||||||||||||
Tenant recoveries | 2,969 | 1 | 2,968 | 2,651 | 317 | 12.0 | % | |||||||||||||||||
Garage and other income | 2,550 | 4 | 2,546 | 2,315 | 231 | 10.0 | % | |||||||||||||||||
Total revenues | 68,767 | 1,647 | 67,120 | 63,604 | 3,516 | 5.5 | % | |||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Property operating expenses | 18,885 | 185 | 18,700 | 17,691 | 1,009 | 5.7 | % | |||||||||||||||||
Real estate taxes and insurance | 13,023 | 295 | 12,728 | 10,904 | 1,824 | 16.7 | % | |||||||||||||||||
General and administrative | 6,317 | 84 | 6,233 | 3,266 | 2,967 | 90.8 | % | |||||||||||||||||
Acquisition costs | 407 | 399 | 8 | – | 8 | n/a | ||||||||||||||||||
Depreciation and amortization | 10,646 | 435 | 10,211 | 9,656 | 555 | 5.7 | % | |||||||||||||||||
Total operating expenses | 49,278 | 1,398 | 47,880 | 41,517 | 6,363 | 15.3 | % | |||||||||||||||||
Income from operations | 19,489 | 249 | 19,240 | 22,087 | (2,847 | ) | -12.9 | % | ||||||||||||||||
Interest expense, net | (28,749 | ) | (704 | ) | (28,045 | ) | (27,728 | ) | (317 | ) | 1.1 | % | ||||||||||||
Net loss | $ | (9,260 | ) | $ | (455 | ) | $ | (8,805 | ) | $ | (5,641 | ) | $ | (3,164 | ) | 56.1 | % |
Revenue . Residential rental revenue, excluding Aspen, increased from $45,596 for the nine months ended September 30, 2015 to $48,068 for the nine months ended September 30, 2016 due to higher revenues on new leases and routine annual increases on renewed rentals primarily at the Flatbush Gardens property complex. Base rent per square foot increased at the Flatbush Gardens property from $20.41 (97.2% occupancy) at September 30, 2015 to $21.04 (96.6% occupancy) at September 30, 2016. Routine annual rent increases on renewed leases at Flatbush Gardens were approximately 1%.
Commercial rental revenue, excluding Aspen, increased from $13,042 for the nine months ended September 30, 2015 to $13,538 for the nine months ended September 30, 2016 primarily due to the commencement of the new retail lease at our Tribeca House property. The lease, executed in July 2015 and effective February 11, 2016, has a 15-year term and calls for base rent per square foot of approximately $140.
Tenant recoveries, excluding Aspen, increased from $2,651 for the nine months ended September 30, 2015 to $2,968 for the nine months ended September 30, 2016 primarily due to terms in one of the retail leases at our Tribeca House property which called for no escalation payments until July 2015.
Garage and other income, excluding Aspen, increased from $2,315 for the nine months ended September 30, 2015 to $2,546 for the nine months ended September 30, 2016 , primarily due to increased storage fees at our Tribeca House property and damage fees collected at our 250 Livingston Street property.
Property Operations Expense . Property operating expenses, excluding Aspen, include property-level costs including compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping. Property operating expenses increased from $17,691 for the nine months ended September 30, 2015 to $18,700 for the nine months ended September 30, 2016 primarily due to higher collection costs at Flatbush Gardens and higher commissions at Tribeca House.
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Real estate taxes and insurance expenses, excluding Aspen, increased from $10,904 for the nine months ended September 30, 2015 to $12,728 for the nine months ended September 30, 2016 primarily due to increased taxes at our Tribeca House property.
General and Administrative Expense . General and administrative expense, excluding Aspen, increased from $3,266 for the nine months ended September 30, 2015 to $6,233 for the nine months ended September 30, 2016 primarily due to executive compensation effected by the REIT formation transactions in August of 2015, which includes non-cash LTIP amortization of $1,891.
Depreciation and Amortization . Depreciation and amortization expense, excluding Aspen, increased from $9,656 for the nine months ended September 30, 2015 to $10,211 for the nine months ended September 30, 2016, due to additions to fixed assets.
Interest Expense, Net . Interest expense, net, excluding Aspen, increased from $27,728 for the nine months ended September 30, 2015 to $28,045 for the nine months ended September 30, 2016 primarily due to higher outstanding borrowings on a refinance which closed in May of 2016 on the 141 Livingston Street property, and a higher LIBOR rate on the Tribeca House property loans. Interest expense includes amortization of loan costs and change in fair value of interest rate cap of $4,262 and $5,007 for the nine months ended September 30, 2016 and 2015, respectively.
Net Loss . As a result of the foregoing, net loss, excluding Aspen, increased from $5,641 for the nine months ended September 30, 2015 to $8,805 for the nine months ended September 30, 2016.
Liquidity and Capital Resources
We estimate that the net proceeds to us from the sale of the shares of our common stock offered by us will be approximately $91.4 million, based on an assumed initial public offering price of $14.50 per share, the mid-point of the price range set forth on the front cover page of this prospectus, and after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $105.8 million, after deducting underwriting discounts and commissions and estimated offering expenses. We expect to use the net proceeds as set forth in “Use of Proceeds.”
As of September 30, 2016, we had $814.7 million of mortgage indebtedness secured by our properties and $82 million of cash of which we used approximately $55.5 million to refinance the Tribeca House debt on November 9, 2016, and received $15.0 million from a refund of an acquisition deposit on November 14, 2016. We also expect to use approximately $31.0 million for capital projects. Additionally, apart from regularly scheduled amortization, we also have $410.0 million of debt maturing in November 2018 subject to three one-year extension options as a result of the Tribeca House refinancing, $35.2 million of debt maturing in May 2023, $170.0 million of debt maturing in October 2024, $70.0 million maturing in July 2028 and $79.5 million maturing in June 2028. We intend to use cash on hand and the net proceeds of this offering, among other uses, to fund approximately $31 million in capital improvements, for operating purposes and to fund potential acquisitions. No assurance can be given that we will be able to refinance any of these loans on favorable terms or at all.
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As a REIT, we are required to distribute at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gains, to stockholders on an annual basis. We expect that these needs will be met from cash generated from operations and other sources, including proceeds from secured mortgages and unsecured indebtedness, proceeds from additional equity issuances and cash generated from the sale of property.
Short-Term and Long-Term Liquidity Needs
Our short-term liquidity needs will primarily be to fund operating expenses, recurring capital expenditures, property taxes and insurance, interest and scheduled debt principal payments, general and administrative expenses and distributions to stockholders and unit holders. We generally expect to meet our short-term liquidity requirements through proceeds of the private offering and net cash provided by operations, and we believe we will have sufficient resources to meet our short-term liquidity requirements. We believe that net cash provided by operations will be adequate to meet the REIT operating requirements in both the short and the long-term.
Our principal long-term liquidity needs will primarily be to fund major renovation and upgrading projects, debt payments and retirements at maturity and additional property acquisitions. We do not expect that net cash provided by operations will be sufficient to meet all of these long-term liquidity needs. We anticipate meeting our long-term liquidity requirements by using cash as an interim measure and funds from public and private equity offerings and long-term secured and unsecured debt offerings.
We believe that as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements. These sources include the incurrence of additional debt and the issuance of additional equity. However, we cannot assure you that this will be the case. Our ability to secure additional debt will depend on a number of factors, including our cash flow from operations, our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed. Our ability to access the equity capital markets will depend on a number of factors as well, including general market conditions for REITs and market perceptions about our company.
We believe that our current cash flows from operations, coupled with additional mortgage debt, will be sufficient to allow us to continue operations, satisfy our contractual obligations and make distributions to our stockholders and the members of our LLC subsidiaries.
Property-Level Debt
The mortgages and mezzanine notes which are collateralized by their respective properties, member’s interest in the properties and assignment of leases, and the principal amounts outstanding as of September 30, 2016 were as follows:
Property | Maturity | Interest Rate |
Principal
Amount Outstanding (in thousands) |
|||||||
Flatbush Gardens | 10/1/2024 | 3.88% | $ | 150,000 | ||||||
Flatbush Gardens | 10/1/2024 | 3.88% | 20,000 | |||||||
250 Livingston Street | 5/6/2023 | 4.00% | 35,213 | |||||||
141 Livingston Street | 6/1/2028 | 3.88% | 79,500 | |||||||
Tribeca House properties | 11/9/2016 | Libor + 3.40% | 360,000 | |||||||
Tribeca House properties | 11/9/2016 | Libor + 7.38% | 100,000 | |||||||
Aspen | 7/1/2028 | 3.68% | 70,000 | |||||||
$ | 814,713 |
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Tribeca House properties
Following the refinancing of the Tribeca House debt on November 9, 2016, there is $410 million in mortgage and mezzanine debt related to the Tribeca House properties, in the form a mortgage note of $335 million to Deutsche Bank and a $75 million mezzanine note to SL Green Finance. Both the mortgage note and the mezzanine note mature on November 9, 2018 and give us the option to extend the maturity date up to three one-year terms. Under the mortgage note, we have the option to prepay the balance in whole, but not in part without a prepayment penalty. Under the mezzanine note, we have the option to prepay the balance in whole, but not in part. In connection with both the mortgage and mezzanine debt, David Bistricer and an entity controlled by Sam Levinson entered into guaranties of recourse obligations.
Flatbush Gardens
There is $170 million in mortgage debt secured by Flatbush Gardens, as of September 30, 2016, in the form of two mortgage notes to New York Community Bank. A $150 million mortgage note matures on October 1, 2024 and has a fixed interest rate of 3.88%. A $20 million mortgage note also matures on October 1, 2024 and has an interest rate of 3.88% through September 2019, after which the interest is Prime plus 2.75% subject to an option to fix the rate. Under both notes, we have the option to prepay all (but not less than all) of the unpaid balance of the loan prior to the maturity date, but must pay a prepayment premium of 4% if the prepayment occurs prior to September 30, 2017, 2% if it occurs from October 1, 2017 through September 30, 2018, and 1% if it occurs from October 1, 2018 through June 30, 2019. David Bistricer entered into guaranties of recourse obligations in connection with both notes.
141 Livingston Street
There is $79.5 million in mortgage debt secured by 141 Livingston Street, as of September 30, 2016, in the form of a mortgage note to New York Community Bank. The note bears interest at 3.875% and matures on June 1, 2028. We may prepay the debt in whole or in part, subject to a prepayment premium. David Bistricer and Sam Levinson entered into a guaranty of recourse obligations in connection with this loan for which we will indemnify them.
250 Livingston Street
There is approximately $35 million in mortgage debt secured by 250 Livingston Street, as of September 30, 2016, in the form of a mortgage note to Citigroup Global Markets Realty Corp, which has been securitized. The note requires monthly principal and interest payments of $179,000, bears interest of 4.00% and matures on May 6, 2023. We may prepay the debt within two months of May 6, 2023 in whole without having to pay a prepayment premium. David Bistricer entered into a guaranty of recourse obligations in connection with this loan for which we will indemnify him.
The Aspen Property
There is $70 million in mortgage debt secured by Aspen as of September 30, 2016 in the form of a mortgage note with Capital One Multifamily finance LLC. The note matures on July 1, 2028 and bears interest at 3.68%. The note requires interest-only payments through July 2017, monthly principal and interest payments of $321,000 from August 2017 through July 2028 based on a 30-year amortization schedule and principal and interest payments thereafter based on the remaining period of the initial 30-year amortization schedule.
Contractual Obligations and Commitments
The following table summarizes principal and interest payment requirements under terms as of September 30, 2016 of our debt:
(in thousands) | ||||||||||||
Principal | Interest | Total | ||||||||||
2016 | 460,186 | 7,348 | 467,534 | |||||||||
2017 | 4,490 | 13,590 | 18,080 | |||||||||
2018 | 6,731 | 13,352 | 20,083 | |||||||||
2019 | 6,678 | 13,426 | 20,104 | |||||||||
2020 | 6,360 | 14,869 | 21,229 | |||||||||
Thereafter | 330,268 | 69,405 | 399,673 | |||||||||
Total | $ | 814,713 | 131,990 | 946,703 |
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The Predecessor is also obligated to provide parking through 2020 under a lease with a tenant at the property on 250 Livingston Street at a cost of approximately $160,000 per year.
Cash Flows for the Years Ended December 31, 2015 and 2014 (in thousands)
Year Ended
December 31, |
||||||||
2015 | 2014 | |||||||
Operating activities | $ | 9,440 | $ | 7,472 | ||||
Investing activities | $ | (9,025 | ) | $ | (226,822 | ) | ||
Financing activities | $ | 115,760 | $ | 224,707 |
Cash flows provided by (used in) operating activities, investing activities and financing activities for the years ended December 31, 2015 and 2014 were as follows:
Net cash flow provided by operating activities was $9,440 in 2015 as compared to $7,472 in 2014. 2015 reflects the collection of a receivable from the City of New York in May 2015 relating to the lease at the 141 Livingston Street property that had been unpaid since June 1, 2014, partially offset by interest expense on the $360,000 mortgage payable and the $100,000 mezzanine note payable entered into in connection with the acquisition of the Tribeca House properties discussed above and increase in restricted cash balances.
Net cash used in investing activities was $9,025 in 2015 as compared to $226,822 in 2014. The decrease in 2015 as compared to 2014 reflects the cost of acquisition of the Tribeca House property acquired in December 2014 offset in part by higher capital costs in 2015 of apartment and building renovations at Flatbush Gardens and Tribeca House properties in December 2015.
Net cash provided by financing activities was $115,760 in 2015 and $224,707 in 2014. Amounts in 2015 reflect $130,199 net cash received from the sale of common stock net of costs on August 3, 2015, a contribution of $2,357 by members of the Predecessor and distributions of $15,884 to members of the Predecessor before the sale of common stock. Amounts in 2014 reflect $188,739 debt, net of costs, incurred in connection with the acquisition of the Tribeca House properties in December 2014 and $36,623 of net distributions in connection with the formation transactions and offering. Both periods included scheduled principal payments of mortgage debt.
Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (in thousands)
Nine Months Ended
September 30, |
||||||||
2016 | 2015 | |||||||
Operating activities | $ | 5,253 | $ | 5,722 | ||||
Investing activities | $ | (130,833 | ) | $ | (6,360 | ) | ||
Financing activities | $ | 82,349 | $ | 118,446 |
Cash flows provided by (used in) operating activities, investing activities and financing activities for the nine months ended September 30, 2016 and 2015 were as follows:
Net cash flow provided by operating activities was $5,253 for the nine months ended September 30, 2016 as compared to $5,722 for the nine months ended September 30, 2015. 2015 reflects the collection of a large outstanding receivable on the 141 Livingston Street property, and an increase in payables, partially offset by the recording of executive compensation during the full nine months of 2016.
Net cash used in investing activities was $130,833 for the nine months ended September 30, 2016 as compared to $6,360 for the nine months ended September 30, 2015. The increase in 2016 as compared to 2015 reflects the cost of acquisition of the Aspen property acquired in June 2016, higher capital costs in 2016 of apartment and building renovations at Flatbush Gardens and Tribeca House properties, and a refundable deposit paid in connection with a potential acquisition.
Net cash provided by financing activities was $82,349 for the nine months ended September 30, 2016 as compared to $118,446 for the nine months ended September 30, 2015. The decrease from 2015 reflects the proceeds from the sale of common stock in 2015, offset by the $94,500 cash received from the mortgage relating to the Aspen property acquisition and the refinancing of the mortgage relating to the 141 Livingston Street property in 2016, dividends of $7,457 and debt issuance costs relating to the mortgages of $3,770. Both periods included scheduled principal payments of mortgage debt.
Income Taxes
No provision has been made for income taxes since all of the Company’s operations are held in pass-through entities and accordingly the income or loss of the Company is included in the individual income tax returns of the partners or members.
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We elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our first taxable year ended December 31, 2015. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates. We believe that we are organized and operate in a manner that will enable us to qualify and be taxed as a REIT and we intend to continue to operate so as to satisfy the requirements for qualification as a REIT for federal income tax purposes.
Inflation
Inflation in the United States has been relatively low in recent years and did not have a significant impact on the results of operations for the Company’s business for the periods shown in the consolidated historical financial statements. We do not believe that inflation currently poses a material risk to the Company. The leases at our residential rental properties which comprise approximately 75% of our revenue are short-term in nature. Our longer-term commercial and retail leases would generally allow us to recover some increased costs in the event of significant inflation.
Although the impact of inflation has been relatively insignificant in recent years, it does remain a factor in the United States economy and could increase the cost of acquiring or replacing properties in the future.
Quantitative and Qualitative Disclosures About Market Risk
Our future income, cash flows and fair value relevant to our financial instruments depends upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk. To manage this risk, we purchased interest rate caps on approximately $515 million of the $814.7 million of mortgage debt outstanding as of September 30, 2016 that would provide interest protection if one month LIBOR exceeds 2.0%.
A one percent increase in interest rates on our $460 million of variable rate mortgage debt would decrease annual net income by approximately $4.6 million.
Off-Balance Sheet Arrangements
As of September 30, 2016, we do not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
Non-GAAP Financial Measures
In this prospectus, we disclose and discuss funds from operations (“FFO”), adjusted funds from operations (“AFFO”), and Adjusted EBITDA, all of which meet the definition of “non-GAAP financial measure” set forth in Item 10(e) of Regulation S-K promulgated by the SEC.
While management and the investment community in general believes that presentation of these measures provides useful information to investors, neither FFO, AFFO nor Adjusted EBITDA should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. We believe that to understand our performance further, FFO, AFFO and Adjusted EBITDA should be compared with our reported net income or net loss and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.
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Funds from Operations and Adjusted Funds from Operations
FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (computed in accordance with GAAP), excluding gains (losses) from sales of property (and impairment adjustments), plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO is consistent with FFO as defined by NAREIT.
AFFO is defined by us as FFO excluding amortization of identifiable intangibles incurred in property acquisitions, straight line rent adjustments to revenue from long-term leases and amortization costs incurred in originating debt.
Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO useful in evaluating potential property acquisitions and measuring operating performance. We further consider AFFO useful in determining funds available for payment of distributions. FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. You should not consider FFO and AFFO to be alternatives to net income as a reliable measure of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.
FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Further, FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO and AFFO.
The following table sets forth a reconciliation of FFO and AFFO for the periods presented to net loss before allocation to non-controlling interests, as computed in accordance with GAAP (amounts in thousands):
Nine months ended September 30, | Years ended December 31, | |||||||||||||||
2016 | 2015 | 2015 | 2014 | |||||||||||||
FFO | ||||||||||||||||
Net (loss) income before allocation to non-controlling interests | $ | (9,260 | ) | $ | (5,641 | ) | $ | (8,200 | ) | $ | 5,238 | |||||
Real estate depreciation and amortization | 10,646 | 9,656 | 12,521 | 4,472 | ||||||||||||
FFO | $ | 1,386 | $ | 4,015 | $ | 4,321 | $ | 9,710 | ||||||||
AFFO | ||||||||||||||||
FFO | $ | 1,386 | $ | 4,015 | $ | 4,321 | $ | 9,710 | ||||||||
Real estate tax intangible amortization | 1,186 | 996 | 1,328 | 238 | ||||||||||||
Amortization of above and below-market leases | (1,357 | ) | (1,286 | ) | (1,714 | ) | (1,450 | ) | ||||||||
Straight-line rent adjustment | (60 | ) | 55 | 109 | 513 | |||||||||||
Amortization of debt origination costs | 4,253 | 4,496 | 6,036 | 704 | ||||||||||||
Interest rate cap mark-to-market | 9 | 511 | 522 | 49 | ||||||||||||
Amortization of LTIP awards | 1,891 | 284 | 709 | – | ||||||||||||
Acquisition costs | – | – | 75 | 326 | ||||||||||||
Recurring capital spending | (535 | ) | (1,719 | ) | (2,139 | ) | (1,824 | ) | ||||||||
AFFO | $ | 6,773 | $ | 7,352 | $ | 9,247 | $ | 8,266 |
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Adjusted earnings before interest, income taxes, depreciation, amortization and stock based compensation
We believe that Adjusted EBITDA is a useful measure of our operating performance. We define Adjusted EBITDA as net (loss) income before allocation to non-controlling interests plus real estate depreciation and amortization, amortization of identifiable intangibles, interest expense, net, and acquisition costs and stock based compensation. Other REITs may use different methodologies for calculating Adjusted EBITDA, and accordingly, our Adjusted EBITDA may not be comparable to other REITs.
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We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use Adjusted EBITDA to evaluate our performance because Adjusted EBITDA allows us to evaluate the operating performance of our company by measuring the core operations of property performance and administrative expenses available for debt service.
However, Adjusted EBITDA should only be used as an alternative measure of our financial performance. The following table reconciles Adjusted EBITDA to net (loss) income:
Nine Months Ended September 30, |
Year Ended December 31,
Historical |
|||||||||||||||
2016 | 2015 | 2015 | 2014 | |||||||||||||
Net (loss) income before allocation to non-controlling interests | $ | (9,260 | ) | $ | (5,641 | ) | $ | (8,200 | ) | $ | 5,238 | |||||
Depreciation and amortization | 10,646 | 9,656 | 12,521 | 4,472 | ||||||||||||
Amortization of real estate tax intangible | 1,186 | 996 | 1,328 | 238 | ||||||||||||
Amortization of above and below-market leases | (1,357 | ) | (1,286 | ) | (1,714 | ) | (1,450 | ) | ||||||||
Straight-line rent adjustment | (60 | ) | 55 | 109 | 513 | |||||||||||
Amortization of LTIP awards | 1,891 | 284 | 709 | – | ||||||||||||
Interest expense, net | 28,749 | 27,728 | 36,703 | 9,145 | ||||||||||||
Acquisition costs | 407 | – | 75 | 326 | ||||||||||||
Adjusted EBITDA | $ | 32,202 | $ | 31,792 | $ | 41,531 | $ | 18,482 |
Recent Accounting Pronouncements
See Note 3 of Notes to the consolidated and combined financial statements included elsewhere in this prospectus for information relating to new accounting pronouncements.
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Overview
We are a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multi-family residential and commercial properties in the New York metropolitan area, with an initial portfolio in Manhattan and Brooklyn. The Company was formed to continue and expand the commercial real estate business of the Predecessor. Our primary focus is to continue to own, manage and operate our initial portfolio and to acquire and reposition additional multi-family residential and commercial properties in the New York metropolitan area. Clipper Realty was incorporated on July 7, 2015. On August 3, 2015, we closed a private offering of shares of our common stock, in which we raised net proceeds of approximately $130.2 million. In connection with the private offering, we consummated a series of investment and other formation transactions that were designed, among other things, to enable us to qualify as a REIT for U.S. federal income tax purposes and we have elected to be treated as a REIT commencing with the taxable year ended December 31, 2015.
The Company owns:
· | two neighboring residential/retail rental properties at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of Manhattan, which we collectively refer to as the Tribeca House properties; |
· | one residential property complex in the East Flatbush neighborhood of Brooklyn consisting of 59 buildings, which we refer to as the Flatbush Gardens properties or complex; |
· | two primarily commercial properties in Downtown Brooklyn (one of which includes 36 residential apartment units), which we refer to as the 141 Livingston Street property and the 250 Livingston Street property; and |
· | one residential/retail rental property at 1955 1 st Avenue in Manhattan, which we refer to as the Aspen property. |
In January 2017, the Company entered into a letter of intent to purchase a residential property located at 107 Columbia Heights in Brooklyn for $87.5 million, which we refer to as the Columbia Heights property. These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation.
The Company’s ownership interest in its initial portfolio of properties, which includes the Tribeca House, Flatbush Gardens and Livingston Street properties, was acquired in the formation transactions in connection with the private offering. These properties are owned by the LLC subsidiaries, which are managed by the Company through the operating partnership. The operating partnership’s interest in the LLC subsidiaries generally entitles the operating partnership to all cash distributions from, and the profits and losses of, the LLC subsidiaries other than the preferred distribution to the continuing investors who hold class B LLC units in these LLC subsidiaries described below. The continuing investors own an aggregate amount of 26,317,396 class B LLC units, representing 68.8% of the Company’s common stock on a fully diluted basis (58.2% immediately following this offering). Accordingly, the operating partnership’s interests in the LLC subsidiaries entitle the operating partnership to receive approximately 31.2% of the aggregate distributions from the LLC subsidiaries (41.8% immediately following this offering). The Company, through the operating partnership, owns all of the ownership interests in the Aspen property.
The Tribeca House properties were purchased in December 2014 and consist of two nearly adjacent properties in the Tribeca neighborhood of Manhattan, New York. They comprise approximately 480,000 square feet of leasable area with 505 residential apartment units with 11 foot ceilings and extensive amenities and approximately 77,200 square feet of retail space, including an externally managed garage. The residential units are approximately 94% leased at approximately $68 per square foot and the retail units are fully occupied.
The Flatbush Gardens property complex was purchased in September 2005 and consists of 59 primarily six-story buildings, approximately 1.7 million square feet and 2,496 residential apartment units. The property is approximately 97% occupied at approximately $21.52 per square feet. The property is subject to rent control regulations of New York City which allow rents approximately 30% higher than existing average rents. Since the acquisition in 2005, the management team has undertaken a comprehensive renovation and repositioning strategy that has included upgrades in the exterior and interior of the buildings. The Company has been able to consistently improve rents as a result of these efforts and other factors and experienced an approximately 7% increase in rents per square foot on new leases in the first half of 2016.
The 141 Livingston Street property in the Downtown Brooklyn neighborhood was purchased in 2002 along with the below-mentioned 250 Livingston Street property. It is a 15-story commercial building with a gross leasable area of 206,084 square feet. The property’s main commercial tenant, the City of New York, executed a new 10-year lease in December 2015, with effect as of June 2014. Under the agreement with the City of New York, the tenant has an option to terminate the lease after five years. However, if it decides to continue to occupy the building after five years, the rent will increase by 25% beginning the sixth year of the lease. The agreement with the City of New York, as compared to the prior lease, increases rent by 82% per square foot and increases the rentable square feet by 37% as a result of a building remeasurement, resulting in an overall increase in rental revenue of approximately 149%. The lease imposes a requirement on the Company to refurbish the air-conditioning system and perform other upgrades that the Company estimates will cost a total of approximately $5.2 million. In the future we may be able to convert the property to residential units, a change made at several nearby buildings, including 110 Livingston Street. Additionally, the property includes an adjacent lot at 22 Smith Street currently used as a parking lot having approximately 5,000 square feet for which the Company has received written expressions of interest in excess of $15 million.
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The 250 Livingston Street property was purchased in 2002 along with the 141 Livingston Street property and consists of a 12-story commercial and residential building. It has approximately 267,000 square feet GLA of commercial space and approximately 26,800 square feet of residential space. The property’s sole office tenant, the City of New York, has leases expiring at the end of 2016 and 2020 with lease rates approximately 50% of the rate recently negotiated at the 141 Livingston Street property with the same tenant and similar space. The leasable area of the office portion recently has been remeasured according to REBNY standards to approximately 353,000 square feet, an increase of approximately 33% consistent with the remeasurement described above at the nearby 141 Livingston Street property, which features a similar class of office space. To more fully optimize available space, in 2003 through 2013, the Company converted the top four floors of the building into 36 apartment units which are presently approximately 94% leased.
The Aspen property, purchased on June 27, 2016, is located at 1955 1 st Avenue, New York, NY. The property is a seven-story building which comprises 186,602 square feet, 232 residential rental units, three retail units and a parking garage. The residential units are subject to regulations established by the HDC under which there are no rental restrictions on approximately 55% of the units and low and middle income restrictions on approximately 45% of the units. The residential apartment units are approximately 99% leased at an average rental rate of approximately $33 per square foot. The retail units comprise of three grade-level commercial spaces and a grade level parking garage with 109 licensed spaces. The retail space is fully occupied at an average rental rate of approximately $43 per square foot. While the building is relatively new, the Company believes there is an opportunity to increase rents by improving certain of the finishes of the property.
History
The Company’s Predecessor is a combination of four limited liability companies, Renaissance Equity Holdings LLC, Berkshire Equity LLC, Gunki Holdings LLC and 50/53 JV LLC, which were formed by principals of our management team from 2002 to 2014. Upon completion of the private offering and the formation transactions, we assumed responsibility for managing the predecessor LLCs.
The Company is led by David Bistricer, its Co-Chairman and Chief Executive Officer, who has a strong reputation within the New York metropolitan area for real estate acquisitions, management, repositioning and marketing expertise. Mr. Bistricer, together with the Company’s senior management team, has developed the Company’s strategy with a focus on broker relationships and the cultivation of the Company’s track record of execution. Mr. Bistricer has over 30 years of real estate experience specifically in expanding, renovating, repositioning and managing the Company’s current portfolio and other properties. The Company’s senior management team has an average of approximately 21 years of experience covering all aspects of real estate, including asset and property management, leasing, marketing, acquisitions, construction, development, legal and finance.
Our Competitive Strengths
We believe that the following competitive strengths distinguish our company from other owners and operators of commercial and multi-family residential properties:
· | Diverse Portfolio of Properties in New York Metropolitan Area . Our current portfolio of commercial and multi-family residential properties in Manhattan and Brooklyn is located in one of the most prized real estate markets in the world. The combination of supply constraints, high barriers to entry, near-term and long-term prospects for job creation, vacancy absorption and rental rate growth make New York City an extremely attractive place to own real property. Our management believes that, in light of the land and construction costs, our current portfolio could not be replaced today on a cost-competitive basis. As described above, we own two primarily commercial properties in the Downtown Brooklyn neighborhood, one multi-family residential property complex in the East Flatbush neighborhood of Brooklyn, one primarily multi-family residential property group in the Tribeca neighborhood of Manhattan and one primarily multi-family residential property in a transitional neighborhood just north of the Yorkville neighborhood of Manhattan. We have also entered into a letter of intent to purchase the Columbia Heights property, which, if completed, will add a residential property in the historic district of Brooklyn Heights to our portfolio. We believe that we are one of the only REITs with a portfolio solely composed of multi-family residential, commercial and retail properties in the New York metropolitan area. Further, our multi-family residential portfolio is diversified by tenant demographics (both luxury and work-force units). |
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· | Expertise in Repositioning and Managing Multi-family Residential Properties. Our management team has substantial expertise in renovating and repositioning multi-family residential properties. At the Flatbush Gardens property, beginning in 2006, we have engaged in a property renovation program that includes replacement or upgrades to building systems and components as well as the refurbishment of apartment interiors. As a result of our effort in managing the property, including these upgrades, we have reduced outstanding New York City violations from over 8,000 at the time of the acquisition to approximately 577 currently, and substantially improved resident safety. At the 250 Livingston Street property, from 2003 through 2013, we converted the top four floors into 36 residential apartment units (approximately 94% leased at January 31, 2017) to more fully optimize available space. We believe that the post-renovation high quality of our buildings and the services we provide also attract higher income and credit-quality tenants and allow for increased cash flow. |
· | Attractive Commercial and Residential Properties in Densely Populated Metropolitan Communities. Our commercial properties in Downtown Brooklyn are located in a premier commercial corridor that features convenient access to mass transportation, a diverse tenant base and high pedestrian traffic. The commercial portfolio consists of approximately 473,000 square feet (remeasured to approximately 560,000 square feet) leased to the City of New York. |
Our residential properties in Tribeca are located in a neighborhood that has one of the highest average market rents in Manhattan and one of the lowest vacancy rates in Manhattan (based on a CitiHabitats market report as of July 2016 combining Tribeca with the adjacent SoHo neighborhood) as well as convenient access to mass transit. We believe that these favorable market characteristics, coupled with our plans to reposition the Tribeca House properties to provide better service levels and finishes, will allow for improved rents and financial results for the Tribeca House properties over the next two to three years.
Our newly acquired Aspen residential property in Manhattan is a relatively new building occupying a full city block in a transitional neighborhood located just north of the Yorkville neighborhood, which, according to StreetEasy, as of January 30, 2017, had average asking rents per square foot in excess of $50, as compared to the average existing rent in the Aspen property of approximately $33 per square foot. Additionally, the first phase of the new Second Avenue subway line was completed in December 2016, extending to within five blocks of the Aspen property. We believe these transitional activities and our plans to upgrade the finishes of the property will allow for improved rents and financial results for the Aspen property over the next two to three years.
Our residential property complex in the East Flatbush neighborhood is located in an entry-level, low-cost area that provides more reasonably priced housing than that in Manhattan and more upscale Brooklyn neighborhoods. The complex has convenient access to public transportation, including the Newkirk Avenue and Flatbush Avenue – Brooklyn College subway stations. Brooklyn College, Beth Israel Hospital and SUNY Downstate Medical Center are all within approximately one mile of the complex and a higher-priced condominium development has begun in East Flatbush. Additionally, surrounding neighborhoods are experiencing higher rents. We believe that these nearby improvements to the residential market, coupled with our ongoing renovation and repositioning strategy, will steadily allow higher rents, improved tenant credit quality and improved financial results for the Flatbush Gardens property.
· | Experienced and Committed Management Team with Proven Track Record over Generations. Our senior management team is highly regarded in the real estate community and has extensive relationships with a broad range of brokers, owners, tenants and lenders. We have substantial in-house expertise and resources in asset and property management, leasing, marketing, acquisitions, construction, development and financing, and have a platform that is highly scalable. Members of our senior management team have worked in the real estate industry an average of approximately 21 years, and David Bistricer and Sam Levinson, Co-Chairmen of our board of directors, have worked together for approximately 19 years. Our senior management and their immediate family members own shares of our common stock and LLC units of our predecessor entities that are exchangeable into shares of our common stock on a one-for-one basis, which will in the aggregate represent about 44.0% of our common stock on a fully diluted basis immediately after this offering. As a result, we believe the interests of management are aligned with those of our stockholders, creating an incentive to maximize returns for our stockholders. |
· | Balance Sheet Well Positioned for Future Growth . We have established a target leverage ratio in the range of 45% to 55%. We define our leverage ratio as the ratio of our net debt (defined as total debt less cash) to the fair market value of our properties. We will seek to use the net proceeds of this offering, together with our cash on hand, which at September 30, 2016 was $41.6 million, pro forma for the refinancing of Tribeca House debt on November 9, 2016, and refund of an acquisition deposit on November 14, 2016 (actual amount as of that date was $82.1 million), to fund approximately $46 million of certain capital improvements to reposition and modernize our properties, including the Columbia Heights property, through 2018 and fund acquisitions of properties consistent with our strategy of acquiring multi-family or commercial properties in the New York metropolitan area, including the Columbia Heights acquisition. In addition, we expect to benefit from organic deleveraging through ongoing cash flow generation and increases in property values over time. As of September 30, 2016, we had total net debt outstanding pro forma for the refinancing of Tribeca House debt on November 9, 2016, and refund of an acquisition deposit on November 14, 2016 of approximately $723.1 million (actual amount as of that date was $732.6 million), before debt issuance costs, all of which is property-level debt, indicating a leverage ratio of approximately 49.3%, which is within our target range. We are not obligated to maintain any specific leverage ratio and our leverage ratio may from time to time be higher or lower than our target level, which may be changed by our board of directors. |
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As of September 30, 2016, pro forma for the refinancing of Tribeca House debt on November 9, 2016, our debt had a weighted average interest rate of 4.3%, a weighted average maturity of 5.5 years, and 46.4% of the debt was fixed-rate indebtedness. For the nine months ended September 30, 2016 and the year ended December 31, 2015, our pro forma adjusted earnings before interest, income tax, depreciation, amortization and stock based compensation (“Adjusted EBITDA”) was $34.5 million and $45.9 million respectively; and pro forma net loss available to common stockholders was approximately $1.5 million and $1.5 million, respectively. Following the refinancing of the Tribeca House debt on November 9, 2016, we have no debt maturing until November 2018.
· | Strong Internal Growth Prospects. We have substantial rent growth potential within our current portfolio as a result of the strong historical and projected future rental rate growth within our submarkets, contractual fixed rental rate increases included in our leases, incremental rent potential from the lease-up of our portfolio and anticipated rent increases resulting from our ongoing property repositioning efforts. For the 141 Livingston Street property, the main commercial tenant, the City of New York, entered in December 2015 into a new 10-year lease, resulting in an overall increase in annual rental revenue of approximately 149% as compared to the prior lease. For the 250 Livingston Street property, a property featuring a similar class of office space as the nearby 141 Livingston Street property, the same tenant has two leases expiring in August 2020. We recently entered into a lease renewal and amendment agreement to renew a lease that terminated in December 2016 on annual terms that increased rent by approximately $2.6 million. Should new leases for the leases expiring in August 2020 be entered into on the same annual terms (adjusted for the increase of rent under the 141 Livingston Street lease to $50.00 per square foot beginning the sixth year of that lease), the implied increase in annualized rent for those leases would be $9.4 million beginning in September 2020. For the residential Tribeca House properties, we believe we can achieve substantial increases in rents based on comparable rents in the Tribeca neighborhood and our intention to improve service levels and quality of finishes in the buildings commensurate with standards at comparable buildings in the neighborhood. Currently, residential rents in our Tribeca House properties average approximately $68 per square foot, whereas comparable residential rents in the Tribeca neighborhood average in excess of $80 per square foot (based on StreetEasy listings as of January 30, 2017), indicating an opportunity to increase our total 2016 rental revenue as of January 30, 2017 by approximately $7.1 million per year ($5.8 million predicated on attainment of market rents and $1.3 million on attainment of higher occupancy). As of January 29, 2017, 0.2% of the apartments in our Tribeca House properties rented below $50 per square foot, 14.2% rented between $50 and $60 per square foot, 36.9% rented between $60 and $70 per square foot, 33.1% rented between $70 and $80 per square foot, 12.2% rented between $80 and $90 per square foot, and 3.3% rented above $90 per square foot (compared to percentages of 3.4%, 23.8%, 42.2%, 23.6%, 6.3% and 0.8%, respectively, as of March 31, 2015, the end of the first full quarter following the acquisition of the property). (We also expect that real estate tax expense will increase by approximately $3.7 million as a result of cessation of certain exemptions and abatements and increased assessments.) In 2016, we experienced an 11.5% increase in rents on approximately 181 new leases in addition to a 3.7% increase in rents for renewing tenants. At the newly acquired Aspen property, we believe there is an opportunity to increase rents over one to three years for the units with no rental restrictions (approximately 55% of the units) from the existing $38 per square foot closer to comparable rentals in the immediate neighborhood which on average are in excess of $50 per square foot, as measured by StreetEasy listings as of January 30, 2017 for doorman rentals eight blocks north, four blocks south and three blocks west of the Aspen property. For the Flatbush Gardens residential complex, we believe we can achieve steady increases in rent approximating $1 to $2 million total per year as a result of our property renovation programs and increases in market rents already experienced in surrounding neighborhoods. In 2016, we experienced a 25.1% increase in rents on approximately 254 new leases in addition to a 3.4% annual increase in rents for renewing tenants. Average rent per square foot increased from $18.88 (94.4% occupancy) at December 31, 2013 to $19.69 (95.6% occupancy) at December 31, 2014 to $20.63 (97.0% occupancy) at December 31, 2015 and $21.52 at January 31, 2017 (96.8% occupancy). Since acquisition in 2005, the average rent per square foot has risen from approximately $13.25 to approximately $21.52, a 62% increase. At the same time, we have been able to increase our net operating income from negative at acquisition to approximately $3.2 million in the first full year of ownership in 2006 to approximately $10.9 million in 2014, $14.0 million in 2015, and approximately $17.3 million annualized in the third quarter of 2016. As a result of the rent stabilization laws and regulations of New York City (including, in particular, a determination of the New York City Rent Guidelines Board in June 2016), effective for at least one year beginning October 1, 2016, increases for rent stabilized apartments, comprising approximately 46% of our apartments at our Flatbush Gardens property, will be limited to no increase for one-year leases and 2% for two-year leases. See “Risk Factors—Risks Related to Real Estate—Multi-family residential properties are subject to rent stabilization regulations, which limit our ability to raise rents above specified maximum amounts and could give rise to claims by tenants that their rents exceed such specified maximum amounts.” |
Business and Growth Strategies
Our primary business objective is to enhance stockholder value by increasing cash flow from operations and total return to stockholders. The strategies we intend to execute to achieve this goal include:
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· | Increase Existing Below-Market Rents. We believe we can capitalize on the successful repositioning of our portfolio and improving market fundamentals to increase rents at several of our properties. At the 250 Livingston Street property, we have 294,144 square feet of leases with the City of New York that expire in August 2020, which have been remeasured according to REBNY standards to approximately 353,000 square feet and for which we believe we can achieve increases in rent similar to the increase achieved recently at nearby 141 Livingston Street, featuring a similar class of office space. We recently entered into a lease renewal and amendment agreement with the City of New York for a portion that expired on December 31, 2016, increasing GLA from the current 79,424 square feet at $21.50 per square foot to approximately 107,000 square feet at $40.00 per square foot, generating additional annual revenue of approximately $2.6 million. This lease terminates with the other lease expiring August 2020 presently covering 187,145 square feet at $20.68 per square foot. Should new leases be entered into at that time to the remeasured square feet of approximately 353,000 and rent of $50.00 per square foot (as indicated in the lease with the City of New York at our neighboring 141 Livingston Street property), we would realize additional aggregate annual rental revenue of approximately $9.4 million. We also believe that the significant growth in Downtown Brooklyn as a residential location offers a potential alternative to convert 250 Livingston Street and/or 141 Livingston Street to residential apartments, an activity for which management has demonstrated expertise. Our management will continue to evaluate alternative strategies for these buildings to maximize risk-adjusted returns to stockholders. At the Tribeca House properties, the buildings’ average rent of $68 per square foot is significantly below the average rent for other comparable Tribeca House rentals in excess of $80 per square foot based on StreetEasy listings as of January 30, 2017. We believe we can achieve significant growth in rents over the next two to three years by improving service levels and quality of finishes in the buildings, and more efficiently managing the re-leasing process. We also believe that the average rental rate of approximately $49 per square foot under in-place leases for the retail portion of the Tribeca House properties is significantly below market, as evidenced by a lease we signed in July 2015 to rent our only then-vacant street-front retail space at the Tribeca House properties for $140 per square foot, a space that had been vacant since 2001. Two other leases comprising approximately 4,600 square feet expire in 2019. At the Flatbush Gardens complex, as a result of our renovation and repositioning strategy since 2006 and our intention to continue refurbishing the property, as well as improvements in the residential rental market in surrounding neighborhoods, we believe we can continue to improve tenant quality and increase rents, as demonstrated by the above-mentioned steady increase in aggregate rents per square foot and continued high occupancy levels. At the newly acquired Aspen property, we believe there is an opportunity to increase rents over one to three years for the units with no rental restrictions (approximately 55% of the units, representing 58.4% of the residential square footage) from the existing $38 per square foot closer to comparable rentals in the immediate neighborhood which on average are in excess of $50 per square foot, as measured by StreetEasy listings as of January 30, 2017 for doorman rentals eight blocks north, four blocks south and three blocks west of the Aspen property. |
· | Disciplined Acquisition Strategy Focused on Premier Submarkets and Assets. Since 1979, David Bistricer has overseen the acquisition of multi-family residential and commercial properties, including our current portfolio, primarily in our targeted submarkets of New York City. We intend to continue our core strategy of acquiring, owning and operating multi-family residential rental and commercial properties within submarkets that have high barriers to entry, are supply-constrained, exhibit strong economic characteristics and have a pool of prospective tenants in various industries that have a strong demand for high-quality commercial space. We believe that owning assets within New York City, one of the best residential and commercial markets in the United States, will allow us to generate strong cash flow growth and attractive long-term returns. We will opportunistically pursue attractive opportunities to acquire multi-family residential and commercial properties, focusing our acquisition strategy primarily on multi-family residential properties in densely populated communities in the New York metropolitan area (primarily in Brooklyn and Manhattan) and, to a lesser extent, on commercial properties, where we will maintain a disciplined approach to ensure that our acquisitions meet our core strategy. Our strong balance sheet, access to capital and ability to offer operating partnership units in tax deferred acquisition transactions should give us significant flexibility in structuring and consummating acquisitions. We seek to acquire properties that will command premium rental rates and maintain higher occupancy levels than other properties in our markets. We are a highly active market participant that reviews numerous acquisition opportunities annually; however, we are highly selective in the properties that we ultimately acquire. We intend to strategically increase our market share in our existing submarkets and selectively enter into other submarkets in the New York City metropolitan area with similar characteristics. Our acquisition strategy will focus primarily on long-term growth and total return potential rather than short-term cash returns. We believe we can utilize our deep industry relationships and our expertise in redeveloping and repositioning both residential and commercial properties to identify acquisition opportunities where we believe we can increase occupancy and rental rates. Many of our Predecessor’s acquisitions were sourced on an off-market basis. As long-term owners and operators in our submarkets, we have a reputation among the broker community for moving expeditiously and for being a reliable counterparty. |
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· | Proactive Asset and Property Management. We believe our proactive, service-intensive approach to asset and property management helps increase occupancy and rental rates, manage operating expenses and maximize Adjusted EBITDA. We provide our own fully integrated asset and property management platform, which includes in-house legal, marketing, accounting, finance and leasing departments for our portfolio, and our own tenant improvement construction services. The development and retention of top-performing property management personnel have been critical to our success. We utilize our comprehensive building management services and our strong commitment to tenant relationships to negotiate attractive leasing deals and to attract and retain high credit-quality tenants. |
· | Capital Program to Reposition Assets. We believe we can reposition our properties through a capital program to achieve rent growth in an expedited fashion. Together with the proceedings of this offering and our cash on hand, which at September 30, 2016 was $41.6 million, pro forma for the refinancing of Tribeca House debt on November 9, 2016 and refund of an acquisition deposit on November 14, 2016 (actual amount on that date was $82.1 million), we intend to set aside approximately $31 million to cover this program through 2018 (as well as to fund acquisitions of properties consistent with our strategy). |
Our Tribeca House properties will undergo an upgrade to common areas (media/conference room, game room, children’s room, basketball court and roof) and a redesign of our lobbies at a cost of approximately $5.0 million in 2016 and 2017—all with the goal of enhancing the experience of our renters as they first enter the building and utilize the common areas. To date, we have spent approximately $2.1 million the common areas and lobbies project. Concurrently, we intend to redesign and replace floors, kitchens, lighting and appliances on the interior of apartments as new renters move in at a cost of approximately $4.2 million in 2017 and 2018, representing renovations of approximately 165 units, and approximately $1.5–$2.0 million per year thereafter, representing renovations of an average of 60 units per year. To date, we have spent approximately $4.9 million on apartment renovations. We expect the improved experience in common areas will support higher rents consistent with the rent levels in the neighborhood.
At our Flatbush Gardens apartment complex, which consists of 2,496 apartments in 59 buildings clustered around seven courtyards spread over 21.4 acres, we expect to undertake a significant modernization program. We have undertaken and expect to continue projects to landscape and waterproof a significant terrace area and refurbish a number of lobbies, stairwells and windows for tenant enjoyment, to upgrade outdoor lighting and install a comprehensive security camera network for enhanced security and to refurbish basement areas for installation of revenue generating laundry facilities and storage units at a cost of approximately $12.4 million in 2016 and 2017. Supported by these improvements to common areas, we then may perform substantial upgrades to an increasing number of apartments (floors, windows and appliances), which may cost approximately $3.8 million for up to 125 units in 2016 and 2017 in addition to more routine refurbishments of $1.7 million to up to 335 units. To date, we have spent approximately $10.9 million on the terrace and common areas improvements, and approximately $2.0 million on apartment renovations.
Our 141 Livingston Street property will have approximately $4.1 million of improvements in accordance with the new lease with the City of New York described above that has increased our rent from approximately $3.3 million per annum to approximately $8.2 million per annum. In addition, we expect to spend approximately $2.6 million to modernize elevators, replace a boiler and roof and install a modern building management system. To date, we have spent approximately $500,000 on improvements required in accordance with the new lease with the City of New York, and approximately $701,000 on elevator, boiler and roof upgrades. Lastly, at our 250 Livingston Street property we expect to renovate the facade and entrance and build new penthouses at a cost of approximately $3.1 million. Lastly, at our Aspen property, while the building is relatively new, the Company presently expects to spend a minimum of $1 million to improve certain finishes of the property.
Our Portfolio Summary
As of January 31, 2017 our portfolio consisted of five properties totaling approximately 2.9 million rentable square feet and was approximately 97.2% leased. These properties include the Flatbush Gardens complex, a 59-building residential complex, two properties in Downtown Brooklyn, one of which is exclusively commercial and one of which is mixed commercial and residential, the Tribeca House properties which consist of two nearly adjacent residential properties with some street level and mezzanine level retail space and an externally managed parking garage, and the Aspen property, which is a residential building with some street level retail space and an externally managed parking garage.
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The table below presents an overview of the Company’s portfolio as of January 31, 2017:
Address | Submarket |
Year Built/
Renovated |
Leasable
Sq. Ft. |
# Units |
Percent
Leased |
2017 Base
Rental Revenue (in millions) |
Net Effective
Rent
Per
|
|||||||||||||||||||
Multifamily | ||||||||||||||||||||||||||
50 Murray Street | Manhattan | 1964 | 395,848 | 389 | 92.8 | % | $ | 24.0 | $ | 68.48 | ||||||||||||||||
53 Park Place | Manhattan | 1921 | 85,423 | 116 | 99.1 | % | $ | 5.4 | $ | 66.11 | ||||||||||||||||
Flatbush Gardens complex | Brooklyn | 1950 | 1,734,885 | (1) | 2,496 | 97.1 | % | $ | 35.9 | $ | 21.52 | |||||||||||||||
250 Livingston Street | Brooklyn | 1920 | 26,819 | (2) | 36 | 94.4 | % | $ | 1.3 | $ | 50.35 | |||||||||||||||
Aspen | Manhattan | 2004 | 165,542 | 232 | 99.1 | % | $ | 5.5 | $ | 33.34 | ||||||||||||||||
2,408,517 | 3,269 | 96.6 | % | $ | 72.1 | $ | 31.00 | |||||||||||||||||||
Commercial | ||||||||||||||||||||||||||
141 Livingston Street | Brooklyn | 1959 | 206,084 | (3) | 1 | 100.0 | % | $ | 8.2 | $ | 40.00 | |||||||||||||||
250 Livingston Street | Brooklyn | 1920 | 294,144 | (4) | 1 | 100.0 | % | $ | 8.2 | $ | 27.88 | |||||||||||||||
500,228 | 2 | 100.0 | % | $ | 16.4 | $ | 32.79 | |||||||||||||||||||
Retail | ||||||||||||||||||||||||||
50 Murray Street (retail) | Manhattan | 44,436 | 7 | 100.0 | % | $ | 2.3 | $ | 51.07 | |||||||||||||||||
50 Murray Street (parking) | Manhattan | 24,200 | 1 | 100.0 | % | $ | 1.1 | $ | 44.06 | |||||||||||||||||
53 Park Place (retail) | Manhattan | 8,600 | 1 | 100.0 | % | $ | 0.3 | $ | 39.19 | |||||||||||||||||
141 Livingston Street (parking/other) | Brooklyn | 9,989 | (3) | 1 | – | (5) | $ | 0.3 | $ | 32.68 | ||||||||||||||||
250 Livingston Street (retail) | Brooklyn | 990 | 1 | 100.0 | % | $ | 0.1 | $ | 83.45 | |||||||||||||||||
250 Livingston Street (parking) | Brooklyn | $ | 0.2 | |||||||||||||||||||||||
Aspen (retail) | Manhattan | 21,060 | 3 | 100.0 | % | $ | 0.9 | $ | 42.60 | |||||||||||||||||
Aspen (parking) | Manhattan | – | – | – | $ | 0.3 | – | |||||||||||||||||||
109,275 | 14 | 100.0 | % | $ | 5.5 | $ | 50.39 | |||||||||||||||||||
Total | 3,018,020 | 3,285 | 97.2 | % | $ | 94.0 | $ | 32.04 |
(1) | Comprises 59 buildings |
(2) | Conversion of floors 9-12 into residential units occurred in 2003-2005, 2008-2009 and 2013, with renovation of residential units on the 12 th floor from 2014 to the present. |
(3) | Measured according to REBNY standards. |
(4) | Has been remeasured to 353,895 square feet according to REBNY standards. |
(5) | Month-to-month. |
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The table below presents an overview of commercial and retail lease expirations for 10 years beginning 2016.
Year |
Number of
Tenants |
Total Area
Square Feet |
Gross
Annual Rent |
% Gross Annual
Rental |
||||||||||
2016 | 1 | 79,424 | 1,707,616 | 8.8 | % | |||||||||
2017 | 1 | 33,000 | 1,026,092 | 5.3 | % | |||||||||
2018 | – | – | – | – | ||||||||||
2019 | 3 | 9,838 | 543,500 | 2.8 | % | |||||||||
2020 | 1 | 187,145 | 4,095,098 | 21.2 | % | |||||||||
2021 | – | – | – | – | ||||||||||
2022 | 1 | 24,200 | 1,066,266 | 5.5 | % | |||||||||
2023 | – | 10,812 | 653,470 | 3.4 | % | |||||||||
2024 | 1 | 206,084 | 8.243,360 | 42.7 | % | |||||||||
2025 | 1 | 8,627 | 495,621 | 2.6 | % |
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Descriptions of Our Properties
Tribeca House Properties
The Company purchased the 50 Murray Street and 53 Park Place buildings on December 15, 2014.
These buildings were built in 1964 and 1921, respectively, renovated in 2001, and comprise a total of 505 units which include studio and one- and two-bedroom apartments as well as retail space and parking. The buildings are both full service luxury rentals which include building finishes such as ceilings as high as 11 feet, stainless steel appliances and granite countertops and amenities such as a doorman, elevator, landscaped roof deck, rooftop basketball court, tenant lounge, game room, toddlers’ play room, in-house valet service and screening room. 50 Murray Street includes 389 units and 394,238 square feet and 53 Park Place includes 116 units and 85,423 square feet. Both buildings are unencumbered by rent regulation.
The Tribeca neighborhood has one of the highest average market rents in Manhattan and one of the lowest vacancy rates in Manhattan (based on a CitiHabitats market report as of July 2016 combining Tribeca with the adjacent SoHo neighborhood) as well as convenient access to mass transit. These conditions indicate an owner-favorable residential rental market where renters occupy their units for an extended period of time. We believe many affluent renters have been priced out of Manhattan for-sale coop and condo markets and have limited options in the residential rental market in Tribeca.
The properties also feature approximately 77,200 square feet of retail space, comprising approximately 53,000 square feet of street-level and mezzanine-level retail space and an externally-managed garage. Tenants in this space include Equinox, a premium fitness club, and the Amish Market, a food market. Other tenants include AT&T, Starbucks and Apple Bank. The average lease duration of retail tenants is approximately nine years.
The Company is in the process of undertaking a capital program for the Tribeca House properties. The program’s budget is estimated to be $15.6 million and it will be conducted in phases. The first phase will focus on improvements in the lobby at 50 Murray Street. The lobby has not been renovated since the 2001 conversion of the building from office space and needs to be updated to suit the tastes and styles of tenants in the present. We believe capital investments in select units will allow us to attract more affluent tenants that will be willing to pay higher rents in exchange for high quality finishes, appliances, remodeled kitchens and bathrooms, and improved closet space. We believe a capital plan that upgrades the common areas and individual units will bring the Tribeca House properties up to the standards of the surrounding neighborhood.
Following the refinancing of Tribeca House debt on November 9, 2016, there is $410 million in mortgage and mezzanine debt related to the Tribeca House properties, in the form a mortgage note of $335 million to Deutsche Bank and a $75 million mezzanine note to SL Green Finance. The notes bear interest at blended rate of one-month LIBOR plus 3.75%. Both the mortgage note and the mezzanine note mature on November 9, 2018 and give us the option to extend the maturity date of both loans together up to three one-year terms. David Bistricer and an entity controlled by Sam Levinson entered into guaranties of recourse obligations.
Property highlights include:
Location | · | 50 Murray Street and 53 Park Place |
Building Type | · | Residential |
· | Retail |
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Flatbush Gardens
Flatbush Gardens is a 59-building complex located along Foster Avenue between Nostrand and Brooklyn Avenues in the East Flatbush neighborhood of Brooklyn. The property’s 59 buildings are located on seven tax parcels. The complex was constructed around 1950 and contains 2,496 studio, one-bedroom, two-bedroom, and three-bedroom apartments and four below-grade garages. The aggregate site area is 898,940 square feet, the aggregate gross building area is 1,926,180 square feet and the gross leasable area is 1,734,885 square feet.
Site Area | Net Leasable | No. of | ||||||||||||||||||
Address | Block | Lot | (Sq. Ft.) | Area (Sq. Ft.) | Units | |||||||||||||||
3101 Foster Avenue | 4964 | 47 | 60,000 | 118,320 | 168 | |||||||||||||||
1405 Brooklyn Avenue | 5000 | 200 | 47,500 | 86,850 | 144 | |||||||||||||||
1402 Brooklyn Avenue | 4981 | 50 | 161,655 | 292,920 | 420 | |||||||||||||||
1368 New York Avenue | 4964 | 40 | 195,865 | 352,800 | 504 | |||||||||||||||
3505 Foster Avenue | 4967 | 40 | 182,300 | 353,520 | 504 | |||||||||||||||
3202-24 Foster Avenue | 4995 | 30 | 112,875 | 237,360 | 336 | |||||||||||||||
1401 New York Avenue | 4981 | 1 | 138,745 | 293,115 | 420 | |||||||||||||||
Total | 898,940 | 1,734,885 | 2,496 |
Community District 17 is a mixed-income community. Based on the 2010 Census data, Environmental Systems Research Institute (ESRI) estimates the 2011 median and average household incomes were $39,558 and $47,014, respectively. ESRI projects that over the next five years the number of households with income levels of $75,000 or greater will increase significantly and continue the gentrification of the neighborhood. East Flatbush possesses adequate linkage to the area’s shopping centers, recreational facilities, public service facilities and employment centers to make it a highly desirable residential neighborhood.
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We believe Flatbush Gardens represents an entry-level, low-cost option in the market and that we will increasingly draw tenants who have been priced out of other New York City sub-markets.
The neighborhood surrounding the Flatbush Gardens complex is residential on all sides. For long periods of time, Flatbush Gardens stood side by side with a vibrant working-class neighborhood, but in the 1960s the area began to change. The neighborhood shifted as longstanding middle-class residents moved out of the neighborhood and were replaced by recent immigrants. Over time, Flatbush Gardens became a low-cost rental option in Brooklyn and the tenant quality and the physical appearance of the complex declined rapidly and criminal activity increased significantly. When we acquired the complex in 2005, it was in disrepair. However, the essential residential neighborhood feel around the complex remained. Unlike other New York City housing communities where entire neighborhoods were blighted, we believe the residential areas surrounding this property’s neighborhood remained intact. The Newkirk Avenue subway station, which is serviced by the No. 2 and No. 5 trains, is located on the west side of the complex. Brooklyn College is located 0.6 miles along Nostrand Avenue to south of Flatbush Gardens. The No. 2 and No. 5 trains, which service both Flatbush Gardens and Brooklyn College, provide direct access to the west side and east side, respectively, of Manhattan, as well as other points in Brooklyn. Two larger regional medical centers are located within a mile of the complex.
Over the past eight years, we have steadily expended funds to bring the internal and external areas of the complex to code and provide reliable basic services. As a result of our effort in managing the complex, including these upgrades, we have reduced outstanding New York City violations from over 8,000 at the time of the acquisition to approximately 577 currently, and substantially improved resident safety. The management team uses EMPOWER software, commonly used in this space, to efficiently and effectively manage resident complaints in order to remedy potential violations to the extent possible. EMPOWER alerts the management team with real-time data directly from New York City agencies, including the Department of Housing Preservation & Development, so management can take appropriate action in responding to residents’ concerns. Utilizing the software provides the management team with powerful tools to manage work orders, requests, complaints, violations, hearings, compliance, inspections, registrations, permits, job fillings and financial statements. By streamlining day-to-day operations, delivering early notifications of new complaints and keeping track of important dates and events, EMPOWER allows the management team to save time addressing potential violations by resolving them before they escalate.
We believe we are now in position to take the complex to a higher level of service and amenities. The neighboring areas are improving rapidly, as rental rates have increased significantly and condo development has begun to penetrate the neighborhood. Neighborhood schools and parks have been upgraded. We believe that the gentrification trends that are moving east across Brooklyn have arrived in East Flatbush. These trends tie into our belief that rental rates at Flatbush Gardens are now significantly below the local market rates. The surrounding neighborhood has moved well ahead of Flatbush Gardens in terms of rental rates which we believe provides us with an opportunity to significantly improve our position in the market. Based on the improving tenant credit profile that we see in tenant applications on a weekly basis, we believe residents who would not have considered our complex when we acquired the property are now looking at Flatbush Gardens as a viable lower-cost housing option. We believe a capital investment plan that upgrades the common areas and park-like open spaces of the complex will bring Flatbush Gardens up to the standards of the surrounding neighborhood. Increasingly, the limited supply of units in Flatbush Gardens—currently a low-cost option in East Flatbush—supports our vision.
The Company is in the process of undertaking a comprehensive capital program for the Flatbush Gardens complex. The program’s budget is estimated to be approximately $31 million and it will be conducted in multiple phases dependent on various tiers of priority. The first phase of the capital program will focus on completing improvements on the common areas of the complex, including the lobbies, outdoor activity space and playgrounds. This will improve the overall facade of the complex and assist in increasing rent growth. Through this program, we plan to develop a community atmosphere in the complex. The second phase of the capital program will focus on upgrades to individual apartments on a rolling basis. We expect to perform both major overhauls and minor improvements where deemed necessary. The Company is currently receiving average rents of $21.52 per square foot, while market rents in the area average approximately $27.00 per square foot per StreetEasy listings in Flatbush and Northeast Flatbush as of January 30, 2017. We believe committing to such capital improvements in Flatbush Gardens will permit us to realize the difference in rents between existing rates and where the market is pricing similar apartments in nearby neighborhoods. To implement the program, we intend to utilize contractors with whom we have worked in the past, both at Flatbush Gardens and in other locations, and we have the ability to engage additional contractors given our strong relationships and reputation in the local market. Additionally, given the size of the complex, we will be able to take advantage of bulk pricing and economies of scale to reduce costs and enhance returns on our investment. We expect to complete the aforementioned capital program at Flatbush Gardens in 2018 with respect to exterior work and in 2019 with respect to interior work.
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There is $170 million in mortgage debt secured by Flatbush Gardens, as of June 30, 2016, in the form of two mortgage notes to New York Community Bank. A $150 million mortgage note matures on October 1, 2024 and has a fixed interest rate of 3.88%. A $20 million mortgage note also matures on October 1, 2024 and has an interest rate of 3.88% through September 2019, after which the interest is Prime plus 2.75% subject to an option to fix the rate. Under both notes, we have the option to prepay all (but not less than all) of the unpaid balance of the loan prior to the maturity date, but must pay a prepayment premium of 4% if the prepayment occurs prior to October 1, 2016, 3% if it occurs from October 1, 2016 through September 30, 2017, 2% if it occurs from October 1, 2017 through September 30, 2018, and 1% if it occurs from October 1, 2018 through June 30, 2019. David Bistricer entered into guaranties of recourse obligations in connection with both notes for which we will indemnify him.
Property highlights include:
Building Type | · | Residential |
Number of units | · | 2,496 units |
Other Amenities | · | Park-like space between buildings |
· | Parking lots | |
Nearby rapid transit access | · | MTA Subway 2, 5 trains |
141 Livingston Street
The 141 Livingston Street property is a 15-story commercial property totaling 206,084 square feet located on a 0.26-acre site at 141 Livingston Street in Downtown Brooklyn. The property’s main commercial tenant, the City of New York, executed a new 10-year lease in December 2015, with effect as of June 2014. Under the agreement with the City of New York, the tenant has an option to terminate the lease after five years. However, if it decides to continue to occupy the building after five years, the rent will increase by 25%, or $2.1 million, beginning the sixth year of the lease. The agreement with the City of New York, as compared to the prior lease, increases rent by 82% per square foot and increases the rentable square feet by 37% as a result of a building remeasurement, resulting in an overall increase in rental revenue of approximately 149%. The lease imposes a requirement on the Company to refurbish the air-conditioning system and perform other upgrades that the Company estimates will cost approximately $5.2 million.
The 141 Livingston Street property is located in Downtown Brooklyn, approximately 500 feet from the Jay Street-Metrotech, Hoyt-Schermerhorn, Hoyt Street, and Borough Hall subway stops, offering direct one-seat access to the east and west sides of Manhattan, as well as access to surrounding regions of Brooklyn and Queens, and connections to every other New York City subway line. The property is located near the Fulton Street Mall, a pedestrian mall that runs along Fulton Street between Boerum Place and Flatbush Avenue, and is within walking distance from Barclays Center and Atlantic Avenue. Due to its proximity to lower Manhattan and excellent transit accessibility, Downtown Brooklyn occupies a valuable and unique position in New York City as a competitive, back-office alternative to New Jersey. In addition, the significant residential development activity over the past few years has increased the residential population within Downtown Brooklyn. In the future we may be able to convert the property to residential units, a change made at several nearby buildings, including 110 Livingston Street. Additionally, the property includes an adjacent lot at 22 Smith Street currently used as a parking lot having approximately 5,000 square feet for which the Company has received written expressions of interest in excess of $15 million.
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There is $79.5 million in mortgage debt secured by 141 Livingston Street, as of September 30, 2016, in the form of a mortgage note to New York Community Bank. The note bears interest at 3.875% and matures on June 1, 2028. We may prepay the debt in whole or in part, subject to a prepayment premium. David Bistricer and Sam Levinson entered into a guaranty of recourse obligations in connection with this loan for which we will indemnify them.
Property highlights include:
250 Livingston Street
250 Livingston Street is a 12-story mixed-use building with commercial and residential uses on the upper floors and office and retail at grade. The total land area of the site is 29,707 square feet. This space recently has been remeasured according to REBNY standards to approximately 353,000 square feet, an increase of approximately 33% consistent with the remeasurement described above at the nearby 141 Livingston Street property, which features a similar class of office space. There is 294,144 square feet of office space which is currently 100% leased to the City of New York’s Department of Environmental Protection and Human Resources Administration under two leases which each expire in August 2020. We recently entered into a lease renewal and amendment agreement with the City of New York for renewal of a lease that expired at the end of 2016 at $40.00 per square foot for increased square feet that increased annual rent by approximately $2.6 million. Additionally, the property includes 36 units, or 26,819 square feet, of multi-family residential apartment units, which were developed by Clipper Equity in 2003 through 2013.
250 Livingston Street is situated on a block through site that is located along the north side of Schermerhorn Street and the south side of Livingston Street between Bond and Hoyt Streets within Downtown Brooklyn. The upscale rental properties have a separate entrance on Schermerhorn Street, which allows residential tenants access away from the office tenants’ entrance on Livingston. We are currently working on a small capital plan to upgrade the 233 Schermerhorn entrance street façade, which we believe will provide a more residential feel consistent with residential development in the area. Additionally, we recently entered into a lease for the retail space on Schermerhorn Street close to the residential entrance. The new tenant, which operates multiple upscale delis in New York, is paying approximately $80 per square foot. We believe this addition to Schermerhorn Street is an attractive, high quality amenity for our residential tenants.
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The property is located in Downtown Brooklyn near the Hoyt-Schermerhorn, Hoyt Street, DeKalb Avenue, and Nevins Street subway stations, offering direct one-seat access to the east and west sides of Manhattan, as well as access to surrounding regions of Brooklyn and Queens, and connections to every other New York City subway line. The Fulton Street Mall is one block north, and the property is within easy walking distance of Barclays Center and Atlantic Avenue. The surrounding area is the site of much commercial and residential development, with new residential developments including the Schermerhorn House, a 9-story, 217 unit residential building located at 160 Schermerhorn Street, and the 25-story, 246-unit residential condominium building known as Be@Schermorhorn located at 189 Schermerhorn.
There is approximately $35 million in mortgage debt secured by 250 Livingston Street, as of September 30, 2016, in the form of a mortgage note to Citigroup Global Markets Realty Corp., which has been securitized. The note requires monthly principal and interest payments of $179,000, bears interest of 4.00% and matures on May 6, 2023. We may prepay the debt within two months of May 6, 2023 in whole without having to pay a prepayment premium. David Bistricer entered into a guaranty of recourse obligations in connection with this loan for which we will indemnify him.
The Aspen property
On June 27, 2016, the Company purchased the Aspen property located at 1955 1 st Avenue, New York, NY for $103 million. The property fronts the west side of First Avenue on the full block between 100 th and 101st Streets, and comprises 186,602 square feet, 232 residential rental units, three retail units and a parking garage. The residential units are subject to regulations established by the HDC under which there are no rental restrictions on approximately 55% of the units and low and middle income restrictions on approximately 45% of the units. The residential units feature stainless steel appliances including a range, oven, refrigerator, microwave, and dishwasher. The project amenities include a courtyard, game-room, fitness center, clubhouse, laundry facilities and onsite below-grade garage parking. The residential apartment units are approximately 99% leased at an average rental rate of approximately $33 per square foot. The retail units comprise of three grade-level commercial spaces and a grade level parking garage with 109 licensed spaces. The retail space is fully occupied at an average rental rate of approximately $42.60 per square foot.
There is $70 million in mortgage debt secured by Aspen as of June 30, 2016 in the form of a mortgage note with Capital One Multifamily finance LLC. The note matures on July 1, 2028 and bears interest at 3.68%. The note requires interest-only payments through July 2017, monthly principal and interest payments of $321,000 from August 2017 through July 2028 based on a 30-year amortization schedule and principal and interest payments thereafter based on the remaining period of the initial 30-year amortization schedule.
Location | · | 1955 1 st Avenue |
Building Type | · | Residential |
· | Retail | |
Other Amenities | · | Courtyard, game room, fitness center |
Nearby rapid transit access | · | MTA Subway 4, 5, 6 trains |
Proposed acquisition of the Columbia Heights property
In January 2017, the Company entered into a letter of intent to purchase the Columbia Heights property located at 107 Columbia Heights in Brooklyn for $87.5 million. The property comprises approximately 154,000 square feet, 161 residential units and an indoor parking garage. Following completion of the acquisition, the Company plans to create twelve additional residential units by converting various public areas on the property. The property is located near the Clark Street subway stop, the Brooklyn-Queens Expressway, the Brooklyn Bridge, the Manhattan Bridge and multiple bus lines. Based on current market prices in the area, the units are expected to be leased at an average rental rate of $65-$75 per rentable square foot. The project amenities include various unit terraces, a roof top terrace, a fitness center and a landscaped garden. Although the building was fully renovated in 2007, the Company also plans to spend approximately $10 million to $15 million on further renovations and improvements, focusing on unit flooring and fixtures. We believe these improvements will allow us to achieve maximum rents over time. While the Company believes the completion of the acquisition is probable, it is subject to substantial uncertainties and there can be no assurance that it will be completed.
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Regulation
Environmental and Related Matters
Under various federal, state and local laws, ordinances and regulations, as a current or former owner and operator of real property, we may be liable for costs and damages resulting from the presence or release of hazardous substances (such as lead, asbestos and polychlorinated biphenyls), waste, petroleum products and other miscellaneous products (including but not limited to natural products such as methane and radon gas) at, on, in, under or from such property, including costs for investigation or remediation, natural resource damages, or third-party liability for personal injury or property damage. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence or release of such materials, and the liability may be joint and several. Some of our properties have been or may be affected by contamination arising from current or prior uses of the property or adjacent properties for commercial, industrial or other purposes. Such contamination may arise from spills of petroleum or hazardous substances or releases from tanks used to store such materials. We also may be liable for the costs of remediating contamination at off-site disposal or treatment facilities when we arrange for disposal or treatment of hazardous substances at such facilities, without regard to whether we comply with environmental laws in doing so. The presence of contamination or the failure to remediate contamination on our properties may adversely affect our ability to attract and retain tenants, and our ability to develop or sell or borrow against those properties. In addition to potential liability for cleanup costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons. Environmental laws also may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which that property may be used or how businesses may be operated on that property.
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Some of our properties may be adjacent to or near other properties used for industrial or commercial purposes or that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. Releases from these properties could affect our properties.
In addition, our properties are subject to various federal, state and local environmental and health and safety laws and regulations. Noncompliance with these environmental and health and safety laws and regulations could subject us or our tenants to liability. These liabilities could affect a tenant’s ability to make rental payments to us. Moreover, changes in laws could increase the potential costs of compliance with such laws and regulations or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely affect our operations, or those of our tenants, which could in turn have a material adverse effect on us. We sometimes require our tenants to comply with environmental and health and safety laws and regulations and to indemnify us for any related liabilities in our leases with them. However, in the event of the bankruptcy or inability of any of our tenants to satisfy such obligations, we may be required to satisfy such obligations. We are not presently aware of any instances of material noncompliance with environmental or health and safety laws or regulations at our properties, and we believe that we and our tenants have all material permits and approvals necessary under current laws and regulations to operate our properties.
As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material. Environmental and health and safety laws require that asbestos-containing material be properly managed and maintained and may impose fines or penalties on owners, operators or employers for noncompliance with those requirements. These requirements include special precautions, such as removal, abatement or air monitoring, if asbestos-containing material would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of releases of asbestos-containing material into the environment. We are not presently aware of any material liabilities related to building conditions, including any instances of material noncompliance with asbestos requirements or any material liabilities related to asbestos.
In addition, our properties may contain or develop harmful mold or suffer from other indoor air quality issues, which could lead to liability for adverse health effects or property damage or costs for remediation. When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our properties.
Americans with Disabilities Act and Similar Laws
Our properties must comply with Title III of the ADA to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. In addition, The FHAA requires apartment communities first occupied after March 13, 1991, to comply with design and construction requirements for disabled access. For projects receiving Federal funds, the Rehabilitation Act of 1973 also has requirements regarding disabled access. We have not conducted a recent audit or investigation of all of our properties to determine our compliance with these or other federal, state or local laws. Noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.
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Insurance
We carry commercial general liability insurance coverage on our properties, with limits of liability customary within the industry to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct and indirect physical damage to our properties including coverage for the perils of flood and earthquake shock. Our policies also cover the loss of rental revenue during any reconstruction period. Our policies reflect limits and deductibles customary in the industry and specific to the buildings and portfolio. We also obtain title insurance policies when acquiring new properties, which insure fee title to our real properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. While we do carry commercial general liability insurance, property insurance and terrorism insurance with respect to our properties, these policies include limits and terms we consider commercially reasonable. In addition, there are certain losses (including, but not limited to, losses arising from known environmental conditions or acts of war) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. In addition, for properties we may self-insure certain portions of our insurance program, and therefore, use our own funds to satisfy those limits, when applicable. We believe the policy specifications and insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice and, in the opinion of our management, the properties in our portfolio are adequately insured.
Competition
The leasing of real estate is highly competitive in Manhattan, Brooklyn, and the greater New York metropolitan market in which we operate. We compete with numerous acquirers, developers, owners and operators of commercial and residential real estate, many of which own or may seek to acquire or develop properties similar to ours in the same markets in which our properties are located. The principal means of competition are rent charged, location, services provided and the nature and condition of the facility to be leased.
In addition, we face competition from numerous commercial developers, real estate companies and other owners and operators of real estate for commercial buildings for acquisition and pursuing buyers for dispositions. We expect competition from other real estate investors, including other REITs, private real estate funds, domestic and foreign financial institutions, life insurance companies, pension trusts, partnerships, individual investors and others that may have greater financial resources or access to capital than we do or that are willing to acquire properties in transactions which are more highly leveraged or are less attractive from a financial viewpoint than we are willing to pursue.
Employees
As of November 25, 2016, we had approximately 180 employees who provide property management, maintenance, landscaping, construction management and accounting services. Certain of these employees are covered by union-sponsored, collectively bargained, multiemployer defined benefit pension and profit-sharing plans, and health insurance, legal and training plans. Contributions to the plans are determined in accordance with the provisions of the negotiated labor contract. The Local 32BJ Service Employees International Union contract is in effect through December 31, 2019.
Legal Proceedings
From time to time, we are party to various lawsuits, claims for negligence and other legal proceedings that arise in the ordinary course of our business. We do not believe that the results of any such claims or litigation, individually or in the aggregate, will have a material effect on our business, financial condition or results of operations if determined adversely to us.
Clipper Equity
As has been widely reported, several prosecutorial and regulatory entities have opened inquiries regarding the fundraising activities of New York City Mayor Bill de Blasio. In connection with one of those inquiries, in August 2016 information subpoenas were sent to David Bistricer and Clipper Equity, the entity through which David Bistricer operates his real estate business in properties in which our company does not invest. Mr. Bistricer had organized a March 2016 fundraiser to benefit Mr. de Blasio's campaign committee. Mr. Bistricer and Clipper Equity were advised that they were not targets of the investigation. In September 2016, Mr. Bistricer and Clipper Equity provided the documents requested by the subpoenas, which focused on contacts with de Blasio fundraisers or senior de Blasio administration officials, contributions made to or solicited for campaign committees associated with Mr. de Blasio, and two business transactions with the City of New York, including the renewal of our lease with the City of New York at our 141 Livingston Street property.
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Company Information
Our principal executive offices are located at 4611 12 th Avenue, Brooklyn, New York 11219. Our current facilities are adequate for our present and future operations. Our telephone number is (718) 438-2804. Our website address is www.clipperrealty.com. The information on, or otherwise accessible through, our website does not constitute a part of this prospectus.
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Executive Officers and Directors
Our board of directors consists of five directors. Of these five directors, four are “independent” under NYSE listing standards.
Set forth below are the names, ages and positions of our directors and executive officers as of the date of this prospectus.
Name | Age | Position with the Company | ||
David Bistricer | 67 | Co-Chairman and Chief Executive Officer | ||
Lawrence E. Kreider, Jr. | 69 | Chief Financial Officer | ||
JJ Bistricer | 35 | Chief Operating Officer | ||
Jacob Schwimmer | 46 | Chief Property Management Officer | ||
Sam Levinson | 43 | Co-Chairman, Head of Investment Committee | ||
Howard M. Lorber | 68 | Director | ||
Robert J. Ivanhoe | 63 | Director | ||
Roberto A. Verrone | 48 | Director |
David Bistricer has been the managing member of Clipper Equity for more than 10 years. He served as Co-Chairman of the board of directors of Coleman Cable Inc. from January 1999 through February 2011. He was previously Co-Chairman of Riblet Products Corporation from January 1987 until its merger with the Coleman Cable Inc. in 2000. Mr. Bistricer brings to our board of directors industry experience, leadership abilities and strategic insight that make him a valuable asset as Co-Chairman of the board of directors and Chief Executive Officer. Mr. Bistricer has also been the managing member of Berkshire Capital LLC and Morgan Capital, real estate investment firms that are no longer active, for more than 10 years. He has also been the managing member and investor in a number of real estate investments unrelated to those of the Company, principally in the New York City area, since approximately 1978.
Lawrence E. Kreider, Jr. was retired and self-employed as a financial consultant from 2012 to August 2015, when he became the Chief Financial Officer of the Company. Mr. Kreider was Chief Financial Officer of Cedar Realty Trust from 2007 to 2011, where he had direct responsibility for all aspects of the Company’s financial operations. From 2001 to 2007, Mr. Kreider was Senior Vice President, Chief Financial Officer, Chief Information Officer and Chief Accounting Officer for Affordable Residential Communities, now named Hilltop Holdings Inc. From 1999 to 2001, Mr. Kreider was Senior Vice President of Finance for Warnaco Group Inc. and, in 2000 and 2001, President of Warnaco Europe. From 1986 to 1999, Mr. Kreider held several senior finance positions with Revlon, Inc., as Senior Vice President, Controller and Chief Accounting Officer, and with MacAndrews & Forbes Holdings. Prior to 1986, he held senior finance positions with Zale Corporation, Johnson Matthew Jewelry Corporation and Refinement International Company. Mr. Kreider began his career with Coopers & Lybrand, now PricewaterhouseCoopers. Mr. Kreider holds a B.A. from Yale University and an M.B.A. from the Stanford Graduate School of Business.
JJ Bistricer has, since 2006, served as Chief Operating Officer at several properties in the New York City metropolitan area in which David Bistricer is General Manager, with direct responsibility for acquisitions dispositions, leasing, property development and property operations. Mr. Bistricer has been an officer of Clipper Equity since 2006. At the Flatbush Gardens property, Mr. Bistricer has served as overall operating manager since 2006. At the 250 Livingston Street property, Mr. Bistricer managed the conversion of office space to residential since 2006. Mr. Bistricer has served as Chief Operating Officer at the Tribeca House properties since acquisition in December 2014, responsible for residential and retail leasing, development and operations. JJ Bistricer is the son of David Bistricer. As Chief Operating Officer at a number of other properties in the New York metropolitan area, Mr. Bistricer has additional experience in repositioning properties from office and hospital use to residential rental and condominium use.
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Jacob Schwimmer, since 1992, has been actively involved in managing, developing and investing in residential and commercial real estate properties in the New York City metropolitan area in conjunction with his parents and in partnership with David Bistricer and Sam Levinson. Mr. Schwimmer, members of his family and family trusts were principal investors in the acquisitions of the 141 and 250 Livingston Street properties in 2002 and the Flatbush Gardens property in 2005. Mr. Schwimmer has served as the principal property management executive at these properties since acquisition. Mr. Schwimmer also serves in the same capacity at another property in New York City in which David Bistricer is the managing member.
Sam Levinson is the Chief Investment Officer at Glick Family Investments, a private family office located in New York, New York, where he has overseen private equity investments since 2004. He has been a member of the board of directors of Stonegate Mortgage Corporation (NYSE: SGM) since 2013, serving as Chairman of the Compensation Committee. Mr. Levinson has served as a director of Canary Wharf Group, a U.K. property developer and manager of over 16 million square feet of Class A office and retail space, since 2004, including as a member of the Operating Committee and Chairman of the Audit Committee. Mr. Levinson has also served as a non-executive director of Songbird Estates, Canary Wharf Group’s holding company, since 2004; of American European Group Insurance Company since 2006; and of Dynasty Financial Partners, LLC, which provides investment and technology platforms for independent financial, investment, and wealth management advisors, since 2011. Additionally, Mr. Levinson served as a director of Coleman Cable Inc., a manufacturer of wire and cable, from 2005 until its sale in 2014 and of West Coast Bancorp of Portland, Oregon from February 2011 until its sale in April 2013. Mr. Levinson’s wife is the niece of David Bistricer. We believe Mr. Levinson is qualified to serve as a Co-Chairman of our board of directors because he is an experienced executive and director with numerous years of experience in the financial and real estate industries.
Howard M. Lorber is President and Chief Executive Officer and member of the board of directors of Vector Group Ltd. (NYSE: VGR) and Chairman of Douglas Elliman Realty, LLC, a majority-owned subsidiary of Vector Group, which operates the largest residential brokerage company in the New York City metropolitan area and the fourth-largest in the United States. Mr. Lorber has been with Vector Group and its diversified interests since 1994. Mr. Lorber is also Chairman of the board of directors of Nathan’s Famous, Inc.; a director of United Capital Corp., a real estate investment and diversified manufacturing company; Vice Chairman of the board of directors of Ladenburg Thalmann Financial Services; and Chairman of Morgans Hotel Group Co. Mr. Lorber brings to our board of directors his valuable expertise in the real estate and investment industries, including more than 25 years of experience serving on the board of a restaurant and real estate company.
Robert J. Ivanhoe is Chair of the 200+ lawyer Global Real Estate Practice and Co-Chair of the REIT group at Greenberg Traurig LLP, where he has worked since 1996. He concentrates his practice in sophisticated real estate structures, financings, workouts, restructurings, acquisitions and dispositions of all asset classes of real estate. Mr. Ivanhoe is actively involved in real estate industry current affairs and is regularly asked to write and lecture on industry topics. He has been recognized by Chambers and Partners USA , The New York Observer and Real Estate New York as one of the leading real estate attorneys in New York City and throughout the United States. He has represented numerous nationally-recognized owner/developer and institutional lender/investor clients domestically and internationally for more than 30 years. Mr. Ivanhoe is a member of Greenberg Traurig LLP’s Executive Committee, Board of Directors and Operating Committee. Mr. Ivanhoe brings to our board of directors valuable expertise in the real estate industry.
Roberto A. Verrone is a founder and principal owner of Iron Hound Management Company, which provides advisory and capital placement services in the commercial real estate industry. Mr. Verrone began his career at Bear Stearns in 1990, which included time in the Commercial Real Estate Group. In 2001, he joined Wachovia Corporation following the merger of First Union and Wachovia, and in 2002 he became manager of Wachovia’s Large Loan Group. Prior to founding Iron Hound in early 2009, Mr. Verrone also served as Co-Head of Wachovia’s Real Estate Group, where he was responsible for managing approximately 600 employees and oversaw a debt portfolio valued in excess of $80 billion. Mr. Verrone received a Bachelor of Arts degree from Moravian College. Mr. Verrone brings to our board of directors his valuable expertise in the commercial real estate industry, in which he has more than 23 years of experience.
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Board of Directors
Pursuant to our charter and bylaws, the number of our directors may not be fewer than the minimum number required by Maryland law, which is one, and may not be greater than fifteen, and will generally be determined from time to time by resolution of the board of directors. Our current board of directors consists of five persons. Our board of directors has determined that Messrs. Ivanhoe, Lorber, Levinson and Verrone meet the independence standards of the NYSE.
Our board of directors believes its members collectively have the experience, qualifications, attributes and skills to effectively oversee the management of our company, including a high degree of personal and professional integrity, an ability to exercise sound business judgment on a broad range of issues, sufficient experience and background to have an appreciation of the issues facing our company, a willingness to devote the necessary time to board of directors duties, a commitment to representing the best interests of our company and our stockholders and a dedication to enhancing stockholder value.
Committees of the Board of Directors
Our board of directors has four committees: the Audit Committee, the Investment Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, each of which meets the NYSE independence standards and other governance requirements for such a committee, subject to certain transition rules for newly public companies as noted below. Each of these committees consists of three members.
Audit Committee. We have established an Audit Committee comprising Messrs. Lorber, Ivanhoe and Verrone. The Audit Committee assists the board of directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. Our board of directors has affirmatively determined that a majority of the directors who serve on the Audit Committee meet the independence standards of the NYSE for audit committee members, and satisfy the independence requirements of Rule 10A-3 of the Exchange Act. Mr. Ivanhoe is the only director who serves on the Audit Committee who does not satisfy the independence requirements for audit committee members. Our board of directors has also determined that Mr. Lorber qualifies as an “audit committee financial expert” under SEC rules and regulations. In accordance with applicable transition rules, our board of directors will change the membership of the Audit Committee in due course as may be necessary to ensure that all of its members will satisfy the independence requirements within one year after the effective date of the registration statement of which this prospectus forms a part.
Investment Committee. The Investment Committee, comprising Messrs. Levinson, Bistricer and Verrone, supports the board of directors in identifying and analyzing the Company’s investment activity. Specifically, the Investment Committee’s duties include reviewing and making recommendations to the board of directors about potential investments in properties by the Company and the Company’s Investment Policy; reviewing and making recommendations to the board of directors with respect to related party transactions; and reporting to the board of directors about potential investment opportunities.
Compensation Committee. We have established a Compensation Committee comprising Messrs. Bistricer, Levinson and Lorber. The Compensation Committee supports the board of directors in fulfilling its oversight responsibilities relating to senior management and director compensation, including the administration of the Clipper Realty Inc. 2015 Omnibus Incentive Compensation Plan and the Clipper Realty Inc. 2015 Non-Employee Director Plan. A majority of directors who serve on the Compensation Committee meet the independence standards of the NYSE for compensation committee members. Mr. Bistricer is the only director who serves on the Compensation Committee who does not meet the independence standards of the NYSE for compensation committee members. In accordance with applicable transition rules, our board of directors will change the membership of the Compensation Committee in due course as may be necessary to ensure that all of its members will satisfy the independence requirements within one year after our listing date.
Nominating and Corporate Governance Committee. We have established a Nominating and Corporate Governance Committee comprising Messrs Bistricer, Levinson and Ivanhoe. The Nominating and Corporate Governance Committee assists the board of directors in identifying and recommending candidates to fill vacancies on the board of directors and for election by the stockholders, recommending committee assignments for members to the board of directors, overseeing the board of directors’ annual evaluation of the performance of the board of directors, its committees and individual directors, reviewing compensation received by directors for service on the board of directors and its committees and developing and recommending to the board of directors appropriate corporate governance policies, practices and procedures for our company. Mr. Bistricer is the only director who serves on the Nominating and Corporate Governance Committee who does not meet the independence standards of the NYSE. In accordance with applicable transition rules, our board of directors will change the membership of the Nominating and Corporate Governance Committee in due course as may be necessary to ensure that all of its members will satisfy the independence requirements within one year after our listing date.
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Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other legal entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee.
Code of Business Conduct and Ethics
Our board of directors has adopted a code of business conduct and ethics that applies to our officers, directors and employees. Among other matters, this code of conduct works together with our Investment Policy and is designed to promote honest and ethical conduct, including ethical handling of conflicts of interest. The purpose of the code of conduct is to ensure that our honesty and integrity, and therefore our reputation, are not compromised.
A fundamental principle of the code of conduct is that service to our Company should never be subordinated to personal gain and advantage and conflicts of interest should be avoided unless they have been approved by or exist at the direction of our board of directors or our Audit Committee. The code of conduct recognizes that our corporate structure and business do not make it practicable to avoid all relationships that could give rise to conflicts of interest and, accordingly, permits conflicts of interest that have been approved by or at the direction of our board of directors or the Audit Committee. For example, our Investment Policy provides that our officers and directors, including David Bistricer, Sam Levinson, JJ Bistricer and Jacob Schwimmer, are not required to present certain identified investment opportunities to us, including for-sale condominium or cooperative conversions, development projects that would require us to obtain guarantees from third parties or to backstop obligations of other parties, and land acquisitions.
The full text of the code of conduct will be posted on our website. We intend to disclose future amendments to the code or waivers of its requirements on our website.
Limitations on Liability and Indemnification of Directors and Officers
Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from:
· | actual receipt of an improper benefit or profit in money, property or services; or |
· | active and deliberate dishonesty that is established by a final adverse judgment and is material to the cause of action. |
Our charter contains a provision that eliminates the liability of our directors and officers to the maximum extent permitted by Maryland law.
Maryland law requires a Maryland corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service in that capacity. Maryland law permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by the director or officer in connection with any proceeding to which he or she may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that:
· | the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty; |
· | the director or officer actually received an improper personal benefit in money, property or services; or |
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· | in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. |
Under Maryland law, a Maryland corporation also may not indemnify a director or officer in a suit by or on behalf of the corporation in which the director or officer was adjudged liable to the corporation or for a judgment of liability on the basis that personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct; however, indemnification for an adverse judgment in a suit by or on behalf of the corporation, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses.
In addition, the MGCL permits a Maryland corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of:
· | a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and |
· | a written undertaking by the director or officer or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that he or she did not meet the standard of conduct necessary for indemnification by the corporation. |
To the maximum extent permitted by Maryland law in effect from time to time, our charter authorizes us to indemnify any individual who serves or has served, and our bylaws obligate us to indemnify any individual who is made or threatened to be made a party to or witness in a proceeding by reason of his or her service:
· | as a present or former director or officer; or |
· | while a director or officer and at our request, as a director, officer, partner, manager, member or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, limited liability company, employee benefit plan or other enterprise |
from and against any claim or liability to which he or she may become subject or that he or she may incur by reason of his or her service in any of these capacities. Our charter authorizes us, and our bylaws require us, without requiring a preliminary determination of such individual’s ultimate entitlement to indemnification, to pay or reimburse any such individual’s reasonable expenses in advance of final disposition of a proceeding. Our charter and bylaws also permit us to indemnify and advance expenses to any individual who served a predecessor of our company in any of the capacities described above and any employee or agent of our company or a predecessor of our company.
We have entered into indemnification agreements with each of our directors and executive officers that provide for indemnification and advance of expenses to the maximum extent permitted by Maryland law.
We have purchased and maintained insurance on behalf of all of our directors and executive officers against liability asserted against or incurred by them in their official capacities, whether or not we are required or have the power to indemnify them against the same liability.
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Summary Compensation Table
The following table presents compensation awarded in the fiscal years ended December 31, 2016 and December 31, 2015 to our principal executive officer and our two other most highly compensated persons serving as executive officers as of December 31, 2016. We refer to these executive officers as our “named executive officers”.
(1) | We entered into employment agreements with each of our named executive officers on August 3, 2015, and did not pay a salary to our named executive officers prior to such date. |
(2) | 2015 annual incentive bonuses for David Bistricer and Lawrence Kreider were paid in the form of LTIP units in March 2016, and are reflected as Stock Awards for 2016. David Bistricer’s 2015 annual incentive bonus was equal to $700,000 (represented by 51,852 LTIP units), and Lawrence Kreider’s 2015 annual incentive bonus was equal to $150,000 (represented by 11,112 LTIP units). In March 2016 and in connection with the private offering, we made a special additional one-time grant of 16,667 LTIP units to JJ Bistricer. | |
(3) | Annual incentive awards for fiscal year 2016 are not yet calculable as of the date of this filing and therefore have not been reported in this table. The Company anticipates that such incentive awards will be determined in March 2017. |
(4) | The amounts in this column for 2016 represent the payment of cash dividends on each of March 11, June 3, September 2 and December 2, 2016 in respect of outstanding LTIP units. |
Outstanding Equity Awards at Fiscal Year End
The following table provides information about the outstanding Clipper Realty equity-based awards held by each of our named executive officers as of December 31, 2016:
Name |
Number of Shares or
Units of Stock That Have Not Vested (#) |
Market
Value of Shares
or Units of Stock That Have Not Vested (1) |
Equity Incentive Plan
Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity Incentive Plan
Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
||||||||||||
David Bistricer | 185,186 | (2) | $ | 2,685,197 | — | — | ||||||||||
Lawrence Kreider | 57,778 | (3) | $ | 837,781 | — | — | ||||||||||
JJ Bistricer | 63,334 | (4) | $ | 918,343 | — | — |
(1) | The market value of our common stock is based on our initial offering price of $14.50 per share (the midpoint of the price range set forth on the front cover of this prospectus). | |
(2) | Represents a special one-time grant of 133,334 LTIP units on August 3, 2015, which are scheduled to cliff vest on August 3, 2018, generally subject to continued employment through the vesting date and an award made in March 2016 of 51,852 LTIP units as payment for David Bistricer’s 2015 annual incentive bonus, which are scheduled to vest on January 2, 2018. |
(3) | Represents a special one-time grant of 46,667 LTIP units on August 3, 2015, which are scheduled to cliff vest on August 3, 2018, generally subject to continued employment through the vesting date, and an award made in March 2016 of 11,112 LTIP units as payment for Lawrence Kreider’s 2015 annual incentive bonus, which are scheduled to vest on January 2, 2018. |
(4) | Represents a special one-time grant of 46,667 LTIP units on August 3, 2015, which are scheduled to cliff vest on August 3, 2018, generally subject to continued employment through the vesting date, and a special additional one-time grant of 16,667 LTIP units award made in March 2016, in connection with the private offering. |
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Employment Agreements
On August 3, 2015, we entered into, through our operating partnership, employment agreements with each of our named executive officers for fiscal year 2015. Under the employment agreements, David Bistricer serves as Chief Executive Officer, Lawrence Kreider serves as Chief Financial Officer and JJ Bistricer serves as Chief Operating Officer. The term of each employment agreement is for an unspecified duration and constitutes “at will” employment.
Each employment agreement provides for, among other things: (i) an annual base salary of $500,000 for David Bistricer, $325,000 for Lawrence Kreider and $250,000 for JJ Bistricer, (ii) an annual incentive bonus with a target bonus opportunity of 50% of annual base salary for David Bistricer, 46% of annual base salary for Lawrence Kreider and 100% of annual base salary for JJ Bistricer, with the actual amount earned ranging from 0% to 200% of target based on actual achievement against performance metrics to be established by the Compensation Committee, (iii) annual long-term equity incentive compensation awards to be granted beginning in 2016 in form, including vesting restrictions, and amount determined in the sole discretion of the Compensation Committee and the board of directors and (iv) participation in the Company’s employee benefit and welfare plans.
Annual incentive bonuses for 2015 were paid to our named executive officers in March 2016 in the following amounts: David Bistricer—$700,000; JJ Bistricer—$250,000 and Lawrence Kreider—$150,000. David Bistricer’s and Lawrence Kreider’s bonuses were paid in the form of LTIP units. Such LTIP units are scheduled to vest on January 2, 2018, and are reflected under the “Stock Awards” column of the Summary Compensation Table for 2016. JJ Bistricer’s bonus was paid in cash, and is reflected under the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for 2015. Annual incentive awards for fiscal year 2016 are not yet calculable as of the date of this filing. The Company anticipates that such incentive awards will be determined in March 2017.
Upon a termination of any executive’s employment by the Company without “cause,” subject to a general release of claims in favor of the Company, the executive will be entitled to: (i) a prorated annual incentive bonus for the year of termination based on actual performance, (ii) either (A) continued benefits under the Company’s group healthcare, vision and dental plans through the 12-month anniversary of termination of employment or (B) a lump-sum payment (grossed up for applicable taxes) equal to 12 times the monthly COBRA cost of continued health and medical coverage and (iii) continued vesting of any outstanding equity compensation awards as if the executive had remained employed through the applicable vesting dates.
“Cause” generally means the executive’s: (i) conviction of, or plea of guilty or no contest to, any felony or any crime involving fraud or moral turpitude, (ii) engagement in gross misconduct that causes material financial or reputation harm to the company, (iii) material violation of the terms of the employment agreement or any written Company policy or (iv) disqualification or bar by any governmental or self-regulatory authority from serving in the capacity required by the executive’s job description, or loss of any governmental or self-regulatory license that is reasonably necessary for the executive to perform his duties or responsibilities.
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Each employment agreement also contains confidentiality and non-disparagement provisions, which apply indefinitely, and non-competition as well as client and employee non-solicitation provisions that apply during the term of the employment agreement and for one year following a termination of employment for any reason. In addition, the employment agreements for David Bistricer and JJ Bistricer acknowledge that each such executive provides services to Clipper Equity and other entities and businesses affiliated with David Bistricer (which we refer to as the “affiliated entities”), that such responsibilities preclude the executives from devoting substantially all of their time to the Company, and that there may be certain potential conflicts of interest or duties associated with their roles at the Company and the affiliated entities.
Other than the employment agreements described above and the employment agreement with Jacob Schwimmer, we do not currently have any agreements, plans or arrangements that provide for severance payments to our executive officers.
Retirement Benefits
We do not currently offer plans that provide for retirement benefits, including but not limited to tax-qualified defined benefit plans, supplemental executive retirement plans, tax-qualified defined contribution plans, or nonqualified defined contribution plans.
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Director Compensation
The following table provides information concerning the compensation of each non-employee director for service on our board in 2016. Directors who are employees of us or any of our subsidiaries did not receive, and will not receive, any compensation for their services as directors.
Name |
Fees Earned or
Paid in Cash |
Stock Awards |
All Other
Compensation (1) |
Total | ||||||||||||
Sam Levinson | $ | — | $ | 212,500 | (2) | $ | 27,023 | $ | 239,523 | |||||||
Howard M. Lorber | $ | 95,000 | $ | — | $ | 432 | $ | 95,432 | ||||||||
Robert J. Ivanhoe | $ | 75,000 | $ | — | $ | 432 | $ | 75,432 | ||||||||
Roberto A. Verrone | $ | 75,000 | $ | — | $ | 432 | $ | 75,432 |
(1) | The amounts in this column represent the payment of cash dividends on each of March 11, June 3, September 2 and December 2, 2016 in respect of outstanding LTIP units. |
(2) | This amount includes the grant of 4,630 LTIP units, with an initial value of $62,500, as compensation for 2015 because the grant was made in August 2016. |
In connection with the private offering, we adopted a compensation program for our directors, effective August 2015, pursuant to which we pay customary fees to each of our non-employee directors, including a $75,000 base cash retainer and other board of directors and board committee fees as determined from time to time, including additional fees for the chairman of each of our board committees and for the co-chairman of our board. Sam Levinson’s retainer and other fees are paid in the form of LTIP unit awards.
We granted a total of 105,001 LTIP units in 2015 to our non-employee directors in connection with the private offering, with an initial value of $1,350,000 (represented by 100,000 LTIP units) for Sam Levinson and approximately $22,500 (represented by 1,667 LTIP units) for each of the other non-employee directors. The LTIP units granted to Sam Levinson in 2015 vested on the third anniversary of the grant date and the LTIP units granted to the other non-employee directors will cliff vest on the first anniversary of the grant date, in each case generally subject to continued service as a director.
In 2016, we determined Sam Levinson’s compensation should be a total of $150,000 per year, effective August 3, 2015, and we granted 4,360 LTIP units, with an initial value of $62,500, as compensation for 2015 and 11,112 LTIP units, with an initial value of $150,000, as compensation for 2016. The LTIP units granted to Sam Levinson in 2016 as compensation for 2015 vested at grant and, of the LTIP units granted in 2016 as compensation for 2016, 5,556 LTIP units vested at grant, 2,778 LTIP units vested on September 30, 2016 and 2,778 LTIP units vested on December 31, 2016.
We also reimburse our directors for reasonable out-of-pocket expenses incurred in connection with the performance of their duties as directors, including without limitation travel expenses in connection with their attendance in-person at board of directors and committee meetings.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Private Offering; Formation Transactions and Related Transactions
1,000,000 of the shares in the private offering were sold directly by us to members of our management and board of directors, and their friends, family members and affiliates.
In connection with the private offering, we consummated the following formation transactions:
· | We formed our operating partnership, of which we are the sole general partner. The holders of LTIP units are the initial limited partners of our operating partnership. |
· | We invested the net proceeds from the private offering in our operating partnership and our operating partnership invested such proceeds in the predecessor entities in consideration for class A LLC units in each predecessor entity. Our operating partnership became the managing member of each of our predecessor entities. |
· | Prior to the contribution by our operating partnership described above, our predecessor entities distributed approximately $15 million of available unrestricted cash to the continuing investors. |
· | The continuing investors had their LLC interests in the predecessor entities converted into class B LLC units. In addition, we issued to one continuing investor 755,939 shares of our common stock. |
· | We issued a number of shares of our special voting stock to our continuing investors equal to the number of class B LLC units issued to them. |
· | We granted to members of our senior management team a total of 290,002 LTIP units, and to our non-employee directors a total of 105,001 LTIP units, all of which are subject to certain vesting requirements. |
· | We entered into the tax protection agreement described below with our continuing investors. |
· | We entered into the services agreements described below. |
· | We entered into employment agreements with David Bistricer, Lawrence Kreider, JJ Bistricer and Jacob Schwimmer providing for salary, bonus and other benefits, including certain payments and benefits upon a termination of employment under certain circumstances and the issuance of equity awards. Under those employment agreements, David Bistricer, JJ Bistricer and Jacob Schwimmer spend such time on matters relating to our company as is appropriate and Lawrence Kreider spends all of his working time on matters relating to our company. See “Management—Employment Agreements.” |
· | We entered into indemnification agreements with our directors and executive officers providing for the indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against such persons in their capacities with us and our subsidiaries. |
· | David Bistricer and entities controlled by Sam Levinson were released from and otherwise indemnified for liabilities arising under certain guarantees and indemnities with respect to approximately $721.1 million of mortgage loans on our properties, which were assumed by us upon closing of the formation transactions in respect of obligations arising after the closing of the private offering. The guarantees and indemnities with respect to all of the indebtedness are, in most instances, limited to losses incurred by the applicable lender arising from acts such as fraud, misappropriation of funds, intentional breach, bankruptcy and certain environmental matters. In connection with our assumption of these mortgage loans, we have sought to have the guarantors and indemnitors released from these guarantees and indemnities and to have our operating partnership assume any such guarantee and indemnity obligations as replacement guarantor or indemnitor. To the extent lenders did not consent to the release of these guarantors and indemnitors, and they remain guarantors or indemnitors on assumed indebtedness following the private offering, our operating partnership entered into indemnification agreements with the guarantors and indemnitors pursuant to which our operating partnership is obligated to indemnify such guarantors and indemnitors for any amounts paid by them under guarantees and indemnities with respect to the assumed indebtedness. We believe that since we control the properties, it is appropriate, and consistent with market practice, for Mr. Bistricer and entities controlled by Mr. Levinson to be indemnified by our operating partnership to the extent the lenders did not consent to the release of these guarantors and indemnitors. In addition, in connection with future mortgage loans that we would enter into in connection with future property acquisitions or refinancing of our properties, we intend to enter into any necessary guarantees directly and neither Mr. Bistricer and entities controlled by Mr. Levinson nor any of our other directors, executive officers or stockholders would be expected to enter into such guarantees. |
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· | We entered into a continuing investors registration rights agreement described below. |
Non-Contributed Properties and Businesses
All of the previous employees of our Predecessor’s management companies who spent a majority of their time on matters related to the properties in our portfolio became our employees. We entered into two services agreements with entities that own interests in the non-contributed properties and businesses. One of these agreements is a services agreement under which the non-contributed properties and businesses continue to provide us with the services they previously provided to the properties in our portfolio, including certain construction and information technology services, finance services and executive support services, and one is a services agreement with the non-contributed properties and businesses pursuant to which our employees continue to provide the services they previously provided for those non-contributed properties and businesses, including certain financial controller services and leasing services. The term of each services agreement commenced on August 3, 2015 and each will terminate on August 3, 2018, unless earlier terminated pursuant to the provisions therein or renewed by mutual consent of the parties thereto. We expect that the net amount paid by or to us under these agreements will not exceed $120,000 per year.
Tax Protection Agreement
We do not presently intend to sell or take any other action that would result in a tax protection payment with respect to the properties covered by the tax protection agreement. We entered into a tax protection agreement with our continuing investors pursuant to which we agreed to indemnify the continuing investors against certain tax liabilities incurred during the 8-year period following the private offering (or with respect to item (iv) below, certain tax liabilities resulting from certain transfers occurring during the 8-year period following the private offering) if those tax liabilities result from (i) the sale, transfer, conveyance or other taxable disposition of any of the properties of our LLC subsidiaries, (ii) any of Renaissance, Berkshire or Gunki failing to maintain a level of indebtedness allocable for U.S. federal income tax purposes to any of the continuing investors such that any of the continuing investors is allocated less than a specified minimum indebtedness in each such LLC subsidiary (in order to comply with this requirement, (1) Renaissance needs to maintain approximately $101.3 million of indebtedness, (2) Berkshire needs to maintain approximately $125.8 million of indebtedness and (3) Gunki needs to maintain approximately $34.4 million of indebtedness), (iii) in a case that such level of indebtedness cannot be maintained by the applicable LLC subsidiary, failing to make available to such a continuing investor the opportunity to execute a guarantee of indebtedness of the LLC subsidiary meeting certain requirements that would enable the continuing investor to continue to defer certain tax liabilities, or (iv) the imposition of New York City or New York State real estate transfer tax liability upon a continuing investor as a result of the formation transactions, private offering, this offering and/or certain subsequent transactions (including subsequent issuances of additional LLC units or interests, issuances of OP units by the operating partnership, issuances of common stock by Clipper Realty, issuances of common stock in exchange for class B LLC units, or dispositions of property by any LLC subsidiary) or as a result of any of those transfers being aggregated. See “Risk Factors—Risks Related to Real Estate.” We estimate that had all of their assets subject to the tax protection agreement been sold in a taxable transaction immediately after the private offering, the amount of our LLC subsidiaries’ indemnification obligations under the tax protection agreement (based on then current tax rates and the valuations of our assets based on the private offering price of $13.50 per share, and including additional payments to compensate the indemnified continuing investors for additional tax liabilities resulting from the indemnification payments) would have been approximately $364.9 million. In addition, we estimate that if New York City or New York State real estate transfer taxes had been imposed on our continuing investors, the maximum amount of our LLC subsidiaries’ indemnification obligations pursuant to the tax protection agreement in respect of New York City or New York State real estate transfer tax liability (based on then current tax rates and the valuations of our assets based on the private offering price of $13.50 per share, and including additional payments to compensate the indemnified continuing investors for additional tax liabilities resulting from the indemnification payments) would have been approximately $74.9 million (although the amount may have been significantly less).
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Operating Partnership Agreement and Limited Liability Company Agreements
Concurrently with the completion of the private offering, we entered into the operating partnership agreement with the various persons who received LTIP units, and the operating partnership entered into amended and restated limited liability company agreements with the various continuing investors in our LLC subsidiaries. These include certain members of our senior management team and our other continuing investors. As a result, such persons became either limited partners of our operating partnership or non-managing members in our LLC subsidiaries.
Pursuant to the partnership agreement and LLC agreements, each limited partner of our operating partnership has the right, subject to the terms and conditions set forth in the partnership agreement to require our operating partnership to redeem all or a portion of the OP units held by such limited partner in exchange for a cash amount equal to the number of tendered OP units multiplied by the price of a share of our common stock (determined in accordance with, and subject to adjustment under, the terms of the partnership agreement), unless the terms of such OP units or a separate agreement entered into between the operating partnership and the holder of such OP units provide that the holder is not entitled to a right of redemption or impose conditions on the exercise of such right of redemption. On or before the close of business on the fifth business day after we receive a notice of redemption, we may, in our sole and absolute discretion, but subject to the restrictions on the ownership of our stock imposed under our charter and the transfer restrictions and other limitations thereof, elect to acquire some or all of the tendered OP units from the tendering person in exchange for shares of our common stock, based on an exchange ratio of one share of our common stock for each OP unit (subject to anti-dilution adjustments provided in the partnership agreement). See “Description of the Limited Partnership Agreement of Our Operating Partnership.”
Each non-managing member of the LLC subsidiaries has the right, subject to the terms and conditions set forth in the LLC agreements, to require the operating partnership to exchange all or a portion of the class B LLC units held by such non-managing member, together with the same number of shares of our special voting stock, for a cash amount equal to the number of tendered class B LLC units multiplied by the price of a share of our common stock (determined in accordance with, and subject to adjustment under, the terms of the LLC agreements), unless the terms of such class B LLC units or a separate agreement entered into between an LLC subsidiary and the holder of such class B LLC units provide that the holder is not entitled to a right of exchange or imposes conditions on the exercise of such right of exchange. On or before the close of business on the fifth business day after we and the operating partnership receive a notice of exchange, we may, in our sole and absolute discretion, but subject to the restrictions on the ownership of our stock imposed under our charter and the transfer restrictions and other limitations thereof, elect to acquire some or all of the tendered class B LLC units from the tendering non-managing member in exchange for shares of our common stock, based on an exchange ratio of one share of our common stock for each class B LLC unit (subject to anti-dilution adjustments provided in the LLC agreements). See “Description of the Limited Liability Company Agreements of our LLC Subsidiaries.”
Continuing Investor Registration Rights Agreement
We entered into a continuing investors registration rights agreement with certain persons receiving shares of our common stock and class B LLC units in the formation transactions, including certain members of our senior management team and the other continuing investors. The continuing investors registration rights agreement provides for the registration of such shares of common stock and shares of common stock that are issuable upon the exchange of class B LLC units.
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Indemnification of Our Directors and Officers
To the maximum extent permitted by Maryland law in effect from time to time, our charter authorizes us to indemnify any individual who serves or has served, and our bylaws obligate us to indemnify any individual who is made or threatened to be made a party to or witness in a proceeding by reason of his or her service:
· | as a present or former director or officer; or |
· | while a director or officer and at our request, as a director, officer, partner, manager, member or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, limited liability company, employee benefit plan or other enterprise |
from and against any claim or liability to which he or she may become subject or that he or she may incur by reason of his or her service in any of these capacities. Our charter authorizes us, and our bylaws require us, without requiring a preliminary determination of such individual’s ultimate entitlement to indemnification, to pay or reimburse any such individual’s reasonable expenses in advance of final disposition of a proceeding. Our charter and bylaws also permit us to indemnify and advance expenses to any individual who served a predecessor of our company in any of the capacities described above and any employee or agent of our company or a predecessor of our company.
Following completion of the private offering, we entered into indemnification agreements with each of our directors and executive officers that provided for indemnification and advance of expenses to the maximum extent permitted by Maryland law. See “Management—Limitations on Liability and Indemnification of Directors and Officers” and “Description of the Limited Liability Company Agreements of Our LLC Subsidiaries—Management Liability and Indemnification.”
Related Party Transaction Approval Policy
Our board of directors will adopt, prior to completion of this offering, a written related party transaction approval policy pursuant to which an independent committee (which may be a standing or ad hoc committee) of our board of directors will review and approve or take such other action as it may deem appropriate with respect to the following transactions:
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· | a transaction in which we are a participant and which involves an amount exceeding $120,000 and in which any of our directors, officers or 5% stockholders, or any other “related person” as defined in Item 404 of SEC Regulation S-K (“Item 404”), has or will have a direct or indirect material interest; |
· | any material amendment, modification or extension of the tax protection agreement, services agreements or continuing investors registration rights agreement; and |
· | any other transaction that meets the related party disclosure requirements of the SEC as set forth in Item 404. |
This policy will set forth factors to be considered by an independent committee in determining whether to approve any such transaction, including the nature of our involvement in the transaction, whether we have demonstrable business reasons to enter into the transaction, whether the transaction would impair the independence of a director and whether the proposed transaction involves any potential reputational or other risk issues.
To simplify the administration of the approval process under this policy, an independent committee may, where appropriate, establish guidelines for certain types of related party transactions or designate certain types of such transactions that will be deemed pre-approved. This policy will also provide that the following transactions are deemed pre-approved:
· | decisions on compensation or benefits or the hiring or retention of our directors or executive officers, if approved by the applicable committee of the board of directors; |
· | the indemnification and advancement of expenses pursuant to our charter, bylaws or an indemnification agreement; and |
· | transactions where the related person’s interest or benefit arises solely from such person’s ownership of our securities and holders of such securities receive the same benefit on a pro rata basis. |
If our board of directors appoints an ad hoc independent committee to review and take action with regard to any one or more related party transactions, the committee will be comprised of at least three independent directors. A director on any committee considering a related party transaction who has an interest in the transaction will not participate in the consideration of that transaction unless requested by the chairperson of the committee.
This policy will not apply to the implementation or administration of the tax protection agreement, the services agreements or the continuing investors registration rights agreement.
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INVESTMENT POLICY AND POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of our Investment Policy and certain of our other policies with respect to financing and other activities. These policies may be amended or revised from time to time at the discretion of our board of directors, without a vote of our stockholders.
Investment Policy
We will generally target wholly-owned multi-family and commercial properties located in the New York metropolitan area; however, we may also make majority or minority investments alongside partners.
We have adopted an Investment Policy
that provides that our directors and officers (including officers involved with Clipper Equity), will not invest in any multi-family
or commercial property (other than excluded assets) located in the metropolitan New York City area, unless the investment opportunity
is first offered to our company and our board of directors (or an independent committee of our board of directors) determines
that our company will not pursue the investment opportunity. Our officers and directors, including each of David Bistricer, Sam
Levinson, JJ Bistricer and Jacob Schwimmer, can pursue investment opportunities related to excluded assets, which include (i)
for-sale condominium or cooperative conversion or development projects, (ii) projects that would require us to obtain guarantees
from third parties or to backstop obligations of other parties, or (iii) land acquisitions, without first offering them to our
company. In addition, our board of directors has established a conflict of interest and business ethics policy that is designed
to work together with the Investment Policy. See “Management—Code of Business Conduct and Ethics.”
Our charter provides that we renounce any interest or expectancy in, or right to be offered or to participate in, any business opportunity identified in any investment policy (including the Investment Policy) or agreement with any of our directors or officers unless the policy or agreement contemplates that the director or officer must first present, communicate or offer such business opportunity to us. See “Certain Provisions of Maryland Law and Clipper Realty’s Charter and Bylaws—Competing Interests and Activities of our Directors and Officers.”
Clipper Equity, which includes the real estate business of David Bistricer in which our company did not invest in connection with the formation transactions, owns interests in and controls and manages entities that own interests in multi-family and commercial properties in the New York metropolitan area. Each of David Bistricer, our Co-Chairman and Chief Executive Officer, and JJ Bistricer, our Chief Operating Officer, is an officer of Clipper Equity and will continue to be involved in such capacity with Clipper Equity. Each of Sam Levinson, our Co-Chairman and the Head of our Investment Committee, and Jacob Schwimmer, our Chief Property Management Officer, have ownership interests in Clipper Equity and will continue to be involved in such capacity with Clipper Equity. The employment agreements of David Bistricer, Jacob Schwimmer and JJ Bistricer with the Company acknowledge that each such executive provides services to other businesses affiliated with David Bistricer (including Clipper Equity in the case of David Bistricer and JJ Bistricer), that such responsibilities preclude the executives from devoting substantially all of their time to the Company, and that there may be certain potential conflicts of interest or duties associated with their roles at the Company and these affiliated entities.
Policies with Respect to Financing and Other Activities
Our board of directors is authorized, without approval of our common stockholders, to cause us to issue additional shares of our stock or to raise capital through the issuance of equity or debt securities, including preferred stock, options, warrants and other rights on terms and for consideration as our board of directors in its sole discretion may determine. In addition, our operating partnership may issue additional OP units or other partnership interests and our LLC subsidiaries may issue additional LLC units or equivalent interests without the consent of our stockholders, any limited partners of our operating partnership or any non-managing member of the applicable LLC subsidiary. See also “Description of the Limited Partnership Agreement of Our Operating Partnership–Operating Partnership Interests” and “Description of the Limited Liability Company Agreements of Our LLC Subsidiaries–LLC Units.” We have not adopted a specific policy governing the issuance of senior securities at this time.
We have not made any loans to third parties and do not intend to engage in lending activities, although we do not have a policy limiting our ability to make loans to third parties and we may do so in the future, including making loans to, or guaranteeing indebtedness of, joint ventures in which we may participate. We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers and do not intend to do so. Our board of directors does not currently intend to cause us to repurchase any shares of common stock, although it has the power to do so.
We intend to make investments in such a manner as to qualify as a REIT. However, our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT.
Reporting Policies
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act. Under the Exchange Act, we will file annual, quarterly and current reports, as well as proxy statements and other information with the SEC. These periodic reports, proxy statements, and other information will be available for inspection and copying at the SEC’s Public Reference Room and the website of the SEC referred to above. We intend to make this information available on the investor relations section of our website, www.clipperrealty.com. Information on, or accessible through, our website is not part of this prospectus.
We are an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these reporting exemptions until we are no longer an emerging growth company.
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The following table sets forth information, as of December 31, 2016, known to us about the beneficial ownership of shares of our common stock immediately before this offering and immediately after this offering by the selling stockholders. The SEC has defined “beneficial” ownership of a security to mean the possession, directly or indirectly, of voting power and/or investment power of such security. A stockholder is also deemed to be, as of any date, the beneficial owner of all securities that such stockholder has the right to acquire within 60 days after the date through (i) the exercise of any option, warrant or right, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement, or (iv) the automatic termination of a trust, discretionary account or similar arrangement.
The common stock offered by the selling stockholders pursuant to this prospectus were originally issued and sold by us in connection with the private offering.
The selling stockholders who do not sell all of the shares of our common stock beneficially owned by them in this offering have agreed with FBR Capital Markets & Co. to restrictions on their ability to sell any shares of our common stock they do not sell in this offering for a period of 180 days after the effective date of the registration statement of which this prospectus forms a part. See “Underwriting.”
Percentage ownership calculations are based on 11,422,606 shares of common stock outstanding as of December 31, 2016 and 18,422,606 shares of our common stock outstanding following this offering. To our knowledge, except as indicated in the footnotes to the following table and under applicable community property laws, the persons or entities identified in the table below have sole voting and investment power with respect to all of the common stock shown as beneficially owned by them.
Shares of Common
Stock Beneficially Owned Before the Offering |
Number of
Shares of Common |
Shares of Common
Stock Beneficially Owned After the Offering |
||||||||||||||||||
Name of Beneficial Owner | Shares |
Percent
of Class |
Stock Being
Offered |
Shares |
Percent
of Class |
|||||||||||||||
Jerica Capital Management, LP (1)
|
72,074 | * | 72,074 | — | — | |||||||||||||||
Cedarview Capital Management, LP (2) | 30,000 | * | 30,000 | — | — | |||||||||||||||
Michael H. Schwartz Profit Sharing Plan (3) | 7,407 | * | 7,407 | — | — | |||||||||||||||
Falcon Global Partners LLC (4) | 370 | * | 370 | — | — |
(1) | Represents shares held by Jerica Commercial Mortgage Opportunity Master Fund Ltd. Warren Ashenmil is the Chief Executive Officer and Chief Investment Officer of Jerica Capital Management, LP and as such has voting and dispositive power over these shares. |
(2) | Represents shares held in the name of Cedarview Opportunities Master Fund LP. Burton Weinstein is the managing partner of Cedarview Capital Management LP and as such has voting and dispositive power over these shares. |
(3) | Michael H. Schwartz, the sole trustee of the Michael H. Schwartz Profit Sharing Plan, has sole voting and dispositive power over these shares. |
(4) | Bobbie J. Lee has voting and investment power over the shares held by Falcon Global Partners LLC. |
* Less than one percent
The selling stockholders do not have, and have not had within the past three years any position, office or other material relationship with us, the predecessor or any of our affiliates.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 31, 2016, known to us about the beneficial ownership of shares of our common stock and special voting stock immediately before this offering and immediately after this offering by our 5% or greater stockholders and by our executive officers and directors. The SEC has defined “beneficial” ownership of a security to mean the possession, directly or indirectly, of voting power or investment power of such security. A stockholder is also deemed to be, as of any date, the beneficial owner of all securities that such stockholder has the right to acquire within 60 days after the date through (i) the exercise of any option, warrant or right, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement, or (iv) the automatic termination of a trust, discretionary account or similar arrangement.
As of December 31, 2016, there are 11,422,606 shares of our common stock and 26,317,396 shares of special voting stock outstanding. Immediately following the completion of this offering, there will be 18,422,606 shares of our common stock and 26,317,396 shares of our special voting stock outstanding.
Unless otherwise indicated below, the address of each beneficial owner listed in the table below is c/o Clipper Realty Inc., 4611 Twelfth Avenue, Brooklyn, New York 11219.
Immediately Prior to this Offering | Immediately After this Offering | |||||||||||||||||||||||||||||||||||||||||||||||
Name
of
Beneficial Owner |
Number
of
Common
Stock
|
Percent
of Class |
Number
of
Shares of Special Voting Stock Beneficially Owned |
Percent
of Class |
Aggregate
number of Voting Securities Beneficially Owned |
Percent
of Class 1 |
Number
of
Beneficially
|
Percent
of Class |
Number
of
Shares of Special Voting Stock Beneficially Owned |
Percent
of Class |
Aggregate
number of Voting Securities Beneficially Owned |
Percent
of Class 1 |
||||||||||||||||||||||||||||||||||||
5% or Greater Stockholders | ||||||||||||||||||||||||||||||||||||||||||||||||
David Bistricer | 318,262 | 2.8 | % | 4,278,058 | 16.3 | % | 4,596,320 | 2 | 12.2 | % | 318,262 | 1.7 | % | 4,278,058 | 16.3 | % | 4,596,320 | 10.3 | % | |||||||||||||||||||||||||||||
Moric Bistricer | - | - | 4,278,058 | 16.3 | % | 4,278,058 | 3 | 11.3 | % | - | - | 4,278,058 | 16.3 | % | 4,278,058 | 9.6 | % | |||||||||||||||||||||||||||||||
Sam Levinson | 1,119,415 | 9.8 | % | 7,296,279 | 27.7 | % | 8,415,694 | 4 | 22.3 | % | 1,119,415 | 6.1 | % | 7,296,279 | 27.7 | % | 8,415,694 | 18.8 | % | |||||||||||||||||||||||||||||
Eva Schwimmer | - | - | 2,731,667 | 10.4 | % | 2,731,667 | 7.2 | % | - | - | 2,731,667 | 10.4 | % | 2,731,667 | 6.1 | % | ||||||||||||||||||||||||||||||||
Jacob Schwimmer | 35,000 | 0.3 | % | 2,188,334 | 8.3 | % | 2,223,334 | 5 | 5.9 | % | 35,000 | 0.2 | % | 2,188,334 | 8.3 | % | 2,223,334 | 5.0 | % | |||||||||||||||||||||||||||||
David Bistricer Trust of 2014 6 | - | - | 2,772,500 | 10.5 | % | 2,772,500 | 7.3 | % | - | - | 2,772,500 | 10.5 | % | 2,772,500 | 6.2 | % | ||||||||||||||||||||||||||||||||
Moric Bistricer Trust of 2014 7 | - | - | 2,772,500 | 10.5 | % | 2,772,500 | 7.3 | % | - | - | 2,772,500 | 10.5 | % | 2,772,500 | 6.2 | % | ||||||||||||||||||||||||||||||||
Indaba Capital Fund L.P. 8 | 1,115,730 | 9.8 | % | - | - | 1,115,730 | 3.0 | % | 1,115,730 | 6.1 | % | - | - | 1,115,730 | 2.5 | % | ||||||||||||||||||||||||||||||||
Signature Global Asset Management 9 | 1,116,311 | 9.8 | % | - | - | 1,116,311 | 3.0 | % | 1,116,311 | 6.0 | % | - | - | 1,116,311 | 2.5 | % | ||||||||||||||||||||||||||||||||
American Financial Group, Inc. 10 | 1,111,111 | 9.7 | % | - | - | 1,111,111 | 2.9 | % | 1,111,111 | 6.0 | % | - | - | 1,111,111 | 2.5 | % | ||||||||||||||||||||||||||||||||
Greenlight Capital, Inc. 11 | 1,000,000 | 8.7 | % | - | - | 1,000,000 | 2.6 | % | 1,000,000 | 5.4 | % | - | - | 1,000,000 | 2.2 | % | ||||||||||||||||||||||||||||||||
BHCO Master, Ltd. 12 | 740,740 | 6.5 | % | - | - | 740,740 | 2.0 | % | 740,740 | 4.0 | % | - | - | 740,740 | 1.7 | % | ||||||||||||||||||||||||||||||||
AmTrust Financial Services, Inc. 13 | 740,740 | 6.5 | % | - | - | 740,740 | 2.0 | % | 740,740 | 4.0 | % | - | - | 740,740 | 1.7 | % | ||||||||||||||||||||||||||||||||
Metacapital Management, L.P. 14 | 740,741 | 6.5 | % | - | - | 740,741 | 2.0 | % | 740,741 | 4.0 | % | - | - | 740,741 | 1.7 | % |
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Immediately Prior to this Offering | Immediately After this Offering | |||||||||||||||||||||||||||||||||||||||||||||||
Name of
Beneficial Owner |
Number
of
Common Shares Beneficially Owned |
Percent
of Class |
Number
of
Shares of Special Voting Stock Beneficially Owned |
Percent
of Class |
Aggregate
number of Voting Securities Beneficially Owned |
Percent
of Class 1 |
Number
of
Common Shares Beneficially Owned |
Percent
of Class |
Number
of
Shares of Special Voting Stock Beneficially Owned |
Percent
of Class |
Aggregate
number of Voting Securities Beneficially Owned |
Percent
of Class 1 |
||||||||||||||||||||||||||||||||||||
Executive Officers and Directors | ||||||||||||||||||||||||||||||||||||||||||||||||
David Bistricer | 318,262 | 2.8 | % | 4,278,058 | 16.3 | % | 4,596,320 | 2 | 12.2 | % | 318,262 | 1.7 | % | 4,278,058 | 16.3 | % | 4,596,320 | 10.3 | % | |||||||||||||||||||||||||||||
Sam Levinson | 1,119,415 | 9.8 | % | 7,296,279 | 27.7 | % | 8,415,694 | 4 | 22.3 | % | 1,119,415 | 6.1 | % | 7,296,279 | 27.7 | % | 8,415,694 | 18.8 | % | |||||||||||||||||||||||||||||
Robert J. Ivanhoe | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Howard Lorber | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Roberto Verrone | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Lawrence E. Kreider, Jr. | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
JJ Bistricer | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Jacob Schwimmer | 35,000 | 0.3 | % | 2,188,334 | 8.3 | % | 2,223,334 | 5 | 5.9 | % | 35,000 | - | 2,188,334 | 8.3 | % | 2,223,334 | ||||||||||||||||||||||||||||||||
All executive officers and directors as a group (8 persons) | 1,472,677 | 12.9 | % | 13,762,671 | 52.3 | % | 15,235,348 | 40.4 | % | 1,472,677 | 8.0 | % | 13,762,671 | 52.3 | % | 15,235,348 | 34.0 | % |
Percentages are rounded.
1 | Holders of our special voting stock generally are entitled to vote together as a single class with holders of our common stock on all matters on which our common stockholders are entitled to vote, as described under “Description of Capital Stock—Special Voting Stock.” Holders of shares of our special voting stock also hold an equal number of class B LLC units. As of December 31, 2016, the aggregate number of outstanding shares of common stock and special voting stock is 37,740,002. Immediately following the completion of this offering, the aggregate number of outstanding shares of common stock and special voting stock will be 44,740,002. |
2 | Represents 4,278,058 shares of special voting stock held directly and 318,262 shares of common stock owned by the Moric Bistricer 2012 Family Trust, for which David Bistricer is one of two trustees. Excludes 185,186 LTIP units, which will vest in 2018, generally subject to continued employment through the vesting date. Excludes 318,262 shares of common stock owned by the David Bistricer Trust of 2013 and 2,772,500 shares of special voting stock owned by the David Bistricer Trust of 2014. Marc Bistricer, the son of David Bistricer, is the sole trustee of the David Bistricer Trust of 2013 and the David Bistricer Trust of 2014. David Bistricer disclaims beneficial ownership of the shares of common stock and special voting stock owned by the David Bistricer Trust of 2013 and David Bistricer Trust of 2014, respectively. |
3 | Represents 4,278,058 shares of special voting stock held directly. Excludes (i) 318,262 shares of common stock owned by the Moric Bistricer 2012 Family Trust, for which David Bistricer is one of two trustees and (ii) 2,772,500 shares of special voting stock owned by the Moric Bistricer Trust of 2014, for which Marc Bistricer, the grandson of Moric Bistricer, is the sole trustee. Moric Bistricer disclaims beneficial ownership of the shares of common stock and special voting stock owned by the Moric Bistricer 2012 Family Trust and the Moric Bistricer Trust of 2014, respectively. |
4 | Represents (i) 991,598 shares of common stock and 4,464,692 shares of special voting stock owned by Trapeze Inc., a Delaware corporation, (ii) 61,482 shares of common stock and 1,362,039 shares of special voting stock owned by Trapeze D Holdings LLC, a Delaware limited liability company and (iii) 66,335 shares of common stock and 1,469,548 shares of special voting stock owned by ECL Holdings LLC, a Delaware limited liability company. Sam Levinson has sole voting and investment control over all of the shares held by these entities. Excludes 115,742 LTIP units, 15,742 of which have vested and 100,000 of which will vest in 2018 generally subject to Mr. Levinson’s continued service as a director. The address for Trapeze Inc., Trapeze D Holdings LLC, ECL Holdings LLC and Sam Levinson is 810 Seventh Avenue, 28 th Floor, New York, New York 10019. |
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5 | Represents (i) 35,000 shares of common stock and 437,667 shares of special voting stock owned by Jacob Schwimmer and (ii) 1,750,667 shares of special voting stock owned by the Schwimmer Family Irrevocable Gift Trust 2. Excludes 57,779 LTIP units owned by Jacob Schwimmer, which will vest in 2018, generally subject to continued employment through the vesting date. Jacob Schwimmer is the trustee of the Schwimmer Family Irrevocable Gift Trust 2 and has sole voting and investment control over all of the shares held by this trust. |
6 | Marc Bistricer, the sole trustee of the David Bistricer Trust of 2014, has sole voting and investment control over all of the shares held by this trust. |
7 | Marc Bistricer, the sole trustee of the Moric Bistricer Trust of 2014, has sole voting and investment control over all of the shares held by this trust. | |
8 | Indaba Capital Fund, L.P. is a limited partnership organized under the laws of the Cayman Islands. Derek Schrier, the Managing Partner and Chief Investment officer of the general partner of the limited partnership (Indaba Capital Partners, LLC) controls the voting power and dispositive power over the shares held by Indaba Capital Fund, L.P. The address for Indaba Capital Fund, L.P., Indaba Partners LLC and Derek Schrier is c/o Indaba Capital Management, L.P., 1 Letterman Drive, Building D, Suite DM 700, San Francisco, CA 94129. | |
9 |
Represents (i) 523,500 shares of common stock owned by Signature Diversified Yield II Fund, (ii) 279,710 shares of common stock owned by Signature Diversified Yield Fund, (iii) 161,530 shares of common stock owned by CI Income Fund, (iv) 146,371 shares of common stock owned by Signature Diversified Yield Corporate Class and (v) 5,200 shares of common stock owned by Signature Real Estate Pool (collectively, the “Signature Funds”). Signature Global Asset Management (“Signature”), a division of CI Investments Inc. (“CI”), a company incorporated under the laws of the Province of Ontario, Canada, is the investment manager of each of the Signature Funds. Eric Bushell, Geofrey Marshall, Josh Varghese and Alfred Lam, currently disclosed in the simplified prospectus of the Signature Funds as the individuals principally responsible for managing the Signature Funds, are employees of Signature and together with CI Investments Inc. share the voting power and dispositive power over the shares held by the Signature Funds. The address for each of these entities is 2 Queen St. East, 18 th Floor, Toronto, ON MSC 367. |
10 | Represents 666,667 shares of common stock owned by Great American Life Insurance Company (“GALIC”) and 444,444 shares of common stock owned by Great American Insurance Company (“GAIC”). Each of GALIC and GAIC is a wholly-owned subsidiary of American Financial Group, Inc. (“AFG”). The board of directors of AFG controls the voting power and dispositive power over the shares held by GALIC and GAIC. The address for all of these entities is 301 East 4 th Street, Cincinnati, OH 45202. Based on publicly available information, as of January 31, 2017, the board of directors of AFG consists of Carl H. Lindner III, S. Craig Lindner, Kenneth C. Ambrecht, John. B. Berding, Joseph E. Consolino, Virginia C. Drosos, James E. Evans, Terry S. Jacobs, Gregory G. Joseph, William W. Verity and John I. von Lehman. |
11 | Represents (i) (A) 195,400 shares of common stock held by Greenlight Capital Qualified, L.P., (B) 33,900 shares of common stock held by Greenlight Capital, L.P. and (C) 362,600 shares of common stock held by Greenlight Capital Offshore Partners (collectively, the “Greenlight Capital Funds”), (ii) 131,000 shares of common stock held by Greenlight Reinsurance, Ltd. (“Greenlight Reinsurance”) and (iii) (A) 137,200 shares of common stock held by Greenlight Capital (Gold), LP and (B) 139,900 shares of common stock held by Greenlight Capital Offshore Master (Gold), Ltd. (collectively, the “Greenlight Capital (Gold) Funds”). Greenlight Capital, Inc. (“Greenlight Inc.”) is the investment manager for each of the Greenlight Capital Funds, and as such has voting and dispositive power over the shares owned by the Greenlight Capital Funds. DME Advisors, LP (“DME Advisors”) is the investment manager for Greenlight Reinsurance, and as such has voting and dispositive power over the shares owned by Greenlight Reinsurance. DME Capital Management, LP (“DME Management”) is the investment manager for the Greenlight Capital (Gold) Funds, and as such has voting and dispositive power over the shares owned by the Greenlight Capital (Gold) Funds. DME Advisors GP, LLC (“DME GP”) is the general partner of DME Advisors and DME Management, and as such has voting and dispositive power over 408,100 shares of common stock. David Einhorn is the principal of Greenlight Inc., DME Advisors, DME Management and DME GP, and as such has voting and dispositive power over 1,000,000 shares of common stock held by these affiliates of Green light, Inc. Mr. Einhorn disclaims beneficial ownership of these shares, except to the extent of any pecuniary interest therein. The address for all of these entities and Mr. Einhorn is c/o Greenlight Capital, Inc., 140 East 45th Street, 24th Floor, New York, NY 10017. |
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12 | BHCO Master, Ltd. is an Exempted Company incorporated in the Cayman Islands. Michael Thompson is the portfolio manager of BHCO Master, Ltd. and controls the voting power and dispositive power over the shares held by BHCO Master, Ltd. The address for BHCO Master, Ltd. and Michael Thompson is c/o BHR Capital LLC, 733 Third Avenue, 15 th Floor, New York, NY 10017. | |
13 |
Represents (i) 195,000 shares of common stock owned by Technology Insurance Company, Inc., (ii) 146,000 shares of common stock owned by Wesco Insurance Company, (iii) 143,000 shares of common stock owned by Security National Insurance Company, (iv) 107,740 shares of common stock owned by Associated Industries Insurance Company, Inc., (v) 76,000 shares of common stock owned by First Nonprofit Insurance Company and (vi) 73,000 shares of common stock owned by Sequoia Insurance Company (collectively, the “AmTrust Entities”). Each of the AmTrust Entities is a subsidiary of AmTrust Financial Services, Inc. The elected officers of each of the AmTrust Entities, subject to investment guidelines adopted by each of the AmTrust Entities’ boards of directors, control the voting power and dispositive power over the shares held by it. The address for each of these entities is 59 Maiden Lane, 43 rd Floor, New York, NY 10038. As of December 27, 2016, (i) the elected officers of Technology Insurance Company, Inc. consist of Jeffrey P. Leo – President, Kerry J. Heitz – Executive Vice President and Chief Financial Officer, Harry Schlachter – Treasurer, Stephen B. Ungar – Secretary, Barry W. Moses – Vice President, Regulatory & Compliance and Assistant Secretary, and Jeffrey H. Mayer – Chief Actuary, (ii) the elected officers of Wesco Insurance Company consist of Jeffrey P. Leo – President, Kerry J. Heitz – Executive Vice President and Chief Financial Officer, Harry Schlachter – Treasurer, Stephen B. Ungar – Secretary, Barry W. Moses – Vice President, Regulatory & Compliance and Assistant Secretary, and Jeffrey H. Mayer – Chief Actuary, (iii) the elected officers of Security National Insurance Company consist of Jeffrey P. Leo – President, Melanie S. Garrison – Vice President, Harry Schlachter – Treasurer, Stephen B. Ungar – Secretary, Barry W. Moses – Vice President, Regulatory & Compliance and Assistant Secretary, and Jeffrey H. Mayer – Chief Actuary, (iv) the elected officers of Associated Industries Insurance Company, Inc. consist of Elissa M. Pacheco – President and Chief Underwriting Officer, Kerry J. Heitz – Executive Vice President and Chief Financial Officer, Anita Ward – Vice President, Harry Schlachter – Treasurer, Stephen B. Ungar – Secretary, Barry W. Moses – Vice President, Regulatory & Compliance and Assistant Secretary, and Jeffrey H. Mayer – Chief Actuary, (v) the elected officers of First Nonprofit Insurance Company consist of Kerry J. Heitz – Executive Vice President and Chief Financial Officer, Harry Schlachter – Treasurer, Stephen B. Ungar – Secretary, Barry W. Moses – Vice President, Regulatory & Compliance and Assistant Secretary, and Jeffrey H. Mayer – Chief Actuary and (vi) the elected officers of Sequoia Insurance Company consist of William K. Walton – President and Chief Operating Officer, Kerry J. Heitz – Executive Vice President and Chief Financial Officer, Harry Schlachter – Treasurer, Stephen B. Ungar – Secretary, Barry W. Moses – Vice President, Regulatory & Compliance and Assistant Secretary, and Jeffrey H. Mayer – Chief Actuary. |
|
14 | Represents (i) 522,667 shares of common stock owned by Metacapital Mortgage Opportunities Master Fund, Ltd., (ii) 171,735 shares of common stock owned by Metacapital Mortgage Value Master Fund, Ltd. and (iii) 46,339 shares of common stock owned by Super Certus Cayman Fund Limited (collectively, the “Metacapital Funds”). Metacapital Management, L.P. (“Metacapital”) is the investment manager of each of the Metacapital Funds. In such capacity, Metacapital controls the voting power and dispositive power over the shares held by the Metacapital Funds. Deepak Narula is the managing member of Metacapital GP, LLC (“Metacapital GP”), which is the general partner of Metacapital. Each of Metacapital, Metacapital GP, and Mr. Narula disclaims beneficial ownership of the shares owned by the Metacapital Funds. The address for each of these entities, and Mr. Narula is 152 West 57 th Street, 38 th Floor, New York, NY 10019. |
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The following description of the material terms of our stock is only a summary. For a complete description, we refer you to the Maryland General Corporation Law, and our charter and our bylaws, which have been filed as exhibits to the registration statement of which this prospectus forms a part.
General
Our charter provides that we may issue up to 500,000,000 shares of common stock, $0.01 par value per share, 150,000,000 shares of special voting stock, $0.01 par value per share, and up to 100,000,000 shares of preferred stock, $0.01 par value per share, of which 140 shares are classified and designated as 12.5% Series A Cumulative Non-Voting Preferred Stock. Our charter provides that our board of directors, without common stockholder approval, may amend our charter to increase or decrease the aggregate number of shares of stock that we are authorized to issue or the number of authorized shares of any class or series of our stock. On the date hereof, we have 11,422,606 shares of our common stock, 26,317,396 shares of our special voting stock, and 132 shares of series A preferred stock issued and outstanding. Under Maryland law, our stockholders generally are not liable for our debts or obligations solely as a result of the stockholder’s status as a stockholder. Following this offering, 18,422,606 shares of common stock will be issued and outstanding (19,489,076 shares if the underwriters exercise their option to purchase additional shares in full).
Class B LLC units in our predecessor entities are exchangeable, together with an equal number of shares of our special voting stock, for an amount of cash equal to the fair market value of an equal number of shares of our common stock or, at our election, an equal number of shares of our common stock, subject to certain adjustments and restrictions.
Common Stock
All of the shares of common stock offered by this prospectus will be duly authorized, validly issued, fully paid and nonassessable. Subject to the preferential rights, if any, of holders of any other class or series of our stock (including our series A preferred stock) and to the provisions of our charter relating to the restrictions on ownership and transfer of our stock, holders of our common stock are entitled to receive dividends when authorized by our board of directors and declared by us out of assets legally available for distribution to our stockholders, and will be entitled to share ratably in our assets legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up, after payment of or adequate provision for all of our known debts and liabilities.
Subject to (a) the specific class voting rights of holders of any other class or series of our stock, including our series A preferred stock and our special voting stock (b) certain restrictions required by the registration rights agreement on the rights of our directors and executive officers, and their affiliates, to vote at a special election meeting, on amendments to the provisions of our charter and bylaws relating to special election meetings and the vote required to amend such provisions and, after a special election meeting and, until our common stock is listed on a national securities exchange as required by the registration rights agreement, on the removal or reelection of directors initially elected at a special election meeting and the expansion of the size of the board of directors, and (c) to the provisions of our charter relating to the restrictions on ownership and transfer of our stock, each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of our stockholders, including the election of directors. Except as provided with respect to any other class or series of our stock (including our series A preferred stock and our special voting stock), the holders of our common stock will possess the exclusive voting power. There is no cumulative voting in the election of directors and directors will be elected by a plurality of the votes cast in the election of directors, which means that stockholders (including holders of our special voting stock) entitled to cast a majority of the votes entitled to be cast in the election of directors can elect all of the directors then standing for election, and the holders of the remaining shares will not be able to elect any directors.
Holders of our common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any of our securities. Subject to the provisions of our charter relating to the restrictions on ownership and transfer of our stock, all holders of our common stock will have equal dividend, liquidation and other rights.
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Under Maryland law, a Maryland corporation generally cannot amend its charter, consolidate, merge, convert, sell all or substantially all of its assets, engage in a statutory share exchange or dissolve unless the action is advised by its board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. As permitted by Maryland law, except for amendments to the provisions of our charter relating to the removal of directors and the vote required to amend the removal provision, which must be approved by the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter, our charter provides that any of these actions may be approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Holders of our special voting stock and holders of our series A preferred stock have the right to vote as separate classes of stock on certain amendments to our charter (including, in the case of our series A preferred stock, certain amendments to our charter effected by merger, consolidation, sale of assets or otherwise) as described below under “ —Special Voting Stock” and “—Series A Preferred Stock.” In addition, as long as the registration rights agreement remains in effect, our directors and executive officers, as well as their affiliates, are not entitled to vote on amendments to certain provisions of our charter relating to special election meetings or the vote required to amend such provisions. Maryland law also permits a Maryland corporation to transfer all or substantially all of its assets without the approval of its stockholders to an entity owned, directly or indirectly, by the corporation. Because our operating assets may be held by our wholly owned subsidiaries, these subsidiaries may be able to merge or transfer all or substantially all of their assets without the approval of our stockholders.
Except for amendments to certain provisions of our bylaws relating to any special election meeting described below under the caption “Certain Provisions of Maryland Law and Clipper Realty’s Charter and Bylaws – Special Meetings of Stockholders,” or the vote required to amend such provisions, which, for so long as the registration rights agreement remains in effect, must be approved by our board of directors and the holders of two-thirds of our outstanding common stock, excluding shares held by our directors and executive officers and their affiliates, and our special voting stock, our board of directors has the exclusive power to amend our bylaws.
Special Voting Stock
Holders of our special voting stock are entitled to vote together as a single class with holders of our common stock on all matters (other than, for so long as the registration rights agreement remains in effect, matters considered at a special election meeting, amendments to certain provisions of our charter and bylaws relating to special election meetings and the vote required to amend such provisions and, after a special election meeting and until our common stock is listed on a national securities exchange as required by the registration rights agreement, the removal or reelection of directors initially elected at a special election meeting or the expansion of the size of the board of directors) brought before our common stockholders, including the election of directors, on an as-exchanged basis, as if such holder of our special voting stock had exchanged any class B LLC units in our predecessor entities held by such holder for shares of our common stock. In addition, holders of our special voting stock have the exclusive right to vote, as a single class, on any amendment to our charter on which our stockholders are entitled to vote that would alter only the contract rights, as expressly set forth in our charter, of the special voting stock. Holders of our special voting stock are not entitled to any dividends or other distributions from us, including any distribution of our assets upon our liquidation, dissolution or winding up, except that holders of special voting stock may receive distributions of our securities, including shares of any class or series of our stock, when, as and if authorized by our board of directors and declared by us. Holders of our special voting stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any of our securities. Shares of our special voting stock are exchangeable, together with an equal number of class B LLC units in our predecessor entities, for an amount of cash equal to the fair market value of an equal number of shares of our common stock or, at our election, an equal number of shares of our common stock, subject to certain adjustments and restrictions.
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Series A Preferred Stock
With respect to the payment of dividends and redemption rights and the distribution of our assets upon dissolution, liquidation or winding up, the series A preferred stock is senior to all other existing classes and series of our stock, including our common stock and our special voting stock. Holders of our series A preferred stock are entitled to dividends that accrue on a daily basis at the rate of 12.5% per annum of the sum of $1,000 plus all accumulated and unpaid dividends thereon, and are cumulative from and including the date of issuance. Dividends on outstanding shares of series A preferred stock accrue whether or not they have been declared and whether or not we have funds that are legally available for distribution. We must pay or set apart for payment all accrued and unpaid dividends for all past dividend periods on all outstanding shares of series A preferred stock before we may pay any dividend or other distribution to holders of, or redeem or repurchase, shares of any other class or series of our stock, including common stock. If we pay less than the total amount of dividends then accrued with respect to the outstanding shares of series A preferred stock, such a payment must be distributed ratably among the holders of outstanding shares of series A preferred stock on the basis of the number of shares of series A preferred stock then owned by each holder.
Dividends on series A preferred stock are payable semiannually, in arrears, on or before June 30 and December 31 of each year, when, as and if authorized by our board and declared by us, except that no dividends on series A preferred stock will be payable at any time that the payment of such dividends would be restricted or prohibited by law or would constitute a breach of or default under the terms of any written agreement between the us and any person that is not our affiliate. Dividends payable on series A preferred stock for any partial period, including the first dividend period, are computed on the basis of a 360-day year consisting of twelve 30-day months. We will pay dividends to holders of record of series A preferred stock as they appear in our stock transfer records at the close of business as of June 15 and December 15 of each year, or on such other date designated by our board as the record date for the payment of such dividend that is not more than 30 days before the applicable payment date for such dividend.
The holders of series A preferred stock are not entitled to vote in the election of directors or on any other matters submitted to our stockholders, except that the approval of the holders of at least a majority of the outstanding shares of series A preferred stock, voting as a separate class, is required for us to (a) authorize or issue any equity security senior to or on a parity with series A preferred stock, (b) reclassify the outstanding series A preferred stock or (c) amend our charter, whether by merger, consolidation, transfer or conveyance of all or substantially all of our assets or otherwise (an “Event”), in a manner that materially and adversely affects any right, preference, privilege or voting power of the series A preferred stock or that increases the number of authorized shares of series A preferred stock to a number greater than 140. So long as shares of series A preferred stock remain outstanding with their terms materially unchanged after the occurrence of an Event or, as a result of an Event, the holders of series A preferred stock receive equity securities of the successor or survivor of the Event with substantially identical rights as the series A preferred stock (even if, after the Event, we are not the surviving entity or the surviving entity is not a corporation), the occurrence of the Event will not be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the series A preferred stock and the holders of series A preferred stock will not be entitled to vote with respect to the Event unless the number of authorized series A preferred stock is increased to a number greater than 140 as a result of the Event.
The outstanding shares of series A preferred stock are subject to redemption, in whole or in part, at any time, upon notice by us to the record holders of the series A preferred stock to be redeemed, on the redemption date selected by us. If we elect to redeem any shares of series A preferred stock, such shares will be redeemed for a price per share, payable in cash on the redemption date, equal to $1,000 plus all accrued and unpaid dividends thereon (whether or not declared) to and including the redemption date, plus a redemption premium of $100 per share if the redemption date falls on or before December 31, 2017. No redemption premium will be payable if the redemption date is after December 31, 2017. Unless full cumulative dividends on all outstanding shares of series A preferred stock for all past dividend periods that have ended have been, or contemporaneously are, paid or set apart for payment for all past dividend periods, we may not redeem less than all of the outstanding shares of series A preferred stock or, generally, redeem or repurchase equity securities that rank junior to the series A preferred stock, including common stock and the special voting stock, except by conversion into or exchange for other equity securities that rank junior to the series A preferred stock or pursuant to the provisions of our charter relating to the restrictions on ownership and transfer of our stock.
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In the event of any voluntary or involuntary dissolution, liquidation or winding up of our affairs, the holders of outstanding shares of series A preferred stock will be entitled to be paid, out of our assets that are legally available for distribution, a liquidation preference per share of series A preferred stock equal to $1,000 plus the amount of any accrued and unpaid dividends thereon (whether or not declared) to and including the date the liquidation preference is paid, plus the redemption premium described above, if any, that would be payable if the shares of series A preferred stock were redeemed on the date the liquidation preference is paid. If our assets that are legally available for distribution upon dissolution, liquidation or winding up are insufficient to pay the full amount of the liquidation preference, the assets available for distribution will be distributed ratably among the holders of outstanding shares of series A preferred stock on the basis of the number of shares of series A preferred stock then owned by each holder. A consolidation or merger the Company with one or more entities, a sale or transfer of all or substantially all of our assets, or a statutory share exchange will not be deemed a dissolution, liquidation, or winding up of the Company.
The series A preferred stock is not convertible or exchangeable for any other of our property or securities.
Power to Reclassify and Increase the Number of Authorized Shares of Stock
Our board of directors may, without common stockholder approval, classify any unissued shares of our preferred stock and reclassify any unissued previously-classified shares of our stock into other classes or series of stock. Before authorizing the issuance of shares of any new class or series, our board of directors must set, subject to the provisions of our charter relating to the restrictions on ownership and transfer of our stock and the rights of holders of our series A preferred stock, the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications or terms and conditions of redemption for each class or series of stock. In addition, our charter authorizes our board of directors, with the approval of a majority of the entire board of directors and without common stockholder approval, to amend our charter to increase or decrease the aggregate number of shares of stock, or the number of shares of any class or series of stock, that we are authorized to issue. These actions can be taken without common stockholder approval, unless stockholder approval is required by applicable law, the terms of any other class or series of our stock (including our series A preferred stock) or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded.
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Restrictions on Ownership and Transfer
In order for us to qualify as a REIT under the Code, our stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of our stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities such as qualified pension plans) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). To qualify as a REIT, we must satisfy other requirements as well. See “Material U.S. Federal Income Tax Consequences—Taxation of the Company as a REIT—Requirements for Qualification.”
Our charter contains restrictions on the ownership and transfer of our stock. Subject to the exceptions described below, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock, excluding any shares of such class or series of common stock that are not treated as outstanding for federal income tax purposes, or 9.8% of the aggregate value of all our outstanding stock, excluding any shares of our stock not treated as outstanding for federal income tax purposes. We refer to these restrictions collectively as the “ownership limit.”
The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of the outstanding shares of any class or series of our common stock, or the acquisition of an interest in an entity that owns shares of our common stock of any class or series could, nevertheless, cause the acquiror or another individual or entity to own shares of our common stock of any class or series in excess of the ownership limit.
Our board of directors may, upon receipt of such representations and agreements as it may require and in its sole discretion, prospectively or retroactively, exempt a person from all or any component of the ownership limit or establish a different limit on ownership for a person if the person’s ownership in excess of the ownership limit could not result in our being “closely held” under Section 856(h) of the Code (without regard to whether the interest is held during the last half of a taxable year) or otherwise failing to qualify as a REIT. As a condition of granting a waiver of the ownership limit or creating an excepted holder limit, our board of directors may, but is not required to, require an opinion of counsel or IRS ruling satisfactory to our board of directors as it may deem necessary or advisable to determine or ensure our status as a REIT and may impose any conditions or restrictions on such a waiver or excepted holder limit as it deems appropriate.
In connection with granting a waiver of the ownership limit or creating an excepted holder limit or at any other time, our board of directors may increase or decrease the ownership limit or any component of the ownership limit unless, after giving effect to any increased or decreased ownership limit, five or fewer persons could beneficially own, in the aggregate, more than 49.9% in value of the aggregate outstanding shares of our stock or we would otherwise fail to qualify as a REIT. A decreased ownership limit will not apply to any person whose ownership of our stock at the time the ownership limit is decreased exceeds the decreased ownership limit until the person’s ownership of our stock, in the aggregate, or of the applicable classes or series of our common stock, equals or falls below the decreased ownership limit, but any acquisition of our stock, or of shares of the applicable class or series of our common stock, by such a person after the decrease in the ownership limit will violate the decreased ownership limit.
In addition to the ownership limit, our charter prohibits:
· | any person from beneficially or constructively owning shares of our stock that could result in our being “closely held” under Section 856(h) of the Code (without regard to whether the stockholder’s interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT; |
· | any person from transferring shares of our stock if the transfer would result in shares of our stock being beneficially owned by fewer than 100 persons; |
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· | until our common stock qualifies as a class of publicly offered securities or we qualify for another exception to the DOL Plan Asset Regulations (other than the insignificant participation exception), Benefit Plan Investors from beneficially owning 25% or more of the total value of the outstanding shares of our common stock, disregarding shares of common stock (or interests therein) held by Controlling Persons (other than Controlling Persons who are Benefit Plan Investors); |
· | until our common stock qualifies as a class of publicly offered securities or we qualify for another exemption from the DOL Plan Asset Regulations (other than the insignificant participation exception), any person from transferring shares of our common stock unless the transferee provides to us (a) a representation that the transferee is not, and will not be acting on behalf of, a Benefit Plan Investor or Controlling Person and will not transfer or assign its interest in our common stock to any Benefit Plan Investor or Controlling Person and (b) an agreement that such transferee will obtain from its transferee the representation and agreement set forth in this sentence (including without limitation clauses (a) and (b)); and |
· | until we qualify for an exception to the DOL Plan Asset Regulations (other than the insignificant participation exception), no person may transfer shares of any class or series of our stock that does not qualify as a class or series of publicly offered securities (other than shares of our common stock transferred after obtaining the representation and agreement referenced in the immediately preceding bullet) unless such person obtains from its transferee a representation and agreement that (a) such transferee is not, and will not be, and is not acting on behalf of, a Benefit Plan Investor or Controlling Person and (b) such transferee will obtain from its subsequent transferee the foregoing representations and agreements described in clauses (a) and (b). |
Any person who acquires or attempts to acquire beneficial or constructive ownership of shares of our stock that will or may violate the ownership limit or any of the other restrictions on transfer and ownership of our stock discussed above, or who would have owned shares of our stock that are transferred to the trust as described below, must give notice immediately to us or, in the case of a proposed transaction, give at least 15 days prior written notice to us and provide us with any other information we request in order to determine the effect of such transfer on our qualification as a REIT or our qualification for any exception from the DOL Plan Asset Regulations.
Any attempted transfer of shares of our stock that, if effective, would result in our stock being beneficially owned by fewer than 100 persons will be void and the intended transferee will acquire no rights in the shares. Any attempted transfer of our stock that, if effective, would result in a violation of the ownership limit, our being “closely held” under Section 856(h) of the Code (without regard to whether the stockholder’s interest is held during the last half of a taxable year) or our otherwise failing to qualify as a REIT, will cause the number of shares causing the violation (rounded up to the nearest whole share) to be transferred automatically to one or more trusts for the exclusive benefit of one or more charitable beneficiaries, and the proposed transferee will not acquire any rights in the shares. The automatic transfer will be effective as of the close of business on the business day before the date of the attempted transfer or other event that resulted in the transfer to the trust. If the transfer to the trust as described above does not occur or is not automatically effective, for any reason, to prevent a violation of the applicable restrictions on ownership and transfer of our stock, then the attempted transfer which, if effective, would have resulted in a violation of the restrictions on ownership and transfer of our stock will be null and void.
We expect that immediately following this offering our common stock will qualify as a class of publicly offered securities and, as a result, the restrictions in the last three bullet points in the immediately preceding paragraph will cease to apply.
Shares of our stock held in the trust will be issued and outstanding shares. The proposed transferee will not benefit economically from ownership of any shares of our stock held in the trust and will have no rights to dividends and no rights to vote or other rights attributable to the shares of our stock held in the trust. The trustee of the trust will exercise all voting rights and receive all dividends and other distributions with respect to shares held in the trust for the exclusive benefit of the charitable beneficiary of the trust. Any dividend or other distribution paid before we discover that the shares have been transferred to a trust as described above must be repaid by the recipient to the trustee upon demand by us. Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee will have the authority to rescind as void any vote cast by a proposed transferee before our discovery that the shares have been transferred to the trust and to recast the vote in accordance with the desires of the trustee. However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote.
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Within 20 days of receiving notice from us of a transfer of shares to the trust, the trustee must sell the shares to a person that could own the shares without violating the ownership limit or the other restrictions on ownership and transfer of our stock contained in our charter. After the sale of the shares, the interest of the charitable beneficiary in the shares transferred to the trust will terminate and the trustee must distribute to the proposed transferee an amount equal to the lesser of:
· | the price paid by the proposed transferee for the shares or, if the event causing the shares to be held in the trust did not involve a purchase of such shares at market price, the market price of the shares on the day of such event; and |
· | the net sale price received by the trustee from the sale or other disposition of the shares. |
The trustee may reduce the amount payable to the proposed transferee by the amount of any dividends or other distributions that we paid to the proposed transferee before we discovered that the shares had been transferred to the trust and that is owed by the proposed transferee to the trustee as described above. The trustee must distribute any remaining amounts held by the trust with respect to the shares to the charitable beneficiary. If the shares are sold by the proposed transferee before we discover that they have been transferred to the trust, the shares will be deemed to have been sold on behalf of the trust and the proposed transferee must pay to the trustee, upon demand the amount, if any, that the proposed transferee received in excess of the amount that the proposed transferee would have received had the shares been sold by the trustee.
Shares of our stock held in the trust will be deemed to be offered for sale to us, or our designee, at a price per share equal to the lesser of:
· | the price per share in the transaction that resulted in the transfer to the trust (or, if the event causing the shares to be held in the trust did not involve a purchase of such shares at market price, the market price of the shares on the day of such event); and |
· | the market price on the date we, or our designee, accept the offer. |
We may reduce the amount so payable by the amount of any dividends or other distributions that we paid to the proposed transferee before we discovered that the shares had been transferred to the trust and that is owed by the proposed transferee to the trustee as described above, and, in such case, we must pay such amount to the trustee for distribution to the beneficiary of the trust. We have the right to accept the offer until the trustee has otherwise sold the shares of our stock held in the trust. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee must distribute the net proceeds of the sale to the proposed transferee and distribute any dividends or other distributions held by the trustee with respect to the shares to the charitable beneficiary.
Every owner of 5% or more (or such lower percentage as required by the Code or the regulations promulgated thereunder) of the outstanding shares of our stock, within 30 days after the end of each taxable year, must give us written notice stating the person’s name and address, the number of shares of our stock of each class and series that the person beneficially owns and a description of the manner in which the shares are held. Each such owner also must promptly provide to us, in writing, any additional information that we request in order to determine the effect, if any, of the person’s beneficial ownership on our status as a REIT and to ensure compliance with the ownership limit. In addition, any person or entity that is a beneficial owner or constructive owner of shares of our stock and any person or entity (including the stockholder of record) who is holding shares of our stock for a beneficial owner or constructive owner must, on request, disclose to us in writing such information as we may request in order to determine our status as a REIT or our qualification for any exception from the DOL Plan Asset Regulations or to comply, or determine our compliance, with the requirements of any governmental or taxing authority.
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Any certificates representing shares of our stock will bear a legend referring to the restrictions described above.
Certain of these restrictions on ownership and transfer of our stock will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT or that compliance with any or all such restrictions is no longer required in order for us to qualify as a REIT.
These restrictions on ownership and transfer of our stock could delay, defer or prevent a transaction or a change of control of us that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15 th Avenue, Brooklyn, New York 11219.
Market Listing
We will apply for listing our common stock on the NYSE under the symbol “CLPR”.
Registration Rights
The purchasers of common stock in the private offering and their transferees, including the persons who received common stock in the formation transactions, are entitled to the benefits of a registration rights agreement between us and FBR Capital Markets & Co., the initial purchaser and placement agent in the private offering, acting for itself and for the benefit of the investors in that offering, which has been filed as an exhibit to the registration statement of which this prospectus forms a part.
Under the registration rights agreement, as amended, we were obligated, among other things and at our expense, to use our commercially reasonable efforts to confidentially submit or file with the SEC as soon as reasonably practicable following the completion of the private offering (but in no event later than November 1, 2015) a shelf registration statement registering for resale the registrable shares (as defined in the registration rights agreement) plus any additional common stock issued in respect thereof whether by stock dividend, stock distribution, stock split, or otherwise. We refer to this registration statement as the “resale shelf registration statement.” We are obligated to use our commercially reasonable efforts to cause the resale shelf registration statement to be declared effective by the SEC as soon as practicable after filing, but in no event later than the earlier of (i) January 31, 2017 and (ii) 60 days after the closing of this offering (such earlier date, the “first trigger date”), so long as the closing date of this offering is not later than January 31, 2017; provided, however, that if this offering occurs within the 60 days prior to January 31, 2017, such date shall be 60 days after the closing of this offering of our common stock.
We are also required to use our commercially reasonable efforts to cause the registrable shares to be listed on a national securities exchange concurrently with the effectiveness of the resale shelf registration statement.
If (A) a resale shelf registration statement registering for resale the registrable shares has not been declared effective by the SEC by the first trigger date, or (B) the registrable shares have not been listed for trading on a national securities exchange by such first trigger date, then we will be required to call a special meeting of our stockholders, which we refer to as a “special election meeting,” for the purpose of considering and voting on proposals to expand the size of our board of directors by two, in the event of a failure to satisfy the requirements of clause (A) of this paragraph, or by three, in the event of a failure to satisfy the requirements of clause (B) of this paragraph, and to elect new directors to fill such vacancies.
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If (A) a resale shelf registration statement registering for resale the registrable shares has not been declared effective by the SEC by the first anniversary of the first trigger date (the “second trigger date”), or (B) the registrable shares have not been listed for trading on a national securities exchange by such second trigger date, then we will be required to call a special election meeting for the purpose of considering and voting on proposals to remove all of the then-serving directors of our company and to elect new directors to fill the vacancies created by such removals and any other vacancies on our board of directors. Individuals nominated for election at a special election meeting in accordance with the procedures specified in the registration rights agreement will be required to resign upon the effectiveness of the resale shelf registration statement or the listing of the registrable shares on a national securities exchange, as applicable.
The holders of at least two-thirds of the outstanding registrable shares (other than registrable shares held by certain of our directors or executive officers or their affiliates) may waive or defer the requirement that we hold any special election meeting. Our directors and officers and their affiliates, and holders of shares of our special voting stock, are not entitled to vote at any special election meeting.
A share of common stock will cease to be a “registrable share” upon the earliest to occur of: (i) the date on which the resale of such share has been registered pursuant to the Securities Act and it has been disposed of in accordance with the registration statement relating to it, (ii) the date on which such share either (a) has been transferred pursuant to Rule 144 or (b) is freely saleable, without being subject to any volume limitation or other condition pursuant to Rule 144, including any current public information requirements, (iii) the date on which such share is sold to us, or (iv) the date on which such share ceases to be outstanding.
We will use our commercially reasonable efforts to cause the resale shelf registration statement to become effective under the Securities Act as soon as practicable after the filing and, subject to certain blackout periods, to continuously maintain the effectiveness of the resale shelf registration statement under the Securities Act until the earliest of:
· | the date on which the registrable shares covered by the resale shelf registration statement have been sold in accordance with the resale shelf registration statement; |
· | there are no registrable shares outstanding; or |
· | the first anniversary of the effective date of the resale shelf registration statement (subject to the condition that the registrable shares have been transferred to an unrestricted CUSIP, are listed on a national securities exchange or an alternative trading system with the registrable shares qualified under the applicable state securities or “blue sky” laws of all 50 states). |
All holders of the registrable shares may elect to offer their shares for resale in this offering, subject to:
· | execution of a customary underwriting agreement; completion and execution of any questionnaires, powers of attorney, indemnities, custody agreements, securities escrow agreements and other documents, including opinions of counsel, reasonably required under the terms of such underwriting agreement; and provision to us of such information as we may reasonably request in writing for inclusion in the registration statement; |
· | compliance with the registration rights agreement; |
· | cutback rights on the part of the underwriters, provided that the holders of registrable shares will be permitted to include registrable shares comprising at least 25% of the total number of shares included in this offering; and |
· | other conditions and limitations that may be imposed by the underwriters. |
Election by a holder to include registrable shares in this offering will not affect the inclusion of such registrable shares in the resale shelf registration statement until such registrable shares have been sold in the offering.
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We will bear certain expenses incident to our registration obligations upon exercise of these registration rights, including the payment of federal securities law and state “blue sky” registration fees, except that we will not bear any brokers’ or underwriters’ discounts and commissions or transfer taxes relating to sales of our common stock. We have agreed to indemnify each selling stockholder for certain violations of federal or state securities laws in connection with any registration statement in which such selling stockholder sells its common stock pursuant to these registration rights. Each selling stockholder has in turn agreed to indemnify us for federal or state securities law violations that occur in reliance upon written information it provides to us for use in the registration statement.
The preceding summary of certain provisions of the registration rights agreement is not intended to be complete, and is subject to, and qualified in its entirety by reference to, all of the provisions of the registration rights agreement, as amended. You should read this summary together with the complete text of the registration rights agreement, a copy of which has been filed as an exhibit to the registration statement.
We also entered into a continuing investors registration rights agreement with certain persons receiving shares of our common stock and class B LLC units in the formation transactions, including certain members of our senior management team and the other continuing investors. The continuing investors registration rights agreement provides for the registration of such shares of common stock and shares of common stock that are issuable upon the exchange of class B LLC units.
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CERTAIN PROVISIONS OF MARYLAND LAW AND CLIPPER REALTY’S
CHARTER AND BYLAWS
The following description of certain provisions of Maryland law and of our charter and bylaws is only a summary. For a complete description, we refer you to the Maryland General Corporation Law, and our charter and bylaws.
Election and Removal of Directors
Our charter and bylaws provide that, except as provided in connection with a special election meeting as described below, the number of our directors may be established only by our board of directors but may not be fewer than one nor, unless our bylaws are amended, more than fifteen.
There is no cumulative voting in the election of directors, and directors will be elected by a plurality of the votes cast in the election of directors. Consequently, stockholders entitled to cast a majority of the votes entitled to be cast in the election of directors will be able to elect all of the directors to be elected at any annual or special meeting of our stockholders.
Pursuant to a provision of our charter, we have elected to be subject to a provision of Maryland law that provides that, at such time as we have a class of securities registered under the Exchange Act and at least three independent directors (which we expect will be upon completion of this offering), and subject to the rights, if any, of holders of any class or series of our stock other than our common stock and except at a special election meeting, vacancies on our board of directors may be filled only by the remaining directors and that any directors elected by the board of directors to fill a vacancy will serve for the remainder of the full term of the class of directors in which the vacancy occurred.
Our charter provides that a director may be removed with or without cause and only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors, except that, for so long as the registration rights agreement is in effect, after any special election meeting and until our common stock is listed on a national securities exchange as required by the registration rights agreement, holders of our special voting stock and our directors and executive officers, and their affiliates, are not entitled to vote on the removal or reelection of directors initially elected at a special election meeting or on the expansion of the size of the board of directors.
Business Combinations
Under Maryland law, certain “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
· | any person who beneficially owns ten percent or more of the voting power of the corporation’s outstanding voting stock; or |
· | an affiliate or associate of the corporation who, at any time within the two-year period before the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting stock of the corporation. |
A person is not an interested stockholder if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
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After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
· | 80% of the votes entitled to be cast by stockholders entitled to vote generally in the election of directors; and |
· | two-thirds of the votes entitled to be cast by stockholders entitled to vote generally in the election of directors, other than the interested stockholder with whom or with whose affiliate the business combination is to be effected or an affiliate or associate of the interested stockholder. |
These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. As permitted by statute, our board of directors has adopted a resolution exempting any business combination between us and any other person that has been approved by our board of directors, including a majority of our directors who are not affiliates or associates of such person. There can be no assurance that our board of directors will not amend or revoke this resolution at any time in the future.
Control Share Acquisitions
Maryland law provides that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting rights with respect to the control shares except to the extent approved by at least two-thirds of the votes entitled to be cast by stockholders entitled to vote generally in the election of directors, excluding votes entitled to be cast by the acquiror, officers and employees who are directors of the corporation. Control shares are voting shares of stock that, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would cause the acquiror to be entitled to exercise voting power in electing directors within one of the following ranges of voting power:
· | one-tenth or more but less than one-third, |
· | one-third or more but less than a majority, or |
· | a majority or more. |
Control shares do not include shares that the acquiror is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A control share acquisition means the acquisition of issued and outstanding control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may, upon satisfaction of certain conditions (including an undertaking to pay expenses), compel the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights of control shares are not approved at the meeting or if the acquiror does not deliver an acquiring person statement as required by the statute, then the corporation may, subject to certain limitations and conditions, redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of any meeting of stockholders at which the voting rights of such shares are considered and not approved or, if no such meeting is held, as of the date of the last control share acquisition by the acquiror. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights, unless the corporation’s charter or bylaws provide otherwise. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.
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The control share acquisition statute does not apply to (a) shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. There can be no assurance that this provision will not be amended or eliminated at any time in the future.
Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions of the MGCL which provide, respectively, that:
· | the corporation’s board of directors will be divided into three classes; |
· | the affirmative vote of two-thirds of the votes entitled to be cast in the election of directors generally is required to remove a director; |
· | the number of directors may be fixed only by vote of the directors; |
· | a vacancy on the board be filled only by the remaining directors and that directors elected to fill a vacancy will serve for the remainder of the full term of the class of directors in which the vacancy occurred; and |
· | the request of stockholders entitled to cast a majority of the votes entitled to be cast at a special meeting is required for stockholders to require the calling of a special meeting of stockholders. |
Through provisions in our charter and bylaws unrelated to Subtitle 8, we already (a) require the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors to remove a director from our board of directors, (b) vest in our board of directors the exclusive power to fix the number of directors, by vote of a majority of the entire board, and (c) require, unless called by either of our Co-Chairmen of our board of directors, our President, our Chief Executive Officer or our board of directors, the request of stockholders entitled to cast a majority of votes entitled to be cast at the meeting to call a special meeting. Our charter provides that, at such time as we become eligible to make the election provided for under Subtitle 8 (which we expect will be upon completion of this offering) and subject to the rights, if any, of holders of any class or series of our stock other than our common stock and except at a special election meeting, vacancies on our board of directors may be filled only by the affirmative vote of a majority of the remaining directors then in office, and directors elected to fill a vacancy will serve for the full term of the class of directors in which the vacancy occurred. Our board of directors is not currently classified. In the future, our board of directors may elect, without stockholder approval, to classify our board of directors or elect to be subject to any of the other provisions of Subtitle 8.
Special Meetings of Stockholders
Either of our Co-Chairmen, our President, our Chief Executive Officer or our board of directors may call special meetings of our stockholders. A special meeting of our stockholders to act on any matter that may properly be considered at a meeting of our stockholders must also be called by our secretary upon the written request of stockholders entitled to cast a majority of all the votes entitled to be cast on such matter at the meeting and containing the information required by our bylaws. Our secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including our proxy materials), and the requesting stockholder must pay such estimated cost before our secretary may prepare and mail the notice of the special meeting.
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In addition, pursuant to the registration rights agreement and our bylaws, if (A) a resale shelf registration statement registering for resale the registrable shares has not been declared effective by the SEC by the first trigger date, or (B) the registrable shares have not been listed for trading on a national securities exchange by such first trigger date, then we will be required to call a special election meeting for the purposes of considering and voting on proposals to expand the size of our board of directors by two, in the event of a failure to satisfy the requirements of clause (A) of this paragraph, or by three, in the event of a failure to satisfy the requirements of clause (B) of this paragraph, and to elect new directors to fill such vacancies, unless the holders of at least two-thirds of the registrable shares, other than registrable shares held by our officers, directors and their affiliates, waive the requirement to call such a special meeting of stockholders.
If (A) a resale shelf registration statement registering for resale the registrable shares has not been declared effective by the SEC by the second trigger date, or (B) the registrable shares have not been listed for trading on a national securities exchange by such second trigger date, then, unless the holders of at least two-thirds of the registrable shares, other than registrable shares held by our officers, directors and their affiliates, waive the requirement to call such a special meeting of stockholders, we will be required to call a special election meeting, for the purpose of considering and voting on proposals to remove of all of the then-serving directors of our company and to elect new directors to fill the vacancies created by such removals and any other vacancies on our board of directors. Individuals nominated for election at a special election meeting in accordance with the procedures specified in the registration rights agreement will be required to resign upon the effectiveness of the resale shelf registration statement or the listing of the registrable shares on a national securities exchange, as applicable.
For so long as the registration rights agreement is in effect, holders of our special voting stock and our directors and executive officers, and their affiliates, are not entitled to vote at any special election meeting or, after any special election meeting and until our common stock is listed on a national securities exchange as required by the registration rights agreement, on the removal or reelection of directors initially elected at a special election meeting or on the expansion of the size of the board of directors. For so long as the registration rights agreement is in effect, certain provisions of our charter and bylaws that relate to special election meetings or the vote required to amend such provisions may not be amended without the approval of our board of directors and the affirmative vote of two-thirds of votes entitled to be cast on such amendments and our directors and executive officers and their affiliates and holders of our special voting stock are not entitled to vote on such amendments.
Advance Notice of Director Nomination and New Business
Our bylaws provide that nominations of individuals for election to our board of directors and proposals of business to be considered by stockholders at any annual meeting of our stockholders may be made only (i) pursuant to our notice of the meeting, (ii) by our board of directors or (iii) by any stockholder who was a stockholder of record, as of the record date for the meeting, at the time the stockholder provides the notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting in the election of the individuals so nominated or on such other proposed business and who has complied with the advance notice requirements of, and provided the information and other materials required by, our bylaws. Stockholders generally must provide notice to our secretary not earlier than the 150 th day nor later than the 120 th day before the first anniversary of the date of our proxy statement for the solicitation of proxies for the election of directors at the preceding year’s annual meeting.
Only the business specified in our notice of the meeting may be brought before a special meeting of our stockholders. Nominations of individuals for election to our board of directors at a special meeting of stockholders may be made only (i) pursuant to our notice of the meeting, (ii) by or at the direction of our board of directors or (iii) if the special meeting has been called in accordance with our bylaws for the purpose of electing directors, by any stockholder who is a stockholder of record, as of the record date for the meeting, at the time the stockholder provides the notice required by our bylaws and at the time of the special meeting, who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice requirements of, and provided the information and other materials required by, our bylaws. Stockholders generally must provide notice to our secretary not before the 120th day before such special meeting and after the later of the 90th day before the special meeting or the tenth day after public announcement of the date of the special meeting and the nominees of our board of directors to be elected at the meeting.
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With respect to a special election meeting, our bylaws provide that nominations of individuals for election as directors at a special election meeting also may be made by holders of at least 20% of the outstanding registrable shares within the time period and containing the information specified in our bylaws and the registration rights agreement.
Competing Interests and Activities of Our Directors and Officers
Our charter provides that we renounce any interest or expectancy in, or right to be offered or to participate in, any business opportunity identified in any investment policy adopted by our board of directors or agreement with any of our directors or officers unless the policy or agreement contemplates that the director or officer must present, communicate or offer such business opportunity to us, or an identified opportunity. Accordingly, except for an identified opportunity (a) no director or officer of our company is required to present, communicate or offer any business opportunity to us and (b) any director or officer of our company, on his or her own behalf or on behalf of any other person, may hold and exploit any business opportunity, or direct, recommend, offer, sell, assign or otherwise transfer such business opportunity to himself or herself or to any person or entity other than us. Our charter also provides that the taking by any of our directors or officers for himself or herself, or the offering or other transfer to another person or entity, of any identified opportunity, will not constitute or be construed or interpreted as an act or omission of the director committed in bad faith or as the result of active or deliberate dishonesty or receipt by the director of an improper benefit or profit in money, property, services or otherwise.
We have adopted an Investment Policy that provides that our directors and officers, including David Bistricer, Sam Levinson, JJ Bistricer and Jacob Schwimmer, are not required to present certain identified investment opportunities to us, including assets located outside the New York metropolitan area, for-sale condominium or cooperative conversions, development projects, projects that would require us to obtain guarantees from third parties or to backstop obligations of other parties, and land acquisitions. As a result, except to the extent that our officers and directors must present certain identified business opportunities to us, our officers and directors will have no duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we or our subsidiaries engage or propose to engage or to refrain from otherwise competing with us.
Effect of Certain Provisions of Maryland law and our Charter and Bylaws
The restrictions on ownership and transfer of our stock discussed under the caption “Description of Capital Stock—Restrictions on Ownership and Transfer” prevent any person from acquiring more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our common stock or 9.8% of the aggregate value of all our outstanding stock without the approval of our board of directors. These provisions, as well as the voting power represented by our special voting stock, the business combination statute and control share statute discussed above under the captions “– Business Combinations” and “– Control Share Acquisitions” and the supermajority vote required to remove our directors or to amend certain provisions of our charter may delay, defer or prevent a change in control of us. Our board of directors, without common stockholder approval, has the power to increase the aggregate number of authorized shares and to classify and reclassify any unissued shares of our stock into other classes or series of stock, and to authorize us to issue the newly-classified shares, as discussed under the captions “Description of Capital Stock—General” and “Description of Capital Stock—Power to Reclassify and Increase the Number of Authorized Shares of Stock,” and could authorize the issuance of shares of a class or series of stock that could have the effect of delaying, deferring or preventing a change in control of us. We believe that the power to increase the aggregate number of authorized shares and to classify or reclassify unissued shares of stock, without common stockholder approval, provides us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs that might arise.
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The provisions of our charter requiring that our directors may be removed only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors prevent our stockholders from removing incumbent directors except upon a substantial affirmative vote. Our charter and bylaws also provide that, other than in connection with a special election meeting, the number of directors may be established only by our board of directors, which prevents our stockholders from increasing the number of directors on our board of directors and filling any vacancies created by such removal with their own nominees. The provisions of our bylaws discussed above under the captions “– Special Meetings of Stockholders” and “– Advance Notice of Director Nomination and New Business” require stockholders seeking to call a special meeting, nominate an individual for election as a director or propose other business at an annual meeting to comply with certain notice and information requirements. We believe that these provisions will help to assure the continuity and stability of our business strategies and policies as determined by our board of directors and promote good corporate governance by providing us with clear procedures for calling special meetings, information about a stockholder proponent’s interest in us and adequate time to consider stockholder nominees and other business proposals. However, these provisions, alone or in combination, could make it more difficult for our stockholders to remove incumbent directors or fill vacancies on our board of directors with their own nominees and could delay, defer or prevent a change in control, including a proxy contest or tender offer that might involve a premium price for our common stockholders or otherwise be in the best interest of our stockholders.
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DESCRIPTION OF THE LIMITED PARTNERSHIP AGREEMENT
OF OUR OPERATING PARTNERSHIP
The following is a summary of the material provisions of the limited partnership agreement of Clipper Realty L.P., our operating partnership. The following description does not purport to be complete and is subject to and qualified in its entirety by reference to applicable provisions of the Delaware Revised Uniform Limited Partnership Act, as amended, and the partnership agreement. For the purposes of this section, references to the “general partner” refer to Clipper Realty Inc.
General
Clipper Realty L.P. (the “operating partnership”) is a Delaware limited partnership. Clipper Realty Inc. is the sole general partner of the operating partnership. Pursuant to the partnership agreement of the operating partnership (the “partnership agreement”), the general partner has full, exclusive and complete responsibility and discretion in the management and control of the operating partnership, including the ability to cause the operating partnership to enter into certain major transactions such as acquisitions, dispositions and borrowings. No limited partner may take part in the operation, management or control of the business of the operating partnership by virtue of being a holder of OP units, LTIP units or other limited partnership units. The limited partners have no power to remove the general partner without the general partner’s consent.
The general partner is under no obligation to give priority to the separate interests of the limited partners or our stockholders in deciding whether to cause the operating partnership to take or decline to take any actions. If there is a conflict between the interests of our stockholders on one hand and the limited partners on the other, the general partner will endeavor in good faith to resolve the conflict in a manner not adverse to either our stockholders or the limited partners. However, the general partner may give priority to the separate interests of the Company and its stockholders, including with respect to tax consequences to limited partners. The general partner is not liable under the partnership agreement to the operating partnership or to any partner for monetary damages for losses sustained, liabilities incurred, or benefits not derived by limited partners in connection with such decisions, provided that the general partner has acted in good faith. We and our affiliates may also engage in any transactions with the operating partnership on such terms as we may determine in our sole and absolute discretion.
Substantially all of our business activities, including all activities pertaining to the acquisition and operation of properties, must be conducted through the operating partnership and its subsidiaries, and the operating partnership must be operated in a manner that will enable us to satisfy the requirements for qualification as a REIT.
Operating Partnership Interests
The operating partnership’s interests are currently classified as the general partner interest and LTIP units. The general partner is authorized to cause the operating partnership to issue OP units or other partnership interests and to admit additional limited partners to the operating partnership from time to time, on such terms and conditions and for such capital contributions as the general partner may establish in its sole and absolute discretion, without the approval or consent of any limited partner, including: (i) upon the conversion, redemption or exchange of any debt, units or other partnership interests or other securities issued by the operating partnership; (ii) for less than fair market value; or (iii) in connection with any merger of any other entity into the operating partnership.
Pursuant to the partnership agreement, upon the issuance of our stock other than in connection with a redemption of OP units (as described below), we will generally be obligated to contribute or cause to be contributed the cash proceeds or other consideration received from the issuance to the operating partnership, thereby increasing the general partner interest.
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Redemption Rights; Exchange for Common Stock
Each limited partner of our operating partnership has the right, subject to the terms and conditions set forth in the partnership agreement to require our operating partnership to redeem all or a portion of the OP units held by such limited partner in exchange for a cash amount equal to the number of tendered OP units multiplied by the price of a share of our common stock (determined in accordance with, and subject to adjustment under, the terms of the partnership agreement), unless the terms of such OP units or a separate agreement entered into between the operating partnership and the holder of such OP units provide that they are not entitled to a right of redemption or impose conditions on the exercise of such right of redemption. On or before the close of business on the fifth business day after we receive a notice of redemption, we may, in our sole and absolute discretion, but subject to the restrictions on the ownership of our stock imposed under our charter and the transfer restrictions and other limitations thereof, elect to acquire some or all of the tendered OP units from the tendering person in exchange for shares of our common stock, based on an exchange ratio of one share of our common stock for each OP unit (subject to anti-dilution adjustments provided in the partnership agreement). Without the consent of the general partner, an exchange may not be effected for less than 1,000 OP units of the applicable LLC subsidiary (or, if the holder holds less than 1,000 OP units, all of the units held by such holder). In addition, the consummation of any exchange shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Transferability of Interests
We, as general partner of the operating partnership, are not able to withdraw voluntarily from the operating partnership or transfer our interest in the operating partnership, unless the transfer is made in connection with (i) any merger, consolidation or other combination in which, following the consummation of such transaction, the equity holders of the surviving entity are substantially identical to our stockholders, (ii) a transfer to a qualified REIT subsidiary or (iii) as otherwise expressly permitted under the partnership agreement. The partnership agreement permits us to engage in a merger, consolidation or other combination, or sale of substantially all of our assets if:
· | we receive the consent of a majority in interest of the limited partners; |
· | following the consummation of such transaction, substantially all of the assets of the surviving entity consist of partnership units; or |
· | as a result of such transaction all limited partners will receive, or will have the right to receive, for each partnership unit an amount of cash, securities or other property equal in value to the greatest amount of cash, securities or other property paid in the transaction to a holder of one share of our common stock, provided that if, in connection with the transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than 50% of the outstanding shares of our common stock, each holder of partnership units shall be given the option to exchange its partnership units for the greatest amount of cash, securities or other property that a limited partner would have received had it exercised its redemption right (described above) and received shares of our common stock immediately prior to the expiration of the offer. |
With certain limited exceptions, the limited partners may not transfer their interests in our operating partnership, in whole or in part, without the general partner’s prior written consent, which consent may be withheld in the general partner’s sole and absolute discretion.
Distributions
The partnership agreement generally provides that the general partner may cause the operating partnership to make quarterly (or more frequent) distributions of all, or such portion as the general partner may in its sole and absolute discretion determine, of available cash (which is defined to be cash available for distribution as determined by the general partner) pro rata according to the partners’ respective percentage interests. The operating partnership also has the ability to grant preferred operating partnership interests, which would be entitled to distributions in accordance with any such preference (and, within each such class, pro rata according to their respective percentage interests).
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Allocations of Net Income and Net Loss
Except as otherwise provided in the partnership agreement, net income and net loss of our operating partnership (including a corresponding share of each item of income, gain, loss or deduction that is taken into account in computing net income or net loss) are generally allocated at the end of each fiscal year to the partners in accordance with their respective percentage interests; provided that any limited partners holding preferred operating partnership interests would be allocated net income in a manner that reflects any preference in distributions. Notwithstanding the foregoing, net capital gain will be allocated first to the LTIP unitholders until the capital account balances of such LTIP unitholders are in proportion to the capital account balances of partners that are not LTIP unitholders. Under the Code, items of income, gain, loss and deduction with respect to appreciated or depreciated property which is contributed to a partnership, such as the operating partnership, in a tax-free transaction must be specially allocated among the partners in such a manner so as to take into account such variation between tax basis and fair market value.
Tax Matters
Pursuant to the partnership agreement, the general partner is the tax matters partner of the operating partnership and has certain other rights relating to tax matters. Accordingly, as both the general partner and tax matters partner, we have authority to handle tax audits and to make tax elections under the Code, in each case, on behalf of the operating partnership. The partnership agreement provides that the operating partnership is to be operated in a manner that will enable us to satisfy the requirements for qualification as a REIT for U.S. federal income tax purposes, and ensure that the operating partnership will not be classified as a “publicly traded partnership” taxable as a corporation for purposes of the Code.
Term
The operating partnership will continue perpetually, unless earlier terminated in the following circumstances:
· | a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the general partner is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the general partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless, prior to the entry of such order or judgment, a majority in interest of the remaining outside limited partners agree in writing, in their sole and absolute discretion, to continue the business of the operating partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a successor general partner; |
· | an election to dissolve the operating partnership made by the general partner in its sole and absolute discretion; |
· | entry of a decree of judicial dissolution of the operating partnership pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act; |
· | the occurrence of any sale or other disposition of all or substantially all of the assets of the operating partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the operating partnership; or |
· | the incapacity or withdrawal of the general partner, unless all of the remaining partners in their sole and absolute discretion agree in writing to continue the business of the operating partnership and to the appointment, effective as of a date prior to the date of such incapacity, of a substitute general partner. |
Amendments to the Partnership Agreement
Amendments to the partnership agreement may only be proposed by the general partner. Generally, the partnership agreement may be amended with the general partner’s approval and the approval of the limited partners holding a majority in interests of all limited partners. Certain amendments that would, among other things, have the following effects, must be approved by each partner adversely affected thereby:
· | convert a limited partner’s interest into a general partner’s interest (except as a result of the general partner acquiring such interest); |
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· | modify the limited liability of a limited partner; |
· | alter the rights of any partner to receive the distributions to which such partner is entitled (subject to certain exceptions); |
· | alter or modify the redemption rights provided by the partnership agreement; or |
· | alter or modify the provisions governing transfer of the general partner’s partnership interest. |
Notwithstanding the foregoing, the general partner has the power, without the consent of the limited partners, to amend the partnership agreement as may be required to:
· | add to our obligations or surrender any right or power granted to us or any of our affiliates for the benefit of the limited partners; |
· | reflect the admission, substitution, or withdrawal of partners or the termination of the operating partnership in accordance with the partnership agreement and to amend the list of OP unit and LTIP unit holders in connection with such admission, substitution or withdrawal; |
· | reflect a change that is of an inconsequential nature or does not adversely affect the limited partners as such in any material respect, or to cure any ambiguity, correct or supplement any provision in the partnership agreement not inconsistent with the law or with other provisions, or make other changes with respect to matters arising under the partnership agreement that will not be inconsistent with the law or with the provisions of the partnership agreement; |
· | satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a U.S. federal or state agency or contained in U.S. federal or state law; |
· | set forth or amend the designations, preferences, conversion or other rights, voting powers, duties restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of the holders of any additional partnership interests issued or established pursuant to the partnership agreement; |
· | reflect such changes as are reasonably necessary for us to maintain or restore our qualification as a REIT, to satisfy the REIT requirements or to reflect the transfer of all or any part of a partnership interest among our company and any qualified REIT subsidiary or entity that is disregarded as an entity separate from the general partner for U.S. federal income tax purposes; |
· | modify either or both the manner in which items of net income or net loss are allocated or the manner in which capital accounts are computed (but only to the extent set forth in the partnership agreement, or to the extent required by the Code or applicable income tax regulations under the Code); |
· | issue additional partnership interests; and |
· | reflect any other modification to the partnership agreement as is reasonably necessary for the business or operations of the operating partnership or the general partner and which does not otherwise require the consent of each partner adversely affected. |
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Liability and Indemnification
Neither the general partner nor its directors and officers are liable to the operating partnership, the limited partners or their assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission, so long as such person acted in good faith. The partnership agreement provides for indemnification of the general partner, its affiliates and each of their respective officers, directors, employees and any persons the general partner may designate from time to time in its sole and absolute discretion, to the fullest extent permitted by applicable law against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the operating partnership, provided that the operating partnership will not indemnify such person, for (i) willful misconduct or a knowing violation of the law, (ii) any transaction for which such person received an improper personal benefit in violation or breach of any provision of the partnership agreement, or (iii) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful, as set forth in the partnership agreement.
The limited partners of the operating partnership have agreed that in the event of a conflict in the duties owed by our directors and officers to us and our stockholders and the fiduciary duties owed by us, in our capacity as general partner of the operating partnership, to such limited partners, we will fulfill our fiduciary duties to such limited partners by acting in the best interests of our stockholders.
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DESCRIPTION OF THE LIMITED LIABILITY COMPANY AGREEMENTS
OF OUR LLC SUBSIDIARIES
The following is a summary of the material provisions of the amended and restated limited liability company agreements of our LLC subsidiaries, Renaissance, Berkshire, Gunki, and 50/53 JV. The following description does not purport to be complete and is subject to and qualified in its entirety by reference to applicable provisions of the New York Limited Liability Company Act, as amended, the Delaware Limited Liability Company Act, as amended, and the limited liability company agreements. For the purposes of this section, references to the terms “operating partnership” or “managing member” refer to Clipper Realty L.P.
General
Renaissance Equity Holdings LLC is a New York limited liability company that was formed on September 22, 2005. Berkshire Equity LLC is a Delaware limited liability company that was formed on March 27, 2002. Gunki Holdings LLC is a Delaware limited liability company that was formed on January 10, 2003. 50/53 JV LLC is a Delaware limited liability company that was formed on November 26, 2014. Each LLC subsidiary is a predecessor entity of the Company.
Following the formation transactions and the amendment and restatement of the limited liability company agreement of each LLC subsidiary (the “LLC agreements”), the operating partnership is the sole managing member of each LLC subsidiary. The continuing investors are the initial non-managing members of the LLC subsidiaries. The operating partnership has, subject to certain protective rights of non-managing members described below, full, exclusive and complete responsibility and discretion in the management and control of the LLC subsidiaries, including the ability to cause an LLC subsidiary to enter into certain major transactions such as acquisitions, dispositions and borrowings. The non-managing members have no power to remove the operating partnership as managing member without the operating partnership’s consent.
The managing member is under no obligation to give priority to the separate interests of the non-managing members in deciding whether to cause an LLC subsidiary to take or decline to take any actions. If there is a conflict between the interests of our stockholders or the operating partnership or its partners on one hand and the non-managing members on the other, the managing member will endeavor in good faith to resolve the conflict in a manner not adverse to our stockholders, the operating partnership, its partners or the non-managing members. However, the managing member may give priority to the separate interests of the Company and its stockholders, including with respect to tax consequences to the members of the LLC subsidiaries. The managing member is not liable under the LLC agreements to the LLC subsidiaries or to any non-managing member for monetary damages for losses sustained, liabilities incurred, or benefits not derived by non-managing members in connection with such decisions, provided that it acted in good faith. We, the operating partnership and our affiliates may also engage in any transactions with an LLC subsidiary on such term as we may determine in our sole and absolute discretion.
LLC Units
The operating partnership owns class A units of each of the LLC subsidiaries and the continuing investors own class B units of each of the LLC subsidiaries. The following table sets forth information about the number of class B LLC units that are held by the continuing investors in each LLC subsidiary:
LLC Subsidiary |
Number of Class B LLC Units held
by Continuing Investors |
|||
Renaissance Equity Holdings LLC | 5,216,987 | |||
Berkshire Equity LLC | 12,694,841 | |||
Gunki Holdings LLC | 1,768,174 | |||
50/53 JV LLC | 6,637,394 |
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The managing member is authorized to acquire interests in, and manage and control additional limited liability companies, limited partnerships or any other entities that will become LLC subsidiaries and to issue additional LLC units or equivalent interests from time to time, on such terms and conditions and for such contributions (in cash or in kind) as the managing member may establish in its sole and absolute discretion, without the approval or consent of any non-managing member, including: (i) upon the conversion, redemption or exchange of any debt, units, interests or other securities issued by an LLC subsidiary; (ii) for less than fair market value; or (iii) in connection with any merger of any other entity into an LLC subsidiary.
The LLC agreements generally provide that the managing member may cause the LLC subsidiaries to make quarterly (or more frequent) distributions of all, or such portion as the managing member may in its sole and absolute discretion determine, of available cash (which is defined to be cash available for distribution as determined by the managing member). The holders of the class B LLC units are entitled to a preferred distribution equal to the lesser of (i) the per OP unit distribution paid by the operating partnership or (ii) a pro rata share (determined for this purpose without regard to any class A LLC units held by the operating partnership) of all of the cash flow of the applicable LLC subsidiary. The class A LLC units held by our operating partnership are entitled to any remaining cash flow of such LLC subsidiary, subject to the discretion of the managing member of the LLC subsidiary to hold surplus amounts in reserve for application in future periods, including distributions to holders of class B LLC units in the subsequent periods in accordance with the previous sentence.
Exchange Rights
Each non-managing member of the LLC subsidiaries has the right, subject to the terms and conditions set forth in the LLC agreements, to require the operating partnership to exchange all or a portion of the class B LLC units held by such non-managing member, together with the same number of shares of our special voting stock, for a cash amount equal to the number of tendered class B LLC units multiplied by the price of a share of our common stock (determined in accordance with, and subject to adjustment under, the terms of the LLC agreements), unless the terms of such class B LLC units or a separate agreement entered into between an LLC subsidiary and the holder of such class B LLC units provides that the holder is not entitled to a right of exchange or imposes conditions on the exercise of such right of exchange. On or before the close of business on the fifth business day after we and the operating partnership receive a notice of exchange, we may, in our sole and absolute discretion, but subject to the restrictions on the ownership of our stock imposed under our charter and the transfer restrictions and other limitations thereof, elect to acquire some or all of the tendered class B LLC units from the tendering non-managing member in exchange for shares of our common stock, based on an exchange ratio of one share of our common stock for each class B LLC unit (subject to anti-dilution adjustments provided in the LLC agreements). Without the consent of the managing member, an exchange may not be effected (i) for less than 1,000 class B LLC units of the applicable LLC subsidiary (or, if the non-managing member holds less than 1,000 class B LLC units, all of the units held by such member) or (ii) during the period after the record date with respect to a distribution by the Company for a distribution to its stockholders of some or all of its portion of such distribution. In addition, the consummation of any exchange shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Transferability of Interests
The operating partnership, as managing member, is not able to withdraw voluntarily from the LLC subsidiaries or transfer its interest in the LLC subsidiaries unless the transfer is made in connection with (i) any merger, consolidation or other combination in which, following the consummation of such transaction, the equity holders of the surviving entity are either the operating partnership or substantially identical to our stockholders, (ii) a transfer to a qualified REIT subsidiary or (iii) as otherwise expressly permitted under the LLC agreements. The LLC agreements permit an LLC subsidiary to engage in a merger, consolidation or other combination, or sale of substantially all of its assets if:
· | the LLC subsidiary receives the consent of the managing member and a majority in interest of the non-managing members (excluding the managing member); |
· | following the consummation of such transaction, substantially all of the assets of the surviving entity consist of LLC units; or |
· | as a result of such transaction all non-managing members will receive, or will have the right to receive, for each LLC unit an amount of cash, securities or other property equal in value to the greatest amount of cash, securities or other property paid in the transaction to a holder of one share of our common stock, provided that if, in connection with the transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than 50% of the outstanding shares of our common stock, each holder of LLC units shall be given the option to exchange its LLC units for the greatest amount of cash, securities or other property that a non-managing member would have received had it exercised its redemption right (described above) and received shares of our common stock immediately prior to the expiration of the offer. |
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Allocations of Net Income and Net Loss
Except as otherwise provided in the LLC agreements, net income and net loss of each LLC subsidiary (including a corresponding share of each item of income, gain, loss or deduction that is taken into account in computing net income or net loss) is generally allocated at the end of each fiscal year to its members in a manner consistent with the distributions that each member is entitled to receive; provided that any holders of the class B LLC units that are entitled to the preferred distribution will be allocated net loss only to the extent such holders have a positive capital account. Under the Code, items of income, gain, loss and deduction with respect to appreciated or depreciated property which is contributed to a partnership, such as the LLCs, in a tax-free transaction must be specially allocated among the partners (the members) in such a manner so as to take into account such variation between tax basis and fair market value.
Tax Matters
Pursuant to the LLC agreements, the managing member is the tax matters member of the LLC subsidiaries and has certain other rights relating to tax matters. Accordingly, as both the managing member and tax matters partner, the operating partnership has authority to handle tax audits and to make tax elections under the Code, in each case, on behalf of the LLC subsidiaries. The LLC agreements provide that the LLC subsidiaries are to be operated in a manner that enables us to satisfy the requirements for qualification as a REIT for federal income tax purposes, and ensure that none of the LLC subsidiaries is classified as a “publicly traded partnership” taxable as a corporation for purposes of the Code.
Term
Each LLC subsidiary will continue perpetually, unless earlier terminated in the following circumstances:
· | a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the managing member is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the managing member, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless, prior to the entry of such order or judgment, a majority in interest of the remaining non-managing members of the applicable LLC subsidiary, agrees in writing, in their sole and absolute discretion, to continue the business of the applicable LLC subsidiary and to the appointment, effective as of a date prior to the date of such order or judgment, of a successor managing member; |
· | an election to dissolve an LLC subsidiary made by the managing member in its sole and absolute discretion; |
· | entry of a decree of judicial dissolution of an LLC subsidiary pursuant to the provisions of the Delaware Limited Liability Company Act or the New York Limited Liability Company Law, as applicable; |
· | the occurrence of any sale or other disposition of all or substantially all of the assets of an LLC subsidiary or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the LLC subsidiary; |
· | the exchange (or acquisition by the operating partnership) of all LLC units that the applicable LLC subsidiary has authorized other than those held by the operating partnership; or |
· | the incapacity or withdrawal of the managing member, unless all of the remaining non-managing members in their sole and absolute discretion agree in writing to continue the business of the applicable LLC subsidiary and to the appointment, effective as of a date prior to the date of such incapacity, of a substitute managing member. |
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Amendments to the LLC Agreements
Amendments to the LLC agreements may only be proposed by the managing member. Generally, the LLC agreements may be amended with the managing member’s approval and the approval of the non-managing members holding a majority of all outstanding LLC units of the applicable LLC subsidiary. Certain amendments that would, among other things, have the following effects, must be approved by each non-managing member adversely affected thereby:
· | modify the limited liability of a non-managing member; |
· | alter the rights of any non-managing member to receive the distributions to which such non-managing member is entitled (subject to certain exceptions); |
· | alter or modify the exchange rights provided by LLC agreements; or |
· | alter or modify the provisions governing transfer of the managing member’s interest in the subsidiary LLCs. |
Notwithstanding the foregoing, the managing member has the power, without the consent of the non-managing members, to amend the LLC agreements as may be required to:
· | add to the operating partnership’s obligations or surrender any right or power granted to the operating partnership or any of its affiliates for the benefit of the non-managing members; |
· | reflect the admission, substitution, or withdrawal of members or the termination of the managing member in accordance with the LLC agreements and to amend the list of LLC units holders in connection with such admission, substitution or withdrawal; |
· | reflect a change that is of an inconsequential nature or does not adversely affect the non-managing members as such in any material respect, or to cure any ambiguity, correct or supplement any provision in the LLC agreements not inconsistent with the law or with other provisions, or make other changes with respect to matters arising under the LLC agreements that will not be inconsistent with the law or with the provisions of the LLC agreements; |
· | satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a U.S. federal or state agency or contained in U.S. federal or state law; |
· | set forth or amend the designations, preferences, conversion or other rights, voting powers, duties restrictions, limitations as to distributions, qualifications or terms or conditions of exchange of the holders of any additional LLC units issued or established pursuant to the LLC agreements; |
· | reflect such changes as are reasonably necessary for us to maintain or restore our qualification as a REIT, to satisfy the REIT requirements or to reflect the transfer of all or any part of a LLC interest among our the operating partnership and any qualified REIT subsidiary or entity that is disregarded as an entity separate from the operating partnership for U.S. federal income tax purposes; |
· | modify either or both the manner in which items of net income or net loss are allocated or the manner in which capital accounts are computed (but only to the extent set forth in the LLC agreements, or to the extent required by the Code or applicable income tax regulations under the Code); |
· | become the managing member of additional LLC subsidiaries and issue additional LLC units; and |
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· | reflect any other modification to the LLC agreements as are reasonably necessary for the business or operations of the LLC subsidiaries or the managing member of the LLC subsidiaries and which does not otherwise require the consent of each member adversely affected. |
Management Liability and Indemnification
Neither the managing member nor its directors and officers is liable to the LLC subsidiaries, the non-managing members or assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission, so long as such person acted in good faith. The LLC agreements provide for indemnification of the managing member, its affiliates and each of their respective officers, directors, employees and any persons the managing member may designate from time to time in its sole and absolute discretion, including members, managers, officers or controlling persons of the LLC subsidiaries and their subsidiaries prior to the formation transactions, to the fullest extent permitted by applicable law against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the LLC subsidiaries, provided that the LLC subsidiaries do not indemnify such person, for (i) willful misconduct or a knowing violation of the law, (ii) any transaction for which such person received an improper personal benefit in violation or breach of any provision of the LLC agreements, or (iii) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful, as set forth in the LLC agreements.
The non-managing members of the LLC subsidiaries have agreed that in the event of a conflict in the duties owed by our directors and officers to us and our stockholders and the fiduciary duties owed by us, in our capacity as general partner of the managing member, to such non-managing members, we will fulfill our fiduciary duties to such non-managing members by acting in the best interests of our stockholders.
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SHARES ELIGIBLE FOR FUTURE SALE
General
Upon the completion of this offering, as a result of the issuance of 7,000,000 shares in this offering, we will have 18,422,606 shares of common stock outstanding (19,489,076 shares if the underwriters exercise their option to purchase additional shares in full), some of which are subject to the registration rights agreement or the continuing investors registration rights agreement. Upon completion of this offering, we will also have 501,489 LTIP units outstanding, which, subject to certain conditions, are exchangeable for OP units in our operating partnership, which, in turn, may be submitted for redemption in exchange, at our option, for cash in an amount equal to the value of shares of our common stock or shares of our common stock. See “Description of the Limited Partnership Agreement of Our Operating Partnership.” In addition, upon completion of this offering, we will have 26,317,396 class B LLC units outstanding, which are exchangeable, together with an equal number of shares of our special voting stock, for an amount of cash equal to the fair market value of an equal number of shares of our common stock or, at our election, an equal number of shares of our common stock, subject to certain adjustments and restrictions. For a description of the terms of exchange of the class B LLC units, see “Description of the Limited Liability Company Agreements of Our LLC Subsidiaries.”
Upon effectiveness of the registration statement of which this prospectus forms a part, the shares offered for resale by the selling stockholders listed herein will be freely transferable without restriction or further registration under the Securities Act, subject to the limitations on ownership set forth in our charter, unless such shares are purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining outstanding shares of our common stock that were issued in the private offering and in connection with the formation transactions will be deemed to be “restricted securities” as that term is defined in Rule 144. Subject to certain contractual restrictions, including the lock-up agreements, holders of restricted shares will be entitled to sell those shares in the public market if and when they qualify for an exemption from registration under Rule 144 or any other applicable exemption under the Securities Act. See “—Rule 144” below.
Rule 144
In general, under Rule 144, a person (or persons whose shares are aggregated) who is not an affiliate of ours and has not been one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the restricted securities proposed to be sold for at least one year, including the holding period of any prior owner other than an affiliate, is entitled to sell his or her securities without registration and without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. In addition, under Rule 144, beginning 90 days after the date of this prospectus, a person (or persons whose securities are aggregated) who is not an affiliate of ours and has not been one of our affiliates at any time during the three months preceding a sale, may sell his or her securities without registration, subject to the continued availability of current public information about us after a six-month holding period. Any sales by affiliates under Rule 144, even after the applicable holding periods, are subject to requirements and limitations with respect to volume, manner of sale, notice and the availability of current public information about us.
There is currently no established public market for our common stock. We intend to apply to have our common stock listed on the NYSE under the symbol “CLPR”. However, we can give no assurances that our common stock will be listed, as to the likelihood that an active trading market for our common stock will develop, the liquidity of any such market, the ability of our stockholders to sell their shares or the prices that our stockholders may obtain for any of their shares. No prediction can be made as to the effect, if any, that future sales of shares of our common stock, or the availability of shares of our common stock for future sale, will have on the market price prevailing from time to time. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may affect adversely prevailing market prices of our securities. See “Risk Factors—Risks Related to Ownership of Our Common Stock.”
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For a description of certain restrictions on transfers of our common stock held by certain of our stockholders, see “Description of Capital Stock—Restrictions on Ownership and Transfer.”
2015 Omnibus Plan and 2015 Director Plan
We adopted the 2015 Omnibus Plan and 2015 Director Plan to give us a competitive advantage in attracting, retaining and motivating employees, consultants and directors and to more directly link incentives to the success of the Company and increases in stockholder value. 1,000,000 shares of our common stock were reserved for grant under the 2015 Omnibus Plan and 350,000 shares of our common stock were reserved for grant under the 2015 Director Plan. In connection with this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our common stock issued and issuable pursuant to the 2015 Omnibus Plan and the 2015 Director Plan. Shares of our common stock registered under that registration statement will be available for sale on the open market, subject to Rule 144 volume limitations applicable to affiliates and vesting restrictions with us.
In connection with the private offering, on August 3, 2015, we granted LTIP units in respect of 273,335 shares to our executive officers. In connection with the private offering, in 2016, we made a special additional one-time grant of 16,667 LTIP units to an executive officer and we granted a total of 16,666 LTIP units to two key employees under our 2015 Omnibus Plan. In 2016, we also granted 74,076 LTIP units to our executive officers as an incentive award under our 2015 Omnibus Plan. In addition, on August 3, 2015, we granted LTIP units in respect of an aggregate of 105,001 shares to our non-employee directors and in 2016 we granted LTIP units in respect of an additional 15,742 shares to a non-employee director, in each case under our 2015 Director Plan. As of the date of this prospectus, we have 619,256 shares of our common stock remaining for future issuance under our 2015 Omnibus Plan and 229,257 shares of our common stock remaining for future issuance under our 2015 Director Plan. For a description of our 2015 Omnibus Plan and 2015 Director Plan, see “Management—2015 Omnibus Incentive Plan” and “Management—2015 Non-Employee Director Plan.”
Registration Rights
In the private offering, we issued and sold an aggregate of 10,666,667 shares of our common stock and entered into a registration rights agreement for the benefit of the purchasers in the private offering. Pursuant to the registration rights agreement, the purchasers in the private offering have a right to participate in this offering, subject to certain conditions, and holders of 109,851 shares of our common stock have exercised their rights to sell in this offering. In addition, under this registration rights agreement, as amended, we have agreed to use our commercially reasonable efforts to cause a resale shelf registration statement to become effective under the Securities Act as promptly as practicable after the filing of the resale shelf registration statement, and in any event, subject to certain exceptions, no later than January 31, 2017 and to maintain the resale shelf registration statement continuously effective under the Securities Act for a specified period. We also entered into a continuing investors registration rights agreement with certain persons receiving shares of our common stock and class B LLC units in the formation transactions, including certain members of our senior management team and other continuing investors. The continuing investors registration rights agreement provides for the registration of such shares of common stock and shares of common stock that are issuable upon the exchange of class B LLC units. See “Description of Capital Stock—Registration Rights.”
Lock-Up Periods
For a description of certain lock-ups, see “Underwriting—Lock-Up Agreements.”
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the taxation of the Company and the material U.S. federal income tax consequences to holders of shares of our common stock for your general information only. This summary is not tax advice. The tax treatment of a holder will vary depending upon the holder’s particular situation, and this summary addresses only holders that hold these shares as capital assets and does not deal with all aspects of taxation that may be relevant to particular holders in light of their personal investment or tax circumstances. This summary also does not deal with all aspects of taxation that may be relevant to certain types of holders to which special provisions of the U.S. federal income tax laws apply, including:
· | dealers in securities or currencies; |
· | traders in securities that elect to use a mark-to-market method of accounting for such traders’ securities holdings; |
· | banks; |
· | insurance companies; |
· | tax-exempt organizations; |
· | persons liable for the alternative minimum tax; |
· | persons that hold shares of common stock that are a hedge, that are hedged against interest rate or currency risks or that are part of a straddle or conversion transaction; |
· | persons that purchase or sell shares of common stock as part of a wash sale for tax purposes; and |
· | U.S. stockholders whose functional currency is not the U.S. dollar. |
This summary is based on the Code, its legislative history, existing and proposed regulations under the Code, published rulings and court decisions. This summary describes the provisions of these sources of law only as they are currently in effect. All of these sources of law may change at any time, and any change in the law may apply retroactively.
If a partnership holds shares of common stock, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding our common stock should consult such partner’s tax advisor with regard to the U.S. federal income tax treatment of an investment in our common stock.
We urge you to consult with your tax advisors regarding the tax consequences to you of acquiring, owning and selling our common stock, including the federal, state, local and foreign tax consequences of acquiring, owning and selling our common stock in your particular circumstances and potential changes in applicable laws.
Taxation of the Company as a REIT
In the opinion of Sullivan & Cromwell LLP, the Company has been organized in conformity with the current requirements for qualification as a REIT under the Code, the Company’s method of operation has enabled the Company to satisfy the requirements for qualification and taxation as a REIT under the Code for the taxable years ended December 31, 2015 and December 31, 2016 and the Company’s current and proposed method of operation will enable the Company to satisfy the current requirements for qualification and taxation as a REIT under the Code for subsequent taxable years. Investors should be aware, however, that opinions of counsel are not binding upon the IRS or any court.
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In providing its opinion, Sullivan & Cromwell LLP is relying, without independent investigation, as to certain factual matters upon the statements and representations contained in a certificate provided to Sullivan & Cromwell LLP with respect to the Company.
The Company’s qualification as a REIT will depend upon the satisfaction by the Company of the requirements of the Code relating to qualification for REIT status. Some of these requirements depend upon actual operating results, distribution levels, diversity of stock ownership, asset composition, source of income and record keeping. Accordingly, while the Company intends to qualify to be taxed as a REIT, the actual results of the Company for any particular year might not satisfy these requirements. Neither Sullivan & Cromwell LLP nor any other such law firm will monitor the compliance of the Company with the requirements for REIT qualification on an ongoing basis.
The sections of the Code applicable to REITs are highly technical and complex. The following discussion summarizes material aspects of these sections of the Code.
As a REIT, the Company generally will not have to pay U.S. federal corporate income taxes on the Company’s net income that the Company currently distributes to its stockholders. This treatment substantially eliminates the “double taxation” at the corporate and stockholder levels that generally results from investment in a regular corporation. The Company’s dividends, however, generally will not be eligible for (i) the reduced rates of tax applicable to dividends received by noncorporate holders and (ii) the corporate dividends-received deduction.
However, the Company will have to pay U.S. federal income tax as follows:
· | First, the Company will have to pay tax at regular corporate rates on any undistributed real estate investment trust taxable income, including undistributed net capital gains. |
· | Second, under certain circumstances, the Company may have to pay the alternative minimum tax on the Company’s items of tax preference. |
· | Third, if the Company has (a) net income from the sale or other disposition of “foreclosure property,” as defined in the Code, which is held primarily for sale to customers in the ordinary course of business or (b) other non-qualifying income from foreclosure property, the Company will have to pay tax at the highest corporate rate on that income. |
· | Fourth, if the Company has net income from “prohibited transactions,” as defined in the Code, the Company will have to pay a 100% tax on that income. Prohibited transactions are, in general, certain sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. |
· | Fifth, if the Company should fail to satisfy the 75% gross income test or the 95% gross income test, as discussed below under “ — Requirements for Qualification — Income Tests,” but has nonetheless maintained the Company’s qualification as a REIT because the Company has satisfied some other requirements, the Company will have to pay a 100% tax on an amount equal to (a) the gross income attributable to the greater of (i) 75% of the Company’s gross income over the amount of gross income that is qualifying income for purposes of the 75% test, and (ii) 95% of the Company’s gross income over the amount of gross income that is qualifying income for purposes of the 95% test, multiplied by (b) a fraction intended to reflect the Company’s profitability. |
· | Sixth, if the Company should fail to distribute during each calendar year at least the sum of (1) 85% of the Company’s real estate investment trust ordinary income for that year, (2) 95% of the Company’s real estate investment trust capital gain net income for that year and (3) any undistributed taxable income from prior periods, the Company would have to pay a 4% excise tax on the excess of that required distribution over the sum of the amounts actually distributed and retained amounts on which income tax is paid at the corporate level. |
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· | Seventh, if the Company acquires any asset from a C corporation in certain transactions in which the Company must adopt the basis of the asset or any other property in the hands of the C corporation as the basis of the asset in the hands of the Company, and the Company recognizes gain on the disposition of that asset during the 10-year period beginning on the date on which the Company acquired that asset, then the Company will have to pay tax on the built-in gain at the highest regular corporate rate. A C corporation means generally a corporation that has to pay full corporate-level tax. |
· | Eighth, if the Company derives “excess inclusion income” from a residual interest in a real estate mortgage investment conduit, or “REMIC,” or certain interests in a taxable mortgage pool, or “TMP,” the Company could be subject to corporate-level U.S. federal income tax at a 35% rate to the extent that such income is allocable to certain types of tax-exempt stockholders that are not subject to unrelated business income tax, such as government entities. |
· | Ninth, if the Company receives non-arm’s-length income from a TRS (as defined under “ — Requirements for Qualification — Taxable REIT Subsidiaries”), or as a result of services provided by a TRS to tenants of the Company, the Company will be subject to a 100% tax on the amount of the Company’s non-arm’s-length income. |
· | Tenth, if the Company fails to satisfy a REIT asset test, as described below, due to reasonable cause and the Company nonetheless maintains its REIT qualification because of specified cure provisions, the Company will generally be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets that caused the Company to fail such test. |
· | Eleventh, if the Company fails to satisfy any provision of the Code that would result in the Company’s failure to qualify as a REIT (other than a violation of the REIT gross income tests or a violation of the asset tests described below) and the violation is due to reasonable cause, the Company may retain its REIT qualification but will be required to pay a penalty of $50,000 for each such failure. |
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association:
· | that is managed by one or more trustees or directors; |
· | the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest; |
· | that would otherwise be taxable as a domestic corporation, but for the sections of the Code defining and providing special rules for REITs; |
· | that is neither a financial institution nor an insurance company to which certain provisions of the Code apply; |
· | except for the first taxable year in which an election is made to treat the corporation, trust or association as a REIT, the beneficial ownership of which is held by 100 or more persons; |
· | during the last half of each taxable year (other than the first taxable year in which an election is made to treat the corporation, trust or association as a REIT), not more than 50% in value of the outstanding stock of which is owned, directly or constructively, by five or fewer individuals, as defined in the Code to include certain entities (the “not closely held requirement”); and |
· | that meets certain other tests, including tests described below regarding the nature of its income and assets. |
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The Code provides that the conditions described in the first through fourth bullet points above must be met during the entire taxable year and that the condition described in the fifth bullet point above must be met (other than the first taxable year in which an election is made to treat the corporation, trust or association as a REIT) during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months.
The Company expects to satisfy the conditions described in the first through fourth bullet points of the second preceding paragraph for the taxable year ended December 31, 2015 and subsequent taxable years. The Company intends to comply with the fifth and sixth bullet points of the second preceding paragraph beginning with the Company’s first taxable year following the Company’s taxable year ended December 31, 2015. In addition, the Company’s charter provides for restrictions regarding the ownership and transfer of the shares of common stock. These restrictions are intended to assist the Company in satisfying the share ownership requirements described in the fifth and sixth bullet points of the preceding paragraph. The ownership and transfer restrictions pertaining to our common stock are described in this prospectus under the heading “Description of Capital Stock—Restrictions on Ownership and Transfer.”
The Company believes that the Company’s special voting stock and class B LLC units in the Company’s LLC subsidiaries will be treated as separate interests in the Company and its LLC subsidiaries, respectively. The discussion in this section, except for this paragraph, assumes that the special voting stock and class B LLC units will be so treated. However, no assurance can be given that the IRS will not argue, or that a court would not find or hold, that the special voting stock and the class B LLC units should be treated as a single stock interest in the Company for U.S. federal income tax purposes. If the special voting stock and class B LLC units were treated as a single stock interest in the Company, and the provisions of our charter otherwise requiring such shares to be transferred to a trust for the benefit of a charitable beneficiary were found to be ineffective to prevent the violation, it is possible that more than 50 percent in value of the outstanding stock of the Company could be treated as held by five or fewer individuals. In such a case, the Company could be treated as “closely held” and could therefore fail to qualify as a REIT. Such failure could have significant adverse consequences as described under “Failure to Qualify as a REIT” below.
Qualified REIT Subsidiaries. A corporation that is a “qualified REIT subsidiary,” as defined in the Code, will not be treated as a separate corporation, and all assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary will be treated as assets, liabilities and items of these kinds of the REIT, unless the REIT makes an election to treat such corporation as a TRS. Thus, in applying the requirements described in this section, the Company’s qualified REIT subsidiaries (if any) will be ignored, and all assets, liabilities and items of income, deduction and credit of these subsidiaries will be treated as assets, liabilities and items of these kinds of the Company.
Investments in Partnerships. If a REIT is a partner in a partnership, Treasury regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to that proportionate share. In addition, the character of the assets and gross income of the partnership will retain the same character in the hands of the REIT for purposes of the rules of the Code defining REITs, including satisfying the gross income tests and the asset tests. Thus, the Company’s proportionate share of the assets, liabilities and items of income of any partnership in which the Company is a partner will be treated as assets, liabilities and items of income of the Company for purposes of applying the requirements described in this section. Thus, actions taken by partnerships in which the Company owns an interest, either directly or through one or more tiers of partnerships or qualified REIT subsidiaries, can affect the Company’s ability to satisfy the REIT income and asset tests and the determination of whether the Company has net income from prohibited transactions. See the fourth bullet point under the heading “Taxation of the Company as a REIT” above for a brief description of prohibited transactions.
Taxable REIT Subsidiaries. A taxable REIT subsidiary, or TRS, is any corporation in which a REIT directly or indirectly owns stock, provided that the REIT and that corporation make a joint election to treat that corporation as a TRS. The election can be revoked at any time as long as the REIT and the TRS revoke such election jointly. In addition, if a TRS holds, directly or indirectly, more than 35% of the securities of any other corporation other than a REIT (by vote or by value), then that other corporation is also treated as a TRS. A corporation can be a TRS with respect to more than one REIT.
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A TRS is subject to U.S. federal income tax at regular corporate rates (currently a maximum rate of 35%), and may also be subject to state and local taxation. Any dividends paid or deemed paid by any one of the Company’s TRSs will also be taxable, either (1) to the Company to the extent the dividend is retained by the Company, or (2) to the Company’s stockholders to the extent the dividends received from the TRS are paid to the Company’s stockholders. The Company may hold more than 10% of the stock of a TRS without jeopardizing its qualification as a REIT notwithstanding the rule described below under “— Asset Tests” that generally precludes ownership of more than 10% of any issuer’s securities. However, as noted below, in order for the Company to qualify as a REIT, the securities of all of the TRSs in which the Company has invested either directly or indirectly may not represent more than 20% of the total value of the Company’s assets (25% with respect to the Company’s taxable years ending on or before December 31, 2017). The Company expects that the aggregate value of all of its interests in TRSs will represent at the time of the Company’s formation, and will continue to represent, less than 20% of the total value of the Company’s assets; however, the Company cannot assure that this will always be true. Other than certain activities related to operating or managing a lodging or health care facility, a TRS may generally engage in any business including the provision of customary or non-customary services to tenants of the parent REIT. We will have one TRS, Clipper TRS, which may provide certain non-customary services at our properties and may be the entity through which we convert certain of our properties into condominiums.
Income Tests. In order to maintain the Company’s qualification as a REIT, the Company annually must satisfy two gross income requirements.
· | First, the Company must derive at least 75% of its gross income, excluding gross income from prohibited transactions, for each taxable year directly or indirectly from investments relating to real property, mortgages on real property or investments in REIT equity securities, including “rents from real property,” as defined in the Code, or from certain types of temporary investments. Rents from real property generally include expenses of the Company that are paid or reimbursed by tenants. |
· | Second, at least 95% of the Company’s gross income, excluding gross income from prohibited transactions, for each taxable year must be derived from real property investments as described in the preceding bullet point, dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of these types of sources. |
Rents that the Company receives will qualify as rents from real property in satisfying the gross income requirements for a REIT described above only if the rents satisfy several conditions.
· | First, the amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from rents from real property solely because the rent is based on a fixed percentage or percentages of receipts or sales. |
· | Second, the Code provides that rents received from a tenant will not qualify as rents from real property in satisfying the gross income tests if the REIT, directly or under the applicable attribution rules, owns a 10% or greater interest in that tenant; except that rents received from a TRS under certain circumstances qualify as rents from real property even if the Company owns more than a 10% interest in the subsidiary. We refer to a tenant in which the Company owns a 10% or greater interest as a “related party tenant.” |
· | Third, if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property. |
· | Finally, for rents received to qualify as rents from real property, except as described below, the REIT generally must not operate or manage the property or furnish or render services to the tenants of the property, other than through an independent contractor from whom the REIT derives no revenue or through a TRS. However, the Company may directly perform certain services that landlords usually or customarily render when renting space for occupancy only or that are not considered rendered to the occupant of the property. |
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The Company directly performs services for some of its tenants. The Company may provide certain non-customary services through Clipper TRS. The Company does not believe that the provision of the services it provides directly will cause its gross income attributable to these tenants to fail to be treated as rents from real property. If the Company were to provide services to a tenant of a property of the Company other than those services landlords usually or customarily provide to tenants of properties of a similar class in the same geographic market when renting space for occupancy only, amounts received or accrued by the Company for any of these services will not be treated as rents from real property for purposes of the REIT gross income tests. However, the amounts received or accrued for these services will not cause other amounts received with respect to the property to fail to be treated as rents from real property unless the amounts treated as received in respect of the service, together with amounts received for certain management services, exceed 1% of all amounts received or accrued by the Company during the taxable year with respect to the property. If the sum of the amounts received in respect of the services to tenants and management services described in the preceding sentence exceeds the 1% threshold, then all amounts received or accrued by the Company with respect to the property will not qualify as rents from real property, even if the Company provides the impermissible service to some, but not all, of the tenants of the property.
The term “interest” generally does not include any amount received or accrued, directly or indirectly, if the determination of that amount depends in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term interest solely because the amount of the interest is based on a fixed percentage or percentages of receipts or sales.
From time to time, the Company may enter into hedging transactions with respect to one or more of the Company’s assets or liabilities. The Company’s hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts. Except to the extent provided by Treasury regulations, any income the Company derives from a hedging transaction that is clearly identified as such as specified in the Code, including gain from the sale or disposition of such a hedging transaction, will not constitute gross income for purposes of the 75% or 95% gross income tests, and therefore will be excluded for purposes of these tests, but only to the extent that the transaction hedges indebtedness incurred or to be incurred by us to acquire or carry real estate. The term “hedging transaction,” as used above, generally means any transaction the Company enters into in the normal course of its business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by the Company. The term “hedging transaction” also includes any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income test (or any property that generates such income or gain), including gain from the termination of such a transaction. If, in connection with an extinguishment of indebtedness or a disposition of property with respect to which the Company has entered into a hedging transaction described above in this paragraph, the Company enters into another hedge to effect the termination of the first hedge, the term “hedging transaction” generally includes both such hedges. The Company intends to structure any hedging transactions in a manner that does not jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, the Company may nevertheless qualify as a REIT for that year if the Company satisfies the requirements of other provisions of the Code that allow relief from disqualification as a REIT. These relief provisions will generally be available if:
· | The Company’s failure to meet the income tests was due to reasonable cause and not due to willful neglect; and |
· | The Company files a schedule of each item of income in excess of the limitations described above in accordance with regulations to be prescribed by the IRS. |
The Company might not be entitled to the benefit of these relief provisions, however. Even if these relief provisions apply, the Company would have to pay a tax on the excess income. The tax will be a 100% tax on an amount equal to (a) the gross income attributable to the greater of (i) 75% of the Company’s gross income over the amount of gross income that is qualifying income for purposes of the 75% test, and (ii) 95% of the Company’s gross income over the amount of gross income that is qualifying income for purposes of the 95% test, multiplied by (b) a fraction intended to reflect the Company’s profitability.
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Asset Tests. The Company, at the close of each quarter of its taxable year, must also satisfy four tests relating to the nature of its assets.
· | First, at least 75% of the value of the Company’s total assets must be represented by real estate assets, including (a) real estate assets held by the Company’s qualified REIT subsidiaries (if any), the Company’s allocable share of real estate assets held by partnerships in which the Company owns an interest and stock issued by another REIT, (b) for a period of one year from the date of the Company’s receipt of proceeds of an offering of the Company’s shares of beneficial interest or publicly offered debt with a term of at least five years, stock or debt instruments purchased with these proceeds and (c) cash, cash items and government securities. |
· | Second, not more than 25% of the Company’s total assets may be represented by securities other than those in the 75% asset class. |
· | Third, not more than 20% of the Company’s total assets may constitute securities issued by TRSs (25% with respect to the Company’s taxable years ending on or before December 31, 2017) and of the investments included in the 25% asset class, the value of any one issuer’s securities, other than equity securities issued by another REIT or securities issued by a TRS, owned by the Company may not exceed 5% of the value of the Company’s total assets. In addition, not more than 25% of the value of the Company’s total assets may consist of “nonqualified” debt instruments issued by publicly offered REITs. |
· | Fourth, the Company may not own more than 10% of the vote or value of the outstanding securities of any one issuer, except for issuers that are REITs, qualified REIT subsidiaries or TRSs, or certain securities that qualify under a safe harbor provision of the Code (such as so-called “straight-debt” securities). |
Solely for the purposes of the 10% value test described above, the determination of the Company’s interest in the assets of any partnership or other entity treated as a partnership for U.S. federal income tax purposes in which the Company owns an interest will be based on the Company’s proportionate interest in any securities issued by the partnership or other entity treated as a partnership for U.S. federal income tax purposes, excluding for this purpose certain securities described in the Code. Otherwise the determination of the Company’s interests in the assets of any partnership or other entity treated as a partnership for U.S. federal income tax purposes will be based on the Company’s proportionate capital interest.
If the IRS successfully challenges the partnership status of any of the partnerships in which the Company maintains a more than 10% vote or value interest, and the partnership is reclassified as a corporation or a publicly traded partnership taxable as a corporation, the Company could lose its REIT status. In addition, in the case of such a successful challenge, the Company could lose its REIT status if such recharacterization results in the Company otherwise failing one of the asset tests described above.
Certain relief provisions may be available to the Company if it fails to satisfy the asset tests described above after a 30-day cure period. Under these provisions, the Company will be deemed to have met the 5% and 10% REIT asset tests if the value of the Company’s nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of the Company’s assets at the end of the applicable quarter and (b) $10,000,000, and (ii) the Company disposes of the nonqualifying assets within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury regulations to be issued. For violations due to reasonable cause and not willful neglect that are not described in the preceding sentence, the Company may avoid disqualification as a REIT under any of the asset tests, after the 30-day cure period, by taking steps including (i) the disposition of the nonqualifying assets to meet the asset test within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury regulations to be issued, (ii) paying a tax equal to the greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets, and (iii) disclosing certain information to the IRS.
Annual Distribution Requirements. The Company, in order to qualify as a REIT, is required to distribute dividends, other than capital gain dividends, to the Company’s stockholders in an amount at least equal to (1) the sum of (a) 90% of the Company’s “real estate investment trust taxable income,” computed without regard to the dividends paid deduction and the Company’s net capital gain, and (b) 90% of the Company’s net after-tax income, if any, from foreclosure property minus (2) the sum of certain items of non-cash income.
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In addition, if the Company acquires an asset from a C corporation in a carryover basis transaction and disposes of such asset within 10 years of acquiring the asset, the Company may be required to distribute at least 90% of the after-tax built-in gain, if any, recognized on the disposition of the asset.
These distributions must be paid in the taxable year to which the distributions relate, or in the following taxable year if declared before the Company timely files its tax return for the year to which the distributions relate and if paid on or before the first regular dividend payment after the declaration. However, for U.S. federal income tax purposes, these distributions that are declared in October, November or December as of a record date in such month and actually paid in January of the following year will be treated as if the distributions were paid on December 31 of the year declared.
To the extent that the Company does not distribute all of its net capital gain or distributes at least 90%, but less than 100%, of the Company’s real estate investment trust taxable income, as adjusted, the Company will have to pay tax on the undistributed amounts at regular ordinary and capital gain corporate tax rates. Furthermore, if the Company fails to distribute during each calendar year at least the sum of (a) 85% of the Company’s ordinary income for that year, (b) 95% of the Company’s capital gain net income for that year and (c) any undistributed taxable income from prior periods, the Company would have to pay a 4% excise tax on the excess of the required distribution over the sum of the amounts actually distributed and retained amounts on which income tax is paid at the corporate level.
The Company intends to satisfy the annual distribution requirements.
From time to time, the Company may not have sufficient cash or other liquid assets to meet the 90% distribution requirement due to timing differences between (a) when the Company actually receives income and when the Company actually pays deductible expenses and (b) when the Company includes the income and deducts the expenses in arriving at the Company’s taxable income. If timing differences of this kind occur, in order to meet the 90% distribution requirement, the Company may find it necessary to arrange for short-term, or possibly long-term, borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in the Company’s deduction for dividends paid for the earlier year. Thus, the Company may be able to avoid being taxed on amounts distributed as deficiency dividends; however, the Company will be required to pay interest based upon the amount of any deduction taken for deficiency dividends.
Failure to Qualify as a REIT
If the Company would otherwise fail to qualify as a REIT because of a violation of one of the requirements described above, the Company’s qualification as a REIT will not be terminated if the violation is due to reasonable cause and not willful neglect and the Company pays a penalty tax of $50,000 for the violation. The immediately preceding sentence does not apply to violations of the income tests described above or a violation of the asset tests described above, each of which have specific relief provisions that are described above.
If the Company fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, the Company will have to pay tax, including any applicable alternative minimum tax, on the Company’s taxable income at regular corporate rates. The Company will not be able to deduct distributions to stockholders in any year in which the Company fails to qualify, nor will the Company be required to make distributions to stockholders. In this event, to the extent of current and accumulated earnings and profits, all distributions to stockholders will be taxable to the stockholders as dividend income (which may be subject to tax at preferential rates) and corporate distributees may be eligible for the dividends-received deduction if such distributees satisfy the relevant provisions of the Code. Unless entitled to relief under specific statutory provisions, the Company will also be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. The Company might not be entitled to the statutory relief described above in all circumstances.
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Prohibited Transactions
If the Company is found to have held, acquired or developed property, other than foreclosure property, primarily for sale to customers in the ordinary course of business, the Company may be subject to a 100% “prohibited transactions” tax under U.S. federal tax laws on the gain from disposition of the property unless the disposition qualifies for one or more safe harbor exceptions for properties that have been held by the Company for at least two years and satisfies certain additional requirements (or the disposition is made through a TRS and, therefore, is subject to corporate U.S. federal income tax).
Whether property is held primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances. Based upon the Company’s investment objectives, the Company believes that overall, its properties should not be considered property held primarily for sale to customers in the ordinary course of business. However, it may not always be practical for the Company to comply with one of the safe harbors, and, therefore, the Company may be subject to the 100% penalty tax on the gain from dispositions of property if the Company is otherwise deemed to have held the property primarily for sale to customers in the ordinary course of business.
In addition, the potential application of the prohibited transactions tax could cause the Company to forego potential dispositions of other property or to forego other opportunities that might otherwise be attractive to the Company, or to hold investments or undertake such dispositions or other opportunities through a TRS, which would generally result in corporate income taxes being incurred. For example, the Company anticipates that it would be necessary for the Company to transfer a property to a TRS prior to undergoing any condominium or cooperative conversion project with respect to such property.
Excess Inclusion Income
If the Company holds a residual interest in a REMIC or certain interests in a TMP from which the Company derives “excess inclusion income,” the Company may be required to allocate such income among its stockholders in proportion to the dividends received by the Company’s stockholders, even though the Company may not receive such income in cash. To the extent that excess inclusion income is allocable to a particular stockholder, the income (1) would not be allowed to be offset by any net operating losses otherwise available to the stockholder, (2) would be subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise generally exempt from U.S. federal income tax, and (3) would result in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction pursuant to any otherwise applicable income tax treaty, to the extent allocable to most types of foreign stockholders.
Certain Tax Aspects of Investments in Partnerships
The Company holds investments through entities that are classified as partnerships for U.S. federal income tax purposes, including the Company’s operating partnership and LLC subsidiaries. In general, partnerships are “pass-through” entities that are not subject to U.S. federal income tax. Rather, partners are allocated their proportionate shares of the items of income, gain, loss, deduction and credit of a partnership, and are subject to tax on these items without regard to whether the partners receive a distribution from the partnership. As described above under “—Taxation of the Company as a REIT – Requirements for Qualification – Investments in Partnerships,” the Company includes in its income the Company’s proportionate share of these partnership items for purposes of the REIT asset and income tests. Consequently, to the extent that the Company holds an equity interest in a partnership, the partnership’s assets and operations may affect the Company’s ability to qualify as a REIT, even if the Company has no control, or only limited influence, over the partnership.
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The operating partnership agreement generally provides that items of net income and net loss are allocated to the holders of units in accordance with their respective percentage interests, provided that any limited partners holding preferred operating partnership interests would be allocated net income in a manner to reflect any preference in distributions. The LLC agreements of the Company’s LLC subsidiaries generally provide that items of net income and net loss of each LLC subsidiary are allocated at the end of each fiscal year to the holders of LLC units in a manner consistent with the distributions that each member is entitled; provided that any holders of LLC units that are entitled to a preferred distribution will be allocated net loss only to the extent that such holders have a positive capital account. If an allocation of partnership income or loss does not comply with the requirements of the Code and Treasury regulations thereunder, the item subject to the allocation will be reallocated in accordance with the partners’ interests in the partnership. This reallocation will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. The operating partnership’s and LLC subsidiaries’ allocations of income and loss are intended to comply with the requirements of the Code of Treasury regulations thereunder.
Income, gain, loss and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated for tax purposes in a manner such that the contributing partner is charged with, or benefits from, the unrealized gain or unrealized loss associated with the property at the time of the contribution. In addition, income, gain, loss and deduction attributable to appreciated or depreciated property that is revalued by a partnership in connection with a contribution to or distribution by the partnership must be allocated for tax purposes in a manner such that the existing partners are charged with, or benefit from, the unrealized gain or unrealized loss associated with the property at the time of the revaluation. The amount of the unrealized gain or unrealized loss is generally equal to the difference between the fair market value, or book value, of the contributed property and the adjusted tax basis of such property at the time of the contribution or revaluation (a “book-tax difference”). Such allocations are solely for U.S. federal income tax purposes and do not affect partnership capital accounts or other economic or legal arrangements among the partners.
Treasury regulations provide partnerships with a choice of several methods of allocating book-tax differences. Under the tax protection agreement, the Company’s LLC subsidiaries have agreed to use the “traditional method” for accounting for book-tax differences for the properties in the Company’s current portfolio. The use of the traditional method (i) may cause the Company to be allocated lower amounts of depreciation and other deductions for tax purposes than would be allocated to the Company if all of the properties in the Company’s current portfolio were to have a tax basis equal to their fair market value at the time of formation transactions and (ii) in the event of a sale of such properties, could cause the Company to be allocated gain in excess of the Company’s corresponding economic or book gain (or taxable loss that is less than the Company’s economic or book loss), with a corresponding benefit to the continuing investors. Therefore, the use of the traditional method could result in the Company having taxable income that is in excess of the Company’s economic or book income as well as the Company’s cash distributions from the operating partnership, which might adversely affect the Company’s ability to comply with the REIT distribution requirements or result in a greater portion of the Company’s distributions being treated as taxable dividend income.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to the income tax returns of a partnership, it may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from the partnership. The Company’s operating partnership and LLC subsidiaries may elect to have its partners take such audit adjustment into account in accordance with their interests in the applicable partnership during the tax year under audit, but there can be no assurance that such election will be effective in all circumstances. If, as a result of any such audit adjustment, the Company’s operating partnership or one of the LLC subsidiaries is required to make payments of taxes, penalties and interest, the cash available for distribution to its partners might be substantially reduced. These rules are not generally applicable for tax years beginning on or prior to December 31, 2017.
Taxation of Holders of Common Stock
U.S. Stockholders
As used in this section, the term “U.S. stockholder” means a beneficial owner of shares of our common stock who, for U.S. federal income tax purposes, is:
· | a citizen or resident of the United States; |
· | a domestic corporation; |
· | an estate whose income is subject to U.S. federal income taxation regardless of the income’s source; or |
· | a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons have authority to control all substantial decisions of the trust. |
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Dividends. As long as the Company qualifies as a REIT, distributions made by the Company out of its current or accumulated earnings and profits, and not designated as capital gain dividends, will constitute dividends taxable to the Company’s taxable U.S. stockholders as ordinary income. Noncorporate U.S. stockholders will generally not be entitled to the lower tax rate applicable to qualified dividend income except with respect to the portion of any distribution (a) that represents income from dividends the Company received from a corporation in which the Company owns shares (but only if such dividends would be eligible for the lower rate on dividends if paid by the corporation to its individual stockholders), (b) that is equal to the sum of the Company’s real estate investment trust taxable income (taking into account the dividends paid deduction available to the Company) and certain net built-in gain with respect to property acquired from a C corporation in certain transactions in which the Company must adopt the basis of the asset in the hands of the C corporation for the Company’s previous taxable year and less any taxes paid by the Company during its previous taxable year, or (c) that represents earnings and profits that were accumulated in a non-REIT taxable year, in each case, provided that certain holding period and other requirements are satisfied at both the REIT and individual stockholder level. Noncorporate U.S. stockholders should consult their own tax advisors to determine the impact of tax rates on dividends received from the Company. Distributions made by the Company will not be eligible for the dividends received deduction in the case of U.S. stockholders that are corporations. Distributions made by the Company that the Company properly designates as capital gain dividends will be taxable to U.S. stockholders as gain from the sale of a capital asset held for more than one year, to the extent that such dividends do not exceed our actual net capital gain for the taxable year, without regard to the period for which a U.S. stockholder has held our common stock. Thus, with certain limitations, capital gain dividends received by an individual U.S. stockholder may be eligible for preferential rates of taxation. U.S. stockholders that are corporations may, however, be required to treat up to 20% of certain capital gain dividends as ordinary income.
To the extent that the Company makes distributions not designated as capital gain dividends in excess of the Company’s current and accumulated earnings and profits, these distributions will be treated first as a tax-free return of capital to each U.S. stockholder. Thus, these distributions will reduce the adjusted basis that the U.S. stockholder has in our common stock for tax purposes by the amount of the distribution, but not below zero. Distributions in excess of a U.S. stockholder’s adjusted basis in our common stock will be taxable as capital gains, provided that our common stock has been held as a capital asset. For purposes of determining the portion of distributions on separate classes of shares that will be treated as dividends for U.S. federal income tax purposes, current and accumulated earnings and profits will be allocated to distributions resulting from priority rights of preferred stock before being allocated to other distributions.
As described above, dividends authorized by the Company in October, November, or December of any year and payable to a stockholder of record on a specified date in any of these months will be treated as both paid by the Company and received by the stockholder on December 31 of that year, provided that the Company actually pays the dividend on or before January 31 of the following calendar year. Stockholders may not include in their own income tax returns any net operating losses or capital losses of the Company.
The Company may make distributions to holders of shares of common stock that are paid in shares of common stock. In certain circumstances, these distributions may be intended to be treated as dividends for U.S. federal income tax purposes and a U.S. stockholder would, therefore, generally have taxable income with respect to such distributions of shares and may have a tax liability on account of such distribution in excess of the cash (if any) that is received.
U.S. stockholders holding common stock at the close of the Company’s taxable year will be required to include, in computing the U.S. stockholders’ long-term capital gains for the taxable year in which the last day of the Company’s taxable year falls, the amount of the Company’s undistributed net capital gain that the Company designates in a written notice mailed to its stockholders. The Company may not designate amounts in excess of the Company’s undistributed net capital gain for the taxable year. Each U.S. stockholder required to include the designated amount in determining the stockholder’s long-term capital gains will be deemed to have paid, in the taxable year of the inclusion, the tax paid by the Company in respect of the undistributed net capital gains. U.S. stockholders to whom these rules apply will be allowed a credit or a refund, as the case may be, for the tax such stockholders are deemed to have paid. U.S. stockholders will increase their basis in our common stock by the difference between the amount of the includible gains and the tax deemed paid by the stockholder in respect of these gains.
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Distributions made by the Company and gain arising from a U.S. stockholder’s sale or exchange of common stock will not be treated as passive activity income. As a result, U.S. stockholders generally will not be able to apply any passive losses against that income or gain.
Sale or Exchange of Common Stock. When a U.S. stockholder sells or otherwise disposes of shares of common stock, the stockholder will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between (a) the amount of cash and the fair market value of any property received on the sale or other disposition, and (b) the holder’s adjusted basis in the shares for tax purposes. This gain or loss will be capital gain or loss if the U.S. stockholder has held the shares as capital assets. The gain or loss will be long-term gain or loss if the U.S. stockholder has held the shares for more than one year. Long-term capital gain of an individual U.S. stockholder is generally taxed at preferential rates. In general, any loss recognized by a U.S. stockholder when the stockholder sells or otherwise disposes of shares of common stock that the stockholder has held for six months or less, after applying certain holding period rules, will be treated as a long-term capital loss, to the extent of distributions received by the stockholder from the Company that were required to be treated as long-term capital gains.
Backup Withholding. The Company will report to its U.S. stockholders and the IRS the amount of dividends paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, backup withholding may apply to a stockholder with respect to dividends paid unless the holder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. The IRS may also impose penalties on a U.S. stockholder that does not provide the Company with such stockholder’s correct taxpayer identification number. A stockholder may credit any amount paid as backup withholding against the stockholder’s income tax liability. In addition, the Company may be required to withhold a portion of capital gain distributions to any stockholders who fail to certify their non-foreign status to the Company.
Taxation of Tax-Exempt Stockholders. The IRS has ruled that amounts distributed as dividends by a REIT generally do not constitute unrelated business taxable income when received by a tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder is not one of the types of entities described below and has not held our common stock as “debt financed property” within the meaning of the Code, the dividend income from our common stock will not be unrelated business taxable income to a tax-exempt stockholder. Similarly, income from the sale of shares of common stock will not constitute unrelated business taxable income unless the tax-exempt stockholder has held the shares as “debt financed property” within the meaning of the Code or has used the shares in a trade or business.
Notwithstanding the above paragraph, while the Company does not expect to have any “excess inclusion” income with respect to a REMIC residual interest or an interest in a TMP, tax-exempt stockholders would be required to treat as unrelated business taxable income any dividends paid by the Company that are allocable to any “excess inclusion” income of the Company.
Income from an investment in the Company’s common stock will constitute unrelated business taxable income for tax-exempt stockholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from U.S. federal income taxation under the applicable subsections of Section 501(c) of the Code, unless the organization is able to properly deduct amounts set aside or placed in reserve for certain purposes so as to offset the income generated by our common stock. Prospective investors of the types described in the preceding sentence should consult such investors’ own tax advisors concerning these “set aside” and reserve requirements.
Notwithstanding the foregoing, however, a portion of the dividends paid by a “pension-held REIT” will be treated as unrelated business taxable income to any trust that
· | is described in certain provisions of the Code relating to qualified pension, profit-sharing and stock bonus plans; |
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· | is described in certain provisions of the Code relating to tax-exempt organizations; and |
· | holds more than 10% (by value) of the equity interests in the REIT. |
Tax-exempt pension, profit-sharing and stock bonus funds described in the first bullet point above are referred to below as “qualified trusts.” A REIT is a “pension-held REIT” if:
· | the REIT would not have qualified as a REIT but for the fact that the Code provides that stock owned by qualified trusts will be treated, for purposes of the “not closely held” requirement, as owned by the beneficiaries of the trust (rather than by the trust itself); and |
· | either (a) at least one qualified trust holds more than 25% by value of the interests in the REIT or (b) one or more qualified trusts, each of which owns more than 10% by value of the interests in the REIT, hold in the aggregate more than 50% by value of the interests in the REIT. |
The percentage of any REIT dividend treated as unrelated business taxable income to a qualifying trust is equal to the ratio of (a) the gross income of the REIT from unrelated trades or businesses, determined as though the REIT were a qualified trust, less direct expenses related to this gross income, to (b) the total gross income of the REIT, less direct expenses related to the total gross income. A de minimis exception applies where this percentage is less than 5% for any year. The Company does not expect to be classified as a pension-held REIT.
The rules described above under the heading “U.S. Stockholders” concerning the inclusion of the Company’s designated undistributed net capital gains in the income of the Company’s stockholders will apply to tax-exempt entities. Thus, tax-exempt entities will be allowed a credit or refund of the tax deemed paid by these entities in respect of the includible gains.
Medicare Tax. A U.S. stockholder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8% tax on the lesser of (1) the U.S. stockholder’s “net investment income” (or “undistributed net investment income” in the case of an estate or trust) for the relevant taxable year and (2) the excess of the U.S. stockholder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000, depending on the individual’s circumstances). A holder’s net investment income generally includes the holder’s dividend income and the holder’s net gains from the disposition of shares of the Company’s common stock, unless such dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. stockholder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in our common stock.
Non-U.S. Stockholders
The rules governing U.S. federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships and estates or trusts that in either case are not subject to U.S. federal income tax on a net income basis, who own shares of our common stock, which we call “non-U.S. stockholders,” are complex. The following discussion is only a limited summary of these rules. Prospective non-U.S. stockholders should consult with their own tax advisors to determine the impact of U.S. federal, state and local income tax laws with regard to an investment in our common stock, including any reporting requirements.
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Ordinary Dividends. Distributions, other than distributions that are treated as attributable to gain from sales or exchanges by the Company of U.S. real property interests, as discussed below, and other than distributions designated by the Company as capital gain dividends, will be treated as ordinary income to the extent that the distributions are made out of the Company’s current or accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution will ordinarily apply to distributions of this kind to non-U.S. stockholders, unless an applicable tax treaty reduces that tax. However, if income from the investment in our common stock is treated as effectively connected with the non-U.S. stockholder’s conduct of a U.S. trade or business or is attributable to a permanent establishment that the non-U.S. stockholder maintains in the United States (if that is required by an applicable income tax treaty as a condition for subjecting the non-U.S. stockholder to U.S. taxation on a net income basis), tax at graduated rates will generally apply to the non-U.S. stockholder in the same manner as U.S. stockholders are taxed with respect to dividends, and the 30% branch profits tax may also apply if the stockholder is a foreign corporation. The Company expects that it or the required withholding agent will withhold U.S. tax at the rate of 30% on the gross amount of any dividends, other than dividends treated as attributable to gain from sales or exchanges of U.S. real property interests and capital gain dividends, paid to a non-U.S. stockholder, unless (a) a lower treaty rate applies and the required form evidencing eligibility for that reduced rate is filed with the Company or the appropriate withholding agent or (b) the non-U.S. stockholder files an IRS Form W-8ECI or a successor form with the Company or the appropriate withholding agent claiming that the distributions are effectively connected with the non-U.S. stockholder’s conduct of a U.S. trade or business and in either case other applicable requirements were met.
While the Company does not expect to have any “excess inclusion” income with respect to a REMIC residual interest or an interest in a TMP, if a non-U.S. stockholder received an allocation of “excess inclusion income”, the non-U.S. stockholder would be subject to U.S. federal income tax withholding at the maximum rate of 30% with respect to such allocation, without reduction pursuant to any otherwise applicable income tax treaty.
Return of Capital. Distributions in excess of the Company’s current and accumulated earnings and profits, which are not treated as attributable to the gain from the Company’s disposition of a U.S. real property interest, will not be taxable to a non-U.S. stockholder to the extent that the distributions do not exceed the non-U.S. stockholder’s adjusted basis in such stockholder’s shares of common stock. Distributions of this kind will instead reduce the adjusted basis of such shares. To the extent that distributions of this kind exceed the non-U.S. stockholder’s adjusted basis in such stockholder’s shares of common stock, the distributions will give rise to tax liability if the non-U.S. stockholder otherwise would have to pay tax on any gain from the sale or disposition of the shares, as described below. If it cannot be determined at the time a distribution is made whether the distribution will be in excess of current and accumulated earnings and profits, withholding will apply to the distribution at the rate applicable to dividends. However, the non-U.S. stockholder may seek a refund of these amounts from the IRS if it is subsequently determined that the distribution was, in fact, in excess of the Company’s current and accumulated earnings and profits.
Also, the Company (or applicable withholding agent) could potentially be required to withhold at least 15% of any distribution in excess of the Company’s current and accumulated earnings and profits, even if the non-U.S. stockholder is not liable for U.S. tax on the receipt of that distribution. However, a non-U.S. stockholder may seek a refund of these amounts from the IRS if the non-U.S. stockholder’s tax liability with respect to the distribution is less than the amount withheld. Such withholding should generally not be required if a non-U.S. stockholder would not be taxed under the Foreign Investment in Real Property Tax Act of 1980, as amended (“FIRPTA”), upon a sale or exchange of shares of common stock. See discussion below under “ — Sales of Common Stock.”
Capital Gain Dividends. Distributions that are attributable to gain from sales or exchanges by the Company of U.S. real property interests that are paid with respect to any class of stock that is regularly traded on an established securities market located in the United States and held by a non-U.S. stockholder who does not own more than 10% of such class of stock at any time during the one year period ending on the date of distribution will be treated as a normal distribution by the Company, and such distributions will be taxed as described above in “— Ordinary Dividends.” However, the Company believes that the Company’s common stock will be regularly traded on an established securities market for this purpose following this offering.
Distributions that are not described in the preceding paragraph that are attributable to gain from sales or exchanges by the Company of U.S. real property interests will be taxed to a non-U.S. stockholder under the provisions of FIRPTA. Under this statute, these distributions are taxed to a non-U.S. stockholder as if the gain were effectively connected with a U.S. business. Thus, non-U.S. stockholders will be taxed on the distributions at the normal capital gain rates applicable to U.S. stockholders, subject to any applicable alternative minimum tax and special alternative minimum tax in the case of individuals, and the 30% branch profits tax may also apply if the stockholder is a foreign corporation. The Company (or applicable withholding agent) is required by applicable Treasury regulations under this statute to withhold 35% of any distribution that the Company could designate as a capital gain dividend. However, if the Company designates as a capital gain dividend a distribution made before the day the Company actually effects the designation, then although the distribution may be taxable to a non-U.S. stockholder, withholding does not apply to the distribution under this statute. Rather, the Company must effect the 35% withholding from distributions made on and after the date of the designation, until the distributions so withheld equal the amount of the prior distribution designated as a capital gain dividend. The non-U.S. stockholder may credit the amount withheld against its U.S. tax liability.
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Distributions to a non-U.S. stockholder that are designated by the Company at the time of distribution as capital gain dividends that are not attributable to or treated as attributable to the disposition by the Company of a U.S. real property interest generally will not be subject to U.S. federal income taxation, except as described above.
Share Distributions. The Company may make distributions to holders of shares of common stock that are paid in shares of common stock. In certain circumstances, these distributions may be intended to be treated as dividends for U.S. federal income tax purposes and, accordingly, would be treated in a manner consistent with the discussion above under “— Ordinary Dividends” and “— Capital Gains Dividends.” If the Company (or applicable withholding agent) is required to withhold an amount in excess of any cash distributed along with the shares of common stock, some of the shares that would otherwise be distributed will be retained and sold in order to satisfy such withholding obligations.
Sales of Common Stock. Gain recognized by a non-U.S. stockholder upon a sale or exchange of shares of common stock generally will not be taxed under FIRPTA if the Company is a “domestically controlled REIT,” defined generally as a REIT, less than 50% in value of the stock of which is and was held directly or indirectly by foreign persons at all times during a specified testing period (provided that, if any class of a REIT’s stock is regularly traded on an established securities market in the United States, a person holding less than 5% of such class during the testing period is presumed not to be a foreign person, unless the REIT has actual knowledge otherwise). The Company believes that it is a domestically controlled REIT, and, therefore, assuming that the Company continues to be a domestically controlled REIT, that taxation under this statute generally will not apply to the sale of shares of common stock. However, gain to which this statute does not apply will be taxable to a non-U.S. stockholder if investment in our common stock is treated as effectively connected with the non-U.S. stockholder’s U.S. trade or business or is attributable to a permanent establishment that the non-U.S. stockholder maintains in the United States (if that is required by an applicable income tax treaty as a condition for subjecting the non-U.S. stockholder to U.S. taxation on a net income basis). In this case, the same treatment will apply to the non-U.S. stockholder as to U.S. stockholders with respect to the gain. In addition, gain to which FIRPTA does not apply will be taxable to a non-U.S. stockholder if the non-U.S. stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, or maintains an office or a fixed place of business in the United States to which the gain is attributable. In this case, a 30% tax will apply to the nonresident alien individual’s capital gains. A similar rule will apply to capital gain dividends to which this statute does not apply.
If the Company does not qualify as a domestically controlled REIT, the tax consequences to a non-U.S. stockholder of a sale of shares of common stock depends upon whether such stock is regularly traded on an established securities market and the amount of such stock that is held by the non-U.S. stockholder. Specifically, a non-U.S. stockholder that holds a class of shares that is traded on an established securities market will only be subject to FIRPTA in respect of a sale of such shares if the stockholder owned more than 10% of the shares of such class at any time during a specified period. This period is generally the shorter of the period that the non-U.S. stockholder owned such shares or the five-year period ending on the date when the stockholder disposed of the shares. As discussed above, the Company expects that the Company’s common stock will be regularly traded on an established securities market for this purpose following this offering. If tax under FIRPTA applies to the gain on the sale of shares, the same treatment would apply to the non-U.S. stockholder as to U.S. stockholders with respect to the gain, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals.
Backup Withholding and Information Reporting. If you are a non-U.S. stockholder, we and other payors are required to report payments of dividends on IRS Form 1042-S even if the payments are exempt from withholding. However, you are otherwise generally exempt from backup withholding and information reporting requirements with respect to:
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· | dividend payments and |
· | the payment of the proceeds from the sale of shares of common stock effected at a U.S. office of a broker, |
as long as the income associated with these payments is otherwise exempt from U.S. federal income tax, and:
· | the payor or broker does not have actual knowledge or reason to know that you are a U.S. person and you have furnished to the payor or broker: |
· | a valid IRS Form W-8BEN or W-8BEN-E, as applicable, or an acceptable substitute form upon which you certify, under penalties of perjury, that you are a non-U.S. person, or |
· | other documentation upon which the payor or broker may rely to treat the payments as made to a non-U.S. person in accordance with U.S. Treasury regulations, or |
· | you otherwise establish an exemption. |
Payment of the proceeds from the sale of shares of common stock effected at a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale of such shares that is effected at a foreign office of a broker will be subject to information reporting and backup withholding if:
· | the proceeds are transferred to an account maintained by you in the United States, |
· | the payment of proceeds or the confirmation of the sale is mailed to you at a United States address, or |
· | the sale has some other specified connection with the United States as provided in U.S. Treasury regulations, |
unless the broker does not have actual knowledge or reason to know that you are a U.S. person and the documentation requirements described above are met or you otherwise establish an exemption.
In addition, a sale of shares of common stock will be subject to information reporting if such sale is effected at a foreign office of a broker that is:
· | a U.S. person, |
· | a controlled foreign corporation for U.S. federal tax purposes, |
· | a foreign person 50% or more of whose gross income is effectively connected with the conduct of a U.S. trade or business for a specified three-year period, or |
· | a foreign partnership, if at any time during its tax year: |
· | one or more of such foreign partnership’s partners are “U.S. persons,” as defined in U.S. Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or |
· | such foreign partnership is engaged in the conduct of a U.S. trade or business, unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish an exemption. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that you are a U.S. person. |
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You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by filing a refund claim with the IRS.
FATCA Withholding
Pursuant to sections 1471 through 1474 of the Code, commonly known as the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax (“FATCA withholding”) will be imposed on certain payments to you or to certain foreign financial institutions, investment funds and other non-U.S. persons receiving payments on your behalf if you or such persons fail to comply with certain information reporting requirements. Such payments will include U.S.-source dividends and the gross proceeds from the sale or other disposition of stock that can produce U.S.-source dividends. Payments of dividends that you receive in respect of our common stock will be affected by this withholding if you are subject to the FATCA information reporting requirements and fail to comply with them or if you hold our common stock through a non-U.S. person (e.g., a foreign bank or broker) that fails to comply with these requirements (even if payments to you would not otherwise have been subject to FATCA withholding). However, FATCA withholding will not apply to payments of gross proceeds from a sale or other disposition of shares of common stock before January 1, 2019. You should consult your own tax advisors regarding the relevant U.S. law and other official guidance on FATCA withholding.
Federal Estate Taxes
Shares of common stock held by a non-U.S. stockholder at the time of death will be included in the stockholder’s gross estate for U.S. Federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Other Tax Consequences
State or local taxation may apply to the Company and its stockholders in various state or local jurisdictions, including those in which the Company or its stockholders transact business or reside. The state and local tax treatment of the Company and its stockholders may not conform to the U.S. federal income tax consequences discussed above. Consequently, prospective stockholders should consult their own tax advisors regarding the effect of state and local tax laws on an investment in the Company.
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Subject to the terms and conditions set forth in the underwriting agreement between us and the underwriters named below, for whom FBR Capital Markets & Co. and Raymond James & Associates, Inc. are acting as representatives (the “Representatives”), we and the selling stockholders have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, the number of shares of our common stock listed next to its name in the following table:
Underwriter |
Number of
Shares |
|||
FBR Capital Markets & Co. | ||||
Raymond James & Associates, Inc. | ||||
Janney Montgomery Scott LLC | ||||
Wunderlich Securities, Inc. | ||||
Total | 7,109,851 |
Under the terms of the underwriting agreement, the underwriters are committed to purchase all of the shares offered by this prospectus (other than the shares subject to the underwriters’ option to purchase additional shares), if the underwriters buy any of such shares. The underwriters’ obligation to purchase the shares is subject to satisfaction of certain conditions, including, among others, the continued accuracy of representations and warranties made by us in the underwriting agreement, delivery of legal opinions and the absence of any material changes in our assets, business or prospects after the date of this prospectus.
The underwriters initially propose to offer the common stock directly to the public at the public offering price set forth on the front cover page of this prospectus and to certain dealers at such offering price less a concession not to exceed $ per share. After the initial public offering of the shares of common stock, the offering price and other selling terms may be changed by the underwriters. Sales of shares of common stock made outside the United States may be made by affiliates of certain of the underwriters.
Over-Allotment Option
We have granted to the underwriters an option to purchase up to 1,066,470 additional shares of our common stock at the same price per share as they are paying for the shares shown in the table above. The underwriters may exercise this option in whole or in part at any time within 30 days after the date of the underwriting agreement. To the extent the underwriters exercise this option, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares proportionate to that underwriters’ initial commitment as indicated in the table at the beginning of this section plus, in the event that any underwriter defaults in its obligation to purchase shares under the underwriting agreement, certain additional shares.
Discounts and Commissions
The following table shows the per share and total underwriting discounts and commissions we and the selling stockholders will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of our common stock.
Total | ||||||||||||
Per Share | No Exercise | Full Exercise | ||||||||||
Public Offering Price | $ | $ | $ | |||||||||
Underwriting discounts and commissions to be paid by: | ||||||||||||
Us | $ | $ | $ | |||||||||
The selling stockholders | $ | $ | $ | |||||||||
Total | $ | $ | $ | |||||||||
Proceeds, before expenses, to us | $ | $ | $ | |||||||||
Proceeds, before expenses, to the selling stockholders | $ | $ | $ |
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We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $3 million. We have agreed to reimburse the underwriters for (i) the reasonable legal fees and filing fees and other reasonable disbursements of counsel for the underwriters not to exceed $10,000 in connection with the qualification of the shares for offering and sale under state laws that the Company and the Representatives have mutually agreed are appropriate and (ii) the legal fees and other reasonable disbursements of counsel for the underwriters in the maximum amount of $20,000 in connection with the filing for review of the public offering of the shares by the Financial Industry Regulatory Authority.
Right of First Refusal
In connection with the private offering, we granted FBR Capital Markets & Co. a right of first refusal until January 31, 2017 to act (i) as lead underwriter and lead book runner in connection with any public offering of our equity or debt securities, including this offering, (ii) as sole placement agent for any private offering of our equity or debt securities, and (iii) as financial advisor in connection with any merger and acquisition advisory work where an investment banker represents us.
Listing
We intend to apply to have our common stock listed on the NYSE under the symbol “CLPR”.
Stabilization
In accordance with Regulation M under the Exchange Act, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including short sales and purchases to cover positions created by short positions, stabilizing transactions, syndicate covering transactions, penalty bids and passive market making.
· | Short positions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares or purchasing shares in the open market. |
· | Stabilizing transactions permit bids to purchase the underlying security as long as the stabilizing bids do not exceed a specific maximum price. |
· | Syndicate covering transactions involve purchases of our common stock in the open market after the distribution has been completed to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option to purchase additional shares. If the underwriters sell more shares than could be covered by the underwriters’ option to purchase additional shares, thereby creating a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
· | Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
· | In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchase shares of our common stock until the time, if any, at which a stabilizing bid is made. |
These activities may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result of these activities, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NYSE or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the Representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
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Indemnification We, the selling stockholders and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters or the selling stockholders may be required to make in respect of such liabilities.
Discretionary Accounts The underwriters have informed us that they do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the shares of our common stock being offered in this offering.
IPO Pricing Prior to the completion of this offering, there has been no public market for our common stock. The initial public offering price has been negotiated between us and the representatives of the underwriters. Among the factors considered in these negotiations are: the history of, and prospects for, us and the industry in which we compete; our past and present financial performance; an assessment of our management; the present state of our development; the prospects for our future earnings; the prevailing conditions of the applicable United States securities market at the time of this offering; previous trading prices for our common stock in the private market and market valuations of publicly traded companies that we and the representative believe to be comparable to us.
Lock-up Agreements We have agreed that for a period of 180 days after the date of the underwriting agreement, we will not, without the prior written consent of FBR Capital Markets & Co., which may be withheld or delayed in FBR Capital Markets & Co.’s sole discretion:
· | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer, directly or indirectly, any of Company common stock or any securities convertible into or exercisable or exchangeable for Company common stock, or file any registration statement under the Securities Act with respect to any of the foregoing; or |
· | enter into any swap or other arrangement that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of ownership of any of Company common stock, |
whether any such transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise. The prior sentence will not apply to (i) the shares to be sold pursuant to the underwriting agreement, (ii) filing of a registration statement and the sale of the shares of Company common stock in accordance with the terms of the Registration Rights Agreement, (iii) any shares of Company common stock issued by the Company upon the exercise of an option or other security outstanding on the date hereof, (iv) such issuances of options or grants of restricted stock or other equity-based awards under the Company’s stock option and incentive plans described and the issuance of shares issuable upon exercise of any such equity-based awards, (v) the filing by the Company of registration statements on Form S-8, (vi) issuances not to exceed 7.5% in the aggregate of the total shares of Company common stock outstanding, calculated following the issuance and sale of Company common stock pursuant to the underwriting agreement and assuming that all outstanding class B LLC units of the LLC subsidiaries are exchanged for shares of Company common stock, in connection with any acquisition, merger, consolidation or joint venture, including the filing of any registration statement under the Securities Act in connection therewith.
Each of our directors and our executive officers has agreed that for a period ending 180 days after the date of the underwriting agreement, none of them will, without the prior written consent of the Representatives which may be withheld or delayed in the Representatives’ sole discretion:
· | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer, directly or indirectly, any shares of Company common stock, or any securities convertible into or exercisable or exchangeable for Company common stock owned directly by such director or executive officer or with respect to which such director or executive officer has beneficial ownership; or |
· | enter into any swap or other arrangement that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of ownership of Common Stock, whether any such transaction described above is to be settled by delivery of Company common stock or such other securities, in cash or otherwise. |
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Notwithstanding the prior sentence, subject to applicable securities laws and the restrictions contained in our charter, our directors and executive officers may transfer our securities: (i) pursuant to the exercise or conversion of securities of the Company or any subsidiary of the Company, including, without limitation, options, warrants, notes, preferred stock, partnership interests or limited liability company interests; (ii) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth above; (iii) to any affiliate of such director or executive officer, which affiliate is a controlling person of such director or executive officer or a person or entity controlled by such director or executive officer, provided that the transferee agrees to be bound in writing by the restrictions set forth above; (iv) to any trust for the direct or indirect benefit of such director or executive officer or the immediate family of such director or executive officer, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth above; (v) to or from any grantor retained annuity trust established by such director or executive officer or to or from continuing trusts for such director or executive officer’s immediate family members, provided that the trustee of any trust agrees to be bound in writing by the restrictions set forth above; (vi) as an indirect or direct distribution to stockholders, partners or members of such director or executive officer, provided that such stockholders, partners, or members agree to be bound in writing by the restrictions set forth above; (vii) any transfer required under any benefit plans or the Company’s charter or bylaws; (viii) as required by participants in the Company’s stock incentive plan in order to reimburse or pay federal income tax and withholding obligations in connection with vesting of restricted stock grants, LTIP units or the exercise of stock options or warrants (ix) as collateral for any loan, provided that the lender agrees in writing to be bound by the restrictions set forth above; (x) in or in connection with any merger, consolidation, combination or sale of all or substantially all the assets of the Company where all the shareholders will receive equal consideration for their interests and in or in connection with any tender offer or other offer to purchase at least 90% of the Common Stock of the Company; or (xi) with respect to sales of Securities acquired after the closing of the initial public offering in the open market.
Notwithstanding the foregoing, nothing shall prevent our directors or executive officers from, or restrict their ability to, (i) purchase securities of the Company in a public or private transaction, purchase any exchange traded options or warrants based on shares of our common stock, or purchase other publicly traded securities of or related to the Company on the open market, (ii) exercise or convert any options, warrants or other convertible securities issued to or held by such director or executive officer, including those granted under any benefit plan of the Company, (iii) request the registration of any securities of the Company held by such director or executive officer pursuant to any registration rights agreement with the Company or (iv) sign a registration statement to be filed with the SEC.
Each of the selling stockholders has agreed, for a period of 180 days after the date of the underwriting agreement, that such selling stockholder will not, with the prior written consent of the Representatives which may be withheld or delayed in the Representatives’ sole discretion .
· | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to sell, or otherwise transfer or dispose of, directly or indirectly, any shares of Company common stock or any securities convertible into or exercisable or exchangeable for Company common stock (including without limitation, Company common stock or such other securities convertible into or exercisable or exchangeable for equity securities of the Company which may be deemed to be beneficially owned by such selling stockholder in accordance with the rules and regulations of the Commission and equity securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge or disposition; |
· | enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Company common stock or any such other securities, whether any such transaction described above is to be settled by delivery of Company common stock or such other securities, in cash or otherwise; or |
· | make any demand for or exercise any right with respect to the registration of any shares of Company common stock or any security convertible into or exercisable or exchangeable for Company common stock, other than the shares to be sold by such selling stockholder pursuant to the underwriting agreement. |
Notwithstanding the foregoing, subject to applicable securities laws and the restrictions contained in the Company’s charter, such selling stockholder may transfer any securities of the Company (including, without limitation, Company common stock) as follows: (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the same restrictions set forth above; (ii) to any trust for the direct or indirect benefit of such selling stockholder or the immediate family of such selling stockholder, provided that the trustee of the trust agrees to be bound in writing by the same restrictions set forth above; (iii) as a distribution to stockholders, partners or members of such selling stockholder, provided that such stockholders, partners or members agree to be bound in writing by the same restrictions set forth above; (iv) any transfer required under the Company’s amended and restated bylaws; (v) as collateral for any loan, provided that the lender agrees in writing to be bound by the same restrictions set forth above; or (vi) with respect to sales of securities acquired after the closing of the initial public offering in the open market.
Additionally, in connection with this offering, all of our other stockholders have agreed with us, to the extent requested by us or the lead managing underwriter(s), not to directly or indirectly sell, offer to sell, grant any option or otherwise transfer or dispose of our common stock for 180 days, in the case of the holders that are the selling stockholders in this offering and 60 days, in the case of the holders who are not selling stock in this offering, in each case after the effective date of the registration statement of which this prospectus forms a part.
Other Relationships
FBR Capital Markets & Co. was the sole initial purchaser and placement agent for the private offering, for which it was paid customary fees. FBR Capital Markets & Co. may in the future provide us and our affiliates with investment banking and financial advisory services for which FBR Capital Markets & Co. may in the future receive customary fees.
The Representatives in their sole discretion, may release, or authorize us to release, as the case may be, the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.
Electronic Distribution
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in the offering. The representative may allocate a number of shares to the underwriters and selling group members, if any, for sale to their online brokerage account holders. Any such allocations for online distributions will be made by the representative on the same basis as other allocations.
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Selling Restrictions
Notice to Prospective Investors in Canada
Prospective Canadian investors are advised that the information contained within this document has not been prepared with regard to matters that may be of particular concern to Canadian investors. Accordingly, prospective Canadian investors should consult with their own legal, financial and tax advisers concerning the information contained within this document and as to the suitability of an investment in our shares of common stock in their particular circumstances.
The offer and sale of our shares of common stock in Canada will only be made in the provinces of Alberta, British Columbia, Ontario and Québec or to residents thereof and not in, or to the residents of, any other province or territory of Canada. Such offers and sales will be made only under exemptions from the requirement to file a prospectus in the above mentioned provinces.
Our shares of common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions (“NI 45-106”) or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations . Any resale of our shares of common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this document (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (“NI 33-105”), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
We hereby notify prospective Canadian purchasers that: (a) we may be required to provide personal information pertaining to the purchaser as required to be disclosed in Schedule I of Form 45-106F1 under NI 45-106 (including its name, address, telephone number and the aggregate purchase price of any shares of common stock purchased) (“personal information”), which Form 45-106F1 may be required to be filed by us under NI 45-106, (b) such personal information may be delivered to the Ontario Securities Commission (the “OSC”) in accordance with NI 45-106, (c) such personal information is collected indirectly by the OSC under the authority granted to it under the securities legislation of Ontario, (d) such personal information is collected for the purposes of the administration and enforcement of the securities legislation of Ontario, and (e) the public official in Ontario who can answer questions about the OSC’s indirect collection of such personal information is the Administrative Support Clerk at the OSC, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, Telephone: (416) 593-3684. Prospective Canadian purchasers that purchase shares of our common stock in this offering will be deemed to have authorized the indirect collection of the personal information by the OSC, and to have acknowledged and consented to its name, address, telephone number and other specified information, including the aggregate purchase price paid by the purchaser, being disclosed to other Canadian securities regulatory authorities, and to have acknowledged that such information may become available to the public in accordance with requirements of applicable Canadian laws.
Upon receipt of this document, each Canadian purchaser hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque acheteur canadien confirme par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.
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Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to and is only directed at persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the Order, and/or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”).
This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom who is not a relevant person should not act or rely on this document or any of its contents.
Each underwriter has represented, warranted and agreed that:
(A) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, as amended, or the FSMA) received by it in connection with the issue or sale of the Shares in circumstances in which Section 21(1) of the FSMA does not apply to us; and |
(B) | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom. |
Notice to Prospective Investors in Switzerland
This document, as well as any other material relating to the shares which are the subject of the offering contemplated by this prospectus, do not constitute an issue prospectus pursuant to Article 652a and/or 1156 of the Swiss Code of Obligations. The shares will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the shares, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The shares are being offered in Switzerland by way of a private placement, i.e., to a small number of selected investors only, without any public offer and only to investors who do not purchase the shares with the intention to distribute them to the public. The investors will be individually approached by the issuer from time to time. This document, as well as any other material relating to the shares, is personal and confidential and do not constitute an offer to any other person. This document may only be used by those investors to whom it has been handed out in connection with the offering described herein and may neither directly nor indirectly be distributed or made available to other persons without express consent of the issuer. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.
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Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The securities have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the securities has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
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Notice to Prospective Investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of Non-CIS Securities may not be circulated or distributed, nor may the Non-CIS Securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Non-CIS Securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
a. | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
b. | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Non-CIS Securities pursuant to an offer made under Section 275 of the SFA except:
a. | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
b. | where no consideration is or will be given for the transfer; |
c. | where the transfer is by operation of law; |
d. | as specified in Section 276(7) of the SFA; or |
e. | as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
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The validity of the common stock offered hereby will be passed upon for us by Venable LLP. In addition, certain legal matters will be passed upon for us by Sullivan & Cromwell LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Vinson & Elkins L.L.P., Richmond, Virginia. Sidley Austin LLP has acted as counsel for the selling stockholders.
The consolidated and combined financial statements of Clipper Realty Inc. and Predecessor and schedule III as of December 31, 2015 and 2014 and for each of the two years in the period ended December 31, 2015 included in this prospectus and in the registration statement have been so included in reliance on the reports of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the registration statement, given on the authority of said firm as experts in auditing and accounting.
The statement of revenues and certain expenses of the Tribeca House properties for the year ended December 31, 2013 and the related notes to the statement included in this prospectus have been audited by Berdon LLP, independent public accountants, as stated in their report appearing herein.
The statement of revenues and certain expenses of the Aspen property for the year ended December 31, 2015 and the related notes to the statement included in this prospectus have been audited by Lipsky Goodkin & Co., P.C., independent public accountants, as stated in their report appearing herein.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-11 (including exhibits, schedules, and amendments) under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus does not contain all the information set forth in the registration statement. For further information about us and the shares of common stock to be sold in this offering, you should refer to the registration statement. Statements contained in this prospectus relating to the contents of any contract, agreement or other document are not necessarily complete and are qualified in all respects by the complete text of the applicable contract, agreement or other document.
You may read and copy all or any portion of the registration statement or any other information we file at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the operation of the public reference rooms. Our SEC filings, including the registration statement, are also available to you on the SEC’s website ( http://www.sec.gov ).
In connection with this offering we will become subject to the information and periodic reporting requirements of the Exchange Act. Under the Exchange Act, we will file annual, quarterly and current reports, as well as proxy statements and other information with the SEC. These periodic reports, proxy statements, and other information will be available for inspection and copying at the SEC’s Public Reference Room and the website of the SEC referred to above. We intend to make this information available on the investor relations section of our website, www.clipperrealty.com. Information on, or accessible through, our website is not part of this prospectus.
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INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
F- 1
Report of Independent Registered Public Accounting Firm
Members of Clipper Realty Inc. and Predecessor
Brooklyn, NY 11219
We have audited the accompanying consolidated and combined balance sheets of Clipper Realty Inc. and Predecessor (the “Company”) as of December 31, 2015 and 2014, and the related consolidated and combined statements of operations, equity and cash flows for the years then ended. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Opinion
In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of Clipper Realty Inc. and Predecessor as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Also in our opinion, the financial statements schedule, when considered in relation to the basic consolidated and combined financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ BDO USA, LLP
New York, NY
March 30, 2016
F- 2
Clipper Realty Inc. and Predecessor
Consolidated and Combined Balance Sheets
(In thousands, except for share data)
September 30,
2016 |
December 31,
2015 |
Predecessor
December 31, 2014 |
||||||||||
(unaudited) | ||||||||||||
ASSETS | ||||||||||||
Investment in real estate | ||||||||||||
Land and improvements | $ | 434,097 | $ | 384,437 | $ | 384,350 | ||||||
Building and improvements | 430,008 | 376,225 | 368,598 | |||||||||
Tenant improvements | 2,986 | 2,525 | 2,485 | |||||||||
Furniture, fixtures and equipment | 8,892 | 7,592 | 6,321 | |||||||||
Total Investment in real estate | 875,983 | 770,779 | 761,754 | |||||||||
Accumulated depreciation | (54,517 | ) | (44,672 | ) | (33,010 | ) | ||||||
Investment in real estate, net | 821,466 | 726,107 | 728,744 | |||||||||
Cash and cash equivalents | 82,101 | 125,332 | 9,157 | |||||||||
Restricted cash | 14,196 | 9,962 | 5,876 | |||||||||
Tenant and other receivables, net of allowance for doubtful accounts of $2,495 (unaudited), $2,534 and $2,600, respectively | 3,927 | 1,476 | 4,111 | |||||||||
Deferred rent | 3,941 | 3,881 | 3,990 | |||||||||
Deferred costs and intangible assets, net | 14,879 | 5,267 | 7,258 | |||||||||
Prepaid expenses and other assets | 22,599 | 9,093 | 7,720 | |||||||||
TOTAL ASSETS | $ | 963,109 | $ | 881,118 | $ | 766,856 | ||||||
LIABILITIES AND EQUITY | ||||||||||||
Notes payable, net of unamortized loan costs of $6,820 (unaudited), $7,303 and $13,252, respectively | $ | 807,893 | $ | 713,440 | $ | 708,228 | ||||||
Accounts payable and accrued liabilities | 7,593 | 5,326 | 4,944 | |||||||||
Security deposits | 6,267 | 5,558 | 5,460 | |||||||||
Below-market leases, net | 7,269 | 7,848 | 9,562 | |||||||||
Other liabilities | 2,930 | 2,569 | 1,465 | |||||||||
TOTAL LIABILITIES | $ | 831,952 | $ | 734,741 | $ | 729,659 | ||||||
Preferred stock, $0.01 par value, 12.5% Series A Cumulative Non-Voting Preferred Stock; $137,500 liquidation preference, 132 shares issued and outstanding | – | – | – | |||||||||
Common stock, $0.01 par value, 500,000,000 shares authorized, 11,422,606 issued and outstanding | 114 | 114 | – | |||||||||
Additional paid-in-capital | 46,483 | 46,049 | – | |||||||||
Accumulated deficit | (6,901 | ) | (1,860 | ) | – | |||||||
Predecessor equity (members’ capital) | – | – | 37,197 | |||||||||
Total stockholders’ and predecessor equity | 39,696 | 44,303 | 37,197 | |||||||||
Non-controlling interests | 91,461 | 102,074 | – | |||||||||
TOTAL EQUITY | 131,157 | 146,377 | 37,197 | |||||||||
TOTAL LIABILITIES AND EQUITY | $ | 963,109 | $ | 881,118 | $ | 766,856 |
See accompanying notes to these consolidated and combined financial statements.
F- 3
Clipper Realty Inc. and Predecessor
Consolidated and Combined Statements of Operations
(In thousands)
Nine Months Ended
September 30, |
Years Ended
December 31, |
|||||||||||||||
2016 | 2015 | 2015 | 2014 | |||||||||||||
(unaudited) | ||||||||||||||||
REVENUES | ||||||||||||||||
Residential rental income | $ | 49,405 | $ | 45,596 | $ | 60,784 | $ | 31,413 | ||||||||
Commercial income | 13,843 | 13,042 | 17,256 | 12,382 | ||||||||||||
Tenant recoveries | 2,969 | 2,651 | 3,477 | 2,415 | ||||||||||||
Garage and other income | 2,550 | 2,315 | 3,087 | 1,562 | ||||||||||||
TOTAL REVENUES | 68,767 | 63,604 | 84,604 | 47,772 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Property operating expenses | 18,885 | 17,691 | 23,283 | 19,673 | ||||||||||||
Real estate taxes and insurance | 13,023 | 10,904 | 14,926 | 6,560 | ||||||||||||
General and administrative | 6,317 | 3,266 | 5,296 | 2,358 | ||||||||||||
Acquisition costs | 407 | – | 75 | 326 | ||||||||||||
Depreciation and amortization | 10,646 | 9,656 | 12,521 | 4,472 | ||||||||||||
TOTAL OPERATING EXPENSES | 49,278 | 41,517 | 56,101 | 33,389 | ||||||||||||
INCOME FROM OPERATIONS | 19,489 | 22,087 | 28,503 | 14,383 | ||||||||||||
Interest expense, net | (28,749 | ) | (27,728 | ) | (36,703 | ) | (9,145 | ) | ||||||||
Net (loss) income | $ | (9,260 | ) | $ | (5,641 | ) | $ | (8,200 | ) | $ | 5,238 | |||||
Less: | ||||||||||||||||
Net loss attributable to Predecessor | – | 3,690 | 3,690 | |||||||||||||
Net loss attributable to non-controlling interests | 6,457 | 1,361 | 3,145 | |||||||||||||
Dividends attributable to preferred shares | (11 | ) | – | – | ||||||||||||
Net loss attributable to common stockholders | $ | (2,814 | ) | $ | (590 | ) | $ | (1,365 | ) | |||||||
Basic and diluted loss per share | $ | (0.25 | ) | $ | (0.05 | ) | $ | (0.12 | ) |
See accompanying notes to these consolidated and combined financial statements.
F- 4
Clipper Realty Inc. and Predecessor
Consolidated and Combined Statements of Equity
(In thousands, except for share data)
Preferred
Shares |
Number of
common shares |
Common
Stock |
Additional
paid-in- capital |
Accumulated
deficit |
Predecessor
Equity |
Total
Stockholders’ and Predecessor equity |
Non-
controlling interests |
Total equity | ||||||||||||||||||||||||||||
Predecessor | ||||||||||||||||||||||||||||||||||||
Balance December 31, 2013 | – | – | – | – | – | (4,664 | ) | (4,664 | ) | – | (4,664 | ) | ||||||||||||||||||||||||
Contributions | – | – | – | – | – | 104,073 | 104,073 | – | 104,073 | |||||||||||||||||||||||||||
Distributions | – | – | – | – | – | (67,450 | ) | (67,450 | ) | – | (67,450 | ) | ||||||||||||||||||||||||
Net (loss) Income | – | – | – | – | – | 5,238 | 5,238 | – | 5,238 | |||||||||||||||||||||||||||
Balance December 31, 2014 | – | – | – | – | – | 37,197 | 37,197 | – | 37,197 | |||||||||||||||||||||||||||
Contributions | – | – | – | – | – | 2,357 | 2,357 | – | 2,357 | |||||||||||||||||||||||||||
Distributions | – | – | – | – | – | (14,233 | ) | (14,233 | ) | – | (14,233 | ) | ||||||||||||||||||||||||
Net Loss | – | – | – | – | – | (3,690 | ) | (3,690 | ) | – | (3,690 | ) | ||||||||||||||||||||||||
Balance August 3, 2015 | – | – | – | – | – | 21,631 | 21,631 | – | 21,631 | |||||||||||||||||||||||||||
Clipper Realty Inc. | ||||||||||||||||||||||||||||||||||||
Net proceeds from sale of common shares | – | 10,666,667 | $ | 107 | $ | 130,092 | $ | – | $ | – | $ | 130,199 | $ | – | $ | 130,199 | ||||||||||||||||||||
Formation transaction | – | 755,939 | 7 | (84,043 | ) | – | (21,631 | ) | (105,667 | ) | 105,667 | – | ||||||||||||||||||||||||
Amortization of LTIP grants | – | – | – | – | – | – | – | 709 | 709 | |||||||||||||||||||||||||||
Dividends and distributions | – | – | – | – | (495 | ) | – | (495 | ) | (1,157 | ) | (1,652 | ) | |||||||||||||||||||||||
Net loss | – | – | – | – | (1,365 | ) | – | (1,365 | ) | (3,145 | ) | (4,510 | ) | |||||||||||||||||||||||
Balance December 31, 2015 | – | 11,422,606 | 114 | 46,049 | (1,860 | ) | – | 44,303 | 102,074 | 146,377 | ||||||||||||||||||||||||||
Costs in connection with issuance of common and preferred shares | – | – | $ | – | $ | (526 | ) | $ | – | $ | – | $ | (526 | ) | $ | – | $ | (526 | ) | |||||||||||||||||
Proceeds from issuance of 132 preferred shares | 132 | – | – | 132 | – | – | 132 | – | 132 | |||||||||||||||||||||||||||
Amortization of LTIP grants | – | – | – | – | – | – | – | 1,891 | 1,891 | |||||||||||||||||||||||||||
Dividends and distributions | – | – | – | – | (2,238 | ) | – | (2,238 | ) | (5,219 | ) | (7,457 | ) | |||||||||||||||||||||||
Net loss | – | – | – | – | (2,803 | ) | – | (2,803 | ) | (6,457 | ) | (9,260 | ) | |||||||||||||||||||||||
Reallocation of noncontrolling interest | – | – | – | 828 | – | – | 828 | (828 | ) | – | ||||||||||||||||||||||||||
Balance September 30, 2016 (unaudited) | $ | 132 | 11,422,606 | $ | 114 | $ | 46,483 | $ | (6,901 | ) | $ | – | $ | 39,696 | $ | 91,461 | $ | 131,157 |
See accompanying notes to these consolidated and combined financial statements.
F- 5
Clipper Realty Inc. and Predecessor
Consolidated and Combined Statements of Cash Flows
(In thousands)
See accompanying notes to these consolidated and combined financial statements.
F- 6
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
1. Organization
Clipper Realty Inc. (the “Company” or “We”) was organized in the state of Maryland on July 7, 2015. On August 3, 2015, we completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLC’s”) that comprise the Predecessor, as described below, in exchange for class A LLC units in such LLC’s and became the managing member of such LLC’s. The owners of the LLC’s exchanged their interests for class B LLC units and an equal number of special, non-economic, voting stock in the Company. The class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a one-for-one basis and are entitled to distributions.
The predecessor to the Company (the “Predecessor”) was a combination of four limited liability companies, including one formed in 2014 in connection with the acquisition of a property on December 15, 2014. The Predecessor did not represent a legal entity. The LLC’s that comprised the Predecessor and the Company at formation were under common control.
On December 15, 2014, the Predecessor acquired the properties at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of Manhattan, New York. On June 27, 2016, the Operating Partnership acquired the property at 1955 First Avenue in Manhattan, known as the Aspen (“Aspen”), with approximately 186,582 square feet of GLA. As a result, as of September 30, 2016, the properties owned by the Company consist of the following (collectively, the “Properties”):
· | Tribeca House properties in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 480,000 square feet of residential rental Gross Leasable Area (“GLA”) and 77,236 of rental retail and parking GLA; |
· | Flatbush Gardens in Brooklyn, comprised of a 59-building multi-family housing complex with 2,496 rentable units; |
· | 141 Livingston Street in Brooklyn, a 15-story office building with approximately 216,073 square feet of GLA; |
· | 250 Livingston Street in Brooklyn, a 12-story office and residential building with approximately 294,378 square feet of GLA; and |
· | Aspen property in Manhattan, a seven-story building containing residential and retail space with approximately 166,000 square feet of residential rental GLA and approximately 21,000 of rental retail GLA. |
Following completion of the private offering and the formation transactions, the operations of the Clipper Realty, Inc. and its consolidated subsidiaries (the “Company”) have been carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code. The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLC’s that comprise the Predecessor.
The Company’s interest, through the operating partnership, in the LLC subsidiaries comprising the Predecessor generally entitles it to 30.3% of the aggregate cash distributions from, and the profits and losses of, the LLC subsidiaries. The Company, through the operating partnership, owns all of the ownership interests in the Aspen property.
As further discussed in Note 3, upon adoption of ASU 2015-02, the Company determined that the LLCs comprising the Predecessor were variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities as of December 31, 2015 and 2014. As of September 30, 2016, the assets of these VIEs were $843.1 million (87.5% of total assets) and the liabilities of these VIEs were $761.7 million (91.6% of total liabilities).
2. Sale of Common Stock and Formation Transactions
On August 3, 2015, the Company sold 10,666,667 shares of common stock to private investors at a price of $13.50 per share. The proceeds, net of offering costs, were approximately $130,199.
The Company contributed the net proceeds of the common stock offering to the Operating Partnership in exchange for units in the Operating Partnership as described in Note 1. Following the other transactions described in Note 1, substantially all the net proceeds raised were available to the Company.
The following is a summary of the Company’s Statement of Operations for the period from August 3, 2015 through December 31, 2015 and the Predecessor’s Statements of Operations for the period from January 1, 2015 through August 2, 2015. These amounts are included in the consolidated and combined statement of operations herein for the year ended December 31, 2015. All balances as of December 31, 2014 are those of the Predecessor.
F- 7
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
Clipper Realty Inc. | Predecessor | |||||||
August
3, 2015
-
|
January
1, 2015
-
|
|||||||
REVENUES | ||||||||
Residential rental income | $ | 24,902 | $ | 35,882 | ||||
Commercial income | 7,091 | 10,165 | ||||||
Tenant recoveries | 1,433 | 2,044 | ||||||
Garage and other income | 1,779 | 1,308 | ||||||
TOTAL REVENUES | 35,205 | 49,399 | ||||||
OPERATING EXPENSES | ||||||||
Property operating expenses | 9,611 | 13,672 | ||||||
Real estate taxes and insurance | 6,774 | 8,152 | ||||||
General and administrative | 2,861 | 2,435 | ||||||
Acquisition costs | 75 | – | ||||||
Depreciation and amortization | 5,292 | 7,229 | ||||||
TOTAL OPERATING EXPENSES | 24,613 | 31,488 | ||||||
INCOME FROM OPERATIONS | 10,592 | 17,911 | ||||||
Interest expense, net | (15,102 | ) | (21,601 | ) | ||||
Net loss | (4,510 | ) | (3,690 | ) | ||||
Less: | ||||||||
Net loss attributable to non-controlling interests | 3,145 | |||||||
Net loss attributable to stockholders | $ | (1,365 | ) |
3. Significant Accounting Policies
Basis of Consolidation and Combination
The accompanying consolidated and combined financial statements of the Company and the Predecessor are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The effect of all intercompany balances has been eliminated. The consolidated and combined financial statements include the accounts of all entities in which the Company and the Predecessor have a controlling interest. The ownership interests of other investors in these entities are recorded as noncontrolling interest. The Predecessor entities have been combined on the basis that, for the periods presented, such entities were under common control.
Unaudited Interim Financial Information
The unaudited consolidated and combined financial statements for the periods ended September 30, 2016 and 2015 have been prepared in accordance with GAAP for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished in the accompanying consolidated financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the aforementioned consolidated financial statements for the interim periods.
F- 8
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
3. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.
Investment in Real Estate
Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. During the year ended December 31, 2014, the Predecessor wrote off $3,261 of fully depreciated tenant improvements. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy.
Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commission, legal and other related expenses.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. Management of the Company does not believe that any of its properties within the portfolio are impaired as of September 30, 2016 and December 31, 2015 and 2014.
F- 9
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
3. Significant Accounting Policies (cont.)
For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held for sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next twelve months. Real estate held for sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for sale properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held-for-sale properties are capitalized at cost. Depreciation is not recorded on real estate held for sale.
If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).
Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Building and improvements | 30–40 years |
Tenant improvements | Shorter of useful life or lease term |
Furniture, fixtures and equipment | 3–15 years |
The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases are amortized to expense over the remaining initial terms of the respective leases.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand and in banks plus all short-term investments with a maturity of three months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times, may exceed the federally insured limit. No losses have been experienced related to such accounts.
Restricted Cash
Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs and capital improvements and security deposits.
F- 10
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
3. Significant Accounting Policies (cont.)
Tenant and Other Receivables and Allowance for Doubtful Accounts
Tenant and other receivables are comprised of amounts due for monthly rents and other charges. The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. If a tenant fails to make contractual payments beyond any allowance, the Company may recognize additional bad debt expense in future periods.
Deferred Costs
Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases.
Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated and combined financial statements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Cost incurred in seeking financing transactions which do not close are expensed in the period the financing transaction is terminated.
Comprehensive Income
Comprehensive income is comprised of net income adjusted for changes in unrealized gains and losses, reported in equity, for financial instruments required to be reported at fair value under GAAP. For the nine months ended September 30, 2016 and the years ended December 31, 2015 and 2014, the Company did not own any financial instruments for which the change in value was not reported in net income accordingly and its comprehensive income was its net income as presented in the consolidated and combined statements of operations.
Revenue Recognition
Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Rental income attributable to residential leases and parking is recognized as earned, which is not materially different from the straight-line basis. Leases entered into by a resident for an apartment unit are generally for a one year term, renewable upon consent of both parties on an annual or monthly basis. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.
Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs.
F- 11
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
3. Significant Accounting Policies (cont.)
Stock-based Compensation
The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, “Compensation - Stock Compensation.” As such, all equity based awards are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date of grant.
The following is a summary of awards during the year ended December 31, 2015 and the nine months ended September 30, 2016.
Unvested Restricted Shares and LTIP Units | LTIP Units |
Weighted
Grant-Date Fair Value |
||||||
Unvested at December 31, 2014 | – | $ | – | |||||
Granted | 378,333 | 13.50 | ||||||
Vested | – | – | ||||||
Forfeited | – | – | ||||||
Unvested at December 31, 2015 | 378,333 | $ | 13.50 | |||||
Granted | 123,148 | $ | 13.50 | |||||
Vested | (17,964 | ) | – | |||||
Forfeited | – | – | ||||||
Unvested at September 30, 2016 (unaudited) | 483,517 | $ | 13.50 |
As of September 30, 2016 and December 31, 2015, there was $4.1 million and $6.0 million, respectively, of total unrecognized compensation cost related to unvested share- based compensation arrangements granted under share incentive plans. As of September 30, 2016, the weighted average period over which the unrecognized compensation expense will be recorded is approximately 1.7 years.
On August 8, 2016, the Company granted 15,742 LTIP units to a non-employee director, with an estimated fair value of approximately $212,000. During the third quarter, $175,000 of the fair value was recognized, and the remaining portion will be recognized in the fourth quarter.
Income Taxes
The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the U.S. Internal Revenue Code (the “Code”) commencing with its taxable year ended December 31, 2015. To qualify as a REIT, the Company is required to distribute dividends equal to at least 90% of the REIT taxable income (computed without regard to the dividends paid deduction and net capital gains) to its stockholders, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, it is generally not subject to U.S. federal corporate-level income tax on the earnings distributed currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax. In addition, the Company may not be able to re-elect as a REIT for the four subsequent taxable years. The entities comprising the Predecessor are limited liability companies and are treated as pass-through entities for income tax purposes. Accordingly, no provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated and combined financial statements.
In accordance with the FASB ASC Topic 740, the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on its or the Predecessor’s financial position or results of operation. The prior three years’ income tax returns are subject to review by the Internal Revenue Service.
The Company has determined that the cash distributed to the stockholders is characterized as follows for Federal income tax purposes:
For the year
ended December 31, 2015 |
||||
Ordinary income | – | |||
Capital gain | – | |||
Return of capital | 100 | % | ||
100 | % |
F- 12
Clipper Realty
Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
Fair Value Measurements
Refer to Note 9, “Fair Value of Financial Instruments”.
Derivative Financial Instruments
The FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by the FASB guidance, the Company records all derivatives on the consolidated and combined balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.
Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the fair value or cash flows of the derivative hedging instrument with the changes in the fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value would be recognized in earnings.
Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding. As of September 30, 2016, the Company has unvested LTIP Units (Note 3) which provide for non-forfeitable rights to dividend equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic and diluted earnings (loss) per share pursuant to the two-class method. The Company does not have diluted securities as of December 31, 2015 or September 30, 2016.
The effect of the conversion of the 26,317 Class B LLC units outstanding is not reflected in the computation of basic and diluted earnings (loss) per share, as the effect would be anti-dilutive. The income (loss) allocable to such units is reflected as noncontrolling interests in the accompanying consolidated and combined financial statements.
The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods indicated:
(dollar in thousands, except per share amounts) |
Nine Months Ended
September 30, 2016 |
Year Ended
December 31, 2015 |
||||||
(unaudited) | ||||||||
Numerator | ||||||||
Net loss attributable to common stockholders | $ | (2,814 | ) | $ | (1,365 | ) | ||
Less: net income attributable to participating securities | (87 | ) | (16 | ) | ||||
(2,901 | ) | (1,381 | ) | |||||
Denominator | ||||||||
Common shares outstanding | 11,423 | 11,423 | ||||||
Basic and diluted loss per share attributable to common stockholders | $ | (0.25 | ) | $ | (0.12 | ) |
F- 13
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
3. Significant Accounting Policies (cont.)
Recently Issued Pronouncements
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows (Topic 230)”, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This standard will be effective for the first annual reporting period beginning after December 15, 2017. The Company is currently evaluating the effect that ASU No. 2016-15 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor does not convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.
In October 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-16, “Business Combination (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.” The amendments require adjustments to provisional amounts that are identified during the measurement period, including the cumulative effect of changes in depreciation, amortization, or other income effects to be recognized in the current-period financial statements. Prior periods should no longer be adjusted. The new standard takes effect in 2016 for public companies and early adoption is permitted. ASU 2015-16 is not expected to have a material impact on the Company’s consolidated and combined financial statements.
In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 revises Subtopic 835-30 to require that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Prior to the amendments, debt issuance costs were presented as a deferred charge (i.e., an asset) on the balance sheet. The amendments also require the amortization of debt issuance costs to be reported as interest expense, which we believe is largely consistent with current practice. Similarly, debt issuance costs and any discount or premium are considered in the aggregate when determining the effective interest rate on the debt. The amendments are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The amendments are effective for all other entities for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. The amendments must be applied retrospectively. All entities have the option of adopting the new requirements as of an earlier date for financial statements that have not been previously issued. Applicable disclosures for a change in an accounting principle are required in the year of adoption, including interim periods. On January 1, 2016, the Company adopted ASU 2015-03. Accordingly, deferred financing costs, as of December 31, 2015 and 2014 of $7,303 and $13,252, respectively, have been reclassified from assets to liabilities in the consolidated and combined balance sheets.
On January 1, 2016, the Company adopted ASU 2015-02, “Consolidation—Amendments to the Consolidation Analysis.” ASU 2015-02 modified the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, particularly those that have fee arrangements and related party relationships. Additionally, the amendments eliminate the presumption that a general partner should consolidate a limited partnership. Consolidated VIE’s are those of which the Company is considered to be the primary beneficiary. The primary beneficiary is the entity that has a controlling financial interest in the VIE, which is defined by the entity having both the following characteristics: 1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance, and 2) the obligation to absorb losses or the right to receive the returns from the VIE that could potentially be significant to the VIE. The Company reviewed all of its entities in accordance with ASU 2015-02 and concluded that the LLCs comprising the Predecessor, which had previously been consolidated, are now VIEs. As a result of the classification of the LLCs as VIE, substantially all of the Company’s assets and liabilities are assets and liabilities of VIEs. There were not entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption. Accordingly, the adoption of ASU 2015-02 had no impact on the Company’s consolidated and combined financial statements.
During January 2015, the FASB issued ASU 2015-01, “Income Statement—Extraordinary and Unusual Items.” ASU 2015-01 eliminates the concept of extraordinary items. However, the presentation and disclosure requirements for items that are either unusual or in nature or infrequent in occurrence remain and will be expanded to include items that are both unusual in nature and infrequent in occurrence. ASU 2015-01 is effective for periods beginning after December 15, 2015. ASU 2015-01 does not have a material impact on the Company’s consolidated and combined financial statements.
During August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements—Going Concern.” ASU 2014-15 requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. ASU 2014-15 is effective for periods beginning after December 15, 2016. ASU 2014-15 is not expected to have a material impact on the Company’s consolidated and combined financial statements.
F- 14
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
3. Significant Accounting Policies (cont.)
During June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” ASU 2014-12 provides explicit guidance on how to account for share-based payments that require a specific performance target to be achieved which may be achieved after an employee completes the requisite service period. ASU 2014-12 is effective for periods beginning after December 15, 2015 and may be applied either prospectively or retrospectively. ASU 2014-12 does not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those good or services. For the real estate industry, leasing transactions are not within the scope of the new standard. A majority of our tenant-related revenue is recognized pursuant to lease agreements. The FASB has subsequently issued several additional ASUs to clarify the implementation guidance on principal versus agent considerations, identifying performance obligations, assessing collectability, presentation of sales taxes and other similar taxes collected from customers, non-cash consideration, contract modifications and completed contracts at transition. These ASUs are effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted for annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of the adoption of these ASUs on its consolidated financial statements.
Reclassifications
Certain amounts included in December 31, 2015 and 2014 consolidated financial statements have been reclassified to conform to the September 30, 2016 presentation. There was no effect on operations or equity related to these reclassifications.
F- 15
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
4. Acquisition
On December 15, 2014, the Predecessor acquired the Tribeca House properties for $557,280. The purchase price consisted of the following:
Cash paid | $ | 222,280 | ||
Mortgage debt assumed | 335,000 | |||
$ | 557,280 |
The purchase price was allocated as follows:
Land | $ | 273,103 | ||
Buildings | 282,015 | |||
Tenant improvements | 288 | |||
Furniture, fixtures and equipment | 834 | |||
Above-market leases | 36 | |||
Below-market leases | (4,911 | ) | ||
In-place leases | 1,562 | |||
Lease origination costs | 556 | |||
Interest rate caps | 369 | |||
Real estate tax abatements | 3,428 | |||
$ | 557,280 |
On June 27, 2016, the Company acquired the Aspen property for $103,000.
The purchase price was allocated as follows (unaudited):
Land | $ | 49,569 | ||
Buildings | 42,226 | |||
Tenant improvements | 26 | |||
Site improvements | 91 | |||
Furniture, fixtures and equipment | 304 | |||
Above-market leases | 448 | |||
Below-market leases | (790 | ) | ||
In-place leases | 1,103 | |||
Lease origination costs | 800 | |||
Real estate tax abatements | 9,223 | |||
$ | 103,000 |
We have prepared the following unaudited pro forma income statement information for the nine months ended September 30, 2016 as if the acquisition had occurred as of January 1, 2015. The pro forma data is not necessarily indicative of the results that actually would have occurred if the acquisition had been consummated on January 1, 2015.
Nine Months Ended
September 30, 2016 |
Year Ended
December 31, 2015 |
|||||||
(unaudited) | ||||||||
Revenue | $ | 71,927 | $ | 91,085 | ||||
Total expenses | (81,612 | ) | (99,937 | ) | ||||
Net loss | $ | (9,685 | ) | $ | (8,852 | ) |
F- 16
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
5. Deferred Costs and Intangible Assets
Deferred costs and intangible assets consist of the following:
September 30,
2016 |
December 31,
2015 |
December 31,
2014 |
||||||||||
(unaudited) | ||||||||||||
Lease origination costs | $ | 3,087 | $ | 2,079 | $ | 3,318 | ||||||
In-place lease | 7,559 | 6,254 | 6,254 | |||||||||
Real estate tax abatements | 14,629 | 5,406 | 5,406 | |||||||||
Other | 63 | – | – | |||||||||
25,338 | 13,739 | 14,978 | ||||||||||
Less accumulated amortization | (10,459 | ) | (8,472 | ) | (7,720 | ) | ||||||
Total deferred costs and intangible assets, net | $ | 14,879 | $ | 5,267 | $ | 7,258 |
Amortization of lease origination costs and in-place lease intangible assets was $801 and $602 for the nine months ended September 30, 2016 and 2015, respectively, and $860 and $438 for the years ended December 31, 2015 and 2014, respectively. Amortization of real estate abatements of $1,186 and $996 for the nine months ended September 30, 2016 and 2015, respectively, and $1,328 and $238 for the years ended December 31, 2015 and 2014, respectively, is included in real estate taxes and insurance in the consolidated and combined statements of operations.
Deferred costs and intangible assets as of December 31, 2015 amortize to expenses in future years as follows:
2016 | $ | 2,101 | ||||
2017 | 1,838 | |||||
2018 | 565 | |||||
2019 | 343 | |||||
2020 | 103 | |||||
Thereafter | 317 | |||||
Total | $ | 5,267 |
6. Above and Below-Market Lease Intangibles
The Company’s above-market lease intangibles assets and liabilities are included in prepaid expense and other assets and are as follows:
September
30,
2016 |
||||||||||||
(unaudited) | ||||||||||||
Above-market leases | $ | 448 | ||||||||||
Less accumulated amortization | (11 | ) | ||||||||||
$ | 437 |
The Company’s below-market lease intangibles assets and liabilities are as follows:
September 30,
2016 |
December 31,
2015 |
December 31,
2014 |
||||||||||
(unaudited) | ||||||||||||
Below-market leases | $ | 23,184 | $ | 22,395 | $ | 22,400 | ||||||
Less accumulated amortization | (15,915 | ) | $ | (14,547 | ) | (12,838 | ) | |||||
$ | 7,269 | $ | 7,848 | $ | 9,562 |
Rental income includes amortization of above and below-market leases of $1,357 and $1,286 for the nine months ended September 30, 2016 and 2015, respectively, and $1,714 and $1,450 for the years ended December 31, 2015 and 2014, respectively.
F- 17
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
6. Below-Market Lease Intangibles (cont.)
The balance of below-market leases as of December 31, 2015 amortize to rental income in future years as follows:
2016 | $ | 1,719 | |||
2017 | 1,715 | ||||
2018 | 1,715 | ||||
2019 | 1,201 | ||||
2020 | 424 | ||||
Thereafter | 1,074 | ||||
Total | $ | 7,848 |
7. Notes Payable
The first mortgages and mezzanine notes payable collateralized by the respective properties, or the Company’s interest in the entities that own the properties and assignment of leases were as follows:
Property | Maturity | Interest Rate |
September
30,
2016 |
December 31,
2015 |
December 31,
2014 |
|||||||||||||||
(unaudited) | ||||||||||||||||||||
Flatbush Gardens, Brooklyn, NY | 10/1/2024 | 3.88 | % | $ | 150,000 | $ | 150,000 | $ | 150,000 | |||||||||||
Flatbush Gardens, Brooklyn, NY | 10/1/2024 | 3.88 | % | 20,000 | 20,000 | 20,000 | ||||||||||||||
250 Livingston Street, Brooklyn, NY | 5/6/2023 | 4.00 | % | 35,213 | 35,743 | 36,480 | ||||||||||||||
141 Livingston Street, Brooklyn, NY | 7/9/2016 | LIBOR + 3.25 | % | – | 55,000 | 55,000 | ||||||||||||||
141 Livingston Street, Brooklyn, NY | 6/1/2028 | 3.875 | % | 79,500 | – | – | ||||||||||||||
Tribeca House properties, NY | 11/9/2016 | LIBOR + 3.40 | % | 360,000 | 360,000 | 360,000 | ||||||||||||||
Tribeca House properties, NY | 11/9/2016 | LIBOR + 7.38 | % | 100,000 | 100,000 | 100,000 | ||||||||||||||
Aspen property, NY | 7/1/2028 | 3.68 | % | 70,000 | – | – | ||||||||||||||
$ | 814,713 | $ | 720,743 | $ | 721,480 | |||||||||||||||
Unamortized debt issuance costs | $ | (6,820 | ) | $ | (7,303 | ) | $ | (13,252 | ) | |||||||||||
Total debt net of debt issuance costs |
$ | 807,893 | $ | 713,440 | $ | 708,228 |
On September 24, 2012, the Predecessor entered into a $150,000 mortgage note agreement with New York Community Bank. The loan matures on October 1, 2024 and bears interest at a fixed-rate of interest of 3.88%. The note requires interest only payments through April 2017 and monthly principal and interest payments thereafter based on a 30-year amortization.
On May 1, 2013, the Predecessor entered into a mortgage note agreement with Citigroup Global Markets Realty Corp. for $37,500 that requires monthly principal and interest payments of $179, bears interest of 4.00% and matures on May 6, 2023.
On October 31, 2014, the Predecessor entered into an additional $20,000 note with New York Community Bank. This note is coterminous with the above $150,000 mortgage, matures on October 1, 2024 and bears interest at 3.88% through September 2019 and thereafter at prime plus 2.75%, subject to an option to fix the rate. The note requires interest only payments through April 2017, monthly principal and interest payments of $94 from May 2017 through September 2019 based on a 30 year amortization schedule and principal and interest payments thereafter based on the remaining period of the initial 30-year amortization schedule.
F- 18
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
7. Notes Payable (cont.)
On December 12, 2014, the Predecessor entered into a $55,000 loan agreement related to the property at 141 Livingston Street, Brooklyn, New York with Citigroup Global Markets Inc. On May 11, 2016, the Company repaid the $55,000 loan from the proceeds of a new $79,500 loan from New York Community Bank. The new loan matures on June 1, 2028, and bears interest at 3.875%. The note requires interest only payments through June 2017, monthly principal and interest payments of $374 from July 2017 through June 2028 based on a 30 year amortization schedule and principal and interest payments thereafter based on the remaining period of the initial 30-year amortization schedule.
In connection with the purchase of the Tribeca House properties, on December 15, 2014, the Predecessor assumed a $335,000 mortgage note with Deutsche Bank (“DB”) and entered into additional $25,000 and $100,000 mortgage note and mezzanine note agreements with DB and SL Green Finance, respectively. The mortgage and mezzanine loans mature on November 9, 2016 and bear interest at one-month LIBOR plus 3.40% and 7.38%, respectively (3.731% and 7.572% respectively at December 31, 2015). The notes are subject to three one-year extension options.
On November 9, 2016, the Company refinanced the above loans with a $410,000 loan package with DB and SL Green Finance. The package bears a blended interest rate of one-month LIBOR plus 3.75%, matures on November 9, 2018 and is subject to three one-year extension options.
On June 27, 2016, the Company entered into a $70,000 mortgage note agreement with Capital One Multifamily finance LLC, related to the Aspen property acquisition. The note matures on July 1, 2028 and bears interest at 3.68%. The note requires interest only payments through July 2017, monthly principal and interest payments of $321 from August 2017 through July 2028 based on a 30 year amortization schedule and principal and interest payments thereafter based on the remaining period of the initial 30-year amortization schedule.
The following table summarizes principal payment requirements under terms as of December 31, 2015:
2016 | 515,732 | ||||
2017 | 2,788 | ||||
2018 | 3,932 | ||||
2019 | 3,771 | ||||
2020 | 2,314 | ||||
Thereafter | 192,206 | ||||
Total | $ | 720,743 |
8. Rental Income under Operating Leases
The Company’s three commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of December 31, 2015, the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next five years and thereafter are as follows:
2016 | $ | 16,817 | |||
2017 | 15,048 | ||||
2018 | 14,924 | ||||
2019 | 10,039 | ||||
2020 | 5,345 | ||||
Thereafter | 62,665 | ||||
Total | $ | 124,838 |
The Company has commercial leases with the City of New York that comprised 19% and 20%, and 20% and 31% of total revenue for the nine months ended September 30, 2016 and 2015, and for the years ended December 31, 2015 and 2014, respectively. In December 2015, the City of New York executed a new 10-year lease at the Company’s property at 141 Livingston Street. Under the lease, the tenant has an option to terminate the lease after five years; however, if it decides to continue to occupy the building at that time, the rent will increase 25% beginning the sixth year of the lease.
F- 19
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
9. Fair Value of Financial Instruments
GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
· | Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; |
· | Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and |
· | Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable. |
When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.
The financial assets and liabilities in the consolidated and combined balance sheets include cash and cash equivalents, restricted cash, receivables, accounts payable and accrued expenses, including interest rate caps, and mortgages. The carrying amount of cash and cash equivalents, restricted cash, receivables, and accounts payable and accrued expenses reported in the consolidated and combined balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of mortgages, which is classified as Level 2, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.
F- 20
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
9. Fair Value of Financial Instruments (cont.)
The carrying amount and fair value of the mortgage notes payable were as follows:
September 30, 2016 | December 31, 2015 | December 31, 2014 | ||||||||||
(unaudited) | ||||||||||||
Carrying amount (excluding unamortized debt issuance costs) | $ | 814,713 | $ | 720,743 | $ | 721,480 | ||||||
Fair value | $ | 819,818 | $ | 712,904 | $ | 700,987 |
The Predecessor purchased interest rate caps in connection with the mortgage loans on December 12, 2014 and December 15, 2014 with LIBOR strike prices of 2.00%. The interest rate caps have an aggregate notional value of $515 million and expire coterminously with the related debt. Their fair value, which is classified as Level 2, is estimated using market inputs and credit valuation inputs. These instruments were not designated as hedges and accordingly their changes in fair value are recognized in earnings. The fair value of these instruments is $1 at September 30, 2016 and $10 and $532 at December 31, 2015 and 2014, respectively, and the change in fair value of $9 and $446, and $522 and $49 is included in interest expense for the nine months ended September 30, 2016 and 2015, and for the years ended December 31, 2015 and 2014, respectively.
Disclosures about fair value of financial instruments were based on pertinent information available as of September 30, 2016, December 31, 2015 and December 31, 2014. Although the Company is not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
10. Commitments and Contingencies
Legal
The Company is subject to certain legal proceedings and claims arising in connection with its business. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated and combined results of operations, financial position, or cash flows.
Commitments
The Company is obligated to provide parking through 2020 under a lease with a tenant at the property on 250 Livingston Street costing approximately $160 per year.
Concentrations
The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio. For the nine months ended September 30, 2016 and 2015, commercial properties accounted for approximately 26% and 27%, respectively, and residential properties accounted for approximately 74% and 73%, respectively, of total revenue. For the year ended December 31, 2015 and 2014, commercial properties accounted for approximately 26% and 32%, respectively, and the residential properties accounted for approximately 74% and 68%, respectively, of total revenue.
11. Related-Party Transactions
For the nine months ended September 30, 2015 and the years ended December 31, 2015 and 2014, the Predecessor recorded management fees of approximately $529, $574 and $410, respectively, to related companies or individuals included in general and administrative expense in the consolidated and combined statements of operations.
During the nine months ended September 30, 2016, the Company recorded overhead charges related to office expenses of approximately $275 to a related company included in general and administrative expense in the accompanying consolidated and combined statements of operations.
F- 21
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
12. Segment Reporting
The Company has classified its reporting segments into commercial and residential rental properties. The commercial properties include the 141 Livingston Street property and portions of the 250 Livingston Street, Tribeca House, and Aspen properties. The residential reporting segment includes the Flatbush Gardens property and a portion of the 250 Livingston Street, Tribeca House, and Aspen properties. Interest expense related to the commercial and residential segments for the nine months ended September 30, 2016 and 2015 is $5,594 and $23,155, and $5,550 and $22,178, respectively, and for the years ended December 31, 2015 and 2014 is $7,346 and $29,357, respectively, and, $1,776 and $7,369, respectively.
The Company’s income from operations by segment for the nine months ended September 30, 2016 and 2015 and for the years ended December 31, 2015 and 2014 is as follows:
Nine months ended September 30, 2016 (unaudited) | Commercial | Residential | Total | |||||||||
Rental revenues | $ | 13,843 | $ | 49,405 | $ | 63,248 | ||||||
Tenant recoveries | 2,969 | – | 2,969 | |||||||||
Garage and other revenue income | 1,186 | 1,364 | 2,550 | |||||||||
Total revenues | 17,998 | 50,769 | 68,767 | |||||||||
Property operating expenses | 3,023 | 15,862 | 18,885 | |||||||||
Real estate taxes and insurance | 2,996 | 10,027 | 13,023 | |||||||||
General and administrative | 541 | 5,776 | 6,317 | |||||||||
Acquisition costs | – | 407 | 407 | |||||||||
Depreciation and amortization | 1,980 | 8,666 | 10,646 | |||||||||
Total operating expenses | 8,540 | 40,738 | 49,278 | |||||||||
Income from operations | $ | 9,458 | $ | 10,031 | $ | 19,489 |
Nine months ended September 30, 2015 (unaudited) | Commercial | Residential | Total | |||||||||
Rental revenues | $ | 13,042 | $ | 45,596 | $ | 58,638 | ||||||
Tenant recoveries | 2,651 | – | 2,651 | |||||||||
Garage and other revenue income | 1,453 | 862 | 2,315 | |||||||||
Total revenues | 17,146 | 46,458 | 63,604 | |||||||||
Property operating expenses | 3,276 | 14,415 | 17,691 | |||||||||
Real estate taxes and insurance | 2,726 | 8,178 | 10,904 | |||||||||
General and administrative | 666 | 2,600 | 3,266 | |||||||||
Depreciation and amortization | 1,892 | 7,764 | 9,656 | |||||||||
Total operating expenses | 8,560 | 32,957 | 41,517 | |||||||||
Income from operations | $ | 8,586 | $ | 13,501 | $ | 22,087 |
Year ended December 31, 2015 | Commercial | Residential | Total | |||||||||
Rental revenues | $ | 17,256 | $ | 60,784 | $ | 78,040 | ||||||
Tenant recoveries | 3,477 | – | 3,477 | |||||||||
Garage and other revenue income | 1,578 | 1,509 | 3,087 | |||||||||
Total revenues | 22,311 | 62,293 | 84,604 | |||||||||
Property operating expenses | 4,217 | 19,066 | 23,283 | |||||||||
Real estate taxes and insurance | 3,705 | 11,221 | 14,926 | |||||||||
General and administrative | 840 | 4,456 | 5,296 | |||||||||
Acquisition costs | – | 75 | 75 | |||||||||
Depreciation and amortization | 2,471 | 10,050 | 12,521 | |||||||||
Total operating expenses | 11,233 | 44,868 | 56,101 | |||||||||
Income from operations | $ | 11,078 | $ | 17,425 | $ | 28,503 |
Year ended December 31, 2014 | Commercial | Residential | Total | |||||||||
Rental revenues | $ | 12,382 | $ | 31,413 | $ | 43,795 | ||||||
Tenant recoveries | 2,415 | – | 2,415 | |||||||||
Garage and other income | 518 | 1,044 | 1,562 | |||||||||
Total revenues | 15,315 | 32,457 | 47,772 | |||||||||
Property operating expenses | 3,810 | 15,863 | 19,673 | |||||||||
Real estate taxes and insurance | 2,355 | 4,205 | 6,560 | |||||||||
General and administrative | 537 | 1,821 | 2,358 | |||||||||
Acquisition costs | 30 | 296 | 326 | |||||||||
Depreciation and amortization | 1,398 | 3,074 | 4,472 | |||||||||
Total operating expenses | 8,130 | 25,259 | 33,389 | |||||||||
Income from operations | $ | 7,185 | $ | 7,198 | $ | 14,383 |
F- 22
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
12. Segment Reporting (cont.)
The Company’s total assets by segment are as follows as of:
Commercial | Residential | Total | ||||||||||||
September 30, 2016 (unaudited) | $ | 285,818 | $ | 677,291 | $ | 963,109 | ||||||||
December 31, 2015 | $ | 196,563 | $ | 684,555 | $ | 881,118 | ||||||||
December 31, 2014 | $ | 137,316 | $ | 629,540 | $ | 766,856 |
The Company’s capital expenditures are $12,988 (unaudited) and $6,360 (unaudited) for the nine months ended September 30, 2016 and 2015, respectively, and $9,025 and $2,542 for the years ended December 31, 2015 and 2014, respectively. The Company’s capital expenditures were all in the residential segment except for $1,383 (unaudited) for the nine months ended September 30, 2016, and $245 for the year ended December 31, 2015 in the commercial segment.
13. Multiemployer Union Agreement and Pension Plan
Certain of the Company’s employees are covered by a union sponsored, collectively bargained, multiemployer defined benefit pension, profit sharing, health insurance, legal and training plans. Contributions to the plans are determined in accordance with the provisions of the negotiated labor contract. The Local 32BJ Service Employees International Union (“Local 32BJ”) contract is in effect through December 31, 2015.
Contributions to the Local 32BJ are not segregated or otherwise restricted to provide benefits only to the Company’s employees. The risks of participating in a multiemployer pension plan differ from those of a single-employer pension plan in the following aspects: (a) assets contributed to a multiemployer pension plan by one employer may be used to provide benefits to employees of other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the remaining participating employers and (c) if the Company chooses to stop participating in the multiemployer plan, it may be required to pay the plan an amount based on the unfunded status of the plan, which is referred to as the withdrawal liability. The Company has no intention of withdrawing from the plan.
The information for the Union’s multiemployer pension plan is as follows:
Legal name | Building Services 32BJ Pension Plan |
Employer identification number | 13-1879376 |
Plan number | 001 |
Type of plan | Defined benefit pension plan |
Plan year end date | June 30 |
Certified Zone Status for 2015 and 2014* | Red |
Funding improvement plan/rehabilitation plan* | Implemented |
Surcharges paid to plan | None |
F- 23
Clipper Realty Inc. and Predecessor
Notes to Consolidated and Combined Financial Statements
(In thousands)
13. Multiemployer Union Agreement and Pension Plan (cont.)
Pension contribution made for 2015 and 2014, respectively | $205 and $197 |
Minimum weekly required pension contribution per employee for 2015 and 2014, respectively (in dollars) | $98.75 and $94.75 |
* Certified pension zone status (as defined by the Pension Protection Act) represents the level at which the pension plan is funded. Plans in the red zone are less than 65% funded; plans in the yellow zone are less than 80% funded; and plans in the green zone are at least 80% funded. The rehabilitation plan may involve a surcharge on employers or a reduction or elimination of certain employee adjustable benefits.
The information provided above is from the pension plan’s most current annual report, which for Local 32BJ is for the year ended June 30, 2015. The Pension Protection Act Zone Status, the most recent zone status available, was provided to the Company by the plan and is certified by the plans’ actuary. The Company’s contributions to the pension plan are less than 5% of all the employers’ contribution to the plan. In connection with the acquisition of the Tribeca House properties, the Company increased the number of employees covered by the 32BJ contract.
14. Subsequent Events
The Company evaluated subsequent events through the date of which these consolidated and combined financial statements were available to be issued. On November 9, 2016, the Company refinanced its loans at the Tribeca House property as described in Note 7. On November 14, 2016, the Company received $15 million from a return of an acquisition deposit reflected in Prepaid and Other Assets.
F- 24
Clipper Realty Inc. and Predecessor
Schedule III – Real Estate and Accumulated Depreciation
(In thousands)
Encumbrances at December 31, | Initial Costs |
Gross
Amounts At Which Carried at
December 31, 2015 |
||||||||||||||||||||||||||||||||||||
Property | Location | Description | Encumbrances | Land |
Building
and
Improvements |
Cost
Capitalized Subsequent to Acquisition |
Land |
Building
and
Improvements |
Total |
Accumulated
Depreciation |
Date Acquired | |||||||||||||||||||||||||||
Tribeca House Properties | Manhattan, NY | Residential/ Commercial | $ | 460,000 | $ | 273,103 | $ | 283,137 | $ | 3,037 | $ | 273,103 | $ | 286,174 | $ | 559,277 | $ | 7,894 | Dec-14 | |||||||||||||||||||
Flatbush Gardens | Brooklyn, NY | Residential | 170,000 | 89,965 | 49,607 | 15,489 | 90,052 | 65,096 | 155,148 | 24,522 | Oct-05 | |||||||||||||||||||||||||||
250 Livingston Street | Brooklyn, NY | Commercial/ Residential | 35,743 | 10,452 | 20,204 | 3,814 | 10,452 | 24,018 | 34,470 | 8,520 | May-02 | |||||||||||||||||||||||||||
141 Livingston Street | Brooklyn, NY | Commercial | 55,000 | 10,830 | 12,079 | (1,025 | ) | 10,830 | 11,054 | 21,884 | 3,736 | May-02 | ||||||||||||||||||||||||||
$ | 720,743 | $ | 384,350 | $ | 365,027 | $ | 21,315 | $ | 384,437 | $ | 386,342 | $ | 770,779 | $ | 44,672 |
(1) | The aggregate cost for Federal tax purposes at December 31, 2015 of our real estate assets was $624,902. |
(2) | The following summarized activity for real estate and accumulated depreciation for the year ended December 31, 2015 as follows: Investment in real estate: |
2015 | 2014 | |||||||
Balance at beginning of period | $ | 761,754 | $ | 206,233 | ||||
Acquisition of real estate | – | 556,240 | ||||||
Additions during period | 9,025 | 2,542 | ||||||
Writeoff of fully depreciated assets | – | (3,261 | ) | |||||
Balance at end of year | $ | 770,779 | $ | 761,754 |
Accumulated depreciation:
Balance at beginning of period | 33,010 | 32,237 | ||||||
Depreciation expense | 11,662 | 4,034 | ||||||
Writeoff of fully depreciated assets | – | (3,261 | ) | |||||
Balance at end of year | $ | 44,672 | $ | 33,010 |
F- 25
To the Board of Directors
of
Clipper Realty Inc.
Report on the Statement
We have audited the accompanying statement of revenues and certain expenses (the “Statement”) of the properties located at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of New York, New York (“Tribeca Properties”), for the year ended December 31, 2013, and the related notes to the Statement.
Management’s Responsibility for the Statement
Management is responsible for the preparation and fair presentation of the Statement in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Statement that is free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the Statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statement. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the Statement, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the Statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Statement referred to above presents fairly, in all material respects, the revenues and certain expenses described in Note 1 to the Statement of Tribeca Properties for the year ended December 31, 2013, in accordance with accounting principles generally accepted in the United States of America.
F- 26
Basis of Presentation
As described in Note 1 to the Statement, the accompanying Statement has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended, and is not intended to be a complete presentation of Tribeca Properties’ revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ Berdon LLP | |
Certified Public Accountants |
New York, New York
October 9, 2015
F- 27
Tribeca Properties
Statement
of Revenues and Certain Expenses
For the Year Ended December 31, 2013 and Nine Months Ended September 30, 2014 (unaudited)
(In thousands)
Nine Months
Ended September 30, 2014 |
Year
Ended December 31, 2013 |
|||||||
(Unaudited) | ||||||||
REVENUES | ||||||||
Residential rental income | $ | 20,108 | $ | 25,302 | ||||
Commercial income | 2,317 | 2,863 | ||||||
Tenant recoveries | 78 | 177 | ||||||
Other income | 454 | 618 | ||||||
TOTAL REVENUES | 22,957 | 28,960 | ||||||
CERTAIN EXPENSES | ||||||||
Property operating expenses | 4,611 | 5,252 | ||||||
Real estate taxes and insurance | 3,302 | 3,136 | ||||||
TOTAL OPERATING EXPENSES | 7,913 | 8,388 | ||||||
REVENUES IN EXCESS OF EXPENSES | $ | 15,044 | $ | 20,572 |
The accompanying notes to this financial statement is an integral part of this statement.
1. Basis of Presentation
The accompanying statement of revenues and certain expenses include the operations of the residential and retail properties at 50 Murray Street (a/k/a 110-120 Church Street) and 53 Park Place in the Tribeca neighborhood of Manhattan, NY that were owned in 2013 by Lionshead 53 Development LLC and Lionshead 110 Development LLC (the “Tribeca Properties” or “Properties”). On December 15, 2014, the Tribeca Properties were acquired by a predecessor limited liability company of Clipper Realty, Inc.
The accompanying statement of revenues and certain expenses relate to the Tribeca Properties and have been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended. Accordingly, the statement is not representative of the actual operations for the periods presented as revenues and certain operating expenses, which may not be directly attributable to the revenues and expenses expected to be incurred in the future operations of the Tribeca Properties, have been excluded. Such items include depreciation, amortization, management fees, interest expense, interest income and amortization of above- and below-market leases.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Tribeca Properties recognize residential and commercial rental revenue from tenants on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased asset. Commercial rental income includes revenue from a tenant who operates the garage.
Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. The reimbursements are recognized and presented gross, as the Tribeca Properties are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk.
F- 28
Tribeca
Properties
Notes to Financial Statement
(In thousands)
2. Summary of Significant Accounting Policies (cont.)
Other revenue is revenue that is derived from the tenants’ use of facilities for storage, laundry and common areas and other services and income from an early lease termination. Other revenue is recognized when the related services are utilized by the tenants.
Interim Unaudited Financial Information
The statement of revenues and certain operating expenses for the nine months ended September 30, 2014, is unaudited; however, in the opinion of management, all adjustments (consisting solely of normal, recurring adjustments) necessary for the fair presentation of the financial statement for the interim period have been included. The results of the interim period are not necessarily indicative of the results to be obtained for a full fiscal year.
Use of Estimates
Management has made a number of estimates and assumptions relating to the reporting and disclosure of revenues and certain expenses during the reporting periods to present the statements of revenues and certain expenses in conformity with U.S. GAAP. Actual results could differ from those estimates.
3. Minimum Future Lease Rentals
There are various lease agreements in place with tenants to lease space in the Tribeca Properties. As of September 30, 2014, the minimum future cash rents receivable under non-cancelable operating leases in each of the next five years and thereafter are as follows (unaudited):
2014 (three months ending December 31, 2014) | $ | 771 | |||
2015 | 3,135 | ||||
2016 | 3,184 | ||||
2017 | 2,902 | ||||
2018 | 2,373 | ||||
Thereafter | 8,509 | ||||
Total | $ | 20,874 |
In addition, the leases require payments by the tenants of additional rentals based on various escalation clauses. For the year ended December 31, 2013 and the nine months ended September 30, 2014 (unaudited), such additional rents amounted to approximately $177 and $78.
4. Tenant concentrations
For the year ended December 31, 2013 and the nine months ended September 30, 2014, no tenant comprised more than 5% of the Tribeca Properties’ rental revenues.
5. Real estate tax exemption and abatement
The Tribeca Properties are eligible for the real estate tax exemption and abatement program, pursuant to Section 421-g of the New York State Real Property Tax Law, as a result of construction whereby the buildings were converted from commercial to mixed-use residential and commercial use.
Under the program, the Tribeca Properties received a 100% exemption on the real estate tax assessment attributable to the conversion of the properties through June 2011; the exemption will be phased out during the period from July 2011 through June 2015. Taxes on the nonexempt portion of the properties were abated through June 2013; the abatement will be phased out during the period from July 2013 through June 2017. The commercial portion of the properties is currently subject to real estate taxes on the increased value of the real estate and/or as rates increase.
F- 29
Tribeca Properties
Notes to Financial Statement
(In thousands)
6. Commitments and Contingencies
The Tribeca Properties are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. Management believes that the ultimate settlement of these actions will not have a material adverse effect on the Tribeca Properties’ results of operations.
The Tribeca Properties contribute to a number of multiemployer benefit plans under the terms of collective bargaining agreements that cover their union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
(i) | Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. |
(ii) | If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. |
(iii) | If the properties choose to stop participating in some of their multiemployer plans, the properties may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. |
The Tribeca Properties’ participation in these plans for the annual period ended December 31, 2013 is outlined in the following table. The “EIN/Pension Plan Number” column provides the Employee Identification Number (EIN) and the three-digit plan number, if applicable.
The Building Service 32BJ Pension Fund, Building Service 32BJ Supplemental Retirement Savings Plan, and Building Service 32BJ Health Fund were all established under the terms of the collective bargaining agreement between Local 32BJ Service Employees International Union and the Realty Advisory Board on Labor Relations, Inc. (“Realty Advisory Board”), a multiemployer association which is authorized to enter in collective-bargaining agreements on behalf of the Tribeca Properties and its other employer members. The binding agreement in effect as of the balance sheet date expired in April 2014 and a new contract entered into expires April 2018.
The most recent Pension Protection Act (PPA) zone status available for defined benefit pension plans, for 2013 for the Building Service 32BJ Pension Fund is for the plan’s year-end at June 30, 2013. The zone status is based on information that the Tribeca Properties received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration dates of the collective bargaining agreements to which the plans are subject.
F- 30
Benefit Plan |
Benefit Plan
Type |
EIN/Pension
Plan Number |
Pension
Protection Act Zone Status |
FIP/RP
Status Pending/ Implemented |
Contributions |
Sur-charge
Imposed |
Expiration
Date of Collective Bargaining Agreement |
|||||||||
Building Service
32BJ Pension Fund |
Defined
Benefit Pension Plan |
13-1879376-001 | Red as of 7/21/2013 | Yes | $ | 133,000 | No | 4/20/2018 | ||||||||
Building Service 32BJ Supplemental Retirement Savings Plan | Defined Contribution Profit Sharing Plan | 13-3507075-001 | N/A | N/A | 14,000 | 4/20/2018 | ||||||||||
Building Service 32BJ Health Fund | Welfare Plan | 13-2928869-501 | N/A | N/A | 397,000 | 4/20/2018 | ||||||||||
Other funds | N/A | N/A | 10,000 | |||||||||||||
$ | 554,000 |
F- 31
Tribeca Properties
Notes to Financial Statement
(In thousands)
7. Subsequent Events.
The Tribeca Properties evaluated subsequent events through October 9, 2015, the date the financial statements were available to be issued.
F- 32
Board of Directors
Clipper Realty Inc.
Brooklyn, NY 11219
We have audited the accompanying statement of revenues and certain expenses of the Aspen (hereinafter referred to as the “Company”) for the year ended December 31, 2015.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the statement of revenues and expenses in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the statement of revenues and certain expenses that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the statement of revenues and certain expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement of revenues and certain expenses. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the statement of revenues and certain expenses, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the statement of revenues and certain expense in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain expenses. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the accompany statement of revenues and certain expenses presents fairly, in all material respects, the revenues and certain expenses of the Company for the year ended December 31, 2015 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
We draw attention to Note 1 to the Statements, which describes that the accompanying statement was prepared for the purpose of complying with provisions of Rule 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) (for inclusion in the Registration Statement on Form S-11 of Clipper Realty Inc.), and were not intended to be a complete presentation of the Company’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ Lipsky Goodkin & Co., P.C.
New York, New York
March 29, 2016
F- 33
Statement
of Revenues and Certain Expenses
For the Year Ended December 31, 2015 and Three Months Ended March 31, 2016 (unaudited)
(In thousands)
Three Months
Ended March 31, 2016 |
Year Ended
December 31, 2015 |
|||||||
REVENUES | ||||||||
Residential rental income | $ | 1,304 | $ | 5,107 | ||||
Commercial income | 171 | 1,228 | ||||||
Tenant recoveries | – | 37 | ||||||
Other income | 164 | 88 | ||||||
TOTAL REVENUES | 1,639 | 6,460 | ||||||
CERTAIN EXPENSES | ||||||||
Property operating expenses | 376 | 1,572 | ||||||
Real estate taxes and insurance | 52 | 234 | ||||||
TOTAL OPERATING EXPENSES | 428 | 1,806 | ||||||
REVENUES IN EXCESS OF EXPENSES | $ | 1,211 | $ | 4,654 |
The accompanying notes to this financial statement is an integral part of this statement.
1. Basis of Presentation
The accompanying statement of revenues and certain expenses include the operations of the residential and retail property at 1955 1st Avenue in Manhattan, NY that was owned in 2015 by 100 Street Tri Venture LLC (the “Property” or “Aspen”).
The accompanying statement of revenues and certain expenses relate to the Property and have been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended. Accordingly, the statement is not representative of the actual operations for the periods presented as revenues and certain operating expenses, which may not be directly attributable to the revenues and expenses expected to be incurred in the future operations of the Property, have been excluded. Such items include depreciation, amortization, management fees, interest expense, interest income and amortization of above- and below-market leases.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Property recognizes residential and commercial rental revenue from tenants on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased asset. Commercial rental income includes revenue from a tenant who operates the garage.
Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. The reimbursements are recognized and presented gross, as the Property is generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk.
Other revenue is revenue that is derived from the tenants’ use of facilities for laundry and common areas and other services. Other revenue is recognized when the related services are utilized by the tenants.
F- 34
Use of Estimates
Management has made a number of estimates and assumptions relating to the reporting and disclosure of revenues and certain expenses during the reporting periods to present the statements of revenues and certain expenses in conformity with U.S. GAAP. Actual results could differ from those estimates.
3. Minimum Future Lease Rentals
There are various lease agreements in place with tenants to lease space in the Property. As of December 31, 2015, the minimum future cash rents receivable under non-cancelable operating leases in each of the next five years and thereafter are as follows (unaudited):
2016 | $ | 1,191 | ||||
2017 | 1,215 | |||||
2018 | 1,243 | |||||
2019 | 1,243 | |||||
2020 | 948 | |||||
Thereafter | 10,448 | |||||
Total | $ | 16,288 |
In addition, the leases require payments by the tenants of additional rentals based on various escalation clauses. For the year ended December 31, 2015, such additional rents amounted to approximately $37.
4. Tenant concentrations
For the three months ended March 31, 2016 and the year ended December 31, 2015, no tenant comprised more than 10% of the Property’s rental revenues.
5. Real estate tax exemption and abatement
The Property is eligible for the real estate tax exemption and abatement program, pursuant to Section 421-a of the New York State Real Property Tax Law.
Under the program, the Property receives a 100% exemption on the real estate tax assessment attributable to the increase in property value that results from new construction. The commercial portion of the properties is currently subject to real estate taxes on the increased value of the real estate and/or as rates increase.
6. Commitments and Contingencies
The Property is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. Management believes that the ultimate settlement of these actions will not have a material adverse effect on the Property’s results of operations.
7. Subsequent Events.
The Property evaluated subsequent events through September 28, 2016, the date the financial statements were available to be issued.
F- 35
Until ,2017 all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Clipper Realty Inc.
7,109,851 Shares Common Stock
PROSPECTUS
FBR | Raymond James | |
Janney Montgomery Scott | Wunderlich |
, 2017
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses in connection with the issuance and distribution of the securities being registered (excluding the underwriting discount). Except for the SEC registration fee and the Financial Industry Regulatory Authority (“FINRA”), filing and NYSE listing fee, all amounts are estimates.
Amount Paid
or to be Paid |
||||
SEC registration fee | $ | 14,688.5 | ||
FINRA filing fee | 19,510 | |||
NYSE listing fee | 77,956.5 | |||
Legal fees and expenses | 2,000,000 | |||
Accounting fees and expenses | 250,000 | |||
Printing expenses | 170,000 | |||
Transfer agent and registrar fee | 6,600 | |||
Miscellaneous | 460,000 | |||
Total | $ | 2,998,755 |
Item 32. Sales to Special Parties
The information in Item 33 is herein incorporated by reference.
Item 33. Recent Sales of Unregistered Securities
On August 3, 2015 we issued an aggregate of 10,666,667 shares of our common stock to various institutional investors, accredited investors and offshore investors at an offering price of $13.50 per share in reliance on the exemptions from registration under Rule 144A, Regulation S and Rule 506(b) of Regulation D of the Securities Act. 1,000,000 of the shares in the private offering were sold directly by us to members of our management and board of directors, and their friends, family members and affiliates. We received approximately $130.2 million of net proceeds, after expenses, from the private offering.
In connection with the private offering, we consummated a series of investment and other formation transactions described in this registration statement, whereby, among other things, the continuing investors had their LLC interests in the predecessor entities converted into class B LLC units in the predecessor entities. In addition, we issued to one continuing investor, Trapeze Inc., 755,939 shares of our common stock based on the private offering price of $13.50 per share. An aggregate of 26,317,396 class B LLC units were issued in connection with the formation transactions and an equal number of shares of our special voting stock was issued to our continuing investors. Each of these transactions was made in reliance on Section 4(a)(2) of the Securities Act in that it did not involve any public offering.
Each limited partner of our operating partnership has the right, subject to the terms and conditions set forth in the partnership agreement to require our operating partnership to redeem all or a portion of the OP units held by such limited partner in exchange for a cash amount equal to the number of tendered OP units multiplied by the price of a share of our common stock (determined in accordance with, and subject to adjustment under, the terms of the partnership agreement), unless the terms of such OP units or a separate agreement entered into between the operating partnership and the holder of such OP units provide that the holder is not entitled to a right of redemption or impose conditions on the exercise of such right of redemption. On or before the close of business on the fifth business day after we receive a notice of redemption, we may, in our sole and absolute discretion, but subject to the restrictions on the ownership of our stock imposed under our charter and the transfer restrictions and other limitations thereof, elect to acquire some or all of the tendered OP units from the tendering person in exchange for shares of our common stock, based on an exchange ratio of one share of our common stock for each OP unit (subject to anti-dilution adjustments provided in the partnership agreement).
II- 1 |
Each non-managing member of the LLC subsidiaries has the right, subject to the terms and conditions set forth in the LLC agreements, to require the operating partnership to exchange all or a portion of the class B LLC units held by such non-managing member, together with the same number of shares of our special voting stock, for a cash amount equal to the number of tendered class B LLC units multiplied by the price of a share of our common stock (determined in accordance with, and subject to adjustment under, the terms of the LLC agreements), unless the terms of such class B LLC units or a separate agreement entered into between an LLC subsidiary and the holder of such class B LLC units provides that the holder is not entitled to a right of exchange or imposes conditions on the exercise of such right of exchange. On or before the close of business on the fifth business day after we and the operating partnership receive a notice of exchange, we may, in our sole and absolute discretion, but subject to the restrictions on the ownership of our stock imposed under our charter and the transfer restrictions and other limitations thereof, elect to acquire some or all of the tendered class B LLC units from the tendering non-managing member in exchange for shares of our common stock, based on an exchange ratio of one share of our common stock for each class B LLC unit (subject to anti-dilution adjustments provided in the LLC agreements).
On August 3, 2015, we also granted to members of our senior management team a total of 273,335 LTIP units, and to our non-employee directors a total of 105,001 LTIP units. In 2016, we granted to a non-employee director an additional 15,742 LTIP units. In 2016, we made a special additional one-time grant of 16,667 LTIP units to an executive officer and a total of 16,666 LTIP units to two key employees, all of which are subject to certain vesting requirements. The LTIP units represent profits interests in our operating partnership, which, subject to certain conditions, are exchangeable for units of limited partnership, or OP units, in our operating partnership, which, in turn, may be submitted for redemption in exchange, at our option, for common stock or cash in an amount equal to the value of our common stock.
On January 29, 2016, we issued an aggregate of 132 shares of our 12.5% Series A Cumulative Non-Voting Preferred Stock at an offering price of $1,000 per share in a private offering pursuant to Rule 506(b) of Regulation D of the Securities Act. We received net proceeds of $109,500 from this private offering, which will be used for general corporate purposes.
Item 34. Indemnification of Directors and Officers.
Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from: (i) actual receipt of an improper benefit or profit in money, property or services; or (ii) active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our charter contains a provision that eliminates the liability of our directors and officers to us and our stockholders to the maximum extent permitted by Maryland law.
Maryland law requires a Maryland corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service in that capacity. Maryland law permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that:
· | the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty; |
· | the director or officer actually received an improper personal benefit in money, property or services; or |
· | in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. |
Under Maryland law, a Maryland corporation also may not indemnify a director or officer in a suit by or on behalf of the corporation in which the director or officer was adjudged liable to the corporation or for a judgment of liability on the basis that personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct; however, indemnification for an adverse judgment in a suit by or on behalf of the corporation, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses.
II- 2 |
In addition, the MGCL permits a Maryland corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of:
· | a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and |
· | a written undertaking by the director or officer or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that he or she did not meet the standard of conduct necessary for indemnification by the corporation. |
To the maximum extent permitted by Maryland law in effect from time to time, our charter authorizes us to indemnify any individual who serves or has served, and our bylaws obligate us to indemnify any individual who is made or threatened to be made a party to or witness in a proceeding by reason of his or her service:
· | as a present or former director or officer; or |
· | while a director or officer and at our request, as a director, officer, partner, manager, member or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, limited liability company, employee benefit plan or other enterprise |
from and against any claim or liability to which he or she may become subject or that he or she may incur by reason of his or her service in any of these capacities. Our charter authorizes us, and our bylaws require us, without requiring a preliminary determination of such individual’s ultimate entitlement to indemnification, to pay or reimburse any such individual’s reasonable expenses in advance of final disposition of a proceeding. We have entered into indemnification agreements with each of our directors and executive officers that provided for indemnification and advance of expenses to the maximum extent permitted by Maryland law.
Item 35. Treatment of Proceeds from Stock Being Registered
None of the proceeds will be contributed to an account other than the appropriate capital account.
Item 36. Exhibits and Financial Statement Schedules.
(a) | Financial Statements |
See page F-1 for an index to the financial statements included in this registration statement.
(b) | Exhibits |
The list of exhibits filed with or incorporated by reference in this registration statement is set forth in the exhibit index following the signature page herein.
Item 37. Undertakings.
A. | The undersigned registrant hereby undertakes: |
(1) | To provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. |
II- 3 |
(2) | To file a sticker supplement pursuant to Rule 424(c) under the Securities Act during the distribution period describing each property not identified in the prospectus at such time as there arises a reasonable probability that such property will be acquired and to consolidate all such stickers into a post-effective amendment filed at least once every three months, with the information contained in such amendment provided simultaneously to the existing stockholders. Each sticker supplement should disclose all compensation and fees received by the operating partnership and its affiliates in connection with any such acquisition. The post-effective amendment shall include audited financial statements meeting the requirements of Rule 3-14 of Regulation S-X only for properties acquired during the distribution period. |
(3) | To file, after the end of the distribution period, a current report on Form 8-K containing the financial statements and any additional information required by Rule 3-14 of Regulation S-X, to reflect each commitment (i.e., the signing of a binding purchase agreement) made after the end of the distribution period involving the use of 10% or more (on a cumulative basis) of the net proceeds of the offering and to provide the information contained in such report to the stockholders at least once each quarter after the distribution period of the offering has ended. |
(4) | That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(5) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
B. | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
II- 4 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, New York on January 31, 2017.
Clipper realty inc. | ||
By: | /s/ David Bistricer | |
David Bistricer | ||
Co-Chairman and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form S-11 has been signed by the following persons in the capacities and on the dates indicated.
Name | Title | Date | ||
/s/ David Bistricer | Co-Chairman of the Board and Chief Executive Officer | January 31 , 2017 | ||
David Bistricer | (Principal Executive Officer) | |||
/s/ Lawrence E. Kreider, Jr. | Chief Financial Officer |
January 31 , 2017 |
||
Lawrence E. Kreider, Jr. | (Principal Financial Officer and Principal Accounting Officer) | |||
* | Co-Chairman of the Board |
January 31 , 2017 |
||
Sam Levinson | ||||
* | Director |
January 31 , 2017 |
||
Howard M. Lorber | ||||
* | Director |
January 31 , 2017 |
||
Robert J. Ivanhoe | ||||
* | Director |
January 31 , 2017 |
||
Roberto A. Verrone |
* Pursuant to Power of Attorney
By: | /s/ David Bistricer | |
David Bistricer |
Exhibits
Exhibit
Number |
Description | |
1.1 |
Form of Underwriting Agreement | |
3.1** | Articles of Amendment and Restatement | |
3.2** | Bylaws | |
3.3** | Articles Supplementary | |
5.1* | Opinion of Venable LLP | |
8.1* | Opinion of Sullivan & Cromwell LLP as to tax matters | |
10.1** | Amended and Restated Limited Liability Company Agreement of Berkshire Equity LLC | |
10.2** | Amended and Restated Limited Liability Company Agreement of 50/53 JV LLC | |
10.3** | Second Amended and Restated Limited Liability Company Agreement of Renaissance Equity Holdings LLC | |
10.4** | Amended and Restated Limited Liability Company Agreement of Gunki Holdings LLC | |
10.5** | Registration Rights Agreement, made and entered into as of August 3, 2015, between Clipper Realty Inc. and FBR Capital Markets & Co. | |
10.6** | Registration Rights Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and each of the Holders from time to time party thereto. | |
10.7†** | Employment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and David Bistricer | |
10.8†** | Employment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and Lawrence Kreider | |
10.9†** | Employment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and Jacob Schwimmer | |
10.10†** | Employment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc. and JJ Bistricer | |
10.11†** | Clipper Realty Inc. 2015 Omnibus Incentive Compensation Plan | |
10.12†** | Clipper Realty Inc. 2015 Non-Employee Director Plan | |
10.13†** | Clipper Realty Inc. 2015 Executive Incentive Compensation Plan | |
10.14†** | Clipper Realty Inc. 2015 Omnibus Incentive Compensation Plan Restricted LTIP Unit Agreement | |
10.15†** | Clipper Realty Inc. 2015 Non-Employee Director Plan Restricted LTIP Unit Agreement | |
10.16** | Investment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and Renaissance Equity Holdings LLC |
Exhibit
Number |
Description | |
10.17** | Investment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and Berkshire Equity LLC | |
10.18** | Investment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and Gunki Holdings LLC | |
10.19** | Investment Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and 50/53 JV LLC | |
10.20** | Tax Protection Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P., Renaissance Equity Holdings LLC, Berkshire Equity LLC, Gunki Holdings LLC, 50/53 JV LLC, and each of the Continuing Investors listed on Schedules A-D thereto | |
10.21** | Shared Services Agreement, made and entered into as of August 3, 2015, by and among Clipper Equity LLC and Clipper Realty L.P. | |
10.22** | Shared Services Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty L.P. and Clipper Equity LLC | |
10.23** | Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein | |
10.24** | Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein | |
10.25** | Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein | |
10.26** | Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein | |
10.27** | Loan Indemnification Agreement, made and entered into as of August 3, 2015, by and among Clipper Realty Inc., Clipper Realty L.P. and the Guarantor defined therein | |
10.28** | Indemnification Agreement, made and entered into as of August 3, 2015, by and among David Bistricer, Trapeze Inc., Clipper Realty Inc., Clipper Realty L.P., and Berkshire Equity LLC | |
10.29** | Amended and Restated Loan Agreement, made and entered into as of December 15, 2014, by and among 50 Murray Street Acquisition LLC, German American Capital Corporation, and Deutsche Bank AG, New York Branch | |
10.30** | Joinder, Reaffirmation and Ratification of Guaranty of Recourse Obligations and Environmental Indemnity Agreement, made and entered into as of August 3, 2015, by and among David Bistricer, Trapeze Inc., Clipper Realty L.P., and Deutsche Bank AG, New York Branch | |
10.31** | First Mezzanine Loan Agreement, made and entered into as of December 15, 2014, by and among 50 Murray Mezz LLC, 50 Murray Mezz Funding LLC, and 50 Murray Mezz Funding LLC | |
10.32** | Joinder, Reaffirmation and Ratification of First Mezzanine Guaranty of Recourse Obligations and First Mezzanine Environmental Indemnity Agreement, made and entered into as of August 3, 2015, by and among David Bistricer, Trapeze Inc., Clipper Realty L.P., and 50 Murray Mezz Funding LLC |
Exhibit
Number |
Description | |
10.33** | Loan Agreement, made and entered into as of December 12, 2014, by and among 141 Livingston Owner LLC and Citibank, N.A. | |
10.34** | First Amendment to Loan Agreement, Guaranty, Environmental Indemnity and other Loan Documents, made and entered into as of August 3, 2015, by and among 141 Livingston Owner LLC, Citibank, N.A., Clipper Realty L.P., David Bistricer, and Sam Levinson | |
10.35** | Loan Agreement, made and entered into as of May 1, 2013, by and among 250 Livingston Owner LLC and Citigroup Global Markets Realty Corp. | |
10.36** | Consolidation, Modification, Extension and Spreader Agreement, Assignment of Lease and Rents and Security Agreement, made and entered into as of September 24, 2012, by and among Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, Renaissance Equity Holdings LLC G, and New York Community Bank | |
10.37** | Mortgage, Assignment of Leases and Rents, and Security Agreement, made and entered into as of October 31, 2014, by and among Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, Renaissance Equity Holdings LLC G, and New York Community Bank | |
10.38** | Lease, made and entered into as of December 17, 2015, by and between Berkshire Equity LLC and the City of New York. | |
10.39** | Lease, made and entered into as of January 1, 1997, by and between NPMM Realty Inc. and the City of New York | |
10.40** | Letter Regarding Option to Renew Lease, dated as of December 28, 2010, from the City of New York to Berkshire Equity LLC | |
10.41** | Lease, made and entered into as of July 30, 1999, by and between Livingston Acquisition, LLC and the City of New York | |
10.42** | Consent Agreement, made and entered into as of December 7, 2015, by and among Deutsche Bank Trust Company Americas, as trustee on behalf of the registered holders of GS Mortgage Securities Corporation II, Commercial Mortgage Pass Through Certificates, Series 2013-GCJ12, and 250 Livingston Owner LLC | |
10.43** | Amendment No. 1 to Registration Rights Agreement, made and entered into as of July 7, 2016, between Clipper Realty Inc. and FBR Capital Markets & Co. | |
10.44** | Multifamily Loan and Security Agreement (Non-Recourse), dated as of June 27, 2016, by and between Aspen 2016 LLC and Capital One Multifamily Finance, LLC | |
10.45 | Consolidation, Modification and Extension Agreement, Assignment of Leases and Rents and Security Agreement, made as of May 11, 2016, between 141 Livingston Owner LLC and New York Community Bank | |
10.46 | Guaranty of Recourse Obligations, dated as of May 11, 2016, made by Clipper Realty Inc. to and in favor of New York Community Bank | |
10.47 | Guaranty, dated as of May 11, 2016, made by Clipper Realty Inc. to and in favor of New York Community Bank | |
10.48 | First Mezzanine Loan Agreement, made and entered into as of November 9, 2016, by and among 50 Murray Mezz LLC, 50 Murray Mezz Funding LLC | |
10.49 | Loan Agreement, made and entered into as of November 9, 2016, by and among 50 Murray Street Acquisition LLC and Deutsche Bank AG, New York Branch, as Lender and as Agent thereto | |
10.50** | Amendment No. 2 to Registration Rights Agreement, made and entered into as of November 3, 2016, between Clipper Realty Inc. and FBR Capital Markets & Co. | |
10.51 |
Lease Renewal and Amendment Agreement, made and entered into as of December 15, 2016, by and between 250 Livingston Owner, LLC and the City of New York | |
10.52 | Limited Partnership Agreement of Clipper Realty L.P., dated as of August 3, 2015 |
21.1 | List of subsidiaries | |
23.1* | Consent of Venable LLP (included in Exhibit 5.1) | |
23.2* | Consent of Sullivan & Cromwell LLP (included in Exhibit 8.1) | |
23.3 | Consent of BDO USA, LLP | |
23.4 | Consent of Berdon LLP | |
23.5 | Consent of Lipsky Goodkin & Co., P.C. | |
24.1** |
Power of Attorney |
* | To be filed by amendment | |
** | Previously filed | |
† | Indicates management contract or compensation plan |
Exhibit 1.1
Clipper Realty Inc .
Shares of Common Stock
FORM OF UNDERWRITING AGREEMENT
, 2017
FBR CAPITAL MARKETS & CO.
RAYMOND JAMES & ASSOCIATES, INC.
as Representatives of the several Underwriters
c/o FBR Capital Markets & Co.
1300 North 17th Street, Suite 1400
Arlington, Virginia 22209
Ladies and Gentlemen:
Each of Clipper Realty Inc., a Maryland corporation (the “ Company ”), Clipper Realty L.P., a Delaware limited partnership (the “ Operating Partnership ”), acting jointly and severally, and certain stockholders of the Company, acting severally and not jointly, listed on Schedule I hereto (the “ Selling Stockholders ”), confirms its agreement with each of the Underwriters listed on Schedule II hereto (collectively, the “ Underwriters ”), for whom FBR Capital Markets & Co., and Raymond James & Associates, Inc. are acting as representatives (in such capacity, together, the “ Representatives ”), with respect to (i) the sale by the Company and the Selling Stockholders of an aggregate of [ ] shares (the “ Initial Shares ”) of Common Stock, par value $0.01 per share, of the Company (the “ Common Stock ”) in the respective numbers of shares set forth opposite the names of the Company and each Selling Stockholder in Schedule I hereto, and the purchase by the Underwriters, acting severally and not jointly, of the respective number of shares of Common Stock set forth opposite the names of the Underwriters in Schedule II hereto, and (ii) the grant of the option described in Section 1(b) hereof to purchase all or any part of [ ] additional shares of Common Stock to cover over-allotments (the “ Option Shares ”), if any, from the Company, to the Underwriters, acting severally and not jointly, in the respective numbers of shares of Common Stock set forth opposite the names of each of the Underwriters listed in Schedule II hereto. The Initial Shares to be purchased by the Underwriters and all or any part of the Option Shares subject to the option described in Section 1(b) hereof are hereinafter called, collectively, the “ Shares .”
The Company, the Operating Partnership and the Selling Stockholders understand that the Underwriters propose to make a public offering of the Shares as soon as the Underwriters deem advisable after this Underwriting Agreement (this “ Agreement ”) has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the “ Commission ”), a registration statement on Form S-11 (No. 333-214021) including a related preliminary prospectus, for the registration of the Shares under the Securities Act of 1933, as amended (the “ Securities Act ”), and the rules and regulations thereunder (the “ Securities Act Regulations ”). The Company has prepared and filed such amendments to the registration statement and such amendments or supplements to the related preliminary prospectus as may have been required to the date hereof, and will file such additional amendments or supplements as may hereafter be required. The registration statement has been declared effective under the Securities Act by the Commission. The registration statement, as amended at the time it was declared effective by the Commission (and, if the Company files a post-effective amendment to such registration statement which becomes effective prior to the Closing Time (as defined below), such registration statement as so amended) and including all information deemed to be a part of the registration statement pursuant to Rule 430A of the Securities Act Regulations or otherwise, is hereinafter called the “ Registration Statement .” Any registration statement filed pursuant to Rule 462(b) of the Securities Act Regulations is hereinafter called the “ Rule 462(b) Registration Statement ,” and after such filing the term “ Registration Statement ” shall include the 462(b) Registration Statement. The term “ Prospectus ” means the final prospectus, as first filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Securities Act Regulations, and any amendments thereof or supplements thereto.
The term “ Disclosure Package ” means (i) the preliminary prospectus, as most recently amended or supplemented immediately prior to the Initial Sale Time (as defined below) (such preliminary prospectus, the “ Preliminary Prospectus ”), (ii) the Issuer Free Writing Prospectuses and Free Writing Prospectuses (as defined below), if any, identified in part A of Schedule III hereto, and (iii) the pricing information included in part B of Schedule III hereto, all considered together.
The term “ Issuer Free Writing Prospectus ” means any issuer free writing prospectus, as defined in Rule 433 of the Securities Act Regulations. The term “ Free Writing Prospectus ” means any free writing prospectus, as defined in Rule 405 of the Securities Act Regulations.
Each Selling Stockholder has executed and delivered a Custody Agreement and a Power of Attorney in the forms attached hereto as Exhibit A-1 and A-2 , respectively (collectively, the “ Custody Agreement and Power of Attorney ”), pursuant to which each Selling Stockholder that is a party thereto has placed the Initial Shares to be sold by it pursuant to this Agreement in custody and appointed the persons designated therein as attorneys in fact (the “ Attorneys ”) with the authority to execute and deliver this Agreement on behalf of such Selling Stockholder and to take certain other actions with respect thereto and hereto.
The Company, each of the Selling Stockholders and the Underwriters agree as follows:
1. | Sale and Purchase : |
(a) | Initial Shares . Upon the basis of the warranties and representations and other terms and conditions herein set forth, at the purchase price per share of Common Stock of $[ ], (i) the Company agrees to sell to the Underwriters the number of Initial Shares set forth in Schedule I opposite its name, (ii) each Selling Stockholder agrees to sell to the Underwriters the number of Initial Shares set forth in Schedule I opposite such Selling Stockholder’s name, and (iii) each Underwriter agrees, severally and not jointly, to purchase from the Company and the Selling Stockholders the number of Initial Shares set forth in Schedule II opposite such Underwriter’s name, plus any additional number of Initial Shares which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject in each case, to such adjustments among the Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares. |
(b) | Option Shares . In addition, upon the basis of the warranties and representations and other terms and conditions herein set forth, at the purchase price per share of Common Stock set forth in paragraph (a) above, less an amount per share equal to any dividend or distribution declared by the Company and payable on the Initial Shares but not payable on the Option Shares, the Company hereby grants an option to the Underwriters, acting severally and not jointly, to purchase from the Company up to an additional [ ] shares of Common Stock. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time within such 30-day period only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Shares upon notice by the Representatives to the Company setting forth the number of Option Shares as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Shares. Any such time and date of delivery (an “ Option Closing Time ”) shall be determined by the Representatives, but shall not be later than three full business days (and shall not, without the consent of the Company, be earlier than two full business days) after the exercise of such option, nor in any event prior to the Closing Time (as defined below). If the option is exercised as to all or any portion of the Option Shares, the Company will sell that number of Option Shares then being purchased and each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Shares then being purchased which the number of Initial Shares set forth in Schedule II opposite the name of such Underwriter bears to the total number of Initial Shares, subject to such adjustments among the Underwriters as in their sole discretion shall make to eliminate any sales or purchases of fractional shares. |
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2. | Payment and Delivery : |
(a) | Initial Shares . The Initial Shares to be purchased by each Underwriter hereunder, in book-entry form, and in such authorized denominations and registered in such names and amounts as the Representatives may request upon at least forty-eight hours’ prior notice to the Company and the Selling Stockholders shall be delivered by or on behalf of the Company and the Selling Stockholders to the Representatives, through the facilities of The Depository Trust Company (“ DTC ”) for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the accounts specified to the Representatives by the Company and each of the Selling Stockholders, upon at least forty-eight hours’ prior notice. To the extent the Initial Shares are delivered in certificated form and not in book-entry form through the facilities of DTC, the Company will cause the certificates representing the Initial Shares to be made available for checking and packaging not later than 1:00 p.m. New York City time on the business day prior to the Closing Time (as defined below) with respect thereto at the office of FBR Capital Markets & Co., 1300 North 17 th Street, Suite 1400, Arlington, Virginia 22209, or at the office of DTC or its designated custodian, as the case may be (the “ Designated Office ”). The time and date of such delivery and payment shall be 9:30 a.m., New York City time, on [ ], 2017 (unless another time and date shall be agreed to by the Representatives and the Company). The time and date at which such delivery and payment are actually made is hereinafter called the “ Closing Time .” |
(b) | Option Shares . Any Option Shares to be purchased by each Underwriter hereunder, in book-entry form, and in such authorized denominations and registered in such names as the Representatives may request upon at least forty-eight hours’ prior notice to the Company shall be delivered by or on behalf of the Company to the Representatives through the facilities of DTC for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified to the Representatives by the Company, upon at least forty-eight hours’ prior notice. To the extent the Option Shares are delivered in certificated form and not in book-entry form through the facilities of DTC, the Company will cause the certificates representing the Option Shares to be made available for checking and packaging at least twenty-four hours prior to the Option Closing Time with respect thereto at the Designated Office. The time and date of such delivery and payment shall be 9:30 a.m., New York City time, on the date specified by the Representatives in the notice given by the Representatives to the Company of the Underwriters’ election to purchase such Option Shares or on such other time and date as the Company and the Representatives may agree upon in writing. |
3. | Representations and Warranties of the Company and the Operating Partnership : |
Each of the Company and the Operating Partnership hereby, jointly and severally, represents and warrants to the Underwriters and agrees with each Underwriter, that:
(a) | the Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Maryland, with requisite corporate power and authority to own, lease or operate its properties and to conduct its business as described in the Registration Statement, the Disclosure Package and the Prospectus and to execute and deliver this Agreement and to consummate the transactions contemplated hereby (including the issuance, sale and delivery of the Shares by the Company as contemplated herein); each of the subsidiaries of the Company (all of which are listed in Exhibit 21 to the Registration Statement) (each a “ Subsidiary ” and, collectively, the “ Subsidiaries ”), has been duly organized and is validly existing as a corporation, limited liability company, limited partnership or similar entity in good standing under the laws of the jurisdiction of its organization with requisite power and authority to (1) own, lease or operate each of its properties and to conduct its business as described in the Registration Statement, the Disclosure Package and the Prospectus and (2) in the case of the Operating Partnership, execute and deliver this Agreement and consummate the transactions contemplated hereby; the Subsidiaries are the only subsidiaries, direct or indirect, of the Company; except as described in the Registration Statement, the Disclosure Package and the Prospectus, no Subsidiary is currently prohibited, directly or indirectly, from paying any dividends or distributions to the Company, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary; the outstanding ownership interests of each of the Subsidiaries have been duly authorized and validly issued and, except as described in each of the Registration Statement, the Disclosure Package and the Prospectus, are owned by the Company or another Subsidiary free and clear of all liens, encumbrances and equities and claims; and, except as described in each of the Registration Statement, the Disclosure Package and the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into ownership interests in the Subsidiaries are outstanding. The Company is the sole general partner of the Operating Partnership. |
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(b) | commencing with its short taxable year ended December 31, 2015, the Company has been organized and operated in conformity with the requirements for qualification and taxation as a “real estate investment trust” (a “ REIT ”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “ Code ”) and the Company’s proposed method of operations, as described in each of the Registration Statement, the Disclosure Package and the Prospectus, will enable it to continue to satisfy the requirements for qualification and taxation as a REIT under the Code for the Company’s taxable year ended December 31, 2016 and thereafter. To the knowledge of either the Company or the Operating Partnership, there is no event that would cause, or is likely to cause, the Company to fail to qualify as a REIT under the Code. |
(c) | the Company had, as of September 30, 2016, the capitalization set forth in the Disclosure Package and the Prospectus in the column entitled “Historical” under the caption “ Capitalization ”; all of the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable, and have not been issued in violation of or subject to any preemptive right or other similar right of stockholders arising by operation of law, under the Company’s charter, bylaws, or other organizational documents (collectively, the “ Charter Documents ”), under any agreement to which the Company is a party or otherwise; except as disclosed in or contemplated by both the Prospectus and the Disclosure Package, there are no outstanding (i) securities or obligations of the Company convertible into or exchangeable for any capital stock of the Company, (ii) warrants, rights or options to subscribe for or purchase from the Company any such capital stock or any such convertible or exchangeable securities or obligations or (iii) obligations of the Company to issue or sell any shares of capital stock, any such convertible or exchangeable securities or obligation, or any such warrants, rights or options; |
(d) | the Shares to be issued and sold by the Company have been duly authorized for issuance, sale and delivery pursuant to this Agreement and, when issued and delivered by the Company against payment therefor in accordance with the terms of this Agreement, will be duly and validly issued and fully paid and nonassessable, free and clear of any pledge, lien, encumbrance, security interest or other claim, and the issuance, sale and delivery of the Shares by the Company are not subject to any preemptive right, co-sale right, registration right, right of first refusal or other similar right of stockholders arising by operation of law, under the Charter Documents, under any agreement to which the Company is a party or otherwise, other than as provided for in the Registration Rights Agreement, dated as of August 3, 2015, between the Company and FBR Capital Markets & Co. (as amended, the “ Registration Rights Agreement ”); the form of certificates for the Shares, if any, conforms to the corporate law of the jurisdiction of the Company’s incorporation and to any requirements of the Charter Documents; |
(e) | the Company and each of the Subsidiaries is duly qualified or licensed by, and is in good standing in, each jurisdiction in which it conducts its business, or in which it owns or leases property or maintains an office and in which such qualification or licensing is necessary and in which the failure, individually or in the aggregate, to be so qualified or licensed would reasonably be expected to have a material adverse effect on the business, financial condition, results of operations or prospects of the Company and the Subsidiaries taken as a whole (a “ Material Adverse Effect ”); |
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(f) | the Company and each of its Subsidiaries has legal and valid title to all assets and properties reflected as owned by it in the Registration Statement, the Disclosure Package and the Prospectus (whether through fee ownership, mineral estates or similar rights of ownership), in each case free and clear of all liens, security interests, pledges, charges, encumbrances, mortgages and defects, except such as are disclosed in the Registration Statement, the Disclosure Package and the Prospectus or as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; any real property, buildings, improvements, equipment or personal property held under lease by the Company or any Subsidiary is held under a lease that is valid, existing and enforceable by the Company or such Subsidiary, with such exceptions as are disclosed in the Registration Statement, the Disclosure Package and the Prospectus or as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, and neither the Company nor any Subsidiary has received any written notice of any material claim that is adverse to the rights of the Company or any Subsidiary under any such lease; |
(g) | all descriptions of the Company’s organization and proposed method of operation set forth in the Registration Statement, the Disclosure Package and the Prospectus are accurate and fair summaries of the legal and tax matters therein described in all material respects; the Registration Statement, the Disclosure Package or the Prospectus contain accurate summaries of all material contracts, agreements, instruments and other documents of the Company required to be described therein; the copies of all contracts, agreements, instruments and other documents (including governmental licenses, authorizations, permits, consents and approvals and all amendments or waivers relating to any of the foregoing) that have been previously made available to the Underwriters or their counsel or that are filed as exhibits to the Registration Statement are complete and accurate in all material respects; |
(h) | the Company and each Subsidiary owns or possesses such licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights, software and design licenses, trade secrets, manufacturing processes, other intangible property rights and know-how as are necessary for the Company and each Subsidiary to conduct the Company’s and each Subsidiary’s business as described in the Registration Statement, the Disclosure Package and the Prospectus (collectively, “ Intangibles ”), except where the failure to own or possess such Intangibles would not reasonably be expected to have a Material Adverse Effect; and neither the Company nor any Subsidiary has received written notice of any infringement of or conflict with (and the Company and each Subsidiary does not know of any such infringement of or conflict with) asserted rights of others with respect to any Intangibles which would reasonably be expected to have a Material Adverse Effect; |
(i) | the Company and the Subsidiaries own or have a valid right to access and use all computer systems, networks, hardware, software, databases, websites and equipment used to process, store, maintain and operate data, information and functions necessary for the conduct of the business of the Company and the Subsidiaries as described in the Registration Statement, the Disclosure Package and the Prospectus (the “ Company IT Systems ”), except where the failure to own or have right to access such Company IT Systems would not reasonably be expected to have a Material Adverse Effect. The Company IT Systems are adequate for, and operate and perform in all material respects as required in connection with, the operation of the business of the Company and the Subsidiaries as currently conducted, except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; |
(j) | neither the Company nor any Subsidiary has violated, or received notice of any violation with respect to, any law, rule, regulation, order decree or judgment applicable to it and its business, including, without limitation, those relating to transactions with affiliates, environmental, safety or similar laws, federal or state laws relating to discrimination in the hiring, promotion or pay of employees, federal or state wages and hours law, the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations promulgated thereunder (“ ERISA ”), except for those violations that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; |
(k) | there are no outstanding loans or advances or guarantees of indebtedness by the Company or any Subsidiary to or for the benefit of any of the officers, directors, affiliates or representatives of the Company or any Subsidiary or any of the members of the families of any of them; |
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(l) | except for compensation payable to the Underwriters pursuant hereto, neither the Company nor any Subsidiary has incurred any liability for any finder’s fees or similar payments in connection with the transactions contemplated hereby; |
(m) | the Company is not in breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would constitute a breach of, or default under) (i) the Charter Documents or (ii) the performance or observance of any obligation, agreement, covenant or condition contained in any contract, license, indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company is a party or by which it or its properties are bound, except, in the case of clause (ii) above, for such breaches or defaults which would not, individually or in the aggregate, have a Material Adverse Effect; |
(n) | none of the Subsidiaries is in breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would constitute a breach of, or default under) (i) its certificate of incorporation, bylaws, certificate of formation, limited liability company agreement, certificate of limited partnership, agreement of limited partnership or other organizational documents (collectively, the “ Subsidiary Charter Documents ”) or (ii) the performance or observance of any obligation, agreement, covenant or condition contained in any contract, license, indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which such Subsidiary is a party or by which any of them or their respective properties are bound, except, in the case of clause (ii) above, for such breaches or defaults which would not, individually or in the aggregate, have a Material Adverse Effect; |
(o) | the execution, delivery and performance by each of the Company and the Operating Partnership of this Agreement, the issuance, sale and delivery of the Shares by the Company, the use of the proceeds from the sale of the Shares as described in the Registration Statement, the Disclosure Package and the Prospectus and the consummation by the Company of the transactions contemplated hereby, and the compliance by the Company and the Subsidiaries with the terms and provisions hereunder will not conflict with, or result in any breach of or constitute a default under (nor constitute any event which with notice, lapse of time, or both would constitute a breach of, or default under), (i) the Charter Documents or Subsidiary Charter Documents, as applicable, (ii) any contract, license, indenture, mortgage, deed of trust, bank loan or credit agreement or other agreement or instrument to which the Company or any Subsidiary is a party or by which it or its respective properties are bound, or (iii) any federal, state, local or foreign law, regulation or rule or any decree, judgment, consent, license, permit or order applicable to the Company or any Subsidiary, except in the case of clauses (ii) or (iii) for such conflicts, breaches or defaults that have been validly waived or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or result in the creation or imposition of any material lien, charge, claim or encumbrance upon any property or asset of the Company or any Subsidiary; |
(p) | this Agreement has been duly authorized, executed and delivered by the Company and the Operating Partnership; |
(q) | assuming that no purchase is made in violation of the Charter Documents, no approval, authorization, consent or order of or filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency or approval of the stockholders of the Company or the limited partners of the Operating Partnership is required in connection with the execution, delivery and performance by the Company and the Operating Partnership of this Agreement, or the consummation by the Company and the Operating Partnership of the transactions contemplated hereby, or the issuance, sale and delivery of the Shares by the Company as contemplated hereby, other than (i) such as have been obtained or made, or will have been obtained or made at the Closing Time or the relevant Option Closing Time, as the case may be, (ii) as may be required under the Securities Act and the Securities Exchange Act of 1934 (the “ Exchange Act ”), the New York Stock Exchange (the “ NYSE ”), or the rules and regulations of the Financial Industry Regulatory Authority (“ FINRA ”), (iii) any necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters, and (iv) such other approvals, authorizations, consents, orders or filings the failure of which to obtain or make would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; |
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(r) | the Company and each of the Subsidiaries have all necessary licenses, permits, certificates, authorizations, consents and approvals necessary to conduct their respective businesses as described in the Registration Statement, the Disclosure Package and the Prospectus and have provided all necessary notices and made all necessary filings required to be provided or made under any federal, state, local or foreign law, regulation or rule necessary to conduct their respective businesses as described in the Registration Statement, the Disclosure Package and the Prospectus, except, in each case, to the extent that any failure to have any such licenses, permits, certificates, authorizations, consents or approvals, to make any such filings or to obtain any such licenses, permits, certificates, authorizations, consents or approvals would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; neither the Company nor the Subsidiaries is in violation of, or in default under, any such license, permit, certificate, authorization, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment necessary to conduct its business as described in the Registration Statement, the Disclosure Package and the Prospectus, the effect of which would reasonably be expected to have a Material Adverse Effect; |
(s) | the Registration Statement has become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement has been issued under the Securities Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated or threatened by the Commission; and the Company has complied with any request on the part of the Commission for additional information; |
(t) | the Registration Statement as of its effective date and as of the date hereof complied and, as it may be further amended after the date hereof, will comply, and the Preliminary Prospectus, the Prospectus and any further amendments or supplements thereto, each when filed with the Commission, complied or will comply, in all material respects with the requirements of the Securities Act and the Securities Act Regulations; |
(u) | the Registration Statement, as of its effective date and as of the date hereof, did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and the Prospectus will not, as of the applicable filing date, the date hereof, at the Closing Time and on each Option Closing Time, if any, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however that the Company and the Operating Partnership make no warranty or representation with respect to any statement contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with (i) the information concerning the Underwriters and furnished in writing by or on behalf of the Underwriters through the Representatives to the Company expressly for use therein (it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in the last sentence of Section 11(c)) or (ii) the Selling Stockholder Information (as defined below); |
(v) | as of [[ ] a.m./p.m.] E.[S].T. on [ ], 2017 (the “ Initial Sale Time ”), the Disclosure Package did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; as of its issue date or date of first use and at all subsequent times through the Initial Sale Time, each Issuer Free Writing Prospectus, when considered together with the Disclosure Package, did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the Company makes no warranty or representation with respect to any statement contained in or omitted from the Disclosure Package in reliance upon and in conformity with (i) the information concerning the Underwriters and furnished in writing by or on behalf of the Underwriters to the Company expressly for use therein (it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in the last sentence of Section 11(c)) or (ii) the Selling Stockholder Information; |
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(w) | each Issuer Free Writing Prospectus does not conflict with the information contained in the Registration Statement; |
(x) | the Company is not an “ineligible issuer” in connection with this offering pursuant to Rules 164 and 433 under the Securities Act; and any Free Writing Prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act Regulations has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the Securities Act Regulations; |
(y) | except for the Issuer Free Writing Prospectuses identified in Schedule III hereto, and any electronic road show relating to the public offering of the Shares, the Company has not prepared, used or referred to, and will not, without the prior consent of the Representatives, prepare, use or refer to, any Free Writing Prospectus; |
(z) | the Preliminary Prospectus, the Prospectus and any Issuer Free Writing Prospectuses (to the extent any such Issuer Free Writing Prospectus was required to be filed with the Commission) delivered to the Representatives for use in connection with the public offering of the Shares contemplated herein have been or will be identical to the versions of such documents transmitted to the Commission for filing via the Electronic Data Gathering Analysis and Retrieval System (“ EDGAR ”), except to the extent permitted by Regulation S-T; |
(aa) | from the time of initial confidential submission of a draft registration statement relating to the Shares with the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing the Waters Communication (as defined below)) through the date hereof, the Company has been and is an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act; “ Testing the Waters Communication ” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act; |
(bb) | the Company has not (i) engaged in any Testing the Waters Communication other than through, or as disclosed to, the Representatives or (ii) authorized anyone other than the Representatives to engage in Testing the Waters Communications; the Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing the Waters Communications; except through, or as disclosed to, the Representatives, the Company has not distributed any Written Testing the Waters Communications (as defined below); “ Written Testing the Waters Communications ” means any Testing the Waters Communication that is a “written communication” within the meaning of Rule 405 under the Securities Act; no individual Written Testing the Waters Communication, when considered together with the Disclosure Package, included any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; |
(cc) | other than as set forth in each of the Registration Statement, the Disclosure Package and the Prospectus or as is not required by the Securities Act and the Securities Act Regulations to be described in a prospectus included in a registration statement filed by the Company on Form S-11 under the Securities Act, there are no actions, suits, proceedings, inquiries or investigations pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary, or any of their respective properties, directors, officers or controlled affiliates at law or in equity, or before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority, arbitral panel or agency; |
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(dd) | subsequent to the respective dates as of which information is given in each of the Registration Statement, the Disclosure Package and the Prospectus, and except as may be otherwise stated in each of the Registration Statement, the Disclosure Package and the Prospectus, there has not been (i) any event, circumstance or change that has, or would reasonably be expected, individually or in the aggregate, to have, a Material Adverse Effect, (ii) any transaction, other than in the ordinary course of business, which is material to the Company and the Subsidiaries, taken as a whole, contemplated or entered into by the Company or any Subsidiary, (iii) any obligation, contingent or otherwise, directly or indirectly incurred by the Company or any Subsidiary, other than in the ordinary course of business, which is material to the Company and the Subsidiaries, taken as a whole, (iv) any dividend or distribution of any kind declared, paid or made by the Company or any Subsidiary on any class of its capital stock or equity interests, or any purchase by the Company or any Subsidiary of any of its outstanding capital stock or equity interests, or (v) any change of the capital stock, equity interests or indebtedness of the Company or any Subsidiary; |
(ee) | neither the Company nor the Operating Partnership is, or upon the sale of the Shares as contemplated herein and the application of the net proceeds therefrom as described in the Registration Statement, the Disclosure Package and the Prospectus under the caption “Use of Proceeds”, will be, an “investment company” or an entity “controlled” by an “investment company” (as such terms are defined in the Investment Company Act of 1940, as amended (the “ Investment Company Act ”) and the rules and regulations promulgated thereunder); |
(ff) | there are no persons with registration or other similar rights to have any securities registered by the Company under the Securities Act other than pursuant to the Registration Rights Agreement and the continuing investors registration rights agreement (as defined in the Preliminary Prospectus); |
(gg) | neither the Company nor any of the Subsidiaries or any of their respective affiliates (i) is required to register as a “broker” or “dealer” in accordance with the provisions of the Exchange Act or the rules and regulations thereunder (such rules and regulations, the “ Exchange Act Regulations ”), or (ii) directly, or indirectly through one or more intermediaries, controls or has any other association with (within the meaning of Article 1 of the bylaws of FINRA) any member firm of FINRA; |
(hh) | none of the Company, any Subsidiary or any of their respective directors, officers, representatives or affiliates has taken, directly or indirectly, any action intended, or that might reasonably be expected to cause or result, under the Securities Act, the Exchange Act or otherwise, in, or that has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; |
(ii) | the Company and each Subsidiary carries, or is covered by, insurance (issued by insurers of recognized financial responsibility to the knowledge of the Company) in such amounts and covering such risks as is appropriate for the conduct of their respective businesses and the value of the assets to be held by them upon the consummation of the transactions contemplated by the Registration Statement, the Disclosure Package and the Prospectus and as is customary for companies engaged in businesses similar to the business of the Company, all of which insurance is in full force and effect in all material respects; |
(jj) | the consolidated historical financial statements of the Company, including any accounting predecessor identified in the Registration Statement, the Disclosure Package and the Prospectus, including the notes and schedules thereto, included in the Registration Statement, the Disclosure Package and the Prospectus (i) fairly present the financial condition of the Company or such accounting predecessor, as of the respective dates thereof, and the results of operations and statements of cash flows for the periods then ended and (ii) have been prepared in conformity with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis during the periods involved and in accordance with the applicable accounting requirements of the Securities Act and the Securities Act Regulations, and the financial statement schedule of the Company included in the Registration Statement, has been compiled on a basis consistent with such consolidated historical financial statements of the Company; the unaudited pro forma consolidated financial statements of the Company included in the Registration Statement, the Disclosure Package and the Prospectus comply in all material respects with the Commission’s rules and guidelines with respect to pro forma financial statements, the assumptions used in the preparation of such pro forma financial statements are reasonable in all material respects and the pro forma adjustments used therein are appropriate to give effect to the transactions or circumstances described therein; no pro forma financial information, financial statements or supporting schedules other than those included or incorporated by reference in each of the Registration Statement, the Prospectus and the Disclosure Package are required to be included in the Registration Statement, the Prospectus or the Disclosure Package; |
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(kk) | BDO LLP, whose report with respect to certain financial statements are included in the Registration Statement, the Disclosure Package and the Prospectus, are independent registered public accountants with respect to the Company (and any accounting predecessor) within the meaning of the Securities Act and the Securities Act Regulations and are registered with the Public Company Accounting Oversight Board (United States); |
(ll) | the Company maintains effective internal control over financial reporting (as defined under Rule 13a-15 and 15d-15 under the Exchange Act) and a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management’s general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in the Company’s internal control over financial reporting and there has been no material change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting since the respective dates of the information given in the Registration Statement, the Disclosure Package and the Prospectus; the Company maintains a system of disclosure controls and procedures (as defined in Rule 13a-15 and Rule 15d-15 under the Exchange Act Regulations) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, as appropriate, to allow timely decisions regarding disclosure; |
(mm) | neither the Company or the Subsidiaries nor, to the knowledge of the Company, any officer, director, agent or employee of the Company purporting to act on behalf of the Company or any Subsidiary has, since January 1, 2013, and, to the knowledge of the Company’s current Chief Executive Officer and Chief Financial Officer, neither the Company or the Subsidiaries nor any officer, director, agent or employee of the Company purporting to act on behalf of the Company has, prior to January 1, 2013 (i) made any payment to any state, federal or foreign governmental officer or official, or other person charged with similar public or quasi-public duties, in each case in violation of the Foreign Corrupt Practices Act of 1977, as amended (the “ FCPA ”) or (ii) violated any other applicable provision of the FCPA; |
(nn) | neither the Company or the Subsidiaries nor, to the knowledge of the Company, any officer, director, agent or employee of the Company purporting to act on behalf of the Company or any Subsidiary has, since January 1, 2013, and, to the knowledge of the Company’s current Chief Executive Officer and Chief Financial Officer, neither the Company or the Subsidiaries nor any officer, director, agent or employee of the Company purporting to act on behalf of the Company has, prior to January 1, 2013, (i) made any contributions to any candidate for political office in violation of applicable law, or failed to disclose any such contributions in violation of applicable law or (ii) engaged in any transactions, maintained any bank account or used any corporate funds except for transactions, bank accounts and funds which have been and are reflected in all material respects in the books and records of the Company; |
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(oo) | neither the Company or the Subsidiaries, nor, to the knowledge of the Company or the Operating Partnership, any employee or agent of the Company or any Subsidiary purporting to act on behalf of the Company or any Subsidiary, has made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any law, rule or regulation relating to the “know your customer” and anti-money laundering laws of any jurisdiction (collectively, the “ Anti-Money Laundering Laws ”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened; |
(pp) | neither the Company or the Subsidiaries, nor to the knowledge of the Company or the Operating Partnership, any officer, director, agent, employee or affiliate of the Company or any Subsidiary, is currently the target of or reasonably likely to become the target of any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“ OFAC ”); and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently the target of or reasonably likely to become the target of any U.S. sanctions administered by OFAC; |
(qq) | any certificate signed by any officer of the Company or any Subsidiary delivered to the Representatives or to counsel for the Underwriters pursuant to or in connection with this Agreement shall be deemed a representation and warranty by the Company or such Subsidiary to the Underwriters as to the matters covered thereby; |
(rr) | except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or where such matters are the result of a pending bona fide dispute with taxing authorities, (i) the Company and the Subsidiaries have accurately prepared and timely filed any and all federal, state, foreign, local and other tax returns that are required to be filed by them, if any, and have paid or made provision for the payment of all taxes, assessments, governmental or other similar charges, including without limitation, all sales and use taxes and all taxes which the Company or the Subsidiaries are obligated to withhold from amounts owing to employees, creditors and third parties, with respect to the periods covered by such tax returns (whether or not such amounts are shown as due on any tax return), (ii) no deficiency assessment with respect to a proposed adjustment of the Company’s or any Subsidiary’s federal, state, local or foreign taxes is pending or, to the best of the Company’s knowledge, threatened; (iii) since the date of the most recent audited financial statements, neither the Company nor any Subsidiary has incurred any liability for taxes other than in the ordinary course of its business; and (iv) there is no tax lien, whether imposed by any federal, state, foreign, local or other taxing authority, outstanding against the assets, properties or business of the Company or any Subsidiary; |
(ss) | except as described in each of the Registration Statement, the Disclosure Package and the Prospectus or as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, (i) neither the Company nor any Subsidiary is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or mold (collectively, “ Hazardous Materials ”) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, “ Environmental Laws ”), (ii) the Company and each Subsidiary have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (iii) there are no pending or, to the knowledge of the Company or the Operating Partnership, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating to any Environmental Law against the Company or any Subsidiary, and (iv) to the knowledge of the Company or the Operating Partnership, there are no events or circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any Subsidiary relating to Hazardous Materials or any Environmental Laws; |
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(tt) | except as described in the Registration Statement, the Disclosure Package and the Prospectus or as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, (i) each employee benefit plan, within the meaning of Section 3(3) of ERISA, that is maintained, administered or contributed to by the Company or any Subsidiary or any of their affiliates for employees or former employees of the Company, each Subsidiary or any of their affiliates has been maintained in compliance in all material respects with its terms and the requirements of any applicable statutes, orders, rules and regulations, including, but not limited to, ERISA and the Code; and (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption, and no such plan is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA; |
(uu) | no labor disturbance by or dispute with employees of the Company or any Subsidiary exists or, to the knowledge of the Company or the Operating Partnership, is contemplated or threatened and neither the Company nor any Subsidiary is aware of any existing or imminent labor disturbance by, or dispute with, the employees of any of the Company’s or any Subsidiary’s principal suppliers, contractors or customers, except in each case as would not reasonably expected to have a Material Adverse Effect; |
(vv) | the Company has taken all necessary actions to ensure that the Company and the Subsidiaries are in compliance in all material respects with all provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof that are in effect and with which the Company is required to comply as of the date of this Agreement; |
(ww) | nothing has come to the attention of the Company or the Operating Partnership that has caused the Company or the Operating Partnership to believe that the statistical and market-related data included in each of the Registration Statement, the Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects; |
(xx) | no forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in any of the Registration Statement, the Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith; |
(yy) | no relationship, direct or indirect, exists between or among the Company or any Subsidiary, on the one hand, and the director, officers or stockholders, customers or suppliers of the Company or any Subsidiary, on the other hand, which is required to be described in the Registration Statement, the Disclosure Package or the Prospectus and which is not so described; and |
(zz) | each of the directors named as an independent director in the Registration Statement, the Disclosure Package and the Prospectus is “independent” within the meaning of the corporate governance rules of the NYSE. |
4. | Representations and Warranties of the Selling Stockholders : |
Each Selling Stockholder, severally and not jointly, represents and warrants to the Underwriters as of the date hereof, the Initial Sale Time and as of the Closing Time, and agrees with each Underwriter, that:
(a) | such Selling Stockholder has full power and authority to enter into this Agreement and the Custody Agreement and Power of Attorney to which it is a party. All authorizations and consents necessary for the execution and delivery by such Selling Stockholder of the Custody Agreement and Power of Attorney, and for the execution of this Agreement on behalf of such Selling Stockholder, have been given. Each of the Custody Agreement and Power of Attorney and this Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder and constitutes a valid and binding agreement of such Selling Stockholder and is enforceable against such Selling Stockholder in accordance with the terms thereof and hereof, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally, and by general equitable principles, and except to the extent that the indemnification and contribution provisions of Section 11 hereof may be limited by federal or state securities laws and public policy considerations in respect thereof; |
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(b) | such Selling Stockholder now has, and immediately prior to the Closing Time will have, (i) a valid “security entitlement” (within the meaning of Section 8-501 of the New York Uniform Commercial Code (the “ New York UCC ”)) in respect of the Shares to be sold by such Selling Stockholder hereunder, in each case free and clear of all liens, encumbrances and claims whatsoever (other than pursuant to the Custody Agreement and Power of Attorney, as applicable), and (ii) full legal power and authority to enter into this Agreement and to sell, transfer and deliver a security entitlement in respect of such Shares to the Underwriters hereunder, and to make the representations, warranties and agreements made by such Selling Stockholder herein. Upon (1) payment for the Shares to be sold by such Selling Stockholder pursuant to this Agreement, (2) delivery of such Shares, as directed by the Underwriters, to Cede & Co., or such other nominee as may be designated by DTC, (3) registration of such Shares in the name of DTC, Cede & Co., or such other nominee and (4) DTC indicating by book entries on its books that security entitlements with respect to such Shares have been credited to the Underwriters’ securities accounts, (x) the Underwriters will acquire a valid “security entitlement” (within the meaning of Section 8-501 of the New York UCC) with respect to such Shares and no action based on an “adverse claim” (as defined in Section 8-102 of the New York UCC) may be asserted against the Underwriters with respect to such security entitlement, and (y) DTC shall be a “protected purchaser” of such Shares within the meaning of Section 8-303 of the New York UCC (assuming, in each case, that (A) none of DTC, Cede & Co., any such other nominee or any Underwriter will have “notice of any adverse claim” to any of such Shares within the meaning of Section 8-105 of the New York UCC, (B) DTC will be registered as a “clearing corporation” within the meaning of Section 8-102 of the New York UCC, and (C) the jurisdiction of DTC is New York); |
(c) | the performance of this Agreement, the Custody Agreement and the Power of Attorney by such Selling Stockholder and the consummation by such Selling Stockholder of the transactions contemplated herein and therein will not conflict with, or result in any breach of, or constitute a default under (nor constitute any event which with notice, lapse of time, or both would constitute a breach of, or default under), (i) any provision of the certificate or articles of incorporation, other charter or similar constitutive documents, or the bylaws of such Selling Stockholder, (ii) any provision of any license, indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which such Selling Stockholder is a party or by which it or its properties may be bound or affected or (iii) under any federal, state, local or foreign law, regulation or rule or any decree, judgment or order applicable to such Selling Stockholder; or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of such Selling Stockholder (other than pursuant to the Custody Agreement and Power of Attorney, as applicable); |
(d) | no approval, authorization, consent or order of or filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency having jurisdiction over such Selling Stockholder or any of its properties is required in connection with such Selling Stockholder’s execution, delivery and performance of this Agreement, its consummation of the transactions contemplated herein, and its sale and delivery of the Shares, other than (i) such as have been obtained or made, or will have been obtained or made at the Closing Time, (ii) such approvals as may be required under the Securities Act and the Exchange Act, the NYSE or the rules and regulations of FINRA and (iii) any necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters; |
(e) | such Selling Stockholder is not prompted to sell Shares by any material information concerning the Company or its Subsidiaries which is not set forth in the Registration Statement, the Disclosure Package and the Prospectus; |
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(f) | all information with respect to such Selling Stockholder contained in the Registration Statement as of its effective date and as of the date hereof, did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; each of the Prospectus, and any amendment or supplement thereto, as of the applicable filing date, and the Disclosure Package, as of the Initial Sale Time, did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein in the light of the circumstances under which they were made, not misleading; provided , however , that this representation and warranty shall only apply to any statements or omissions in the Registration Statement, the Disclosure Package and the Prospectus and any amendment or supplement thereto, made in reliance upon and in conformity with written information furnished by or on behalf of such Selling Stockholder specifically for use in the Registration Statement, the Disclosure Package or the Prospectus, together with any amendment or supplement thereto used by the Company or any Underwriter, as the case may be, it being understood and agreed that the only such information furnished by or on behalf of such Selling Stockholder consists of the information relating to such Selling Stockholder in the Registration Statement, the Disclosure Package and the Prospectus under the heading “Selling Stockholders” and the footnotes thereunder, excluding any percentages set forth therein (the “ Selling Stockholder Information ”); |
(g) | such Selling Stockholder has not distributed and will not distribute any Free Writing Prospectus, preliminary prospectus, the Prospectus or any other offering material in connection with the offering and sale of the Shares, except for any such distribution to which the Representatives have consented in advance; and such Selling Stockholder has not taken, directly or indirectly, any action intended, or which would reasonably be expected, to cause or result in, under the Securities Act, the Exchange Act or otherwise, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; |
(h) | the Shares to be sold hereunder by such Selling Stockholder have been placed in custody, for the purpose of making delivery of such Shares under this Agreement and under the Custody Agreement and Power of Attorney which, among other things, appoints American Stock Transfer & Trust Company, LLC, as custodian (the “ Custodian ”), for such Selling Stockholder; such Selling Stockholder agrees that the Shares held in custody for him or it under the Custody Agreement and Power of Attorney are for the benefit of and coupled with and subject to the interest thereunder of the Custodian, the Attorneys, the Underwriters, each other Selling Stockholder and the Company; that the arrangements made by such Selling Stockholder for such custody and the appointment of the Custodian and the Attorneys by such Selling Stockholder are, to the extent provided in the Custody Agreement and Power of Attorney, irrevocable; and that the obligations of such Selling Stockholder hereunder shall not be terminated by operation of law, whether by the death, disability, incapacity or liquidation of any Selling Stockholder or the occurrence of any other event; if any Selling Stockholder should die, become disabled or incapacitated or be liquidated or if any other such event should occur before the delivery of the Shares hereunder, the Shares shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement and actions taken by the Attorneys and the Custodian pursuant to the Custody Agreement and Power of Attorney shall be as valid as if such death, liquidation, incapacity or other event had not occurred, regardless of whether or not the Custodian or the Attorneys, or either of them, shall have received notice thereof; |
(i) | such Selling Stockholder has not relied upon the Representatives or legal counsel for the Underwriters for any legal, tax or accounting advice in connection with the offering and sale of the Shares; |
(j) | such Selling Stockholder does not have any registration or other similar rights to have any equity or debt securities registered for sale by the Company under the Registration Statement or included in the offering contemplated by this Agreement, except for such rights as are described in the Registration Statement, the Disclosure Package and the Prospectus under “Description of Capital Stock” and “Shares Eligible for Future Sale”; |
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(k) | neither such Selling Stockholder nor any of its subsidiaries, nor, to the knowledge of such Selling Stockholder, any officer, director, agent or employee of the such Selling Stockholder purporting to act on behalf of such Selling Stockholder or any of its Subsidiaries has, since January 1, 2013, and, to the knowledge of the such Selling Stockholder’s current chief executive officer or chief financial officer (or, if such Selling Stockholder does not have officers the chief executive officer and chief financial officer of its general partner, managing member, manager or other person having a similar managerial role), if such Selling Stockholder is an entity, or such Selling Stockholder, if such Selling Stockholder is a natural person, neither such Selling Stockholder nor and of its subsidiaries , nor any officer, director, agent or employee of such Selling Stockholder purporting to act on behalf of such Selling Stockholder or any of its subsidiaries has, prior to January 1, 2013 (i) made any payment to any state, federal or foreign governmental officer or official, or other person charged with similar public or quasi-public duties, in each case in violation of the FCPA or (ii) violated any other applicable provision of the FCPA; |
(l) | neither such Selling Stockholder nor any of its subsidiaries, nor, to the knowledge of such Selling Stockholder, any employee or agent of such Selling Stockholder or any of its subsidiaries purporting to act on behalf of such Selling Stockholder or any of its subsidiaries, has made any payment of funds of such Selling Stockholder or any of its subsidiaries or received or retained any funds in violation of any Anti-Money Laundering Laws, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving such Selling Stockholder or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of such Selling Stockholder, threatened; |
(m) | neither such Selling Stockholder nor any of its subsidiaries, nor to the knowledge of such Selling Stockholder, any officer, director, agent, employee or affiliate of Selling Stockholder or any of its subsidiaries, is currently the target of or reasonably likely to become the target of any U.S. sanctions administered by OFAC; and such Selling Stockholder will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any of its subsidiaries, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently the target of or reasonably likely to become the target of any U.S. sanctions administered by OFAC; |
(n) | such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or that would reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares; |
(o) | such selling Stockholder does not have, or has waived prior to the date hereof, any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the Shares that are to be sold by the Company or any of the other Selling Stockholders to the Underwriters pursuant to this Agreement; and such Selling Stockholder does not own any warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, right, warrants, options or other securities from the Company, other than those described in the Registration Statement and the Prospectus; and |
(p) | except as otherwise disclosed to the Underwriters in writing, such Selling Stockholder is not a member of or an affiliate of or associated with any member of FINRA. |
5. | Certain Covenants of the Company : |
The Company hereby agrees with each Underwriter:
(a) | to furnish such information as may be required and otherwise to reasonably cooperate in qualifying the Shares for offer and sale under the securities or blue sky laws of such states and other jurisdictions as the Representatives may designate to maintain such qualifications in effect as long as required by such laws for the distribution of the Shares; provided , however , that the Company shall not be required to qualify as a foreign corporation or other foreign entity or to consent to the service of process under the laws of, or subject itself to taxation as doing business in, any such state or other jurisdiction (except service of process with respect to the offering and sale of the Shares); |
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(b) | to prepare the Prospectus in a form approved by the Underwriters and file such Prospectus with the Commission pursuant to, and within the time period required by, Rule 424(b) (without reliance on Rule 424(b)(8)) under the Securities Act and to deliver to the Underwriters copies of the Prospectus in such quantities and at such locations as the Underwriters may reasonably request for the purposes contemplated by the Securities Act Regulations; |
(c) | to furnish a copy of each proposed Issuer Free Writing Prospectus to the Representatives and counsel for the Underwriters and obtain the consent of the Representatives prior to referring to, using or filing with the Commission any Free Writing Prospectus pursuant to Rule 433(d) under the Securities Act, other than the Issuer Free Writing Prospectuses, if any, identified in Schedule III hereto; |
(d) | to comply with the requirements of Rules 164 and 433 of the Securities Act Regulations applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission, legending and record keeping, as applicable; |
(e) | to advise the Representatives promptly, confirming such advice in writing, of (i) the receipt of any comments from, or any request by, the Commission for amendments or supplements to the Registration Statement, the Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus, or for additional information with respect thereto, (ii) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of the Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus, or of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes and, if the Commission or any other government agency or authority should issue any such order, to make every reasonable effort to obtain the lifting or removal of such order as soon as possible, (iii) any examination pursuant to Section 8(e) of the Securities Act concerning the Registration Statement, or (iv) if the Company becomes subject to a proceeding under Section 8A of the Securities Act in connection with the public offering of Shares contemplated herein; to advise the Representatives promptly of any proposal to amend or supplement the Registration Statement, the Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus and to file no such amendment or supplement to which the Representatives shall reasonably object in writing; |
(f) | to advise the Underwriters promptly, confirming such advice in writing, of the happening of any event or development known to the Company within the time during which a Prospectus relating to the Shares (or in lieu thereof the notice referred to in Rule 173(a) under the Securities Act Regulations) is required to be delivered under the Securities Act Regulations which, in the judgment of the Company, (i) would require the making of any change in the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (ii) would require amending or supplementing the Disclosure Package or the Prospectus so that the Disclosure Package or the Prospectus would not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iii) as a result of which any Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement relating to the Shares, or (iv) if it is necessary at any time to amend or supplement the Prospectus or the Disclosure Package to comply in all material respects with the requirements of the Securities Act or the Securities Act Regulations, to promptly prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, Disclosure Package or the Prospectus comply in all material respects with such requirements, to furnish to the Underwriters copies of the proposed amendment or supplement before filing any such amendment or supplement with the Commission, to file no such amendment or supplement to which the Representatives shall reasonably object in writing and thereafter promptly furnish at the Company’s own expense to the Underwriters and to dealers, copies in such quantities and at such locations as the Representatives may from time to time reasonably request of such amendment or supplement; |
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(g) | if requested, to furnish promptly to each Representative a signed copy of the Registration Statement, as initially filed with the Commission, and of all amendments or supplements thereto (excluding all exhibits filed therewith) and such number of conformed copies of the foregoing as the Representatives may reasonably request; |
(h) | during the period referred to in paragraph (h) above, to furnish to each Representative, not less than two business days before filing with the Commission a copy of any document proposed to be filed with the Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act; |
(i) | to apply the net proceeds from the sale of the Shares by the Company in the manner set forth under the caption “Use of Proceeds” in the Registration Statement, the Disclosure Package and the Prospectus; |
(j) | to make generally available to its security holders and to deliver to the Representatives as soon as practicable, but in any event not later than the end of the fiscal quarter first occurring after the first anniversary of the effective date of the Registration Statement an earnings statement complying with the provisions of Section 11(a) of the Securities Act (in form, at the option of the Company, complying with the provisions of Rule 158 of the Securities Act Regulations) covering a period of 12 months beginning after the effective date of the Registration Statement; |
(k) | to use its commercially best efforts to maintain the listing of the Shares on the NYSE; |
(l) | to promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) the completion of the distribution of the Shares within the meaning of the Securities Act and (ii) completion of the 180-day restricted period referred to in Section 5(m) hereof; |
(m) | for a period of 180 days after the date of this Agreement, to refrain, and to cause the Operating Partnership to refrain, without the prior written consent of FBR Capital Markets & Co. (which consent may be withheld or delayed in FBR Capital Markets & Co.’s sole discretion), from (i) offering, pledging, selling, contracting to sell, selling any option or contract to purchase, purchasing any option or contract to sell, granting any option, right or warrant for the sale of, lending or otherwise disposing of or transferring, directly or indirectly, any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or filing any registration statement under the Securities Act with respect to any of the foregoing, or (ii) entering into any swap or other arrangement that transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership of Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (i) the Shares to be sold hereunder, (ii) filing of a registration statement and the sale of the shares of Common Stock in accordance with the terms of the Registration Rights Agreement, (iii) any shares of Common Stock issued by the Company upon the exercise of an option or other security outstanding on the date hereof and referred to in each of the Registration Statement, the Disclosure Package and the Prospectus, (iv) such issuances of options or grants of restricted stock or other equity-based awards under the Company’s stock option and incentive plans described in each of the Registration Statement, the Disclosure Package and the Prospectus and the issuance of shares issuable upon exercise of any such equity-based awards, (v) the filing by the Company of registration statements on Form S-8 as described in the Preliminary Prospectus, (vi) issuances not to exceed 7.5% in the aggregate of the total shares of Common Stock outstanding, calculated following the issuance and sale of Shares hereunder and assuming that all outstanding class B LLC units of the LLC subsidiaries (as defined in the Preliminary Prospectus) are exchanged for shares of Common Stock, in connection with any acquisition, merger, consolidation or joint venture, including the filing of any registration statement under the Securities Act in connection therewith, provided that the acquirer of any such shares of Common Stock so issued enters into an agreement in the form of Exhibit B hereto with respect to such shares of Common Stock for the remainder of the 180-day restricted period or (vii) the transfer of shares of the Company’s stock pursuant to Article VII of the Company’s charter; and |
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(n) | that the Company will not, without the prior written consent of FBR Capital Markets & Co. (which consent may be withheld or delayed in FBR Capital Markets & Co.’s sole discretion), waive the 60-day lock-up applicable to holders of the Common Stock pursuant to Section 8 of the Registration Rights Agreement; |
6. | Certain Covenants of the Selling Stockholders : |
Each Selling Stockholder hereby agrees with each Underwriter:
(a) | to deliver to the Representatives prior to the Closing Time a properly completed and executed United States Treasury Department Form W-8 (if the Selling Stockholder is a non-United States person, within the meaning of the Code) or Form W-9 (if the Selling Stockholder is a United States person, within the meaning of the Code); |
(b) | for a period of 180 days after the date of this Agreement, such Selling Stockholder will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to sell, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (including without limitation, Common Stock or such other securities convertible into or exercisable or exchangeable for equity securities of the Company which may be deemed to be beneficially owned by such Selling Stockholder in accordance with the rules and regulations of the Commission and equity securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge or disposition, or (ii) enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (iii) make any demand for or exercise any right with respect to the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock, in each case without the prior written consent of the Representatives, other than the Shares to be sold by such Selling Stockholder hereunder; provided , however , that: (A) notwithstanding the foregoing, subject to applicable securities laws and the restrictions contained in the Company’s charter, such Selling Stockholder may transfer any securities of the Company (including, without limitation, Common Stock) as follows: (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth in this Section 6(b); (ii) to any trust for the direct or indirect benefit of such Selling Stockholder or the immediate family of such Selling Stockholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth in this Section 6(b); (iii) as a distribution to stockholders, partners or members of such Selling Stockholder, provided that such stockholders, partners or members agree to be bound in writing by the restrictions set forth in this Section 6(b); (iv) any transfer required under the Company’s amended and restated bylaws; (v) as collateral for any loan, provided that the lender agrees in writing to be bound by the restrictions set forth in this Section 6(b); or (vi) with respect to sales of securities acquired after the Closing Time in the open market; provided , however , that, in each case, no filing under Section 16 of the Exchange Act, is required or otherwise made (for purposes of this Section 6(b), “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin); (B) in the event the Representatives grant any concession or release to any of the Company’s officers or directors under the lock-up agreement between the Representatives and any such officer or director, the Representatives will grant a proportionate concession or release to each Selling Stockholder under this Section 6(b); and (C) for the avoidance of doubt, nothing in this Section 6(b) shall prevent such Selling Stockholder from, or restrict the ability of such Selling Stockholder to purchase shares of Common Stock on the open market; and |
(c) | it will not take, directly or indirectly, any action designed to or that would reasonably be expected to cause or result in any stabilization or manipulation of the price of the Common Stock. |
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7. | Payment of Expenses : |
(a) | The Company and the Operating Partnership agree to pay all costs and expenses incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, including (i) the preparation and filing of the Registration Statement, each preliminary prospectus, the Prospectus, any Issuer Free Writing Prospectus and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (ii) the preparation, issuance and delivery of certificates for the Shares, if any, to the Underwriters, including any stock or other transfer taxes or duties payable upon the sale of the Shares by the Company to the Underwriters, (iii) the printing of this Agreement and any dealer agreements and furnishing of copies of each to the Underwriters and to dealers (including costs of mailing and shipment), (iv) the qualification of the Shares for offering and sale under state laws that the Company and the Representatives have mutually agreed are appropriate and the determination of their eligibility for investment under state law as aforesaid (including the reasonable legal fees and filing fees and other reasonable disbursements of counsel for the Underwriters not to exceed $10,000) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Underwriters and to dealers, (v) filing for review of the public offering of the Shares by FINRA (including the legal fees and other reasonable disbursements of counsel for the Underwriters relating thereto in the maximum amount of $20,000), (vi) the fees and expenses of any transfer agent or registrar for the Shares and miscellaneous expenses referred to in the Registration Statement, (vii) the fees and expenses incurred in connection with the listing of the Shares on the NYSE, (viii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the Shares, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations, the cost of travel and lodging expenses of the representatives and officers of the Company and any such consultants, and one-half the cost of aircraft and other transportation chartered in connection with the road show (it being understood and agreed that the Underwriters shall pay lodging, commercial airfare and other expenses attributable to employees of the Underwriters and one-half of the cost of any aircraft and other transportation chartered in connection with the road show) and (ix) the reasonable fees and other reasonable expenses of one counsel to the Selling Stockholders in the maximum amount of $50,000. For the avoidance of doubt, nothing herein shall diminish the Company’s obligation to pay or reimburse any expenses pursuant to any engagement letter or other agreement entered into between the Company and any Representative. Except as explicitly provided in this Section 7(a) and Section 11, the Underwriters shall pay their own expenses, including the fees and disbursements of their counsel and other advisors. |
(b) | Each Selling Stockholder will pay all of its costs and expenses incident to the performance of its obligations under, and the consummation of the transactions contemplated by this Agreement, including (i) any stamp and other duties and stock and other transfer taxes, if any, payable upon the sale of the Shares by such Selling Stockholder to the Underwriters and their transfer between the Underwriters pursuant to an agreement between such Underwriters, and (ii) its pro rata share (based on the number of Shares to be sold by each Selling Stockholder) of all fees and expenses of counsel not payable by the Company pursuant to clause (ix) of subsection (a) above and of all fees and expenses of other advisors to such Selling Stockholder. |
(c) | If this Agreement shall be terminated by the Underwriters pursuant to Sections 9(i) (other than if the condition not fulfilled is the condition set forth in Subsection 8(c)), or (iv) hereof, the Company will reimburse the Underwriters for all of their reasonable out-of-pocket expenses (including, without limitation, reasonable fees and disbursements of Underwriters’ counsel). |
8. | Conditions of the Underwriters’ Obligations : |
The obligations of the Underwriters hereunder are subject to (i) the accuracy of the representations and warranties on the part of the Company and the Operating Partnership on the date hereof, at the Closing Time and on each Option Closing Time, as applicable, (ii) the accuracy of the statements of the officers of the Company, for itself and as the general partner of the Operating Partnership, made in any certificate pursuant to the provisions hereof as of the date of such certificate, (iii) the performance by the Company and the Operating Partnership of all their respective covenants and other obligations hereunder and (iv) the satisfaction of the following other conditions at the Closing Time or on each Option Closing Time, as applicable:
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(a) | The Company shall furnish or cause to be furnished to the Underwriters at the Closing Time and on each Option Closing Time (i) the opinion and disclosure letter of Sullivan & Cromwell LLP, counsel for the Company, each addressed to the Representatives and dated the Closing Time and each Option Closing Time, in substantially the form set forth on Exhibit C-1 and Exhibit C-2 hereto and (ii) the opinion of Venable LLP, Maryland counsel for the Company, addressed to the Representatives and dated the Closing Time and each Option Closing Time, in substantially the form set forth on Exhibit D . In addition, the Company shall furnish or caused to be furnished to the Underwriters at the Closing Time and on each Option Closing Time the opinion of Sullivan & Cromwell LLP, tax counsel for the Company, regarding certain U.S. federal income tax matters, addressed to the Representatives and dated the Closing Time and each Option Closing Time, in substantially the form set forth on Exhibit C-3 hereto. |
(b) | The Selling Stockholders shall furnish to the Underwriters at the Closing Time an opinion of Sidley Austin LLP, or such other counsel acting on behalf of the Selling Stockholders reasonably acceptable to the Representatives, addressed to the Representatives and dated the Closing Time, in substantially the form attached hereto as Exhibit E . |
(c) | The Underwriters shall have received at the Closing Time an opinion and disclosure letter of Vinson & Elkins L.L.P., counsel for the Underwriters, each addressed to the Representatives and dated the Closing Time, in form and substance reasonably satisfactory to the Representatives. |
(d) | The Representatives shall have received from each of BDO LLP, Lipsky, Goodkin & Co., P.C. and Berdon LLP “comfort” letters dated as of the date hereof, and from BDO LLP, a “comfort” letter dated as of the Closing Time and each Option Closing Time, in each case addressed to the Representatives and in form and substance reasonably satisfactory to the Representatives. |
(e) | Prior to the Closing Time or any Option Closing Time, (i) no stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the Prospectus or any document in the Disclosure Package shall have been issued and no proceedings for such purpose shall have been initiated or, to the Company’s knowledge, threatened by the Commission, and no suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes, shall have occurred; (ii) all requests for additional information on the part of the Commission shall have been complied with; (iii) the Registration Statement shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (iv) the Prospectus and the Disclosure Package shall not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. |
(f) | All filings with the Commission required by Rule 424 under the Securities Act to have been filed by the Closing Time shall have been made within the applicable time period prescribed for such filing by such Rule. |
(g) | Between the time of execution of this Agreement and the Closing Time or any Option Closing Time, there shall not have occurred any event, circumstance or change constituting a Material Adverse Effect. |
(h) | The Shares shall have been approved for listing on the NYSE, subject to official notice of issuance. |
(i) | FINRA shall not have raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. |
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(j) | The Representatives shall have received lock-up agreements from each officer, director and Selling Stockholder in the form attached hereto as Exhibit B , and such letter agreements shall be in full force and effect. |
(k) | The Company shall have delivered to the Representatives a certificate, executed by its Co-Chairman of the Board of Directors and Chief Executive Officer and its Chief Financial Officer, on behalf of the Company and the Operating Partnership, to the effect that (i) the representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Time or such Option Closing Time, as applicable, (except to the extent that such representations and warranties speak as of another date, in which case such representations and warranties shall be true and correct as of such other date), (ii) the conditions set forth in subsections (e) and (g) of this Section 8 have been satisfied and are true and correct as of the Closing Time or the applicable Option Closing Time, and (iii) each of the Company and the Operating Partnership has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied under this Agreement at or prior to the Closing Time or the applicable Option Closing Time. |
(l) | Each Selling Stockholder (or one or more attorneys on behalf of the Selling Stockholders) will, at the Closing Time, deliver to the Underwriters a certificate to the effect that: |
(i) | the representations and warranties of such Selling Stockholder set forth in this Agreement and in the Custody Agreement and Power of Attorney are true and correct as of such date; and |
(ii) | such Selling Stockholder has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied hereunder and under the Custody Agreement and Power of Attorney, as applicable at or prior to such date. |
(m) | The Company shall have furnished to the Underwriters such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement, the Prospectus and the Disclosure Package, as of the Closing Time or any Option Closing Time, as the Underwriters may reasonably request. |
(n) | Each of the Selling Stockholders shall have furnished to the Underwriters such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement, the Disclosure Package and the Prospectus relating to such Selling Stockholder’s Selling Stockholder Information, as applicable, as of the Closing Time or any Option Closing Time, as the Underwriters may reasonably request. |
9. | Termination : |
The Representatives may terminate this Agreement at any time prior to the Closing Time if (i) any of the conditions specified in Section 8 shall not have been fulfilled when and as required by this Agreement to be fulfilled, (ii) trading in securities in general on the NYSE shall have been suspended or minimum prices shall have been established on such exchange or quotation system, (iii) there has been a material disruption in the securities settlement, payment or clearance services in the United States, (iv) trading in any securities of the Company has been suspended by the Commission or by the NYSE, (v) a banking moratorium has been declared by either the United States or New York State authorities, or (vi) if the United States shall have declared war in accordance with its constitutional process or there shall have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic, political or other conditions of such magnitude in its effect on the financial markets of the United States as, in the judgment of the Representatives, to make it impracticable to market the Shares.
If the Representatives elect to terminate this Agreement as provided in this Section 9, the Company and the Underwriters shall be notified promptly by telephone, letter, electronic mail or fax, in each case promptly confirmed by letter or fax.
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If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party, except that the provisions of Sections 7 and 11 hereof shall at all times be effective and shall survive such termination.
10. | Increase in Underwriters’ Commitments : |
If any Underwriter shall default at the Closing Time or on any Option Closing Time in its obligation to take up and pay for the Shares to be purchased by it under this Agreement on such date, the Representatives shall have the right, within 36 hours after such default, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Shares which such Underwriter shall have agreed but failed to take up and pay for (the “ Defaulted Shares ”). Absent the completion of such arrangements within such 36-hour period, (i) if the total number of Defaulted Shares does not exceed 10% of the total number of Shares to be purchased on such date, each non-defaulting Underwriter shall take up and pay for (in addition to the number of Shares which it is otherwise obligated to purchase on such date pursuant to this Agreement) the portion of the total number of Shares agreed to be purchased by the defaulting Underwriter on such date in the proportion that its underwriting obligations hereunder bears to the underwriting obligations of all non-defaulting Underwriters; and (ii) if the total number of Defaulted Shares exceeds 10% of such total, the Representatives may terminate this Agreement by notice to the Company, without liability of any party other than the defaulting Underwriter to any other party, except that the provisions of Sections 7 and 11 hereof shall at all times be effective and shall survive such termination.
If a new Underwriter or Underwriters are substituted for a defaulting Underwriter in accordance with the foregoing provision, the Company or the non-defaulting Underwriters shall have the right to postpone the Closing Time or the relevant Option Closing Time for a period not exceeding five business days in order that any necessary changes in the Registration Statement and Prospectus and other documents may be effected.
The term “Underwriter” as used in this Agreement shall refer to and include any Underwriter substituted under this Section 10 with the same effect as if such substituted Underwriter had originally been named in this Agreement.
11. | Indemnity and Contribution by the Company, the Operating Partnership, the Selling Stockholders and the Underwriters : |
(a) | The Company and the Operating Partnership, jointly and severally, agree to indemnify, defend and hold harmless each Underwriter and any person who controls any Underwriter, within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, expense, liability, damage or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or controlling person may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, expense, liability, damage or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus that the Company has filed or was required to file with the Commission, the Prospectus, any Written Testing the Waters Communication, or any “road show” identified in part C of Schedule III hereto (the “ Road Show ”), or arises out of or is based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein not misleading, except insofar as any such loss, expense, liability, damage or claim arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in and in conformity with (i) information furnished in writing by the Underwriters to the Company expressly for use in such Registration Statement, Preliminary Prospectus, Issuer Free Writing Prospectus, Prospectus , any Written Testing the Waters Communication or the Road Show, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in the last sentence of Section 11(c) or (ii) Selling Stockholder Information. |
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(b) | Each Selling Stockholder, severally and not jointly, agrees to indemnify, defend and hold harmless each Underwriter, their affiliates and their respective directors, officers, representatives and agents and any person who controls any Underwriter, within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, expense, liability, damage or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or controlling person may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, expense, liability, damage or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus that the Company has filed or was required to file with the Commission, the Prospectus, any Written Testing the Waters Communication or the Road Show, or arises out of or is based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein not misleading, except insofar as any such loss, expense, liability, damage or claim arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in and in conformity with information furnished in writing by such Selling Stockholder to the Company expressly for use in such Registration Statement, Preliminary Prospectus, Issuer Free Writing Prospectus, Prospectus, any Written Testing the Waters Communication or the Road Show, it being understood and agreed that the only such information furnished by such Selling Stockholder consists of the Selling Stockholder Information applicable to such Selling Stockholder; provided , however , that the indemnity agreement contained in this subsection (b) shall not require any such Selling Stockholder to reimburse the Underwriters in excess of the net proceeds received by such Selling Stockholder for the sale of the Shares sold by such Selling Stockholder pursuant to this Agreement. |
(c) | Each Underwriter agrees, severally and not jointly, to indemnify, defend and hold harmless the Company, the Operating Partnership and each Selling Stockholder, the Company’s directors, the Company’s officers that signed the Registration Statement, and any person who controls the Company, the Operating Partnership or any Selling Stockholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, expense, liability, damage or claim (including the reasonable cost of investigation) which the Company, any Selling Stockholder or any such person may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, expense, liability, damage or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus that the Company has filed or was required to file with the Commission, the Prospectus, any Written Testing the Waters Communication or the Road Show, or arises out of or is based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein not misleading, but only insofar as such untrue statement or alleged untrue statement or omission or alleged omission was made in Registration Statement, Preliminary Prospectus, Issuer Free Writing Prospectus, Prospectus, any Written Testing the Waters Communication or the Road Show in reliance upon and in conformity with information furnished in writing by the Underwriters to the Company expressly for use therein. For purposes of this Agreement, the statements set forth in the Registration Statement, the Disclosure Package and the Prospectus (i) in the first sentence of the third paragraph (regarding selling concessions) of the section entitled “Underwriting” (ii) under the caption “Underwriting—Stabilization” and (iii) under the caption “Underwriting—Discretionary Accounts” constitute the only information furnished by or on behalf of any Underwriter to the Company for purposes of this Agreement. |
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(d) | If any action is brought against any person or entity (each an “ Indemnified Party ”) in respect of which indemnity may be sought pursuant to Section 11(a), (b) or (c) above, the Indemnified Party shall promptly notify the party or parties obligated to provide such indemnity (each an “ Indemnifying Party ”) in writing of the institution of such action and the Indemnifying Party, shall assume the defense of such action, including the employment of counsel and payment of expenses; provided that the failure to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability which the Indemnifying Party may have to any Indemnified Party unless and to the extent the Indemnifying Party did not otherwise know of such action and such failure results in the forfeiture by the Indemnifying Party of rights and defenses that would have had material value in the defense. The Indemnified Party or Parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the employment of such counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such action or (ii) the Indemnifying Party shall not have employed counsel to have charge of the defense of such action within a reasonable time or (iii) such Indemnified Party or Parties shall have reasonably concluded (based on the advice of counsel) that counsel selected by the Indemnifying Party has an actual conflict of interest or there are defenses available to the Indemnified Party or Parties which are different from those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to direct the defense of such action on behalf of the Indemnified Party or Parties), in any of which events such fees and expenses shall be borne by the Indemnifying Party and paid as incurred (it being understood, however, that the Indemnifying Parties shall not be liable for the fees and expenses of more than one separate firm of attorneys in any one action or series of related actions in the same jurisdiction (other than local counsel in any such jurisdiction) representing the indemnified parties who are parties to such action). Anything in this paragraph to the contrary notwithstanding, the Indemnifying Party shall not be liable for any settlement of any such claim or action effected without its written consent. The Indemnifying Party shall have the right to settle any such claim or action for itself and any Indemnified Party so long as the Indemnifying Party pays any settlement payment and such settlement (i) includes a complete and unconditional release of the Indemnified Party from all losses, expenses, claims, damages, injunctions, liability and other obligations with respect to any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of the Indemnified Party. |
(e) | If the indemnification provided for in this Section 11 is unavailable to an Indemnified Party in respect of any losses, expenses, liabilities, damages or claims referred to therein, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, expenses, liabilities, damages or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party or Parties, on the one hand, and the Indemnified Party, on the other hand from the offering of the Shares or (ii) if (but only if) the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Party or Parties, on the one hand, and the Indemnified Party, on the other hand in connection with the statements or omissions which resulted in such losses, expenses, liabilities, damages or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company, the Operating Partnership, the Selling Stockholders and the Underwriters shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company, the Operating Partnership and the Selling Stockholders, as applicable, bear to the underwriting discounts and commissions received by the Underwriters. The relative fault of the Company, of the Operating Partnership, of the Selling Stockholders and of the Underwriters shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company, by the Operating Partnership, by the Selling Stockholders or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action. |
(f) | The Company, the Operating Partnership, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 11 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in subsection (e)(i) and, if applicable (ii), above. Notwithstanding the provisions of this Section 11, no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter and no Selling Stockholder shall be required to contribute any amount in excess of the gross sale price of the Shares sold by such Selling Stockholder pursuant to this Agreement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute pursuant to this Section 11 are several in proportion to their respective underwriting commitments and not joint. |
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12. | Survival : |
The indemnity and contribution agreements contained in Section 11 and the covenants, warranties and representations of the Company, the Operating Partnership and the Selling Stockholders contained in Sections 3, 4, 5, 6 and 7 of this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of any Underwriter, any person who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or by or on behalf of the Company, its directors and officers, the Operating Partnership, the Selling Stockholders or any person who controls the Company, the Operating Partnership or any Selling Stockholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or the sale and delivery of the Shares. The Company, the Operating Partnership, each Selling Stockholder and each Underwriter agree promptly to notify the others of the commencement of any litigation or proceeding against it and, in the case of the Company or the Operating Partnership, against any of the Company’s officers and directors, and in the case of the Underwriters, against any person who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act in connection with the sale and delivery of the Shares, or in connection with the Registration Statement or Prospectus.
13. | Duties : |
Nothing in this Agreement shall be deemed to create a partnership, joint venture or agency relationship between the parties. The Underwriters undertake to perform such duties and obligations only as expressly set forth herein. Such duties and obligations of the Underwriters with respect to the Shares shall be determined solely by the express provisions of this Agreement, and the Underwriters shall not be liable except for the performance of such duties and obligations with respect to the Shares as are specifically set forth in this Agreement. Each of the Company, the Operating Partnership and the Selling Stockholders acknowledges and agrees that: (i) the purchase and sale of the Shares pursuant to this Agreement, including the determination of the public offering price of the Shares and any related discounts and commissions, is an arm’s-length commercial transaction between the Company, the Operating Partnership and the Selling Stockholders, on the one hand, and the several Underwriters, on the other hand, and the Company, the Operating Partnership and the Selling Stockholders are capable of evaluating and understanding and understand and accept the terms, risks and conditions of the transactions contemplated by this Agreement; (ii) in connection with each transaction contemplated hereby and the process leading to such transaction each Underwriter is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary of the Company, the Operating Partnership, the Selling Stockholders or their respective affiliates, stockholders, creditors or employees or any other party; (iii) no Underwriter has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Company, the Operating Partnership or the Selling Stockholders with respect to any of the transactions contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company, the Operating Partnership or the Selling Stockholders on other matters); and (iv) the several Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company, the Operating Partnership and the Selling Stockholders and that the several Underwriters have no obligation to disclose any of such interests. The Company, the Operating Partnership and each Selling Stockholder acknowledges that the Underwriters disclaim any implied duties (including any fiduciary duty), covenants or obligations arising from the Underwriters’ performance of the duties and obligations expressly set forth herein. The Company, the Operating Partnership and the Selling Stockholders hereby waive and release, to the fullest extent permitted by law, any claims that the Company, the Operating Partnership and the Selling Stockholders may have against the several Underwriters with respect to any breach or alleged breach of agency or fiduciary duty in connection with the offering of the Shares contemplated by this Agreement.
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14. | Notices : |
Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram and, if to the Underwriters, shall be sufficient in all respects if delivered to FBR Capital Markets & Co., 1300 North 17th Street, Suite 1400, Arlington, Virginia 22209, Attention: Syndicate Department, facsimile number (718) 438-1290; Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716, Attention: Equity Syndicate, facsimile number 866-597-4039; with a copy to Vinson & Elkins L.L.P., 901 East Byrd Street, Suite 1500, Richmond, Virginia 23219, Attention: Daniel M. LeBey, facsimile number: (804) 479-8286; if to the Company, shall be sufficient in all respects if delivered to the Company at the offices of the Company at 4611 12 th Avenue, Suite 1L, Brooklyn, New York 11219, Attention: David Bistricer, facsimile number: (718) 438-1290 with a copy to Sullivan & Cromwell LLP, 125 Broad Street, New York, NY 10004, Attention: Robert W. Downes, facsimile number: (212) 291-9043; or if to a Selling Stockholder, c/o Sidley Austin LLP, One South Dearborn, Chicago, IL 60603, Attention: John Sabl, Esq., facsimile number: 312-853-7036.
15. | Governing Law; Headings : |
THIS AGREEMENT AND ANY CLAIM, CONTROVERSY, OR DISPUTE RELATING OR ARISING OUT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. The section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement.
16. | Parties at Interest : |
The Agreement herein set forth has been and is made solely for the benefit of the Underwriters, the Company, the Operating Partnership, the Selling Stockholders and the controlling persons, directors and officers referred to in Sections 11 and 12 hereof, and their respective successors, assigns, executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Agreement.
17. | Counterparts and Facsimile Signatures : |
This Agreement may be signed by the parties in counterparts, which together shall constitute one and the same agreement among the parties. A facsimile signature shall constitute an original signature for all purposes.
If the foregoing correctly sets forth the understanding among the Company, the Operating Partnership, the Selling Stockholders and the Underwriters, please so indicate in the space provided below for the purpose, whereupon this Agreement shall constitute a binding agreement among the Company, the Operating Partnership, the Selling Stockholders and the Underwriters.
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Very truly yours, | |||
CLIPPER REALTY INC. | |||
By: | |||
Title: |
CLIPPER REALTY L.P. | ||
By: | Clipper Realty Inc., its sole general partner |
By: | ||
Title: |
SELLING STOCKHOLDERS LISTED ON | ||
SCHEDULE I ATTACHED HERETO | ||
By: | [Insert Name of Attorney-in-Fact] | |
Attorney-in-Fact |
Accepted and agreed to as of the date first above written:
FBR CAPITAL MARKETS & CO. | ||
By: | ||
Title: | ||
RAYMOND JAMES & ASSOCIATES, INC. | ||
By: | ||
Title: |
Each for itself and as Representatives of the other
Underwriters named on Schedule II hereto.
2 |
SCHEDULE I
Name of Party Selling Shares |
Number of Initial
Shares to be Sold |
||
Total |
SCHEDULE II
Underwriter |
Number of Initial Shares to be Purchased |
|
FBR Capital Markets & Co. | ||
Raymond James & Associates, Inc. | ||
Janney Montgomery Scott LLC | ||
Wunderlich Securities, Inc. | ||
Total |
SCHEDULE III
Part A
Issuer Free Writing Prospectuses
Part B
Pricing Information
Part C
Road Show
Exhibit 10.45
Prepared by, and after recording
return to:
New York Community Bank
Attn: Loan Servicing – LN # 110686537
NYCB Plaza, 102 Duffy Avenue - 3rd Floor
Hicksville, New York 11801
Consolidation, Modification and Extension Agreement,
Assignment of Leases and Rents
and Security Agreement
Section: | 1 |
Block: | 154 |
Lot: | 28 |
County: | Kings |
Premises: | 141 Livingston Street a/k/a 137/151 Livingston Street a/k/a 32 Smith Street Brooklyn, New York 11201 |
Consolidation Modification & Extension Agreement |
CD Form 146 |
Page 1 |
Loan No. 110686537 File No. 123-33001 |
04-09-11 |
CONSOLIDATION, MODIFICATION AND EXTENSION AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT
THIS CONSOLIDATION, MODIFICATION AND EXTENSION AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (herein “Agreement”) is made as of the 11th day of May, 2016, between 141 Livingston Owner LLC, a limited liability company, organized and existing under the laws of Delaware, with a principal place of business at 4611 12th Avenue, Suite 1L, Brooklyn, New York 11219 (herein “Borrower”) and New York Community Bank, a New York banking corporation, with a place of business at NYCB Plaza, 102 Duffy Avenue - 3rd Floor, Hicksville, New York 11801 (herein “Lender”).
WHEREAS Borrower is indebted to Lender in the principal sum of Seventy Nine Million Five Hundred Thousand and 00/100 Dollars (US $79,500,000.00) and Borrower and Lender desire to secure (a) the repayment of that indebtedness, with interest, and all renewals, extensions and modifications thereof, (b) the repayment of any future advances, with interest thereon made by Lender to Borrower, and (c) the performance of all of Borrower’s obligations, covenants and agreements stated herein and consolidated herewith; and
WHEREAS Borrower has a fee interest in the real property located at 141 Livingston Street a/k/a 137/151 Livingston Street a/k/a 32 Smith Street, Brooklyn, New York 11201, in Kings County, State of New York, having the legal description set out in Exhibit A hereto (herein “Property” ).
Borrower hereby covenants and agrees with Lender as follows:
1. BORROWER’S ASSUMPTION OF OBLIGATIONS UNDER NOTES AND MORTGAGES.
Borrower assumes all of the obligations and agreements of the notes (herein, “ Notes ”) secured by the mortgages, deeds of trust or other security instruments (herein “ Mortgages ”) listed on Exhibit B attached hereto. Borrower also assumes all of the obligations in all agreements, whether or not listed in Exhibit B, which consolidate, modify or extend such Notes and Mortgages.
2. AGREEMENT TO CONSOLIDATE AND MODIFY THE NOTES.
The Borrower agrees that the obligations under the Notes (and under all other agreements which consolidated, modified or extended the obligations under the Notes) shall be and are hereby consolidated. To that end, Borrower has concurrently herewith executed and delivered to Lender an Amended and Restated Mortgage Note (herein, “ Consolidated Note ”) which consolidates, amends and restates in their entirety the terms and provisions of the Notes.
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CD Form 146 |
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3. AGREEMENT TO CONSOLIDATE AND MODIFY THE MORTGAGES.
Borrower agrees that the rights and obligations under the Mortgages (and under all other agreements which consolidated, modified or extended rights and obligations under the Mortgages) shall be and are hereby consolidated and that Lender’s rights in the Property shall be and are hereby combined so that Lender has one real estate security interest (herein, “ Consolidated Mortgage ”) securing the Consolidated Note evidencing Borrower’s indebtedness to Lender. Borrower and Lender agree that the terms of the Consolidated Mortgage are hereby amended and restated in their entirety to be the terms which are set out in Exhibit C hereto. As consolidated and restated hereby, the terms and provisions of the Mortgages shall remain in full force and effect and are hereby ratified and confirmed by Borrower in all respects. For purposes of the Consolidated Mortgage, Borrower’s address stated above and Lender’s address stated above shall be the addresses of Borrower and Lender, respectively, unless and until modified in accordance with the terms of the Consolidated Mortgage.
4. BORROWER’S WARRANTIES.
Borrower covenants that Borrower is lawfully seized of a fee estate in the property and has the right to consolidate, modify and extend the Notes and Mortgages (and, if this Agreement is on a leasehold, that the ground lease is in full force and effect without modification except as noted in Exhibit D, if any, attached hereto and without default on the part of either lessor or lessee thereunder) and that Borrower will defend generally the title to the Property against all claims and demands, subject to any easements and restrictions listed in a schedule of exceptions to coverage in any title insurance policy insuring Lender’s interest in the Property. Borrower also covenants and warrants that there are no offsets, counterclaims or defenses against the indebtedness now unpaid or against the Consolidated Note or the Consolidated Mortgage.
5. TERMINATION; CHANGE; AMENDMENTS.
This Agreement may not be terminated, changed or amended except by a written agreement signed by the party whose rights or obligations are being changed by that Agreement.
Consolidation Modification & Extension Agreement |
CD Form 146 |
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6. LOST NOTE(S).
In the event that any of the notes secured by mortgages set forth in Exhibit B (the “ Lost Notes ”), were lost or misplaced by the current owner or its predecessor in interest and have not been delivered to the Lender with the assignment of the mortgages hereinabove set forth, the Borrower hereby agrees that, notwithstanding the fact that the Lost Notes have not been delivered to the Lender, the Borrower remains indebted to the Lender in the full amount of Seventy Nine Million Five Hundred Thousand and 00/100 Dollars (US $79,500,000.00) as set forth hereinabove and as set forth in and evidenced by the Consolidated Note executed by the Borrower of even date herewith, which amount includes the principal balance now remaining unpaid on the Lost Notes. The Borrower further agrees and hereby waives any and all claims and/or rights in any way relating to or arising from the Lost Notes whether as a defense in any action brought by the Lender to enforce any of the terms of this Instrument or collect the full amount due and owing under this Instrument or the Consolidated Note or otherwise. Borrower hereby indemnifies and holds the Lender harmless from and against any and all costs, liabilities, claims, damages, loss and expenses, including attorney’s fees and expenses which at any time may be made, suffered or incurred by the Lender based upon the failure of the Lender to hold, obtain or deliver the Lost Notes.
THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.
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IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement or caused the same to be executed by their representatives thereunto duly authorized.
New York Community Bank | ||
By: | /s/ Matthew P. Cullen | |
Name: Matthew P. Cullen | ||
Title: Authorized Signatory | ||
141 Livingston Owner LLC | ||
By: | /s/ David Bistricer | |
Name: David Bistricer | ||
Title: President, Treasurer and Director |
State of New York | ) |
: ss.: | |
County of New York | ) |
On the 11th day of May, 2016, before me, the undersigned, personally appeared Matthew P. Cullen, 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/ Mark Faham | |
Notary Public |
MARK FAHAM | ||
Notary Public, State of New York | ||
State of New York | ) | No. 01FA6101480 |
: ss.: | Qualified In Kings County | |
County of New York | ) | Commission Expires Nove mber 17, 2019 |
On the 11th day of May, 2016, before me, the undersigned, personally appeared David Bistricer, 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/ Mark Faham | |
Notary Public |
MARK FAHAM | |
Notary Public, State of New York | |
No. 01FA6101480 | |
Qualified In Kings County | |
Commission Expires November 17, 2019 |
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Loan No. 110686537 File No. 123-33001 |
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EXHIBIT “A” (Metes)
All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:
BEGINNING at the comer formed by the intersection of the northeasterly side of Livingston Street with the northwesterly side of Smith Street as widened;
RUNNING THENCE northeasterly along the northwesterly side of Smith Street as widened 75 feet 6-3/4 inches;
THENCE northwesterly parallel with Livingston Street 100 feet 3 inches to a point on a line drawn parallel with and distant 110 feet westerly from the original line of Smith Street measured at right angles thereto;
THENCE northeasterly parallel with the original line of Smith Street 50 feet;
THENCE northwesterly parallel with Livingston Street 37 feet 1 inch to land now or late of James Engel;
THENCE southwesterly in a straight line 125 feet to a point on the northeasterly side of Livingston Street distant 147 feet 6 inches northwesterly from the point or place of beginning as measured along the northeasterly side of Livingston Street;
THENCE southeasterly along the northeasterly side of Livingston Street 147 feet 6 inches to the comer, the point or place of BEGINNING.
NOTE: Being Block 154, Lot 28, on the Tax Map of the Borough of Brooklyn, County of Kings.
Mortgage - Loan # 110686537 File # 123-33001 |
|
Pg. 6 |
EXHIBIT “B” (Mortgages)
(a) Mortgage dated December 12, 2014, made by 141 Livingston Owner LLC to Citibank, N.A., in the principal sum of $55,000,000.00, and interest, and duly recorded in the Register’s Office of the City of New York on December 24, 2014 as City Register File Number 2014000423748 (upon which a mortgage tax of $1,540,000.00 was paid);
which said mortgage (a), above described, was thereafter duly assigned by Citibank, N.A. to New York Community Bank, by instrument of assignment dated May 11, 2016, and intended to be recorded in said Register’s Office;
(b) Mortgage dated May 11, 2016, made by 141 Livingston Owner LLC to New York Community Bank, in the principal sum of $24,500,000.00, and interest, and intended to be recorded in said Register’s Office (upon which a mortgage tax of $686,000.00 was paid).
Consolidation Modification & Extension Agreement |
CD Form 146 |
EXH-B Page 1 |
Loan No. 110686537 File No. 123-33001 |
04-09-11 |
EXHIBIT “C”
MORTGAGE,
ASSIGNMENT OF LEASES AND RENTS
AND SECURITY AGREEMENT
Mortgage, Assignment of Leases and Rents and Security Agreement dated the 11th day of May, 2016 (“Mortgage”) given by 141 Livingston Owner LLC, a Delaware limited liability company, with a principal place of business at 4611 12th Avenue, Suite 1L, Brooklyn, New York 11219 (“Borrower” or “Mortgagor”), to New York Community Bank, a New York banking corporation, with a place of business at NYCB Plaza, 102 Duffy Avenue - 3rd Floor, Hicksville, New York 11801 (“Lender” or “Mortgagee”).
Preliminary Statements. Reference is made to the loan of even date herewith in the sum of Seventy Nine Million Five Hundred Thousand and 00/100 Dollars (US $79,500,000.00), lawful money of the United States made by Lender to Borrower (“Loan”), to be paid with interest thereon, evidenced by the $79,500,000.00 Amended and Restated Mortgage Note dated May 11, 2016 made by Borrower and payable to Lender (as the same may be amended, renewed or restated, the “Note”).
Article 1 - Grant
Section 1.1 Property.
Borrower hereby irrevocably mortgages, grants, bargains, sells, pledges, sets over, assigns, warrants, transfers and conveys to Lender, and grants a security interest to Lender in, all of the following property, rights, interests and estates now owned or hereafter created, acquired by Borrower or accruing in Borrower’s favor (collectively, the “Property” or the “Mortgaged Property”):
(1) Land . All of the estate, right, title and interest of Borrower in and to that certain parcel of real property described in Schedule A annexed hereto and made a part of this Mortgage (“Land”),
(2) Improvements . All structures, buildings and improvements, including additions, enlargements, extensions, utility services and hook-ups, modifications, repairs, and replacements, of every kind and description now or any time hereafter located or placed on the Land (“Improvements”),
(3) Fixtures . All fixtures now or hereafter attached to the Land or Improvements, including all plumbing, heating, air conditioning, lighting, ventilating, refrigerating, disposal and incinerating equipment and all other engines, boilers, dynamos, elevators and tanks (“Fixtures”),
Mortgage |
CD Form 127 |
Page 1 |
Loan No. 110686537 File No. 123-33001 |
04-09-11 |
(4) Other Property Rights . All other rights and interests on, under, above or related to the Land and/or Improvements and/or Fixtures, including all appurtenances, easements, rights of way or uses, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights and all water, ditch, well, reservoir and drainage rights, mineral rights, air rights and development rights, and all land lying in the bed of any street, road or avenue, in front of or adjoining the Land to the center thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto and all minerals, crops, timber, trees, shrubs, flowers and landscaping features now or hereafter located on, under or above the Land (“Other Property Rights” ),
(5) Real Property Rights . All real property rights, whether at law or in equity, in possession or in expectancy, including all estates, rights, titles, interests, franchises, privileges, licenses, liberties, servitudes, tenements, hereditaments and appurtenances, reversions and remainders, rents, issues, profits and revenue in any way belonging, relating or appertaining to any interests mortgaged hereby including the Land, Improvements, Personal Property, Fixtures and/or Other Property Rights or any part thereof (“Real Property Rights” ),
(6) Personal Property . All personalty including, all furniture, furnishings, goods, equipment, inventory or personal property now or at any time located on, attached to or used in and about the Improvements or in connection with operation of the Improvements, or in connection with activity conducted at the Real Estate, including all machines, engines, boilers, furnaces, fuel oil, coal, motors, dynamos, elevators, tanks, cabinets, awnings, screens, shades, blinds, carpets, draperies and all appliances, plumbing, gas, electric, electric light, heating, air conditioning, lighting, ventilating, refrigerating, disposal, incinerating equipment, vacuum cleaning systems, sprinkler systems and other fire preventing or extinguishing equipment and materials, stoves, ranges, refrigerators, washing machines, clothes dryers, dishwashers, refuse compactors, saunas and all building materials and equipment hereafter situated on or about the Real Estate and all warranties and guaranties relating thereto, and all additions thereto and substitutions and replacements thereof (“Personal Property” ),
(7) Permits and Approvals . All permits and approvals including all water taps, sewer taps, certificates of occupancy, certificates of completion, permits, Governmental Approvals, licenses, authorizations, variances, franchises, certificates, consents, approvals and other permits, rights and privileges now or hereafter obtained in connection with the Real Estate or the Improvements (“Permits”),
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(8) Leases and Rents . All leases and rents including oil, gas and mineral leases, subleases, occupancies, tenancies, lettings, concessions, licenses and occupancy agreements and all agreements of every kind relating to the use, enjoyment or occupancy of all or any part of the Real Estate, whether written or oral, now or hereafter entered into whether before or after the filing by or against Borrower of any petition for relief under the United States Bankruptcy Code, 11 USC sec. 101, et seq., with any tenant, subtenant, lessee, licensee, occupant or other party (“Tenants”), all as amended or modified from time to time (the “Leases”) and all rents, royalties, issues, deposits, profits, revenue, income and other benefits of the assets specified in this definition of “Property”, including all amounts payable and all rights and benefits accruing to Borrower under the Leases or under any other contract or agreement including housing assistance payment contracts and all such similar contracts (“HAP Contract”) issued by or entered into by any Person including a Governmental Authority (all of the foregoing, collectively, the “Rents”) and all guarantees of, letters of credit covering, and cash or securities deposited to secure performance by the Tenants of their obligations under any Lease, whether said guaranties, letters of credit, cash or securities are to be held until the expiration of the term of the applicable Lease or applied to one or more of the installments of Rent coming due prior to the expiration of said term (“Tenant Security”),
(9) Reserves . All cash funds, deposit accounts and other rights and evidence of rights to cash, now or hereafter created or held by Lender pursuant to this Mortgage or any other Loan Document (“Reserves”),
(10) Property Agreements . All contracts and agreements entered into covering or related to the use, operation, maintenance, repair, restoration or management of any or all of the Real Estate and all revenue, income and other benefits thereof, including all track agreements, easement agreements, access agreements, developer’s or utility agreements, management agreements, service contracts, maintenance contracts, equipment leases, personal property leases and contracts or documents relating to construction on any part of the Real Estate (including plans, drawings, surveys, tests, reports, bonds, Governmental Approvals, architectural renderings, models, specifications, studies and data now or hereafter relating to the Real Estate) (“Property Agreements”),
(11) Utility Deposits . All deposits given to any public or private utility with respect to utility services furnished to all or any part of the Real Estate,
(12) General Intangibles . All funds, accounts, instruments, accounts receivable, documents, causes of action, claims, general intangibles including trademarks, trade names, service marks and symbols now or hereafter used in connection with any part of the Real Estate, all names by which the Real Estate may be operated or known, all rights to carry on business under such names and all rights, interest and privileges which Borrower has or may have as developer or declarant under any covenants, restrictions or declarations now or hereafter arising from or by virtue of any transactions related to the Real Estate,
(13) Building Materials and Plans . All building materials, supplies and equipment placed in, on or used in conjunction with the Real Estate,
(14) Insurance . All right, title and interest of Borrower in any insurance policies or binders now or hereafter relating to the Property (including title insurance policies and policies of Required Insurance), including any unearned premiums thereon and Borrower’s interest in and to all proceeds of any such insurance policies including the right to collect and receive such proceeds,
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(15) Condemnation . All right, title and interest of Borrower in and to any and all awards, damages, payment or other compensation, and any and all claims therefor and rights thereto, which may result from taking or injury by virtue of the exercise of the power of condemnation or eminent domain to all or any portion of the Property,
(16) Books and Records . All Books and Records relating to or used in connection with the “Property” including those specified in Article 10,
(17) Bonds . All right, title and interest of Borrower under completion bonds, performance bonds, payment bonds and other similar bonds and surety agreements and arrangements related to the Property or any party thereof,
(18) Tax Certiorari . All refunds, rebates or credits in connection with reduction in Real Property Taxes charged or assessed against the Property including those as a result of tax certiorari proceedings, tax protests, tax reduction applications and similar proceedings,
(19) Causes of Action . All causes of action and claims, including all causes of action or claims arising in tort, by contract, by fraud or by concealment of material fact, against any Person for damages or injury to the Property including those in connection with any transactions financed in whole or in part with proceeds of the Note (“Cause of Action”) and the right, in the name and on behalf of Borrower, to appear in and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest of Lender in the Property,
(20) Additions and Proceeds . All additions, accessions, replacements, substitutions, proceeds and products of the Property, and
(21) Other Rights . All other greater, lesser or equal rights and interests of every nature in the Property or in the possession or use of the Property including any income therefrom.
Section 1.2 Mortgage and Fixture Filing.
Borrower and Lender agree that (1) this Mortgage is both a real property mortgage and a “security agreement” within the meaning of the applicable Uniform Commercial Code, and (2) this Mortgage constitutes a “fixture filing” for purposes of the applicable Uniform Commercial Code.
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Section 1.3 Secured Obligations.
This Mortgage and the grants, assignments and transfers made in respect of the Property secure the payment of all amounts due and owing or to come due under any of the Loan Documents (“Secured Obligations”) including: (1) the Indebtedness, (2) all interest, including default interest, all fees, including all exit fees, all charges and other payment obligations under this Mortgage and the other Loan Documents, including yield maintenance payments and prepayment premiums, (3) payment and performance of all obligations of Borrower under this Mortgage and each of the other Loan Documents, (4) all sums advanced pursuant to this Mortgage or any other Loan Document, including those advanced to protect and preserve the Property and the Lien created by this Mortgage and (5) all fees, costs, charges and expenses incurred by Lender that Borrower is required to pay to Lender in accordance with the terms of this Mortgage or any other Loan Document including those specified in Section 15.3(H).
Article 2 - Definitions
Section 2.1 Definitions.
For purposes of this Mortgage the following terms have the following meanings:
“ Affiliate ” means, with respect to any Person, any other Person which directly or indirectly controls, or is controlled by, shares control with or is under common control with such Person. The term “control” means the possession, directly or indirectly, of the power to cause or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
“Affiliated Manager” has the meaning specified in “Event of Default Definitions” (Section 12.1).
“Assignment of Leases and Rents” has the meaning specified in “Assignment of Leases and Rents” (Section 5.4).
“Bankruptcy Event” means any one or more of the following: (i) the commencement of a voluntary case under one or more of the Insolvency Laws; (ii) a Person is not able to or admits in writing that it is unable to pay such Person’s debts generally as they mature; (iii) the making of a general assignment for the benefit of creditors; (iv) a Person becomes insolvent; (v) an involuntary case under one or more Insolvency Laws; (vi) the petition or application for the appointment of, or the appointment of a receiver, liquidator, custodian, sequestrator, trustee or other similar officer who exercises or attempts to exercise control over a Person or any of the assets of a Person provided that any proceeding or case under subsection (v) or (vi), immediately above, is not dismissed within 45 days after filing.
“Books and Records” has the meaning specified in “Books and Records” Section 1.1(16)).
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“Borrower” means the Borrower described on page 1 of this Mortgage.
“ Business Interruption Insurance Deductible ” means an amount not to exceed $20,000.00.
“Casualty” means any casualty, damage, injury, destruction or loss occurring to all or any part of the Property.
“ Casualty Insurance Deductible ” means $20,000.00.
“Casualty Insurance Proceeds” means all insurance proceeds which Borrower is entitled to receive or which are payable or due or to come due under any insurance policy as a result of a Casualty, pursuant to the Required Insurance.
“Condemnation” has the meaning specified as “Condemnation Definitions” (Section 7.1).
“Default” means any of the events specified in “Events of Default” (Section 12.2), whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.
“DSCR” means Debt Service Coverage Ratio which is the ratio as determined by the Lender of Net Operating Income to the annual principal and interest payable on the Loan.
“Environmental Laws” has the meaning specified in “Environmental Definitions” (Section 8.1).
“Escrow Fund” has the meaning specified in “Escrow Fund” (Section 4.7).
“Event of Default” has the meaning specified in “Events of Default” (Section 12.2).
“Fixtures” has the meaning specified in “Fixtures” (Section 1.1(3)).
“Governmental Approvals” means any authorization, consent, or approval of and Governmental Authority including any license, permit, or certification issued by, or any exemption of, registration or filing with, or report or notice to, any Governmental Authority.
“Governmental Authority” means any nation or national government including the federal government of the United States of America, any state or state government, any municipality or municipal government, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any other subdivision, council, department, branch or agency of any of the foregoing.
“Guarantor” means Clipper Realty Inc., a Maryland corporation, and each other Person that guarantees payment or performance of all or any part of the Secured Obligations.
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“ Guaranty ” means each guaranty executed by a Guarantor.
“Hazardous Materials” has the meaning specified in “Environmental Definitions” (Section 8.1).
“Improvements” has the meaning specified in “Improvements” (Section 1.1(2)).
“ Indemnified Parties ” has the meaning specified in “Environmental Definitions” (Section 8.1).
“Indemnitor” means 141 Livingston Owner LLC, Clipper Realty Inc., a Maryland corporation, and each other Person that indemnifies Lender in connection with the Loan, the Property or any matter concerning and/or relating to the Loan including any of the Secured Obligations.
“Indemnity Agreement” means each agreement executed by an Indemnitor pursuant to which such Indemnitor provides an indemnity, whether environmental or otherwise.
“Insolvency Laws” means the United States Bankruptcy Code, 11 U.S.C. § 101, et seq., together with any other federal or state law affecting debtor and creditor rights or relating to the bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding or any proceeding (civil or criminal) under which assets are subject to levy, attachment, sequestration, seizure, forfeiture or divestiture.
“Investors” has the meaning specified in “Dissemination of Information” (Section 14.3).
“Land” has the meaning specified in “Land” (Section 1.1(1)).
“Laws” means any present or future domestic or foreign, national, federal, state, provincial, local or municipal statute, law, rule, regulation, ordinance, order, code, decree, policy, requirement or rule of common law, now or hereafter in effect, in each case as amended, and any judicial or administrative interpretation thereof by a Governmental Authority or otherwise, including any judicial or administrative order, decree (including a consent decree or consent order), judgment or agreement with any Governmental Authority, and all permits, licenses, approvals and authorizations issued by any Governmental Authority, and including parking, zoning, building, subdivision and land use Laws.
“Leases” has the meaning specified in “Leases and Rents” (Section 1.1(8)).
“Lender” means New York Community Bank, the Lender described on page 1 of this Mortgage.
“Lender’s Title Policy” has the meaning set forth in Section 3.1(4).
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“License to Collect Rents” has the meaning specified in “Assignment of Leases and Rents” (Section 5.4).
“ Lien ” means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise) or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code or comparable Law of any jurisdiction to evidence any of the foregoing.
“Loan Documents” means the Note, this Mortgage and each other document and agreement executed or delivered in connection with the Loan, the Note or this Mortgage.
“Losses” has the meaning specified in “Environmental Definitions” (Section 8.1).
“LTV” means Loan to Value ratio, as determined by the Lender, of the then current unpaid principal balance of the Loan to the lesser of (i) the purchase price of the Real Estate (if purchased in the past twelve months) or (ii) the value of the Real Estate as established by a current appraisal acceptable to the Lender.
“Mortgage” means this Mortgage, Assignment of Leases and Rents and Security Agreement.
“Mortgage Amount” means $79,500,000.00.
“Net Operating Income” shall mean the actual income generated by the Property based upon a then current rent roll (annualized) of the Real Estate less the greater of (i) the actual expenses of the Real Estate or (ii) the expenses set forth in a then current appraisal of the Real Estate acceptable to the Lender.
“Note” has the meaning specified in the Preliminary Statements.
“Obligated Party” has the meaning specified in “Event of Default Definitions” (Section
12 . 1 ).
“Other Property Rights” has the meaning specified in “Other Property Rights” (Section
1.1(4)).
“Organizational Documents” has the meaning specified in “Single Purpose Entity Definitions” (Section 9.1).
“Participations” has the meaning specified in “Transfer of Loan” (Section 14.1).
“Permits” has the meaning specified in “Permits and Approvals” (Section 1.1(7)).
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“Permitted Liens” means (1), as of the date hereof, Liens for Real Property Taxes not yet due and payable, (2), subsequent to the date hereof, Liens for Real Property Taxes as to which Lender has sufficient funds in the Escrow Fund to pay and discharge and (3) exceptions shown in the title insurance policy insuring the Lien of this Mortgage.
“Person” means an individual, partnership (including a limited liability partnership), corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, tenancy-in-common arrangement, Governmental Authority or other entity of whatever nature.
“Personal Property” has the meaning specified in “Personal Property” (Section 1.1(6) .
“Power of Sale” means any Law which permits the holder of this Mortgage to foreclose this Mortgage by power of sale and/or to sell any portion of the Property through either judicial or non-judicial means or at a judicial or non-judicial sale. If the Property is located in the State of New York, the meaning of such term shall also include the power to sell pursuant Article 14 of the Real Property Actions and Proceeding Law of New York and similar Laws.
“Principal of the Borrower” means (i) any member, shareholder or partner of the Borrower, (ii) any other owner of an equity interest in Borrower, (iii) any member, shareholder, partner or equity owner of any entity which either directly or indirectly through any other entity(ies) has an equity interest in Borrower and/or (iv) any member, shareholder, partner or equity owner of any such other entity(ies).
“Prohibited Transfer” has the meaning specified in “Event of Default Definitions” (Section 12.1).
“Property” has the meaning specified in “Property” (Section 1.1).
“Property Agreements” has the meaning specified in “Property Agreements” (Section 1.1(10)).
“Real Estate” means the Land, the Improvements, the Fixtures, the Other Property Rights and the Real Property Rights.
“Real Property Rights” has the meaning specified in “Real Property Rights” (Section
1.1(5)).
“Real Property Taxes” has the meaning specified in “Escrow Fund” (Section 4.7).
“Release” has the meaning specified in “Environmental Definitions” (Section 8.1).
“Remedial Work” has the meaning specified in “Environmental Definitions” (Section 8.1).
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“Rents” has the meaning specified in “Leases and Rents” (Section 1.1(8)).
“Replacement” has the meaning specified in “Application of Condemnation Proceeds” (Section 7.5).
“Required Insurance” has the meaning specified in “Maintenance of Insurance” (Section 6.3).
“Reserves” has the meaning specified in “Reserves” (Section 1.1(9)).
“Restoration” has the meaning specified in “Application of Insurance Proceeds” (Section 6.12).
“Restricted Parties” has the meaning specified in “Event of Default Definitions” (Section 12.1).
“Restrictive Covenants” has the meaning specified in “Compliance with Laws, Permits and Restrictive Covenants” (Section 4.1(4)).
“Sale or Encumbrance” means a voluntary or involuntary transfer or conveyance of a legal or beneficial right, title or interest, whether by sale, lease, assignment, grant of options, right of first refusal, gift, donation, operation of law, or otherwise, or the granting, creation, incurrence, assumption or existence of a Lien or the entering into any agreement to do any of the foregoing.
“Secured Obligations” has the meaning specified in “Secured Obligations” (Section 1.3).
“Securities” has the meaning specified in “Transfer of Loan” (Section 14.1).
“Tenant” has the meaning specified in “Leases and Rents” (Section 1.1(8)).
“Tenant Security” has the meaning specified in “Leases and Rents” (Section 1.1(8)).
“UCC Collateral” has the meaning specified in “Remedies Under the UCC” (Section 13.1(10)).
“Umbrella Liability Coverage Amount” means umbrella liability insurance in a coverage amount of at least $5,000,000.00 per occurrence.
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Section 2.2 Rules of Interpretation.
When used in this Mortgage: (1) “or” is not exclusive, (2) any pronouns used shall include the corresponding masculine, feminine and neuter form, (3) a reference to a Law includes any amendment or modification of such Law, (4) terms defined in the singular have the same meaning when used in the plural and vice versa, (5) a reference to an agreement, instrument or document includes any amendment or modification of such agreement, instrument or document, to the extent and provided that such amendment or modification is in accordance with the terms of such agreement, instrument or document and is permitted under the Loan Documents and (6) the word “including” means “including, but not limited to,”. Capitalized terms have the meanings specified in “Definitions” (Article 2) or as elsewhere defined herein or in the Loan Documents. Terms which are defined in the Note and which are used herein shall have the meanings ascribed to them in the Note. The term “Borrower” shall also mean “Mortgagor” and the term “Lender” shall also mean “Mortgagee”.
Article 3 - Mortgage Lien and Security Interest
Section 3.1 Representations and Warranties.
Borrower represents and warrants to Lender as follows:
(1) Name of Borrower . The exact legal name of Borrower is the name specified on page 1 of this Mortgage. Borrower has not been known by any other name during the ten (10) years prior to the date of this Mortgage.
(2) Jurisdiction of Formation of Borrower . Borrower is formed under the laws of the State of Delaware and is qualified to do business in the State of New York.
(3) Location for Filing of Financing Statement . With respect to any item of Property that is personal property in which a security interest can be perfected by the filing of a UCC financing statement, the filing of such a statement with the Secretary of State of Delaware and the Register’s Office of the City of New York, County of Kings, will perfect the security interest of Lender in such Property.
(4) No Restrictions on Property . Other than as expressly set forth in the mortgagee title policy delivered to and insuring the Lender in connection with the origination of the Loan “Lender’s Title Policy”) , to the best of Borrower’s knowledge, none of the Property is subject to a restriction that prohibits, restricts or limits (a) the grant of a Lien in such Property, (b) the perfection of the Lien granted by this Mortgage (including the priority of such Lien), or (c) the exercise by Lender of its rights, remedies and powers under this Mortgage or otherwise.
(5) Lien and Claims . This Mortgage creates a valid Lien in the Property and such Lien secures the payment and performance of all Secured Obligations. The Lien of this Mortgage on the Property is a first priority Lien. Borrower owns the Property free and clear of all Liens, including mechanic’s or similar Liens, except for Permitted Liens.
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Section 3.2 Filing of Financing Statement.
Borrower hereby authorizes Lender or its designee at any time and from time to time, to file financing statements and amendments covering the Property in such jurisdictions as Lender may deem necessary or desirable to perfect the Lien granted by Borrower under this Mortgage.
Section 3.3 Actions to Perfect Security Interest.
Borrower agrees that from time to time, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary, or that Lender may reasonably request or deem desirable, for the attachment, perfection and maintenance of the priority, of the Lien of this Mortgage on any and all of the Property or to enable Lender to exercise and enforce any and all of its rights, powers and remedies under this Mortgage or otherwise with respect to any and all of the Property.
Section 3.4 Change of Name, Etc.
Borrower agrees not to change its name or jurisdiction of formation. Borrower agrees not to change its principal place of business without giving Lender at least thirty (30) days’ prior notice.
Section 3.5 Reporting Requirements.
Borrower will immediately notify Lender if (1) any claim, including any attachment, levy, execution or other legal process, is made against any or all of the Property, or (2) any representation and warranty included in this Mortgage would no longer be true if made on such date. Borrower will furnish to Lender from time to time statements and schedules further identifying and describing the Property and such other reports in connection with such Property as Lender may reasonably request, all in detail as required by Lender.
Article 4 - Property
Section 4.1 Representations and Warranties.
Borrower represents and warrants that:
(1) Title . Borrower has good, valid, subsisting, insurable and marketable title to the Real Estate in fee simple and good and marketable title to the rest of the Property, in each case free and clear of all Liens other than Permitted Liens. The Permitted Liens do not (a) interfere with the use or operation of all or any portion of the Property or (b) adversely affect the value of any or all of the Property. All Real Property Taxes due and owing as of the date of this Mortgage have been paid as of the date when due.
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(2) No Agreements to Transfer the Property . Other than as expressly set forth in Lender’s Title Policy, none of the Property is subject to any agreement which provides for the conveyance of any right, title or interest in such Property, whether through a Sale or Encumbrance, other than the Leases and, with respect to Leases, same contain no option(s) to purchase all or any portion of the Property and contain only those rights which (a) are usually and routinely found in favor of tenants and (b) were made in Borrower’s ordinary course of business.
(3) Condition of the Property . The Improvements and Fixtures are structurally sound, in good repair and free of patent or latent defects in materials and workmanship, and all major building systems located within the Improvements, including the heating, air conditioning, electrical and plumbing systems, are in good working order and condition. The Personal Property is in good repair and free of patent or latent defects in materials and workmanship. The Property is free from damage caused by a Casualty.
(4) Compliance with Laws, Permits and Restrictive Covenants . Other than as set forth in the title report provided to Lender in connection with this Loan, each item of Property is in compliance with all applicable Laws. Borrower possesses and is in compliance with all Permits required for the ownership and operation of the Property. Other than as set forth in the title report provided to Lender in connection with this Loan, the Property is in compliance with each condition, easement, right-of-way, covenant or restriction affecting the Property (“Restrictive Covenants”) . If there is a Casualty, the damaged Improvements can legally be reconstructed to their condition prior to such Casualty without violating any Law and without the necessity of obtaining any variances or special permits. The use of the Property is in conformity with the certificate of occupancy presently issued for the Property. Neither the zoning nor any other right to construct, use or operate the Property is in any way dependent upon or related to any other property.
(5) Encroachment . Other than as expressly set forth in Lender’s Title Policy, none of the Improvements lies outside of the boundaries or building restriction lines of the Land or Improvements and no buildings or other improvements located on adjoining properties encroach upon or encumber the Property. Other than Permitted Liens, there are no easements or other encumbrances upon the Property which encroach upon any of the Improvements so as to affect the value or marketability of the Property.
(6) Litigation . There is no action, suit or proceeding pending or, to the knowledge of Borrower, threatened against or affecting the Property which would have a material effect upon the Property or the zoning of the Property.
(7) Property Agreements . Borrower has entered into each Property Agreement required for the ownership, operation and maintenance of the Property. Borrower represents that (a) each Property Agreement is in full force and effect, (b) no party to any such Agreement has failed to perform any material obligation under any such Agreement, and (c) there are no outstanding defaults under any such Agreement. Borrower represents that (a) no offset or any right of offset exists with respect to continued contributions to be made by any party to any Property Agreement, (b) no exclusions or restrictions on the use, operation, management of, or construction on the Property, including non-compete agreements, exists in any Property Agreement, and (c) no party to any Property Agreement has given notice of a breach or default under any such Agreement.
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(8) Utility Services . All utility services, including electricity, power, gas, oil, water, telephone, and sanitary sewer service, necessary for the use and operation of the Property are available to the Property. All such utility services are located either in the public right-of-way abutting the Property or in recorded easements serving the Property.
(9) Access to and Use of Property . All streets, roads, highways, bridges and waterways necessary for access to, and full use, occupancy, operation and disposition of the Land and the Improvements are completed, are dedicated to and accepted by all appropriate Governmental Authorities and are open and available to the Land and the Improvements without further condition or cost to Borrower.
(10) Flood Zone or Wetlands . None of the Land consists of, or is classified as, wetlands, tidelands or swamp or overflow lands and none of the Land is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards.
(11) Tax Parcel . The Land is taxed separately without regard to any other real estate and constitutes a legally subdivided lot under all applicable Law (or, if not subdivided, no subdivision or platting of the Property is required under applicable Law), and for all purposes may be dealt with as an independent parcel in connection with any Sale or Encumbrance of such Land.
(12) Commercial Property . There is no homestead right or any other similar right or exemption available to Borrower affecting the Property.
(13) Assessments . There are no pending or, to Borrower’s knowledge, proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments.
(14) Use of Property . The Property is used as a commercial, rental property.
(15) Filing and Recording Taxes . All transfer taxes, recording taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid under applicable Law in connection with the transfer of the Property to Borrower have been paid or are being paid simultaneously herewith. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid under applicable Law in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including this Mortgage, have been paid or are being paid simultaneously herewith. All Real Property Taxes, other taxes and governmental assessments due and owing in respect of the Property have been paid, or an escrow of funds in an amount sufficient to cover such payments has been established pursuant to this Mortgage or are insured against by the applicable title insurance policy.
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Section 4.2 Covenants with Respect to the Properly.
Borrower covenants and agrees:
(1) Ownership of Property . Borrower shall at all times maintain good, indefeasible and marketable title in fee simple to the Real Estate and good and marketable title to the rest of the Property, subject only to Permitted Liens. Borrower agrees to take all actions required to defend and preserve all of its right, title and interest in the Property and the rights granted pursuant to this Mortgage. Borrower will not create, incur, assume or suffer to exist any Lien upon or with respect to any or all of the Property, except Permitted Liens. Any Sale or Encumbrance of the Property in violation of this Mortgage is null and void and of no force and effect.
(2) Maintenance of Property and Mechanics’ Liens . Borrower shall maintain or cause to be maintained all of the Improvements, Fixtures and Personal Property in good and safe condition and shall maintain same in good rentable condition at all times, whether or not occupied. Borrower shall not commit or suffer any waste of all or any part of the Improvements, Fixtures or Personal Property. Neither the value of the Property nor the Lien hereof will be diminished or impaired in any way by any act or omission of the Borrower or any successor in interest thereto and Borrower will not do or permit to be done to, in, upon or about the Property, that may in any way impair the value thereof or weaken, diminish or impair the Property. Borrower shall promptly repair, restore, replace or rebuild any part of the Property damaged or destroyed. All such repairs shall be on a basis consistent with the operation and maintenance of well maintained commercial properties comparable in type and location to the Property and in compliance with prudent industry practice and all applicable Laws. Lender may make whatever advances it deems necessary as a result of Borrower’s Default and/or in order to preserve and protect the Property. Nothing contained herein shall preclude Borrower from defending in good faith any such bills or costs. Borrower will promptly pay when due all bills and costs for labor, materials, utilities and all other services incurred in connection with or rendered to the Property and any other claims or charges which, if unpaid, could result in or permit the creation of a Lien on all or any part of the Property. Borrower will not permit any drilling or exploration for an extraction, removal or production of any minerals from the surface or subsurface of the Land.
(3) Changes to Property . Borrower shall not (1) abandon the Property or leave the Property unprotected or deserted, (2) change the use of the Property for which all or any part of the Property was intended at the time this Mortgage was executed, (3) make any structural alterations to the Property, (4) demolish, remove or structurally alter the Improvements or Fixtures, or (5) remove or alter any of the Fixtures or Personal Property from the Property, unless such Fixture or Personal Property is obsolete and of no further utility in operating the Property or such Fixture or Personal Property is replaced by an item of equal or better suitability and value and such replacement item is owned by Borrower free and clear of any Liens other than Permitted Liens.
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CD Form 127 |
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(4) Changes Affecting the Real Estate . Borrower shall not (1) cause or permit any partition of the Property, (2) initiate, join in or acquiesce in, or consent to, any change in the zoning classification (including any variance under any existing zoning ordinance applicable to the Property), Restrictive Covenant, zoning Law or other public or private restriction, limiting or defining the uses which may be made of all or any part of the Property, (3) permit the use of the Property to become a non-conforming use under applicable zoning Laws, (4) file any subdivision or parcel map affecting the Property, (5) amend, modify or consent to any easement or Restrictive Covenant, pertaining to the Property, or (6) take any steps to convert the Property, or any portion thereof, to a condominium or cooperative form of management.
(5) Permits, Laws and Restrictive Covenants . Borrower agrees to take all actions required to obtain and maintain all Permits required for the construction, ownership, use and operation of the Property. Borrower agrees to comply with all applicable Laws, Permits and Restrictive Covenants applicable to the construction, use, operation, maintenance, repair and restoration of the Property.
(6) No Joint Assessment . Borrower shall not suffer, permit or initiate a joint assessment of the Property with any other real property constituting a tax lot separate from the Property.
(7) Plans and Specifications . To the extent that Borrower possesses same, Borrower shall maintain a complete set of final plans, specifications, blueprints and drawings for the Improvements either at the Property or in a particular office at the headquarters of Borrower to which Lender has access.
Section 4.3 Property Reporting Requirements.
Borrower shall promptly notify Lender: (1) of any proposed zoning reclassification, variance, conditional or special use permit, subdivision plat or annexation affecting the Real Estate, (2) if any Law, Permit or Restrictive Covenant is violated, and such violation could affect title to the Real Estate or Borrower’s existing or intended use of the Real Estate, or result in Liens, fines, or penalties being imposed on the Real Estate, and (3) of all written communications received by Borrower amending, modifying or affecting any Permits then required to be in effect for the ownership, construction, maintenance or operation of the Property.
Mortgage |
CD Form 127 |
Page 16 |
Loan No. 110686537 File No. 123-33001 |
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Section 4.4 Inspection of Property.
Lender and any Persons authorized by Lender shall have the right, upon reasonable advance notice to Borrower and at reasonable times, and subject to the rights of tenants, to (1) enter and inspect the Property, and (2) inspect all work done, labor performed and materials furnished in and about the Improvements.
Section 4.5 Use of Lender’s Name.
Borrower will not use the names either of Lender or any of Lender’s Affiliates in connection with the development and operation of the Property.
Section 4.6 Property Payments.
To the extent not escrowed for by the Lender pursuant to Section 4.7, below, or if the amounts maintained within the Escrow Fund are insufficient to pay, when due, any of the following items, Borrower will pay, and upon request of Lender, will submit to Lender receipts evidencing such payments, as they become due, all Real Property Taxes, all personal property taxes and assessments, all fees for utility services rendered to the Property including water and sewer charges (whether metered or assessed on a frontage basis), general and special assessments, insurance premiums for all Required Insurance, Permit fees, inspection fees, license fees, ground rents, maintenance charges and similar charges, franchise fees, equipment rents, all encumbrances of every kind against Borrower or the Property, any charge which, if unpaid, would become a Lien against the Property and any and all amounts required to maintain, protect, repair or restore the Property (and all before such amounts become delinquent and before any interest attaches or penalty is incurred) and, in the event Borrower fails to pay any such amounts or in the event of an emergency, the Lender may in its sole discretion, but shall not have the obligation to, advance and make payment of same.
Section 4.7 Escrow Fund.
Borrower shall establish a fund (“Escrow Fund”) sufficient to pay and discharge, with respect to the Property, all taxes, assessments, non-metered water and sewer charges, frontage charges, flood insurance (if Land is located in a federal special flood hazard area), hazard, liability and other property insurance premiums (at the option of Lender), municipal charges, governmental impositions and other charges, including vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Land (“Real Property Taxes”) . Initial deposits of Real Property Taxes shall be made by Borrower to Lender in amounts determined by Lender in its discretion on the date hereof. Borrower shall pay to Lender on the first day of each calendar month occurring after the date hereof one-twelfth (1/12) of an amount which would be sufficient to pay the Real Property Taxes payable, or estimated by Lender to be payable, upon the due dates established by the appropriate taxing authority(ies) during the next ensuing twelve (12) months. Borrower agrees to notify Lender immediately of any changes to the amounts, schedules and instructions for payment of any Real Property Taxes of which Borrower has obtained knowledge and authorizes Lender or its agent to obtain the bills for Real Property Taxes directly from the appropriate tax authority.
Mortgage |
CD Form 127 |
Page 17 |
Loan No. 110686537 File No. 123-33001 |
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Provided there are sufficient amounts in the Escrow Fund and no Event of Default exists, Lender shall pay the Real Property Taxes as they become due on their respective due dates on behalf of Borrower by applying amounts in the Escrow Fund to the payments of such Real Property Taxes. If the amount of the Escrow Fund exceeds the amounts due for Real Property Taxes, Lender may, in its discretion, return any excess to Borrower or credit such excess against future payments to be made to the Escrow Fund. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Property. If the Escrow Fund is not sufficient to pay the items set forth above, Borrower shall promptly pay to Lender, upon demand, an amount which Lender shall reasonably estimate as sufficient to make up such deficiency. The Escrow Fund shall not constitute a trust fund and may be commingled with other monies held by Lender. Unless required by applicable Law, no earnings or interest on the Escrow Fund shall be payable to Borrower or any other Person.
In the events that (a) water and/or sewer charges are assessed against the Property on a metered basis and (b) the Borrower fails to timely pay such charges to the applicable Governmental Authority, the Lender (y) shall be entitled (but not required) to pay same and/or (z) may require the Borrower to pay to the Lender a sum of money equal to 150% of the amount of such charges (annualized), as determined by Lender on the basis of examination of historical records, current estimated usage or such other data available to Lender, and the Borrower shall immediately pay such sum to the Lender upon demand which funds shall be held by Lender in a non-interest bearing account or may be comingled with its general funds and may be used by Lender to pay such outstanding charges, held as additional collateral or applied in reduction of any amounts due and owing to the Lender.
Section 4.8 Taxes on Lender/Moratorium Laws.
Borrower will pay any taxes (except income, franchise or similar taxes) now or hereafter imposed on Lender by reason of its ownership of the Note or this Mortgage. In the event of the passage after the date hereof of any Law deducting from the value of Property for the purposes of taxation any Lien thereon or changing in any way the laws of taxation of mortgages or debts secured by mortgages or the manner of the collection of any such taxes, so as to adversely affect this Mortgage, the holder hereof shall have the right to give thirty days’ written notice to the owner of the Property requiring the payment in full of the Note and all other sums due hereunder and if such notice is given, the Note and all other sums due hereunder shall become due and payable and collectible at the expiration of said thirty days. If this Mortgage is now or shall hereafter be protected or affected by moratorium laws or by any other statute or statutes preventing Lender from foreclosing for nonpayment of principal upon the Maturity Date (“Moratorium Laws”) , Borrower hereby undertakes to continue to pay amortization, plus interest at the Default Rate, monthly to Lender (if Lender so elects and only so long as the Moratorium Laws protect Borrower), such monthly payments to commence on the Maturity Date and monthly thereafter for as long as the Moratorium Laws remain in effect, such amortization based upon the greater of (a) amortization payments due in the last year of this Mortgage prior to the Maturity Date or (b) amortization required by the Moratorium Laws. In the event that Borrower defaults in the payment of any such installment of amortization on any due date, Lender shall have the right to foreclose solely by reason of such default. Upon the expiration of the protection(s) afforded by any Moratorium Laws, the entire unpaid principal balance of the Loan plus all other sums due and owing pursuant to the Note and hereunder shall become immediately due and payable.
Mortgage |
CD Form 127 |
Page 18 |
Loan No. 110686537 File No. 123-33001 |
04-09-11 |
Section 4.9 Payment of the Indebtedness Secured Obligations/Terms of Note.
Borrower shall pay the Indebtedness and all other Secured Obligations including any and all other interest, charges, fees, costs and expenses that may come due thereunder or under any Loan Document. The terms and provisions of the Note and all other Loan Documents are incorporated herein by reference.
Article 5 - Leases and Rents and Assignment of Leases and Rents
Section 5.1 Representations and Warranties.
Borrower represents and warrants that (1) Borrower is the sole owner of the entire lessor’s interest in the Leases, Rents and Tenant Security, (2) all existing Leases are in full force and effect and are enforceable in accordance with their respective terms and comply with applicable Law, (3) the terms of all alterations, modifications and amendments to the Leases are reflected in the certified rent roll of the Property delivered to Lender in connection with the closing of the Loan (the “Rent Roll”) , (4) Borrower has delivered to Lender a true, correct and complete list of all Tenant Security which have not been applied, all of which are held by Borrower in accordance with the terms of the applicable Lease and applicable Law, (5) there is no Sale or Encumbrance by Borrower of landlord’s interest under any of the Leases and Rents, (6) other than the collection of Rent for the first and/or last month of a Lease, none of the Rents have been collected for more than one (1) month in advance (it being understood that a Tenant Security shall not be deemed Rent collected in advance) and Borrower shall not hereafter collect any Rents more than one (1) month in advance, (7) all work required to be performed by Borrower under each Lease has been performed or is being performed as required and the premises demised under the Leases have been accepted by the applicable Tenant and such Tenant has taken possession of the same on a rent-paying basis, (8) to Borrower’s knowledge, there exist no offsets or defenses to the payment of any portion of the Rents, (9) no Rent has been waived, released or otherwise discharged or compromised, (10) all payments due under the Leases are current and are consistent with the Rent Roll (or, if there are any Rent delinquencies, same are specified in the Rent Roll), (11) there are no agreements with the Tenants other than expressly set forth in each written Lease, (12) no Lease contains an option to purchase, right of first refusal to purchase, or any other similar provision, (13) no Person has any possessory interest in, or right to occupy, the Property or any part thereof except under and pursuant to a written Lease, (14) each Lease is subordinate to this Mortgage, either pursuant to its terms or a recorded subordination agreement, (15) no Lease has the benefit of a non-disturbance agreement that would be considered unacceptable to prudent institutional mortgagees, (16) no brokerage commissions or finders fees are due and payable regarding any Lease, (17) each Lease is an arms-length transaction and is made at then current market rents and terms, (18) Borrower has not performed, and Borrower covenants and agrees that it will not perform, any acts and has not executed, and shall not execute, any instrument which would prevent Lender from exercising its rights under this Article, (19) Borrower has received no notice from any Tenant challenging the validity or enforceability of any Lease, (20) to Borrower’s knowledge, there are no material breaches or defaults, or events that with notice or the passage of time, or both, would constitute a material breach or default of any Leases by Borrower or any Tenant, and (21) to Borrower’s knowledge, no Tenant is subject to a Bankruptcy Event.
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CD Form 127 |
Page 19 |
Loan No. 110686537 File No. 123-33001 |
04-09-11 |
Section 5.2 Leases and Rents.
Borrower covenants and agrees that Borrower shall (1) perform all the obligations of the landlord under each Lease, (2) use best efforts to keep the Property leased at all times to Tenants whom Borrower, reasonably and in good faith, believes are creditworthy and at rents not less than comparable existing market rates or applicable rates allowed by law (if lower) for similar properties, (3) promptly send copies to Lender of all notices of material default which Borrower sends or receives with respect to any Lease, (4) use best efforts to enforce all of the terms, covenants and conditions contained in the Leases upon the part of each Tenant to be observed or performed, (5) other than the collection of Rent for the first and/or last month of a Lease, not collect any of the Rents more than one (1) month in advance, (it being understood that Tenant Security shall not be deemed Rent collected in advance), nor grant any Tenant any right to prepay Rent more than one (1) month in advance, (6) not execute any assignment of the landlord’s interest in the Leases or the Rents, (7) not materially (or adversely to the landlord) change the terms of any Lease, (8) keep in full force and effect and not cancel or terminate any Lease (except for defaults thereunder) or accept a surrender thereof or convey or transfer or suffer or permit a conveyance or transfer of the Property or of any interest therein so as to effect a merger of the estates and rights of, or a termination or diminution of the obligations of, Tenants thereunder, (9) not cancel, release (except upon termination of the applicable Lease) or change the terms of any Tenant Security, (10) not consent to any assignment of, or subletting under, the Leases, unless required to do so under applicable Laws, or pursuant to the terms of the Lease, (11) intentionally omitted, (12) only enter into Leases that are a result of an arms-length transaction and only enter into Leases with Persons that are not Affiliates of Borrower, (13) other than the existing Lease with the City of New York, Dept, of Citywide Administrative Services, not enter into a single Lease or a series of related Leases for more than five percent (5.00%) of the total rentable space of the Property, without the consent of Lender, such consent not to be unreasonably withheld or delayed, (14) promptly upon Lender’s request, execute and record (a) any additional assignments of the landlord’s interest under any Lease to Lender and (b) a specific subordination of any Lease to this Mortgage, both in form and substance satisfactory to Lender, (15) not do, or permit to be done, anything to impair the value of the Leases as security for the Secured Obligations, (16) not grant any Tenant any option, right of first refusal or other right to purchase all or any portion of the Property, (17) not enter into any Lease without the consent of Lender, such consent not to be unreasonably withheld or delayed, and (18) not engage in any action(s), omission(s), malfeasance or nonfeasance which would constitute the constructive eviction or attempted constructive eviction of any Tenant. Upon request, Borrower shall furnish Lender with executed copies of all Leases. Each non-residential Lease entered into subsequent to the date hereof shall provide that in the event of the enforcement by Lender of the remedies provided for hereby or by Law, the Tenant thereunder will, upon request and at the option of any Person succeeding to the interest of Borrower as a result of such enforcement, automatically become the lessee of said successor in interest and attorn to said successor in interest, without change in the terms or other provisions of the Lease, provided, however, that (A) said successor in interest shall not be bound by (i) any payment of Rent for more than one (1) month in advance, except prepayments in the nature of Tenant Security to the extent actually received by said successor in interest or (ii) any amendment or modification of the Lease made without the consent of Lender or such successor in interest. Each Lease shall also provide that (a) the Lease is subordinate to this Mortgage and (b) upon request by said successor in interest, such Tenant shall execute and deliver an instrument or instruments confirming such attornment. Lender hereby refers to Section 291-f of the Real Property Law of the State of New York and Borrower acknowledges Lender’s rights under the statute, specifically with respect to subparagraphs 5, 7, 8 and 9 as hereinabove set forth. Lender shall have all the rights against lessees of the Mortgaged Property as set forth in Section 291-f of the Real Property Law of New York.
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CD Form 127 |
Page 20 |
Loan No. 110686537 File No. 123-33001 |
04-09-11 |
Borrower shall, promptly upon Lender’s request, deliver to Lender an executed copy of each Lease then in effect. All Leases shall be on forms approved by Lender, shall be for initial terms of at least six months and, with respect to individual apartment residential Leases, not more than two years, and shall not include options to purchase. If customary in the applicable market, residential Leases with terms of less than six months may be permitted with Lender’s prior written consent.
Borrower shall not lease any portion of the Property for non-residential use except with the prior written consent of Lender, such consent not to be unreasonably withheld or delayed, and Lender’s prior written approval of each Lease. Borrower shall not modify the terms of, or extend or terminate, any Lease for non-residential use (including any Lease in existence on the date of this Instrument) without the prior written consent of Lender, such consent not to be unreasonably withheld or delayed. Borrower shall, without request by Lender, deliver an executed copy of each non-residential Lease to Lender promptly after such Lease is signed. All non-residential Leases, including renewals or extensions of existing Leases, shall specifically provide and shall be deemed to include provisions that (1) such Leases are subordinate to the lien of this Instrument (unless waived in writing by Lender); (2) the Tenant shall attorn to Lender and any purchaser at a foreclosure sale, such attornment to be self-executing and effective upon acquisition of title to the Property by any purchaser at a foreclosure sale or by Lender in any manner; (3) the Tenant agrees to execute such further evidences of attornment as Lender or any purchaser at a foreclosure sale may from time to time request; (4) the Lease shall not (unless the Lender determines at any time to the contrary) be terminated by foreclosure or any other transfer of the Property; (5) after a foreclosure sale of the Property, Lender or any other purchaser at such foreclosure sale may, at Lender’s or such purchaser’s option, accept or terminate such Lease; and (6) the Tenant shall, upon receipt after the occurrence of an Event of Default of a written request from Lender, pay all Rents payable under the Lease to Lender.
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CD Form 127 |
Page 21 |
Loan No. 110686537 File No. 123-33001 |
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Section 5.3 Tenant Security.
Borrower will not commingle any Tenant Security with any other assets of Borrower.
Section 5.4 Assignment of Leases, Rents.
(1) As part of the consideration for Lender’s issuance of the Loan to Borrower, Borrower absolutely and irrevocably assigns to Lender all of Borrower’s right, title and interest in, to and under all present and future Leases and Rents and Tenant Security and all proceeds from the sale or other disposition of such Leases, Rents and Tenant Security (“Assignment of Leases and Rents”) . This Assignment of Leases and Rents is immediately effective and is a present, absolute and irrevocable transfer and assignment, not an assignment for security purposes only, and Lender’s right to the Leases and Rents and Tenant Security and the proceeds thereof is not contingent upon, and may be exercised without possession of, all or any portion of the Property and without further action by the Borrower. Promptly upon request by Lender, Borrower agrees to execute and deliver such further assignments as Lender may from time to time require. (Notwithstanding the definition of the term “Property” hereinbefore set forth, for purposes of giving effect to this absolute assignment of the Lease and Rents, and for no other purpose, the Leases and Rents shall not be deemed to be a part of the “Property; however, if this present, absolute and unconditional assignment of the Leases and Rents is not enforceable by its terms under the laws of the Property Jurisdiction, then the Leases and Rents shall be included as a part of the Property and it is the intention of the Borrower that in this circumstance this Mortgage create and perfect a Lien on the Leases and Rents in favor of Lender, which lien shall be effective as of the date of this Instrument.)
(2) Notwithstanding such Assignment of Leases and Rents
(i) | Lender confers upon Borrower a revocable license to collect and retain the Rents as they become due and payable and not in advance (“License to Collect Rents”) . Borrower shall hold the Rents and all sums received pursuant to any Lease or Tenant Security or a portion thereof sufficient to discharge all current sums due on the Secured Obligations, in trust for Lender for use in the payment of such sums and shall apply all Rents to pay the installments of interest and principal then due and payable under the Note and the other amounts then due and payable under the other Loan Documents, including the Escrow Fund and all current costs and expenses of managing, operating and maintaining the Property, including utilities, Real Property Taxes and insurance premiums for Required Insurance, tenant improvements and other capital expenditures. So long as no Event of Default has occurred and is continuing, the Rents remaining after application pursuant to the preceding sentence may be retained and/or subject to the payment of all current debt service and other expenses of maintaining the Property, distributed by Borrower free and clear of, and released from, Lender’s rights with respect to Rents under this Instrument. |
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CD Form 127 |
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Loan No. 110686537 File No. 123-33001 |
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(ii) | As part of the License to Collect Rents, Lender also confers upon Borrower all rights, power and authority granted to Borrower under any Lease (except as otherwise limited by this Article or elsewhere herein), including the right, power and authority to modify the terms of any Lease or extend or terminate any Lease. |
(3) From and after the occurrence and during the existence of an Event of Default, and without the necessity of Lender entering upon and taking and maintaining control of the Property directly, or by a receiver, (i) Borrower’s License to Collect Rents shall automatically terminate, (ii) Lender shall without notice be entitled to all Rents as they become due and payable, including Rents then due and unpaid, (iii) the authority granted in Section 5.4(2)(ii) shall be automatically revoked, (iv) Borrower authorizes Lender to collect, sue for and compromise Rents and directs each Tenant to pay all Rents to, or as directed by, Lender, (v) Borrower shall, upon Borrower’s receipt of any Rents pay the total amount of such receipts to the Lender, (vi) Borrower shall pay to Lender upon demand all Rents to which Lender is entitled and (vii) Lender immediately shall have all rights, powers and authority granted to Borrower under any Lease, including the right, power and authority to modify the terms of any such Lease, or extend or terminate any such Lease. At any time on or after the date of Lender’s demand for Rents, Lender may give, and Borrower hereby irrevocably authorizes Lender to give, notice to all Tenants of the Property instructing them to pay all Rents to Lender, no Tenant shall be obligated to inquire further as to the occurrence or continuance of an Event of Default, and no Tenant shall pay to or be obligated to pay to Borrower any amounts which are actually paid to Lender in response to such a notice. Any such notice by Lender shall be delivered to each Tenant personally, by mail or by delivering such demand to each rental unit. Borrower shall not interfere with and shall cooperate with Lender’s collection of such Rents.
(4) If an Event of Default has occurred and is continuing, Lender may, regardless of the adequacy of Lender’s security or the solvency of Borrower and even in the absence of waste, enter upon and take and maintain full control of the Property in order to perform all acts that Lender in its discretion determines to be necessary or desirable for the operation and maintenance of the Property, including the execution, cancellation or modification of Leases, the collection of all Rents, the making of repairs to the Property and the execution or termination of contracts providing for the management, operation or maintenance of the Property or for such other purposes as Lender in its discretion may deem necessary or desirable.
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CD Form 127 |
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Loan No. 110686537 File No. 123-33001 |
04-09-11 |
(5) Borrower acknowledges and agrees that the exercise by Lender, either directly or by a receiver, of any of the rights conferred under this Article or elsewhere herein shall not be construed to make Lender a mortgagee-in-possession of the Property so long as Lender has not itself entered into actual possession of the Real Estate. The acceptance by Lender of the assignment of the Leases and Rents pursuant to this Article and the exercise of any rights hereunder shall not at any time or in any event obligate Lender to take any action under this Mortgage or to expend any money or to incur any expenses. Lender shall not be liable in any way for any injury or damage to person or property sustained by any person or persons, firm or corporation in or about the Property other than those arising by reason of Lender’s gross negligence or willful misconduct. Lender shall not (i) be obligated to perform any of the terms, covenants and conditions contained in any Lease (or otherwise have any obligation with respect to any Lease); (ii) be obligated to appear in or defend any action or proceeding relating to any Lease or the Property; (iii) be responsible for the operation, control, care, management or repair of all or any portion of the Property; (iv) be responsible or liable for any waste committed on the Property by any Tenant or Person, (v) be responsible for any dangerous or defective condition of the Property, (vi) be responsible for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any Tenant, licensee, employee, invitee or other Person, (vii) be responsible for or impose upon Lender any duty to produce Rents or profits, or (viii) be required to exercise any of the rights, remedies or powers granted to Lender under this Mortgage. The execution of this Mortgage by Borrower shall constitute conclusive evidence that all responsibility for the operation, control, care, management and repair of the Property is and shall be that of Borrower.
Article 6 - Insurance
Section 6.1 Insurance Definitions.
For purposes of this Mortgage the following terms have the following meanings:
“Full Replacement Cost” means (1) with respect to the Improvements and Fixtures, the cost of replacing the Improvements and Fixtures without regard to deduction for depreciation, and (2) with respect to Personal Property, the cost of replacing such Personal Property.
“Rental Income” means the sum of (1) the total of the then ascertainable Rents payable under the Leases, and (2) the total ascertainable amount of all other amounts to be received by Borrower from third parties which are the legal obligations of Tenants.
Section 6.2 Conditions of Property.
Borrower represents and warrants that Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in any or all of the Property which could (1) adversely affect the insurability of any or all of the Property, (2) cause the imposition of increased premiums or charges or (3) cause the termination of any insurance policy or bond.
Mortgage |
CD Form 127 |
Page 24 |
Loan No. 110686537 File No. 123-33001 |
04-09-11 |
Section 6.3 Maintenance of Insurance.
Borrower will maintain at all times the following types of insurance upon or related to the Property (collectively, “Required Insurance”):
(1) Casualty Insurance . “All risk” coverage insurance against loss or damage to the Property from all risk perils, including acts of terrorism (foreign or domestic), fire, lightning, wind, hail, flood, earthquake, subsidence, vandalism, riot or civil commotion, malicious mischief, burglary and theft. The amount of such insurance shall not be less than one hundred percent (100%) of the Full Replacement Cost of the Improvements, Fixtures, and Personal Property owned by Borrower from time to time. The determination of the amount of the Full Replacement Cost shall be adjusted annually to comply with the requirements of the insurer providing such coverage or, at Lender’s election, by reference to such indexes, appraisals or information as Lender determines in its discretion. Absent such annual adjustment, each policy shall contain inflation guard coverage insuring that the policy limit will be increased over time to reflect the effect of inflation. Each policy or policies shall contain a replacement cost endorsement and either an agreed amount endorsement (to avoid the operation of any co-insurance provisions) or a waiver of any co-insurance provisions. Co-insurance is not permitted and, in all events, the amount of such insurance shall be sufficient to prevent Lender from becoming a co-insurer within the terms of the applicable policies and under applicable Law. The maximum deductible under such insurance will not exceed the Casualty Insurance Deductible.
(2) Comprehensive General Liability Insurance . Commercial general liability insurance for personal injury, bodily injury, death and property damage liability in amounts not less than $1,000,000 per occurrence, $2,000,000 aggregate (exclusive of umbrella coverage). Lender may require Borrower to increase the amount of such liability insurance maintained by Borrower should Lender deem an increase to be reasonably prudent under then existing circumstances. Such policy must include coverage for premises and operations, products and completed operations, independent contractors, blanket contractual liability, hired, owned and non-owned automobile liability, and innkeeper’s legal liability. No deductible is permitted under such liability insurance.
(3) Business Interruption Insurance . Business interruption and/or loss of Rental Income insurance in amounts sufficient to avoid any co-insurance penalty and to compensate Borrower for all Rents during a period for twelve (12) months from the date of the Casualty, plus one hundred eighty (180) days extended period of indemnity, subject to a deductible not to exceed the Business Interruption Insurance Deductible. The amount of coverage shall be adjusted annually to reflect the Rents payable during the succeeding twelve (12) month period. Borrower hereby assigns the proceeds of such insurance to Lender, to be applied by Lender in payment of the interest and principal on the Note, insurance premiums for all Required Insurance and Real Property Taxes until such time as the Improvements shall have been restored and placed in full operation, at which time, provided there are no outstanding Events of Default, the balance of such insurance proceeds, if any, held by Lender shall be paid over to Borrower.
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(4) Major Equipment Property Insurance . Broad form boiler and machinery insurance covering the major components of the Real Estate including central heating, air conditioning and ventilating systems, boilers, other pressure vessels, high pressure piping and machinery, elevators and escalators, if any, and other similar equipment installed in the Improvements, in an amount equal to one hundred percent (100%) of the Full Replacement Cost of the Improvements. Such policies shall insure against physical damage to and loss of occupancy and use of the Improvements arising out of an accident or breakdown of any of such equipment.
(5) Flood Insurance . If the Land or any part thereof is identified by the Secretary of Housing and Urban Development and/or the Federal Emergency Management Agency as being situated in an area now or subsequently designated as having special flood hazards (including those areas designated as Zone A or Zone V), flood insurance in an amount equal to the lesser of (1) one hundred percent (100%) of the Full Replacement Cost of the Improvements, or (2) the maximum amount of available flood insurance. The maximum deductible under such insurance will not exceed $20,000.00.
(6) Other Customary Insurance . Such other insurance as is usually carried by companies engaged in the same or a similar business as Borrower and similarly situated and such other insurance in such amounts as Lender may require from time to time, including (a) statutory worker’s compensation insurance with respect to any work on or about the Property covering all persons subject to the worker’s compensation laws of the state in which the Property is located, (b), during the period of any construction on the Property or renovation or alteration of the Improvements, a so-called “Builder’s All-Risk Completed Value” or “Course of Construction” insurance policy in non-reporting form for any Improvements under construction, renovation or alteration in an amount approved by Lender and with an agreed amount endorsement waiving co-insurance provisions and (c) Blanket Crime Bond covering all employees for employee dishonesty, computer fraud and depositors forgery in an amount of not less than $5,000,000.00.
(7) Law and Ordinance Coverage . Law and ordinance coverage in an amount satisfactory to Lender if the Property, or any part thereof, shall now or at any time hereafter constitute a nonconforming use or structure under applicable zoning ordinances, sub-division and building codes or other laws, ordinances, orders and requirements.
(8) Umbrella Liability Insurance . In addition to the primary coverage otherwise required by this Mortgage, umbrella liability insurance in an amount equal to or greater than the Umbrella Coverage Liability Amount.
Section 6.4 Insurance Carriers.
All insurance required by this Mortgage shall be provided by an insurance company (1) licensed to do business in the state where the Land is located, and (2) with a policy rating of “B+” or better and a financial rating of at least VIII from A.M. Best Company or any successor thereto.
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Section 6.5 Evidence of Insurance.
Borrower shall deliver to Lender an original of each insurance policy required to be maintained, or a certificate of such insurance reasonably acceptable to Lender, together with a copy of the declaration page for each such policy. Not later than fifteen (15) days prior to the expiration of each policy of Required Insurance, Borrower shall deliver a renewed policy or policies, or certificates of insurance, or duplicate original or originals thereof and, if requested by Lender, accompanied by evidence of payment satisfactory to Lender with standard non-contributory mortgage clauses in favor of and acceptable to Lender. Upon request of Lender, Borrower shall use its best efforts to cause its insurance underwriter or broker to certify to Lender in writing that all the requirements of this Mortgage governing insurance have been satisfied.
Section 6.6 Insurance Policy Provisions.
Each Required Insurance policy shall (1) in the case of a liability policy, name Lender and its successors and assigns as additional insured, (2) in the case of a casualty policy, name Lender and its successors and assigns as mortgagee and loss payee, (3) be for a term of not less than one (1) year, (4) include a standard mortgagee clause providing that the interest of Lender shall be insured regardless of any breach or violation by Borrower or any Tenant of any warranties, declarations or conditions in such policy, (5) if any such Required Insurance policy is subject to cancellation, termination or being endorsed to effect a change in coverage for any reason whatsoever, the insurer under such policy shall promptly notify Lender in writing and such cancellation, termination or change shall not be effective as to Lender until thirty (30) days after receipt by Lender of such notice (unless such cancellation is for non-payment, in which case such insurer shall be obligated to provide Lender with not less than ten (10) days written notice), (6) shall include an effective waiver of all subrogation rights against any loss payee, additional insured or named insured, (7) in the case of property damage insurance policies such policies automatically reinstate after a Casualty, (8) provide that no loss payee or additional insured is responsible for any insurance premiums on or assessments pursuant to any such policy, (9) permit Lender to pay the premiums and continue such policy upon failure of Borrower to pay such premium, and (10) to the extent available at commercially reasonable rates, a waiver of subrogation endorsement as to Lender. Lender may, but shall not be obligated to, make premium payments to prevent such cancellation. In addition, each Required Insurance policy shall be subject to the approval of Lender as to insurance company, amounts, content, form of policy, method by which premiums are paid and expiration date.
Section 6.7 Compliance with Requirements of Insurance Policies.
Borrower shall (1) pay when due all insurance premiums for all Required Insurance, (2) comply with and conform to (a) all provisions of each such Required Insurance policy, and (b) all requirements of the insurers applicable to Borrower or to the Property or to the use, manner of use, occupancy, possession, operation, maintenance, alterations or repair of any of the Property, (3) not use or permit the use of the Property in any manner which permits any insurer to cancel or void any Required Insurance policy.
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Section 6.8 Insurance Reporting Requirements.
Borrower shall give Lender prompt notice of, and copies of documents delivered or received by Borrower in connection with, each of the following: (1) any claims made against Borrower for any personal injury, bodily injury or property damage incurred on or about the Property, (2) any Casualty, and (3) any cancellation or non-renewal of any Required Insurance policy.
Section 6.9 Renewal and Replacement of Insurance Policies.
Not less than fifteen (15) days prior to the expiration, termination or cancellation of any insurance policy required to be maintained under this Agreement, Borrower shall renew such policy or obtain a replacement policy or policies (or a binding commitment for such replacement policy or policies), which shall be effective not later than the date of the expiration, termination or cancellation of the previous policy, and shall deliver to Lender a certificate in respect of such policy or policies or a copy of the binding commitment for such policy or policies and confirming that such policy complies with all requirements of this Mortgage.
Section 6.10 Rights of Lender to Obtain Insurance.
If at any time Lender is not in receipt of written evidence that all Required Insurance is in full force and effect, Lender has the right but not the obligation, without notice to Borrower, to obtain such insurance coverage as Lender in its sole discretion deems appropriate. Borrower agrees that all premiums incurred by Lender in connection with obtaining and maintaining such insurance shall be paid by Borrower to Lender upon demand and until paid shall bear interest at the Default Rate. At Lender’s option, said premiums may be paid by Lender from the Escrow Fund.
Section 6.11 Dealing with Insurance Carriers/Succession to Borrower’s Rights.
Borrower shall obtain Lender’s prior written approval, such approval not to be unreasonably withheld, prior to any settlement, adjustment or compromise of any claims for loss, damage or destruction under any Required Insurance policy, and Lender shall have the right to participate with Borrower in negotiation of any such settlement, adjustment or compromise, provided the claim exceeds $250,000.00 in such event. Lender shall also have the right to appear with Borrower in any action against an insurer based on a claim for loss, damage or destruction under any policy or policies of insurance. If all or any portion of the Property is sold at a foreclosure sale or Lender acquires title to all or any portion of the Property, Lender shall automatically succeed to all rights of Borrower in and to any insurance policies and unearned insurance premiums and in and to the proceeds resulting from any damage to the Property prior to such sale or acquisition.
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Section 6.12 Application of Insurance Proceeds.
Borrower will cause all Casualty Insurance Proceeds to be paid over to Lender. Such Casualty Insurance Proceeds shall be applied first to reimburse Lender for all costs and expenses of Lender incurred in connection with the recovery, maintenance and administration of such Casualty Insurance Proceeds, and then, at the option of Lender in its sole discretion, either (1) to the payment or prepayment of the Secured Obligations in such order as Lender may determine or (2) to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding all or any part of the Property subject to the Casualty (“Restoration”) .
Section 6.13 Lender’s Right to Escrow for Insurance.
Upon an Event of Default or if the Lender is compelled by Law, Borrower covenants to pay to Lender, one-twelfth (1/12th) of the annual premiums for fire, flood and other hazard insurance, which sums shall be held by the Lender pursuant to Section 4.7 (and shall be deemed included in the Escrow Fund) and used by it to pay such insurance premiums as the same become due and payable.
Article 7 - Condemnation
Section 7.1 Condemnation Definitions.
For purposes of this Mortgage the following terms have the following meanings:
“Condemnation” means any temporary or permanent taking or requisition of any or all right, title and interest in all or any part of the Property or any change of grade which affects the Property or any roadway providing access to the Property, in each case, as the result of the exercise of any right of condemnation or eminent domain.
“Condemnation Proceeds” means all funds or proceeds received as a result of, in connection with, or in anticipation of, a Condemnation.
Section 7.2 Condemnation Representations and Warranties.
Borrower represents and warrants that there are no pending or, to the knowledge of Borrower, threatened Condemnation proceedings.
Section 7.3 Condemnation Reporting Requirements.
Borrower will promptly give Lender notice of the actual or threatened commencement of any Condemnation proceeding and shall deliver to Lender copies of each notice and paper served by any party in connection with such a proceeding.
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Section 7.4 Condemnation Proceedings.
Borrower authorizes Lender, at Lender’s option, to commence, appear in and participate in, in Borrower or Lender’s name, in any Condemnation proceeding. If Lender elects to participate in such a proceeding then Borrower will execute and deliver all instruments requested by Lender to permit or facilitate Lender’s participation in such a proceeding. If Lender elects not to participate in such a Condemnation proceeding, then Borrower shall, at its expense, diligently prosecute such proceeding. In that case, Borrower will consult with Lender, and will cooperate with Lender in any defense of such proceeding. In either case, Borrower will not settle or compromise such a proceeding without the consent of Lender.
Section 7.5 Application of Condemnation Proceeds.
Borrower will cause all Condemnation Proceeds to be paid directly to Lender. Such Condemnation Proceeds shall be applied first to reimburse Lender for all costs and expenses of Lender incurred in connection with obtaining such Condemnation Proceeds, and then, at the option of Lender, in its sole discretion, either (1) to the payment or prepayment of the Secured Obligations in such order as Lender may determine or (2) to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding all or any of the Property that was affected by the Condemnation (“Replacement”).
Article 8 – Environmental
Section 8.1 Environmental Definitions.
As used in this Mortgage, the following terms have the following meanings:
“Environmental Laws” means any and all Laws relating to or imposing liability or standards of conduct concerning environmental regulation, environmental protection, Hazardous Materials, pollution, contamination or clean up, including the Clean Air Act, the Clean Water Act, also known as the Federal Water Pollution Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Surface Mining Control and Reclamation Act, the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendment and Reauthorization Act of 1986, the Emergency Planning and Community Right to Know Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Hazardous Materials Transportation Act, the Occupational Safety and Health Act, the Water Pollution Control Act, the Endangered Species Act, the River and Harbors Appropriation Act, the Solid Waste Disposal Act and the National Environmental Policy Act.
“Hazardous Materials” means (1) any and all elements, compounds, mixtures, substances, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, in quantities or volumes covered by or regulated pursuant to any Environmental Law, including asbestos, gasoline, diesel fuel, motor oil, waste or used oil, heating oil, kerosene and any other petroleum products, including crude oil or any fraction thereof, and material exhibiting the characteristics of ignitability, corrosivity, reactivity or extraction procedure toxicity, as such terms are defined in connection with hazardous materials or hazardous wastes or hazardous or toxic substances in any Environmental Law, and (2) other substances which may have a significant negative impact on human health and safety or the environment if released into or within a structure, the workplace or the environment, including radon, mold, fungus mildew and similar items, but excluding substances of kinds and in amounts ordinarily and customarily used or stored for the purposes of cleaning or other maintenance or operations if such substances are used and stored in compliance with all Environmental Laws. As used herein, the phrase “Hazardous Materials at the Property” shall mean “Hazardous Materials at, in, on, about, above, over, under, into, within, through, across, from, to, near, affecting or emanating from all or any portion of the Property” and the phrase “Hazardous Materials . . . at the Property” shall mean “Hazardous Materials . . . at, in, on, about, above, over, under, into, within, through, across, from, to, near, affecting or emanating from all or any portion of the Property”.
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“ Indemnified Parties ” means (1) Lender, (2) each Person who has been, is or will be involved in the origination of the Loan, (3) each Person who is or will be involved in the servicing of the Loan, (4) each Person in whose name the security interest created by the Mortgage is or will be recorded, (5) each Person who acquires all or part of the Property by foreclosure, power of sale, conveyance in lieu of foreclosure or otherwise, (6) each Person who holds or acquires or will hold or acquire a full or partial interest in the Loan, including investors, participants or prospective investors in the Loan, (7) each custodian, trustee and other fiduciary who has held, holds or will hold a full or partial interest in the Loan for the benefit of third parties, (8) each director, officer, shareholder, member, partner, employee, agent, attorney, servant, representative, contractor, subcontractor, Affiliate, subsidiary, participant, successor and assign of any and all of the foregoing Persons, including any other Person who holds or acquires or will hold a participation or other full or partial interest in the Loan, whether during the term of the Loan or as a part of or following a foreclosure of the Loan or enforcement of any other remedy, including deed-in-lieu of foreclosure, with respect to the Loan, (9) any receiver of the Property and (10) each successor and assign of each of the parties specified above in this definition, including any successors or assigns by merger, consolidation or acquisition of all or substantially all of the assets or business of any such party.
“ Losses ” means any and all losses, damages, liabilities, costs and expenses incurred by any Indemnified Party in respect of or as a result of any or all claims, suits, liabilities (including strict liabilities), actions, demands, proceedings, obligations, debts, damages (including punitive and consequential), fines, trials, penalties, charges, diminution of value, injury to a person, property or natural resources, Remedial Work, fees, judgments, accounts, orders, adjudications, awards, liens, injunctive relief, causes of action or amounts paid in settlement of whatever kind or nature, including reasonable attorney’s fees and all fees of experts, including engineers and environmental consultants, and other costs of defense or otherwise related thereto.
“ Release ” means, by any Person or by any other source or means, any generation, treatment, use, transportation, transfer, production, processing, manufacture, refinement, handling, storage, holding, control, management, existence, disposition, removal, remediation, disposal, abatement, release, escape, seepage, spillage, discharge, leak, presence, migration or movement (whether any of the foregoing be intentional or unintentional, direct or indirect, foreseeable or unforeseeable, naturally occurring or man-made) of a Hazardous Material or any other activity related to a Hazardous Material.
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“ Remedial Work ” means investigation, inspection, assessment, site monitoring, containment, clean-up, removal, remediation, response, corrective action, mitigation, restoration or other remedial work of any kind or nature because of, in connection with or related to any existing, current or future presence, suspected presence, Release or threatened Release of any Hazardous Materials, including any action to comply with any Environmental Law or directive of any Governmental Authority with regard to any Environmental Laws.
Section 8.2 Environmental Representations and Warranties.
After due inquiry and investigation and except as may be expressly set forth in any third party environmental report of the Property delivered to the Lender in connection with the Lender’s origination of the Loan, Borrower represents and warrants that, to the best of Borrower’s knowledge, (1) the Property is not in violation of any Environmental Law, (2) there are no Hazardous Materials at the Property and neither Borrower nor any prior owner or current or prior tenant, subtenant, or other occupant of all or any part of the Property has used or is using, Hazardous Materials at the Property that (a) would require any Remedial Work, or (b) poses a threat to persons or the environment, except for the use and storage of immaterial amounts of Hazardous Materials at the Property if such use or storage is in connection with the ordinary cleaning and maintenance of the Property so long as such use and storage is in compliance with all applicable Environmental Laws, (3) the Property is not subject to any private or governmental Lien or judicial or administrative notice or action or inquiry, investigation or claim relating to Hazardous Materials, (4) there has been no Release of any Hazardous Materials at the Property (including the period prior to Borrower’s acquisition of the Property) other than in compliance with all Environmental Laws and other than releases of Hazardous Materials which have been remediated in compliance with applicable Environmental Laws, (5) no Hazardous Materials are present in, on or under any nearby real property which could migrate to or otherwise affect the Property, (6) no underground storage tanks exist on any of the Property, (7) Borrower has not received any notice from any Person claiming a violation of any Environmental Law, including a Release in violation of any applicable Environmental Law or requiring Remedial Work with regard to the Property and (8) there are no environmental investigations, studies, audits, reviews or other analysis conducted by or in possession of Borrower or any of its Affiliates which have not been made available to Lender.
Section 8.3 Environmental Covenants.
Borrower agrees that Borrower will (1) comply with all Environmental Laws, including performing all Remedial Work required by Environmental Laws and provide all information required to be delivered to Governmental Authorities, and cause each Tenant to comply with such Laws, (2) keep or cause to be kept the Property in compliance with all Environmental Laws and free from Hazardous Materials, except for the use and storage of immaterial amounts of Hazardous Materials at the Property if such use or storage is in connection with the ordinary cleaning and maintenance of the Property so long as such use and storage is in compliance with all applicable Environmental Laws, (3) keep the Property free and clear of any Liens imposed pursuant to any Environmental Law, and (4) not permit or suffer any Release in violation of any applicable Environmental Laws. If Borrower is aware that Remedial Work is required, whether as a result of governmental inquiries, environmental audits or otherwise, Borrower shall, within thirty (30) days after obtaining such knowledge (or such shorter period of time as may be required under any applicable Environmental Law), commence and thereafter diligently prosecute to completion all such Remedial Work. If requested by Lender, Borrower will insure that all Remedial Work shall be performed by contractors approved in advance by Lender, and under the supervision of a consulting engineer approved by Lender. All costs and expenses of such Remedial Work shall be paid by Borrower. In the event Borrower fails to timely prosecute to completion such Remedial Work, or to contest its obligation to do so, Lender may, but shall not be required to, cause such Remedial Work to be performed, consistent with sound commercial practices designed to protect the Lien hereby created, and all costs and expenses thereof, or incurred in connection therewith, shall become part of the Secured Obligations.
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Section 8.4 Environmental Reporting Requirements.
Borrower shall give prompt written notices to Lender: (1) if the Property is in violation of any Environmental Law, (2) of the presence of Hazardous Materials at the Property, (3) any Release or threatened Release, (4) of any required or proposed Remedial Work on the Property, (5) of any proceeding or inquiry by any Person with respect to the presence of any Hazardous Material at the Property, (6) of all claims made or threatened by any Person against Borrower or the Property relating to any loss or injury resulting from any Hazardous Material, (7) of Borrower’s discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property to be subject to any investigation or cleanup pursuant to any Environmental Law, (8) of Borrower’s receipt of any notice from any Governmental Authority or any other Person relating or pertaining to any Hazardous Materials located or Released at the Property, (9) of any Governmental Authority incurring any cost or expense in connection with the assessment, containment, remediation or removal of any Hazardous Materials located or Released at the Property, and (10) any actual or potential Lien on the Property pursuant to any Environmental Law.
Section 8.5 Environmental Inspection.
Upon the request of Lender, after the occurrence of an Event of Default or upon Lender’s reasonable belief that the Property is not in full compliance with Environmental Laws, Borrower will perform, at the expense of Borrower, an environmental audit of the Property and provide a copy of such audit to Lender. Borrower agrees that Lender or any agent or representative acting on behalf of Lender may, but shall not be obligated to, enter upon the Property at any time, to conduct such inspections and tests, at Borrower’s sole cost and expense, as may be desired by Lender to determine compliance with Environmental Laws.
Section 8.6 Environmental Audits.
At any time at Lender’s request, after the occurrence of an Event of Default or upon Lender’s reasonable belief that the Property is not in full compliance with Environmental Laws, Borrower shall provide at Borrower’s sole expense, an inspection or audit of the Property prepared by a licensed hydro geologist or licensed environmental engineer approved by Lender indicating the presence or absence of Hazardous Materials at the Property. If Borrower fails to provide such inspection or audit within thirty (30) days after such request Lender may order same, and Borrower hereby grants to Lender and its employees and agents access to the Property and a license to undertake such inspection or audit. The cost of such inspection or audit shall be paid by Borrower on demand and shall bear interest thereafter until paid at the highest rate provided in the Note or herein.
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Section 8.7 Environmental Legal Proceedings.
Borrower shall permit Lender to join and participate in, as a party if it so elects, any legal proceedings or actions initiated with respect to the Property in connection with any Environmental Law or Hazardous Material, and Borrower shall pay all out of pocket attorney’s fees and disbursements incurred by Lender in connection with such proceeding.
Section 8.8 Environmental Indemnification.
Borrower hereby agrees at Borrower’s sole cost and expense to protect, indemnify, defend, and hold harmless each Indemnified Party from and against any and all Losses, arising out of, attributable to, relating to, which may accrue out of, or which may result from (1) a past, present or future violation or alleged violation of any Environmental Laws in connection with the Property by any Person or other source whether related or unrelated to Borrower, (2) any claim brought or threatened, settlement reached, or governmental order relating to a Hazardous Material, including the cost and expense of any Remedial Work, out of pocket attorney and consultant fees and disbursements, investigation fees, court cost and litigation expenses, (3) any presence of any Hazardous Materials at the Property, (4) the failure to timely perform any Remedial Work, (5) any past, present or future activity by any Person or other source whether related or unrelated to Borrower in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Property of any Hazardous Materials at the Property, (6) any past, present or future actual, threatened or alleged Release (whether intentional or unintentional, direct or indirect, foreseeable or unforeseeable) to, from, on, within, in, under, near or affecting the Property by any Person or other source, whether related or unrelated to Borrower, (7) the imposition, recording or filing of any Lien on the Property with regard to, or as a result of, any Hazardous Materials or pursuant to any Environmental Law, or (8) any misrepresentation or inaccuracy in any representation or warranty or breach or failure to perform any covenants or other obligations pursuant to this Agreement or relating to environmental matters under any of the other Loan Documents.
The foregoing indemnity shall (a) survive the sale, assignment, transfer, cancellation, release or satisfaction of all or any part of the Mortgage or any of the Secured Obligations, the foreclosure or conveyance in lieu of foreclosure of all or any part of the Property or the exercise by Lender of any of the remedies available under the Mortgage, any other Loan Document or at law or in equity and (b) inure to the benefit of Lender notwithstanding the occurrence of any of the foregoing events.
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Article 9 - Single Purpose Entity
Section 9.1 Single Purpose Entity Definitions.
As used in this Mortgage, the following terms have the following meanings:
“ Organizational Documents ” means all documents and agreements providing for, or related to, the formation, organization and governance of a Person, including (1) if such Person is a corporation, its certificate of incorporation, by-laws and any shareholder agreement related to such corporation, (2) if such a Person is a general partnership, its partnership agreement, (3) if such Person is a limited partnership, its certificate of limited partnership and partnership agreement, and (4) if such Person is a limited liability company, its certificate of formation and operating agreement and any agreement among its members related to such limited liability company.
Section 9.2 Single Purpose Entity.
Borrower represents, warrants and covenants that Borrower did not previously and in the future will not and shall not (a) acquire any real or personal property other than the Property and Personal Property, (b) operate any business other than the management and operation of the Property; and (c) take any actions or suffer any omissions that would cause its assets to be comingled with the assets of another Person or which would render it difficult to segregate and identify its assets, including any of the following:
(1) Organizational Documents . Either (a) fail to provide in its Organizational Documents for restrictions substantially similar to those set forth in this Section; or (b) amend any provisions of its Organizational Documents so that Borrower is no longer in compliance with this Section,
(2) Single Business Purposes . Engage in any business or activity other than the ownership, operation, management and maintenance of the Property, and activities incidental thereto,
(3) Ownership of a Single Asset . Acquire or own any assets other than the Property,
(4) Maintenance of Existence . Fail to do all things necessary to preserve its existence in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or fail to qualify and remain qualified as a foreign entity in each jurisdiction in which such qualification is required,
(5) Maintain Separate Accounts . Comingle its assets or funds with the assets of any other Person, including its Affiliates, or fail to maintain its assets in such a manner that it is costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person, including its respective Affiliates,
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(6) Guarantees . Pledge any or all of its assets for the benefit of, or to secure the obligations of, any other Person, except for the Liens granted pursuant to the Loan Documents, or (b) hold itself out as responsible for, or assume, guarantee, endorse or otherwise be or become directly or contingently responsible or liable for the obligations of any Person,
(7) Investments . Make a loan or advance to a Person, or purchase or otherwise acquire any capital stock, assets, obligations, or other securities of, or make any capital contribution to, or otherwise invest in or acquire any interest in any Person,
(8) Transactions With Affiliates . Enter into any contract or agreement with any Affiliates, except in the ordinary course of and pursuant to the reasonable requirements of the business of Borrower and upon fair and reasonable terms no less favorable to Borrower than Borrower would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate,
(9) Presentation as Separate Legal Entity . Present itself as a division or department of another Person, or fail to (a) hold itself out to the public as a legal Person separate and distinct from any other Person, (b) conduct its business solely in its own name, and (c) correct any known misunderstanding regarding its separate identity,
(10) Maintenance of Separate Books and Records . Fail to maintain its records, financial statements, accounting records, books of account, and bank accounts and Organizational Documents separate and apart from those of any other Person, other than in connection with consolidated financial statements with the parent entities provided same is in accordance with commercially sound accounting practices.
Article 10 - Books and Records and Reporting Requirements
Section 10.1 Maintenance of Records.
Borrower will maintain and keep complete and accurate books and records of account in which complete entries reflecting all financial transactions relating to the Borrower and the Property will be made in accordance with accounting methods acceptable to Lender in its reasonable discretion, consistently applied and correctly reflecting the operation, income, revenue, rents, costs and expenses of the Property, such records to include, without limitation, copies of supporting bills and invoices, bank account statements, contracts, leases and all other instruments and financial records which affect or relate to the Property, the Borrower, any Guarantor or any Indemnitor including any reports or documents required by this Article (collectively, the “Books and Records”). Borrower shall keep and maintain the Books and Records at the Property or the management agent’s offices. Upon request by Lender, Borrower shall make all Books and Records available for review, inspection and copying by the Lender at the Property and all Books and Records shall be subject to examination, inspection and copying at any reasonable time by Lender. If Borrower fails to provide in a timely manner any Books and Records, Lender shall have the right to have Borrower’s Books and Records audited, at Borrower’s expense, by independent certified public accountants selected by Lender in order to obtain such statements, schedules and reports, and all related out of pocket costs and expenses of Lender including accountant’s fees and attorney’s fees shall be paid by Borrower to Lender. If an Event of Default has occurred, Borrower shall deliver to Lender upon written demand all Books and Records. If an Event of Default has occurred and Lender has not previously required Borrower to furnish a quarterly statement of income and expense for the Property, Lender may require Borrower to furnish such a statement within 30 days after the end of each fiscal quarter of Borrower following such Event of Default.
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Section 10.2 Right of Inspection.
Lender and any Persons authorized by Lender have the right, upon reasonable advance notice to Borrower and at reasonable times, to examine, review and inspect at the Property any Books and Records, and to make copies and take abstracts therefrom. All Books and Records shall be made available at the Property for such examination, review, inspection and copying. Lender shall have the right to discuss the affairs, finances, assets, business and Books and Records of Borrower with its managers, officers, members, partners, shareholders and/or accountants and Borrower shall make such managers, officers, members, partners, shareholders and/or accountants available for such discussions and direct (and hereby irrevocably directs) such managers, officers, partners, shareholders and/or accountants to answer Lender’s questions concerning the Books and Records and the financial affairs of Borrower and disclose to Lender such financial information of Borrower as Lender may require. Lender shall have the right to discuss the affairs, finances, business and assets of any Guarantor or Indemnitor with each such Guarantor and Indemnitor (and, if applicable, each such Guarantor’s or Indemnitor’s managers, officers, partners, shareholders and/or accountants) and Borrower shall make all such Persons available for such discussions and direct (and hereby irrevocably directs) such Persons to answer Lender’s questions concerning the Books and Records and the financial affairs of Guarantors and Indemnitors and disclose to Lender such financial information of Guarantors and Indemnitors as Lender may require.
Section 10.3 Reporting Requirements.
Borrower shall furnish to Lender (and to the extent any of the following Books and Records are required of or relate to any Guarantor or Indemnitor, Borrower shall cause such Guarantor and Indemnitor to furnish and such Guarantor and Indemnitor shall furnish to the Lender):
(1) Semi-Annual Financial Statements . As soon as available and in any event within ninety (90) days after the end of each fiscal year of Borrower following the date hereof, and every six (6) months thereafter, a balance sheet of Borrower as of the end of such fiscal year (or fiscal year to date, as applicable), a statement of operations and cash flow of Borrower for such fiscal year (or fiscal year to date, as applicable) commencing at the end of its previous fiscal year and a full and complete statement of all income and expenses incurred in the operation and maintenance of the Property (an “ Income and Expense Statement ”), all in reasonable detail and in form required by Lender, stating in comparative form the respective figures for the corresponding date and periods in such previous fiscal year (or fiscal year to date, as applicable). Lender also may require that any statements, schedules or reports be audited at Borrower’s expense by independent certified public accountants acceptable to Lender;
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(2) Intentionally omitted ;
(3) Rent Roll . As soon as available but no later than thirty (30) days after the end of each of the Borrower’s fiscal years, a rent roll in form required by Lender detailing the names of all Tenants of the Improvements, the portion of the Improvements occupied by each Tenant, the base rent and any other charges payable under each Lease and the term of each Lease, including the expiration date, the extent to which any Tenant is in default under any Lease, and any other information as is reasonably requested by Lender; it being understood, however, that the detail and form of statements provided to and accepted by Lender prior to the making of the Loan shall be deemed to be satisfactory;
(4) Financial Statements . Within one hundred twenty (120) days of the end of each calendar year, a Financial Statement of each Guarantor and of each Indemnitor. Each Financial Statement shall be certified as complete and accurate by each Guarantor and each Indemnitor and contain such schedules and reports as may in the Lender’s determination be necessary, together with such information as the Lender in its sole discretion may require (the “ Financial Statement ”) and, as soon as available and in any event within five (5) days after filing, copies of all tax returns filed by each Guarantor and each Indemnitor; it being understood, however, that the detail and form of statements provided to and accepted by Lender prior to the making of the Loan shall be deemed to be satisfactory.
(5) Tax Returns . As soon as available and in any event within five (5) days after filing, copies of all tax returns filed by Borrower.
Upon request made by Lender, Borrower shall also furnish to Lender (a) such reports described above in this Section 10.3 to Lender at any other time and for such period or periods as Lender may reasonably require (but no more than four (4) times a year) and (b) such additional reports as Lender may reasonably require (but no more than four (4) times a year) including:
(i) | Monthly Operating Statement. As soon as available but no later than twenty (20) days after the end of the calendar month in which such request is made, a monthly operating statement for the Property in the form required by Lender, detailing the revenues received, the expenses incurred and the net operating income before and after debt service (principal and interest) and major capital improvements for such month and containing appropriate year-to-date information; |
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(ii) | Monthly Financial Statements. As soon as available but no later than thirty (30) days after the end of the calendar month in which such request is made, a balance sheet of Borrower as of the end of such month, and a statement of operations and statement of cash flow of Borrower for such month, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year; it being understood, however, that the detail and form of statements provided to and accepted by Lender prior to the making of the Loan shall be deemed to be satisfactory. |
(iii) | Quarterly Financial Statements. As soon as available and in any event within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of Borrower, a balance sheet of Borrower as of the end of such quarter, a statement of operations and cash flow of Borrower for such quarter and for the period commencing at the end of its previous fiscal year and ending with the end of such quarter and an Income and Expense Statement for each such quarter, all in reasonable detail and in form required by Lender, stating in comparative form the respective figures for the corresponding date and periods; it being understood, however, that the detail and form of statements provided to and accepted by Lender prior to the making of the Loan shall be deemed to be satisfactory. |
(iv) | Property Management Report. A property management report for the Property, showing the number of inquiries made and/or rental applications received from Tenants or prospective Tenants and deposits received from Tenants and any other information requested by Lender, in reasonable detail and certified by Borrower to be true and complete; |
(v) | Accounting for Security Deposits. An accounting of all security deposits held in connection with any Lease, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name of the person to contact at such financial institution, along with any authority or release necessary for Lender to obtain information regarding such accounts directly from such financial institutions. |
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During the occurrence and continuance of an Event of Default, Borrower shall furnish each and every of the above reports to Lender within ten (10) days of demand made by Lender therefor.
Section 10.4 Credit Report.
Borrower, each Guarantor and each Indemnitor authorize Lender to obtain a credit report, Dun & Bradstreet report and/or similar reports against Borrower, any Guarantor and any Indemnitor at any time.
Section 10.5 Certification of Chief Financial Officer.
Accompanying all financial statements, reports and Books and Records to be delivered under Section 10.3, Borrower shall deliver to Lender a certificate of the chief financial officer of Borrower or a principal of Borrower authorized to bind Borrower certifying that (a) such statements, reports and/or Books and Records are complete and correct and that they fairly present the financial condition of Borrower as of the end of such applicable period and the results of operations for such applicable period, all in accordance with a method of accounting (consistently applied) acceptable to Lender in its reasonable discretion, and (b) no Event of Default has occurred and is continuing, or if an Event of Default has occurred and is continuing, a statement as to the nature of such Event of Default and the action which is proposed to be taken with respect to such Event of Default.
Section 10.6 Fees for Failure to Provide Required Reports.
All reports required under Section 10.3 shall be furnished within the time period(s) specified above in this Section. In the event that any such report remains outstanding for a period of thirty (30) days beyond its due date, the Lender shall be entitled (in addition to any other remedies available to the Lender) upon fifteen (15) days written notice to increase the Interest Rate by two percent (2%) per annum (i.e., 200 basis points) until such time as the reports required under Section 10.3 are delivered to the Lender’s satisfaction.
Borrower expressly acknowledges that its failure to provide any of the foregoing required reports to the Lender will (a) cause Lender to incur additional and significant costs and expenses in servicing and processing the Loan, including the need for increased attention by the Lender’s servicing department and the possibilities of increased regulatory examination and transfer of the loan to the Lender’s special servicing department or loan recovery unit, (b) potentially subject the Lender to increased reserve or capital requirements and (c) subject Lender to additional review burdens, costs and fees including the need for increased personnel to monitor Borrower’s compliance with the requirements of this Article. Borrower acknowledges that it is extremely difficult and impractical to determine any of those additional costs and expenses and that the Lender is entitled to be compensated for such increased risks. Borrower agrees that the increase in the rate of interest set forth above represents a fair and reasonable estimate of the additional costs and expenses Lender will incur by reason of Borrower’s failure to provide any such report and the additional compensation Lender is entitled to receive on account of such failure.
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Article 11 - General Representations and Covenants
Section 11.1 General Representations and Warranties.
Borrower represents, covenants and warrants that:
(1) Formation, Good Standing, Power and Due Qualification of Borrower . Borrower (a) is a limited liability company, duly formed, validly existing, and in good standing under the laws of the jurisdiction of its formation, (b) has all the requisite power and authority, to own its assets and to transact the business in which it now engages or proposes to engage in, (c) is duly authorized to transact business within the state in which the Property is located, (d) is in good standing under the laws of each other jurisdiction in which such qualification is required and (e) shall maintain, continuously and without interruption, all of the foregoing authorizations, power and authority until the obligations evidenced hereby are fully satisfied.
(2) Authority of Borrower . The execution, delivery and performance by Borrower of this Mortgage are within its powers, have been duly authorized by all necessary action, and do not and will not (a) require any consent or approval of its managers or members, as the case may be, which has not been obtained, or (b) contravene its Organizational Documents.
(3) No Contravention of Borrower . The execution, delivery and performance by Borrower of this Mortgage do not and will not (a) violate any provision of any Law, order, writ, judgment, injunction, decree, determination, or award presently in effect applicable to Borrower, (b) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower is a party or by which Borrower or Borrower’s properties may be bound or affected, or (c) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by Borrower.
(4) Legally Enforceable . This Mortgage and each other Loan Document to which Borrower is a party is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except to the extent that such enforcement may be limited by (a) applicable Insolvency Laws, or (b) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law.
(5) Authorization . Other than as has been already obtained, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required (a) for the execution, delivery or performance by Borrower of this Mortgage or any other Loan Document, or (b) for the consummation of the transaction contemplated by the Loan Documents, or (c) for the exercise by Lender of the rights and remedies provided for in this Mortgage or any other Loan Document.
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(6) Information . No information, exhibit, or report furnished by Borrower or any other Person to Lender in connection with the making of the Loan contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading. There has been no material adverse change in any condition, fact, circumstances, or event that would make any of the information, exhibits or reports furnished in connection with the making of the Loan inaccurate, incomplete or otherwise misleading in any respect. Borrower has disclosed to Lender in writing any and all facts that could result in a material adverse change to the Real Estate or Borrower.
(7) Financial Information . All information, including all financial statements or information delivered by Borrower and/or any Guarantor, Indemnitor or other Person regarding Borrower, any Guarantor, any Indemnitor and/or the Property, is true and correct as of the respective date of each such statement or report, and accurately reflects the financial condition of Borrower and each such Guarantor, Indemnitor or Person as of the date of such statements or reports. Neither Borrower nor any such Guarantor, Indemnitor or Person has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that could result in a material adverse change to Borrower, such Guarantor, such Indemnitor or such Person, as applicable. There has been no material adverse change to Borrower, or any such Guarantor, Indemnitor or Person since the date of such financial statements or reports. There has been no material adverse change to the Real Estate or Borrower.
(8) Tax Returns . Borrower has filed all tax returns (federal, state and local) (“Tax Returns”) required to be filed and has paid all taxes, assessments and governmental charges and levies thereon to be due, including interest and penalties. The charges, accruals and reserves on the books of Borrower for taxes or other governmental charges are adequate. No additional tax liability has been asserted against Borrower or any assessment received by Borrower which remains open and unpaid. Subsequent to the date hereof, Borrower shall file all Tax Returns required to be filed by Borrower and shall pay all taxes, assessments and governmental charges and levies imposed upon Borrower or the Property, including interest and penalties.
(9) Compliance With Law . Borrower has no knowledge that it is not in compliance in all material respects with all applicable Laws. Borrower possesses and is in compliance with all Governmental Approvals required to conduct its business as now conducted and as presently proposed to be conducted. Neither Borrower nor to the best of Borrower’s knowledge any other Person in occupancy of or involved in the operations or use of the Property has committed any act or omission affording any Governmental Authority the right of forfeiture as against any or all of the Property, any collateral for any or all of the Secured Obligations, or any or all monies paid in performance of Borrower’s obligations under any of the Loan Documents.
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(10) Embargoed Person . None of the funds or other assets of Borrower constitute property of, or are beneficially owned, directly or indirectly, by any Person subject to trade restrictions under U.S. Law with the result that either (1) the investment in Borrower (whether directly or indirectly), or (2) the making of the Loan is in violation of Law. None of the funds of Borrower or any Guarantor or any Indemnitor have been derived from any unlawful activity with the result that either (1) the investment in Borrower, or (2) the making of the Loan is prohibited by Law. The Borrower, all Restricted Parties and their affiliates, subsidiaries or any of their respective agents acting or benefitting in any capacity in connection with the transactions contemplated by this Loan are in full compliance with, and shall continue to comply with any Laws relating to terrorism or money laundering, including without limitation Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered by U.S. Department of Treasury Office of Foreign Assets Control (“ OFAC ”).
(11) Litigation . There is no action, suit or proceeding pending or, to the knowledge of Borrower, threatened against or affecting Borrower before any court, arbitration panel or other governmental body, which, in any one case or in the aggregate, could result in a material adverse change to the Real Estate or Borrower.
(12) No Default or Event of Default . No Default or Event of Default has occurred.
(13) No Foreign Person . Borrower is not a “foreign person” within the meaning of Section 1445(f)(3) or 7701 of the Internal Revenue Code of 1986.
(14) Partnership and Joint Ventures . Borrower is not a partner in any partnership, a shareholder in corporation, a member of any limited liability company, a party to a joint venture or an owner, member or principal of any other entity.
(15) Intellectual Property . Borrower possesses all licenses, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct its business as now conducted and as presently proposed to be conducted, and Borrower is not in violation of any valid rights of others with respect to any of the items noted above.
(16) Acts of God . Neither the business nor the properties of Borrower are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other Casualty (whether or not covered by insurance) which has resulted in, or could result in, a material adverse change to the Real Estate or Borrower.
(17) Labor Matters . Borrower is not a party to any collective bargaining agreement.
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(18) Other Agreements . Borrower is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any Organizational Document restriction which has resulted in, or could result in, a material adverse change to the Real Estate or Borrower. Borrower is not in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party where such default has resulted in, or could result in, a material adverse change to the Real Estate or Borrower.
(19) Governmental Regulation . Borrower is not subject to any Law limiting its ability to incur its obligations under any of the Loan Documents.
(20) J-51/DHCR/Tax Abatements/Rent Registrations . If required by the Laws of the State and City of New York, Borrower has complied with, and shall continue to comply with, any and all Laws relating to real estate tax abatements and/or exemptions benefiting the Property, rent regulation, rent control and rent stabilization, including Section 11-243 of the Administrative Code of the City of New York, New York State Real Property Tax Law Section 489, Chapter 5 of Title 28 of the Rules of the City of New York, all Laws commonly known as J-51 tax abatement laws, all Laws commonly known as 421-a tax abatement laws and all Laws related to obtaining reductions or abatements of real estate taxes and/or real estate tax assessments (collectively, the “Tax Abatement Laws”) and the Borrower and/or the Property is/are not subject to any penalty, fine, assessment or adjustment of or repayment of Rents under any of the Tax Abatement Laws. Borrower hereby consents to the review by Lender of all New York State Division of Housing and Community Renewal (“DHCR”) registrations. Borrower further certifies and represents that any DHCR rent registration filings submitted to Lender are true and correct and not subject to overcharge claims. Borrower covenants and agrees to timely file for additional rent increases whenever allowed by applicable rent regulations and whenever commercially prudent.
(21) Property Agreements . No Person party to such Property Agreement (other than a management agreement) has given or received any notice of default under any of the Property Agreements that remains uncured or in dispute. No Property Agreement (other than a management agreement) has as a party an Affiliate of Borrower. All fees and other compensation for services previously performed under the management agreement have been paid in full.
Section 11.2 General Reporting Requirements.
Borrower agrees that Borrower will furnish:
(1) Litigation . Promptly after their commencement, notice of all actions, suits, and proceedings involving or affecting Borrower or the Property including those brought by, against or before any Governmental Authority or arbitrator.
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(2) Material Adverse Change . As soon as possible after the occurrence of any Material Adverse Change to Borrower, written notice of such material adverse change.
(3) Event of Default . Within five (5) days after the occurrence of any Event of Default, notice, and the nature, of such Event of Default.
(4) General Information . Promptly after request, such other information respecting the status of the business, assets, liabilities, results of operations, condition (financial or otherwise), of Borrower or the Property as Lender may reasonably request from time to time.
Section 11.3 Trust Fund; Lien Laws.
Borrower will receive the advances made hereunder and secured hereby and will hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the costs of improvements on the Land and will apply the same first to the payment of such costs before using any part of the total of the same for any other purpose and, in the event all or any part of the Land is located in the State of New York, will comply with Section 13 of the New York Lien Law. Borrower will indemnify and hold Lender harmless against any loss or liability, cost or expense, including any judgments, out of pocket attorney’s fees, costs of appeal bonds and printing costs, arising out of or relating to any proceeding instituted by any claimant alleging a violation by Borrower of any applicable lien law, including any section of Article 3-A of the New York Lien Law.
Section 11.4 Estoppel Certificate.
Within 10 days after a request from Lender, but not more than twice a year and at any time after an Event of Default, Borrower shall deliver to Lender a written statement, signed and acknowledged by Borrower, certifying to Lender or any person designated by Lender, as of the date of such statement, (i) that the Loan Documents are unmodified and in full force and effect (or, if there have been modifications, that the Loan Documents are in full force and effect as modified and setting forth such modifications); (ii) the unpaid principal balance of the Note; (iii) the date to which interest under the Note has been paid; (iv) that Borrower is not in default in paying the Secured Obligations or in performing or observing any of the covenants or agreements contained in this Mortgage or any of the other Loan Documents (or, if the Borrower is in default, describing such default in detail satisfactory to Lender); (v) whether or not there are then existing any setoffs or defenses known to Borrower against the enforcement of any right or remedy of Lender under the Loan Documents; and (vi) any additional facts reasonably requested by Lender (“Estoppel Certificate”).
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Article 12 - Events of Default
Section 12.1 Event of Default Definitions.
As used in this Mortgage the following terms have the following meanings:
“ Affiliated Manager ” means any managing agent in which Borrower, any Guarantor or any Indemnitor has, directly or indirectly, any legal, beneficial or economic interest.
“ Obligated Party ” means Borrower, each Guarantor and each Indemnitor, or any or all of the foregoing, all as the context may require.
“ Prohibited Transfer ” means (1) if a Restricted Party is a corporation, general partnership, limited partnership or limited liability company, any merger or consolidation involving such Party, (2) if a Restricted Party is a corporation, a Sale or Encumbrance of such corporation’s stock or of any profits or proceeds related to such stock or the creation or issuance of new stock, (3) if a Restricted Party is a general partnership, the change, removal, resignation or addition of a partner or the Sale or Encumbrance of any partnership interest of any partner or of any profits or proceeds relating to such partnership interest, or the creation of a new partnership interest, (4) if a Restricted Party is a limited partnership, the change, removal, resignation or addition of a general or limited partner or the Sale or Encumbrance of any general or limited partnership interest of any partner or of any profits or proceeds related to such general or limited partnership interest, or the creation of new general or limited partnership interest, (5) if a Restricted Party is a limited liability company, the change, removal, resignation or addition of a member or the Sale or Encumbrance of any membership interest of a member or of any profits or proceeds related to such membership interest, or the creation or issuance of a new membership interest, or the change, removal, resignation or addition of a managing member or non-member manager, (6) an installment sales contract with respect to all or any portion of the Property, (7) a lease of all or any portion of the Property with an option to buy, (8) a lease of all or any portion of the Property with a term in excess of three (3) years including renewal terms (other than (i) routine residential apartment leases and (ii), with respect to leases of parking or commercial spaces, stores or offices, if any, in the Real Estate, individual commercial, office, parking or store leases, provided all such leases are made in the Borrower’s ordinary course of business and upon then current market terms and rents, and comply with the provisions of the Section 5.1 and Section 5.2 herein, (9) any change in the interests of the Principals of the Borrower as shareholders, partners, members and/or otherwise, including any change in the ownership of any entities which own (either directly or indirectly and/or through one or more sub-entities) any interest in the Borrower, (10) any change in the management of the Property in place at the closing of the Loan, (11) any pledge or mortgaging of, or placing any encumbrance upon, any interest, direct or indirect, in the Borrower, (12) any attempt to convert the Property, or any portion thereof, to a condominium or cooperative form of ownership, and (13) any financing by a Restricted Party in which bonds, debentures or similar instruments are offered for sale to investors, whether privately or publicly, including any sale or offering thereof through a domestic or foreign marketplace and either (a) the underlying asset(s) or credit(s) supporting or serving, as the basis (directly or indirectly) of such financing is/are comprised of, in whole or in part, the Property or any part thereof or (b) where as part of the underlying asset(s) or credit(s) supporting or serving, in whole or in part, as the basis (directly or indirectly) of such financing, the Property has been or will be pooled, grouped with or considered in conjunction with any other property(ies).”
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“Restricted Parties” means: (a) Borrower, (b) each Guarantor, (c) each Indemnitor, (d) each Affiliated Manager, (e) each shareholder, partner, member or other principal or member- or non-member manager of any of the foregoing, (f) each direct, indirect, legal or beneficial owner of any of the foregoing (through one or more sub-entities or one or more owning entities) and each shareholder, partner, member or other principal or member- or non-member manager of any such direct, indirect, legal or beneficial owner.
Section 12.2 Events of Default.
Each of the following events is an “Event of Default”:
(1) | The occurrence of any of the following: |
(a) any failure to pay or deposit when due, beyond any applicable notice and grace period, any amount required by the Note, this Mortgage or any other Loan Document;
(b) any failure to maintain the insurance coverage required by Article 6 (Insurance);
(c) any failure to comply with the provisions of Article 9 (Single Purpose Entity);
(d) fraud or material misrepresentation or material omission by Borrower, or any of Principals of the Borrower, or any Guarantor or Indemnitor in connection with (A) the application for or creation of the Indebtedness, (B) any financial statement, rent roll, or other report or information provided to Lender during the term of this Mortgage or (C) any request for Lender’s consent to any proposed action, including a request for disbursement of funds under any Loan Document;
(e) a Prohibited Transfer or a Sale or Encumbrance of all or any of the Property, of any interest in the Property or of any interest (direct or indirect) in the Borrower or any Restricted Party;
(f) any exercise by the holder (including Lender) of any other debt instrument secured by a mortgage, deed of trust or deed to secure debt on the Property (whether or not same constitutes a Permitted Encumbrance and regardless of whether same is junior, equal or superior in Lien to the Lien of this Mortgage) of a right to declare all amounts due under that debt instrument immediately due and payable;
(g) any failure by Borrower to comply with the requirements of Article 10 (Books and Records and Reporting Requirements);
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(h) any Obligated Party is the subject of or becomes subject to a Bankruptcy Event, or all or any part of the Property is the subject of or becomes subject to a Bankruptcy Event;
(i) if at any time and for any reason the Lien of this Mortgage ceases to be a valid and perfected first priority Lien in, to, on and against the Property;
(j) if at any time and for any reason any Guaranty, Indemnity Agreement or other Loan Document ceases to be in full force and effect, or is declared null and void; or the validity or enforceability of such Guaranty, Indemnity Agreement or other Loan Document is contested by the applicable Guarantor, Indemnitor or other obligor; or any Guarantor, Indemnitor or other obligor denies it has any further liability or obligation under its Guaranty, Indemnity or other Loan Document; or any Guarantor, Indemnitor or other obligor fails to perform any of its obligations under its Guaranty, Indemnity or other Loan Document;
(k) any representation or warranty made by any Obligated Party in any Loan Document or which is contained in any certificate, document, opinion, financial or other statement furnished at any time under, as required by or in connection with any Loan Document, was incorrect in any material respect on or as of the date made;
(1) any change in the management of the Property currently in effect as of the date hereof without the prior written consent of Lender;
(m) intentionally omitted;
(n) any failure by Borrower to perform or abide by any of obligations or covenants as and when required under any Loan Document other than this Mortgage, or to suffer or permit any omission of any of such obligations or covenants under any Loan Document other than this Mortgage or to suffer, permit or engage in any breach of any warranty, representation or covenant made in any Loan Document other that this Mortgage, which continues beyond the applicable cure period, if any, specified in that Loan Document;
(o) any failure by Borrower to comply with any of the terms, covenants and/or conditions of any other Article contained in this Mortgage.
(2) Subordination Agreements . At any time and for any reason any subordination agreement ceases to be in full force and effect or is declared null and void, or the validity or enforceability thereof or of any part thereof is contested by any Person or any Person fails to perform its obligations thereunder;
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(3) Loss of Use of Property . If for any reason Borrower is unable to use all or any material part of the Property for the purposes intended as of the date of this Mortgage, including as a result of (a) failure to obtain or comply with any Permit required for the ownership or operation of the Property, (b) any change in any zoning Law, (c) the enactment, adoption or implementation of any Law, (d) a Casualty, if the related Casualty Insurance Proceeds are not used in accordance with the terms of this Mortgage to pay for the cost of the applicable Restoration, or (e) a Condemnation, if the related Condemnation Award is not used in accordance with the terms of this Mortgage to pay for the cost of the applicable Replacement, or (f) issuance of an order by any Governmental Authority;
(4) Dissolution or Death . In the case of an Obligated Party that is not an individual, any dissolution, termination, partial or complete liquidation, merger or consolidation of any Obligated Party, or, in the case of a Obligated Party that is an individual, the death or incapacity of such Obligated Party, unless said individual is replaced by a substitute individual satisfactory to the Lender, in its reasonable discretion;
(5) Prohibition on Payment of Taxes . If it shall be illegal for Borrower to pay any tax referred to in “Taxes on Lender” (Section 4.8) or if the payment of such tax by Borrower would result in the violation of applicable usury Laws;
(6) Property Agreements . Other than termination on its regularly scheduled termination date, at any time and for any reason any Property Agreement ceases to be in full force and effect or is declared null and void, or the validity or enforceability thereof is contested by any party thereto, or any party thereto denies it has any further liabilities or obligations under such Agreement, or any party to such Agreement fails to perform any of its obligations under such Agreement, unless a substitute property agreement is entered into by Borrower with another reputable party containing commercially reasonable terms and subject to Lender’s reasonable approval.
Article 13 - Remedies and Foreclosure
Section 13.1 Remedies.
If an Event of Default occurs, Lender may, at its option, but without obligation, exercise one or more or all of the following remedies:
(1) Performance by Lender . Lender may perform, or cause the performance of (but shall not have the obligation to perform), any agreement Borrower fails to perform under this Mortgage or any other Loan Document, including a failure to pay Real Property Taxes or insurance premiums for any Required Insurance.
(2) Acceleration . Lender may declare the unpaid portion of the Secured Obligations to be immediately due and payable, without any presentment, demand, protest, notice or action of any kind (each of which hereby is expressly waived by Borrower), whereupon the Secured Obligations shall become immediately due and payable.
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(3) Revocation of License to Collect Rents . Upon an Event of Default, Lender may revoke the License to Collect Rents. Upon such revocation Lender may collect and apply the Rents pursuant to the terms of this Mortgage without notice and without taking possession of the Property. All Rents collected by Borrower after the revocation of the License to Collect Rents shall be held by Borrower as trustee under a constructive trust for the benefit of Lender, shall be segregated from the other property or funds of Borrower and shall be immediately delivered to Lender.
(4) Exercise Rights of Borrower . Lender may exercise all rights, powers and privileges of Borrower with respect to the Property, whether in the name of Borrower or otherwise, including:
(a) Possession and Operation of the Property . Taking possession, custody and control of the Property and using, managing and operating the Property,
(b) Deliveries by Borrower to Lender . Requiring Borrower to deliver to Lender all keys, security deposits, operating accounts, prepaid Rents, past due Rents, the Books and Records and all original counterparts of the Leases and the Property Agreements,
(c) Collect Rents . All acts permitted under Article 5 including collecting, suing for and giving receipts for the Rents; in furtherance of such right Lender may make demand on each Tenant for the payment to Lender of all rents due and to become due under its Lease, and Borrower for the benefit of Lender and each such Tenant hereby covenants and agrees that the Tenant shall be under no duty to question the accuracy of Lender’s statement of default and shall unequivocally be authorized to pay said Rents to Lender without regard to the truth of Lender’s statement of default and notwithstanding notices from Borrower disputing the existence of an Event of Default such that the payment of Rent by the Tenant to Lender pursuant to such a demand shall constitute performance in full of the Tenant’s obligation under the lease for the payment of Rents by the Tenant to Borrower, and Borrower and each Tenant agrees that the exercise by the Lender of any rights under this subsection “( c)” shall not (i) render the Lender a mortgagee-in-possession, (ii) obligate the Lender to perform any duty or obligation under any Lease or (iii) obligate the Lender to take any action with respect to the Property including the care or maintenance thereof,
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(d) Leases . Taking any action with respect to Leases including entering into, modifying, extending, enforcing, terminating, renewing or accepting surrender of Leases and evicting tenants,
(e) Property Agreements . Taking any action with respect to any Property Agreement including entering into, modifying, extending, enforcing, terminating or renewing any Property Agreement,
(f) Proceedings . Bringing any proceeding in connection with the Property or taking any action with respect to such proceeding including appearing in and defending any such proceeding and instituting or continuing any such proceeding to protect the Property as well as Borrower’s or Lender’s respective interests in the Property,
(g) Insurance . Maintaining insurance on the Property,
(h) Construction/Alterations . Completing any construction on the Property in such manner and form as Lender deems advisable and/or making alterations, additions, renewals, replacements and improvements to, or on, the Property, as Lender deems advisable,
(i) Application of Receipts . After deducting all expenses incurred in connection with the Property, applying the receipts from the Property to the payment of the Secured Obligations, and
(j) Operation of Property . Operating or managing the Property (through Lender or any Person designated by Lender), without any liability to Borrower in connection with such operations, except to use ordinary care, and Borrower shall repay to Lender all costs, expenses and liabilities incurred by Lender in managing, operating, maintaining, protecting, constructing or preserving the Property.
(5) Foreclosure Proceedings . Lender may institute proceedings, judicial or otherwise, for the complete or partial foreclosure of this Mortgage and sale of all or any portion of the Property at public auction, the power of sale being hereby specifically granted. Such rights shall include Lender’s right (and Borrower hereby expressly grants to Lender such right) to sell the Property through Power of Sale, as and to the extent such remedy is available to Lender.
With respect to such Power of Sale, if the Property is located in the State of New York: (a) Borrower hereby expressly grants to Lender the power to sell the Property pursuant to Article 14 of the Real Property Actions and Proceedings Law of the State of New York or any Law or similar Law permitting non-judicial sale (“ Article 14 ”); (b) as used in this Mortgage, the term or terms “foreclosure”, “action to foreclose”, “proceeding to foreclose”, “action to collect the mortgage debt” and any similar term or terms used herein shall be deemed to expressly include and refer to Lender’s power to sell the Property pursuant to Article 14; and (c) Borrower waives (to the extent permitted by Law) any right granted pursuant to Section 1421 of the Real Property Actions and Proceedings Law of New York or any similar Law, to challenge Lender’s election to enforce this Mortgage by means of such non-judicial foreclosure by Power of Sale.
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(6) Specific Performance . Lender may seek specific performance of any covenant, condition or agreement in this Mortgage or any other Loan Document (without being required to foreclose this Mortgage), or in aid of the execution of any power granted in any Loan Document, or for any foreclosure this Mortgage, or for the enforcement of any other appropriate legal or equitable remedy or otherwise as Lender elects.
(7) Sale of Property . Lender may sell for cash or upon credit all or any part of the Property and all estate, claim, demand, right, title and interest of Borrower therein and rights of redemption thereof pursuant to Power of Sale or otherwise, at one or more sales, in one or more parcels, at such time and place, upon such terms and after such notice thereof as may be required or permitted by applicable Law.
(8) Judgment . Lender may recover judgment on the Note either before, during or after any proceedings for the enforcement of this Mortgage or the other Loan Documents.
(9) Receiver or Possession .
(a) Lender shall be entitled, as a matter of strict right, without notice to any Person and ex parte, and without regard to the value, condition or occupancy of the security or of the Property, or the solvency of Borrower or of any Guarantor or Indemnitor, or the adequacy of the Property as security for the Note, to have a receiver appointed to enter upon and take possession of the Property, collect the Rents and apply the same in accordance with the terms of this Mortgage, such receiver to have all the rights and powers permitted under the Laws of the jurisdiction in which the Property is located. Borrower hereby waives any requirements on the receiver or Lender to post any surety or other bond. Lender or the receiver may also take possession of, and for these purposes use, any and all Personal Property which is a part of the Property and used by Borrower in the rental or leasing of all or any part of the Property. Borrower is liable for repayment of all of the expenses of any such receiver (including, without limitation, the receiver’s fees, counsel fees, costs and agent’s compensation) incurred pursuant to the powers herein contained. Lender shall apply such Rents received by it in accordance with the terms of this Mortgage. The right to enter and take possession of the Property, to manage and operate the same, and to collect the Rents, whether by 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. Lender shall be liable to account only for such Rents actually received by Lender.
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(b) Immediately upon appointment of a receiver or immediately upon the Lender’s entering upon and taking possession and control of the Property, Borrower shall surrender possession of the Property to Lender or the receiver, as the case may be, and shall deliver to Lender or the receiver, as the case may be, all Books and Records, Tenant Security and prepaid Rents and any Rents subsequently received. In the event Lender or a receiver takes possession and control of the Property, Lender or such receiver may exclude Borrower and its representatives from the Property. Borrower acknowledges and agrees that the exercise by Lender of any of the rights conferred under this Article shall not be construed to make Lender a mortgagee-in-possession of all or any portion of the Property so long as Lender has not itself entered into actual possession of the Real Estate.
(c) If Lender enters the Property, Lender shall be liable to account only to Borrower and only for those Rents actually received. Lender shall not be liable to Borrower, anyone claiming under or through Borrower or anyone having an interest in the Property, by reason of any act or omission of Lender under this Section, and Borrower hereby releases and discharges Lender from any such liability to the fullest extent permitted by law.
(d) Any entering upon and taking of control of the Property by Lender or the receiver, as the case may be, and any application of Rents as provided in this Instrument shall not cure or waive any Event of Default or invalidate any other right or remedy of Lender under applicable law or provided for in this Instrument.
(10) Remedies Under the UCC . With respect to each item of Property in which a security interest is granted pursuant to, and such security interest is perfected under, the applicable Uniform Commercial Code (“UCC Collateral”), Lender may exercise in respect of any or all of the UCC Collateral all rights, remedies and powers provided for in this Mortgage, by Law, in equity or otherwise available to it, including all the rights and remedies of a secured party under the applicable Uniform Commercial Code.
(11) Insurance Policies . Lender may surrender the insurance policies maintained pursuant to “Insurance” (Article 6) and collect the unearned insurance premiums on any and all such policies.
(12) Application of Reserves . Lender may apply the undisbursed balance of any funds in any Reserve to the payment of the Secured Obligations.
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(13) Blocking Accounts . Lender may prohibit Borrower and anyone claiming for or through Borrower from making use of, or withdrawing any sums from, any lockbox, escrow or similar account.
(14) Right of Setoff . Borrower agrees that, in addition to, and without limiting, any right of setoff, banker’s lien or counterclaim Lender may otherwise have, and notwithstanding the existence of and without regard to any exculpation language or other similar language, if any, in the Note or Loan Documents limiting recourse against the Borrower and/or any other Person, (a) Lender shall be entitled, at its option, to offset balances (including general or special, time or demand, provisional or final) held by it for the account of Borrower (or any Borrower, if more than one Person comprises the Borrower), at any of the offices of Lender, in U.S. Dollars or any other currency, against any amount due and payable by Borrower to Lender under this Instrument or any other Loan Document which is not paid when due and (b) the exercise of any such right of setoff shall not constitute an election of remedies which would preclude the exercise of any other rights or remedies available to Borrower.
(15) Causes of Action . Lender may exercise all rights and remedies under any Causes of Action, whether before or after any sale of the Property by foreclosure, Power of Sale or otherwise, and apply the proceeds of any recovery to the Secured Obligations.
(16) Other Remedies . Lender may pursue such other remedies as Lender may have under Law or otherwise.
Section 13.2 Lender as Purchaser.
Lender has the right to become the purchaser at any sale held by Lender or by any court, receiver, public officer or other Person, and Lender has the right to credit, upon the amount of the bid made therefor, the amount of Secured Obligations payable to it out of the net proceeds of such sale. Upon any such purchase, Lender shall acquire good title to the Property so purchased, free from the Lien of this Mortgage and free of all rights of redemption, if any, in Borrower.
Section 13.3 Effect of Sale.
Any sale or sales of the Property, whether under the Power of Sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim, and demand whatsoever either at law or in equity, of Borrower of, in, and to the Property and the property sold, and shall be a perpetual bar, both at law and in equity, against Borrower, Borrower’s successors, and against any and all persons claiming or who shall thereafter claim all or any of the Property sold from, through or under Borrower, or Borrower’s successors or assigns. Upon the completion of any sale or sales made by Lender under or by virtue of this Article, Lender, or an officer of any court empowered to do so, shall execute and deliver to the accepted purchaser or purchasers a good and sufficient interest in and to the property and rights sold. Lender is hereby appointed the true and lawful irrevocable attorney of Borrower, in its name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the Property and rights so sold and for that purpose Lender may execute all necessary instruments of conveyance, assignment and transfer, and may substitute one or more Persons with like power, Borrower hereby ratifying and confirming all that its said attorney or such substitute or substitutes shall lawfully do by virtue hereof Nevertheless, Borrower, if requested by Lender so to do, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold.
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Section 13.4 Separate Sales.
Any Property sold pursuant to any judgment or writ of execution issued on a judgment obtained by virtue of this Mortgage or any other Loan Document, or pursuant to any other judicial proceedings under this Mortgage, or pursuant to the Power of Sale granted in this Mortgage, may be sold in one parcel, as an entirety or in such parcels, and in such manner or order as Lender, in its sole discretion, may elect.
Section 13.5 Remedies Cumulative and Not Concurrent.
The rights and remedies of Lender as provided in this Mortgage and in the other Loan Documents shall be cumulative and concurrent and may be pursued concurrently, separately or successively against Borrower or any Guarantor or against other obligors, any Guarantor, any Indemnitor or against the Property, or any one or more of them, at the sole discretion of Lender, and may be exercised as often as occasion therefore shall arise and in any order. Notwithstanding the existence of any other security interests in the Property held by Lender or by any other party, Lender shall have the right to determine, in its sole discretion, the order in which any or all of the Property shall be subjected to the remedies provided in this Mortgage, the Note, any other Loan Document or applicable Law. Lender shall have the right to determine, in its sole discretion, the order in which any or all portions of the Secured Obligations are satisfied from the proceeds realized upon the exercise of such remedies. Lender shall not, by any act, delay, forbearance, stay, omission or otherwise, be deemed to have waived any of its rights or remedies under this Mortgage, any Loan Document or any Law. A waiver by Lender of any right or remedy under this Mortgage, any Loan Document or any Law on any one occasion, shall not (a) be construed as a bar or waiver to the exercise of any such right or remedy Lender at any time in the future, (b) preclude the exercise of such right or remedy at a later date or (c) preclude the exercise of any of any other right or remedy available to Lender under this Mortgage, any Loan Document or Law; nor shall Lender be liable for exercising or failing to exercise any such right or remedy. Lender’s acceptance of payment of all or any part of the Secured Obligations after the due date of such payment, or in an amount which is less than the required payment, shall not (x) be a waiver of Lender’s right to require timely payment of all amounts due under this Mortgage, the Note or any other Loan Document, (y) preclude any right of Lender to insist upon and require full payment at a later date or (z) preclude Lender’s exercise of any remedies available to Lender. Enforcement by Lender of any (i) security for the Secured Obligations, (ii) any Guaranty or (iii) any other remedy(ies) available to Lender under any Loan Document, shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right(s) available to Lender. Any failure by Lender to insist upon strict performance by Borrower, any Guarantor or any Indemnitor of any of the terms and provisions of this Mortgage or any other Loan Document, shall not be deemed to be a waiver of any of the terms or provisions of this Mortgage or such other Loan Document and Lender shall have the right thereafter to insist upon strict performance of any and all of them. Lender’s receipt of any of Casualty Insurance Proceeds or Condemnation Proceeds or Condemnation Award(s) shall not operate to cure or waive any Event of Default.
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Section 13.6 No Cure or Waiver.
Neither Lender’s nor any receiver’s entry upon and taking possession of all or any part of the Property nor any collection of Rents, Insurance Proceeds, Condemnation Proceeds or damages, other security or proceeds of other security, or other sums, nor the application of any collected sum to any Secured Obligations, nor the exercise of any other right or remedy by Lender or any receiver shall impair the status of the security, or cure or waive any Event of Default or nullify the effect of any notice of any Event of Default or sale (unless all Secured Obligations and obligations which are then due have been paid and performed and Borrower has cured all other Defaults), or prejudice Lender in the exercise of any right or remedy, or be construed as an affirmation by Lender of any tenancy, Lease or option or a subordination of the Lien of this Mortgage.
Section 13.7 Proceeds.
If any of the Property is sold by Lender upon credit or for future delivery, Lender shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, Lender may resell such Property. In no event shall Borrower be credited with any part of the proceeds of sale of any Property until and to the extent cash payment in respect thereof has actually been received by Lender. To the extent any of the Secured Obligations are contingent, cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon all or any part of the Property may, in the discretion of Lender, be held by Lender as collateral for such contingent Secured Obligations. Any cash held by Lender as collateral and all cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon all or any part of the Property may, in the discretion of Lender, be applied, first, to pay all costs and expenses incurred by Lender in connection with or incident to the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any and all of the Property, second, to pay all reasonable attorney’s fees and legal expenses incurred by Lender in connection with or incident to the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any and all of the Property, third, to pay all matured and unpaid Secured Obligations, in whole or in part by Lender against, all or any part of the Secured Obligations in such order as Lender shall elect, fourth, if and to the extent any of the Secured Obligations are unmatured or contingent, to provide cash collateral for all such Secured Obligations, and fifth, in accordance with applicable Law. If the proceeds of the sale of the Property or other collateral, if any, for the Loan are insufficient to pay all of the Secured Obligations, Borrower agrees to pay upon demand any deficiency to Lender, except to the extent, if any, that Borrower’s obligation to make payment therefor may be limited under the terms of the Note.
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Section 13.8 Waivers.
To the extent permitted by Law, Borrower waives: (1) the right to assert a counterclaim, other than a mandatory counterclaim, in any action or proceeding in which Lender is a party, (2) the benefit of all Laws now or hereafter in force regarding appraisement, valuation, stay, extension, reinstatement and redemption, (3) all rights of marshalling of assets in the event of any sale hereunder of the Property or any part thereof or any interest therein, (4) any and all rights of redemption from sale under any order or decree of foreclosure of this Mortgage on behalf of Lender, and on behalf of each and every Person acquiring any interest in or title to the Property subsequent to the date of this Mortgage and on behalf of all Persons, (5) any notices of any nature whatsoever from Lender except with respect to matters for which this Mortgage and/or the Loan Documents specifically and expressly provides for the giving of notice by Lender to Borrower and except with respect to matters for which Lender is required by applicable Law to give notice, (6) the pleading, assertion or the defense of any statute of limitations as a defense to payment of the Secured Obligations or performance of any other obligations under any Loan Document, (7) any defense Borrower might assert or have by reason of Lender’s failure to make any Tenant a party defendant in any foreclosure proceeding or action in which Lender is a party and (8) any claim or right to require that any of the Property be sold in the inverse order of alienation or that any of the Property be sold in parcels or as an entirety.
Section 13.9 Borrower’s Use and Occupancy after Default.
During the continuance of any Event of Default and pending the exercise by Lender of its right to exclude Borrower from all or any part of the Property, Borrower agrees to pay then current market rents for the use and occupancy of the Property or any portion thereof which are in its or any of its Affiliates’ possession for such period and, upon default of any such payment, will vacate and surrender possession of the Property to Lender or to a receiver, if any, and in default thereof may be evicted by any summary action or proceeding for the recovery of possession of Property for non-payment of rent, however designated.
Section 13.10 Transfer Taxes.
Any provisions in this Agreement to the contrary notwithstanding, Borrower hereby agrees to pay any and all State and local real property and other transfer taxes payable in connection with a sale or other conveyance of the Property arising or resulting from Lender’s exercise of any right or remedy available to it. Borrower hereby irrevocably appoints Lender its true and lawful attorney to act in Borrower’s name and stead in completing any and all returns, questionnaires, notices of sale or other documents which may be required in connection with any such transfer or the payment of any such transfer tax or other tax.
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Section 13.11 Late Charge.
If any monthly payment due hereunder or under the Note (other than the final payment due upon the Maturity Date) is not received by Lender on or before the 15th day of each month or if any other amount payable under the Note, this Mortgage any other Loan Document is not received by Lender within 14 days after the date such amount is due, the Borrower shall pay to Lender, immediately and without demand by Lender, a late charge equal to five percent (5.00%) of such monthly installment or other amount due, however, (i) in the event of acceleration of payment of the entire principal balance and accrued interest, or (ii) after the Maturity Date, no additional late charge will be assessed provided, further, that those late charges which had previously been assessed shall continue to be due and payable. Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charge payable pursuant to this Section represents a fair and reasonable estimate of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate.
Section 13.12 Default Rate.
At the option of Lender in its sole discretion, interest due and payable hereunder and on the Loan shall convert to, accrue at and be charged at the Default Rate upon the occurrence of any of the following:
(a) failure to pay any monthly installment due under the Note on or before the 15th day of the month in which it is due;
(b) any other Event of Default which continues beyond any applicable notice and cure period;
(c) failure to pay the unpaid principal balance, all accrued interest and all other charges due under the Note, this Mortgage and any other Loan Document on the Maturity Date; or
(d) the acceleration of the Secured Obligations.
Article 14 - Transfer of Loan
Section 14.1 Transfer of Loan.
Lender may, at any time, sell, transfer or assign the Mortgage, Loan and/or Loan Documents, or grant participations therein (“Participations”) or issue mortgage pass-through- certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (“Securities”).
Section 14.2 Sale or Delegation of Servicing.
Lender may, at any time, transfer any and all of the servicing rights with respect to the Loan, or delegate any or all of its responsibilities as Lender under the Loan Documents.
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Section 14.3 Dissemination of Information.
Lender may forward to any prospective purchaser, transferee, assignee, servicer of, participant in or investor in the Loan, any Participations and/or Securities or any of their respective successors (collectively, “Investors”) or to any rating agency rating the Loan, any Participations and/or Securities, or to any organization maintaining databases on the underwriting and performance of loans, all documents and information (including the Loan Documents) which Lender now has or may hereafter acquire relating to the Secured Obligations and to Borrower, any Guarantor, any Indemnitor and the Property, including financial statements whether furnished by Borrower, any Guarantor, any Indemnitor or otherwise, as Lender determines necessary or desirable. Borrower irrevocably waives any and all rights it may have under applicable Law to prohibit such disclosure, including any right of privacy.
Section 14.4 Cooperation/Disclosure of Information.
Borrower, each Guarantor and each Indemnitor agree to cooperate with Lender in connection with any transfer made or any Participation and/or Securities created pursuant to this Article, including the delivery of an Estoppel Certificate and such other documents as may be reasonably requested by Lender. Borrower shall execute, acknowledge, and deliver, at its sole cost and expense, all further acts, deeds, conveyances, assignments, estoppel certificates, financing statements, transfers and assurances as Lender may reasonably require from time to time in order to better assure, grant, and convey to Lender the rights intended to be granted, now or in the future, to Lender under this Mortgage and any other Loan Document.
Article 15 - Miscellaneous
Section 15.1 Borrower Remains Liable.
In all events, including the exercise by Lender of any rights or remedies under this Mortgage, Borrower remains liable to perform all of its duties and obligations under the Property Agreements to the same extent as if this Mortgage had not been executed. Lender shall not have any obligation or liability under any Property Agreements by reason of this Mortgage, nor shall Lender be obligated to perform any of the obligations or duties of Borrower under, or to take any action to collect or enforce any claim or rights under, any Property Agreements. The powers conferred on Lender under this Mortgage are solely to protect its interest in the Property and such other interests as the Lender shall elect in its sole discretion to protect, and shall not impose any duty upon it to exercise any such powers.
Section 15.2 Appointment of Lender Attorney-in-Fact.
Borrower hereby irrevocably appoints Lender attorney-in-fact, with full authority in the place and stead of Borrower and in the name of Borrower, Lender or otherwise (1) to take any and all action and exercise all rights and remedies granted to Lender under this Mortgage, and (2) to execute any instrument which Lender may deem necessary or advisable to accomplish the purpose(s) of this Mortgage. Borrower hereby ratifies and approves all acts of Lender as its attorney-in-fact pursuant to this Section, and Lender, as its attorney-in-fact, will not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law, other than those which result from Lender’s gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Mortgage remains in effect.
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Section 15.3 Indemnity/Expenses; Fees and Charges; Protective Advances.
Borrower agrees to indemnify Lender and each of its directors, officers, employees, agents and affiliates from and against any and all claims, losses and liabilities growing out of or resulting from this Mortgage or the transactions contemplated by this Mortgage (including enforcement of any right or remedy under this Mortgage or any Loan Document). Borrower shall pay to Lender, whether or not demand be made, the following amounts:
A. Any and all costs and expenses, including the fees and out of pocket expenses and disbursements of Lender’s counsel and of any experts and agents, which Lender may incur in connection with any aspect of this Mortgage or any Loan Document including (1) any amendment to this Mortgage, (2) intentionally omitted, (3) out-of- pocket filing or recording fees or taxes incurred with respect to or in connection with this Mortgage, (4) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Property, (5) the exercise or enforcement of any of the right or remedy of Lender under this Mortgage or any other Loan Document or (6) the failure by Borrower to perform or observe any of the provisions of this Mortgage;
B. The charge(s), including the fees and charges of Lender’s attorneys and their out of pocket expenses which the Lender may, at its option, impose and/or incur for (a) the processing on its records of any change of ownership or substitution of bondsman or (b) any letter advice as to the amount of principal and interest owing on this Mortgage, (c) any inspection(s) of the Property, including any inspection(s) of the Property permitted hereunder or required in connection with any escrow(s) that may be held by the Lender including those held in connection with payment of Casualty Insurance Proceeds or Condemnation Proceeds or Condemnation Award(s) or (d) any and all other matters, documents, inquiries or agreements relating to, in connection with or arising as a result of this Mortgage, any Loan Document or the Property, including any modification, extension, advance, additional loan, lease, consent (including any consents to a lease, replacement lease, lease modification, subordination and non-disturbance agreement, change in tenant(s), subletting and/or assignment of any lease), subordination, waiver, easement, loan review, loan restructuring, special agreement, reduction certificate, estoppel, assignment, satisfaction and discharge and any matters relating to insurance, the Escrow Fund, completion of construction, repairs, Restoration and Replacement;
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C. All attorney’s fees, costs, expenses and disbursements paid or incurred by Lender in connection with any action or proceeding which is threatened or commenced and which relates to, is connected with or concerns the Mortgage, the Lien hereof, the Note, any other Loan Document, the Loan, any Obligated Party or the Property, whether or not suit be brought, whether or not the holder hereof is or is made a party to such action or proceeding, whether or not incurred prior to the commencement of, during or after the completion of any such action or proceeding and whether occurring pre- or post- judgment (including an action to foreclose this Mortgage, an action to collect any part of the Secured Obligations, an action on any Guaranty or Indemnity, any post-judgment collection efforts, any receivership, any proceeding relating to any Insolvency Laws or Bankruptcy Event (whether voluntary or involuntary), any actions or efforts for relief from any stays, any reorganization, any motions, any administrative action or proceeding, any appellate proceeding or motion and any action or proceeding in probate, law, equity or otherwise); and
D. All costs and expenses in connection with or concerning this Mortgage, the Lien hereof, the Note, any other Loan Document, the Loan, any Obligated Party or the Property, and the preparation, execution, and delivery of the Mortgage and all Loan Documents including the fees and out of pocket disbursements of counsel appointed by Lender and incurred or paid by Lender, surveys, appraisals, premiums for policies of title and other insurance.
E. Interest as hereinabove provided shall accrue on such fees, costs, expenses and disbursements from the earlier to occur of (a) the date such fees, costs, expenses or disbursements are incurred or (b) the date such fees, costs, expenses or disbursements are paid.
F. If Borrower shall fail to perform any of the covenants contained in this Mortgage, Lender may make advances to perform the same on its behalf. The provisions of this Section shall not prevent any default in the observance of any covenant contained herein from constituting an Event of Default.
G. Any reference to attorneys’ or counsels’ fees paid or incurred by Lender shall be deemed to and shall include the fees, costs and disbursements of paralegals and legal assistants.
H. All advances and payments made and/or fees, costs, expenses, disbursements, payments, liabilities, bills, claims and charges paid or incurred and/or any indemnity payment or other payment due, owing or collectible under or pursuant to this Mortgage or any other Loan Document shall be deemed to be and are a Lien upon the Property and shall be deemed to be and are secured by this Mortgage, including those: (a) to preserve or protect the Property; (b) for labor and materials incurred in connection with the Property; (c) in operating, using, managing, inspecting, maintaining, repairing or constructing, or the custody of, the Property including Restoration and Replacement; (d) of Lender’s counsel, experts and agents and any receiver or custodian; (e) in payment of any taxes and fees including mortgage recording tax and recording fees; (f) in the sale of, collection from, or other realization upon, any of the Property or the proceeds thereof; (g) in the exercise or enforcement of any of the right or remedy of Lender; (h) incurred in connection with the failure by Borrower to perform or observe any of the provisions of this Mortgage or any Loan Document; (i) incurred in servicing the Loan and this Mortgage or any aspect hereof; (j) of any accountant(s) in auditing or reviewing any Books and Records; or (k) specified in any provision of this Mortgage or any Loan Document (collectively, “Advances and Expenses”). All Advances and Expenses shall constitute a demand obligation owing by Borrower to Lender and Borrower shall repay to Lender all Advances and Expenses whether or not demand be made. All Advance and Expenses shall bear interest from the earlier to occur of the date of expenditure or the date of incurrence until paid at the rate(s) specified in the Note (including at the Default Rate from the date of effectiveness of the Default Rate) and shall be collectible by Lender in any action or upon the exercise by Lender of any right or remedy including any action to foreclose this Mortgage and shall be deemed to be and are secured hereby.
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Section 15.4 Amendments.
No amendment or waiver of any provision of this Mortgage, nor consent to any departure by Borrower from this Mortgage, shall in any event be effective unless the same shall be in writing and signed by Lender and Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
Section 15.5 Notices.
All notices and other communications provided for under this Mortgage shall be in writing via (a) personal delivery, (b) U.S. mail (via first class mail, postage prepaid), or (c) a reputable overnight delivery service (nationally recognized within the United States of America) which maintains a record of its deliveries and with arrangements for the payment of delivery charges by the party sending notice and addressed, in the case of notice given pursuant “(a)”, “(b)” or “(c)”, above, if to Borrower, to its address set forth in the preamble of this Mortgage and, if to Lender, to its address specified in the preamble of this Mortgage, or, as to either such party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section.
Notice shall be deemed to have been given (a), if made by personal delivery, on the date of such delivery, (b), if made by such overnight delivery service, on the first business day following the day on which such notice was given to such overnight delivery service for delivery in accordance with the preceding paragraph and (c), if made via U.S. mail, on the fourth business day following the deposit of such notice with the U.S. postal service in accordance with the preceding paragraph.
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Section 15.6 Transfer of Secured Obligation.
This Mortgage shall be binding upon Borrower and its heirs, executors, administrators, successors, transferees and assigns, with like effect as if such heirs, executors, administrators, successors and assigns were named herein. This Mortgage shall inure to the benefit of Lender and its successors, transferees and assigns. Borrower may not transfer or assign its obligations under this Mortgage. Lender may assign or otherwise transfer all or a portion of its rights or obligations hereunder or with respect to the Secured Obligations to any other party, and such other party shall then become vested with all the benefits in respect of such transferred Secured Obligations and the Lien granted to Lender pursuant to this Mortgage or otherwise.
Section 15.7 Choice of Law.
This Mortgage, the Note, all other Loan Documents and any determination of deficiency judgments shall be governed, construed, applied and enforced in accordance with the laws of the state in which the Property is located and applicable laws of the United States of America.
Section 15.8 Submission to Jurisdiction.
Borrower hereby irrevocably submits to the jurisdiction of any federal or state court sitting in the County and State in which the Land is located (the “Property Jurisdiction”) over any action or proceeding arising out of or related to this Mortgage, the Note or any other Loan Document and Borrower agrees that personal jurisdiction over Borrower rests with such courts for purposes of any such action. Borrower agrees that any controversy arising under this Mortgage, the Note or any other Loan Document shall be litigated exclusively in the Property Jurisdiction. The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under this Mortgage, the Note or any other Loan Document. Borrower irrevocably consents to service, jurisdiction, and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise. Borrower hereby waives personal service by manual delivery and agrees that service of process may be made by prepaid certified mail directed to Borrower at the address of Borrower for notices under this Mortgage or at such other address as may be designated in writing by Borrower to Lender pursuant to the provisions of this Mortgage, and that upon mailing of such process such service will be effective as if Borrower was personally served. Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any manner provided by law. Borrower further waives any objection to venue in any such action or proceeding on the basis of inconvenient forum. Borrower agrees that any action, proceeding, claim, counterclaim, cross-claim, arbitration or the like brought against Lender or any of its officers, directors, employees, affiliates, subsidiaries, partners, successors, assigns, agents, brokers, attorneys or agents (any of the foregoing referred to as a “Defendant”) affecting Lender or the Property or arising out of the Mortgage or any other Loan Document, shall only be brought in the courts having jurisdiction within the Property Jurisdiction, unless Lender consents in writing otherwise.
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Section 15.9 Duplicate Originals, Counterparts.
This Mortgage may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Mortgage may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Mortgage. The failure of any party hereto to execute this Mortgage, or any counterpart hereof, shall not relieve the other signatories from the obligations hereunder.
Section 15.10 Miscellaneous.
This Mortgage is in addition to and not in limitation of any other rights and remedies Lender may have by virtue of any other instrument or agreement heretofore, contemporaneously herewith or hereafter executed by Borrower or by law or otherwise. If any provision of this Mortgage is contrary to applicable Law, such provision shall be deemed ineffective without invalidating the remaining provisions of this Mortgage. The headings in this Mortgage are for convenience of reference only, and shall not affect the interpretation or construction of this Mortgage.
Section 15.11 Severability.
In the event any one or more of the provisions contained herein or in the Note shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof but this Mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein, provided however, that if such provision held to be invalid, illegal or unenforceable relates to the payment of any sum under the Note or any other material monetary sum, then Lender may, at its option, declare the Secured Obligations and any other sums secured hereby to be immediately due and payable.
Section 15.12 Substitute Mortgages.
Borrower and Lender shall, upon their mutual agreement to do so, execute such documents as may be necessary in order to effectuate the modification hereof, including the execution of substitute mortgages, so as to create two (2) or more liens on the Property in such amounts as may be mutually agreed upon but in no event to exceed, in the aggregate, the Mortgage Amount. In such event, Borrower covenants and agrees to pay the reasonable fees and expenses of Lender and its counsel in connection with any such modification.
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Section 15.13 Satisfaction or Assignment of Mortgage.
Upon payment in full of the Secured Obligations and the performance of all obligations secured hereby in accordance with the terms and conditions of this Mortgage and the other Loan Documents, Lender shall deliver a satisfaction or release of this Mortgage or at Borrower’s option to be exercised in writing, an assignment hereof, in either case in proper form for recording. As a condition to any such satisfaction or assignment, Borrower covenants and agrees to pay Lender’s reasonable fees and expenses (including attorneys’ fees, Lender’s processing fee of up to $1,500.00 and all out of pocket expenses of the Lender) in connection therewith. Upon any such satisfaction or assignment, Lender shall, automatically and without the need for any further documentation, be absolutely and unconditionally released from any and all claims or liabilities in connection with the Loan. In addition, Borrower hereby indemnifies and agrees to hold Lender harmless from and against any and all claims and liabilities arising out of the satisfaction or assignment hereof, such indemnification to survive any such satisfaction or assignment.
Section 15.14 No Oral Modifications.
The terms and provisions of this Mortgage, the Note and all Loan Documents shall not be changed, modified, or discharged in whole or part except by an instrument in writing signed by the party against whom enforcement of such change, modification or discharge is sought or by its agent thereunto duly authorized in writing.
Section 15.15 Joint and Several.
If more than one Person signs this Mortgage, the obligations of such Persons shall be joint and several.
Section 15.16 No Representation by Lender.
By accepting or approving anything required to be observed, performed or fulfilled, or to be given to Lender, pursuant to this Mortgage or any other Loan Document, including any officer’s certificate, balance sheet, statement, survey or appraisal, Lender shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or representation with respect thereto by Lender.
Section 15.17 WAIVER OF JURY TRIAL.
MORTGAGOR AND MORTGAGEE EACH (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS MORTGAGE, THE NOTE OR ANY OTHER LOAN DOCUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS MORTGAGOR AND MORTGAGEE THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.
THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.
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IN WITNESS WHEREOF this Mortgage has been executed by Borrower as of the date first written above.
Date: May 11, 2016
BORROWER: | ||
141 Livingston Owner LLC | ||
By: | /s/ David Bistricer | |
Name: David Bistricer | ||
Title: President, Treasurer and Director |
State of New York | ) |
: ss.: | |
County of New York | ) |
On the 11th day of April, 2016, before me, the undersigned, personally appeared David Bistricer, 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/ Mark Faham | |
Notary Public |
MARK FAHAM | |
Notary Public, State of New York | |
No. 01FA6101480 | |
Qualified In Kings County | |
Commission Expires November 17, 2019 |
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SCHEDULE A
All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:
BEGINNING at the corner formed by the intersection of the northeasterly side of Livingston Street with the northwesterly side of Smith Street as widened;
RUNNING THENCE northeasterly along the northwesterly side of Smith Street as widened 75 feet 6-3/4 inches;
THENCE northwesterly parallel with Livingston Street 100 feet 3 inches to a point on a line drawn parallel with and distant 110 feet westerly from the original line of Smith Street measured at right angles thereto;
THENCE northeasterly parallel with the original line of Smith Street 50 feet;
THENCE northwesterly parallel with Livingston Street 37 feet 1 inch to land now or late of James Engel;
THENCE southwesterly in a straight line 125 feet to a point on the northeasterly side of Livingston Street distant 147 feet 6 inches northwesterly from the point or place of beginning as measured along the northeasterly side of Livingston Street;
THENCE southeasterly along the northeasterly side of Livingston Street 147 feet 6 inches to the corner, the point or place of BEGINNING.
NOTE: Being District, Section, Block(s) 154, Lot(s) 28, Tax Map of the Borough of Brooklyn, County of Kings.
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Borrower: | 141 Livingston Owner LLC | |
Lender: | New York Community Bank | |
Section: | 1 | |
Block: | 154 | |
Lot: | 28 | |
County: | Kings | |
Premises: | 141 Livingston Street a/k/a 137/151 Livingston Street a/k/a 32 Smith Street Brooklyn, New York 11201 | |
1 . | ¨ | The attached mortgage covers real property improved by a one or two family dwelling only. |
2. | ¨ | The attached mortgage covers real property principally improved or to be improved by one or more structures containing in the aggregate not more than six residential dwelling units, each having their own separate cooking facilities. |
3. | x | The attached mortgage does not cover real property improved as described above. |
Date: May 11, 2016
BORROWER : | ||
141 Livingston Owner LLC | ||
By: | /s/ David Bistricer | |
Name: David Bistricer | ||
Title: President, Treasurer and Director |
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RIDER TO MORTGAGE
This rider is attached to and made a part of that certain Mortgage, Assignment of Leases and Rents and Security Agreement dated as of the 11th day of May, 2016 (“Mortgage”) given by 141 Livingston Owner LLC, as Borrower, to New York Community Bank, as Lender. The following provisions modify or supplement the terms and provisions of the foregoing Mortgage. In the event of any conflict between the terms and provisions of this Rider and the terms and provisions of the foregoing Mortgage, the terms and provisions of this Rider shall control.
A. EXCEPTIONS TO DUE-ON-TRANSFER PROVISIONS
Notwithstanding the provisions of Section 12.2(l)(e) of the Mortgage, the Lender agrees that, provided the Loan hereunder is not in default, declared or undeclared, beyond applicable notice, grace and cure periods and current management maintains managerial control of Borrower after any such transfer, the following transfers shall not constitute a Prohibited Transfer:
i. | transfers of limited partnership interests of Clipper Realty L.P., a Delaware limited partnership (“Clipper LP”), from existing limited partners to immediate family members, existing limited partners or partners or to trusts for the benefit of themselves and/or members of their families, existing limited partners or entities comprised of same, and by operation of law, provided Guarantor remains the sole general partner of Clipper LP; |
ii. | transfers of membership interests of Berkshire Equity LLC, a Delaware limited liability company (“Berkshire”), the sole member of Borrower, from existing members to immediate family members, existing members or to trusts for the benefit of themselves and/or members of their families, existing members or entities comprised of same, and by operation of law, provided Clipper LP maintains managerial control of Berkshire; |
iii. | the issuance by Guarantor of additional common stock or other ownership interests, and the subsequent transfer of any such stock or ownership interests; provided: |
a. | David Bistricer and Sam Levinson remain on the Board of Directors of Guarantor after any such transfer; and |
b. | David Bistricer, or entities controlled by his immediate family, and Sam Levinson, or entities controlled by his immediate family, maintain in the aggregate not less than thirty three percent (33%) of the ownership interests of Guarantor after any such transfer. |
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B. NOTICE AND CURE
Notwithstanding any of the provisions contained herein to the contrary, the Lender shall provide Borrower written notice of any default herein. If Borrower is in default in the payment to Lender of any sum or amount of money which may fall due or be payable from time to time under the term of the mortgage hereunder (“a monetary default”), Borrower shall have a period of ten (10) days after Lender’s giving of such notice within which time such default must be cured. If Borrower is in default, other than a monetary default, Borrower shall have a period of thirty (30) days after Lender’s giving of such notice within which time such default must be cured. However, in the event such default cannot, in the sole determination of Lender, be cured within such thirty (30) day period, and provided Borrower has immediately commenced to take all action necessary to cure said default and continues to proceed diligently, without interruption and in good faith, to cure such default, the Lender may in its sole discretion grant Borrower an additional thirty (30) day period within which time all actions required as set forth in Lender’s notice of default under this paragraph shall be completed. Any such default not cured within said thirty (30) day period shall be subject to all of the other terms and provisions contained in this Agreement. It is further agreed that no such notice or grace period provided in this paragraph shall apply in the case of any such failure which could, in Lender’s judgment, absent immediate exercise by Lender of a right or remedy under this Mortgage, result in harm to Lender, impairment of the Note or this Mortgage or any other security given under any other Loan Document.
141 Livingston Owner LLC | ||
By: | /s/ David Bistricer | |
Name: David Bistricer | ||
Title: President, Treasurer and Director |
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Exhibit 10.46
GUARANTY OF RECOURSE OBLIGATIONS
This GUARANTY OF RECOURSE OBLIGATIONS dated as of the 11th day of May, 2016 (this “Guaranty”) made by Clipper Realty Inc., a Maryland corporation, with a principal place of business at 4611 12th Avenue, Suite 1L, Brooklyn, New York 11219 (“Guarantor”), to and in favor of New York Community Bank, a New York banking corporation, with a place of business at NYCB Plaza, 102 Duffy Avenue - 3rd Floor, Hicksville, New York 11801 (“Lender”).
In consideration of Lender providing credit to Borrower, each Guarantor hereby agrees as follows:
Section 1. Definitions . As used in this Guaranty, the following terms have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa):
“Borrower” means 141 Livingston Owner LLC, a Delaware limited liability company.
“Borrower Obligations” means any and all present and future liabilities, duties and obligations of Borrower to Lender under any and all of the Loan Documents.
“Governmental Authority” means any nation or national government including the federal government of the United States of America, any state or state government, any municipality or municipal government, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, any other subdivision, council, department, branch or agency of any of the foregoing and any court, judge, administrator or tribunal exercising judicial or administrative functions.
“Guaranteed Obligations” means all amounts for which Borrower is personally liable under Section 9 of the Loan Note.
“Laws” means any present or future domestic or foreign, national, federal, state, provincial, local or municipal statute, law, rule, regulation, ordinance, order, code, decree, policy, requirement or rule of common law, now or hereafter in effect, in each case as amended, and any judicial or administrative interpretation thereof by a Governmental Authority or otherwise, including any judicial or administrative order, decree (including a consent decree or consent order), judgment or agreement with a Governmental Authority, and all permits, licenses, approvals and authorizations issued by a Governmental Authority, and including parking, zoning, building, subdivision and land use Laws.
“Lender” means New York Community Bank, a New York banking corporation.
“Loan” means the loan in the original principal sum of $79,500,000.00 made by Lender to Borrower as of the date of this Guaranty and evidenced by the Loan Note and other Loan Documents, and all other amounts due, to come due or that may come due under the Loan Documents.
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File No. 123-33001 |
“Loan Documents” means the Loan Note, the Mortgage, and each other document or agreement entered into pursuant to, or in connection with, the Loan Note or the Mortgage.
“Loan Note” means the Amended and Restated Mortgage Note in the original principal balance of $79,500,000.00, dated as of the date of this Guaranty made by Borrower and payable to Lender.
“Losses” means any and all losses, damages, liability, costs and expenses incurred by Lender in respect of or as a result of any or all claims, suits, liabilities (including strict liabilities), actions, demands, proceedings, enforcements, obligations, debts, damages (including punitive and consequential), fines, trials, penalties, charges, diminution of value, injury to a person, property or natural resources, fees (including attorney’s fees and all fees of any experts and other costs of defense or prosecutions or otherwise related thereto), judgments, accounts, orders, adjudications, awards, liens, injunctive relief, causes of action or amounts paid in settlement of whatever kind or nature.
“Material Adverse Change” means either (1) a material adverse change in the status of a Person’s assets, liabilities, financial condition or property or (2) any event or occurrence of whatever nature which does or is reasonably likely to have a material adverse effect on the ability of a Person to perform such Person’s obligations.
“Mortgage” means the Consolidation, Modification and Extension Agreement, Assignment of Leases and Rents, and Security Agreement, to secure the Loan Note, dated as of the date of this Guaranty and given by Borrower to Lender.
“Person” means an individual, partnership (including a limited liability partnership and a general partnership), corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature whatsoever, including Lender.
“Property” means the Mortgaged Property as defined in the Mortgage.
“Property Owner” means the Borrower or any subsequent owner of the Property.
Unless otherwise specified in this Guaranty, terms defined in the Mortgage which are used in this Guaranty will have the same meaning when used in this Guaranty. Guarantor acknowledges that Guarantor has received a copy of this Guaranty and the Loan Note, Mortgage and other Loan Documents.
Guaranty | CD Form 172 | Page 2 |
Loan No. 110686537 | 04-09-11 | |
File No. 123-33001 |
Section 2. Rules of Interpretation . When used in this Guaranty: (1) “or” is not exclusive, (2) any pronouns used shall include the corresponding masculine, feminine or neuter form, (3) the singular form of nouns and pronouns shall include the plural and vice versa and terms defined in the singular have the same meaning when used in the plural and vice versa, (4) a reference to a Law includes any present or future amendment or modification to such Law, (5) a reference to an agreement, instrument or document includes any present or future amendment or modification of such agreement, instrument or document, to the extent and provided that such amendment or modification is permitted by such agreement, instrument or document and is permitted under the Loan Documents and (6) the word “including” means “including, but not limited to,”.
Section 3. Guaranty .
(a) Guarantor hereby guarantees to Lender and its successors, endorsees, transferees and assigns the prompt and complete payment, as and when due and payable (whether at stated maturity or by required prepayment, acceleration, demand or otherwise), of (1) all of the Guaranteed Obligations and (2) all fees, costs and expenses of enforcement of this Guaranty against Guarantor.
(b) Guarantor acknowledges that, notwithstanding any other provision of this Guaranty or any of the Loan Documents to the contrary (including any non-recourse provision under the Loan Documents), the obligations of Guarantor under this Guaranty are irrevocable, unlimited, joint and several personal obligations of each and every Guarantor, whether or not secured by the Mortgage or otherwise. Guarantor acknowledges that Lender would not make the Loan but for the personal liability undertaken hereunder by Guarantor.
(c) The obligation of Guarantor under this Guaranty shall be limited to an aggregate amount equal to the largest amount that would not render the obligation of Guarantor under this Guaranty subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provision of any applicable Law.
Section 4. Payments .
(a) Any payment by any Guarantor hereunder shall be made within ten (10) calendar days after written demand for such payment is made by Lender. If any Guarantor fails to make payment of any amount required to be paid by such Guarantor under this Guaranty when payment is due, interest shall accrue on the amount of the payment from and after the due date until payment is paid to Lender at the lesser of (1) 20.00% per annum or (2) the maximum amount permitted under applicable Law.
(b) All payments provided for hereunder shall be made to Lender at its offices in accordance with Section 15, below, entitled “Notices” in lawful money of the United States of America, in immediately available funds, and without defense, reservation, setoff or counterclaim of any nature.
Guaranty | CD Form 172 | Page 3 |
Loan No. 110686537 | 04-09-11 | |
File No. 123-33001 |
Section 5. Type of Guaranty/Continuity of Guaranty/Reinstatement of Guaranty .
(a) This Guaranty is absolute and unconditional and as such is not subject to any conditions and Guarantor is fully liable to perform all of its duties and obligations under this Guaranty as of the date of execution of this Guaranty. This Guaranty is a continuing guaranty. In addition, this Guaranty shall remain in full force and effect even if at any time there are no outstanding Guaranteed Obligations or Borrower Obligations. This Guaranty is a guaranty of payment and not of collection. The obligations and liabilities of Guarantor under this Guaranty shall not be conditioned or contingent upon the pursuit by Lender of any other right or remedy, including (a) a right or remedy against (i) Borrower or any other Person (including any Guarantor) which may be or become liable in respect of all or any part of the Guaranteed Obligations or Borrower Obligations or (ii) any assets securing the payment of the Guaranteed Obligations or Borrower Obligations, (b) any other guarantee for such Guaranteed Obligations or Borrower Obligations or (c) any right of setoff with respect to such Guaranteed Obligations or Borrower Obligations.
(b) This Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment, or any part thereof, of any of the Guaranteed Obligations or Borrower Obligations are rescinded or must otherwise be returned by Lender for any reason, including upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Guarantor or Borrower, all as though such payment had not been made.
(c) Guarantor hereby consents that, without the necessity of any reservation of rights against Guarantor and without notice to or further assent by Guarantor, any demand for payment of any of the Guaranteed Obligations made by Lender may be rescinded at any time by Lender and any and all of such Guaranteed Obligations shall continue after such rescission.
Section 6. Survival . Notwithstanding anything to the contrary contained in this Guaranty or in the Loan Documents, this Guaranty shall continue in full force and effect after the foreclosure or conveyance in-lieu-of foreclosure of all or any part of the Property, any other conveyance or transfer of the Property or the exercise by Lender of any of the remedies available under any of the Loan Documents, at law, in equity or otherwise, with respect to any of the Borrower Obligations, whether incurred prior to or subsequent to such sale or conveyance. WITHOUT IN ANY WAY LIMITING THE ABOVE, IT IS EXPRESSLY UNDERSTOOD THAT GUARANTOR’S DUTY(IES) AND OBLIGATIONS HEREUNDER TO LENDER SHALL SURVIVE ANY JUDICIAL OR NON- JUDICIAL FORECLOSURE OF THE MORTGAGE OR TRANSFER OF THE PROPERTY IN LIEU THEREOF.
Section 7. Representations .
At the time of execution of this Guaranty, Guarantor represents and warrants to Lender as follows:
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7.1 No Contravention . The execution, delivery and performance by Guarantor of this Guaranty do not and will not (a) violate any provision of any Law, order, writ, judgment, injunction, decree, determination, or award presently in effect applicable to Guarantor, (b) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Guarantor is a party or by which Guarantor or its properties may be bound or affected, or (c) result in, or require, the creation or imposition of any lien upon or with respect to any of the properties now owned or hereafter acquired by Guarantor.
7.2 Governmental Authority . No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by Guarantor of this Guaranty.
7.3 Legally Enforceable Guaranty . This Guaranty is the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except to the extent that such enforcement may be limited by (a) applicable bankruptcy, insolvency, and other similar Laws affecting creditors’ rights generally, or (b) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law.
Section 8. Waiver of Notices . Guarantor hereby waives the following notices (1) notice of or proof of reliance by Lender upon this Guaranty or acceptance of this Guaranty, (2) notice of the incurrence of any Borrower Obligations or any modification thereof, including any renewal, extension, modification, consolidation, advance, increase, assumption, subordination, participation, assignment or accrual of any Borrower Obligations, (3) notice of any actions taken by Lender or Borrower or any other Person under any of the Loan Documents, and (4) notices of nonpayment or nonperformance, protest, notice of protest, notice of demand, notice of presentment and notice of dishonor.
Section 9. Waiver of Defenses .
(a) Guarantor hereby waives any defense to the performance by Guarantor of its duties and obligations under this Guaranty based on any of the following:
9.1 any failure of Lender to disclose to Guarantor any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any party obligated to make payment on any or all of the Borrower Obligations, whether as principal, guarantor or indemnitor, now or hereafter known to Lender, including any information relating to Borrower, the Property or any other circumstances bearing on Borrower’s ability to perform the Borrower Obligations,
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9.2 any defense to the payment of any or all the Borrower Obligations based upon illegality, lack of validity or enforceability of any of the Borrower Obligations or any Loan Documents,
9.3 any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Borrower Obligations, or any other amendment or waiver of or consent to any departure from or any modification to any Loan Document,
9.4 any exchange or release of, or non-perfection of any security interest on or in any assets securing the payment of the Borrower Obligations,
9.5 any failure to execute any other guaranty for all or any part of the Borrower Obligations, or any release, amendment or waiver of, or consent to any departure from, any other guaranty for any or all of the Borrower Obligations, or the release of any obligor in respect of the Borrower Obligations,
9.6 any act or omission of Lender in connection with the enforcement of, or the exercise of rights and remedies other than Lender’s gross negligence or willful default, including any election of, or the order of exercising, any remedies with respect to (a) the Borrower Obligations, (b) any other guarantor of all or any part of the Borrower Obligations or (c) any assets securing the payment of the Borrower Obligations,
9.7 any failure to give or provide any notices, demands or protests of any kind including those specified under “Waiver of Notices” (Section 8),
9.8 the defense of the statute of limitation in any action under this Guaranty or for the collection or the performance of the Guaranteed Obligations or the Borrower Obligations,
9.9 any subordination of any or all of the Borrower Obligations,
9.10 any manner of application of any funds received by Lender to Borrower Obligations or any other obligations owed to Lender, whether from the sale or disposition of any assets securing the Borrower Obligations, from another guarantor of the Borrower Obligations or otherwise,
9.11 any defense that may arise by reason of (a) the incapacity, lack of authority, death or disability of any Guarantor, or any other Person, (b) the revocation or repudiation of this Guaranty by any Guarantor, or the revocation or repudiation of any of the Loan Documents by any other Person, (c) the failure of Lender to file or enforce a claim against the estate (either in administration, bankruptcy or any other proceeding) of any Guarantor or any other Person,
9.12 any sale or transfer of all or any part of the Property,
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9.13 all homestead exemption rights against the obligations under this Guaranty;
9.14 any statute or rule of Law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal;
9.15 Lender’s election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 1111(b) (2) of the Federal Bankruptcy Code or any successor statute;
9.16 any borrowing or any grant of a security interest under Section 364 of the Federal Bankruptcy Code; and
9.17 any right of subrogation, any right to enforce any remedy which Lender may have against Borrower and any right to participate in, or benefit from, any security for the Note or the other Loan Documents now or hereafter held by Lender.
(b) Guarantor further waives any and all rights and defenses that any Guarantor may have because the Borrower Obligations may be secured by real property; this means, among other things, that: (1) Lender may collect from any Guarantor without first foreclosing on any real or personal property collateral pledged by Borrower; (2) if Lender forecloses on any real property collateral pledged by Borrower, then (A) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (B) Lender may collect from any Guarantor even if Lender, by foreclosing on the real property collateral, has destroyed or limited any right any Guarantor may have to collect from Borrower. The foregoing sentence is an unconditional and irrevocable waiver of any rights and defenses that any Guarantor may have because Borrower’s debt is secured by real property. These rights and defenses being waived by Guarantor include, but are not limited to, any rights or defenses based upon subrogation, reimbursement, indemnification and contribution. In addition, Guarantor agrees that the performance of any act or any payment which tolls any statute of limitations applicable to the Loan Documents shall similarly operate to toll the statute of limitations applicable to the Guarantor’s liability hereunder. Guarantor understands that Guarantor’s duties, obligations and liabilities under this Guaranty are not limited in any way by any information (whether obtained from Borrower, from any Guarantor, or from Lender’s own investigations) which Lender may have concerning the Property.
(c) Guarantor waives any right to, and agrees not to, assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against or by Lender.
(d) Guarantor hereby acknowledges that: (a) the obligations undertaken by Guarantor in this Guaranty are complex in nature, and (b) as part of Lender’s consideration for entering into this transaction, Lender has specifically bargained for the waiver and relinquishment by Guarantor of any and all defenses set forth in Section 9(a) , and (c) Guarantor has had the opportunity to seek and receive legal advice from skilled legal counsel in the area of financial transactions of the type contemplated herein. Given all of the above, Guarantor does hereby represent and confirm to Lender that Guarantor is fully informed regarding, and that Guarantor does thoroughly understand: (i) the nature of defenses, and (ii) the circumstances under which such defenses may arise, and (iii) the aforementioned benefits which such defenses might confer upon Guarantor, and (iv) the legal consequences to Guarantor of waiving such defenses. Guarantor acknowledges that it makes this Guaranty with the intent that this Guaranty and all of the informed waivers herein shall each and all be fully enforceable by Lender, and that Lender is induced to enter into this transaction in material reliance upon the presumed full enforceability thereof.
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Section 10. Subrogation . Guarantor may not exercise any rights which Guarantor may acquire by way of subrogation or contribution, whether acquired by any payment made under this Guaranty, by any setoff or application of funds of Borrower, by Lender or otherwise, until (1) the payment in full of the Borrower Obligations and (2) the payment of all fees and expenses to be paid by Guarantor pursuant to this Guaranty. If any amount shall be paid to Guarantor on account of such subrogation or contribution rights at any time when all of the Borrower Obligations and all such other expenses shall not have been paid in full such amount shall be held in trust for the benefit of Lender, shall be segregated from the other funds of Guarantor and shall forthwith be paid over to Lender to be credited and applied in whole or in part by Lender against the Borrower Obligations, whether matured or unmatured, and all such other costs, fees, charges, expenses or other amounts due under and in accordance with the terms of the Loan Documents.
Section 11. Reporting Requirements . Guarantor will provide immediate notice to Lender if (1) any representation and warranty included in this Guaranty would no longer be true if made on such date or (2) there is a Material Adverse Change regarding Guarantor. Guarantor shall furnish to Lender from time to time such information regarding Guarantor as Lender may reasonably request including any documentation or reports relating to any Guarantor which Borrower is required to furnish to Lender under any of the Loan Documents, it being understood, however, that to the extent any such documentation or reports had been previously submitted to and accepted by Lender, each Indemnitor shall be deemed to be in full compliance with the provisions of this section if such Indemnitor provides such additional documentation and/or reports in the same format as previously accepted.
Section 12. Remedies . Lender shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies under this Guaranty or otherwise. A waiver by Lender of any right or remedy hereunder on any one occasion, shall not be construed as a ban or waiver of any such right or remedy which Lender would have had on any future occasion, nor shall Lender be liable for exercising or failing to exercise any such right or remedy. The rights and remedies of Lender under this Guaranty are cumulative and, as such, are in addition to any other rights and remedies available to Lender under Law or any other agreements.
Section 13. Indemnity and Expenses . Guarantor hereby indemnifies Lender from and against any and all claims, Losses, damages and liabilities growing out of, in connection with, arising under or resulting from this Guaranty (including enforcement of this Guaranty), except claims, losses, damages or liabilities resulting from Lender’s gross negligence and willful misconduct.
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The obligations of Guarantor under this Guaranty shall specifically include, without limitation, the obligation to expend Guarantor’s own funds, to incur costs in Guarantor’s own name(s) and to perform all actions as may be necessary to protect the Lender from the necessity of expending Lender’s own funds, incurring costs or performing any actions in connection with the matters for which Lender is entitled to collect or to be paid or be reimbursed pursuant to this Guaranty, and, if Lender nonetheless expends its own funds or incurs any such cost or expense, to pay or reimburse Lender therefor.
Section 14. Amendments . No amendment or waiver of any provision of this Guaranty, nor consent to any departure by Guarantor from this Guaranty, shall in any event be effective unless the same shall be in writing and signed by the party against whom enforcement thereof is sought, and then such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given.
Section 15. Notices . Notice to any party shall be made in writing, and shall be served by (a) personal delivery to the recipient, (b) United States Postal Service-certified mail-retum receipt requested (postage prepaid) or (c) reliable overnight public express mail service that keeps a record of its deliveries (for next business day delivery), and sent to the addresses set forth below:
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Loan No. 110686537 | 04-09-11 | |
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If to Lender: | |
New York Community Bank | |
NYCB Plaza, 102 Duffy Avenue - 3rd Floor | |
Hicksville, New York 11801 |
Loan Servicing – LN # 110686537 or such other address as may hereafter be furnished to the other party by like notice.
Any such notice shall be deemed to have been given (a), if by personal delivery, on the day of delivery, (b), if sent via United States Postal Service, on the fifth day following posting of same with a United States Post Office and (c), if sent by overnight public express mail, on the next business day.
Section 16. Assignment and Transfer of Obligations . This Guaranty will bind the estate of Guarantor as to all Guaranteed Obligations in existence, created or incurred both before and after the death or incapacity of Guarantor, whether or not Lender receives notice of such death or incapacity. This Guaranty shall inure to the benefit of Lender and its successors, transferees and assigns. Guarantor may not transfer or assign its obligations under this Guaranty. Lender may assign or otherwise transfer all or a portion of its rights or obligations with respect to the Guaranteed Obligations to any other party to whom the Loan is transferred, and such other party shall then become vested with all the benefits in respect of such transferred Guaranteed Obligations granted to Lender in this Guaranty or otherwise. Guarantor agrees that Lender can provide information regarding Guarantor to any prospective or actual successor, transferee or assign.
Section 17. Setoff . Guarantor agrees that, in addition to, and without limiting, any right of setoff, banker’s lien or counterclaim Lender may otherwise have, Lender shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by it for the account of Guarantor, at any of the offices of Lender, in Dollars or any other currency, against any amount due and payable by Guarantor to Lender under this Guaranty which is not paid when due (regardless of whether such balances are then due to Guarantor), in which case Lender shall promptly notify Guarantor, provided that Lender’s failure to give such notice shall not affect the validity of such offset.
Section 18. Submission to Jurisdiction . Guarantor hereby irrevocably submits to the jurisdiction of any federal or state court sitting in the county in which the Property is located over any action or proceeding arising out of or related to this Guaranty and agrees with Lender that personal jurisdiction over Guarantor rests with such courts for purposes of any action on or related to this Guaranty. Guarantor hereby waives personal service by manual delivery or in-hand delivery and agrees that service of process may be made by means of notice given accordance with Section 15 of this Guaranty, and that upon the giving of such notice in accordance with Section 15 hereof, such service will be effective as if such Guarantor was personally served. Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any manner provided by Law. Guarantor further waives any objection to venue in any such action or proceeding on the basis of inconvenient forum. Guarantor agrees that any action on or proceeding brought against Lender shall only be brought in such courts.
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File No. 123-33001 |
Section 19. Governing Law . This Guaranty shall be governed by and construed in accordance with the Laws of the State in which the Property is located.
Section 20. Subordination . Guarantor will not until Loan has been paid in full (1) make any demand for payment of, or take any action to accelerate, any obligation owed to Guarantor by Borrower, (2) seek to collect payment of, or enforce any right or remedies against Borrower, any of the obligations owed to Guarantor by Borrower or any guarantees, credit supports, collateral or other security related to or supporting any of such obligations, or (3) commence, or join with any other creditor in commencing, any bankruptcy or similar proceeding against Borrower. Guarantor also agrees that the payment of all obligations of Borrower to Guarantor shall be subordinate and junior in time and right of payment in accordance with the terms of this Section to the prior payment in full (in cash) of the Borrower Obligations. In furtherance of such subordination, (1) to the extent possible, Guarantor will not take or receive from Borrower any payments, in cash or any other property, by setoff or any other means, of any or all of the obligations owed to Guarantor by Borrower, or purchase, redeem, or otherwise acquire any of such obligations, or change the terms or provisions of any such obligations and (2) if for any reason and under any circumstance Guarantor receives a payment on such obligation, whether in a bankruptcy or similar proceeding or otherwise, all such payments or distributions upon or with respect to such obligations shall be received in trust for the benefit of Lender, shall be segregated from other funds and property held by Guarantor and shall be forthwith paid over to Lender in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to, or held as collateral (in the case of securities or other non-cash property) for, the payment or prepayment of the Borrower Obligations.
Section 21. Miscellaneous . This Guaranty is in addition to and not in limitation of any other rights and remedies Lender may have by virtue of any other instrument or agreement previously, contemporaneously or hereafter executed by Guarantor or any other party or by Law or otherwise. If any provision of this Guaranty is contrary to applicable Law, such provision shall be deemed ineffective without invalidating the remaining provisions of this Guaranty. Titles in this Guaranty are for convenience of reference only and shall not affect the interpretation or construction of this Guaranty. This Guaranty constitutes the entire agreement between Guarantor and Lender with respect to the matters covered by this Guaranty and supercedes all written or oral agreements with respect to such matters.
Section 22. Further Assurances . At any time and from time to time, upon Lender’s prior written request, Guarantor shall make, execute and deliver, or cause to be made, executed and delivered, to Lender 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 necessary and appropriate by Lender in order to effectuate, or to continue and preserve the obligations of such Guarantor under this Guaranty, such documents or instruments as Lender may request. Lender may make, execute, record, file, re-record or refile any and all such documents or instruments for and in the name of such Guarantor, and such Guarantor hereby irrevocably appoints (which appointment is coupled with an interest with full power of substitution) Lender, the agent and attorney-in-fact of such Guarantor to do so, and such Guarantor shall reimburse Lender, on demand, for all costs and expenses (including attorneys’ fees and expenses) incurred by Lender in connection therewith.
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Section 23. Duplicate Originals . This Guaranty may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. The failure of any party hereto to execute this Guaranty, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. A copy of this Guaranty bearing a facsimile or photocopied signature or a signature transmitted by email, scan or other digital or electronic means shall have the same force and effect as one with an original ink signature of the Guarantor.
Section 24. WAIVER OF TRIAL BY JURY . GUARANTOR AND LENDER (A) AGREE NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS GUARANTY THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.
Section 25 . RPAPL Sec. 1371. Guarantor hereby (a) waives, to the fullest extent permitted by Law, any benefits or protections of Real Property Actions and Proceedings Law section 1371 (3) of the State of New York and any other similar provision of Law and (b) agrees that any right of Lender to collect hereunder shall be in addition to any right of Lender to obtain a deficiency judgment against Borrower.
THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.
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IN WITNESS WHEREOF, Guarantor has duly executed and delivered this Guaranty and it shall be effective as of the date of this Guaranty.
Clipper Realty Inc., a Maryland corporation | ||
By: | /s/ David Bistricer | |
Name: | David Bistricer | |
Title: | President | |
State of New York | ) |
: ss.: | |
County of New York | ) |
On the 11th day of May, 2016, before me, the undersigned, personally appeared David Bistricer, 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 signatures on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
/s/ Mark Faham | ||
Notary Public |
MARK FAHAM | |
Notary Public, State of NewYork | |
No. 01FA6101480 | |
Qualified In Kings County | |
Commission Expires November 17, 2019 |
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Loan No. 110686537 | 04-09-11 | |
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Exhibit 10.47
PERSONAL GUARANTY
This GUARANTY dated as of the 11th day of May, 2016 (this "Guaranty") made by Clipper Realty Inc., a Maryland corporation, with a principal place of business at 4611 12th Avenue, Suite 1L, Brooklyn, New York 11219 (“Guarantor”), to and in favor of New York Community Bank, a New York banking corporation, with a place of business at NYCB Plaza, 102 Duffy Avenue - 3rd Floor, Hicksville, New York 11801 ("Lender").
RECITALS :
A. Borrower is the owner of 141 Livingston Street, Brooklyn, New York 11201, also known as Block: 154, Lot: 28 on the Tax Map of the City of New York, County of Kings (the “Mortgaged Property”) as more particularly described in the Security Instrument.
B. Lender is, as of the date hereof, making a loan to Borrower in the original principal amount of $79,500,000.00. The said principal amount and all other amounts due, to come due or that may come due under the Loan Documents shall be referred to herein as the “Loan”. The Loan is evidenced by, among other things, that certain Mortgage Note dated as of the date hereof, executed Borrower and made payable to the order of Lender in the principal amount of the Loan (the “Note”).
C. Repayment of the Loan is secured by, among other things, the Security Instrument of even date given by Borrower to Lender (the “Security Instrument” or “Mortgage”).
D. As a condition to making the Loan to Borrower, Lender requires Guarantor to deliver this Guaranty.
AGREEMENTS :
NOW, THEREFORE, for and in consideration of the foregoing and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees as follows:
1. Recitals . The recitals set forth above are true and correct and are part of this Guaranty.
2. Defined Terms . The following terms have the following meanings:
“Borrower Obligations" means any and all present and future liabilities, duties and obligations of Borrower to Lender under any and all of the Loan Documents.
“Debt Service Reserve” means that certain cash sum on deposited by Borrower with Lender as more particularly set forth in a certain Debt Service Reserve Agreement between Borrower and Lender dated as of the date hereof.
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 1 |
"Insolvency Laws" means the United States Bankruptcy Code, 11 U.S.C. § 101, et seq ., together with any other federal or state law affecting debtor and creditor rights or relating to the bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding or any proceeding (civil or criminal) under which assets are subject to levy, attachment, sequestration, seizure, forfeiture or divestiture.
“Lease” means that certain lease from Borrower to the City of New York, acting through the Department of Citywide Administrative Services (the “City of New York”), dated December 17, 2015 demising space in the Mortgaged Property; and
“Loan Documents” means the Note, Security Instrument and each other document and agreement executed or delivered in connection with the Loan, the Note or the Security Instrument.
“Material Adverse Change” means either (a) a substantial change in the status of a Person’s assets, liabilities, financial condition or property which causes a substantial depreciation in such Person’s net worth or (b) any event or occurrence of whatever nature which does or is reasonably likely to have a substantial and negative effect on the ability of a Person to perform such Person’s obligations.
“Proceeding” means any of the following: (i) the commencement of a voluntary case under one or more of the Insolvency Laws by the Borrower or Guarantor; (ii) the acknowledgment in writing by the Borrower or Guarantor that it is unable to pay its debts generally as they mature; (iii) the making of a general assignment for the benefit of creditors by the Borrower or Guarantor; (iv) the commencement of a partition action or similar action or suit seeking the division of property and affecting the Borrower or Guarantor, or any part of the Property or the commencement of a proceeding seeking or effecting forfeiture or seizure; (v) an involuntary proceeding or case under one or more Insolvency Laws against the Borrower or Guarantor; or (vi) the appointment of a receiver, liquidator, custodian, sequestrator, trustee or other similar officer (other than at the request of Lender) who exercises control over all or any material part of the Property or Borrower or Guarantor; however, with respect to the sub-clauses “(v)” and “(vi)” of this paragraph, neither shall be considered to be a Proceeding provided that (A) such case, matter or proceeding is dismissed within 90 days after same is or has been commenced and (B) Borrower and/or Guarantor has not directed, consented to or colluded in the filing of such case, matter or proceeding.
“Termination Option” means the option to terminate given to the City of New York in the Lease pursuant to the terms and conditions contained in the Lease.
Unless otherwise defined herein, capitalized terms used herein shall have the meaning ascribed to them in the Loan Documents. Guarantor acknowledges that each Guarantor has received a copy of this Guaranty and the Note, Security Instrument and all other Loan Documents.
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 2 |
3. Guaranty.
(a) During the term of the Loan, in the event the City of New York exercises its Termination Option under the Lease, Guarantor hereby guarantees to Lender and its successors, endorsees, transferees and assigns the prompt and complete payment, as and when due and payable (whether at stated maturity or by required prepayment, acceleration, demand or otherwise), of (1) $39,750,000.00 of the Borrower Obligations then existing or thereafter incurred, accruing or arising and (2) all fees, costs and expenses of enforcement of this Guaranty against Guarantor (the “Guaranty Amount”).
This Guaranty shall remain in full force and effect until the earlier to occur of:
(A) Payment in full of the Borrower Obligations, or
(B) The Mortgaged Property achieves a minimum actual DSCR (as defined in the Security Instrument) of 1.50:1.00 on a twelve (12) month trailing basis for the Loan, and not including the Debt Service Reserve, as determined solely by Lender (based on actual collected rents from bona-fide third party tenants in occupancy at the Mortgaged Property under arms-length written leases with market terms, delivered to Lender, past any rent free periods) (the “DSCR Determination”).
The Lender’s DSCR Determination will include the application of the then applicable interest rate under the Note for the Loan and an amortization factor based on thirty (30) year self liquidating loan on the entire Loan amount, and is subject to receipt from Borrower of (A) a current income and expense statement for the most recent twelve (12) month period, (B) a rent collections schedule for the most recent twelve (12) month period, and (C) a then current rent roll (reflecting the new tenants); (A), (B), and (C) must be submitted on the Property and each must to be certified as true and correct by an authorized officer or signatory of the Borrower. The Borrower shall be responsible for any costs and expenses incurred by Lender in the determination of the DSCR.
Guarantor hereby guarantees that the Guaranty Amount will be paid strictly in accordance with their terms.
(b) Guarantor acknowledges that, notwithstanding any other provision of this Guaranty or any of the Loan Documents to the contrary (including any non-recourse provisions), the obligations of Guarantor under this Guaranty are irrevocable, unlimited, joint and several personal obligations of each and every Guarantor, whether or not secured by the Security Instrument or otherwise. Guarantor acknowledges that Lender would not make the Loan but for the personal liability undertaken hereunder by Guarantor. Guarantor hereby acknowledges that each Guarantor has received a substantial benefit from the Loan transaction giving rise to this Guaranty and valuable consideration.
4. Payments . Any payment required by any Guarantor hereunder shall be made within ten (10) calendar days after written demand for such payment is made by Lender. All payments provided for hereunder shall be made to Lender at its offices in accordance with the Section below entitled "Notices" in lawful money of the United States of America, in immediately available funds, and must be made, and Guarantor hereby agrees to make all such payments, without defense, reservation, setoff, protest or counterclaim of any nature.
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 3 |
5. Type of Guaranty/Continuity of Guaranty/Reinstatement of Guaranty .
(a) This Guaranty is absolute and unconditional. Guarantor is fully liable to perform a1l of its duties and obligations under this Guaranty as and when same may arise. This Guaranty is a continuing guaranty and applies to all Borrower Obligations. In addition, this Guaranty shall remain in full force and effect even if at any time there are no outstanding Borrower Obligations. This Guaranty is a guaranty of performance and of payment and not of collection. The obligations and liabilities of Guarantor under this Guaranty shall not be conditioned or contingent upon the pursuit by Lender of any other right or remedy, including (a) a right or remedy against (i) Borrower or any other Person (including any Guarantor) which may be or become liable in respect of all or any part of the Borrower Obligations or (ii) any assets securing the payment of the Borrower Obligations, (b) any other guarantee for the Borrower Obligations or (c) any right of setoff with respect to the Borrower Obligations.
(b) Each Guarantor’s guarantee hereunder shall not be limited or impaired by any of the following, or by any failure of any Guarantor or any other guarantor or indemnitor to receive notice of or consideration for: (i) any payment under, any addition to, or any modification, extension, renewal, amendment (including an increase in principal), subordination, release or waiver of any obligation(s) under the Security Instrument, Note or any other Loan Document, (ii) any release of or addition to any collateral, (iii) any release of, modification to or addition to any obligations or obligors, (iv) the exercise of any enforcement remedies, including acceleration and foreclosure, by Lender, (v) any modification of this Guaranty with respect to any Guarantor or (vi) any Non-Recourse Provisions. At the time that any Guarantor becomes liable for any obligation under this Guaranty, interest shall thereafter accrue on each such obligation at the rate(s) of interest set forth in the Note (including at the Default Rate, if same has become applicable).
(c) This Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time any demand for payment of any of the Borrower Obligations made by Lender is rescinded by Lender or if at any time any payment, or any part thereof, of any of the Borrower Obligations are rescinded or must otherwise be returned by Lender for any reason, including upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Guarantor or Borrower, all as though such payment had not been made.
6. Survival . Notwithstanding anything to the contrary contained in this Guaranty or in the Loan Documents, this Guaranty shall continue in full force and effect after the occurrence of a Foreclosure Event, any other conveyance of all or any part of the Mortgaged Property or of any interest (direct or indirect) in Borrower or the exercise by Lender of any of the remedies available under any of the Loan Documents, at Law, in equity or otherwise, with respect to any of the Borrower Obligations, whether incurred prior to or subsequent to such transfer or conveyance.
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 4 |
7. Event of Default . Each Guarantor agrees that a default of any obligation under this Guaranty shall be an Event of Default under the Loan Documents, including the Security Instrument, and, that in addition to any remedies specified in this Guaranty, Lender shall be entitled to exercise all of its rights and remedies under any Loan Document.
8. Reporting Requirements . Guarantor shall provide immediate notice to Lender if (a) any material representation or material warranty included in this Guaranty would no longer be true if made on such date or (b) there is a Material Adverse Change regarding Guarantor. Guarantor shall furnish to Lender, or shall cause to be furnished to Lender, from time to time such information regarding Guarantor as Lender may request including any documentation or reports relating to any Guarantor which Borrower is required to furnish to Lender under any of the Loan Documents. From time to time, Lender may obtain, with respect to any Guarantor, reports from any of the credit reporting agencies and each Guarantor shall cooperate with Lender in the obtaining of any such reports and shall provide access to such Guarantor’s credit records maintained with each such credit reporting agency, if necessary.
9. Representations . Guarantor represents and warrants to Lender that the execution, delivery and performance by Guarantor of this Guaranty do not and will not (a) violate any provision of any Law, (b) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement to which Guarantor is a party or by which Guarantor or its properties may be bound or affected, or (c) result in, or require, the creation or imposition of any lien upon or with respect to any of the properties now owned or hereafter acquired by Guarantor.
10. Waiver of Notices . Guarantor hereby waives any and all notices including (1) notice of or proof of reliance by Lender upon this Guaranty or acceptance of this Guaranty, (2) notice of the incurrence of any Borrower Obligations or any modification thereof, including any renewal, extension, modification, consolidation, advance, increase, assumption, subordination, participation, assignment or accrual of any Borrower Obligations and (3) notice of any actions taken by Lender or Borrower or any other Person under any of the Loan Documents. Guarantor agrees to be fully bound by this Guaranty notwithstanding the occurrence of any of the foregoing.
11. Other Waivers . Guarantor hereby waives and relinquishes:
(a) any right or claim of right to cause a marshaling of any Guarantor’s assets or to cause Lender to proceed against any other Person or any of the security for the Indebtedness before proceeding under this Guaranty against any Guarantor;
(b) the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding (including a Proceeding) brought against or by Lender;
(c) presentment for payment, demand for payment, protest or notice of protest, notice of nonpayment, notice of failure to perform or observe, notice of other proof, notice of demand, notice of presentment, notice of dishonor under this Guaranty or any Loan Document, notice of acceptance hereof or notice of any action taken or omitted in reliance hereon;
(d) all homestead exemption rights, if any, against the obligations hereunder and the benefits of any statute(s) of limitations;
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 5 |
(e) any limitation on the amount or type of damages, compensation or benefits payable by or for any Guarantor under workers’ compensation acts, disability benefit acts or other employee benefit acts;
(f) any defense based upon (i) illegality, lack of validity or enforceability of any of the Loan Documents, (ii) partial payment of the Indebtedness, (iii) any non-perfection of any security interest, (iv) any act or omission of Lender in connection with the enforcement of, or the exercise of rights and remedies, including any election of, or the order of exercising any, rights and remedies, with respect to the Indebtedness, any Claim against any Guarantor or any other guarantor or any assets securing the payment of the Indebtedness or the manner or order of application of any funds received by Lender (from whatever source received) to the Indebtedness or any other obligations owed to Lender, (v) the incapacity, lack of authority, death or disability of any Guarantor or any other Person and any Guarantor’s failure to execute this Guaranty or any other guaranty or indemnity, (vi) the revocation or repudiation of this Guaranty or any of the Loan Documents by any Person including by any Guarantor, (vii) the failure of Lender to file or enforce a claim against the estate (either in administration or any other proceeding (including a Proceeding)) of any other Guarantor or any other Person, (viii) the failure of Lender to disclose to any Guarantor any information relating to any Guarantor, any Person or the Mortgaged Property or (ix) any sale or Transfer of all or any part of the Mortgaged Property or of any interest (direct or indirect) in Borrower;
(g) any Law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal;
(h) Lender's election, in any Proceeding, of the application of section 1111(b) (2) of the United Stated Bankruptcy Code or any successor statute; any borrowing or any grant of a security interest under section 364 of the United States Bankruptcy Code;
(i) the existence or lack of existence of (A) any rights of subrogation which Guarantor may have against any Person or (B) any claims or defenses whatsoever which may be asserted in connection with the enforcement or attempted enforcement of such subrogation rights including any claim that such subrogation rights were abrogated by any acts of Lender.
Notwithstanding anything to the contrary contained herein, Guarantor hereby agrees to postpone, until the Indebtedness shall have been paid in full, the exercise of any and all subrogation rights with respect to (a) any collateral securing the Indebtedness, (b) Borrower and/or (c) any owners (direct or indirect) of Borrower or its or their affiliates. If any amount shall nevertheless be paid to Guarantor on account of such subrogation or contribution rights at any time, such amount shall be held in trust for the benefit of Lender, shall be segregated from the other funds of Guarantor and shall forthwith be paid over to Lender to be credited and applied in whole or in part by Lender against the obligations due hereunder and/or under the Loan Documents.
In the event that either (i) Guarantor files a Proceeding or (ii) consents to any Proceeding, Guarantor will be deemed in default under this Guaranty and further hereby agrees that Lender's interests, including Lender’s interest in the Mortgaged Property, will not be adequately protected and that Lender upon request, shall be entitled to immediate ex parte relief (without notice to Guarantor or any other interested Persons) from the automatic stay under Section 362(d)(1) of the United States
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 6 |
Bankruptcy Code and that Guarantor will not object to or in any other manner seek to forestall the grant of such relief to Lender.
12. No Modification Without Writing / Entire Agreement / Rights Cumulative . This Guaranty may only be modified in a writing executed and delivered by Lender. This Guaranty constitutes the entire agreement of Guarantor for the benefit of Lender and supersedes any prior agreements with respect to the subject matter hereof. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which Lender has at Law or in equity, under any Loan Document or any other agreement. Each provision of this Guaranty shall be interpreted so as to be effective and valid under applicable Law, but if any provision of this Guaranty shall in any respect be ineffective or invalid under such Law, such ineffectiveness or invalidity shall not affect the remainder of such provision or the remaining provisions of this Guaranty. Lender shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies under this Guaranty or otherwise. A waiver by Lender of any right or remedy hereunder on any one occasion, shall not be construed as a ban or waiver of any such right or remedy which Lender would have had 011 any future occasion, nor shall Lender be liable for exercising or failing to exercise any such right or remedy.
13. Governing Law . This Guaranty shall be governed by and construed in accordance with the Law of the state in which the Mortgaged Property is located.
14. Jurisdiction . Guarantor hereby irrevocably submits to the jurisdiction of any federal or state court sitting in the county in which the Mortgaged Property is located over any action or proceeding (including a Proceeding) arising out of or related to this Guaranty or any other Loan Document and agrees with Lender that personal jurisdiction over Guarantor rests with such courts for purposes of any action on or related to this Guaranty or any other Loan Document. Guarantor irrevocably consents to service, jurisdiction and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise. Each Guarantor hereby waives personal service by manual delivery and agrees that service of process may be made by means of notice given accordance with the Section of this Guaranty entitled “Notices”, and that upon the giving of such notice in accordance with said Section, such service will be effective as if such Guarantor had been personally served by in hand, personal delivery.
15. Successors and Assigns . No Guarantor may transfer or assign any of any Guarantor’s rights or obligations under this Guaranty without the prior written consent of Lender. This Guaranty shall be continuing, irrevocable and shall and does bind the estate of each Guarantor and each Guarantor’s heirs, trustees, personal representatives, successors and assigns as to all Borrower Obligations arising or incurred both before and after the death or incapacity of any Guarantor, whether or not Lender receives notice of such death or incapacity. This Guaranty shall inure to the benefit of Lender and its successors, transferees and assigns. Lender may assign or otherwise transfer all or a portion of its rights or obligations hereunder to any other party to whom the Loan is transferred, and such other party shall then become vested with all the benefits in respect hereof. Guarantor agrees that Lender can provide information regarding Guarantor to any prospective or actual successor, transferee or assignee.
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 7 |
16. Joint and Several Liability . If more than one Person executes this Guaranty as Guarantor, the obligations and liabilities of such Persons shall be, and are, joint and several.
17. Construction.
(a) The captions and headings of the sections of this Guaranty and the title of this instrument are for convenience only and shall be disregarded in construing this Guaranty.
(b) Use of the singular in this Guaranty includes the plural and use of the plural includes the singular; the use of any form of gender includes the masculine, feminine and neuter.
(c) As used in this Guaranty, the term “including” means “including, but not limited to” or “including, without limitation”; "or" is not exclusive.
(d) Unless otherwise expressly provided in this Guaranty, if Lender’s approval is required for any matter hereunder or if Lender’s designation, determination, selection, estimate, action or decision is required, permitted or contemplated hereunder, such approval may be granted or withheld, and such designation, determination, selection, estimate, action or decision shall be made, in Lender’s sole and absolute discretion.
(e) A reference in this Guaranty to an agreement, instrument or document includes any present or future modification(s) of such agreement, instrument or document, to the extent and provided that such modification(s) is/are permitted by such agreement, instrument or document and is/are permitted under the Loan Documents.
18. Notices.
Notice to any party shall be made in writing, and shall be served by (a) personal delivery to the recipient, (b) United States Postal Service-first class mail (postage prepaid), (c) United States Postal Service-certified mail-retum receipt requested (postage prepaid) or (d) reliable overnight public express mail service that keeps a record of its deliveries (for next business day delivery), and sent to the addresses set forth below:
If to Borrower:
141 Livingston Owner LLC
4611 12th Avenue, Suite 1L
Brooklyn, New York 11219
Attn: David Bistricer
If to Guarantor:
Clipper Realty Inc.
4611 12th Avenue, Suite 1L
Brooklyn, New York 11219
Attn: David Bistricer
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 8 |
With a copy to:
Josh Graff, Esq.
Sukenik, Segal & Graff, P.C.
450 Seventh Avenue, 42nd Floor
New York, N.Y. 10123
If to Lender:
New York Community Bank
NYCB Plaza, 102 Duffy Avenue - 3rd Floor
Hicksville, New York 11801
Loan Servicing – LN # 110686537
or such other address as may hereafter be furnished to the other party by like notice.
Any such notice shall be deemed to have been given (a), if by personal delivery, on the day of delivery, (b), if sent via United States Postal Service, on the fifth day following posting of same with a United States Post Office and (c), if sent by overnight public express mail, on the next business day.
19. Setoff . Guarantor agrees that, in addition to, and without limiting, any right of setoff, banker’s lien or counterclaim Lender may otherwise have, and notwithstanding the existence of any Non-Recourse Provisions, Lender shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by it for the account of any Guarantor, at any of the offices of Lender, in U.S. Dollars or any other currency, against any amount due and payable by any Guarantor to Lender under this Guaranty which is not paid when due.
20. Subordination . Guarantor will not until the Loan has been paid in full (1) make any demand for payment of, or take any action to accelerate, any obligation owed to Guarantor by Borrower, (2) seek to collect payment of, or enforce any right or remedies against Borrower, any of the obligations owed to Guarantor by Borrower or any guarantees, credit supports, collateral or other security related to or supporting any of such obligations, or (3) commence, or join with any other creditor in commencing, any Proceeding against Borrower. Guarantor also agrees that the payment of all obligations of Borrower to Guarantor shall be subordinate and junior in time and right of payment in accordance with the terms of this Section to the prior payment in full (in cash) of the Borrower Obligations. In furtherance of such subordination, (1) to the extent possible, Guarantor will not take or receive from Borrower any payments, in cash or any other property, by setoff or any other means, of any or all of the obligations owed to Guarantor by Borrower, or purchase, redeem, or otherwise acquire any of such obligations, or change the terms or provisions of any such obligations and (2) if for any reason and under any circumstance Guarantor receives a payment on such obligation, whether in a Proceeding or otherwise, all such payments or distributions upon or with respect to such obligations shall be received in trust for the benefit of Lender, shall be segregated from other funds and property held by Guarantor and shall be forthwith paid over to Lender in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to, or held as collateral (in the case of securities or other non-cash property) for, the payment or prepayment of the Borrower Obligations. Notwithstanding the foregoing provisions of this Section, prior to the occurrence of an Event of Default under any of the Loan Documents, distribution(s) in the ordinary course of business by Borrower to a Guarantor pursuant to a written ownership agreement in existence and disclosed to Lender prior to the date hereof shall not be prohibited provided that any such distribution or series of distributions shall not cause Borrower to be in violation of any financial covenants, if any, in any of the Loan Documents.
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 9 |
21. Duplicate Originals . This Guaranty may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. The failure of any party hereto to execute this Guaranty, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. A copy of this Guaranty bearing a facsimile or photocopied signature or a signature transmitted by email, scan or other digital or electronic means shall have the same force and effect as one with an original ink signature of the Guarantor.
22. RPAPL Sec. 1371.
Guarantor hereby (a) waives, to the fullest extent permitted by Law, any benefits or protections of Real Property Actions and Proceedings Law section 1371 (3) of the State of New York and any other similar provision of Law and (b) agrees that any right of Lender to collect hereunder shall be in addition to any right of Lender to obtain a deficiency judgment against Borrower.
23. WAIVER OF TRIAL BY JURY.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR AND LENDER (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH GUARANTOR AND LENDER, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.
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Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 10 |
IN WITNESS WHEREOF, each of the below signing Guarantors has duly executed and delivered this Guaranty to Lender as of the date of this Guaranty first above written.
Clipper Realty Inc., a Maryland corporation | ||
By: | /s/ David Bistricer | |
Name: | David Bistricer | |
Title: | President |
State of New York | ) |
: ss.:
County of New York | ) |
On the 11th day of May, 2016, before me, the undersigned, personally appeared David Bistricer, 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 signatures on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
/s/ Mark Faham | |
Notary Public |
MARK FAHAM | |
Notary Public, State of NewYork | |
No. 01FA6101480 | |
Qualified In Kings County | |
Commission Expires November 17, 2019 |
Guaranty
Loan No. 110686537 File No. 123-33001 |
Form 173 09-19-11 |
Page 11 |
Exhibit 10.48
EXECUTION VERSION
FIRST MEZZANINE LOAN AGREEMENT
Dated as of November 9, 2016
By and Among
50 MURRAY MEZZ LLC ,
as Borrower
And
50 MURRAY MEZZ FUNDING LLC
,
and any other lending institutions which may from time to time become a party hereto
as Lenders,
And
50 MURRAY MEZZ FUNDING LLC
,
as Agent
TABLE OF CONTENTS
Page | ||
Article 1 DEFINITIONS; PRINCIPLES OF CONSTRUCTION | 1 | |
Section 1.1 | Specific Definitions | 1 |
Section 1.2 | Index of Other Definitions | 24 |
Section 1.3 | Principles of Construction | 26 |
Article 2 THE LOAN | 27 | |
Section 2.1 | The Loan | 27 |
2.1.1 | Agreement to Lend and Borrow | 27 |
2.1.2 | Single Disbursement to Borrower | 28 |
2.1.3 | The Note | 28 |
2.1.4 | Use of Proceeds | 28 |
Section 2.2 | Interest Rate | 28 |
2.2.1 | Interest Rate | 28 |
2.2.2 | Default Rate | 29 |
2.2.3 | Interest Calculation | 29 |
2.2.4 | Usury Savings | 29 |
2.2.5 | Breakage Indemnity | 30 |
Section 2.3 | Loan Payments | 30 |
2.3.1 | Payments | 30 |
2.3.2 | Payments Generally | 30 |
2.3.3 | Payment on Maturity Date | 31 |
2.3.4 | Late Payment Charge | 31 |
2.3.5 | Method and Place of Payment | 31 |
2.3.6 | Forwarding of Payments by Agent | 31 |
2.3.7 | Ratable Shares/ Pro Rata Treatment of Payments | 31 |
Section 2.4 | Prepayments | 31 |
2.4.1 | Prepayments | 31 |
2.4.2 | Voluntary Prepayments | 32 |
2.4.3 | Liquidation Events; Mandatory Prepayments | 32 |
2.4.4 | Prepayments After Default | 33 |
2.4.5 | Prepayment/Repayment Conditions | 33 |
Section 2.5 | Release Upon Payment in Full | 34 |
Section 2.6 | Interest Rate Cap Agreement | 34 |
2.6.1 | Interest Rate Cap Agreement | 34 |
2.6.2 | Pledge and Collateral Assignment | 34 |
2.6.3 | Covenants | 35 |
2.6.4 | Powers of Borrower Prior to an Event of Default | 36 |
2.6.5 | Representations and Warranties | 37 |
2.6.6 | Payments | 37 |
2.6.7 | Remedies | 37 |
2.6.8 | Sales of Rate Cap Collateral | 40 |
2.6.9 | Public Sales Not Possible | 40 |
2.6.10 | Receipt of Sale Proceeds | 40 |
ii
2.6.11 | Replacement Interest Rate Cap Agreement | 40 |
Section 2.7 | Extension Options | 40 |
2.7.1 | Extension Options | 40 |
2.7.2 | Extension Documentation | 42 |
Section 2.8 | Spread Maintenance Premium | 42 |
Section 2.9 | Regulatory Change; Taxes | 42 |
2.9.1 | Increased Costs | 42 |
2.9.2 | Special Taxes | 43 |
2.9.3 | Other Taxes | 43 |
Section 2.10 | Defaulting Lender | 43 |
Article 3 REPRESENTATIONS AND WARRANTIES | 44 | |
Section 3.1 | Borrower Representations | 44 |
3.1.1 | Organization; Special Purpose | 44 |
3.1.2 | Proceedings; Enforceability | 44 |
3.1.3 | No Conflicts | 45 |
3.1.4 | Litigation | 45 |
3.1.5 | Agreements | 45 |
3.1.6 | Consents | 45 |
3.1.7 | Title | 46 |
3.1.8 | ERISA; No Plan Assets | 46 |
3.1.9 | Compliance | 47 |
3.1.10 | Financial Information | 48 |
3.1.11 | Intentionally Omitted | 48 |
3.1.12 | Intentionally Omitted | 48 |
3.1.13 | Insurance | 48 |
3.1.14 | Intentionally Omitted | 48 |
3.1.15 | Intentionally Omitted | 48 |
3.1.16 | Intentionally Omitted | 48 |
3.1.17 | Leases | 48 |
3.1.18 | Tax Filings | 50 |
3.1.19 | No Fraudulent Transfer | 50 |
3.1.20 | Federal Reserve Regulations | 50 |
3.1.21 | Organizational Chart | 50 |
3.1.22 | Organizational Status | 50 |
3.1.23 | Bank Holding Company | 51 |
3.1.24 | No Casualty | 51 |
3.1.25 | Purchase Options | 51 |
3.1.26 | FIRPTA | 51 |
3.1.27 | Investment Company Act | 51 |
3.1.28 | Fiscal Year | 51 |
3.1.29 | Other Debt | 51 |
3.1.30 | Contracts | 51 |
3.1.31 | Full and Accurate Disclosure | 51 |
3.1.32 | Other Obligations and Liabilities | 51 |
3.1.33 | Intellectual Property/Websites | 51 |
3.1.34 | Operations Agreements | 52 |
iii
3.1.35 | Illegal Activity | 52 |
3.1.36 | Residential Tax Benefits | 52 |
3.1.37 | Mortgage Loan | 52 |
3.1.38 | Organizational Documents | 52 |
3.1.39 | Affiliates | 52 |
3.1.40 | List of Mortgage Loan Documents | 52 |
3.1.41 | No Contractual Obligations | 52 |
3.1.42 | Mortgage Loan Representations | 53 |
3.1.43 | Pledged Collateral | 53 |
Section 3.2 | Survival of Representations | 53 |
Article 4 BORROWER’S COVENANTS | 53 | |
Section 4.1 | Payment and Performance of Obligations | 54 |
Section 4.2 | Due on Sale and Encumbrance; Transfers of Interests | 54 |
Section 4.3 | Liens | 55 |
Section 4.4 | Special Purpose | 55 |
Section 4.5 | Existence; Compliance with Legal Requirements | 56 |
Section 4.6 | Taxes and Other Charges | 56 |
Section 4.7 | Litigation | 57 |
Section 4.8 | Title to the Properties | 57 |
Section 4.9 | Financial Reporting | 57 |
4.9.1 | Generally | 57 |
4.9.2 | Quarterly Reports | 57 |
4.9.3 | Annual Reports | 58 |
4.9.4 | Other Reports | 59 |
4.9.5 | Annual Budget | 59 |
4.9.6 | Extraordinary Operating Expenses | 60 |
4.9.7 | Breach | 60 |
Section 4.10 | Access to Properties | 60 |
Section 4.11 | Leases | 60 |
4.11.1 | Generally | 60 |
4.11.2 | Approvals | 60 |
4.11.3 | Covenants | 62 |
4.11.4 | Security Deposits | 63 |
Section 4.12 | Repairs; Maintenance and Compliance; Alterations | 63 |
4.12.1 | Repairs; Maintenance and Compliance | 63 |
4.12.2 | Alterations | 64 |
Section 4.13 | Approval of Major Contracts | 65 |
Section 4.14 | Property Management | 65 |
4.14.1 | Management Agreement | 65 |
4.14.2 | Prohibition Against Termination or Modification | 65 |
4.14.3 | Replacement of Manager | 66 |
Section 4.15 | Performance by Borrower; Compliance with Agreements | 66 |
Section 4.16 | Licenses; Intellectual Property; Website | 66 |
4.16.1 | Licenses | 66 |
4.16.2 | Intellectual Property | 67 |
4.16.3 | Website | 67 |
iv
Section 4.17 | Further Assurances | 67 |
Section 4.18 | Estoppel Statement | 68 |
Section 4.19 | Notice of Default | 68 |
Section 4.20 | Cooperate in Legal Proceedings | 68 |
Section 4.21 | Indebtedness | 69 |
Section 4.22 | Business and Operations | 69 |
Section 4.23 | Dissolution | 69 |
Section 4.24 | Debt Cancellation | 69 |
Section 4.25 | Affiliate Transactions | 69 |
Section 4.26 | No Joint Assessment | 70 |
Section 4.27 | Principal Place of Business | 70 |
Section 4.28 | Change of Name, Identity or Structure | 70 |
Section 4.29 | Costs and Expenses | 70 |
Section 4.30 | Indemnity | 71 |
Section 4.31 | ERISA | 72 |
Section 4.32 | Patriot Act Compliance | 73 |
Section 4.33 | Residential Tax Benefits | 74 |
Section 4.34 | Affiliate Transactions | 75 |
Section 4.35 | Limitation on Securities Issuances | 75 |
Section 4.36 | Limitations on Distributions | 75 |
Section 4.37 | Other Limitations | 76 |
Section 4.38 | Contractual Obligations | 77 |
Section 4.39 | Refinancing or Prepayment of the Mortgage Loan | 77 |
Section 4.40 | Bankruptcy-Related Covenants | 77 |
Section 4.41 | Acquisition of the Mortgage Loan | 77 |
Section 4.42 | Material Agreements | 78 |
Section 4.43 | Deed in Lieu of Foreclosure | 78 |
Section 4.44 | Mortgage Reserve Accounts | 78 |
Section 4.45 | Notices | 78 |
Section 4.46 | Special Distributions | 79 |
Section 4.47 | Mortgage Borrower Covenants | 79 |
Section 4.48 | Mortgage Loan Estoppels | 79 |
Article 5 INSURANCE, CASUALTY AND CONDEMNATION | 80 | |
Section 5.1 | Insurance | 80 |
Section 5.2 | Casualty | 81 |
Section 5.3 | Condemnation | 81 |
Section 5.4 | Restoration | 81 |
Article 6 CASH MANAGEMENT AND RESERVE FUNDS | 82 | |
Section 6.1 | Cash Management Arrangements | 82 |
Section 6.2 | Required Repairs | 83 |
Section 6.3 | Tax Funds | 83 |
Section 6.4 | Insurance Funds | 83 |
Section 6.5 | Capital Expenditure Funds | 84 |
Section 6.6 | Rollover Funds | 84 |
Section 6.7 | Casualty and Condemnation Account | 84 |
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Section 6.8 | Intentionally Omitted | 85 |
Section 6.9 | Property Cash Flow Allocation | 85 |
6.9.2 | Failure to Make Payments | 85 |
6.9.3 | Application After Event of Default | 86 |
Section 6.10 | Security Interest in Reserve Funds | 86 |
Section 6.11 | Mezzanine Cash Management Agreement; Reserve Funds | 86 |
Section 6.12 | Transfer of Funds In Mortgage Reserve Accounts | 87 |
Article 7 PERMITTED TRANSFERS | 87 | |
Section 7.1 | Permitted Transfers | 87 |
Section 7.2 | Cost and Expenses; Searches; Copies | 90 |
Article 8 DEFAULTS | 90 | |
Section 8.1 | Events of Default | 90 |
Section 8.2 | Remedies | 94 |
8.2.1 | Acceleration | 94 |
8.2.2 | Remedies Cumulative | 94 |
8.2.3 | Severance | 95 |
8.2.4 | Agent’s Right to Perform | 95 |
Section 8.3 | Right to Cure Event of Defaults | 96 |
Section 8.4 | Power of Attorney | 96 |
Article 9 SALE AND SECURITIZATION OF LOAN | 96 | |
Section 9.1 | Sale of Loan and Securitization | 96 |
Section 9.2 | Securitization Indemnification | 100 |
Section 9.3 | Severance | 103 |
9.3.1 | Severance Documentation | 103 |
9.3.2 | New Mezzanine Loan Option | 104 |
9.3.3 | Cooperation; Execution; Delivery | 104 |
Section 9.4 | Costs and Expenses | 104 |
Article 10 MISCELLANEOUS | 105 | |
Section 10.1 | Exculpation | 105 |
Section 10.2 | Survival; Successors and Assigns | 110 |
Section 10.3 | Agent’s Discretion; Rating Agency Review Waiver | 110 |
Section 10.4 | Governing Law | 111 |
Section 10.5 | Modification, Waiver in Writing | 112 |
Section 10.6 | Notices | 112 |
Section 10.7 | Waiver of Trial by Jury | 114 |
Section 10.8 | Headings, Schedules and Exhibits | 114 |
Section 10.9 | Severability | 114 |
Section 10.10 | Preferences | 114 |
Section 10.11 | Waiver of Notice | 114 |
Section 10.12 | Remedies of Borrower | 114 |
Section 10.13 | Offsets, Counterclaims and Defenses | 115 |
Section 10.14 | No Joint Venture or Partnership; No Third Party Beneficiaries | 115 |
Section 10.15 | Publicity | 115 |
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Section 10.16 | Waiver of Marshalling of Assets | 115 |
Section 10.17 | Certain Waivers | 116 |
Section 10.18 | Conflict; Construction of Documents; Reliance | 116 |
Section 10.19 | Brokers and Financial Advisors | 116 |
Section 10.20 | Prior Agreements | 117 |
Section 10.21 | Servicer | 117 |
Section 10.22 | Intentionally Omitted | 117 |
Section 10.23 | Creation of Security Interest | 117 |
Section 10.24 | Taxes | 117 |
Section 10.25 | Waiver of Rights, Defenses and Claims | 118 |
Section 10.26 | Cross Default; Cross Collateralization | 118 |
Section 10.27 | Intentionally Omitted | 118 |
Section 10.28 | Counterparts | 118 |
Section 10.29 | Set-Off | 118 |
Section 10.30 | Modification, Waiver in Writing; Approvals | 118 |
Section 10.31 | Assignments and Participations | 121 |
Section 10.32 | Intercreditor Agreement | 123 |
Section 10.33 | Mortgage Loan Defaults | 124 |
Section 10.34 | Discussions with Mortgage Lender | 125 |
Section 10.35 | Independent Approval Rights | 125 |
Section 10.36 | Acknowledgement and Consent to Bail-In of EEA Financial Institutions | 125 |
Article 11 AGENT | 126 | |
Section 11.1 | Appointment and Authorization | 126 |
Section 11.2 | Delegation of Duties | 128 |
Section 11.3 | Exculpatory Provisions | 128 |
Section 11.4 | Reliance by Agent | 128 |
Section 11.5 | Notice of Default | 128 |
Section 11.6 | Non-Reliance on Agent and Other Lenders | 129 |
Section 11.7 | Indemnification | 129 |
Section 11.8 | Agent in its Individual Capacity | 130 |
Section 11.9 | Successor Agent | 130 |
Section 11.10 | Administrative Agent Advances | 130 |
Section 11.11 | Ratable Share | 131 |
Section 11.12 | Intentionally Omitted | 131 |
Section 11.13 | Modifications to Article 11 | 131 |
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Schedules and Exhibits
Schedules :
Schedule I | - | Rent Rolls |
Schedule II | - | Required Repairs |
Schedule III | - | Organization of Borrower |
Schedule IV | - | Exceptions to Representations and Warranties |
Schedule V | - | Definition of Special Purpose Bankruptcy Remote Entity |
Schedule VI | - | Intellectual Property/Websites |
Schedule VII | - | Intentionally Omitted |
Schedule VIII | - | Intentionally Omitted |
Schedule IX | - | Intentionally Omitted |
Schedule X | - | Borrower Organizational Documents |
Schedule XI | - | Form of Tenant Estoppel Certificate |
Schedule XII | - | Reserved |
Schedule XIII | - | Ratable Share |
Schedule XIV | - | Form of Assignment and Acceptance |
Schedule XV | - | Mortgage Borrower Organizational Documents |
Schedule XVI | - | Mortgage Loan Documents |
Exhibits : | ||
Exhibit A | - | Secondary Market Transaction Information |
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FIRST MEZZANINE LOAN AGREEMENT
THIS FIRST MEZZANINE LOAN AGREEMENT , dated as of November 9, 2016 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “ Agreement ”), by and among 50 MURRAY MEZZ FUNDING LLC , a Delaware limited liability company, having an address at c/o SL Green Realty Corp., 420 Lexington Avenue, 19th Floor, New York, New York 10170 (collectively, together with its successors and permitted assigns hereunder, including any Assignee (as defined herein) hereunder and such other co-lenders as may exist from time to time, each a “ Lender ” and collectively, the “ Lenders ”), 50 MURRAY MEZZ FUNDING LLC , a Delaware limited liability company, having an address at c/o SL Green Realty Corp., 420 Lexington Avenue, 19th Floor, New York, New York 10170, as administrative agent (including any of its successors and assigns, “ Agent ”) for itself and the other Lenders party hereto from time to time, and 50 MURRAY MEZZ LLC , a Delaware limited liability company, having an address at c/o Clipper Equity LLC, 46-11 12th Avenue, Suite 1L, Brooklyn, New York 11219 (together with its permitted successors and assigns, “ Borrower ”).
All capitalized terms used herein shall have the respective meanings set forth in Article 1 hereof.
WITNESSETH :
WHEREAS, Borrower desires to obtain the Loan from Lenders; and
WHEREAS, Lenders are willing to make the Loan to Borrower, subject to and in accordance with the terms and conditions of this Agreement and the other Loan Documents.
NOW, THEREFORE, in consideration of the covenants set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree, represent and warrant as follows:
Article
1
DEFINITIONS; PRINCIPLES OF CONSTRUCTION
Section 1.1 Specific Definitions .
For all purposes of this Agreement, except as otherwise expressly provided:
“ Acceptable Accounting Method ” shall mean either (a) GAAP, (b) Federal income tax basis of accounting or (c) with respect to Guarantor, a Guarantor Acceptable Accounting Method (as defined in the Guaranty), in each case consistently applied with respect to the applicable financial statements and reporting required under the Loan Documents.
“ Acknowledgment ” shall mean the Acknowledgment, dated on or about the date hereof made by Counterparty, or as applicable, Approved Counterparty.
“ Adjusted Actual Vacancy Rate ” shall mean, as of any date of calculation, an assumed vacancy rate, expressed as a percentage and calculated as (i) annualized market rents (as determined by Agent in its reasonable discretion) for units that are vacant as of such calculation date over (ii) GPR.
“ Affiliate ” shall mean, as to any Person, any other Person that (i) owns directly or indirectly ten percent (10%) or more of all equity interests in such Person, and/or (ii) is in Control of, is Controlled by or is under common ownership or Control with such Person, and/or (iii) is a director or officer of such Person or of an Affiliate of such Person, and/or (iv) is the spouse, issue or parent of such Person or of an Affiliate of such Person.
“ Affiliate Agreement ” shall mean an agreement between Borrower or Mortgage Borrower, on the one hand, and Borrower Affiliate, on the other hand, pursuant to which Borrower Affiliate provides services or goods relating to the operation, management, leasing, sale or financing of one or more of the Properties.
“ Allocated Loan Amount ” shall mean, with respect to each Property, the amounts set forth in the Mortgage Loan Agreement.
“ ALTA ” shall mean American Land Title Association or any successor thereto.
“ Alteration Threshold ” shall mean, with respect to the Property, two percent (2%) of the Outstanding Principal Balance.
“ Annual Budget ” shall mean the operating and capital budget for the Property owned by Mortgage Borrower setting forth, on a month-by-month basis, in reasonable detail, each line item of Mortgage Borrower’s good faith estimate of anticipated operating income, operating expenses and Capital Expenditures for the applicable Fiscal Year.
“ Appraised Value ” shall mean the fair market value of the Properties reflected in an appraisal paid for by Borrower that is (i) dated not more than ninety (90) days prior to the date of calculation, (ii) signed by a qualified, independent MAI appraiser selected or approved by Agent, (iii) addressed to Agent and Lenders and their successors and assigns, (iv) made in compliance with the requirements of the Uniform Standard of Professional Appraisal Practice, or any successor thereto, and Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and the regulations promulgated thereunder, and (v) otherwise reasonably satisfactory to Agent in all material respects.
“ Approved Capital Expenditures ” shall mean Capital Expenditures incurred by Mortgage Borrower that are either (i) included in the Approved Annual Budget (subject to a variance of up to five percent (5%) in the aggregate) or (ii) approved by Agent, which approval shall not be unreasonably withheld or delayed.
“ Approved Counterparty ” shall mean a bank or other financial institution which has and maintains (i) a long-term unsecured debt rating of “A-” or higher by S&P and (ii) a long-term unsecured debt rating of not less than “A3” by Moody’s; provided however, that SMBC Capital Markets, Inc. (with an Acceptable SMBC Credit Support Party as its credit support party) will be an Acceptable Counterparty so long as the rating of its credit support party (provided such credit support party shall be an Acceptable SMBC Credit Support Party) is not downgraded, withdrawn or qualified by S&P or Moody’s from the long and short term ratings issued by such rating agencies below the lesser of the above rating (as applicable) or its ratings as of the date hereof. As used herein, an “ Acceptable SMBC Credit Support Party ” shall mean (x) Sumitomo Mitsui Banking Corporation or a replacement guarantor that meets the foregoing rating requirements and provides a guaranty on a form approved by Agent/Lender and (y) provided any such credit support party guaranty guaranties all current and future obligations under the Interest Rate Cap Agreement or Replacement Interest Rate Cap Agreement, as applicable.
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“ Assumed Note Rate ” shall mean an interest rate equal to the sum of 1% plus the Spread plus the LIBOR Floor.
“ Award ” shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect to all or any part of any Property.
“ Bankruptcy Code ” shall mean Title 11 of the United States Code entitled “Bankruptcy”, as amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors’ rights.
“ Borrower Affiliate ” shall mean, individually or collectively as the context may require, Mortgage Borrower, Borrower, Guarantor or any Affiliate of any of the foregoing.
“ Borrower’s Knowledge ” shall mean the actual knowledge of (i) David Bistricer or (ii) Sam Levinson or (iii) such Person or Persons who is primarily responsible for the ownership, operation or acquisition of any Property or who is reasonably likely to be familiar with the subject matter qualified by such phrase; and in each case, after conducting such due diligence in connection with the Properties, the Borrower, the borrowing of the Loan and the representations that are qualified in this Agreement as being made to “Borrower’s Knowledge” as is customary for Borrower in connection with the acquisition of similar properties to the Properties.
“ Borrower Organizational Documents ” shall mean, collectively, the operating agreements, limited partnership agreements and other organizational documents set forth on Schedule X attached hereto.
“ Borrower Provided Third Party Report ” shall mean any statement, report or document provided to Agent by or on behalf of Borrower by a party who is not a Borrower Affiliate.
“ Business Day ” shall mean any day other than a Saturday, a Sunday or a legal holiday on which national banks are not open for general business in (i) the State of New York, (ii) the state where the principal office of the Agent is located (which, as of the Closing Date, is New York), or (iii) the state where the servicing offices of the Servicer are located.
“ Calculation Date ” shall mean the last day of each calendar quarter during the Term.
“ Capital Expenditures ” for any period shall mean amounts expended for replacements and alterations to any Property (excluding tenant improvements) and required to be capitalized according to GAAP.
“ Cash Management Agreement ” shall mean the “Cash Management Agreement” as defined in the Mortgage Loan Agreement.
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“ Casualty ” shall mean the occurrence of any casualty, damage or injury, by fire or otherwise, to the Property or any part thereof.
“ Clipper Management Agreement ” shall mean that certain Management Agreement, dated as of November 8, 2016, by and between Mortgage Borrower and Clipper Manager, pursuant to which Clipper Manager provides management and other services with respect to the Properties.
“ Clipper Manager ” shall mean Clipper Realty L.P., a Delaware limited partnership.
“ Closing Date ” shall mean the date of the funding of the Loan.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.
“ Collateral ” shall have the meaning given to the term “Collateral” in the Pledge Agreement, together with all amounts on deposit in the Accounts and any and all other property or collateral in which Agent on behalf of Lender is granted a security interest under any of the Loan Documents, in each case, either existing on the date hereof or hereafter pledged or assigned to Agent for the benefit of Lender.
“ Collection Period ” shall mean, with respect to any Monthly Payment Date, the period of days from and including the immediately preceding Monthly Payment Date to and including the date immediately prior to such Monthly Payment Date.
“ Condemnation ” shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting any Property or any part thereof.
“ Consent of Manager ” shall mean that certain Consent of Manager, dated as of the date hereof among Borrower, Clipper Manager and Agent (on behalf of Lenders).
“ Contractual Obligation ” shall mean as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound, or any provision of the foregoing.
“ Control ” shall mean, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise, and the terms Controlled, Controlling and Common Control shall have correlative meanings.
“ Counterparty ” shall mean, with respect to the initial Interest Rate Cap Agreement, SMBC Capital Markets, Inc. and with respect to any Replacement Interest Rate Cap Agreement, any Approved Counterparty thereunder.
4
“ Debt ” shall mean the Outstanding Principal Balance together with all interest accrued and unpaid thereon and all other sums (including the Spread Maintenance Premium) due to Lenders from time to time in respect of the Loan under the Note, this Agreement, the Pledge Agreement, the Environmental Indemnity or any other Loan Document.
“ Debt Service ” shall mean, with respect to any particular period, the scheduled principal (if any) and interest payments due under the Note and Mortgage Note in such period.
“ Debt Yield ” shall mean, for any date of calculation by Agent, the percentage obtained by dividing (i) the Underwritten Net Cash Flow as of such date by (ii) the sum of the Outstanding Principal Balance as of such date and the outstanding principal amount of the Mortgage Loan as of such date.
“ Default ” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would constitute an Event of Default.
“ Default Rate ” shall mean, with respect to the Loan, a rate per annum equal to the lesser of (i) the Maximum Legal Rate or (ii) five percent (5%) above the Interest Rate.
“ Defaulting Lender ” means, subject to Section 2.10 of this Agreement, any Lender that (a) has failed to (i) fund all or any portion of the Loan required to be funded by it under the Loan Documents within one (1) Business Day of the date when such amount was required to be funded thereunder unless such Lender notifies Agent and Borrower in writing that such failure is the result of one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) having not been then satisfied, or (ii) pay to Agent any other amount required to be paid by it under the Loan Documents within two Business Days of the date when due, (b) has notified Borrower or the Agent in writing that it does not intend to comply with its funding obligations under this Agreement, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund the Loan hereunder and states that such position is based on a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) not being satisfied at such time), (c) has failed, within three Business Days after written request by Agent or Borrower, to confirm in writing to Agent and Borrower that it will comply with its prospective funding obligations, if any, hereunder ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the applicable Agent and Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under the Bankruptcy Code of the United States of America, any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.10 ) upon delivery of written notice of such determination to Borrower and each Lender.
5
“ Deposit Bank ” shall mean the bank or banks selected by Agent to maintain the Accounts. Agent may in its sole discretion change the Deposit Bank from time to time.
“ Distributions ” shall have the meaning set forth in Section 4.36 hereof.
“ Eligibility Requirements ” shall mean, with respect to any Person, that such Person (A) has total assets (in name or under management) in excess of $600,000,000 and (except with respect to a pension advisory firm or similar fiduciary) capital/statutory surplus or shareholder’s equity of at least $250,000,000, in each case excluding the Property and (B) is regularly engaged in the business of owning, operating or investing in commercial real estate properties.
“ Eligible Account ” shall mean a separate and identifiable account from all other funds held by the holding institution that is either (i) an account or accounts (or subaccounts thereof) maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (ii) a segregated trust account or accounts (or subaccounts thereof) maintained with the corporate trust department of a federal depository institution or state chartered depository institution subject to regulations regarding fiduciary funds on deposit similar to Title 12 of the Code of Federal Regulations §9.10(b), having in either case corporate trust powers, acting in its fiduciary capacity, and a combined capital and surplus of at least $50,000,000, subject to supervision or examination by federal and state authorities and having a long-term unsecured debt rating of “BBB-” or higher by S&P and “A2” or higher by Moody’s and a short-term unsecured debt rating of “A-1” or higher by S&P and “P-1” or higher by Moody’s. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.
“ Eligible Institution ” shall mean either (a) Wells Fargo Bank, National Association or (b) a depository institution or trust company insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least A-1 by S&P, P-1 by Moody’s and F-1 by Fitch (and the long term unsecured debt obligations of such depository institution are rated at least “A” by Fitch) in the case of accounts in which funds are held for thirty (30) days or less or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least (i) “A” by S&P, (ii) “A” by Fitch (and the short term deposits or short term unsecured debt obligations or commercial paper of such depository institution are rated no less than “F1” by Fitch), and (iii) “A2” by Moody’s, or in the case of Letters of Credit, the long term unsecured debt obligations of which are rated at least (i) “A+” by S&P, (ii) “A+” by Fitch (and the short term deposits or short term unsecured debt obligations or commercial paper of such depository institution are rated no less than “F1” by Fitch) and (iii) “A1” by Moody’s; provided, however, for purposes of the Deposit Bank, the definition of Eligible Institution shall have the meaning set forth in the Mortgage Cash Management Agreement.
6
“ Environmental Indemnity ” shall mean that certain First Mezzanine Environmental Indemnity Agreement dated as of the date hereof executed by Borrower and Guarantor in connection with the Loan for the benefit of Agent (for itself and on behalf of Lenders).
“ Equity Collateral Enforcement Action ” shall have the meaning set forth in Section 10.1 .
“ Equity Collateral Transfer Date ” shall have the meaning set forth in Section 10.1 .
“ ERISA Affiliate ” shall mean any trade or business (whether or not incorporated) which is a member of the same controlled group of corporations or group of trades or businesses under common control with Borrower or, in the case of a Guarantor who is an entity, the Guarantor is treated as a single employer together with Borrower or, in the case of a Guarantor who is an entity, the Guarantor under Sections 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA.
“ ERISA Event ” shall mean (i) the failure on the part of Borrower, Guarantor, or any ERISA Affiliate to make any required contribution to a Multiemployer Plan when due; (ii) a determination that any Multiemployer Plan (other than the Multiemployer Plan to which contributions are required under the Union Contract) is, or is expected to be, in “critical” or “endangered” status under Section 432 of the Code or Section 305 of ERISA; (iii) the imposition of liability on Borrower or Guarantor, or any ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA or as a result of contract or indemnification relating to any Plan or Multiemployer Plan; (iv) the withdrawal of Borrower, Guarantor, or any ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan or the receipt by Borrower, Guarantor, or any ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (v) the occurrence of a non-exempt “prohibited transaction” (within the meaning of Section 4975 of the Code or Section 406 of ERISA, respectively) with respect to any Plan which could reasonably be expected to result in liability to Borrower or Guarantor; (vi) there is any investigation or review by any governmental agency, or action, suit, proceeding or arbitration concerning any matter with respect to any Employee Benefit Plan; or (vii) the assertion of a material claim (other than routine claims for benefits) against any Plan or the assets thereof, or against Borrower, Guarantor, or any ERISA Affiliates in connection with any Multiemployer Plan or Plan.
“ Employee Benefit Plan ” shall mean any employee benefit plan within the meaning of section 3(3) of ERISA maintained by Borrower, Guarantor, or any ERISA Affiliate or to which Borrower, Guarantor, or any ERISA Affiliate makes contributions or with respect to which any of them has any liability.
“ Equinox Litigation ” shall mean that certain litigation entitled Equinox Tribeca, Inc. v. 50 Murray Street Acquisition, LLC, as successor in interest to Lionshead 110 Development, LLC, filed under index no. 650689/2016 in the Supreme Court of the State of New York, County of New York and any other counterclaim, claim, action, lawsuit or proceeding based on the facts and circumstances contained therein.
7
“ Extension Fee ” shall mean a non-refundable fee equal to (i) 0.25% of the Outstanding Principal Balance in connection with Borrower’s exercise of the Second Extension Option and payable prior to the First Extended Maturity Date and (ii) 0.25% of the Outstanding Principal Balance in connection with Borrower’s exercise of the Third Extension Option and payable prior to the Second Extended Maturity Date.
“ Extension Option ” shall mean the First Extension Option, the Second Extension Option, or the Third Extension Option, as applicable.
“ Extension Strike Price ” shall mean the lower of (i) 3.50% and (ii) a strike price, determined by Agent following the exercise by Borrower of any Extension Option, equal to such annual interest rate as shall result in the Debt Service Coverage Ratio being not less than 1.05:1.00.
“ Fiscal Year ” shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the Term.
“ Fitch ” shall mean Fitch, Inc.
“ GAAP ” shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such entity as may be in general use by significant segments of the U.S. accounting profession.
“ Governmental Authority ” shall mean any court, board, agency, department, committee, commission, central bank, office or authority of any nature whatsoever (including any political subdivision or instrumentality thereof) for any governmental or quasi-governmental unit (whether federal, state, commonwealth, county, district, municipal, city, parish, provincial or otherwise) (whether of the government of the United States or any other nation) now or hereafter in existence (including any supra-national bodies such as the European Union or the European Central Bank and any intergovernmental organizations such as the United Nations).
“ GPR ” shall mean the sum of (i) annualized actual in place rents under bona fide residential Leases at the Properties with Tenants that are not Borrower Affiliates and (ii) annualized market rents (as determined by Agent in its reasonable discretion) for units that are vacant as of the applicable date of calculation.
“ Gross Revenue ” shall have the meaning set forth in the Mortgage Loan Agreement.
“ Guarantor ” shall mean, collectively and on a joint and several basis, each of David Bistricer, an individual, Trapeze Inc., a Delaware corporation, and Clipper Realty, Inc., a Maryland corporation or any other Person that now or hereafter guarantees the obligations of Borrower under any Loan Document.
“ Guarantor Financial Covenants ” shall mean those covenants set forth in Section 5.2 of the Guaranty.
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“ Guaranty ” shall mean that certain First Mezzanine Guaranty of Recourse Obligations of even date herewith from Guarantor for the benefit of Agent (for itself and on behalf of Lenders).
“ Indebtedness ” shall mean, for any Person, without duplication: (i) all indebtedness of such Person for borrowed money, for amounts drawn under a letter of credit, or for the deferred purchase price of property for which such Person or its assets is liable, (ii) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person would be liable if such amounts were advanced thereunder, (iii) all amounts required to be paid by such Person as a guaranteed payment to partners or a preferred or special dividend, including any mandatory redemption of shares or interests, (iv) all indebtedness guaranteed by such Person, directly or indirectly, (v) all obligations under leases that constitute capital leases for which such Person is liable, (vi) all obligations of such Person under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case for which such Person is liable or its assets are liable, whether such Person (or its assets) is liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss, (vii) all obligations under any PACE loans and (viii) any other contractual obligation for the payment of money which are not settled within thirty (30) days.
“ Independent ” shall mean, when used with respect to any Person, a Person who: (i) does not have any direct financial interest or any material indirect financial interest in Borrower or in any Affiliate of Borrower, (ii) is not connected with Borrower or any Affiliate of Borrower as an officer, employee, promoter, underwriter, trustee, partner, member, manager, creditor, director, supplier, customer or person performing similar functions and (iii) is not a member of the immediate family of a Person defined in (i) or (ii) above.
“ Independent Accountant ” shall mean (i) a firm of nationally recognized, certified public accountants which is Independent and which is selected by Borrower and reasonably acceptable to Agent, (ii) such other certified public accountant(s) selected by Borrower, which is Independent and reasonably acceptable to Agent, or (iii) Mayer Rispler & Co. or BDO Seidman, LLP (provided that Agent reserves the right to disapprove Mayer Rispler & Co. or BDO Seidman, LLP as an approved Independent Accountant and to require a replacement Independent Accountant if Mayer Rispler & Co. or BDO Seidman, LLP are not preparing the requisite financial statements substantially in accordance with the provisions contained herein).
“ Insolvency Opinion ” shall mean that certain bankruptcy non-consolidation opinion letter dated the date hereof delivered by Backenroth, Frankel & Krinsky, LLP in connection with the Loan.
“ Interest Determination Date ” shall mean, (A) with respect to the Initial Interest Period, the date that is two (2) Business Days before the Closing Date and (B) with respect to any other Interest Period, the date which is two (2) Business Days prior to the fifteenth (15th) day of each calendar month; provided, however, that at the option of Agent in connection with a Securitization, an additional Interest Determination Date shall occur on the date which is two (2) Business Days prior to the closing date of the Securitization (which shall adjust the Interest Rate for the remainder of the then-current Interest Period). When used with respect to an Interest Determination Date, Business Day shall mean any day on which banks are open for dealing in foreign currency and exchange in London.
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“ Interest Rate ” shall mean, with respect to each Interest Period, an interest rate per annum equal to (i) for a LIBOR Loan, the sum of (a) the greater of LIBOR determined as of the Interest Determination Date immediately preceding the commencement of such Interest Period and the LIBOR Floor, plus (b) the Spread (or, when applicable pursuant to this Agreement or any other Loan Document, the Default Rate); and (ii) for a Prime Loan, the sum of (a) the greater of the Prime Rate and the Prime Rate Floor, plus (b) the Prime Rate Spread (or, when applicable pursuant to this Agreement or any other Loan Document, the applicable Default Rate).
“ Interest Rate Cap Agreement ” shall mean the Confirmation and Agreement (together with the confirmation and schedules relating thereto), dated on or about the date hereof, between the Counterparty and Borrower, obtained by Borrower and collaterally assigned to Agent (on behalf of Lenders) pursuant to this Agreement. After delivery of a Replacement Interest Rate Cap Agreement to Agent (on behalf of Lenders), the term Interest Rate Cap Agreement shall be deemed to mean such Replacement Interest Rate Cap Agreement. The Interest Rate Cap Agreement shall be governed by the laws of the State of New York and shall contain each of the following:
(a) the notional amount of the Interest Rate Cap Agreement shall be equal to the maximum principal amount of the Loan;
(b) the remaining term of the Interest Rate Cap Agreement shall at all times extend through the end of the Interest Period in which the Maturity Date occurs as extended from time to time pursuant to this Agreement and the Loan Documents;
(c) the Interest Rate Cap Agreement shall be issued by the Counterparty to Borrower and shall be pledged to Agent (on behalf of Lenders) by Borrower in accordance with this Agreement;
(d) the Counterparty under the Interest Rate Cap Agreement shall be obligated to make a stream of payments, directly to the Clearing Account (whether or not an Event of Default has occurred) from time to time equal to the product of (i) the notional amount of such Interest Rate Cap Agreement multiplied by (ii) the excess, if any, of LIBOR (including any upward rounding under the definition of LIBOR) over the Strike Price and shall provide that such payment shall be made on a monthly basis in each case not later than (after giving effect to and assuming the passage of any cure period afforded to such Counterparty under the Interest Rate Cap Agreement, which cure period shall not in any event be more than three Business Days) each Monthly Payment Date;
(e) the Counterparty under the Interest Rate Cap Agreement shall execute and deliver the Acknowledgment; and
(f) the Interest Rate Cap Agreement shall impose no material obligation on the beneficiary thereof (after payment of the acquisition cost) and shall be in all material respects satisfactory in form and substance to Agent in its reasonable determination and shall satisfy applicable Rating Agency standards and requirements, including, without limitation, provisions satisfying Rating Agencies standards, requirements and criteria (i) that incorporate representations by the Counterparty that no withholding taxes shall apply to payments by the Counterparty, and provide for “gross up” payments by the Counterparty for any withholding tax, (ii) whereby the Counterparty agrees not to file or join in the filing of any petition against Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, and (iii) that incorporate, if the Interest Rate Cap Agreement contemplates collateral posting by the Counterparty, a credit support annex setting forth the mechanics for collateral to be calculated and posted that are consistent with Rating Agency standards, requirements and criteria.
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“ Key Principal(s) ” shall mean David Bistricer and Sam Levinson.
“ Lease ” shall mean any lease, sublease or sub-sublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy, all or any portion of any space in a Property, and every modification, amendment or other agreement (whether written or oral and whether now or hereafter in effect) relating to such lease, sublease, sub-sublease or other agreement entered into in connection with such lease, sublease, sub-sublease or other agreement, and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto, whether before or after the filing by or against Borrower or Mortgage Borrower of any petition for relief under the Bankruptcy Code.
“ Lender Party ” shall mean Agent, any Lender or any Affiliate of either.
“ Legal Requirements ” shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting the Loan, any Secondary Market Transaction with respect to the Loan, Borrower or any Property or any part thereof or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, including, without limitation, the Securities Act, the Exchange Act, Regulation AB, the rules and regulations promulgated pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, zoning and land use laws, the Americans with Disabilities Act of 1990, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting any Property or any part thereof, including any which may (i) require repairs, modifications or alterations in or to any Property or any part thereof, or (ii) in any way limit the use and enjoyment thereof.
“ Letter of Credit ” shall mean an irrevocable, unconditional, transferable (without payment of any transfer fee), clean sight draft letter of credit acceptable to Agent and the Rating Agencies (either an evergreen letter of credit or one which does not expire until at least thirty (30) Business Days after the Stated Maturity Date) in favor of Agent (on behalf of Lenders) and entitling Agent to draw thereon in New York, New York, issued by a domestic Eligible Institution or the U.S. agency or branch of a foreign Eligible Institution. If at any time the bank issuing any such Letter of Credit shall cease to be an Eligible Institution, Agent shall have the right immediately to draw down the same in full and hold the proceeds of such draw in accordance with the applicable provisions hereof.
“ LIBOR ” shall mean, with respect to each Interest Period and each Interest Determination Date, the rate per annum (rounded upwards, if necessary, to the nearest 1/1,000 of 1%) calculated by the Agent as set forth below:
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(a) The rate for deposits in U.S. Dollars for a one-month period that appears on Reuters Screen LIBOR01 Page (or its equivalent) as of 11:00 a.m., London time, on such Interest Determination Date.
(b) If such rate does not appear on Reuters Screen LIBOR01 Page (or its equivalent) as of 11:00 a.m., London time, on the applicable Interest Determination Date, the Agent shall request the principal London office of any four major reference banks in the London interbank market selected by the Agent to provide such reference bank’s offered quotation to prime banks in the London interbank market for deposits in United States dollars for a one-month period as of 11:00 a.m., London time, on such Interest Determination Date in a principal amount of not less than $1,000,000 that is representative for a single transaction in the relevant market at the relevant time. If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Agent shall request any three major banks in New York City selected by the Agent to provide such bank’s rates for loans in U.S. Dollars to leading European banks for a one-month period as of 11:00 a.m., New York City time, on such Interest Determination Date in a principal amount not less than $1,000,000 that is representative for a single transaction in the relevant market at the relevant time, and if at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates.
In no event shall LIBOR be less than the LIBOR Floor.
“ LIBOR Floor” ” shall mean (0.00%).
“ LIBOR Loan ” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon LIBOR.
“ Lien ” shall mean any mortgage, deed of trust, lien (statutory or otherwise), pledge, hypothecation, easement, restrictive covenant, preference, assignment, security interest, or any other encumbrance, charge or transfer of, or any agreement to enter into or create any of the foregoing, on or affecting all or any portion of any Property, any Collateral or any interest therein, or any direct or indirect interest in Borrower, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances.
“ Liquidation Event ” shall have the meaning given to such term in Section 2.4.3 .
“ Loan ” shall mean the loan in the original principal amount of Seventy-Five Million and No/100 Dollars ($75,000,000.00) made by Lenders to Borrower pursuant to this Agreement.
“ Loan Documents ” shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Environmental Indemnity, the Consent of Manager, the Guaranty and any other documents, agreements and instruments now or hereafter evidencing, securing or delivered to Agent (on behalf of Lenders) and Lenders in connection with the Loan, as the same may be (and each of the foregoing defined terms shall refer to such documents as they may be) amended, restated, replaced, supplemented or otherwise modified from time to time.
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“ Major Contract ” shall mean (i) any management agreement, (ii) any brokerage or leasing agreement; provided, however, a brokerage or leasing agreement shall not be considered a Major Contract if it is (A) with a nationally or regionally recognized brokerage or leasing company and (B) cancelable on thirty (30) days or less notice without requiring the payment of termination fees or payments of any kind (other than paying amounts due through the date of cancellation) and without any so-called “tail” liability for leases entered into more than six (6) months after such cancelation or termination, (iii) the Union Contract, (iv) any cleaning, maintenance, service or other contract or agreement of any kind (other than Leases) of a material nature (materiality, for these purposes, shall mean contracts which (1) extend beyond one year (unless cancelable on thirty (30) days or less notice without requiring the payment of termination fees or payments of any kind (other than paying amounts due through the date of cancellation) and (2) have annual gross payment obligations of at least $500,000), in either case relating to the ownership, leasing, management, use, operation, maintenance, repair or restoration of the Property, whether written or oral, or (v) any management, brokerage, leasing, cleaning, maintenance, service or other contract or agreement of any kind (other than Leases) that is an Affiliate Agreement.
“ Major Lease ” shall mean (a) any non-residential or commercial Lease, (b) any Lease which is with Borrower Affiliate as Tenant, except for Permitted Affiliate Residential Leases, (c) any Lease that is entered into during the continuance of an Event of Default or other Trigger Period, and (d) with respect to residential Leases which, either individually, or when taken together with any other Lease with the same Tenant or its Affiliates, and assuming the exercise of all expansion rights and all preferential rights to lease additional space contained in such residential Lease, (i) covers more than fifty (50) apartment units or (ii) contains an option or other preferential right to purchase all or any portion of any Property.
“ Management Agreement ” shall mean the Clipper Management Agreement or any replacement management agreement entered into by and between Mortgage Borrower and a Manager in accordance with the terms of the Loan Documents, in each case, pursuant to which the Manager is to provide management and other services with respect to the Property.
“ Manager ” shall mean (i) Clipper Manager or (ii) any other manager engaged in accordance with the terms and conditions of the Loan Documents.
“ Material Adverse Effect ” shall mean the occurrence or existence of a condition or event which would (i) have a material adverse effect on (A) the value of a Property or the Collateral, (B) the financial condition of Borrower, (C) the ability of Guarantor to maintain a Net Worth (as defined in the Guaranty) of not less than the Net Worth Threshold (as defined in the Guaranty), (D) the ability of Guarantor to maintain Liquidity (as defined in the Guaranty) of not less than the Liquidity Threshold (as defined in the Guaranty), (E) the Underwritten Net Cash Flow or (F) the ability of Borrower or Guarantor to pay any amounts under the Loan Documents as they become due, (ii) prevent Borrower or Guarantor from performing their respective material obligations under this Agreement or any of the other Loan Documents, and/or (iii) prevent or materially impede or limit Agent’s or any Lender’s ability to exercise its rights and remedies provided by the Loan Documents.
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“ Material Alteration ” shall mean any alteration affecting structural elements of the Improvements, utility or HVAC system contained in any Improvements or the exterior of any Property, the cost of which exceeds the Alteration Threshold; provided, however, that in no event shall (i) any Required Repairs, (ii) any tenant improvement work performed pursuant to any Lease existing on the date hereof or entered into hereafter in accordance with the provisions of this Agreement, or (iii) alterations performed as part of a Restoration, constitute a Material Alteration.
“ Maturity Date ” shall mean the Stated Maturity Date, provided that (a) in the event of the proper exercise by Borrower of the First Extension Option pursuant to Section 2.7 , the Maturity Date shall be the First Extended Maturity Date, (b) in the event of the proper exercise by Borrower of the Second Extension Option pursuant to Section 2.7 , the Maturity Date shall be the Second Extended Maturity Date, and (c) in the event of the proper exercise by Borrower of the Third Extension Option pursuant to Section 2.7 , the Maturity Date shall be the Third Extended Maturity Date, or such earlier date on which the final payment of principal of the Note becomes due and payable as herein or therein provided, whether at the Stated Maturity Date, by declaration of acceleration, or otherwise.
“ Maximum Legal Rate ” shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such Governmental Authority whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.
“ Mezzanine Cash Management Account ” shall mean the account held at the Deposit Bank for the benefit of Agent and the Lenders hereunder.
“ Mezzanine Loan Subaccount ” shall mean the “Current Mezzanine Payment Account”, as defined in the Mortgage Loan Agreement.
“ Monthly Operating Expense Budgeted Amount ” shall mean the monthly amount set forth in the Approved Annual Budget for operating expenses for the calendar month in which such Monthly Payment Date occurs; provided that management fees payable to Manager as part of the Monthly Operating Expense Budgeted Amount shall not exceed 3% of Rents (the “ Management Fee Cap ”).
“ Monthly Payment Date ” shall mean the ninth (9th) day of every calendar month occurring during the Term. The first Monthly Payment Date shall be December 9, 2016.
“ Moody’s ” shall mean Moody’s Investors Service, Inc.
“ Mortgage ” shall have the meaning set forth in the Mortgage Loan Agreement.
“ Mortgage Borrower ” shall mean 50 Murray Street Acquisition LLC, a Delaware limited liability company, together with its successors and permitted assigns.
“ Mortgage Borrower Organizational Documents ” shall mean, collectively, the operating agreement and other organizational documents set forth on Schedule XV attached hereto.
“ Mortgage Debt ” shall have the meaning given to the term “Debt” in the Mortgage Loan Agreement.
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“ Mortgage Lender ” shall mean Deutsche Bank AG, New York Branch, a branch of Deutsche Bank, AG, a German Bank, authorized by the New York Department of Financial Services, and the “Lenders” (as defined in the Mortgage Loan Agreement), together with its and their respective successors and assigns.
“ Mortgage Loan ” shall mean that certain mortgage loan in the principal amount of $335,000,000.00 made on the date hereof by Mortgage Lender to Mortgage Borrower, and evidenced and secured by the Mortgage Loan Documents, as the same may be severed, componentized or otherwise split in accordance with the Mortgage Loan Agreement..
“ Mortgage Loan Agent ” shall mean Deutsche Bank AG, New York Branch, in its capacity as administrative agent for the holder(s) of the Mortgage Loan, together with its successors and assigns.
“ Mortgage Loan Agreement ” shall mean that certain Loan Agreement, dated as of the date hereof, among Mortgage Borrower, Mortgage Loan Agent and Mortgage Lender, pursuant to which Mortgage Lender agreed to make the Mortgage Loan to Mortgage Borrower subject to the terms thereof, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.
“ Mortgage Loan Default ” shall mean an “Event of Default” under the Mortgage Loan Documents.
“ Mortgage Loan Documents ” shall mean, collectively, the Mortgage Loan Agreement, the Mortgage, the Cash Management Agreement, and all other documents and instruments defined as “Loan Documents” in the Mortgage Loan Agreement, as any of the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.
“ Mortgage Note ” shall mean the “Note” as defined in the Mortgage Loan Agreement.
“ Mortgage Reserve Funds ” shall mean the “Reserve Funds” as defined in the Mortgage Loan Agreement.
“ Net Liquidation Proceeds After Debt Service ” shall mean, with respect to any Liquidation Event, all amounts actually paid to or received by or on behalf of Mortgage Borrower in connection with such Liquidation Event, including, without limitation, proceeds of any sale, refinancing or other disposition or liquidation, less, (i) in the event of a Liquidation Event consisting of a Casualty or Condemnation, Lender’s and/or Mortgage Lender’s reasonable costs incurred in connection with the recovery thereof, (ii) in the event of a Liquidation Event consisting of a Casualty or Condemnation, the costs incurred by Mortgage Borrower in connection with a restoration of all or any portion of the Property made in accordance with the Mortgage Loan Documents, (iii) in the event of a Liquidation Event consisting of a Casualty or Condemnation or a Transfer, amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender, (iv) in the case of a foreclosure sale, disposition or transfer of the Property in connection with realization thereon following a Mortgage Loan Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions), (v) in the case of a foreclosure sale, such costs and expenses incurred by Mortgage Lender under the Mortgage Loan Documents as Mortgage Lender shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents and (vi) in the case of a refinancing of the Mortgage Loan, such costs and expenses (including attorneys’ fees) of such refinancing as shall be reasonably approved by Lender.
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“ Net Proceeds ” shall have the meaning set forth in the Mortgage Loan Agreement.
“ Multiemployer Plan ” shall mean a “multiemployer plan” (as defined in Section 3(37) or Section 4001(a)(3) of ERISA) subject to Title IV of ERISA, (i) to which Borrower, Guarantor, or any of their ERISA Affiliates is making or accruing or has (or has had) an obligation to make or accrue contributions, or (ii) with respect to which Borrower, Guarantor, or any of their ERISA Affiliates could be subjected to any liability whether under Title IV of ERISA or by contract or agreement or otherwise.
“ NRSRO ” shall mean any credit rating agency that has elected to be treated as a nationally recognized statistical rating organization for purposes of Section 15E of the Exchange Act, without regard to whether or not such credit rating agency has been engaged by Agent or its designees in connection with, or in anticipation of, a Securitization.
“ Obligations ” shall mean, collectively, Borrower’s obligations for the payment of the Debt and the performance of the Other Obligations.
“ Officer’s Certificate ” shall mean a certificate delivered to Agent by Borrower which is signed by an authorized senior officer of Borrower or an Affiliate.
“ Operating Expenses ” shall have the meaning set forth in the Mortgage Loan Agreement.
“ Operating Income ” shall have the meaning set forth in the Mortgage Loan Agreement.
“ Operations Agreements ” shall mean any covenants, restrictions, easements, declarations or agreements of record relating to the construction, operation or use of the Property, together with all amendments, modifications or supplements thereto.
“ Other Charges ” shall have the meaning set forth in the Mortgage Loan Agreement.
“ Other Obligations ” shall mean (a) the performance of all obligations of Borrower contained herein; (b) the performance of each obligation of Borrower contained in any other Loan Document; and (c) the performance of each obligation of Borrower contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of this Agreement, the Note or any other Loan Document.
“ Outstanding Principal Balance ” shall mean, as of any date, the then outstanding principal balance of the Loan.
“ PACE Loan ” shall mean (x) any “Property-Assessed Clean Energy loan” or (y) any other indebtedness, without regard to the name given to such indebtedness, which is (i) incurred for improvements to the Property for the purpose of increasing energy efficiency, increasing use of renewable energy sources, resource conservation, or a combination of the foregoing, and (ii) repaid through multi-year assessments against the Property.
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“ Patriot Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) of 2001, as the same was restored and amended by Uniting and Strengthening America by Fulfilling Rights and Ensuring Effective Discipline Over Monitoring Act (USA FREEDOM Act) of 2015 and as the same may be further amended, extended, replaced or otherwise modified may be amended from time to time, and any corresponding provisions of future laws.
“ Permitted Encumbrances ” shall mean, with respect to the Property and the Collateral, collectively, (i) the Liens and security interests created by the Loan Documents and the Mortgage Loan Documents, (ii) all encumbrances and other matters disclosed in the UCC Title Insurance Policy relating to the Collateral or the Title Insurance Policies relating to the Properties, (iii) Liens, if any, for Taxes or Other Charges imposed by any Governmental Authority not yet due or delinquent, or that are being contested in accordance with Section 4.3 hereof, (iv) any workers’, mechanics’, judicial or other similar Liens on a Property provided that any such Lien is bonded, discharged, or insured over pursuant to an endorsement to the Title Insurance Policy reasonably acceptable to Agent, within thirty (30) days after Mortgage Borrower or Borrower first receives written notice of such Lien, (v) such other title and survey exceptions as Agent has approved or may approve in writing in Agent’s reasonable discretion, (vi) the right and interests of Tenants under the Leases described in Schedule I and the rights and interests of Tenants under any other Leases entered into in accordance with the Loan Documents, (vii) customary utility easements which do not impair the value of the Property, and (viii) such other liens as are expressly permitted under the provisions of the Loan Documents.
“ Person ” shall mean any individual, corporation, partnership, limited liability company, joint venture, estate, trust, unincorporated association, any other entity, any Governmental Authority and any fiduciary acting in such capacity on behalf of any of the foregoing.
“ Physical Conditions Report ” shall mean, collectively, those certain Property Condition Reports, prepared by CBRE, Inc. (Project Nos. PC61029310-101 and PC61029310-102) and dated as of October 19, 2016.
“ Plan ” shall mean a plan as defined in Section 3(3) of ERISA subject to Title IV of ERISA other than a Multiemployer Plan, (i) maintained or sponsored by Borrower, Guarantor, or any of their ERISA Affiliates or (ii) with respect to which Borrower, Guarantor, or any of their ERISA Affiliates could be subjected to any liability whether under Title IV of ERISA or by contract or agreement or otherwise.
“ Pledge Agreement ” shall mean the First Mezzanine Pledge and Security Agreement, dated as of the Closing Date, by Borrower in favor of Agent for the benefit of Lender, as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.
“ Pledged LLC Certificates ” shall mean the original certificates evidencing the Pledged Company Interests delivered to Agent pursuant to the Pledge Agreement.
“ Pledged Company Interests ” shall mean the one hundred percent (100%) ownership interest of Borrower in Mortgage Borrower.
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“ Prepayment Notice ” shall mean a prior revocable written notice to Agent specifying the proposed Business Day on which a prepayment of the Debt is intended to be made pursuant to Section 2.4 hereof, which date shall be no earlier than thirty (30) days after the date of such Prepayment Notice and no later than sixty (60) days after the date of such Prepayment Notice, provided that, upon giving of at least three (3) Business Days’ prior notice to Agent, Borrower may revoke such Prepayment Notice or change the intended date of such prepayment to any Business Day specified in such notice to Agent; provided, further, that if Borrower delivers a Prepayment Notice and revokes such notice, Borrower shall reimburse Agent and Lenders for all out-of-pocket costs and expenses incurred by Agent and Lenders with respect to the actions taken as a result of such revoked Prepayment Notice (including reasonable attorney’s fees).
“ Prime Rate ” shall mean the rate of interest published in The Wall Street Journal from time to time as the “Prime Rate”. If more than one “Prime Rate” is published in The Wall Street Journal for a day, the average of such “Prime Rates” will be used, and such average will be rounded up to the nearest 1/100th of one percent (0.01%). If The Wall Street Journal ceases to publish the “Prime Rate,” Agent will select an equivalent publication that publishes such “Prime Rate,” and if such “Prime Rates” are no longer generally published or are limited, regulated or administered by a governmental or quasi-governmental body, then Agent will select a comparable interest rate index.
“ Prime Rate Floor ” shall mean, in connection with any conversion of the Loan from a LIBOR Loan to a Prime Rate Loan, the difference between (a) the sum of the LIBOR Floor plus the Spread, minus (b) the Prime Rate Spread; provided, however, that if such difference is a negative number, then the Prime Rate Floor shall be zero.
“ Prime Rate Loan ” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon the Prime Rate.
“ Prime Rate Spread ” shall mean, in connection with any conversion of the Loan from a LIBOR Loan to a Prime Rate Loan, the difference (expressed as the number of basis points) between (a) the sum of (i) LIBOR, determined as of the Interest Determination Date for which LIBOR was last available, plus (ii) the Spread, minus (b) the Prime Rate as of such Interest Determination Date; provided, however, that if such difference is a negative number, then the Prime Rate Spread shall be zero.
“ Properties ” or “ Property ” shall mean, collectively, the parcels of real property and Improvements now or hereafter erected or installed thereon and all personal property owned by Mortgage Borrower and encumbered by the Mortgage; together with all rights pertaining to such real property and Improvements, and all other collateral for the Mortgage Loan as more particularly described in the granting clauses of the Mortgage. The Properties are located at 50 Murray Street (aka 110-120 Church Street), New York, New York (the “ 110 Church Property ”) and 53 Park Place, New York, New York (the “ 53 Park Place Property ”).
“ Qualified Lender ” shall mean (x) SLG or any Affiliate of SLG or (y) any Person other than a natural Person that is any of the following, provided that any such Person shall at all times satisfy the Eligibility Requirements and is not a Defaulting Lender:
(a) | a commercial bank organized under the laws of the United States, or any state thereof which regularly invests in or makes commercial real estate loans; |
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(b) | a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development (the “ OECD ”), or a political subdivision of any such country which regularly invests in or makes commercial real estate loans ( provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD); |
(c) | a Person that is engaged in the business of commercial real estate banking and that is: (1) an Affiliate of Lender, or (2) a Person of which a Lender is a subsidiary; |
(d) | an insurance company, mutual fund or other financial institution organized under the laws of the United States, any state thereof, any other country which is a member of the OECD or a political subdivision of any such country which regularly invests in or makes commercial real estate loans; or |
(e) | a fund (other than a mutual fund) which regularly invests in or makes commercial real estate loans; |
provided , however , that “Qualified Lender” shall not include: (i) Borrower Affiliate, (ii) the constituent members of Borrower Affiliate; and (iii) any Defaulting Lender (so long as such Lender remains a Defaulting Lender).
“ Qualified Manager ” shall mean (i) Clipper Manager, or (ii) a Manager approved by Agent in Agent’s sole discretion.
“ Qualified Transferee ” shall mean a transferee for whom, prior to the Transfer, Agent shall have received: (x) evidence that the proposed transferee (1) has never been indicted or convicted of, or pled guilty or no contest to, a felony, (2) has never been indicted or convicted of, or pled guilty or no contest to, a Patriot Act Offense and is not on any Government List, (3) has never been the subject of a voluntary or involuntary (to the extent the same has not been discharged) bankruptcy proceeding and (4) has no material outstanding judgments against such proposed transferee and (y) if the proposed transferee will obtain Control of or obtain a direct or indirect interest of 10% or more in Borrower as a result of such proposed transfer, a credit check against such proposed transferee that is reasonably acceptable to Agent.
“ Ratable Share ”, “ Ratable ” or “ ratably ” shall mean, with respect to any Lender, its share of the Loan based on the proportion of the Outstanding Principal Balance advanced or held by such Lender to the total outstanding principal amount of the Loan. The Ratable Share of each Lender on the date of this Agreement after giving effect to the funding of the Loan on the Closing Date is set forth on Schedule XIII attached hereto and made a part hereof.
“ Rating Agencies ” shall mean any nationally-recognized statistical rating organization (e.g. Standard & Poor’s Ratings Services, Moody’s Investor Service, Inc., Fitch, Inc., DBRS, Inc. or any successor thereto) that has been or will be engaged by Agent or its designees in connection with, or in anticipation of, a Securitization; provided , that following a Securitization, it shall refer to the Rating Agencies that actually rated the Securities.
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“ Rating Agency Confirmation ” shall mean a written affirmation from each of the Rating Agencies that the credit rating of the Securities by such Rating Agency immediately prior to the occurrence of the event with respect to which such Rating Agency Confirmation is sought will not be qualified, downgraded or withdrawn as a result of the occurrence of such event, which affirmation may be granted or withheld in such Rating Agency’s sole and absolute discretion.
“ Regulation AB ” shall mean Regulation AB under the Securities Act and the Exchange Act, as such Regulation may be amended from time to time.
“ Regulatory Change ” shall mean, at any time hereafter, (i) any change in any Legal Requirement (including by repeal, amendment or otherwise) or in the interpretation or application thereof by any central bank or other Governmental Authority or (ii) any new or revised request, guidance or directive issued by any central bank or other Governmental Authority and applicable to the Agent and Lenders.
“ Related Loan ” shall mean a loan to an Affiliate of Borrower or Guarantor or secured directly or indirectly by a Related Property, that is included in a Securitization with the Loan, and any other loan that is cross-collateralized with the Loan.
“ Related Property ” shall mean a parcel of real property, together with improvements thereon and personal property related thereto, that is “related” within the meaning of the definition of Significant Obligor, to any Property.
“ Rent Regulation Laws ” shall mean the Emergency Tenant Protection Act of 1974, New York City Rent Stabilization Law (Chapter 4, Title 26 of the New York City Administrative Code, the New York City Rent Stabilization Code (Chapter VIII, Subtitle S, Title 9 of the New York City Rules and Regulations), the New York City Rent and Eviction Regulations (Subchapter B, Chapter VII, Subtitle S, Title 9 of the New York City Rules and Regulations, any Legal Requirement applicable to residential rent overcharges or rent rollbacks, harassment or mistreatment of residential tenants, any other law, rule, statute or regulation that imposes limitations on, or otherwise regulates, rent that may be charged to residential tenants or obligations on the part of landlords to renew residential leases, and any regulations promulgated thereunder, as each of the foregoing may have been or may hereafter be amended or replaced from time to time.
“ Rents ” shall mean all rents, rent equivalents, “additional rent” (i.e. pass-throughs for operating expenses, real estate tax escalations and/or real estate tax pass-throughs, payments by Tenants on account of electrical consumption, porters’ wage escalations, condenser water charges and tap-in fees, freight elevator and HVAC overtime charges, charges for excessive rubbish removal and other sundry charges), moneys payable as damages (including payments by reason of the rejection of a Lease in a bankruptcy proceeding) or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, fees, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other payment and consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower, Manager (excluding management fees paid to Manager) or any of their respective agents or employees from any and all sources arising from or attributable to each Property, including all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the lease, sublease, license, concession or other grant of the right of the use and occupancy of each Property or rendering of services by Borrower, Manager or any of their respective agents or employees and Insurance Proceeds, if any, from business interruption or other loss of income insurance, but only to the extent such Insurance Proceeds are treated as business or rental interruption Insurance Proceeds pursuant to Section 5.4(f) of the Mortgage Loan Agreement.
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“ Repayment Date ” shall mean the date of a prepayment of the Loan pursuant to the provisions of Section 2.4 hereof.
“ Replacement Interest Rate Cap Agreement ” shall mean an interest rate cap agreement from an Approved Counterparty with terms that are the same in all material respects as the terms of the Interest Rate Cap Agreement except that the same shall be effective as of (i) in connection with a replacement pursuant to Section 2.6.3(c) following a downgrade, withdrawal or qualification of the long-term unsecured debt rating of the Counterparty, the date required in Section 2.6 or (ii) in connection with a replacement (or extension of the then-existing Interest Rate Cap Agreement) in connection with an extension of the Maturity Date pursuant to Section 2.7 , the date required in Section 2.7 ; provided that to the extent any such interest rate cap agreement does not meet the foregoing requirements, a Replacement Interest Rate Cap Agreement shall be such interest rate cap agreement approved in writing by Agent, and if the Loan or any portion thereof is included in a Securitization, each of the Rating Agencies with respect thereto.
“ Reserve Funds ” shall have the meaning set forth in the Mortgage Loan Agreement.
“ Restoration ” shall have the meaning set forth in the Mortgage Loan Agreement.
“ Restoration Threshold ” shall mean 2% of the Allocated Loan Amount for the Property set forth in the Mortgage Loan Agreement.
“ S&P ” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.
“ Significant Obligor ” shall have the meaning set forth in Item 1101(k) of Regulation AB under the Securities Act.
“ SLG ” shall mean SL Green Realty Corp., a Maryland corporation.
“ Sole Member ” shall mean 50/53 JV LLC, a Delaware limited liability company, the sole member and equity holder in Borrower.
“ Special Taxes ” shall mean any and all present or future taxes, levies, imposts, deductions, charges or withholdings, or any liabilities with respect thereto, including those arising after the Closing Date as a result of the adoption of or any change in law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority but excluding, in the case of Agent and Lenders, such taxes (including income taxes, franchise taxes and branch profit taxes) as are imposed on or measured by Agent’s and Lenders’ net income by the United States of America or any Governmental Authority of the jurisdiction under the laws under which Agent and any Lender is organized or maintains a lending office.
“ Spread ” shall mean 687.5 basis points (6.875%) per annum.
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“ Spread Maintenance Date ” shall mean November 9, 2017, which is the first anniversary of the Closing Date.
“ Spread Maintenance Premium ” shall mean, with respect to any payment or prepayment of principal (or acceleration of the Loan) on or prior to the Spread Maintenance Date, an amount equal to the greater of (a) the amount of such prepayment (or the amount of principal so accelerated) multiplied by one percent (1%) and (b) the amount of interest that would have accrued at the Interest Rate in effect on the date of repayment on the amount of such prepayment (or the amount of the principal so accelerated) during the period (the “ Spread Maintenance Period ”) commencing on the day following the end of the Interest Period in which such prepayment occurs (assuming Agent receives all accrued interest through and including the end of such Interest Period, as required by this Agreement; if not, the Spread Maintenance Period shall commence on the date of such prepayment) and ending at the end of the Interest Period in which the Spread Maintenance Date occurs. The Spread Maintenance Premium shall be calculated by multiplying (i) the actual number of days in the Spread Maintenance Period by (ii) a daily rate based on a three hundred sixty (360) day year (that is, the Interest Rate expressed as an annual rate divided by 360) by (iii) the amount of such prepayment (or the amount of principal so accelerated).
“ State ” shall mean New York.
“ Stated Maturity Date ” shall mean November 9, 2018, as the same may be extended pursuant to Section 2.7 hereof.
“ Strike Price ” shall mean 2.00% per annum.
“ Survey ” shall mean a survey of each Property prepared by a surveyor licensed in the State and satisfactory to Agent and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Agent.
“ Taxes ” shall mean (i) all real estate taxes, assessments, water rates or sewer rents (collectively, “ Real Estate Taxes ”) and (ii) personal property taxes, in each case now or hereafter levied or assessed or imposed against the Properties or any part thereof, together with all interest and penalties thereon. In no event shall any PACE Loan be considered a Tax for purposes of this Agreement.
“ Tenant ” shall mean any Person obligated by contract or otherwise to pay monies (including a percentage of gross income, revenue or profits) under any Lease now or hereafter affecting all or any part of a Property.
“ Term ” shall mean the entire term of this Agreement, which shall expire upon repayment in full of the Debt.
“ Title Insurance Policies ” shall mean ALTA mortgagee title insurance policies issued to Mortgage Lender with respect to each Property and insuring the Lien of the Mortgage.
“ Trigger Period ” shall have the meaning given to such term in the Mortgage Loan Agreement.
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“ TRIPRA ” shall mean the Terrorism Risk Insurance Program Reauthorization Act of 2015 or any replacement, reauthorization or extension thereof.
“ Trustee ” shall mean any trustee holding the Loan in a Securitization.
“ Title Insurance Policies ” shall mean ALTA mortgagee title insurance policies issued to Mortgage Lender with respect to the Property and insuring the Lien of the Mortgage.
“ UCC ” or “ Uniform Commercial Code ” shall mean the Uniform Commercial Code as in effect in the State (with respect to fixtures), the State of New York or the state in which any of the Cash Management Accounts are located, as the case may be.
“ UCC Title Insurance Policies ” shall mean, with respect to the Collateral, the UCC title insurance policy or policies in a form acceptable to Agent issued to Lender with respect to the Collateral and insuring the Lien of the Pledge Agreement encumbering the Collateral.
“ Underwritten Net Cash Flow ” shall mean, as of the end of any calendar quarter for which Underwritten Net Cash Flow is determined (or ending at such other date for which Underwritten Net Cash Flow is determined), the excess of:
(a) the sum of: (1) annualized actual in place base rents and monthly recoveries received by Mortgage Borrower under bona fide non-residential Leases at the Properties with Tenants in occupancy, open for business and paying full, unabated rent as of the date of such calculation, and actual percentage rents received by Mortgage Borrower under such Leases for the twelve (12) months preceding such calculation; plus (2) the GPR; plus (3) actual net cash flow receipts received by Mortgage Borrower from sources at the Properties (except as described in foregoing clauses (1) and (2)) to the extent such receipts are recurring in nature and properly included as Operating Income for such twelve month calculation period over (b) for the twelve (12) month period preceding the month in which such Underwritten Net Cash Flow is calculated, the sum of Operating Expenses over such twelve (12) month period, in each case adjusted to reflect Agent’s reasonable determination of: (i) with respect to the non-residential portion of the Property, a vacancy factor equal to the greater of (A) the actual vacancy rate at the Properties (excluding the area consisting of residential space), and (B) 3% of the rentable area of commercial space at the Properties; (ii) with respect to the residential portion of the Property, a vacancy factor equal to the greater of (A) the Adjusted Actual Vacancy Rate at the Properties, as determined by Agent, and (B) 3% of GPR; (iii) subtraction of (A) an imputed capital improvement requirement amount equal to $0.20 per rentable square foot of commercial space at the Properties per annum (regardless of whether a reserve therefor is required hereunder or the amount of such reserve) and (B) $373 per residential apartment at the Properties per annum; (iv) exclusion of amounts representing non-recurring items; and (v) amounts received from (A) commercial Tenants not currently in occupancy and not paying full, unabated rent, (B) Tenants that are Borrower Affiliates, (C) commercial Tenants in default or in bankruptcy and (D) commercial Tenants under month-to-month Leases or Leases expiring within the forthcoming ninety (90) days. Agent’s calculation of Underwritten Net Cash Flow shall be final absent manifest error.
“ Union Contract ” shall mean that certain 2014 Apartment Building Agreement between Realty Advisory Board on Labor Relations Incorporated and Service Employees International Union, Local 32BJ (“ Local 32BJ ”), effective April 21, 2014 to April 20, 2018.
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“ U.S. Obligations ” shall mean securities evidencing an obligation to timely pay principal and/or interest in a full and timely manner that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged, and (ii) not subject to prepayment, call or early redemption.
Section 1.2 Index of Other Definitions . The following terms are defined in the sections or Loan Documents as indicated below:
“ 421-g Tax Benefits ” - 3.1.36
“ Acceptable SMBC Credit Support Party ” - 1.1 (Definition of “ Approved Counterparty ”)
“ Accounts ” - 6.1
“ Act ” - Schedule V
“ Administrative Agent Advances ” - 11.10(a)
“ Agreement ” - Introductory Paragraph
“ Applicable Taxes ” - 10.24
“
Approved Annual Budget
” - 4.9.5
“
Approved Extraordinary Operating Expense
” - 4.9.6
“ Approved Monthly BI Expenses ” - 5.4(f)
“ Assignee ” - 10.31
“ Assignment and Acceptance ” - 10.31(a)
“ Authorized Purpose ” - Schedule V
“ Bail-In Legislation ” – 10.36
“ Bistricer Estate ” - 7.1(g)(v)
“Bistricer Minimum Equity Interests ” – 7.1(d)(ii)
“ Borrower ” - Introductory Paragraph
“Borrower Provided Information ” - 9.2
“ Borrower’s Recourse Liabilities ” - 10.1
“ Breakage Costs ” - 2.2.5
“ Broker ” - 10.19
“ Capital Expenditure Account ” - Mortgage Loan Agreement
“ Capital Expenditure Funds ” - Mortgage Loan Agreement
“ Cash Management Accounts ” - Mortgage Loan Agreement
“ Cause ” - Schedule V
“ Clearing Account ” - 6.1 of Mortgage Loan Agreement
“ Clearing Bank ” - 6.1 of Mortgage Loan Agreement
“ Committee ” - Schedule V
“ Contributing Employer ” - 4.31(e)
“ Counterparty Opinion ” - 2.6.3
“ Decision Notice ” - 10.30(e)
“ Deposit Account ” - 6.1 of Mortgage Loan Agreement
“ DHCR ” - 4.33
“ Disclosure Document ” - 9.2(a)
“ Easements ” - 3.1.11
“ EEA Financial Institution ” – 10.36
“ EEA Member Country ” – 10.36
“ EEA Resolution Authority ” – 10.36
“ Embargoed Person ” - 4.32(c)
“ Equipment ” - Mortgage
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“ ERISA ” - 4.31
“ EU Bail-In Legislation Schedule ” – 10.36
“ Event of Default ” - 8.1
“ Exchange Act ” - 9.2(a)
“ Exchange Act Filing ” - 9.1(d)
“ Extraordinary Operating Expense ” - 4.9.6
“ Final Order ” - 4.33
“ First Extended Maturity Date ” - 2.7.1
“ First Extension Notice ” - 2.7.1
“ First Extension Option ” - 2.7.1
“ Government Lists ” - 4.32(b)
“ Improvements ” - Mortgage
“ Increased Costs ” - 2.9.1
“ Indemnified Liabilities ” - 4.30
“ Independent Director ” - Schedule V
“ Independent Manager ” - Schedule V
“ Initial Interest Period ” - 2.3.1
“ Insurance Account ” – Mortgage Loan Agreement
“ Insurance Funds ” - Mortgage Loan Agreement
“ Insurance Premiums ” - Mortgage Loan Agreement
“ Insurance Proceeds ” - Mortgage Loan Agreement
“ Intellectual Property ” - 3.1.33
“ Intercreditor Agreement ” – 10.32
“ Interest Period ” - 2.3.2
“ Interest Shortfall ” - 2.4.5
“ Lease Termination Payments ” - 6.6.1(b)(i)
“ Lender ” - Introductory Paragraph
“ Lender Group ” - 9.2(b)
“ Liabilities ” - 9.2(b)
“ Licenses ” - 3.1.9
“ Material Agreement ” – 10.1
“ Material Condemnation ” – 5.3
“ Nationally Recognized Service Company ” - Schedule V
“ Net Proceeds ” - Mortgage Loan Agreement
“ Net Proceeds Deficiency ” - Mortgage Loan Agreement “ Note ” - 2.1.3
“ Notice ” - 10.6
“ OECD ” - 1.1 (Definition of “ Qualified Lender ”)
“ OFAC ” - 4.32(b)
“ OID ” – 2.1.1
“ Other Taxes ” - 2.9.3
“ Participant Register ” - 10.31(e)
“ Patriot Act Offense ” - 4.32(b)
“ Permitted Affiliate Residential Leases ” - 4.11.1
“ Permitted Equipment Financing ” - 4.21
“ Permitted Indebtedness ” - 4.21
“ Permitted Investments ” – Mortgage Loan Cash Management Agreement
“ Permitted Transfer ” - 7.1
“ PML ” - Mortgage Loan Agreement
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“ Policies ” - Mortgage Loan Agreement
“ Qualified Carrier ” - Mortgage Loan Agreement “ Radius ” - 5.1.1(a)
“ Rate Cap Collateral ” - 2.6.2
“ Real Estate Taxes ” - 1.1 (Definition of “ Taxes ”)
“ Register ” - 10.31(d)
“ Required Records ” - 4.9.7
“ Required Repairs ” - 6.2.1
“ Review Waiver ” - 10.3(b)
“ Rollover Account ” - Mortgage Loan Agreement
“ Rollover Funds ” - Mortgage Loan Agreement
“ RPTL ” - 3.1.36
“ RPTL Tax Benefit Law ” - 3.1.36
“ Second Extended Maturity Date ” - 2.7.1
“ Second Extension Notice ” - 2.7.1
“ Second Extension Option ” - 2.7.1
“ Secondary Market Transaction ” - 9.1(a)
“ Securities ” - 9.1(a)
“ Securities Act ” - 9.2(a)
“ Securitization ” - 9.1(a)
“ Servicer ” - 10.21
“ Servicing Agreement ” - 10.21
“ Sole Member ” - Schedule V
“ Special Member ” - Schedule V
“ Special Purpose Bankruptcy Remote Entity ” - Schedule V
“ Specific SPE Covenants ” - 10.1
“ Spread Maintenance Period ” - 1.1 (Definition of “ Spread Maintenance Premium ”)
“ Springing Recourse Event ” - 10.1
“ Succeeding Interest Period ” - 2.4.5
“ Tax Account ” - Mortgage Loan Agreement
“ Tax Funds ” - Mortgage Loan Agreement
“ Terrorism Premium Cap ” - Mortgage Loan Agreement
“ Third Extended Maturity Date ” - 2.7.1
“ Third Extension Notice ” - 2.7.1
“ Third Extension Option ” - 2.7.1
“ Transfer ” - 4.2
“ Underwriter Group ” - 9.2(b)
“ Updated Information ” - 9.1(b)(i)
“ Write-Down and Conversion Powers ” – 10.36
Section 1.3 Principles of Construction . (a) All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. Any reference in this Agreement or in any other Loan Document to any Loan Document shall be deemed to include references to such documents as the same may hereafter be amended, modified, supplemented, extended, replaced and/or restated from time to time (and, in the case of any note or other instrument, to any instrument issued in substitution therefor). Unless otherwise specified, (i) the words ‘‘hereof,’’ “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, (ii) all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined, and (iii) the word “including” means “including, but not limited to”.
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(b) With respect to references to the Mortgage Loan Documents (including without limitation terms defined by cross-reference to the Mortgage Loan Documents), such references shall refer to the Mortgage Loan Documents as in effect on the Closing Date (and any such defined terms shall have the definitions set forth in the Mortgage Loan Documents as of the Closing Date) and no amendments, restatements, replacements, supplements, waivers or other modifications to or of the Mortgage Loan Documents shall have the effect of changing such references (including without limitation any such definitions) for the purposes of this Agreement unless Lender expressly agrees in writing that such references or definitions, as appearing, incorporated into or used in this Agreement, have been revised, or Lender consents to the documents implementing any such amendment, restatement, replacement, supplement, waiver or other modification.
(c) Notwithstanding anything stated herein to the contrary, any provisions in this Agreement cross-referencing provisions of the Mortgage Loan Documents shall be effective and such references shall be (and hereby are) expressly incorporated herein and made a part hereof notwithstanding the termination of the Mortgage Loan Documents, by payment in full of the Mortgage Loan, or otherwise, except to the extent that such provisions relate to obligations arising under the Mortgage Loan Documents that are no longer in effect following such termination.
(d) To the extent that any terms, provisions or definitions of any Mortgage Loan Documents that are incorporated herein by reference are incorporated into the Mortgage Loan Documents by reference to any other document or instrument, such terms, provisions or definitions that are incorporated herein by reference shall at all times be deemed to incorporate each such term, provision and definition of the applicable other document or instrument as the same is set forth in such other document or instrument as of the Closing Date, without regard to any amendments, restatements, replacements, supplements, waivers or other modifications to or of such other document or instrument occurring after the Closing Date, unless Lender expressly agrees that such term, provision or definition as appearing, incorporated into, or used in this Agreement have been revised, or Lender consents to the documents implementing any such amendment, restatement, replacement, supplement, waiver or other modification.
(e) The words “Borrower shall cause” or “Borrower shall not permit” (or words of similar meaning) shall mean “Borrower shall cause the Mortgage Borrower to” or “Borrower shall not permit the Mortgage Borrower to”, as the case may be, to so act or not to so act, as applicable
Article
2
THE LOAN
Section 2.1 The Loan .
2.1.1 Agreement to Lend and Borrow . Subject to and upon the terms and conditions set forth herein, Lenders shall make the Loan to Borrower and Borrower shall accept the Loan from Lenders on the Closing Date. Borrower further acknowledges that a payment of three-quarters of one percent (0.75%) of the principal amount of the Loan due to Lender on the date hereof, constitutes an original issue discount (the “ OID ”) and, as such, is not being advanced to Borrower on the date hereof; provided, however, that such OID constitutes a portion of the outstanding indebtedness evidenced by the Note as of the date hereof and, accordingly, interest will accrue thereon from and after the date hereof.
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2.1.2 Single Disbursement to Borrower . Borrower shall receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be re-borrowed.
2.1.3 The Note . The Loan shall be evidenced by that certain First Mezzanine Promissory Note of even date herewith, in the stated principal amount of Seventy-Five Million and No/100 Dollars ($75,000,000.00) executed by Borrower and payable to the order of Lenders in evidence of the Loan (as the same may hereafter be amended, supplemented, restated, increased, extended or consolidated from time to time, collectively, the “ Note ”) and shall be repaid in accordance with the terms of this Agreement, the Note and the other Loan Documents.
2.1.4 Use of Proceeds . Borrower shall use proceeds of the Loan to (i) pay and discharge any existing loans relating to the Properties and the Collateral, (ii) pay all past-due Taxes, Insurance Premiums and Other Charges, if any, in respect of the Properties, (iii) make an equity contribution to Mortgage Borrower in order to cause the Mortgage Borrower to use such amounts for any use permitted pursuant to Section 2.1.4 of the Mortgage Loan Agreement, (iv) pay costs and expenses incurred in connection with the closing of the Loan and the Mortgage Loan, and (v) to the extent any proceeds remain after satisfying clauses (i) through (iv) above, for such lawful purpose as Borrower shall designate.
Section 2.2 Interest Rate .
2.2.1 Interest Rate .
(a) Interest on the Outstanding Principal Balance shall accrue throughout the Term at the Interest Rate.
(b) Subject to the terms and conditions hereof, the Loan shall be a LIBOR Loan. In the event that Agent shall have determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank Eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Agent shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the next succeeding Interest Determination Date. If such notice is given, the Loan shall be converted, as of the first day of the next succeeding Interest Period, to a Prime Rate Loan. Notwithstanding any provision of this Agreement to the contrary, in no event shall Borrower have the right to convert a LIBOR Loan to a Prime Rate Loan.
(c) If, pursuant to the terms hereof, the Loan has been converted to a Prime Rate Loan and Agent shall determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Agent shall give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the next succeeding Interest Determination Date. If such notice is given, the Loan shall be converted, as of the first day of the next succeeding Interest Period, to a LIBOR Loan. Notwithstanding any provision of this Agreement to the contrary, in no event shall Borrower have the right to convert a Prime Rate Loan to a LIBOR Loan.
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(d) If the adoption of any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for any Lender to maintain a LIBOR Loan as contemplated hereunder, (i) the obligation of such Lender hereunder to make or maintain a LIBOR Loan or to convert a Prime Rate Loan to a LIBOR Loan shall be canceled forthwith and (ii) any outstanding LIBOR Loan shall be converted automatically to a Prime Rate Loan on the first day of the next succeeding Interest Period, or upon such earlier date as may be required by law. Borrower hereby agree to promptly pay to such Lender, upon demand, any additional amounts necessary to compensate such Lender for any costs incurred by such Lender in making any conversion in accordance with this Agreement, including without limitation, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain the LIBOR Loan hereunder. Such Lender’s notice of such costs, as certified to Borrower, shall be conclusive absent manifest error.
2.2.2 Default Rate . In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the Outstanding Principal Balance and, to the extent not prohibited by applicable law, all other portions of the Debt, shall accrue interest at the Default Rate, calculated from the date such payment was due or such Default shall have occurred without regard to any grace or cure periods contained herein. Interest at the Default Rate shall be paid immediately upon demand, which demand may be made as frequently as Agent shall elect, to the extent not prohibited by applicable law.
2.2.3 Interest Calculation . Interest on the Outstanding Principal Balance shall be calculated by multiplying (A) the actual number of days elapsed in the period for which the calculation is being made by (B) a daily rate based on a three hundred sixty (360) day year (that is, the Interest Rate expressed as an annual rate divided by 360) by (C) the Outstanding Principal Balance; provided, however, that the Spread Maintenance Premium shall be calculated pursuant to the calculation convention set forth in the definition of Spread Maintenance Premium. The accrual period for calculating interest due on each Monthly Payment Date shall be the Interest Period in which such Monthly Payment Date occurs.
2.2.4 Usury Savings . This Agreement and the other Loan Documents are subject to the express condition that at no time shall Borrower be required to pay interest on the Outstanding Principal Balance at a rate which could subject Agent or any Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the Outstanding Principal Balance at a rate in excess of the Maximum Legal Rate, the Interest Rate shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Agent or any Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.
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2.2.5 Breakage Indemnity . Borrower shall indemnify Agent for its own account or for the account of the applicable Lender(s) (as the case may be) against any loss or expense which Agent or any Lender may actually sustain or incur in liquidating or redeploying deposits from third parties acquired to effect or maintain the Loan or any part thereof as a consequence of (i) any payment or prepayment of the Loan or any portion thereof made on a date other than a Monthly Payment Date and (ii) any default in payment or prepayment of the Outstanding Principal Balance or any part thereof or interest accrued thereon, as and when due and payable (at the date thereof or otherwise, and whether by acceleration or otherwise) (collectively, “ Breakage Costs ”). Agent shall deliver to Borrower a statement for any such sums which it (or any Lender) is entitled to receive pursuant to this Section 2.2.5 , which statement shall be binding and conclusive absent manifest error. Borrower’s obligations under this Section 2.2.5 are in addition to Borrower’s obligations to pay any Spread Maintenance Premium applicable to a payment or prepayment of the Loan.
Section 2.3 Loan Payments .
2.3.1 Payments . On the date hereof, Borrower shall pay interest on the unpaid Outstanding Principal Balance from the date hereof through and including November 14, 2016 (the “ Initial Interest Period ”). On December 9, 2016 and each Monthly Payment Date thereafter during the Term, Borrower shall pay interest on the unpaid Outstanding Principal Balance accruing through the last day of the Interest Period in which such Monthly Payment Date occurs. Borrower shall also pay to Agent all amounts required in respect of Reserve Funds as set forth in Article 6 hereof.
2.3.2 Payments Generally . After the Initial Interest Period, each interest accrual period thereafter (each, an “ Interest Period ”) shall commence on the fifteenth (15th) calendar day of a calendar month and ending on (and including) the fourteenth (14th) calendar day of the following calendar month; provided, that in the event that the Agent elects to reset LIBOR as provided in the definition of the term “Interest Determination Date” (i) the Interest Period then in effect shall end on (and include) the calendar day prior to the Securitization Date and (ii) a new Interest Period shall commence on the Securitization Date and shall end on (and include) the next fourteenth (14th) day of a calendar month to occur. For purposes of making payments hereunder, but not for purposes of calculating interest accrual periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding Business Day. Agent shall have the right from time to time, in its sole discretion, upon not less than ten (10) days prior written notice to Borrower, to change the Monthly Payment Date to a different calendar day and, if requested by Agent, Borrower shall promptly execute an amendment to this Agreement to evidence such change; provided, however, that if Agent shall have elected to change the Monthly Payment Date as aforesaid, Agent shall have the option, but not the obligation, to adjust the Interest Period and the Interest Determination Date accordingly. All amounts due pursuant to this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever.
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2.3.3 Payment on Maturity Date . Borrower shall pay to Agent on the Maturity Date the Outstanding Principal Balance, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Pledge Agreement and the other Loan Documents.
2.3.4 Late Payment Charge . If any principal, interest or any other sum due under the Loan Documents (other than the Outstanding Principal Balance due and payable on the Maturity Date) is not paid by Borrower on the date on which it is due, Borrower shall pay to Agent upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Agent in handling and processing such delinquent payment and to compensate Lenders for the loss of the use of such delinquent payment. Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by law.
2.3.5 Method and Place of Payment .
(a) Except as otherwise specifically provided herein or any other Loan Document, all payments and prepayments under this Agreement and the Note shall be made to Agent not later than 3:00 p.m., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Agent’s office or at such other place as Agent shall from time to time designate, and any funds received by Agent after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.
(b) Whenever any payment to be made hereunder or under any other Loan Document shall be stated to be due on a day which is not a Business Day, the due date thereof shall be the immediately preceding Business Day.
(c) All payments required to be made by Borrower hereunder or under the Note or the other Loan Documents shall be made irrespective of, and without deduction for, any setoff, claim or counterclaim and shall be made irrespective of any defense thereto.
2.3.6 Forwarding of Payments by Agent . Except as otherwise agreed by Agent and Lender, each payment received by Agent under this Agreement or the Note for the account of any Lender shall be paid by Agent promptly to such Lender, in immediately available funds, for the Loan or other portion of the Debt in respect of which such payment is made.
2.3.7 Ratable Shares/ Pro Rata Treatment of Payments . Except to the extent otherwise provided herein: (a) the Loan shall be allocated Ratably among the Lenders according to the amounts of their Ratable Share; (b) each payment or prepayment of principal of the Loan by Borrower (including those made from Net Proceeds) shall be made Ratably for the account of the Lender; (c) each payment of interest on the Loan by Borrower shall be made for the Ratable account of Lender and (d) all losses, costs and expenses suffered by the Agent and/or the Lenders relating to the Loan, in each case, shall be allocated by Agent pro rata among the Lenders in accordance with their respective Ratable Shares.
Section 2.4 Prepayments .
2.4.1 Prepayments . Except as otherwise provided herein, Borrower shall not have the right to prepay the Loan in whole or in part prior to the Stated Maturity Date.
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2.4.2 Voluntary Prepayments . Borrower shall have the right, only on a Business Day, to prepay the Outstanding Principal Balance in whole, but not in part (except for partial prepayments pursuant to Section 2.7.1(f) ) upon satisfaction of the following conditions:
(a) Borrower shall deliver to Agent a Prepayment Notice; and
(b) Borrower shall comply with the provisions set forth in Section 2.4.5 ; provided that if such prepayment is made on or after the Spread Maintenance Date, such prepayment shall be without any prepayment penalties set forth in clause (iv) of Section 2.4.5(a) .
2.4.3 Liquidation Events; Mandatory Prepayments .
(a) In the event of (i) any Casualty to all or any portion of the Property, (ii) any Condemnation of all or any portion of the Property, (iii) a Transfer of the Property in connection with realization thereon by the Mortgage Lender following an Event of Default under the Mortgage Loan, including without limitation a foreclosure sale, or (iv) any refinancing of the Property or the Mortgage Loan (each, a “ Liquidation Event ”), Borrower shall cause the related Net Liquidation Proceeds After Debt Service to be deposited directly into the Mezzanine Cash Management Account or another Account designated by Lender. On each date on which Lender actually receives a distribution of Net Liquidation Proceeds After Debt Service, if such date is a Payment Date, such Net Liquidation Proceeds After Debt Service shall be applied to the outstanding principal balance of the Note in an amount equal to one hundred percent (100%) of such Net Liquidation Proceeds After Debt Service, together with interest that would have accrued on such amount through the next Payment Date and all other sums then due. In the event Lender receives a distribution of Net Liquidation Proceeds After Debt Service on a date other than a Payment Date, such amounts shall be held by Lender as collateral security for the Loan in an interest bearing account, with such interest accruing to the benefit of Borrower, and shall be applied by Lender on the next Payment Date.
(b) Borrower shall immediately notify Lender of any Liquidation Event once Borrower has knowledge of such event. Borrower shall be deemed to have knowledge of (i) a sale (other than a foreclosure sale) of the Property on the date on which a contract of sale for such sale is entered into, and a foreclosure sale, on the date notice of such foreclosure sale is given, and (ii) a refinancing of the Property, on the date on which a commitment for such refinancing is entered into. The provisions of this Section 2.4.3 shall not be construed to contravene in any manner the restrictions and other provisions regarding refinancing of the Mortgage Loan or Transfer of the Property set forth in this Agreement and the other Loan Documents.
(c) Subject to Section 2.4.3(a) hereof, if the entirety of the Property or Mortgage Borrower’s interests therein or Borrower’s interests in Mortgage Borrower is sold, transferred or otherwise disposed of, voluntarily or involuntarily, or if the Mortgage Loan is repaid in full other than in accordance with Section 2.4.2 of the Mortgage Loan Agreement, then, Borrower shall be required to prepay the Loan in whole and otherwise in accordance with Section 2.4.2 hereof
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(d) Notwithstanding anything herein to the contrary, so long as no Event of Default is continuing, no Spread Maintenance Premium or any other prepayment premium, penalty or fee shall be due in connection with any prepayment made pursuant to this Section 2.4.3 . In no event shall any Spread Maintenance Premium be due in connection with any prepayment with Net Proceeds made after the Spread Maintenance Date. Any partial principal prepayment under this Section 2.4.3 shall be applied to the last payments of principal due under the Loan.
2.4.4 Prepayments After Default . If, during the continuance of an Event of Default, payment of all or any part of the Debt is tendered by Borrower and accepted by Agent or is otherwise recovered by Agent (including through application of any Reserve Funds), such tender or recovery shall be deemed to be a voluntary prepayment by Borrower in violation of the prohibition against prepayment set forth in Section 2.4.1 hereof, and Borrower shall pay, as part of the Debt, all of: (i) all accrued interest calculated at the Interest Rate on the amount of principal being prepaid through and including the date of such prepayment together with an amount equal to the interest that would have accrued at the Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment, (ii) the Interest Shortfall, if applicable, with respect to the amount prepaid; (iii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clauses (i) and (ii), and (iv) an amount equal to the Spread Maintenance Premium (if made before the Spread Maintenance Date).
2.4.5 Prepayment/Repayment Conditions .
(a) On the date on which a prepayment, voluntary or mandatory, is made under the Note or as required under this Agreement, which date must be a Business Day, Borrower shall pay to Agent:
(i) all accrued and unpaid interest calculated at the Interest Rate on the amount of principal being prepaid through and including the Repayment Date together with an amount equal to the interest that would have accrued at the Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment;
(ii) if such prepayment is made during the period from and including the first day after a Monthly Payment Date through and including the last day of the Interest Period in which such Monthly Payment Date occurs, all interest on the principal amount being prepaid which would have accrued from the first day of the Interest Period immediately following the Interest Period in which the prepayment occurs (the “ Succeeding Interest Period ”) through and including the end of the Succeeding Interest Period, calculated at (A) the Interest Rate if such prepayment occurs on or after the Interest Determination Date for the Succeeding Interest Period or (B) the Assumed Note Rate if such prepayment occurs before the Interest Determination Date for the Succeeding Interest Period (the “ Interest Shortfall ”);
(iii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clauses (i) and (ii);
(iv) the Spread Maintenance Premium applicable thereto (if such prepayment occurs on or prior to the Spread Maintenance Date); and
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(v) all other sums, then due under the Note, this Agreement, the Pledge Agreement, and the other Loan Documents.
(b) If the Interest Shortfall was calculated based upon the Assumed Note Rate, upon determination of LIBOR on the Interest Determination Date for the Succeeding Interest Period, (i) if the Interest Rate for such Succeeding Interest Period is less than the Assumed Note Rate, Agent shall promptly refund to Borrower the amount of the Interest Shortfall paid, calculated at a rate equal to the difference between the Assumed Note Rate and the Interest Rate for such Interest Period, or (ii) if the Interest Rate is greater than the Assumed Note Rate, Borrower shall promptly (and in no event later than the ninth (9th) day of the following month) pay Agent the amount of such additional Interest Shortfall calculated at a rate equal to the amount by which Interest Rate exceeds the Assumed Note Rate.
(c) Without duplication of any amounts paid by Borrower pursuant to the foregoing clause (a) , Borrower shall pay all reasonable costs and expenses of Agent and Lenders incurred in connection with the repayment or prepayment (including without limitation, any costs and expenses associated with a release of the Lien of the Pledge Agreement as set forth in Section 2.5 below and reasonable attorneys’ fees and expenses).
Section 2.5 Release Upon Payment in Full . Agent shall, upon the written request and at the expense of Borrower, upon payment in full of the Debt in accordance with the terms and provisions of the Loan Documents, release the Lien of the Pledge Agreement and return the Pledged LLC Certificates together with the undated stock powers or limited liability company interest powers, as applicable (or, if one or more of such Pledged LLC Certificates or undated powers are misplaced, lost or destroyed, a lost certificate affidavit from Agent). Agent shall deliver to Borrower on the Repayment Date a release of Lien (and related Loan Documents) executed by Agent. Such release shall contain standard provisions protecting the rights of the releasing Lender. Borrower shall pay all costs, taxes and expenses associated with the release of the Lien of the Pledge Agreement, including Agent’s reasonable attorneys’ fees.
Section 2.6 Interest Rate Cap Agreement .
2.6.1 Interest Rate Cap Agreement . Prior to or contemporaneously with the Closing Date, Borrower shall have obtained, and thereafter maintain in effect, the Interest Rate Cap Agreement, which shall have a term expiring no earlier than the last day of the Interest Period in which the Stated Maturity Date occurs and have a notional amount which shall not at any time be less than the Outstanding Principal Balance. The Interest Rate Cap Agreement shall have a strike rate equal to the Strike Price.
2.6.2 Pledge and Collateral Assignment . As security for the full and punctual payment and performance of the Obligations when due (whether upon stated maturity, by acceleration, early termination or otherwise), Borrower, as pledgor, hereby pledges, assigns, hypothecates, transfers and delivers to Agent (on behalf of Lenders) as collateral and hereby grants to Agent (on behalf of Lenders) a continuing first priority lien on and security interest in, to and under all of the following whether now owned or hereafter acquired and whether now existing or hereafter arising (the “ Rate Cap Collateral ”): all of the right, title and interest of Borrower in and to (i) the Interest Rate Cap Agreement; (ii) all payments, distributions, disbursements or proceeds due, owing, payable or required to be delivered to Borrower in respect of the Interest Rate Cap Agreement or arising out of the Interest Rate Cap Agreement, whether as contractual obligations, damages or otherwise; and (iii) all of Borrower’s claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the Interest Rate Cap Agreement, in each case including all accessions and additions to, substitutions for and replacements, products and proceeds of any or all of the foregoing.
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2.6.3 Covenants .
(a) Borrower shall comply in all material respects with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Counterparty under the Interest Rate Cap Agreement to Borrower or Agent shall be deposited immediately into the Clearing Account pursuant to Section 6.1 . Subject to the terms hereof, provided no Event of Default has occurred and is continuing, Borrower shall be entitled to exercise all rights, powers and privileges of Borrower under, and to control the prosecution of all claims with respect to, the Interest Rate Cap Agreement and the other Rate Cap Collateral. Borrower shall take all actions reasonably requested by Agent to enforce Borrower’s rights under the Interest Rate Cap Agreement in the event of a default by the Counterparty thereunder and shall not waive, amend or otherwise modify any of its rights thereunder in any material respect.
(b) Borrower shall in all material respects defend Agent’s and Lenders’ right, title and interest in and to the Rate Cap Collateral pledged by Borrower pursuant hereto or in which it has granted a security interest pursuant hereto against the claims and demands of all other Persons, except those claiming by, through or under Agent (on behalf of Lenders).
(c) In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty such that it ceases to qualify as an “Approved Counterparty”, Borrower shall replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement not later than ten (10) Business Days following receipt of notice from Agent, Servicer or any other Person of such downgrade, withdrawal or qualification.
(d) In the event that Borrower fails to purchase and deliver to Agent the Interest Rate Cap Agreement as and when required hereunder, Agent may purchase the Interest Rate Cap Agreement and the out-of-pocket cost incurred by Agent in purchasing the Interest Rate Cap Agreement shall be paid by Borrower to Agent with interest thereon at the Default Rate from the date such cost was incurred by Agent until such cost is paid by Borrower to Agent.
(e) Borrower shall not sell, assign, or otherwise dispose of, or mortgage, pledge or grant a security interest in, any of the Rate Cap Collateral or any interest therein, and any sale, assignment, mortgage, pledge or security interest whatsoever made in violation of this covenant shall be a nullity and of no force and effect, and upon demand of Agent, shall forthwith be cancelled or satisfied by an appropriate instrument in writing.
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(f) Borrower shall not (i) without the prior written consent of Agent, which consent shall not be unreasonably withheld, modify, amend or supplement the terms of the Interest Rate Cap Agreement, (ii) without the prior written consent of Agent, which consent shall not be unreasonably withheld, except in accordance with the terms of the Interest Rate Cap Agreement, cause the termination of the Interest Rate Cap Agreement prior to its stated maturity date, (iii) without the prior written consent of Agent, which consent shall not be unreasonably withheld, except as aforesaid, waive or release any obligation of the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) under the Interest Rate Cap Agreement, (iv) without the prior written consent of Agent, which consent shall not be unreasonably withheld, consent or agree to any act or omission to act on the part of the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) which, without such consent or agreement, would constitute a default under the Interest Rate Cap Agreement, (v) fail to exercise promptly and diligently each and every material right which it may have under the Interest Rate Cap Agreement, (vi) take or intentionally omit to take any action or intentionally suffer or permit any action to be omitted or taken, the taking or omission of which would result in any right of offset against sums payable under the Interest Rate Cap Agreement or any defense by the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) to payment or (vii) fail to give prompt notice to Agent of any notice of default given by or to Borrower under or with respect to the Interest Rate Cap Agreement, together with a complete copy of such notice. If Borrower shall have received written notice that the Securitization shall have occurred, no consent by Agent provided for in this Section 2.6.3 (f) shall be given by Agent unless Agent shall have received a Rating Agency Confirmation.
(g) In connection with an Interest Rate Cap Agreement, within ten (10) days after execution of the Interest Rate Cap Agreement, Borrower shall obtain and deliver to Agent an opinion of counsel from counsel (which counsel may be in-house counsel for the Counterparty) for the Counterparty upon which Agent and its successors and assigns may rely (the “ Counterparty Opinion ”), under New York law and, if the Counterparty is a non-U.S. entity, the applicable foreign law, which shall provide in relevant part, that: (i) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Agreement; (ii) the execution and delivery of the Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property; (iii) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and (iv) the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
2.6.4 Powers of Borrower Prior to an Event of Default . Subject to the provisions of Section 2.6.3(a) , provided no Event of Default has occurred and is continuing, Borrower shall be entitled to exercise all rights, powers and privileges of Borrower under, and to control the prosecution of all claims with respect to, the Interest Rate Cap Agreement and the other Rate Cap Collateral.
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2.6.5 Representations and Warranties . Borrower hereby covenants with, and represents and warrants to, Agent and Lenders as follows:
(a) The Interest Rate Cap Agreement constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
(b) The Rate Cap Collateral is free and clear of all claims or security interests of every nature whatsoever, except such as are created pursuant to this Agreement and the other Loan Documents, and Borrower has the right to pledge and grant a security interest in the same as herein provided without the consent of any other Person other than any such consent that has been obtained and is in full force and effect.
(c) The Rate Cap Collateral has been duly and validly pledged hereunder. All consents and approvals required to be obtained by Borrower for the consummation of the transactions contemplated by this Agreement have been obtained.
(d) Giving effect to the aforesaid grant and assignment to Agent (on behalf of Lenders), Agent (on behalf of Lenders) has, as of the date of this Agreement, and as to Rate Cap Collateral acquired from time to time after such date, shall have, a valid, and upon proper filing, perfected and continuing first priority lien upon and security interest in the Rate Cap Collateral; provided that no representation or warranty is made with respect to the perfected status of the security interest of Agent (on behalf of Lenders) in the proceeds of Rate Cap Collateral consisting of “cash proceeds” or “non-cash proceeds” as defined in the UCC except if, and to the extent, the provisions of Section 9-306 of the UCC shall be complied with.
(e) Except for financing statements filed or to be filed in favor of Agent (on behalf of Lenders) as secured party, there are no financing statements under the UCC covering any or all of the Rate Cap Collateral and Borrower shall not, without the prior written consent of Agent, until payment in full of all of the Obligations, execute and file in any public office, any enforceable financing statement or statements covering any or all of the Rate Cap Collateral, except financing statements filed or to be filed in favor of Agent (on behalf of Lenders) as secured party.
2.6.6 Payments . If Borrower at any time shall be entitled to receive any payments with respect to the Interest Rate Cap Agreement, such amounts shall, immediately upon becoming payable to Borrower, be paid by Counterparty into the Mezzanine Cash Management Account for application in accordance with this Agreement.
2.6.7 Remedies . Subject to the provisions of the Interest Rate Cap Agreement, if an Event of Default shall occur and then be continuing:
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(a) Agent, without obligation to resort to any other security, right or remedy granted under any other agreement or instrument, shall have the right to, in addition to all rights, powers and remedies of a secured party pursuant to the UCC, at any time and from time to time, sell, resell, assign and deliver, in its sole discretion, any or all of the Rate Cap Collateral (in one or more parcels and at the same or different times) and all right, title and interest, claim and demand therein and right of redemption thereof, at public or private sale, for cash, upon credit or for future delivery, and in connection therewith Agent may grant options and may impose reasonable conditions such as requiring any purchaser to represent that any “securities” constituting any part of the Rate Cap Collateral are being purchased for investment only, Borrower hereby waiving and releasing any and all equity or right of redemption to the fullest extent permitted by the UCC or applicable law. If all or any of the Rate Cap Collateral is sold by Agent upon credit or for future delivery, Agent shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, Agent may resell such Rate Cap Collateral. It is expressly agreed that Agent may exercise its rights with respect to less than all of the Rate Cap Collateral, leaving unexercised its rights with respect to the remainder of the Rate Cap Collateral; provided, however, that such partial exercise shall in no way restrict or jeopardize Agent’s right to exercise its rights with respect to all or any other portion of the Rate Cap Collateral at a later time or times.
(b) Agent may exercise, either by itself or by its nominee or designee, in the name of Borrower, all of Agent’s (on behalf of Lenders) rights, powers and remedies in respect of the Rate Cap Collateral, hereunder and under law.
(c) Borrower hereby irrevocably, in the name of Borrower or otherwise, authorizes and empowers Agent and assigns and transfers unto Agent, and constitutes and appoints Agent its true and lawful attorney-in-fact, and as its agent, irrevocably, with full power of substitution for Borrower and in the name of Borrower, (i) to exercise and enforce every right, power, remedy, authority, option and privilege of Borrower under the Interest Rate Cap Agreement, including any power to subordinate or modify the Interest Rate Cap Agreement (but not, unless an Event of Default exists and is continuing, the right to terminate or cancel the Interest Rate Cap Agreement), or to give any notices, or to take any action resulting in such subordination, termination, cancellation or modification and (ii) in order to more fully vest in Agent the rights and remedies provided for herein, to exercise all of the rights, remedies and powers granted to Agent in this Agreement, and Borrower further authorizes and empowers Agent, as Borrower’s attorney-in-fact, and as its agent, irrevocably, with full power of substitution for Borrower and in the name of Borrower, to give any authorization, to furnish any information, to make any demands, to execute any instruments and to take any and all other action on behalf of and in the name of Borrower which in the opinion of Agent may be necessary or appropriate to be given, furnished, made, exercised or taken under the Interest Rate Cap Agreement, in order to comply therewith, to perform the conditions thereof or to prevent or remedy any default by Borrower thereunder or to enforce any of the rights of Borrower thereunder. These powers-of-attorney are irrevocable and coupled with an interest, and any similar or dissimilar powers heretofore given by Borrower in respect of the Rate Cap Collateral to any other Person are hereby revoked.
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(d) Agent may, without notice to, or assent by, Borrower or any other Person (to the extent permitted by law), but without affecting any of the Obligations, in the name of Borrower or in the name of Agent, notify the Counterparty, or if applicable, any other counterparty to the Interest Rate Cap Agreement, to make payment and performance directly to Agent; extend the time of payment and performance of, compromise or settle for cash, credit or otherwise, and upon any terms and conditions, any obligations owing to Borrower, or claims of Borrower, under the Interest Rate Cap Agreement; file any claims, commence, maintain or discontinue any actions, suits or other proceedings deemed by Agent necessary or advisable for the purpose of collecting upon or enforcing the Interest Rate Cap Agreement; and execute any instrument and do all other things deemed necessary and proper by Agent to protect and preserve and realize upon the Rate Cap Collateral and the other rights contemplated hereby.
(e) Pursuant to the powers-of-attorney provided for above, Agent may take any action and exercise and execute any instrument which it may deem necessary or advisable to accomplish the purposes hereof; provided, however, that Agent shall not be permitted to take any action pursuant to said power-of-attorney that would conflict with any limitation on Agent’s rights with respect to the Rate Cap Collateral. Without limiting the generality of the foregoing, Agent, after the occurrence and during the continuance of an Event of Default, shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Borrower representing: (i) any payment of obligations owed pursuant to the Interest Rate Cap Agreement, (ii) interest accruing on any of the Rate Cap Collateral or (iii) any other payment or distribution payable in respect of the Rate Cap Collateral or any part thereof, and for and in the name, place and stead of Borrower, to execute endorsements, assignments or other instruments of conveyance or transfer in respect of any property which is or may become a part of the Rate Cap Collateral hereunder.
(f) Agent may exercise all of the rights and remedies of a secured party under the UCC.
(g) Without limiting any other provision of this Agreement or any of Borrower’s rights hereunder, and without waiving or releasing Borrower from any obligation or default hereunder, Agent shall have the right, but not the obligation, to perform any act or take any appropriate action, as it, in its reasonable judgment, may deem necessary to protect the security of this Agreement, to cure such Event of Default or to cause any term, covenant, condition or obligation required under this Agreement or the Interest Rate Cap Agreement to be performed or observed by Borrower to be promptly performed or observed on behalf of Borrower. All amounts advanced by, or on behalf of, Agent in exercising its rights under this Section 2.6.7(g) (including, but not limited to, reasonable legal expenses and disbursements incurred in connection therewith), together with interest thereon at the Default Rate from the date of each such advance, shall be payable by Borrower to Agent upon demand and shall be secured by this Agreement.
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2.6.8 Sales of Rate Cap Collateral . Following the occurrence and during the continuance of an Event of Default, no demand, advertisement or notice, all of which are, to the fullest extent permitted by law, hereby expressly waived by Borrower, shall be required in connection with any sale or other disposition of all or any part of the Rate Cap Collateral, except that Agent shall give Borrower at least thirty (30) Business Days’ prior written notice of the time and place of any public sale or of the time when and the place where any private sale or other disposition is to be made, which notice Borrower hereby agrees is reasonable, all other demands, advertisements and notices being hereby waived. To the extent permitted by law, Agent shall not be obligated to make any sale of the Rate Cap Collateral if it shall determine not to do so, regardless of the fact that notice of sale may have been given, and Agent may without notice or publication adjourn any public or private sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Upon each private sale of the Rate Cap Collateral of a type customarily sold in a recognized market and upon each public sale, unless prohibited by any applicable statute which cannot be waived, Agent (or its nominee or designee) may purchase any or all of the Rate Cap Collateral being sold, free and discharged from any trusts, claims, equity or right of redemption of Borrower, all of which are hereby waived and released to the extent permitted by law, and may make payment therefor by credit against any of the Obligations in lieu of cash or any other obligations. In the case of all sales of the Rate Cap Collateral, public or private, Borrower shall pay all reasonable costs and expenses of every kind for sale or delivery, including brokers’ and attorneys’ fees and disbursements and any tax imposed thereon. However, the proceeds of sale of Rate Cap Collateral shall be available to cover such costs and expenses, and, after deducting such costs and expenses from the proceeds of sale, Agent shall apply any residue to the payment of the Obligations in the order of priority as set forth in this Agreement.
2.6.9 Public Sales Not Possible . Borrower acknowledges that the terms of the Interest Rate Cap Agreement may prohibit public sales, that the Rate Cap Collateral may not be of the type appropriately sold at public sales, and that such sales may be prohibited by law. In light of these considerations, Borrower agrees that private sales of the Rate Cap Collateral shall not be deemed to have been made in a commercially unreasonably manner by mere virtue of having been made privately.
2.6.10 Receipt of Sale Proceeds . Following the occurrence and during the continuance of an Event of Default, upon any sale of the Rate Cap Collateral by Agent hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt by Agent or the officer making the sale or the proceeds of such sale shall be a sufficient discharge to the purchaser or purchasers of the Rate Cap Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to Agent or such officer or be answerable in any way for the misapplication or non-application thereof.
2.6.11 Replacement Interest Rate Cap Agreement . If, in connection with Borrower’s exercise of any Extension Option pursuant to Section 2.7 hereof, Borrower delivers a Replacement Interest Rate Cap Agreement, all the provisions of this Section 2.6 applicable to the Interest Rate Cap Agreement delivered on the Closing Date shall be applicable to the Replacement Interest Rate Cap Agreement.
Section 2.7 Extension Options .
2.7.1 Extension Options . Subject to the provisions of this Section 2.7 , Borrower shall have the option (the “ First Extension Option ”), by irrevocable written notice (the “ First Extension Notice ”) delivered to Agent no later than thirty (30) days and no earlier than sixty (60) days prior to the Stated Maturity Date, to extend the Maturity Date to November 9, 2019 (the “ First Extended Maturity Date ”). In the event Borrower shall have exercised the First Extension Option, Borrower shall have the option (the “ Second Extension Option ”), by irrevocable written notice (the “ Second Extension Notice ”) delivered to Agent no later than thirty (30) days and no earlier than sixty (60) days prior to the First Extended Maturity Date, to extend the First Extended Maturity Date to November 9, 2020 (the “ Second Extended Maturity Date ”). In the event Borrower shall have exercised the Second Extension Option, Borrower shall have the option (the “ Third Extension Option ”), by irrevocable written notice (the “ Third Extension Notice ”) delivered to Agent no later than thirty (30) days and no earlier than sixty (60) days prior to the Second Extended Maturity Date, to extend the Second Extended Maturity Date to November 9, 2021 (the “ Third Extended Maturity Date ”). Borrower’s right to so extend the Maturity Date shall be subject to the satisfaction of the following conditions precedent prior to each extension hereunder:
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(a) (i) no Default of which notice has been given to Borrower or Event of Default shall have occurred and be continuing on the date Borrower delivers the First Extension Notice, the Second Extension Notice or the Third Extension Notice, as applicable, and (ii) no Default of which notice has been given to Borrower or Event of Default shall have occurred and be continuing on the Stated Maturity Date, the First Extended Maturity Date or the Second Extended Maturity Date, as applicable;
(b) Borrower shall (i) obtain and deliver to Agent not later than one (1) Business Day prior to the first day of the term of the Loan as extended, one or more Replacement Interest Rate Cap Agreements from an Approved Counterparty, in a notional amount equal to the Outstanding Principal Balance, which Replacement Interest Rate Cap Agreement(s) shall be (A) effective for the period commencing on the day immediately following the then applicable Maturity Date (prior to giving effect to the applicable Extension Option) and ending on the last day of the Interest Period in which the applicable extended Maturity Date occurs, (B) have a strike price equal to the Extension Strike Price, and (C) otherwise on the same terms set forth in Section 2.6 and (ii) execute and deliver an Acknowledgement with respect to each such Replacement Interest Rate Cap Agreement;
(c) Borrower shall deliver a Counterparty Opinion with respect to the Replacement Interest Rate Cap Agreement and the related Acknowledgment;
(d) all amounts due and payable by Borrower and any other Person pursuant to this Agreement or the other Loan Documents as of the Stated Maturity Date, the First Extended Maturity Date or the Second Extended Maturity Date, as applicable, and all out-of-pocket costs and expenses of Agent and Lenders, including reasonable fees and expenses of Agent’s and Lender’s counsel, in connection with the Loan and/or the applicable extension of the Term shall have been paid in full;
(e) on the Second Extended Maturity Date and the Third Extended Maturity Date, Borrower shall pay to Agent the applicable Extension Fee;
(f) the Properties shall have achieved, on the date Borrower delivers the First Extension Notice, the Second Extension Notice or the Third Extension Notice, as applicable, and on the Stated Maturity Date, the First Extended Maturity Date and the Second Extended Maturity Date, respectively, a Debt Yield of no less than 5.30%; provided, however, if the Properties do not satisfy the foregoing Debt Yield requirements provided in this Section 2.7.1(f) , Borrower (and Mortgage Borrower) shall be permitted to prepay, on a pro rata basis, a portion of the Loan (subject to and in accordance with Section 2.4.2 ) and Mortgage Borrower shall make a pro rata payment of the Mortgage Loan (subject to and in accordance with the provisions of the Mortgage Loan Agreement) in an amount that would be sufficient such that the applicable Debt Yield test set forth above shall be satisfied;
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(g) Mortgage Borrower shall have (i) timely exercised the extension option to extend the Mortgage Loan, and (ii) been entitled pursuant to the terms of the Mortgage Loan Documents to exercise such extension option and (iii) paid any extension fee required pursuant to the terms of the Mortgage Loan Agreement.
If Borrower are unable to satisfy all of the foregoing conditions within the applicable time frames for each, Agent shall have no obligation to extend or further extend (as applicable) the Stated Maturity Date hereunder.
2.7.2 Extension Documentation . As soon as practicable following an extension of the Maturity Date pursuant to this Section 2.7 , Borrower shall, if requested by Agent, execute and deliver an amendment of and/or restatement of the Note and shall, if requested by Agent, (a) enter into such amendments to the related Loan Documents as may be reasonably required to evidence the extension of the Maturity Date as provided in this Section 2.7 ; provided, however, that no failure by Borrower to enter into any such amendments and/or restatements shall affect the rights or obligations of Borrower or Agent with respect to the extension of the Maturity Date, and no such amendments shall materially increase the obligations or decrease the rights of Borrower or Guarantor under the Loan Documents and (b) cause Guarantor to reaffirm the obligations of Guarantor under the Guaranty and Environmental Indemnity Agreement.
Section 2.8 Spread Maintenance Premium . Except as otherwise expressly provided herein, upon any repayment or prepayment of the Loan (including in connection with an acceleration of the Loan) made on or prior to the Spread Maintenance Date, Borrower shall pay to Agent on the date of such repayment or prepayment (or acceleration of the Loan) the Spread Maintenance Premium applicable thereto. All Spread Maintenance Premium payments hereunder shall be deemed to be earned by Lenders upon the funding of the Loan.
Section 2.9 Regulatory Change; Taxes .
2.9.1 Increased Costs . If as a result of any Regulatory Change or compliance of any Lender therewith, the basis of taxation of payments to any Lender or any company Controlling any Lender of the principal of or interest on the Loan is changed or any Lender or the company Controlling any Lender shall be subject to (i) any tax, duty, charge or withholding of any kind with respect to this Agreement (excluding federal taxation of the overall net income of such Lender or the company Controlling such Lender); or (ii) any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities, of any Lender or any company Controlling any Lender is imposed, modified or deemed applicable; or (iii) any other condition affecting loans to Borrower subject to LIBOR-based interest rates is imposed on any Lender or any company Controlling any Lender and such Lender reasonably determines that, by reason thereof, the cost to such Lender or any company Controlling such Lender of making, maintaining or extending the Loan to Borrower is increased, or any amount receivable by such Lender or any company Controlling such Lender hereunder in respect of any portion of the Loan to Borrower is reduced, in each case by an amount deemed by such Lender in good faith to be material (such increases in cost and reductions in amounts receivable being herein called “ Increased Costs ”), then such Lender shall provide notice thereof to Borrower and Borrower agrees that it will pay to such Lender within five (5) days after such Lender’s written request such additional amount or amounts as will compensate such Lender or any company Controlling such Lender for such Increased Costs to the extent such Lender reasonably determines that such Increased Costs are allocable to the Loan. If any Lender requests compensation under this Section 2.9.1 , such Lender shall, if requested by notice by Borrower to such Lender, furnish to Borrower a statement setting forth the basis for requesting such compensation and the method for determining the amount thereof.
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2.9.2 Special Taxes . Borrower shall make all payments hereunder free and clear of and without deduction for Special Taxes. If Borrower shall be required by law to deduct any Special Taxes from or in respect of any sum payable hereunder or under any other Loan Document to Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.9.2 ) each Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.
2.9.3 Other Taxes . In addition, Borrower agrees to pay any present or future stamp or documentary taxes or other excise or property taxes, charges, or similar levies which arise from any payment made hereunder, or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the other Loan Documents, or the Loan (hereinafter referred to as “ Other Taxes ”).
Section 2.10 Defaulting Lender .
(a) Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law, such Defaulting Lender shall be deemed not to be a “Lender” for purposes of any modification, waiver or consent with respect to any provision of the Loan Documents that requires the approval of the Lenders.
(b) If a Lender is no longer a Defaulting Lender, Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase at par that portion of its Ratable Share of the Loan funded by other Lenders or take such other actions as the Agent may determine to be necessary to cause the Loan to be held pro rata by the Lenders in accordance with their Ratable Share. Upon satisfaction of the conditions set forth in the preceding sentence, including those set forth in Agent’s notice, the applicable Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of Borrower while that Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
(c) The Agent, or a Qualified Lender shall have the right (but not the obligation) to purchase from any Defaulting Lender, and each Defaulting Lender shall, upon such request, sell and assign to the Agent or such Qualified Lender, all of the Defaulting Lender’s outstanding Ratable Share of the Loan. Such sale shall be consummated promptly after Agent has arranged for a purchase by the Agent or a Qualified Lender pursuant to an Assignment and Acceptance, and at a price equal to the outstanding principal balance of the Defaulting Lender’s Ratable Share of the Loan, plus accrued interest, without premium or discount.
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Article 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Borrower Representations . Borrower represents and warrants as of the Closing Date that, except to the extent (if any) disclosed on Schedule IV hereto with reference to a specific subsection of this Section 3.1 :
3.1.1 Organization; Special Purpose . (a) Borrower is duly organized, validly existing and in good standing with full power and authority to own its assets and conduct its business, and is duly qualified and in good standing in the jurisdiction in which the ownership or lease of its property or the conduct of its business requires such qualification, and Borrower has taken all necessary limited liability company action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents by it, and has the limited liability company power and authority to execute, deliver and perform under this Agreement, the other Loan Documents and all the transactions contemplated hereby. Borrower is a Special Purpose Bankruptcy Remote Entity. Borrower’s exact legal name is correctly set forth in the first paragraph of this Agreement. Borrower is an organization of the type specified in the first paragraph of this Agreement. Borrower is formed or organized under the laws of the state specified in the first paragraph of this Agreement. Borrower’s principal place of business and chief executive office, and the place where Borrower keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics, has been for the preceding four (4) months (or, if less than four (4) months, the entire period of the existence of Borrower) and will continue to be the address of Borrower set forth in the first paragraph of this Agreement (unless Borrower notifies Agent in writing at least thirty (30) days prior to the date of such change). Borrower is a “disregarded entity” for U.S. federal income Special Tax purposes.
(b) Mortgage Borrower is duly organized, validly existing and in good standing with full power and authority to own its assets and conduct its business, and is duly qualified in all jurisdictions in which the ownership or lease of its property or the conduct of its business requires such qualification. Borrower has the power and authority and the requisite ownership interests in Mortgage Borrower to control the actions of Mortgage Borrower, and upon the realization of the Collateral, Lender or any other party succeeding to Borrower’s interest in the Collateral would have such control. Without limiting the foregoing, Borrower has sufficient control over Mortgage Borrower to cause Mortgage Borrower to (i) take any action on Mortgage Borrower’s part required by the Loan Documents and (ii) refrain from taking any action prohibited by the Loan Documents. Mortgage Borrower is a “disregarded entity” for U.S. federal income Special Tax purposes.
3.1.2 Proceedings; Enforceability . This Agreement and the other Loan Documents have been duly authorized, executed and delivered by Borrower and constitute a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower or Guarantor including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable, and none of Borrower or Guarantor have asserted any right of rescission, set-off, counterclaim or defense with respect thereto.
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3.1.3 No Conflicts . (a) The execution and delivery of this Agreement and the other Loan Documents by Borrower and the performance of their Obligations hereunder and thereunder will not conflict with any provision of any law or regulation to which Borrower is subject, or conflict with, result in a breach of, or constitute a default under, any of the terms, conditions or provisions of Borrower’s organizational documents or any agreement or instrument to which Borrower is a party or by which it is bound, or any order or decree applicable to Borrower, or result in the creation or imposition of any Lien on Borrower’s assets or property (other than pursuant to the Loan Documents).
(b) The execution, delivery and performance of the Mortgage Loan Agreement and the other Mortgage Loan Documents by Mortgage Borrower will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Mortgage Loan Documents) upon any of the property or assets of Mortgage Borrower pursuant to the terms of any partnership agreement, management agreement or other agreement or instrument to which Mortgage Borrower is a party or by which any of Mortgage Borrower’s property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over Mortgage Borrower or any of Mortgage Borrower’s property or assets, and any consent, approval, authorization, order, registration or qualification of or with any court or any such Governmental Authority required for the execution, delivery and performance by Mortgage Borrower of the Mortgage Loan Agreement or any other Mortgage Loan Documents has been obtained and is in full force and effect.
3.1.4 Litigation . There is no action, suit, proceeding or investigation pending or, to Borrower’s Knowledge, threatened in writing against Borrower, Guarantor, the Manager, the Collateral or any Property in any court or by or before any other Governmental Authority which, if adversely determined, could likely result in a Material Adverse Effect.
3.1.5 Agreements . Borrower is not a party to any agreement or instrument or subject to any restriction which might materially and adversely affect Borrower, the Collateral or any Property, or Borrower’s business, properties or assets, operations or financial condition. Borrower is not in default with respect to any order or decree of any court or any order, regulation or demand of any Governmental Authority, which default might have consequences that would materially and adversely affect the financial condition or operations of Borrower or its properties or might have consequences that would materially and adversely affect its performance hereunder. Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Permitted Encumbrance or any other agreement or instrument to which it is a party or by which it or any Property is bound.
3.1.6 Consents . No consent, approval, authorization or order of any court or Governmental Authority is required for the execution, delivery and performance by Borrower of, or compliance by Borrower with, this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby, other than those which have been obtained by Borrower.
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3.1.7 Title .
(a) Mortgage Borrower has indefeasible, marketable and insurable fee simple title (as reflected in the Title Insurance Policies) to the real property comprising part of the Property and good title to the balance of the Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to the Mortgage Loan Documents and the Liens created by the Mortgage Loan Documents. The Permitted Encumbrances in the aggregate do not materially interfere with the value, current use or operation of the Property or the security intended to be provided by the Mortgage or with the current ability of the Property to generate net cash flow sufficient to service the Loan or the Borrower’s ability to pay its obligations when they become due.
(b) Borrower is the record and beneficial owner of, and has good title to, the Collateral, free and clear of all Liens whatsoever, except the Liens created by the Loan Documents. The Pledge Agreement, together with the UCC Financing Statements relating to the Collateral when properly filed in the appropriate records and Borrower’s delivery to Lender of the Pledged LLC Certificates described in the Pledge Agreement, will create a valid, perfected first priority security interests in and to the Collateral. Borrower’s delivery to Lender of the Pledged LLC Certificates described in the Pledge Agreement creates a valid and perfected first-priority security interest in that portion of the Collateral consisting of the Pledged Company Interests. For so long as the Lien of the Pledge Agreement is outstanding, Borrower shall forever warrant, defend and preserve such title and the validity and priority of the Lien of the Pledge Agreement and shall forever warrant and defend such title, validity and priority to Lender against the claims of all persons whomsoever.
3.1.8 ERISA; No Plan Assets . As of the date hereof and throughout the Term (i) none of Borrower or Guarantor are themselves an “employee benefit plan,” as defined in Section 3(3) of ERISA or a “plan” within the meaning of Section 4975 of the Code, (ii) none of the assets of Borrower or Guarantor constitutes or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101 as modified in operation by Section 3(42) of ERISA, (iii) Borrower and Guarantor are not and will not be a “governmental plan” within the meaning of Section 3(32) of ERISA, and (iv) transactions by or with Borrower or Guarantor are not and will not be subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans. Borrower has not engaged in any transaction in connection with any Plan that could subject Borrower to either a material civil penalty assessed pursuant to the provisions of Section 502 of ERISA or a material tax imposed under the provisions of Section 4975 of the Code. As of the date hereof, neither the Borrower nor, in the case of a Guarantor who is an entity, the Guarantor, nor any ERISA Affiliate maintains, sponsors or contributes to or has any obligations with respect to a Plan or has maintained or sponsored or contributed to or had any obligations with respect to any Plan for the six plan year period prior to the date hereof. Borrower is in compliance in all material respects with the applicable provisions of ERISA and the provisions of the Code relating to Employee Benefit Plans and the regulations and published interpretations thereunder and there are no material claims pending with respect to any such plan; (ii) no ERISA Event has occurred in the six-year period prior to the date on which this representation is made or deemed made or is reasonably expected to occur and (iii) all material amounts required by applicable law with respect to, or by the terms of, any retiree welfare benefit arrangement maintained by the Borrower or to which Borrower has an obligation to contribute have been accrued in accordance with Statement of Financial Accounting Standards No. 106. There would be no material liability (contingent or otherwise) of Borrower and any ERISA Affiliates with respect to the complete or partial withdrawal from all Multiemployer Plans if such a withdrawal were to occur as of the date hereof. Borrower has no employees and, except for the Union Contract, neither Borrower nor any ERISA Affiliates has any obligation or liability with respect to any collective bargaining agreement or plans thereunder. Borrower and, with respect to the Properties, Mortgage Borrower and Manager (1) are not involved in or been threatened in writing with any work stoppage, labor strike, slowdown or lockout labor dispute, material grievance or litigation relating to labor matters involving any employees at the Properties, including, without limitation, claims relating to a violation of any federal, state or local labor, safety or employment laws (domestic or foreign) and/or charges of unfair labor practices or discrimination complaints, (2) have not engaged in any unfair labor practices within the meaning of the National Labor Relations Act or similar law, and (3) are in compliance with, and not liable for non-compliance of any party with respect to, applicable labor and employment laws including wage-hour laws, tax withholding and other relevant laws relating to employees and independent contractors.
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3.1.9 Compliance . Except as set forth in the zoning reports delivered to Agent in connection with closing of the Loan and the municipal search reports received by Agent, if any, Mortgage Borrower, Borrower and the Property (including, but not limited to the Improvements) and the use thereof comply in all material respects with all applicable Legal Requirements, including parking, building and zoning and land use laws, ordinances, regulations and codes (it being understood that all representations and warranties as to environmental Legal Requirements are as set forth in the Environmental Indemnity, and as to RPTL Tax Benefit Law are as set forth in Section 3.1.36 hereof). Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, the violation of which might materially adversely affect the condition financial condition or business of Borrower. Borrower has not committed any act which may give any Governmental Authority the right to cause Borrower or Mortgage Borrower to forfeit the Property owned by Mortgage Borrower or any part thereof or any monies paid in performance of Borrower’s obligations under any of the Loan Documents or Mortgage Borrower’s obligations under the Mortgage Loan Documents. The Property is used exclusively for multi-family residential, commercial and other appurtenant and related uses. Except as set forth in the zoning reports delivered to Agent in connection with closing of the Loan, in the event that all or any part of the Improvements are destroyed or damaged, said Improvements can be legally reconstructed to their condition prior to such damage or destruction, and thereafter exist for the same use without violating any zoning or other ordinances applicable thereto and without the necessity of obtaining any variances or special permits. No legal proceedings are pending or, to Borrower’s Knowledge, threatened in writing with respect to the zoning of the Property. Neither the zoning nor any other right to construct, use or operate the Property is in any way dependent upon or related to any property other than the Property. All certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits (either temporary or permanent) required of Mortgage Borrower for the legal use, occupancy and operation of the Properties for their current uses (collectively, the “ Licenses ”), have been obtained and are in full force and effect. The use being made of the Property is in conformity in all material respects with the certificate(s) of occupancy issued for the Property and all other material restrictions, covenants and conditions affecting the Property.
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3.1.10 Financial Information . All financial data, including the statements of cash flow and income and operating expense with respect to the Borrower, the Guarantor and the Properties that have been delivered to Agent in connection with the Loan (i) are true, complete and correct in all material respects, (ii) accurately represent the financial condition of the Properties as of the date of such reports, and (iii) have been prepared in accordance with an Acceptable Accounting Method throughout the periods covered, except as disclosed therein. None of Borrower, Mortgage Borrower or Guarantor has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to any such Person and reasonably likely to have a Materially Adverse Effect, except as referred to or reflected in said financial statements or otherwise disclosed to Agent. Since the date of the financial statements, there has been no material adverse change in the financial condition, operations or business of Borrower, Mortgage Borrower, Guarantor or the Property from that set forth in said financial statements.
3.1.11 Intentionally Omitted .
3.1.12 Intentionally Omitted .
3.1.13 Insurance . Borrower has obtained and has delivered to Agent certificates of insurance evidencing the issuance of all of the Policies, with all premiums prepaid thereunder, reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No claims have been made under any of the Policies, and, to Borrower’s Knowledge, no Person, including Borrower, has done, by act or omission, anything which would impair the coverage of any of the Policies.
3.1.14 Intentionally Omitted .
3.1.15 Intentionally Omitted .
3.1.16 Intentionally Omitted .
3.1.17 Leases .
(a) The rent rolls attached hereto as Schedule I are true, complete and correct and the Property is not subject to any Leases other than the Leases described in Schedule I . Mortgage Borrower is the owner and lessor of landlord’s interest in the Leases. No Person has any possessory interest in any Property or right to occupy the same except under and pursuant to the provisions of the Leases.
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(b) With respect to residential Leases, except as set forth on the rent rolls attached hereto as Schedule I : (i) the Leases are in full force and effect and there are no material defaults thereunder by either party beyond any applicable notice or cure period, and, to Borrower’s Knowledge, except for certain rent arrearages that have been disclosed to Agent as of the date of this Agreement, there are no conditions that, with the passage of time or the giving of notice, or both, would constitute defaults thereunder, (ii) the copies of the Leases delivered to Agent are true and complete, and, to Borrower’s Knowledge, there are no oral agreements with respect thereto, (iii) no Rent (including security deposits but not including last month’s rent) has been paid more than one (1) month in advance of its due date, (iv) any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by Mortgage Borrower to any Tenant has already been received by such Tenant, (v) Borrower has delivered to Agent a true, correct and complete list of all security deposits made by Tenants at any Property which have not been applied (including accrued interest thereon), all of which are held by Mortgage Borrower in accordance with the terms of the applicable Lease and applicable Legal Requirements, (vi) to Borrower’s Knowledge, each Tenant under a Major Lease is free from bankruptcy or reorganization proceedings, and (vii) there are no brokerage fees or commissions due and payable in connection with the leasing of space at any Property, except as has been previously disclosed to Agent in writing, and no such fees or commissions will become due and payable in the future in connection with the Leases, including by reason of any extension of such Lease or expansion of the space leased thereunder, except as has previously been disclosed to Agent in writing.
(c) With respect to non-residential Leases, except as set forth on the rent rolls attached hereto as Schedule I : (i) the Leases are in full force and effect and there are no defaults thereunder by either party beyond any applicable notice or cure period, and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute defaults thereunder, (ii) the copies of the Leases delivered to Agent are true and complete, and there are no oral agreements with respect thereto, (iii) no Rent (including security deposits) has been paid more than one (1) month in advance of its due date, (iv) all work to be performed by Mortgage Borrower under any Lease has been performed as required and has been accepted by the applicable Tenant, (v) any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by Mortgage Borrower to any Tenant has already been received by such Tenant, (vi) the Tenants under the Leases have accepted possession of and are in occupancy of all of their respective demised Property and have commenced the payment of full, unabated rent under the Leases, (vii) Borrower has delivered to Agent a true, correct and complete list of all security deposits made by Tenants at any Property which have not been applied (including accrued interest thereon), all of which are held by Mortgage Borrower in accordance with the terms of the applicable Lease and applicable Legal Requirements, (viii) each Tenant under a Major Lease is free from bankruptcy or reorganization proceedings, (ix) no Tenant under any Lease (or any sublease) is a Borrower Affiliate, (x) the Tenants under the Leases are open for business and paying full, unabated rent and no Tenant has informed Mortgage Borrower or Borrower in writing that it intends to discontinue its business at its premises, (xi) there are no brokerage fees or commissions due and payable in connection with the leasing of space at any Property, except as has been previously disclosed to Agent in writing, and no such fees or commissions will become due and payable in the future in connection with the Leases, including by reason of any extension of such Lease or expansion of the space leased thereunder, except as has previously been disclosed to Agent in writing, (xii) no Tenant under any Lease has any right or option for additional space in the Improvements and (xiii) to Borrower’s Knowledge, no Tenant has assigned its Lease or sublet all or any portion of the premises demised thereby, and no such Tenant holds its leased premises under assignment or sublease, nor does anyone except such Tenant and its employees occupy such leased premises. There has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is still in effect, other than the Assignment of Leases and Rents constituting part of the Mortgage Loan Documents.
(d) No Tenant under any Lease has a right or option pursuant to such Lease to purchase all or any part of the leased premises or the building of which the leased premises are a part.
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3.1.18 Tax Filings . To the extent required, Borrower has filed (or has obtained effective extensions for filing) all federal, state, commonwealth, district and local tax returns required to be filed and has paid or made adequate provision for the payment of all federal, state, commonwealth, district and local taxes, charges and assessments payable by Borrower. Borrower’s tax returns (if any) properly reflect the income and taxes of Borrower for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit.
3.1.19 No Fraudulent Transfer . Borrower has not entered into the transaction or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and Borrower has received reasonably equivalent value in exchange for its Obligations under the Loan Documents. After giving effect to the Loan, the fair saleable value of Borrower’s assets exceeds and will, immediately following the making of the Loan, exceed Borrower’s total liabilities, including subordinated, unliquidated, disputed and contingent liabilities; (ii) the fair saleable value of Borrower’s assets is, and immediately following the making of the Loan, will be, greater than Borrower’s probable liabilities, including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured; (iii) Borrower’s assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted; and (iv) Borrower does not intend to, and does not believe that it will, incur Indebtedness and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such Indebtedness and liabilities as they mature (taking into account the timing and amounts of cash to be received by Borrower and the amounts to be payable on or in respect of the obligations of Borrower). No petition in bankruptcy has been filed against Borrower or any constituent Person of Borrower, and none of Borrower or any constituent Person of Borrower has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. None of Borrower or any constituent Persons of Borrower are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of Borrower’s assets or properties, and Borrower does not have Borrower’s Knowledge of any constituent Person contemplating the filing of any such petition against it or such constituent Persons.
3.1.20 Federal Reserve Regulations . No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents.
3.1.21 Organizational Chart . The organizational chart attached as Schedule III , relating to Mortgage Borrower, Borrower and certain Affiliates and other parties, is true, complete and correct on and as of the date hereof. No Person other than those Persons shown on Schedule III have any ownership interest in, or right of control, directly or indirectly, Mortgage Borrower or Borrower.
3.1.22 Organizational Status . Borrower’s exact legal name, organizational type (e.g., corporation, limited liability company) and the jurisdiction in which Borrower is organized are set forth on the organizational chart attached hereto as Schedule III . Borrower’s Tax I.D. number is 47-2418670 and Organizational I.D. number is 5647836.
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3.1.23 Bank Holding Company . Borrower is not a “bank holding company” or a direct or indirect subsidiary of a “bank holding company” as defined in the Bank Holding Company Act of 1956, as amended, and Regulation Y thereunder of the Board of Governors of the Federal Reserve System.
3.1.24 No Casualty . No Improvements at any Property have suffered a material casualty or damage which has not been fully repaired and the cost thereof fully paid.
3.1.25 Purchase Options . No Property or any part thereof is subject to any purchase options, rights of first refusal, rights of first offer or other similar rights in favor of third parties.
3.1.26 FIRPTA . Borrower is not a “foreign person” within the meaning of Sections 1445 or 7701 of the Code.
3.1.27 Investment Company Act . Borrower is not (i) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject to any other United States federal or state law or regulation which purports to restrict or regulate its ability to borrow money.
3.1.28 Fiscal Year . Each fiscal year of Borrower commences on January 1.
3.1.29 Other Debt . There is no indebtedness with respect to any Property or any excess cash flow or any residual interest therein, whether secured or unsecured, other than Permitted Encumbrances and Permitted Indebtedness.
3.1.30 Contracts . Borrower has not entered into, nor is bound by, any Major Contract.
3.1.31 Full and Accurate Disclosure . No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading in light of the circumstances under which they were made. There is no material fact presently known to Borrower which has not been disclosed to Agent which materially adversely affects, or as far as Borrower can foresee, might materially adversely affect, any Property or the business, operations or condition (financial or otherwise) of Borrower.
3.1.32 Other Obligations and Liabilities . Neither Borrower nor Mortgage Borrower has liabilities or other obligations that arose or accrued prior to the date hereof that, either individually or in the aggregate, could have a Material Adverse Effect. Neither Borrower nor Mortgage Borrower has any known contingent liabilities (other than the ongoing litigation relating to 421-g Tax Benefits at the Property, which, if adversely decided, would not have a Material Adverse Effect).
3.1.33 Intellectual Property/Websites . Other than as set forth on Schedule VI , neither Borrower nor any Affiliate (i) has or holds any tradenames, trademarks, servicemarks, logos, copyrights, patents or other intellectual property (collectively, “ Intellectual Property ”) with respect to any Property or the use or operations thereof or (ii) is the registered holder of any website with respect to such Property (other than Tenant websites).
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3.1.34 Operations Agreements . To Borrower’s Knowledge, (i) each Operations Agreement is in full force and effect, (ii) Borrower is not in default thereunder, and, (iii) there are no conditions which, with the passage of time or the giving of notice, or both, would constitute a default thereunder.
3.1.35 Illegal Activity . No portion of any Property has been or will be purchased in the future, in each case by Borrower or any Affiliate of Borrower, with proceeds of any illegal activity.
3.1.36 Residential Tax Benefits . The Property is receiving real estate tax benefits (the “ 421-g Tax Benefits ”) pursuant to Real Property Tax Law (the “ RPTL ”) § 421-g (the “ RPTL Tax Benefit Law ”). The “Exemption” for the 110 Church Property expired June 30, 2015 and the 110 Church Property is currently receiving an “Abatement”, which ends June 30, 2017. The “Abatement” for the 53 Park Place Property expired June 30, 2015. The 421-g Tax Benefits for the 110 Church Property is currently subject to a phase-out such that Borrower will be paying real estate taxes without any 421-g Tax Benefits on July 1, 2017 with respect to such Property.
3.1.37 Mortgage Loan . The Mortgage Loan to Mortgage Borrower is fully funded in the amount of $335,000,000.00. The outstanding principal amount of the Mortgage Loan, as of the Closing Date, is $335,000,000.00. No Mortgage Loan Default has occurred under any Mortgage Loan Document which remains uncured or unwaived and no circumstance, event or condition has occurred or exists which, with the giving of notice and/or the expiration of the applicable period would constitute a Mortgage Loan Default under the Mortgage Loan Documents.
3.1.38 Organizational Documents . A true and correct copy of each of the Borrower Organizational Documents and Mortgage Borrower Organizational Documents has been provided to Agent and each such agreement is in full force and effect according to its terms, is the valid and binding obligation of the parties thereto, has not been modified, amended or supplemented by either party thereto and there is no default thereunder by any member thereunder.
3.1.39 Affiliates . Borrower does not own any equity interests in any other Person other than the related Pledged Company Interests.
3.1.40 List of Mortgage Loan Documents . There are no Mortgage Loan Documents other than those set forth on Schedule XVI attached hereto. Borrower has delivered to Agent true, complete and correct copies of all Mortgage Loan Documents, and none of the Mortgage Loan Documents has been amended or modified since the delivery thereof.
3.1.41 No Contractual Obligations . As of the Closing Date, neither Borrower nor Mortgage Borrower is subject to any Contractual Obligations and has not entered into any agreement, instrument or undertaking by which it or its assets are bound, or pursuant to which it has incurred any Indebtedness (other than, with respect to Borrower, the Loan Documents and, with respect to Mortgage Loan Borrower, the Mortgage Loan Documents), except as permitted under the Loan Documents and the Mortgage Loan Documents, respectively, and other, with respect to Mortgage Borrower only, than the Union Contract, the Management Agreement, Leases entered into in accordance with the terms of this Agreement and any contract or agreement contemplated by the Approved Annual Budget for the current year approved by Agent in accordance with Section 4.9.5 .
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3.1.42 Mortgage Loan Representations . All of the representations and warranties of Mortgage Borrower contained in the Mortgage Loan Documents are (a) true and correct in all material respects and (b) hereby incorporated into this Agreement and deemed made by Borrower hereunder as and when made thereunder and shall remain incorporated without regard to any waiver, amendment or other modification thereof by Mortgage Lender or to whether the Mortgage Loan has been repaid, unless otherwise consented to in writing by Agent.
3.1.43 Pledged Collateral .
(a) Borrower is the sole beneficial owner of the Collateral and no Lien exists or will exist (except the Lien of the Loan Documents) upon such Collateral at any time (and no right or option to acquire the same exists in favor of any other Person).
(b) The Collateral is not and will not be subject to any contractual restriction upon the transfer thereof (except for any such restriction contained in the Pledge Agreement).
(c) The chief place of business of Borrower and the office where Borrower keeps its records concerning the Collateral will be located at all times at the address set forth in the introductory paragraph of this Agreement, unless Borrower gives notice to Agent of any change to its chief pace of business thirty (30) days prior to any such change.
(d) The Pledged Securities (as such term is defined in the Pledge Agreement) have been duly authorized and validly issued and are fully paid and non-assessable and are not subject to any options to purchase or similar rights of any Person.
(e) The Pledge Agreement creates a valid security interest in the Collateral, securing the payment of the Debt, and upon the filing in the appropriate filing offices of the financing statements to be delivered pursuant to this Agreement, such security interests will be perfected, first priority security interests, and all filings and other actions necessary to perfect such security interests will have been duly taken. Upon the exercise of its rights and remedies under the Pledge Agreement, Lenders will succeed to all of the rights, titles and interest of Borrower in Mortgage Borrower without the consent of any other Person and will, without the consent of any other Person, be admitted as the sole member of Mortgage Borrower.
Section 3.2 Survival of Representations . The representations and warranties set forth in Section 3.1 and elsewhere in this Agreement and the other Loan Documents shall (i) survive until the Obligations have been paid and performed in full and (ii) be deemed to have been relied upon by Agent and Lenders notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf.
Article
4
BORROWER’S COVENANTS
Until the end of the Term, Borrower hereby covenant and agree with Agent and Lenders that:
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Section 4.1 Payment and Performance of Obligations . Borrower shall pay and otherwise perform the Obligations in accordance with the terms of this Agreement and the other Loan Documents.
Section 4.2 Due on Sale and Encumbrance; Transfers of Interests . (a) Borrower acknowledges that Agent and Lenders have examined and relied on the experience of Mortgage Borrower and its stockholders, general partners and members, as applicable, and principals of Mortgage Borrower in owning and operating properties such as the Properties in agreeing to make the Loan, and will continue to rely on Mortgage Borrower’s ownership of the Property owned by Mortgage Borrower as a means of maintaining the value of the Properties and, as a result, the Collateral as security for repayment of the Debt and the performance of the Other Obligations. Borrower acknowledges that Agent and Lenders have a valid interest in maintaining the value of the Properties so as to ensure that, should Borrower default in the repayment of the Debt or the performance of the Other Obligations, Agent can recover the Debt by a sale of the Collateral. Therefore, without the prior written consent of Agent, but, in each instance, subject to the provisions of Article 7 , neither Mortgage Borrower nor Borrower nor any other Person having a direct or indirect ownership or beneficial interest in Mortgage Borrower or Borrower shall sell, convey, mortgage, grant, bargain, encumber, pledge, assign or transfer any Property or any Collateral or any part thereof, or any interest, direct or indirect, in Mortgage Borrower or Borrower, whether voluntarily or involuntarily or enter into or cause Mortgage Borrower to enter into or subject the Property to a PACE Loan (a “ Transfer ”). A Transfer within the meaning of this Section 4.2 shall be deemed to include (i) an installment sales agreement wherein Mortgage Borrower agrees to sell the Property or any part thereof for a price to be paid in installments; (ii) an agreement by Mortgage Borrower for the leasing of all or a substantial part of a Property for any purpose other than the actual occupancy by a space Tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Mortgage Borrower’s right, title and interest in and to any Leases or any Rents; (iii) if Mortgage Borrower, Borrower, Guarantor or any general partner, managing member or controlling shareholder of Borrower or Guarantor is a corporation, the voluntary or involuntary sale, conveyance or transfer of such corporation’s stock (or the stock of any corporation directly or indirectly controlling such corporation by operation of law or otherwise) or the creation or issuance of new stock; (iv) if Mortgage Borrower, Borrower, Guarantor or any general partner, managing member or controlling shareholder of Mortgage Borrower, Borrower or Guarantor is a limited or general partnership, joint venture or limited liability company, the change, removal, resignation or addition of a general partner, managing partner, limited partner, joint venturer or member or the transfer of the partnership interest of any general partner, managing partner or limited partner or the transfer of the interest of any joint venturer or member; (v) any surrender, termination, cancellation, change, amendment, supplementation or other modification of the Mortgage; and (vi) any pledge, hypothecation, assignment, transfer or other encumbrance of any direct or indirect ownership interest in Mortgage Borrower or Borrower.
(b) Notwithstanding the provisions of this Section 4.2(b) , except as permitted by Article 7 hereof (i) no Transfer of any direct interest in Mortgage Borrower is permitted without the written consent of Lender and (ii) Borrower shall not consent to or permit a Transfer of the Property by Mortgage Borrower if and to the extent permitted under Section 7 of the Mortgage Loan Agreement unless it obtains the prior written consent of Agent.
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Section 4.3 Liens . Borrower shall not (nor shall it allow Mortgage Borrower to) create, incur, assume or permit to exist any Lien on any direct or indirect interest in Borrower or any portion of any Collateral, except for the Permitted Encumbrances. After prior notice to Agent, Borrower, at its own expense, may, and may cause Mortgage Borrower to, contest by appropriate legal proceeding, conducted in good faith and with due diligence, the amount or validity of any Liens, provided that (i) no Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with all applicable statutes, laws and ordinances; (iii) neither the applicable Property nor Collateral nor any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, canceled or lost; (iv) Borrower or Mortgage Borrower shall promptly upon final determination thereof pay the amount of any such Liens, together with all costs, interest and penalties which may be payable in connection therewith; (v) to insure the payment of such Liens, Borrower shall deliver to Agent either (A) cash, or other security as may be reasonably acceptable to Agent, in an amount not to exceed one hundred ten percent (110%) of the contested amount or (B) a payment and performance bond in an amount equal to one hundred percent (100%) of the contested amount from a surety acceptable to Agent in its reasonable discretion (provided that if Mortgage Lender is requiring such cash or security pursuant to Section 4.3(v) of the Mortgage Loan Agreement, Agent shall not have the right to require any further cash or security so long as the provisions of Section 4.3 of the Mortgage Loan Agreement are complied with), (vi) failure to pay such Liens will not subject Agent to any civil or criminal liability, (vii) such contest shall not affect the ownership, use or occupancy of the applicable Property or Collateral, and (viii) Borrower shall, upon request by Agent, give Agent prompt notice of the status of such proceedings and/or confirmation of the continuing satisfaction of the conditions set forth in clauses (i) through (vii) of this Section 4.3 . Agent may pay over any such cash or other security held by Agent to the claimant entitled thereto at any time when, in the reasonable judgment of Agent, the entitlement of such claimant is established or the applicable Property (or any part thereof or interest therein) shall be in imminent danger of being sold, forfeited, terminated, cancelled or lost or there shall be any imminent danger of the Lien of the Mortgage secured by such Property and/or the Lien of the Collateral relating to such Property being primed by any related Lien.
Section 4.4 Special Purpose . (a) Without in any way limiting the provisions of this Article 4 , Borrower shall at all times be a Special Purpose Bankruptcy Remote Entity. Borrower shall not directly or indirectly make, or permit any Borrower Affiliate to make, any change, amendment or modification to the Borrower Organizational Documents, or otherwise take any action which could result in Borrower not being a Special Purpose Bankruptcy Remote Entity.
(b) Borrower shall cause Mortgage Borrower to comply with the requirements of a Special Purpose Bankruptcy Remote Entity (as defined in the Mortgage Loan Agreement) with respect to its business and the Property and shall not permit any Affiliate to take any action that would result in Mortgage Borrower not being in compliance with such requirements of the Mortgage Loan Agreement.
(c) At all times during the term of the Loan, Borrower shall, and shall cause Mortgage Borrower to be treated as a “disregarded entity” for U.S. federal income Special Tax purposes and shall not take any action or make any election that would result in Borrower and/or Mortgage Borrower being subject to income tax during the term of the Loan.
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Section 4.5 Existence; Compliance with Legal Requirements . Borrower shall do or cause to be done, and cause Mortgage Borrower to do or cause to be done, all things necessary to preserve, renew and keep in full force and effect its existence and all rights, licenses, permits, franchises and all applicable governmental authorizations necessary for the ownership of the Collateral owned by Borrower and the operation of the Property owned by Mortgage Borrower and comply in all material respects with all Legal Requirements applicable to it and the Collateral or Property owned by it (it being understood that, with respect to RPTL Tax Benefits Law and Rent Regulation Laws, compliance with Section 4.33 shall constitute compliance with Legal Requirements hereunder).
Section 4.6 Taxes and Other Charges . Borrower shall pay all Taxes and Other Charges now or hereafter levied, assessed or imposed as the same become due and payable, and shall furnish to Agent receipts for the payment of the Taxes and the Other Charges prior to the date the same shall become delinquent (provided, however, that Borrower need not pay, or cause Mortgage Borrower to pay, Taxes directly nor furnish such receipts for payment of Taxes to the extent that funds to pay for such Taxes have been deposited into the Tax Account pursuant to Section 6.3 of the Mortgage Loan Agreement). Borrower shall not permit or suffer, and shall promptly discharge or cause Mortgage Borrower to discharge, any Lien or charge against any Property or Collateral with respect to Taxes and Other Charges, and shall promptly pay, or cause Mortgage Borrower to pay, for all utility services provided to such Property. After prior notice to Agent, Borrower, at its own expense, may, and may cause Mortgage Borrower to, contest by appropriate legal proceeding, conducted in good faith and with due diligence, the amount or validity of any Taxes or Other Charges, provided that (i) no Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with all applicable statutes, laws and ordinances; (iii) no Property or Collateral or any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, canceled or lost; (iv) Borrower shall promptly upon final determination thereof pay, or cause Mortgage Borrower to pay, the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) such proceeding shall suspend the collection of the contested Taxes or Other Charges from the applicable Property or Collateral; (vi) Borrower shall deposit with Agent cash, or other security as may be reasonably requested by Agent, in an amount not to exceed one hundred ten percent (110%) of the contested amount, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon, provided that no such cash or other security shall be required if (A) Agent reasonably determines that there are sufficient funds in the Tax Account under the Mortgage Loan Agreement for payment of such Taxes or Other Charges and any interest or penalties that may accrue thereon, or (B) Mortgage Lender is requiring such cash or other security pursuant to Section 4.6(vi) of the Mortgage Loan Agreement so long as the provisions of Section 4.6 of the Mortgage Loan Agreement are complied with, (vii) failure to pay such Taxes or Other Charges will not subject Agent or any Lenders to any civil or criminal liability, (viii) such contest shall not affect the ownership, use or occupancy of the applicable Property or the ownership of the Collateral, and (ix) Borrower shall, upon reasonable request by Agent, give Agent prompt notice of the status of such proceedings and/or confirmation of the continuing satisfaction of the conditions set forth in clauses (i) through (viii) of this Section 4.6 . Agent may pay over any such cash or other security held by Agent to the claimant entitled thereto at any time when, in the judgment of Agent, the entitlement of such claimant is established or the applicable Property or Collateral (or any part thereof or interest therein) shall be in imminent danger of being sold, forfeited, terminated cancelled or lost or there shall be any imminent danger of the Lien of the Mortgage secured by such Property or the Lien of Collateral relating to such Property being primed by any related Lien.
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Section 4.7 Litigation . Borrower shall give prompt notice to Agent of any litigation or governmental proceedings pending or threatened in writing against any Property, the Collateral, Mortgage Borrower, Borrower, Manager (solely with respect to a Property) or Guarantor which, if adversely determined, would likely have a Material Adverse Effect.
Section 4.8 Title to the Properties . Borrower shall warrant and defend (a) its title to the Collateral, subject only to the Lien of the Loan Documents, (b) the validity and priority of the Lien under the Pledge Agreement and other Loan Documents on the Collateral, subject only to the Lien of the Loan Documents and (c) Borrower shall cause Mortgage Borrower to warrant and defend (i) its title to the Properties and every part thereof, subject only to Permitted Encumbrances and (ii) the validity and priority of the Lien of the Mortgage on the Properties, subject only to Permitted Encumbrances, in each case against the claims of all Persons whomsoever. Borrower shall reimburse Agent and Lenders for any losses, out-of-pocket costs, damages or out-of-pocket expenses (including reasonable attorneys’ fees and court costs) incurred by Agent or any Lender if an interest in any Property, other than as permitted hereunder, is claimed by another Person, other than a Person claiming by, through or under Agent (on behalf of Lenders).
Section 4.9 Financial Reporting .
4.9.1 Generally . Borrower shall keep and maintain or will cause to be kept and maintained proper and accurate books and records, in accordance with an Acceptable Accounting Method, for itself and for Mortgage Borrower and, to the extent required under Section 9.1 hereof, the requirements of Regulation AB, reflecting the financial affairs of Borrower and all items of income and expense in connection with the operation of the Property owned by Borrower. Agent shall have the right from time to time during normal business hours upon two (2) days’ prior notice (which may be given orally) to Borrower to examine such books and records at the office of Borrower or Mortgage Borrower or other Person maintaining such books and records and to make such copies or extracts thereof as Agent shall reasonably require. After an Event of Default, Borrower shall pay any out-of-pocket costs incurred by Agent to examine such books, records and accounts, as Agent shall determine to be necessary or appropriate in the protection of Agent’s and Lenders’ interests.
4.9.2 Quarterly Reports . Not later than forty-five (45) days following the end of each fiscal quarter (or each calendar month prior to a Securitization of the Loan), Borrower shall deliver to Agent:
(i) unaudited financial statements, internally prepared in accordance with an Acceptable Accounting Method including a balance sheet and profit and loss statement as of the end of such quarter (or month) and for the corresponding quarter (or month) of the previous year, and a statement of revenues and expenses for such quarter (or month) and the year to date, and a comparison of the year to date results with the Annual Budget for such period and the Fiscal Year. Such statements for each quarter (or month) shall be accompanied by an Officer’s Certificate certifying to the best of the signer’s knowledge, (A) that such statements fairly represent the financial condition and results of operations of Borrower and the Mortgage Borrower and (B) that as of the date of such Officer’s Certificate, no Event of Default exists under this Agreement, the Note or any other Loan Document or, if so, specifying the nature and status of each such Event of Default and the action then being taken by Borrower or proposed to be taken to remedy such Event of Default. Such financial statements shall contain such other information as shall be reasonably requested by Agent for purposes of calculations to be made by Agent pursuant to the terms hereof.
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(ii) a true, correct and complete rent roll for the Properties, dated as of the last month of such fiscal quarter (or month), showing the percentage of gross leasable area of the Properties, if any, leased as of the last day of the preceding calendar quarter (or month), the current annual rent for the Properties, the expiration date of each Lease, whether, with respect to any non-residential Lease or Major Lease, to Borrower’s Knowledge any portion of the Properties has been sublet, and if it has, the name of the subtenant, and such rent roll shall be accompanied by an Officer’s Certificate certifying that such rent roll is true, correct and complete in all material respects as of its date and stating whether Borrower, within the past three (3) months, has issued a notice of default with respect to any non-residential Lease or Major Lease which has not been cured and the nature of such default.
Notwithstanding anything to the contrary above, Borrower may deliver such reports on a consolidated basis, provided that (i) appropriate notation shall be made on such consolidated reports to indicate the separateness of Borrower and Mortgage Borrower and to indicate that Borrower’s assets and credit are not available to satisfy the debts and other obligations of any other Person, and (ii) such assets shall be listed on Borrower’s and Mortgage Borrower’s own separate balance sheet; and (3) Borrower and Mortgage Borrower will file its own tax returns (to the extent Borrower is required to file any tax returns) and will not file a consolidated federal income tax return with any other Person.
4.9.3 Annual Reports . Borrower shall deliver to Agent:
(i) Not later than eighty-five (85) days after the end of each Fiscal Year unaudited financial statements, internally prepared in accordance with an Acceptable Accounting Method, covering Borrower, Mortgage Borrower, and the Property, including a balance sheet as of the end of such year, a statement of revenues and expenses for such year and the fourth quarter thereof, and stating in comparative form the figures for the previous Fiscal Year and the Annual Budget for such Fiscal Year, as well as the supplemental schedule of net income or loss presenting the net income or loss for the Properties and occupancy statistics for the Properties. Such annual financial statements shall be accompanied by an Officer’s Certificate in the form required pursuant to Section 4.9.2(i) above;
(ii) Not later than one hundred twenty (120) days after the end of each Fiscal Year, audited financial statements certified by an Independent Accountant in accordance with an Acceptable Accounting Method, and, to the extent required under Section 9.1 hereof, the requirements of Regulation AB, covering Borrower, Mortgage Borrower and the Properties, including a balance sheet as of the end of such year, a statement of revenues and expenses for such year and the fourth quarter thereof, and stating in comparative form the figures for the previous Fiscal Year and the Annual Budget for such Fiscal Year, as well as the supplemental schedule of net income or loss presenting the net income or loss for each such Property and occupancy statistics for such Property. Such annual financial statements shall be in the form of an annual combined balance sheet of Borrower and the Mortgage Borrower (and no other entities), together with the related combined statements of operations, members’ capital and cash flows, including a combined balance sheet and statement of income for the Properties on a combined basis and shall be accompanied by an Officer’s Certificate in the form required pursuant to Section 4.9.2(i) above; and
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(iii) Not later than ninety (90) days after the end of each Fiscal Year a consolidated annual summary of any and all Capital Expenditures made at the Properties during the prior twelve (12) month period.
4.9.4 Other Reports .
(a) Borrower shall, within ten (10) Business Days after request by Agent or, if all or part of the Loan is being or has been included in a Securitization, by the Rating Agencies, furnish or cause to be furnished to Agent and, if applicable, the Rating Agencies, in such manner and in such detail as may be reasonably requested by Agent or the Rating Agencies, such reasonable additional information as may be reasonably requested with respect to Borrower, Mortgage Borrower or the Properties.
(b) Borrower shall submit to Agent the financial data and financial statements required, and within the time periods required, under clauses (f) and (g) of Section 9.1 , if and when available.
(c) Borrower will furnish, or cause Mortgage Borrower to furnish, to Lender a copy of the financial statements and all other materials Mortgage Borrower is required to provide Mortgage Lender under Article 4.9 of the Mortgage Loan Agreement within the time periods required thereunder.
4.9.5 Annual Budget .
(a) Borrower shall submit to Agent by November 15 of each year the Annual Budget relating to each Property for the succeeding Fiscal Year; or the Borrower at its option shall submit by such date such Annual Budget for all the Properties in the aggregate. Agent shall have the right to approve each Annual Budget (which approval shall not be unreasonably withheld so long as no Event of Default is continuing). Annual Budgets approved by Agent shall hereinafter be referred to as an “ Approved Annual Budget ”. Until such time that any Annual Budget has been approved by Agent, the prior Approved Annual Budget shall apply for all purposes hereunder (with such adjustments as reasonably determined by Agent to reflect (i) actual increases in Taxes, Insurance Premiums and utilities expenses, and (ii) a permitted increase in any line item of discretionary expense of no greater than three percent (3%)). Neither Borrower nor Mortgage Borrower nor Manager shall change or modify the Annual Budget that has been approved by Agent without the prior written consent of Agent.
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4.9.6 Extraordinary Operating Expenses . In the event that Borrower or Mortgage Borrower incurs an extraordinary operating expense not set forth in the Approved Annual Budget relating to the Property (each an “ Extraordinary Operating Expense ”), then Borrower shall promptly deliver to Agent a reasonably detailed explanation of such proposed Extraordinary Operating Expense for Agent’s approval. Any Extraordinary Operating Expense approved by Agent is referred to herein as an “ Approved Extraordinary Operating Expense ”. Any Funds distributed to Borrower or Mortgage Borrower for the payment of Approved Extraordinary Operating Expenses pursuant to Section 6.9.1 shall be used by Borrower or Mortgage Borrower only to pay for such Approved Extraordinary Operating Expenses or reimburse Borrower or Mortgage Borrower for such Approved Extraordinary Operating Expenses, as applicable.
4.9.7 Breach . If Borrower fails to provide to Agent or its designee any of the financial statements, certificates, reports or information (the “ Required Records ”) required by this Section 4.9 within thirty (30) days after the date upon which such Required Record is due, Agent shall have the option, upon fifteen (15) days’ notice to Borrower, to gain access to Borrower’s books and records and prepare or have prepared at Borrower’s expense, any Required Records not delivered by Borrower.
Section 4.10 Access to Properties . Subject to the rights of Tenants under Leases, Borrower shall permit, and shall cause Mortgage Borrower to permit, agents, representatives, consultants and employees of Agent to perform non-invasive inspections at the Properties or any part thereof during normal business hours upon reasonable advance notice (which may be given orally).
Section 4.11 Leases .
4.11.1 Generally . Upon request, Borrower shall furnish Agent with executed copies of all Leases then in effect. All renewals of Leases and all proposed leases shall provide for rental rates and terms reasonably comparable to existing local market rates and shall be arm’s length transactions with bona fide, independent third-party Tenants, provided, however, Borrower may enter into up to five (5) new Leases or renewal Leases with Affiliates of Borrower or of Guarantor or with an on-site property manager provided that each such new Lease or renewal Lease is on terms reasonably comparable to existing local market rates (“ Permitted Affiliate Residential Leases ”). Within ten (10) days after the execution of a non-residential Lease or any renewals, amendments or modification of a non-residential Lease, Borrower shall deliver to Agent a copy thereof, together with Borrower’s certification that such commercial Lease (or such renewal, amendment or modification) was entered into in accordance with the terms of this Agreement.
4.11.2 Approvals .
(a) With respect to residential Leases:
(i) Subject to Section 4.11.2(e) below, Borrower shall not permit Mortgage Borrower to enter into a proposed Major Lease or a proposed renewal, extension or modification of an existing Major Lease without the prior written consent of Agent, which consent shall not, so long as there is no Event of Default continuing, be unreasonably withheld, conditioned or delayed.
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(ii) Provided that no Event of Default is continuing, renewals, amendments and modifications of existing Leases and proposed leases, shall not be subject to the prior approval of Agent provided (i) the proposed lease would not be a Major Lease or the existing Lease as amended or modified or the renewal Lease would not be a Major Lease and (ii) the Lease as amended or modified or the renewal Lease or series of leases or proposed lease or series of leases: (A) in the case of residential Leases, shall be written substantially in accordance with the standard form of residential Lease which shall have been approved by Agent, (B) shall provide for net effective rental rates reasonably comparable to existing local market rates or as required pursuant to applicable Legal Requirements, (C) shall not contain any option to purchase, any right of first refusal to purchase, any right to terminate (except in the event of the destruction or condemnation of substantially all of the applicable Property), any requirement for a non-disturbance or recognition agreement, or any other provision which might adversely affect the rights of Agent or any Lender under the Loan Documents in any material respect, and (D) shall have a term (together with all extensions and renewal options) of not less than six (6) months nor more than two (2) years; provided, however, with respect to any month-to-month holdover Lease, such Lease may be permitted to holdover for a total aggregate period of up to four (4) months without the prior approval of Agent. Upon Agent’s request, which, unless an Event of Default is continuing, Agent may make no more than three times in any twelve (12)-month period, Borrower shall deliver to Agent copies of all Leases which are entered into pursuant to the preceding sentence and which have not been previously delivered to Agent together with Borrower’s certification that it has satisfied all of the conditions of the preceding sentence within fifteen (15) days after Agent’s request for a copy of such Lease.
(b) All non-residential and commercial Leases shall be deemed “Major Leases” hereunder. Mortgage Borrower, at the direction of Borrower, shall not enter into any Major Lease, or renew, amend or otherwise modify any Major Lease, without Agent’s prior consent, which consent, so long as there is no Event of Default continuing, shall not be unreasonably withheld, conditioned or delayed.
(c) Borrower shall not permit or consent, or permit Mortgage Borrower to permit or consent, to any assignment or sublease of any Major Lease without Agent’s prior written approval (other than assignments or subleases expressly permitted under any Major Lease pursuant to a unilateral right of the Tenant thereunder not requiring the consent of the Mortgage Borrower), which approval shall not be unreasonably withheld.
(d) Borrower shall have the right, without the consent or approval of Agent, to terminate or accept a surrender of, or to permit Mortgage Borrower to terminate or accept a surrender of, any Lease that is not a Major Lease so long as such termination or surrender is (A) (i) by reason of a tenant default and (ii) in a commercially reasonable manner to preserve and protect the Property or (B) with respect to residential Leases that are not with Borrower Affiliates, provided that no Trigger Period is then continuing (in which event all non-default terminations of residential Leases shall be subject to Agent’s approval), (i) the aggregate amount of Leases being terminated without the consent or approval of Agent for the trailing twelve (12) month period shall be no more than twenty (20) units, (ii) such termination is in the reasonable business judgment of Borrower, and (iii) such termination or surrender would not result in a Low Debt Yield Period (as defined in the Mortgage Loan Agreement).
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(e) Notwithstanding anything to the contrary contained in this Section 4.11.2 or in clauses (ii) and (v) of Section 4.11.3 , provided no Event of Default is continuing, whenever Agent’s approval or consent is required pursuant to the provisions of this Section 4.11.2 , Agent’s approval or consent, as the case may be, shall be deemed given if:
(i) the first correspondence from Borrower to Agent requesting such approval or consent is in an envelope marked “PRIORITY” and contains a bold-faced, conspicuous (in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating that “ FIRST NOTICE : THIS IS A REQUEST FOR CONSENT UNDER THE LOAN BY 50 MURRAY MEZZ FUNDING LLC TO 50 MURRAY MEZZ LLC. FAILURE TO RESPOND TO THIS REQUEST WITHIN FIFTEEN (15) BUSINESS DAYS MAY RESULT IN THE REQUEST BEING DEEMED GRANTED ”, and is accompanied by the information and documents required above, and any other information reasonably requested by Agent in writing prior to the expiration of such fifteen (15) Business Day period in order to adequately review the same has been delivered; and
(ii) if Agent fails to respond or to deny such request for approval in writing within the first ten (10) Business Days of such fifteen (15) Business Day period, a second notice requesting approval is delivered to Agent from Borrower in an envelope marked “PRIORITY” containing a bold-faced, conspicuous (in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating that “ SECOND AND FINAL NOTICE : THIS IS A REQUEST FOR CONSENT UNDER THE LOAN BY 50 MURRAY MEZZ FUNDING LLC TO 50 MURRAY MEZZ LLC. IF YOU FAIL TO PROVIDE A SUBSTANTIVE RESPONSE (E.G., APPROVAL, DENIAL OR REQUEST FOR CLARIFICATION OR MORE INFORMATION) TO THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN ” and Agent fails to provide a substantive response to such request for approval within such five (5) Business Day period.
4.11.3 Covenants . Borrower shall, and shall cause Mortgage Borrower to (i) observe and perform the obligations imposed upon the lessor under the Leases in all material respects and in a commercially reasonable manner; (ii) enforce the terms, covenants and conditions contained in the Leases upon the part of the Tenants thereunder to be observed or performed in a commercially reasonable manner, provided, however, Borrower shall not allow Mortgage Borrower to terminate or accept a surrender of a Major Lease without Agent’s prior approval, which approval shall not be unreasonably withheld; (iii) not collect any of the Rents more than one (1) month in advance (other than security deposits and the payment of the last month’s rent under residential Leases); (iv) not execute any assignment of lessor’s interest in the Leases or the Rents (except as contemplated by the Mortgage Loan Documents); and (v) unless otherwise permitted in accordance with Sections 4.11.2(a), (b), (c) or (d) , other than in respect of residential Leases in the ordinary course of business, not alter, modify or change any Lease so as to change the amount of or payment date for rent, change the expiration date, grant any option for additional space or term, materially reduce the obligations of the Tenant or increase the obligations of the lessor without Agent’s prior approval, which approval shall not be unreasonably withheld. Borrower shall promptly send copies to Agent of all written notices of material default which Borrower or Mortgage Borrower shall receive under the Leases.
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4.11.4 Security Deposits . All security deposits of Tenants, whether held in cash or any other form, shall be held by Mortgage Borrower in compliance with all Legal Requirements, and shall not be commingled with any other funds of Mortgage Borrower or Borrower. During the continuance of an Event of Default, Borrower shall, within five (5) Business Days of Agent’s request, if permitted by applicable Legal Requirements and not required by Mortgage Lender pursuant to Section 4.11.4 of the Mortgage Loan Agreement, cause all such security deposits (and any interest theretofore earned thereon) to be transferred into an Eligible Account designated by Agent (which shall then be held by the applicable financial institution in a separate Account), which shall be held by Deposit Bank subject to the terms of the Leases. With respect to commercial Leases or residential Major Leases, any bond or other instrument which Mortgage Borrower is permitted to hold in lieu of cash security deposits under any applicable Legal Requirements (i) shall be maintained in full force and effect in the full amount of such deposits unless replaced by cash deposits as herein above described, (ii) shall be issued by an institution reasonably satisfactory to Agent, (iii) shall, if permitted pursuant to any Legal Requirements and subject to the prior rights of Mortgage Loan Agent to do so, name Agent as payee or mortgagee thereunder (or at Agent’s option, be fully assignable to Agent), and (iv) shall in all respects comply with any applicable Legal Requirements and otherwise be reasonably acceptable to Agent. Borrower shall, upon request (which, unless an Event of Default is continuing, shall not be required to be given more than twice in any twelve (12)-month period), provide Agent with evidence reasonably acceptable to Agent of Borrower’s compliance with the foregoing.
Section 4.12 Repairs; Maintenance and Compliance; Alterations .
4.12.1 Repairs; Maintenance and Compliance . Borrower shall at all times maintain, preserve and protect all franchises and trade names, and Borrower shall cause the Mortgage Borrower to cause the Properties to be maintained in a good and safe condition and repair and shall not, and shall not permit Mortgage Borrower to remove, demolish or alter the Improvements or Equipment (except for alterations performed in accordance with Section 4.12.2 below and normal replacement of Equipment with Equipment of equivalent value and functionality). Borrower shall, and shall cause Mortgage Borrower to, promptly comply with all Legal Requirements and promptly cure properly any violation of a Legal Requirement (it being understood that, with respect to RPTL Tax Benefits Law and Rent Regulation Laws, compliance with Section 4.33 shall constitute compliance with Legal Requirements hereunder). After prior notice to Agent, Borrower, at its own expense, may, and may cause Mortgage Borrower to, contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the need to cure any such violation of Legal Requirements, provided that (i) no Event of Default has occurred and is continuing; (ii) such proceeding shall be permitted under and be conducted in accordance with all applicable statutes, laws and ordinances; (iii) neither the applicable Property nor Collateral nor any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, canceled or lost; (iv) Borrower or Mortgage Borrower shall promptly upon final determination thereof complete such cure, together with all costs, interest and penalties which may be payable in connection therewith; (v) as may reasonably be requested by Agent, Borrower shall deliver to Agent either (A) cash, or other security as may be reasonably acceptable to Agent, in an amount equal to one hundred ten percent (110%) of the costs necessary to cure such violation or (B) a payment and performance bond in an amount equal to one hundred percent (100%) of the costs necessary to cure such violation from a surety acceptable to Agent in its reasonable discretion (provided that if Mortgage Lender is requiring such cash or security pursuant to Section 4.12.1 of the Mortgage Loan Agreement, Agent shall not have the right to require any further cash or security so long as the provisions of Section 4.12.1 of the Mortgage Loan Agreement are complied with), (vi) failure to cure such violation will not subject Agent or any Lender to any civil or criminal liability, (vii) such contest shall not affect the ownership, use or occupancy of the applicable Property or Collateral, and (viii) Borrower or Mortgage Borrower shall, upon request by Agent, give Agent prompt notice of the status of such proceedings and/or confirmation of the continuing satisfaction of the conditions set forth in clauses (i) through (vii) of this Section 4.12.1 . Agent may pay over any such cash or other security held by Agent to cure such violation at any time when, in the reasonable judgment of Agent, the validity of the violation is established or the applicable Property (or any part thereof or interest therein) shall be in imminent danger of being sold, forfeited, terminated, cancelled or lost or there shall be any imminent danger of the Lien of the Mortgage secured by such Property and/or the Lien of the Collateral relating to such Property being primed by due to such violation. Borrower shall notify Agent in writing within two (2) Business Days after Borrower first receives notice of any such non-compliance. Borrower shall cause Mortgage Borrower to promptly repair, replace or rebuild any part of any Property that becomes damaged, worn or dilapidated and shall complete and pay for any Improvements at any time in the process of construction or repair.
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4.12.2 Alterations .
(a) Borrower may, without Agent’s consent, cause Mortgage Borrower to perform alterations to the Improvements and Equipment which (i) do not constitute a Material Alteration, (ii) do not adversely affect Mortgage Borrower’s financial condition or the value or net operating income of such Property and (iii) are in the ordinary course of Mortgage Borrower’s business. Borrower shall not permit Mortgage Borrower to perform any Material Alteration without Agent’s prior written consent. Agent may, as a condition to giving its consent to a Material Alteration, require that Borrower deliver to Agent security for payment of the cost of such Material Alteration and as additional security for Borrower’s Obligations under the Loan Documents, which security may be any of the following: (i) cash, (ii) a Letter of Credit, (iii) U.S. Obligations, (iv) other securities acceptable to Agent, provided that Agent shall have received a Rating Agency Confirmation as to the form and issuer of same, or (v) a completion bond (provided that if Mortgage Lender is requiring such cash or security pursuant to Section 4.12.2 of the Mortgage Loan Agreement, Agent shall not have the right to require any further cash or security so long as the provisions of Section 4.12.2 of the Mortgage Loan Agreement are complied with). Such security shall be in an amount equal to the excess of the total unpaid amounts incurred and to be incurred with respect to such alterations to the Improvements (other than such amounts to be paid or reimbursed by Tenants under the Leases) over the Alteration Threshold for such Property, and Agent may apply such security from time to time at the option of Agent to pay for such alterations. Agent hereby consents to the Required Repairs. Upon substantial completion of any Material Alteration, Borrower shall cause Mortgage Borrower to provide evidence satisfactory to Agent that (i) the Material Alteration was constructed in accordance with applicable Legal Requirements, (ii) all contractors, subcontractors, materialmen and professionals who provided work, materials or services in connection with the Material Alteration have been paid in full and have delivered unconditional releases of liens, and (iii) all material licenses and permits necessary for the use, operation and occupancy (which may be temporary or permanent) of the Material Alteration (other than those which depend on the performance of tenant improvement work) have been issued. If Borrower have provided cash security, as provided above, such cash shall be released by Agent to fund such Material Alterations, and if Borrower have provided non-cash security, as provided above, except to the extent applied by Agent to fund such Material Alterations, Agent shall release and return such security upon Borrower’s satisfaction of the requirements of the preceding sentence.
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(b) Intentionally omitted.
Section 4.13 Approval of Major Contracts . Borrower shall be required to obtain Agent’s prior written approval of any and all Major Contracts affecting any Property, which approval shall not be unreasonably withheld. Borrower shall cause Mortgage Borrower and Manager to comply with all applicable labor and employment laws relating to employees and independent contractors and with the Union Contract, and shall cause them to make all payments provided for under the Union Contract when due.
Section 4.14 Property Management .
4.14.1 Management Agreement . Borrower shall cause Mortgage Borrower to (i) cause Manager to manage the Property in accordance with a Management Agreement, (ii) diligently perform and observe in all material respects all of the terms, covenants and conditions of such Management Agreement on the part of Mortgage Borrower to be performed and observed, (iii) promptly notify Agent of any material default under such Management Agreement of which it has knowledge and deliver a copy of any default notice sent to Manager, (iv) promptly deliver to Agent a copy of each financial statement, business plan, capital expenditures plan, report and estimate received by it under such Management Agreement, and (v) promptly enforce the performance and observance of all of the material covenants required to be performed and observed by Manager under its Management Agreement in a commercially reasonable manner. If Mortgage Borrower shall default in the performance or observance of any material term, covenant or condition of its Management Agreement on the part of Mortgage Borrower to be performed or observed beyond the expiration of any applicable grace or cure period, then, without limiting Agent’s other rights or remedies under this Agreement or the other Loan Documents, and without waiving or releasing Borrower from any of its Obligations hereunder or Mortgage Borrower from any of its obligations under its Management Agreement, Agent shall have the right, but shall be under no obligation, to pay any sums and to perform any act as may be appropriate to cause all the material terms, covenants and conditions of such Management Agreement on the part of Mortgage Borrower to be performed or observed.
4.14.2 Prohibition Against Termination or Modification . Borrower shall not nor shall Borrower permit Mortgage Borrower to (i) surrender, terminate, cancel, modify, renew or extend a Management Agreement, (ii) enter into any other agreement relating to the management or operation of the Property owned by it with Manager or any other Person, (iii) consent to the assignment by the Manager of its interest under any Management Agreement, or (iv) waive or release any of its rights and remedies under any Management Agreement, in each case without the express consent of Agent, which consent shall not be unreasonably withheld; provided, however, with respect to a new property manager such consent may be conditioned upon Borrower delivering a Rating Agency Confirmation as to such new property manager and management agreement. Notwithstanding the foregoing, however, provided no Event of Default is continuing, the approval of Agent and the Rating Agencies shall not be required with respect to the appointment of a Qualified Manager. If at any time Agent consents to the appointment of a new property manager or a Qualified Manager is appointed, such new property manager (including a Qualified Manager) and the applicable Borrower shall, as a condition of Agent’s consent, cause the Mortgage Borrower to execute (i) a management agreement in form and substance reasonably acceptable to Agent, (ii) a subordination of management agreement in a form reasonably acceptable to Agent, and (iii) deliver an updated Insolvency Opinion if such manager is a Borrower Affiliate or Key Principal.
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4.14.3 Replacement of Manager . Agent shall have the right to require Borrower to cause Mortgage Borrower to replace the Manager with (x) a Qualified Manager selected by Borrower, or (y) another property manager chosen by Borrower and approved by Agent (provided, that such approval may be conditioned upon Borrower delivering a Rating Agency Confirmation as to such new property manager and management agreement) upon the occurrence of any one or more of the following events: (i) at any time following the occurrence and during the continuance of an Event of Default, (ii) if Manager shall be in material default under any Management Agreement beyond any applicable notice and cure period, (iii) if Manager shall become insolvent or a debtor in any bankruptcy or insolvency proceeding, or (iv) if at any time the Manager has engaged in gross negligence, fraud, willful misconduct or misappropriation of funds.
Section 4.15 Performance by Borrower; Compliance with Agreements .
(a) Borrower shall in a timely manner and in all material respects observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior consent of Agent.
(b) Borrower shall at all times comply in all material respects with all Operations Agreements. Borrower agrees that without the prior written consent of Agent, which consent shall not be unreasonably withheld, Borrower will not amend, modify or terminate any of the Operations Agreements.
(c) Borrower shall in a timely manner and in all material respects cause Mortgage Borrower to observe, perform and fulfill each and every covenant, term and provision of each Mortgage Loan Document executed and delivered by, or applicable to, Mortgage Borrower, and shall not, unless required by the terms of the Mortgage Loan Documents in respect of a “Secondary Market Transaction” or a “Securitization” (as each such term is defined in the Mortgage Loan Agreement), enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Mortgage Loan Document executed and delivered by, or applicable to, Mortgage Borrower without the prior consent of Agent.
Section 4.16 Licenses; Intellectual Property; Website .
4.16.1 Licenses . Borrower shall cause Mortgage Borrower to keep and maintain all Licenses necessary for the operation of the Properties as a multifamily residential facility and commercial property. Borrower shall not permit Mortgage Borrower to transfer any Licenses required for the operation of Properties.
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4.16.2 Intellectual Property . Borrower shall cause Mortgage Borrower to keep and maintain all Intellectual Property relating to the use or operation of the Properties and all Intellectual Property shall be held by and (if applicable) registered in the name of Mortgage Borrower. Borrower shall not permit Mortgage Borrower to Transfer or let lapse any Intellectual Property without Agent’s prior consent, which consent shall not be unreasonably withheld.
4.16.3 Website . Any website with respect to any Property (other than Tenant websites) shall be maintained by or on behalf of Mortgage Borrower and any such website shall be registered in the name of Mortgage Borrower within ten (10) Business Days after the Closing Date, or such additional time as necessary provided that Borrower is causing Mortgage Borrower to use commercially reasonable efforts to register such website in Mortgage Borrower’s name. Borrower shall not permit Mortgage Borrower to Transfer any such website without Agent’s prior consent, which consent shall not be unreasonably withheld.
Section 4.17 Further Assurances . Borrower shall, and shall cause Mortgage Borrower to, at Borrower’s sole cost and expense:
(a) furnish to Agent all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or which are reasonably requested by Agent in connection therewith;
(b) cure any defects in the execution and delivery of the Loan Documents and execute and deliver, or cause to be executed and delivered, to Agent such documents, instruments, certificates, assignments and other writings, and do such other acts reasonably necessary or desirable, to correct any omissions in the Loan Documents, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the Obligations, as Agent may reasonably require;
(c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Agent may reasonably require from time to time. Notwithstanding the foregoing, in no event shall Borrower be required to take any action pursuant to this Section 4.17 that materially increases the obligations or decreases the rights of Borrower or Guarantor under the Loan Documents unless such action is to cure a defect or correct any omission, such that the action provides Agent with the benefit of its bargain under this Agreement or the other Loan Documents; and
(d) do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignments, transfers and assurances (which shall be in form and substance reasonably acceptable to Agent) as Agent shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Agent the property and rights mortgaged, deeded, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Agent, or for carrying out the intention or facilitating the performance of the terms of the Pledge Agreement, or for complying with all Legal Requirements in all material respects. Borrower, if reasonably requested by Agent, will execute and deliver, and hereby authorizes Agent, following ten (10) days’ notice to Borrower and Borrower’s failure to comply within such ten (10) day period, to execute in the name of Borrower or without the signature of Borrower to the extent Agent may lawfully do so, one or more financing statements to evidence more effectively the security interest of Agent (on behalf of Lenders) in the Collateral. Upon the occurrence and during the continuance of an Event of Default, Borrower grants to Agent an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Agent at law and in equity, including, without limitation, such rights and remedies available to Agent pursuant to this Section 4.17 .
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Section 4.18 Estoppel Statement .
(a) After request by Agent, Borrower shall within ten (10) Business Days furnish Agent with a statement, duly acknowledged and certified, stating (i) the Outstanding Principal Balance of the Note, (ii) the Interest Rate, (iii) the date installments of interest and/or principal were last paid, (iv) any offsets or defenses to the payment and performance of the Obligations, if any, which are within Borrower’s Knowledge as of the date of such statement and (v) that this Agreement and the other Loan Documents have not been modified or if modified, giving particulars of such modification. Except during the continuance of an Event of Default or prior to the full Securitization of the Loan, Borrower shall not be required to provide such statement more than twice in any twelve (12)-month period.
(b) Borrower shall cause Mortgage Borrower to use commercially reasonable efforts to obtain and deliver to Agent, as promptly as possible following Agent’s request, an estoppel certificate from each Tenant under any Lease in the form of Schedule XI attached hereto or in such other form reasonably acceptable to Agent; provided, that Borrower shall not be required to cause Mortgage Borrower to use commercially reasonable efforts to obtain and deliver such certificates more frequently than three (3) times in any calendar year.
(c) Borrower shall cause Mortgage Borrower to use commercially reasonable efforts to obtain and deliver to Agent, upon request, estoppel certificates from each party under any Operations Agreement, in form and substance reasonably satisfactory to Agent; provided, that Borrower shall not be required to cause Mortgage Borrower to use commercially reasonable efforts to deliver such certificates more than three (3) times during the Term and not more frequently than once per calendar year (or twice during any calendar year in which a Securitization occurs).
(d) Borrower shall cause Mortgage Borrower to deliver to Lender upon request, tenant estoppel certificates delivered to Mortgage Lender with respect to the Mortgage Loan.
Section 4.19 Notice of Default . Borrower shall promptly advise Agent of the occurrence of any Event of Default of which Borrower has knowledge.
Section 4.20 Cooperate in Legal Proceedings . Borrower shall cooperate in a commercially reasonable manner with Agent with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Agent or any Lender hereunder or any rights obtained by Agent or any Lender under any of the other Loan Documents and, in connection therewith, permit Agent, at its election, to participate in any such proceedings.
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Section 4.21 Indebtedness . Borrower shall not directly or indirectly create, incur or assume any indebtedness other than (i) the Debt and the Mortgage Debt pursuant to the terms of , and as such term is defined in, the Mortgage Loan Agreement and (ii) unsecured trade payables incurred in the ordinary course of business relating to the ownership and operation of the Properties and (iii) Permitted Equipment Financing (hereinafter defined), which in the case of such unsecured trade payables and Permitted Equipment Financing (A) are not evidenced by a note, (B) do not exceed, at any time, the maximum amount permitted under Section 4.21(iii)(B) of the Mortgage Loan Agreement and (C) are paid within sixty (60) days of the date incurred (collectively, “ Permitted Indebtedness ”). As used herein, “ Permitted Equipment Financing ” means equipment financing that is (i) entered into in the ordinary course of Mortgage Borrower’s business, (ii) for equipment related to the ownership and operation of the Property whose removal would not materially damage or impair the value of the Property, and (iii) which is secured only by the financed equipment.
Section 4.22 Business and Operations . Borrower will continue to engage in the businesses presently conducted by it in all material respects as and to the extent the same are reasonably necessary in Borrower’s commercially reasonable judgment for the ownership of the Collateral. Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership of the Collateral.
Section 4.23 Dissolution . Borrower shall not, nor shall Borrower permit Mortgage Borrower to, (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (ii) engage in any business activity not related to the ownership and operation of the Collateral or the Property, (iii) transfer, lease or sell, in one transaction or any combination of transactions, all or substantially all of the property or assets of Borrower or Mortgage Borrower, as applicable, except to the extent expressly permitted by the Loan Documents and, with respect to Mortgage Borrower, the Mortgage Loan Documents, or (iv) cause, permit or suffer Borrower or Mortgage Borrower, as applicable, to (A) dissolve, wind up or liquidate or take any action, or omit to take any action, as a result of which Borrower or Mortgage Borrower, as applicable, would be dissolved, wound up or liquidated in whole or in part, or (B) amend, modify, waive or terminate the certificate of formation or operating agreement of Borrower or Mortgage Borrower, as applicable, in each case without obtaining the prior consent of Agent.
Section 4.24 Debt Cancellation . Borrower shall not, nor shall Borrower permit Mortgage Borrower to, cancel or otherwise forgive or release any claim or debt (other than the termination of Leases in accordance herewith or any claim or debt less than or equal to $50,000, but no more than $150,000 in the aggregate per any twelve (12) month period) owed to Borrower or Mortgage Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower’s or Mortgage Borrower’s business.
Section 4.25 Affiliate Transactions . Other than with respect to the Clipper Management Agreement, Borrower shall not, nor shall Borrower permit Mortgage Borrower to, enter into, or be a party to, any transaction with Borrower Affiliate or any of the partners, members or shareholders, as applicable, of Borrower except in the ordinary course of business and on terms which are no less favorable to Borrower or Mortgage Borrower, as applicable, or such Affiliate than would be obtained in a comparable arm’s-length transaction with an unrelated third party.
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Section 4.26 No Joint Assessment . Borrower shall not, nor shall Borrower permit Mortgage Borrower to, suffer, permit or initiate the joint assessment of any Property (i) with any other real property constituting a tax lot separate from such Property, and (ii) with any portion of such Property which may be deemed to constitute personal property, or any other procedure whereby the Lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such Property.
Section 4.27 Principal Place of Business . Borrower shall not change its principal place of business from the address set forth on the first page of this Agreement without first giving Agent thirty (30) days prior written notice.
Section 4.28 Change of Name, Identity or Structure . Borrower shall not change Borrower’s name, identity (including its trade name or names) or, except as permitted by Article 7 hereof, convert from its current organizational structure without notifying Agent of such change in writing at least thirty (30) days prior to the effective date of such change and without first obtaining the prior written consent of Agent; provided, however, that Borrower shall at all times be a Delaware limited liability company or a Delaware limited partnership. Borrower shall deliver to Agent, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by Agent to establish or maintain the validity, perfection and priority of the security interest granted herein. At the request of Agent, Borrower shall execute a certificate in form satisfactory to Agent listing any trade names under which Borrower intends to operate.
Section 4.29 Costs and Expenses .
(a) Except as otherwise expressed herein or in any of the other Loan Documents, Borrower shall pay or, if Borrower fails to pay, reimburse Agent and Lenders upon receipt of notice from Agent, for all out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Agent and Lenders in connection with (i) Borrower’s ongoing performance of and compliance with Borrower’s agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including confirming compliance with environmental and insurance requirements (except to the extent expressly set forth in Section 10.21(a) hereof); (ii) Agent’s and Lenders’ ongoing performance of and compliance with all agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date (except to the extent expressly set forth in Section 10.21(a) hereof); (iii) the negotiation, preparation, execution and delivery of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Borrower; (iv) filing and recording of any Loan Documents; (v) title insurance, surveys, inspections and appraisals that Agent is authorized to obtain by the terms of the Loan Documents; (vi) the creation, perfection or protection of Agent’s and Lenders’ Liens in the Collateral and, if applicable, the Accounts (including out-of-pocket fees and expenses for title and lien searches, intangibles taxes, personal property taxes, due diligence expenses, travel expenses, accounting firm fees, costs of appraisals, environmental reports and Agent’s Consultant, surveys and engineering reports); (vii) enforcing or preserving any rights in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, the Loan Documents, any Property, or any other security given for the Loan; (viii) fees charged by Servicer (except to the extent expressly set forth in Section 10.21 ) or, if a Securitization has occurred, the Rating Agencies in connection with the Loan or any modification thereof; and (ix) enforcing any Obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to any Collateral or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” or of any insolvency or bankruptcy proceedings (including actual fees and expenses for title and lien searches, intangible taxes, personal property taxes, mortgage recording taxes, due diligence expenses, travel expenses, accounting firm fees, costs of appraisals, environmental reports and Agent’s Consultant, surveys and engineering reports); provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Agent.
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(b) In addition, in connection with any Rating Agency Confirmation, Review Waiver or other Rating Agency consent, approval or review requested or required hereunder (other than the initial review of the Loan by the Rating Agencies in connection with a Securitization), Borrower shall pay all of the actual costs and expenses of Agent, Lenders, Servicer and each Rating Agency in connection therewith, and, if applicable, shall pay any actual fees imposed by any Rating Agency in connection therewith.
(c) Any costs and expenses due and payable by Borrower hereunder which are not paid by Borrower within ten (10) days after demand may be paid from any amounts then being held by Agent, with notice thereof to Borrower. The obligations and liabilities of Borrower under this Section 4.29 shall (i) become part of the Obligations, (ii) be secured by the Loan Documents and (iii) survive the Term and the exercise by Agent of any of its rights or remedies under the Loan Documents, including the acquisition of the Collateral by foreclosure or a conveyance in lieu of foreclosure.
Section 4.30 Indemnity . Borrower shall indemnify, defend and hold harmless Agent and Lenders from and against any and all actual liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Agent and Lenders in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Agent and/or any Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Agent or any Lender in any manner relating to or arising out of (i) any breach by Borrower of its Obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents; (ii) the use or intended use of the proceeds of the Loan; (iii) Borrower Provided Information; (iv) ownership of the Properties or the Collateral or any interest therein, or receipt of any Rents (including due to any Increased Costs, Special Taxes or Other Taxes but excluding due to compliance with bank regulatory requirements or similar Lender compliance); (v) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about any Property or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (vi) any use, nonuse or condition in, on or about any Property or on adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (vii) performance of any labor or services or the furnishing of any materials or other property in respect of any Property; (viii) any failure of any Property to comply with any Legal Requirement (it being understood that with respect to environmental Legal Requirements, the Environmental Indemnity shall govern); (ix) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with any Lease or other transaction involving any Property or any part thereof, or any liability asserted against Agent or any Lender with respect thereto; and (x) the claims of any lessee of any portion of any Property or any Person acting through or under any lessee or otherwise arising under or as a consequence of any Lease (collectively, the “ Indemnified Liabilities ”); provided, however, that Borrower shall not have any obligation to Agent and Lenders hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Agent and/or any Lender, as applicable. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Agent and Lenders. Notwithstanding the foregoing or anything to the contrary contained in this Agreement, Borrower shall have no liability for any Indemnified Liabilities imposed upon or incurred by or asserted against any Indemnified Parties to the extent that Borrower proves that such Indemnified Liabilities were caused by actions, conditions or events that first occurred or arose after the date that Lenders (or any purchaser at a foreclosure sale or Lender’s designee of a deed-in-lieu of foreclosure) actually acquired title to the Collateral pursuant to a foreclosure of the Pledge Agreement or an assignment-in-lieu of foreclosure of the Pledge Agreement that has not been set aside, rescinded or invalidated, whereby Borrower is no longer the owner of the Pledged Company Interests and to the extent that such Indemnified Liabilities were not caused by the actions of Borrower, Mortgage Borrower or any Borrower Affiliate or agent of Borrower.
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Section 4.31 ERISA .
(a) Borrower shall not, nor shall Borrower permit Mortgage Borrower to, engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Agent, any Lender or any assignee of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) or Section 4975 of the Code.
(b) Borrower shall not, nor shall Borrower permit Mortgage Borrower to, permit the assets of Borrower or Mortgage Borrower to become “plan assets,” within the meaning of 29 C.F.R. 2510.3-101, as modified in application by Section 3(42) of ERISA.
(c) Borrower shall deliver to Agent such certifications or other evidence from time to time throughout the Term, as reasonably requested by Agent, that (A) Borrower, Mortgage Borrower and Guarantor are not an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (B) Borrower, Mortgage Borrower and Guarantor are not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) the assets of Borrower, Mortgage Borrower and Guarantor do not constitute “plan assets” within the meaning of 29 C.F.R §2510.3-101 as modified in application by Section 3(42) of ERISA of any “benefit plan investor” as defined in Section 3(42) of ERISA.
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(d) Borrower shall not and shall cause Guarantor and Mortgage Borrower to not (i) sponsor or contribute to, or permit any ERISA Affiliate to sponsor or contribute to, any Plan; (ii) engage, or permit any ERISA Affiliate to engage, in any non-exempt prohibited transaction described in Section 406 of ERISA or 4975 of the Code; (iii) fail to make any contribution or payment to any Multiemployer Plan which it or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (iv) incur, or permit any ERISA Affiliate to incur, any liability whether under ERISA or by contract or agreement or otherwise in connection with a complete or partial withdrawal, as such terms are defined in Part I of Subtitle E of Title IV of ERISA, from any Multiemployer Plan or (v) permit any ERISA Event to occur other than any such events or conditions that existed and were disclosed to Agent as of the date hereof.
(e) With respect to each Multiemployer Plan for which Borrower, Mortgage Borrower or any ERISA Affiliate has an obligation to make contributions or other liability, within the meaning of Section 101(l) of ERISA (a “ Contributing Employer ”), upon request by Agent in writing, and no more frequently than once in a twelve (12) month period, Borrower shall request, or cause to be requested, in accordance with Section 101(1)(1) of ERISA, that the plan sponsor or administrator of the applicable Multiemployer Plan provide an estimate of the amount of the Contributing Employer’s withdrawal liability under Title IV of ERISA if the Contributing Employer were to have completely withdrawn from the applicable Multiemployer Plan on the last day of the plan year preceding the date of the request, and shall provide such information to Agent within 10 days after the receipt from the plan sponsor or administrator of the applicable Multiemployer Plan.
Section 4.32 Patriot Act Compliance .
(a) Borrower will use its good faith and commercially reasonable efforts to comply, and to cause Mortgage Borrower to comply, with the Patriot Act and all applicable requirements of Governmental Authorities having jurisdiction over Borrower, Mortgage Borrower and/or the Properties, including those relating to money laundering and terrorism. Agent shall have the right to audit such compliance with the Patriot Act and all applicable requirements of Governmental Authorities having jurisdiction over Borrower, Mortgage Borrower and/or the Properties, including those relating to money laundering and terrorism. In the event that Borrower or Mortgage Borrower fails to comply with the Patriot Act or any such requirements of Governmental Authorities, then Agent may, at its option, cause Borrower or Mortgage Borrower to comply therewith and any and all costs and expenses incurred by Agent and any Lender in connection therewith shall be secured by the Pledge Agreement and the other Loan Documents and shall be immediately due and payable.
(b) Neither Borrower nor Mortgage Borrower nor any owner of a direct or indirect interest in Borrower or Mortgage Borrower (i) is listed on any Government Lists, (ii) is a person who has been determined by competent authority to be subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept. 23, 2001) or any other similar prohibitions contained in the rules and regulations of OFAC or in any enabling legislation or other Presidential Executive Orders in respect thereof, (iii) has been previously indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense, or (iv) to Borrower’s Knowledge, is currently under investigation by any Governmental Authority for alleged criminal activity. For purposes hereof, the term “ Patriot Act Offense ” means any violation of the criminal laws of the United States of America or of any of the several states, or that would be a criminal violation if committed within the jurisdiction of the United States of America or any of the several states, relating to terrorism or the laundering of monetary instruments, including any offense under (A) the criminal laws against terrorism; (B) the criminal laws against money laundering, (C) the Bank Secrecy Act, as amended, (D) the Money Laundering Control Act of 1986, as amended, or (E) the Patriot Act. “ Patriot Act Offense ” also includes the crimes of conspiracy to commit, or aiding and abetting another to commit, a Patriot Act Offense. For purposes hereof, the term “ Government Lists ” means (1) the Specially Designated Nationals and Blocked Persons Lists maintained by the Office of Foreign Assets Control (“ OFAC ”), (2) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC that Agent notified Borrower in writing is now included in “ Government Lists ”, or (3) any similar lists maintained by the United States Department of State, the United States Department of Commerce or any other Governmental Authority or pursuant to any Executive Order of the President of the United States of America that Agent notified Borrower in writing is now included in “ Government Lists ”.
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(c) At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of Borrower, Mortgage Borrower, Key Principals or Guarantor shall constitute property of, or shall be beneficially owned, directly or indirectly, by any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder, with the result that the investment in Borrower, Mortgage Borrower, Key Principals or Guarantor, as applicable (whether directly or indirectly), would be prohibited by law (each, an “ Embargoed Person ”), or the Loan made by Lenders would be in violation of law, (b) no Embargoed Person shall have any interest of any nature whatsoever in Borrower, Mortgage Borrower, Key Principals or Guarantor, as applicable, with the result that the investment in Borrower, Mortgage Borrower, Key Principals or Guarantor, as applicable (whether directly or indirectly), would be prohibited by law or the Loan would be in violation of law, and (c) none of the funds of Borrower, Mortgage Borrower, Key Principals or Guarantor, as applicable, shall be derived from any unlawful activity with the result that the investment in Borrower, Mortgage Borrower, Key Principals or Guarantor, as applicable (whether directly or indirectly), would be prohibited by law or the Loan would be in violation of law.
Section 4.33 Residential Tax Benefits .
(a) If a court of competent jurisdiction or administrative agency issues a binding determination to the effect that the Rent Regulations Laws have been breached, and Borrower or Mortgage Borrower shall have exhausted and/or waived any right to further appeal such determination (provided that, the time period in which Borrower or Mortgage Borrower may appeal such determination shall not exceed eighteen (18) months from the date of such binding determination), including, but not limited to, any Petition for Administrative Review and/or any proceeding brought pursuant to Civil Practice Law and Rules Article 78, thereby rendering such determination final and non-appealable (the “ Final Order ”), then Borrower shall, or shall cause Mortgage Borrower to: (i) comply with such Final Order’s direction as to the RPTL Tax Benefit Law compliance and any further direction that such Rents be registered with the New York State Division of Housing and Community Renewal (“ DHCR ”), and (ii) comply with the Rent Regulation Laws, the RPTL Tax Benefits Law and the regulations issued under each of the foregoing (including the prevailing wage requirements, if applicable) until the expiration 421-g Tax Benefits or any other date as ordered by a court or administrative agency of competent jurisdiction. Borrower shall, or shall cause Mortgage Borrower to, promptly respond to and defend against any notice of revocation of the 421-g Tax Benefits received from any Governmental Authority, and promptly after the receipt of any such notice, Borrower shall send a copy of the same to Agent.
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(b) Borrower shall, or shall cause Mortgage Borrower to, at all times maintain as business records (i) copies of any and all contracts, invoices and canceled checks (front and back) which establish the scope of any apartment improvements, and which substantiate any resulting rent increases based on the installation of apartment improvements and (ii) proof of service and filing of any residential apartment DHCR rent registrations made by or on behalf of Mortgage Borrower.
Section 4.34 Affiliate Transactions .
(a) Except with respect to the Clipper Management Agreement, Borrower shall not enter into, or be a party to, any transaction with any Borrower Affiliate except in the ordinary course of business and on terms which are fully disclosed to Agent in advance and are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm’s-length transaction with an unrelated third party.
(b) Except with respect to the Clipper Management Agreement, no Borrower Affiliate shall pay, or permit the payment of, development fees, management fees, brokerage or leasing fees or commissions or any other compensation of any form whatsoever to Borrower Affiliate or any direct or indirect partner, member, shareholder or Affiliate thereof, or request disbursement of funds from Lender or Mortgage Lender for such purpose, without the prior written consent of Lender. Any Affiliate Agreements shall be made on an arm’s-length basis and shall be subject to the prior written approval of Lender; and the parties to each Affiliate Agreement shall acknowledge and agree that such agreement is terminable by Mortgage Borrower or Lender immediately upon notice, without the payment of any fee, penalty, premium or liability for future or accrued liabilities or obligations, if an Event of Default shall have occurred and be continuing. Following an Event of Default, if requested by Lender in writing, Borrower shall, or shall cause the applicable Borrower Affiliate to, terminate any existing Affiliate Agreement specified by Lender within five (5) days after delivery of Lender’s request without payment of any penalty, premium, termination fee or any other amount which might be due and payable under such Affiliate Agreement. If such Affiliate Agreement is not terminated in accordance with the immediately preceding sentence, Lender shall have the right, and Borrower hereby irrevocably authorizes Lender and irrevocably appoints Lender as Borrower’s attorney-in-fact coupled with an interest, at Lender’s sole option, to terminate such Affiliate Agreement on behalf of and in the name of the applicable Borrower Affiliate, and Borrower hereby releases and waives any claims against Lender arising out of Lender’s exercise of such authority.
Section 4.35 Limitation on Securities Issuances . None of Borrower or Mortgage Borrower shall issue any limited liability company interests, partnership interests, capital stock interests or other securities other than those that have been issued as of the date hereof.
Section 4.36 Limitations on Distributions .
(a) On each date on which amounts are due and payable to Lenders pursuant to the Loan Documents and/or are required to be disbursed to Mortgage Lender pursuant to the terms of the Mortgage Loan Documents, Borrower shall exercise its rights under the organizational documents of Mortgage Borrower to cause Mortgage Borrower to make a distribution of funds to Borrower in an amount sufficient to allow Borrower to make such required payment to Lenders.
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(b) Any and all dividends, including capital dividends, stock or liquidating dividends, distributions of property, redemptions or other distributions made by Mortgage Borrower on or in respect of any interests in Mortgage Borrower, and any and all cash and other property received in payment of the principal of or in redemption of or in exchange for any such interests (collectively, the “ Distributions ”), shall become part of the Collateral.
(c) If any Distributions shall be received by Borrower or any Affiliate of Borrower after the occurrence and during the continuance of an Event of Default, Borrower shall hold, or shall cause the same to be held, in trust for the benefit of Lender. During the existence of an Event of Default, Borrower shall not make any distributions of any kind, returns of capital, or repayment of any loans (in each case whether in cash, assets, equity interests, or proceeds of any kind) to any Person that owns an Equity Interest in Borrower.
Section 4.37 Other Limitations . Prior to the payment in full of the Debt, Borrower shall not, and shall not cause or permit Mortgage Borrower, without the prior written consent of Agent (which may be furnished or withheld at its sole and absolute discretion), to give its consent or approval to any of the following actions or items:
(a) except as permitted by the Loan Documents, the Mortgage Loan Documents or by Agent herein (i) any prepayment in full of the Mortgage Loan unless this Loan is also paid in full in accordance with the terms and conditions hereof or (ii) any Transfer of any or all of the Property or any portion thereof;
(b) the distribution to the partners, members or shareholders of Mortgage Borrower of property other than cash;
(c) other than as expressly permitted by the Loan Documents or the Mortgage Loan Documents, any (i) improvement, renovation or refurbishment of all or any part of the Property to a materially higher standard or level than that of comparable properties in the same market segment and in the same geographical area as the Property, (ii) removal, demolition or material alteration of the improvements or equipment on the Property, unless such improvements or equipment are being replaced with property of the same or greater utility or such removal, demolition or alteration is done in the ordinary course of business or (iii) material increase in the square footage or gross leasable area of the improvements on the Property if a material portion of any of the expenses in connection therewith are paid or incurred by Mortgage Borrower;
(d) except as set forth in the Mortgage Loan Documents, any determination to restore any Property after a Casualty or Condemnation; or
(e) any material change in the method of conduct of the business of Borrower or Mortgage Borrower.
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Section 4.38 Contractual Obligations . Other than the Loan Documents, the Borrower Organizational Documents, the Mortgage Borrower Organizational Documents, neither Borrower nor any of the Collateral shall be subject to any Contractual Obligations, except with respect to Permitted Indebtedness, and Borrower shall not enter into any further agreement, instrument or undertaking by which it or the Collateral are bound, except as related to indebtedness expressly permitted pursuant to the terms hereof or to such liabilities, not material in the aggregate, that are incidental to its activities as a limited partner, member or shareholder, as applicable, of Mortgage Borrower.
Section 4.39 Refinancing or Prepayment of the Mortgage Loan . Except as required by the Mortgage Loan Documents, Borrower shall not make or permit to be made (whether by Mortgage Borrower or any other Person) any partial or full prepayment of amounts owing under the Mortgage Loan or any refinancing or defeasance of the Mortgage Loan without the prior written consent of Agent, which consent may be granted or withheld by Agent in its sole and absolute discretion; provided, however, that Borrower may make or permit to be made by Mortgage Borrower (i) a prepayment in full of all amounts owing under the Mortgage Loan so long as, simultaneously therewith, Borrower prepays in full the entire outstanding principal balance of the Loan and all interest accrued thereon, together with any other amounts payable under the Loan Documents, and (ii) a partial prepayment of amounts owing under the Mortgage Loan in connection with the extension of the term of the Mortgage Loan as permitted by the Mortgage Loan Documents. Without limiting the foregoing, any sums that would otherwise be payable to Mortgage Borrower or distributable to Borrower in connection with the refinancing or other repayment of the Mortgage Loan (including any refund of reserves and escrows on deposit with Mortgage Lender) shall be promptly, and, in any event, within one (1) Business Day, remitted by Borrower to Lender up to the amount necessary to fully repay the Debt.
Section 4.40 Bankruptcy-Related Covenants . To the extent permitted by applicable Legal Requirements, Borrower shall not, nor shall cause Mortgage Borrower to not, seek substantive consolidation of Borrower or Mortgage Borrower into the bankruptcy estate of Guarantor in connection with a proceeding under the Bankruptcy Code or under federal, state or foreign insolvency law involving Guarantor.
(a) To the extent permitted by applicable Legal Requirements, Borrower shall not, nor shall cause Mortgage Borrower to, contest, oppose or object to any motion made by Agent or any Lender to obtain relief from the automatic stay or seek to reinstate the automatic stay in connection with a proceeding under the Bankruptcy Code or under any other federal, state or foreign insolvency law involving Guarantor.
(b) To the extent permitted by applicable Legal Requirements, Borrower shall not, nor shall cause Mortgage Borrower to, provide, originate, acquire an interest in or solicit (in writing) or accept from Guarantor or any Affiliate of Guarantor, or Borrower Affiliate, any debtor-in-possession financing on behalf of Guarantor in the event that Guarantor is the subject of a proceeding under the Bankruptcy Code or under federal, state or foreign insolvency law involving Guarantor.
Section 4.41 Acquisition of the Mortgage Loan . No Borrower Affiliate shall acquire or agree to acquire the Mortgage Loan, or any portion thereof or any interest therein, or any direct or indirect ownership interest in the holder of the Mortgage Loan, via purchase, transfer, exchange, operation of law, or otherwise, and any breach or attempted breach of this Section 4.41 shall constitute an immediate Event of Default hereunder. If, solely by operation of applicable subrogation law, Borrower Affiliate shall have failed to comply with the foregoing, then Borrower shall (i) immediately notify Agent of such failure, and (ii) cause any and all such prohibited parties acquiring any interest in the Mortgage Loan Documents (A) not to enforce the Mortgage Loan Documents, and (B) upon the request of Lender, to the extent any of such prohibited parties has or have the power or authority to do so, to promptly (1) cancel the Mortgage Loan Note, (2) reconvey and release the Liens securing the Mortgage Loan and any other collateral under the Mortgage Loan Documents, and (3) discontinue and terminate any enforcement proceeding(s) under the Mortgage Loan Documents.
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Section 4.42 Material Agreements . (a) Borrower shall not, and shall not permit Mortgage Borrower to, enter into any Material Agreement without the consent of Agent, not to be unreasonably withheld, conditioned or delayed. Agent may condition its consent upon Mortgage Borrower also obtaining the consent of the Mortgage Lender, if such consent of Mortgage Lender is required under the Mortgage Loan Documents. Upon the request of Agent with respect to Material Agreements, Borrower shall, or shall cause Mortgage Borrower to, deliver to Agent a recognition agreement from such service or material provider, among other things, providing for such Person’s continued performance should Lenders become the owner of the Collateral. Each such Material Agreement and each recognition agreement relating thereto, shall be in form and substance reasonably acceptable to Agent in all respects, including the amount of the costs and fees thereunder.
(b) Except as specifically set forth herein, Borrower will not, and will not permit or cause Mortgage Borrower to, amend, modify, supplement, rescind or terminate any Material Agreement, without Agent’s approval, including the identity of the party to perform services under such agreement. If a service provider under a Material Agreement is in default in its obligations thereunder to the extent entitling Mortgage Borrower to rescind or terminate that agreement, then if Agent so requires, Borrower will, or will cause Mortgage Borrower to, promptly use all reasonable efforts to terminate that agreement and appoint a new party in its place, with such identity and terms of appointment approved by Agent.
(c) Borrower shall and shall cause Mortgage Borrower to observe and perform each and every term to be observed or performed by Mortgage Borrower under the Material Agreements the non-performance of which would cause a material adverse effect on Borrower, Mortgage Borrower, the Collateral or the Property or the current operation of the Property.
Section 4.43 Deed in Lieu of Foreclosure . Without the express prior written consent of Agent, Borrower shall not, and Borrower shall not cause, suffer or permit Mortgage Borrower to, enter into, execute, deliver, or consent to, as the case may be, any deed-in-lieu or consensual foreclosure with or for the benefit of Mortgage Lender or any of its Affiliates or designees.
Section 4.44 Mortgage Reserve Accounts . Borrower shall cause Mortgage Borrower to establish and maintain each of the Reserve Accounts as more particularly set forth in Article 6 of the Mortgage Loan Agreement and to perform and comply with all the terms and provisions of the Mortgage Loan Documents relating thereto.
Section 4.45 Notices . Borrower shall give notice, or cause notice to be given, to Agent, promptly upon the occurrence of:
(a) any default or event of default on the part of Mortgage Borrower, Guarantor or Manager under any Material Agreement or Management Agreement; and
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(b) any default or event of default under any Contractual Obligation of Borrower or Mortgage Borrower that could reasonably be expected to have a material adverse effect on Borrower or Mortgage Borrower, the ability of Borrower or Mortgage Borrower to perform under the Loan Documents or Mortgage Loan Documents or the rights and remedies of Lender under the Loan Documents or of Mortgage Lender under the Mortgage Loan Documents.
Section 4.46 Special Distributions . On each date on which amounts are required to be disbursed to the Mezzanine Loan Subaccount pursuant to the terms of the Cash Management Agreement or to the Mezzanine Cash Management Account, or are required to be paid to Lender under any of the Loan Documents, Borrower shall exercise its rights under the Mortgage Borrower Organizational Documents to cause Mortgage Borrower to make to Borrower a distribution in an aggregate amount such that the Lenders shall receive the amount required to be disbursed to the Lenders on such date, provided, that no direct or indirect constituent member of such entity shall be required to make an additional capital contribution to satisfy such obligation.
Section 4.47 Mortgage Borrower Covenants . Borrower shall cause Mortgage Borrower to: (i) pay all principal, interest and other sums required to be paid by Mortgage Borrower under and pursuant to the provisions of the Mortgage Loan Documents; (ii) diligently perform and observe all of the terms, covenants and conditions of the Mortgage Loan Documents on the part of Mortgage Borrower to be performed and observed; (iii) promptly deliver to Agent a true and complete copy of any notice by Mortgage Lender to Mortgage Borrower, Borrower, or Guarantor of any default by Mortgage Borrower under the Mortgage Loan Documents and of any other material written correspondence (including electronically transmitted items) given or received by Mortgage Borrower or Guarantor to or from the Mortgage Lender or its agents; (iv) not enter into or be bound by any Mortgage Loan Documents after the date hereof, agree to any modifications, consolidation, restatement, or waiver of any existing Mortgage Loan Documents other than as required by the Mortgage Loan Documents in connection with a “Secondary Market Transaction” or “Securitization” (as each such term is defined in the Mortgage Loan Agreement), grant to Mortgage Lender any consent or waiver, or exercise any remedy available to Mortgage Borrower under the Mortgage Loan Documents or any right or election (with respect to election, unless expressly permitted under the Mortgage Loan Documents) under the Mortgage Loan Documents, in each case without the prior written approval of Agent; and (v) provide Agent with a copy of any amendment or modification of, or waiver or consent granted under, the Mortgage Loan Documents within five (5) days after its receipt thereof. Any breach of this Section 4.47 (beyond any notice or cure periods provided in the Mortgage Loan Documents, with respect to obligations which arise under the Mortgage Loan Documents) shall constitute an immediate Event of Default hereunder.
Section 4.48 Mortgage Loan Estoppels . Borrower shall, or shall cause Mortgage Borrower to, obtain from the Mortgage Lender such certificates of estoppel with respect to compliance by Mortgage Borrower with the terms of the Mortgage Loan Documents as may be requested by Agent. In the event or to the extent that Mortgage Lender is not legally obligated to deliver such certificates of estoppel and is unwilling to deliver the same, or is legally obligated to deliver such certificates of estoppel but breaches such obligation, then Borrower shall not be in breach of this provision so long as Borrower furnishes to Agent an estoppel executed by Borrower and Mortgage Borrower and expressly representing to Agent the information requested by Agent regarding compliance by Mortgage Borrower with the terms of the Mortgage Loan Documents. Borrower hereby indemnifies Agent and the Lenders from and against all out-of-pocket liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent or any Lender based in whole or in part upon any fact, event, condition, or circumstances relating to the Mortgage Loan which was misrepresented in, or which warrants disclosure and was omitted from such estoppel executed by Borrower and Mortgage Borrower.
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Article 5
INSURANCE, CASUALTY AND CONDEMNATION
Section 5.1 Insurance . 1
(a) From the Closing Date until payment and performance in full of all obligations of Borrower under the Loan Documents or the earlier release of the Collateral in accordance with the terms of this Agreement and the other Loan Documents, Borrower shall cause Mortgage Borrower to maintain or cause to be maintained, the insurance required under Section 5.1 of the Mortgage Loan Agreement, which insurance shall, without limitation, meet all insurer requirements thereunder. Borrower shall cause Agent for the benefit of the Lenders and Borrower to each to be named as an additional insured under the insurance policies described in Section 5.1(a)(ii), (iv), (v), (vi), (vii), (viii) and (xi) of the Mortgage Loan Agreement. In addition, Borrower shall cause Agent for the benefit of the Lenders to be named as a loss payee together with Mortgage Lender, as their interests may appear under the insurance policies required under Sections 5.1(a)(i), (iii) and (ix) of the Mortgage Loan Agreement. Borrower shall also cause all insurance policies required under this Section 5.1 to provide for at least thirty (30) days prior notice to Agent in the event of policy cancellation or material changes (other than to increase the coverage provided thereby). Borrower shall provide Agent with evidence of all such insurance required hereunder simultaneously with Mortgage Borrower’s provision of such evidence to Mortgage Lender.
(b) If at any time Agent is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, subject to the rights of Mortgage Lender pursuant to Section 5.1(f) of the Mortgage Loan Agreement, with reasonable notice to Borrower, to take such action as Agent deems necessary to protect its interest in the Collateral and indirectly the Property, including, without limitation, the obtaining of such insurance coverage (provided that (i) in no event shall such coverage be in excess of the coverage required under the Mortgage Loan Agreement and (ii) Agent shall not obtain any insurance pursuant to this Section 5.1(b) in any case in which the same is being obtained by Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement) as Lender in its sole discretion deems appropriate after three (3) Business Days’ notice to Borrower if prior to the date upon which any such coverage will lapse or at any time Agent deems necessary (regardless of prior notice to Borrower) to avoid the lapse of any such coverage. All premiums incurred by Agent in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Agent upon demand and, until paid, shall constitute a portion of the Debt and shall bear interest at the Default Rate.
1 NTD: Senior Loan Insurance provisions subject to review by SLG’s insurance consultant.
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Section 5.2 Casualty . If the Property shall be damaged or destroyed, in whole or in part, by a Casualty, Borrower shall (or shall cause Mortgage Borrower to) give prompt written notice of such Casualty to Agent and shall cause Mortgage Borrower to promptly commence and diligently prosecute the completion of the Restoration of the Property pursuant to Section 5.4 of the Mortgage Loan Agreement as nearly as possible to the condition the Property was in immediately prior to such Casualty) and otherwise in accordance with Section 5.4 of the Mortgage Loan Agreement. In addition, Agent may participate in any settlement discussions with any insurance companies (and shall approve the final settlement, which approval shall not be unreasonably withheld or delayed) with respect to any Casualty in which the Net Proceeds or the costs of completing the Restoration are equal to or greater than the Restoration Threshold and Borrower shall deliver to Agent all instruments required by Agent to permit such participation.
Section 5.3 Condemnation . Borrower shall (or shall cause Mortgage Borrower to) promptly give Agent notice of the actual or threatened commencement of any proceeding for the Condemnation of the Property and shall cause Mortgage Borrower to deliver to Agent copies of any and all papers served in connection with such proceedings. Subject to Section 5.4 of this Agreement, Agent may participate in any such proceedings to the extent such Condemnation affects any portion of the Property valued in excess of the Restoration Threshold (any such Condemnation, a “ Material Condemnation ”), and Borrower shall from time to time deliver to Lender all instruments requested by it to permit such participation. Borrower shall cause Mortgage Borrower to, at its expense, diligently prosecute any such proceedings, with respect to any Material Condemnation, and in the case of such proceedings, shall consult with Agent, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until Net Liquidation Proceeds After Debt Service have been actually received and applied by Lenders, after the deduction of expenses of collection, to the reduction or discharge of the Debt. The Lenders shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Net Liquidation Proceeds After Debt Service interest at the rate or rates provided herein or in the Note. If the Property or any portion thereof is taken by a condemning authority, Borrower shall cause Mortgage Borrower to promptly commence and diligently prosecute the Restoration of the Property pursuant to Section 5.4 of the Mortgage Loan Agreement and otherwise comply with the provisions of Section 5.4 of the Mortgage Loan Agreement.
Section 5.4 Restoration . Borrower shall, or shall cause Mortgage Borrower to, deliver to Agent all reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender under Section 5.4 of the Mortgage Loan Agreement and to otherwise comply in all respects with Section 5.4 of the Mortgage Loan Agreement in connection with a restoration of the Property after a Casualty or Condemnation.
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Article 6
CASH MANAGEMENT AND RESERVE FUNDS
Section 6.1 Cash Management Arrangements .
(a) During the term of the Loan, Borrower shall cause Mortgage Borrower to establish and maintain the Clearing Account with Clearing Bank in trust for the benefit of Mortgage Lender, which Clearing Account shall be under the sole dominion and control of Mortgage Lender. Mortgage Lender and Servicer (as defined in the Mortgage Loan Agreement) shall have the sole right to make withdrawals from the Clearing Account and all costs and expenses for establishing and maintaining the Clearing Account shall be paid by Mortgage Borrower. Borrower shall cause Mortgage Borrower to at all times comply with the provisions of Section 6.1 of the Mortgage Loan Agreement.
(b) Borrower has caused Mortgage Borrower to establish the Deposit Account to be held by Mortgage Loan Agent in trust and for the benefit of Mortgage Lender, as required by Section 6.1 of the Mortgage Loan Agreement, which Deposit Account shall be under the sole dominion and control of Mortgage Lender. Borrower will cause Mortgage Borrower to at all times comply with the provisions of Section 6.1 and 6.9 of the Mortgage Loan Agreement and the Cash Management Agreement. Borrower will notify Agent of the account number thereof. Mortgage Lender and its Servicer (as defined in the Mortgage Loan Agreement) shall have the sole right to make withdrawals from the Deposit Account and all costs and expenses for establishing and maintaining the Deposit Account shall be paid by Mortgage Borrower. Borrower shall direct or cause Mortgage Borrower to direct that (i) all cash distributions from the Deposit Account to be paid to the Lenders in accordance with the Cash Management Agreement (including the Net Liquidation Proceeds After Debt Service) be deposited into the Mezzanine Loan Subaccount maintained in accordance with the Cash Management Agreement; and (ii) immediately upon such cash distributions to be paid to the Lenders in accordance with the Cash Management Agreement (including the Net Liquidation Proceeds After Debt Service) having been deposited in the Mezzanine Loan Subaccount, such amounts shall be swept to the Mezzanine Cash Management Account. Disbursements from the Mezzanine Cash Management Account will be made in accordance with the terms and conditions of this Agreement.
(c) Borrower shall not permit Mortgage Borrower to amend the Cash Management Agreement without Agent’s prior written consent. Any amounts received by Lenders in the Mezzanine Cash Management Account shall be applied by Lenders to any amounts due under this Agreement and any of the other Loan Documents. So long as no Event of Default then exists, any amounts remaining after such application shall then be disbursed to or at the direction of Borrower. In the event that the Loan remains outstanding after the Mortgage Loan has been paid in full, Borrower shall (i) enter into and cause Mortgage Borrower and Manager to enter into a cash management agreement with Lenders upon substantially the same terms as the Cash Management Agreement; and (ii) enter into and deliver to Lenders all other reasonable and customary agreements required by Agent in connection therewith in form reasonably acceptable to Lender including, without limitation, clearing account agreements and any related documentation. Upon the occurrence and during the continuance of an Event of Default, and provided that no Trigger Period is then in effect, all Available Cash (as defined in the Mortgage Loan Agreement) shall be deposited in the Mezzanine Loan Subaccount in accordance with the Cash Management Agreement and immediately swept into the Mezzanine Cash Management Account, and, thereafter Agent shall be permitted to apply all or a portion of any such Available Cash received by Lenders to repayment of the Debt in such order and priority as Agent may determine in its sole and absolute discretion.
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(d) All transfers of funds on deposit in the Deposit Account to the Mezzanine Loan Subaccount and then to the Mezzanine Cash Management Account or otherwise to or for the benefit of Lenders pursuant to this Agreement, the Cash Management Agreement or any of the other Loan Documents or the Mortgage Loan Documents are intended by Borrower and Mortgage Borrower to constitute, and shall constitute, distributions from Mortgage Borrower to Borrower. No provision of the Loan Documents or the Mortgage Loan Documents shall create a debtor-creditor relationship between Borrower and Mortgage Lender or between Lender and Mortgage Borrower.
(e) In the event the Mortgage Loan has been paid in full, upon payment in full of the Debt, Agent shall disburse any remaining Net Liquidation Proceeds After Debt Service to Borrower.
(f) From and after the Closing Date, Borrower shall cause all payments under the Interest Rate Protection Agreement to be deposited directly into the Mezzanine Cash Management Account. All monies in the Mezzanine Cash Management Account will be applied and disbursed in accordance with this Agreement. Agent may also establish subaccounts of the Mezzanine Cash Management Account which shall at all times be Eligible Accounts (and may be ledger or book entry accounts and not actual accounts) (such subaccounts are referred to herein as “ Accounts ”). The Mezzanine Cash Management Account and all other Accounts will be under the sole control and dominion of Agent, and Borrower shall not have any right of withdrawal therefrom. Borrower shall pay for all expenses of opening and maintaining all of the above Accounts.
Section 6.2 Required Repairs . Borrower shall perform the repairs and other work at the Properties as set forth on Schedule II (such repairs and other work hereinafter referred to as “ Required Repairs ”) and shall complete each of the Required Repairs on or before the respective deadline for each repair as set forth on Schedule II .
Section 6.3 Tax Funds . (a) Borrower shall cause Mortgage Borrower to comply with all the terms and conditions set forth in Section 6.3 of the Mortgage Loan Agreement.
(b) In the event that, prior to the payment and performance in full of all obligations of Borrower under the Loan Documents, (i) Mortgage Borrower is required to maintain the Tax Account pursuant to the terms of Section 6.3 of the Mortgage Loan Agreement, but Mortgage Lender waives such requirement, or (ii) the Mortgage Loan has been repaid in full, (A) Agent shall have the right to require Borrower to establish and maintain a reserve account that would operate in the same manner as the Tax Account pursuant to Section 6.3 of the Mortgage Loan Agreement and irrespective of any waiver granted by Mortgage Lender, and (B) the provisions of Section 6.3 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference
Section 6.4 Insurance Funds . (a) Borrower shall cause Mortgage Borrower to comply with all the terms and conditions set forth in Section 6.4 of the Mortgage Loan Agreement.
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(b) In the event that, prior to the payment and performance in full of all obligations of Borrower under the Loan Documents, (i) Mortgage Borrower is required to maintain the Insurance Account pursuant to the terms of Section 6.4 of the Mortgage Loan Agreement, but Mortgage Lender waives such requirement, or (ii) the Mortgage Loan has been repaid in full, (A) Agent shall have the right to require Borrower to establish and maintain a reserve account that would operate in the same manner as the Insurance Account pursuant to Section 6.4 of the Mortgage Loan Agreement and irrespective of any waiver granted by Mortgage Lender, and (B) the provisions of Section 6.4 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference.
Section 6.5 Capital Expenditure Funds . (a) Borrower shall cause Mortgage Borrower to comply with all the terms and conditions set forth in Section 6.5 of the Mortgage Loan Agreement.
(b) In the event that, prior to the payment and performance in full of all obligations of Borrower under the Loan Documents, (i) Mortgage Borrower is required to maintain the Capital Expenditure Account pursuant to the terms of Section 6.5 of the Mortgage Loan Agreement, but Mortgage Lender waives such requirement, or (ii) the Mortgage Loan has been repaid in full, (A) Agent shall have the right to require Borrower to establish and maintain a reserve account that would operate in the same manner as the Capital Expenditure Account pursuant to Section 6.5 of the Mortgage Loan Agreement and irrespective of any waiver granted by Mortgage Lender, and (B) the provisions of Section 6.5 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference.
Section 6.6 Rollover Funds . (a) Borrower shall cause Mortgage Borrower to comply with all the terms and conditions set forth in Section 6.6 of the Mortgage Loan Agreement.
(b) In the event that, prior to the payment and performance in full of all obligations of Borrower under the Loan Documents, (i) Mortgage Borrower is required to maintain the Rollover Account pursuant to the terms of Section 6.6 of the Mortgage Loan Agreement, but Mortgage Lender waives such requirement, or (ii) the Mortgage Loan has been repaid in full, (A) Agent shall have the right to require Borrower to establish and maintain a reserve account that would operate in the same manner as the Rollover Account pursuant to Section 6.6 of the Mortgage Loan Agreement and irrespective of any waiver granted by Mortgage Lender, and (B) the provisions of Section 6.6 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference.
Section 6.7 Casualty and Condemnation Account . (a) Borrower shall cause Mortgage Borrower to comply with all the terms and conditions set forth in Section 6.7 of the Mortgage Loan Agreement.
(b) In the event that, prior to the payment and performance in full of all obligations of Borrower under the Loan Documents, (i) Mortgage Borrower is required to maintain the Casualty and Condemnation Account pursuant to the terms of Section 6.7 of the Mortgage Loan Agreement, but Mortgage Lender waives such requirement, or (ii) the Mortgage Loan has been repaid in full, (A) Agent shall have the right to require Borrower to establish and maintain a reserve account that would operate in the same manner as the Casualty and Condemnation Account pursuant to Section 6.7 of the Mortgage Loan Agreement and irrespective of any waiver granted by Mortgage Lender, and (B) the provisions of Section 6.7 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference
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Section 6.8 Intentionally Omitted .
Section 6.9 Property Cash Flow Allocation .
(a) On each Payment Date, provided that there is no Event of Default, Deposit Bank shall, and is authorized by Borrower to, transfer funds in the Mezzanine Cash Management Account for payment of the following amounts in the following order of priority, in each case to the extent that sufficient funds remain therefor:
(i) funds sufficient to pay all accrued and unpaid interest due on the Loan pursuant to the Note and this Loan Agreement (and not accruing at the Default Rate) shall be withdrawn and paid to Agent;
(ii) funds sufficient to repay all principal due (if any) on the Loan pursuant to the Note and this Agreement shall be withdrawn and paid to Agent;
(iii) funds sufficient to pay any interest accruing at the Default Rate, late payment charges, if any, and any other sums due and payable to Agent or Lender under any of the Loan Documents (if any), shall be withdrawn and paid to Agent or Lender, as applicable, and applied against such items;
(iv) all remaining funds in the Mezzanine Cash Management Account shall be paid to Borrower.
(b) Notwithstanding anything to the contrary herein, Borrower acknowledges that Borrower is responsible for monitoring the sufficiency of funds deposited in the Mezzanine Cash Management Account and that Borrower is liable for any deficiency in available funds, irrespective of whether Borrower has received any account statement, notice or demand from Agent. If the amount on deposit in the Mezzanine Cash Management Account is insufficient when required to make all of the withdrawals and allocations required pursuant to clauses (i) through (iv) of Section 6.9(a) , Borrower shall deposit such deficiency into the Mezzanine Cash Management Account within five (5) Business Days ( provided , however , that, such five (5) Business Day period shall not constitute a grace period for any Default or Event of Default under this Agreement or any other Loan Document based on a failure to satisfy any monetary obligation provided in any Loan Document).
(c) If an Event of Default shall have occurred and be continuing, Borrower hereby irrevocably authorizes Agent to make any and all withdrawals from the Mezzanine Cash Management Account in accordance with Section 6.9.3 . Agent’s right to withdraw and apply funds as stated herein shall be in addition to all other rights and remedies provided to Agent under this Agreement, the Note and the other Loan Documents.
6.9.2 Failure to Make Payments . The failure of Borrower to make all of the payments required under clauses (i) through (iii) of Section 6.9(a) in full on each Monthly Payment Date shall constitute an Event of Default under this Agreement; provided, however, if adequate funds are available in the Mezzanine Cash Management Account for such payments, and Borrower is not otherwise in Default hereunder, the failure by the Deposit Bank to allocate such funds into the appropriate Accounts shall not constitute an Event of Default.
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6.9.3 Application After Event of Default . Notwithstanding anything to the contrary contained in this Article 6 , upon the occurrence and during the continuance of an Event of Default, Agent, at its option, may apply any Gross Revenue then in the possession of Agent or its Servicer to the payment of the Debt in such order, proportion and priority as Agent may determine in its sole and absolute discretion. Agent’s right to withdraw and apply any of the foregoing funds shall be in addition to all other rights and remedies provided to Agent under the Loan Documents.
Section 6.10 Security Interest in Reserve Funds . As security for payment of the Debt and the performance by Borrower of all other terms, conditions and provisions of the Loan Documents, Borrower hereby pledges and assigns to Agent and Lenders, and grants to Agent and Lenders a security interest in, all Borrower’s right, title and interest in and to all payments to or monies held in the Mezzanine Cash Management Account and Accounts created pursuant to this Agreement (collectively, the “ Cash Management Accounts ”). Borrower hereby grants to Agent and Lenders a continuing security interest in, and agrees to hold in trust for the benefit of Agent and Lenders, all such amounts. Borrower shall not, without obtaining the prior written consent of Agent, further pledge, assign or grant any security interest in any Cash Management Account, or permit any Lien to attach thereto, or any levy to be made thereon, or any UCC Financing Statements, except those naming Agent (on behalf of Lender) as the secured party, to be filed with respect thereto. This Agreement is, among other things, intended by the parties to be a security agreement for purposes of the UCC. Upon the occurrence and during the continuance of an Event of Default, Agent may apply any sums in any Cash Management Account in any order and in any manner as Agent shall elect in Agent’s discretion without adversely affecting the rights of Agent to foreclose the Liens of the Pledge Agreement or exercise its other rights under the Loan Documents. Cash Management Accounts shall not constitute trust funds and may be commingled with other monies held by Agent. Provided no Event of Default exists, all interest which accrues on the funds in any Account (other than the Tax Account and the Insurance Account) shall accrue for the benefit of Borrower and shall be taxable to Borrower and shall be added to and disbursed in the same manner and under the same conditions as the principal sum on which said interest accrued. Upon repayment in full of the Debt, all remaining funds in the Accounts, if any, shall be promptly disbursed to Borrower.
Section 6.11 Mezzanine Cash Management Agreement; Reserve Funds . Upon such time, if any, as the Mortgage Loan shall have been repaid but the Loan shall not have been paid in full, or if Mortgage Lender is no longer collecting some or all of the amounts required under Article 6 of the Mortgage Loan Agreement, then Borrower shall enter into a cash management and lockbox arrangement with Agent and Deposit Bank on substantially identical terms to the Cash Management Agreement (but for the benefit of Agent), and Borrower shall cause any amounts that would have been deposited into any reserves or escrow accounts in accordance with the terms of the Mortgage Loan Documents to be transferred to and deposited with Agent in accordance with the terms of such substitute cash management and lockbox arrangement. A perfection and enforceability opinion as to any such replacement cash management agreement, in form and substance reasonably satisfactory to Agent, shall be delivered to Agent contemporaneously therewith.
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Section 6.12 Transfer of Funds In Mortgage Reserve Accounts . If Mortgage Lender waives any reserves or escrow accounts required in accordance with the terms of the Mortgage Loan Agreement, which reserves or escrow accounts are also required in accordance with the terms of this Article 6, or if the Mortgage Loan is refinanced or paid off in full (without a prepayment of the Loan) and Reserve Funds that are required hereunder are not required under the new mortgage loan, if any, then Borrower shall cause any amounts that would have been deposited into any reserves or escrow accounts in accordance with the terms of the Mortgage Loan Agreement to be transferred to and deposited with Agent in accordance with the terms of this Article 6 (and Borrower shall enter into a cash management and lockbox agreement for the benefit of Lenders substantially similar to the arrangement entered into at the time of the closing of the Mortgage Loan), and, if any letters of credit have been substituted by Mortgage Borrower for any such reserves or escrows as may be specifically permitted by the Mortgage Loan Agreement, then Borrower shall also cause such letters of credit to be transferred to Lenders to be held by Lenders upon the same terms and provisions as set forth in the Mortgage Loan Agreement.
Article 7
PERMITTED TRANSFERS
Section 7.1 Permitted Transfers . Notwithstanding anything to the contrary contained in Section 4.2 or in any Loan Document, the following Transfers (herein, the “ Permitted Transfers ”) shall be permitted hereunder:
(a) a Lease entered into in accordance with the Loan Documents;
(b) a Permitted Encumbrance;
(c) the transfer of publicly traded shares on a nationally or internationally recognized stock exchange in any indirect equity owner of Borrower;
(d) a Transfer of any direct or indirect interest in Borrower related to or in connection with the estate planning of such transferor to (1) an immediate family member of such interest holder (or to partnerships or limited liability companies Controlled solely by one or more of such family members) or (2) a trust established for the benefit of such immediate family member, provided that:
(i) Borrower shall provide to Agent thirty (30) days prior written notice thereof;
(ii) such Transfer shall not otherwise result in (A) David Bistricer no longer being in Control of Borrower, (B) Clipper Realty L.P. being removed as the managing member of Sole Member, (C) David Bistricer, individually or together with estate planning vehicles that benefit his immediate family members, holding less than fifty-one percent (51%) of the direct or indirect beneficial ownership interests in Borrower (the “ Bistricer Minimum Equity Interests ”), it being acknowledged and agreed that any such estate planning vehicles shall agree for the benefit of Agent that Clipper Realty L.P. shall continue to be the managing member of Sole Member for the Term, or (D) change of the day to day management and operations of the Properties;
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(iii) Borrower shall continue to be a Special Purpose Bankruptcy Remote Entity;
(iv) if such Transfer would cause the transferee, together with its Affiliates, to increase its direct or indirect interest in Borrower to an amount which equals or exceeds ten percent (10%), such transferee shall be a Qualified Transferee;
(v) if such Transfer shall cause the transferee together with its Affiliates to acquire or to increase its direct or indirect interest in Borrower to an amount which equals or exceeds forty-nine percent (49%), to the extent that Agent reasonably determines that the pairings in the most recently delivered non-consolidation opinion with respect to the Loan no longer apply, Borrower shall deliver to Agent a non-consolidation opinion in form and substance reasonably satisfactory to Agent and satisfactory to the applicable Rating Agencies;
(e) the Transfer of direct and/or indirect interests in Mortgage Borrower to Lender or any other Person in connection with an Equity Collateral Enforcement Action;
(f) a Transfer of any direct or indirect interest in Borrower that occurs by devise or bequest or by operation of law upon the death or legal incapacity of a natural person that was the holder of such interest, provided that:
(i) Borrower shall give Agent notice of such Transfer together with copies of all instruments effecting such Transfer not less than thirty (30) days after the date of such Transfer;
(ii) Borrower shall continue to be a Special Purpose Bankruptcy Remote Entity;
(iii) the Properties shall continue to be managed by a Qualified Manager or by a property manager reasonably acceptable to Agent and acceptable to the applicable Rating Agencies;
(iv) if such Transfer would cause the transferee, together with its Affiliates, to increase its direct or indirect interest in Borrower to an amount which equals or exceeds ten percent (10%), such transferee shall be a Qualified Transferee;
(v) if such Transfer results in a change of Control of Borrower to a Person other than (A) David Bistricer (directly or indirectly) or (B) the estate of David Bistricer (during the pendency of the settlement by the estate of David Bistricer and if such Transfer occurs as a result of the death of David Bistricer) (the “ Bistricer Estate ”)); (x) if such Transfer occurs prior to the occurrence of a Securitization, Borrower shall submit to Agent the identity of such transferee in writing as soon as practicable after such Transfer, and Agent shall have the right to approve or disapprove of such transferee within thirty (30) days after any such Transfer, it being acknowledged and agreed that Borrower’s failure to provide to Agent a transferee acceptable to Agent shall constitute an Event of Default hereunder but shall not constitute a non-Permitted Transfer, or (y) from and after a Securitization, Borrower shall deliver a Rating Agency Confirmation from each applicable Rating Agency within sixty (60) days after any such Transfer (or such longer time as may reasonably be necessary for Borrower to obtain the Rating Agency Confirmations, provided Borrower is diligently pursuing same); and
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(vi) if such Transfer shall cause (x) a change of Control of Borrower or (y) the transferee together with its Affiliates to acquire or to increase its direct or indirect interest in Borrower to an amount which equals or exceeds forty-nine percent (49%), then, to the extent that Agent reasonably determines that the pairings in the most recently delivered non-consolidation opinion with respect to the Loan no longer apply, Borrower shall deliver to Agent a non-consolidation opinion in form and substance reasonably satisfactory to Agent and the applicable Rating Agencies within thirty (30) days of Agent’s request for such non-consolidation opinion;
(g) provided that no Event of Default shall then exist, one or more Transfers of any direct or indirect interest in Borrower shall be permitted without Agent’s consent provided that:
(i) no such Transfer shall (x) cause the transferee (other than Key Principals), together with its Affiliates, to increase its direct or indirect interest in Borrower to an amount which equals or exceeds forty-nine percent (49%) or (y) result in a change in Control of Borrower;
(ii) Borrower shall continue to be a Special Purpose Bankruptcy Remote Entity;
(iii) if such Transfer would cause the transferee, together with its Affiliates, to increase its direct or indirect interest in Borrower to an amount which equals or exceeds ten percent (10%), (x) such transferee is a Qualified Transferee and (y) Borrower shall provide to Agent thirty (30) days prior written notice thereof;
(iv) after giving effect to such Transfer, (w) David Bistricer shall continue to Control the day to day operations of Borrower, (x) Clipper Realty, L.P. shall continue to be the managing member of Sole Member, and (y) David Bistricer, individually or together with estate planning vehicles that benefit his immediate family members shall continue to collectively own the Bistricer Minimum Equity Interests, it being acknowledged and agreed that any such estate planning vehicles shall agree for the benefit of Agent that Clipper Realty L.P. shall continue to be the managing member of Sole Member for the Term; and
(v) the Properties shall continue to be managed by a Qualified Manager or by a property manager reasonably acceptable to Agent and acceptable to the applicable Rating Agencies; and/or
(h) a Condemnation.
For purposes of this Section 7.1 , “immediate family member” shall mean a sibling, children of siblings, family trust, parent, spouse, child (or step-child), grandchild or other lineal descendant of the interest holder.
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Section 7.2 Cost and Expenses; Searches; Copies .
(a) Borrower shall pay all out-of-pocket costs and expenses of Agent and Lenders in connection with any Transfer, whether or not such Transfer is deemed to be a Permitted Transfer, including, without limitation, all reasonable fees and expenses of Agent’s and Lenders’ counsel, and the reasonable cost of any required counsel opinions related to securitization or tax issues and any Rating Agency fees.
(b) Borrower shall provide Agent with copies of all organizational documents (if any) relating to any Permitted Transfer.
(c) In connection with any Permitted Transfer, to the extent a transferee shall own ten percent (10%) or more of the direct or indirect ownership interests in Borrower immediately following such transfer (provided such transferee owned less than ten percent (10%) of the direct or indirect ownership interests in Borrower as of the Closing Date), Borrower shall deliver (and Borrower shall be responsible for any reasonable out of pocket costs and expenses in connection therewith), customary searches reasonably requested by Agent in writing (including credit, judgment, lien, litigation, bankruptcy, criminal and watch list) reasonably acceptable to Agent with respect to such transferee.
Article
8
DEFAULTS
Section 8.1 Events of Default . Each of the following events shall constitute an event of default hereunder (an “ Event of Default ”):
(i) if (A) the Obligations are not paid in full on the Maturity Date, (B) any regularly scheduled monthly payment of interest, and, if applicable, principal due under the Note is not paid in full on the applicable Monthly Payment Date (unless Agent shall have failed to make such payment in accordance with Section 6.9(a) hereof), (C) any prepayment of principal due under this Agreement or the Note is not paid when due, (D) the Spread Maintenance Premium is not paid when due, or (E) unless Agent shall have failed to make such deposit in accordance with Section 6.9(a) hereof, any deposit to the Reserve Funds is not made on the required deposit date therefor;
(ii) if any other amount payable pursuant to this Agreement, the Note or any other Loan Document (other than as set forth in the foregoing clause (i) ) is not paid in full when due and payable in accordance with the provisions of the applicable Loan Document, with such failure continuing for ten (10) Business Days after Agent delivers written notice thereof to Borrower (unless Agent shall have failed to make such payment in accordance with Section 6.9(a) hereof);
(iii) if any of the Taxes or Other Charges are not paid prior to delinquency, subject to the right of Borrower to contest such Taxes and Other Charges as provided in Section 4.6 hereof (provided that it shall not be an Event of Default if such past due Taxes are Real Estate Taxes and there are sufficient funds in the Tax Account to pay such amounts when due, no other Event of Default is then continuing and neither Borrower nor Mortgage Borrower has attempted to delay, prevent, enjoin or otherwise disrupt or interfere with the payment of such sums and Agent or Servicer fails to make such payment in violation of this Agreement);
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(iv) if the Policies are not (A) delivered to Agent within ten (10) days of Agent’s written request and (B) kept in full force and effect, each in accordance with the terms and conditions hereof;
(v) a Transfer other than a Permitted Transfer occurs;
(vi) if any certification, representation or warranty made by Borrower or Guarantor herein (including through the incorporation by reference of the representations and warranties of Mortgage Borrower in the Mortgage Loan Documents) or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Agent shall have been false or misleading in any material respect as of the date such representation or warranty was made (provided, however, as to (A) any such false or misleading certification, representation or warranty which was not known to Borrower to be false or misleading when made or submitted to Agent, and the condition causing such certification, representation or warranty to be false or misleading is susceptible of being cured, the same shall not be an Event of Default hereunder unless Borrower fails within thirty (30) days following written notice thereof to Borrower to undertake and complete all action necessary to either cure the same or make such certification, representation or warranty true and correct in all material respects as and when made or (B) a Default under this clause (vi) that is due to a breach in a representation caused by an adverse ruling after the Closing Date with respect to Rent Regulation Law, such breach shall be deemed cured if Borrower complies with such adverse ruling);
(vii) if Mortgage Borrower, Borrower or Guarantor shall make an assignment for the benefit of creditors;
(viii) if a receiver, liquidator or trustee shall be appointed for Mortgage Borrower, Borrower or Guarantor or if Mortgage Borrower, Borrower or Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Mortgage Borrower, Borrower or Guarantor, or if any proceeding for the dissolution or liquidation of Mortgage Borrower, Borrower or Guarantor shall be instituted, or if Mortgage Borrower or Borrower is substantively consolidated with any other Person; provided, however, if such appointment, adjudication, petition, proceeding or consolidation was involuntary and not consented to or acquiesced in by Mortgage Borrower, Borrower or Guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days following its filing;
(ix) if Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents;
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(x) if any of the factual assumptions contained in the Insolvency Opinion, or in any other non-consolidation opinion delivered to Agent in connection with the Loan, or in any other non-consolidation opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect (provided, however, that such untruth shall not constitute an Event of Default if within ten (10) days after request by Agent, Borrower shall cause counsel reasonably acceptable to Agent (provided that the counsel that delivered the Insolvency Opinion in connection with the closing of the Loan shall be deemed reasonably acceptable to Agent) to deliver a new non-consolidation opinion to the effect that the failure of such factual assumption to be true shall not in any material manner impair, negate or amend the opinions rendered in the Insolvency Opinion (or such other non-consolidation opinion most recently delivered to Agent) in any material respect, which opinion shall be acceptable to Agent in its reasonable discretion and, in connection with or following a Securitization, acceptable to the Rating Agencies);
(xi) a breach of the covenants set forth in Sections 4.31 , 4.35 , 4.39 , 4.40 , 4.41 , 4.43 or 4.44 hereof;
(xii) a breach of the covenants set forth in Sections 4.4 , or 4.23 hereof, provided, however, that such breach shall not constitute an Event of Default if (A) such breach was inadvertent, immaterial and non-recurring, (B) if such breach is curable, Borrower shall promptly cure such breach within ten (10) days of notice from Agent and (C) within ten (10) days after request by Agent, Borrower shall cause counsel to deliver a new non-consolidation opinion to the effect that the breach shall not in any material manner impair, negate or amend the opinions rendered in the Insolvency Opinion (or such other non-consolidation opinion most recently delivered to Agent) in any material respect, which opinion shall be acceptable to Agent in its reasonable discretion and, in connection with or following a Securitization, acceptable to the Rating Agencies);
(xiii) if Borrower or Mortgage Borrower shall be in default beyond any applicable grace or cure period under any mortgage or security agreement (except Permitted Equipment Financing) covering any part of any Property whether it be superior, pari passu or junior in Lien to the Mortgage;
(xiv) subject to Borrower’s right to contest set forth in Section 4.3 of this Agreement, if any Property becomes subject to any mechanic’s, materialman’s or other Lien (and such Lien is not removed within five (5) days) except a Permitted Encumbrance or a Lien for Taxes not then due and payable;
(xv) the alteration, improvement, demolition or removal of any material portion of the Improvements without the prior consent of Agent, other than in accordance with this Agreement and the Leases at the Properties entered into in accordance with the Loan Documents;
(xvi) if, without Agent’s prior written consent, which consent shall not have been unreasonably withheld, (i) a Management Agreement is terminated by Mortgage Borrower (other than as expressly permitted in this Agreement), (ii) there is a material change in a Management Agreement, or (iii) if there shall be a material default by Mortgage Borrower under any Management Agreement beyond any applicable notice or grace period, provided that, such material default shall not constitute an Event of Default if, prior to the termination of the Management Agreement, Mortgage Borrower enters into a new Management Agreement with a Replacement Manager in accordance with Section 4.14 of this Agreement;
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(xvii) if Mortgage Borrower or Borrower or any Person owning a direct or indirect ownership interest (other than an indirect interest in Mortgage Borrower or Borrower of less than ten percent (10%) with no ability to Control) in Mortgage Borrower or Borrower shall be convicted of a Patriot Act Offense by a court of competent jurisdiction;
(xviii) a breach of any representation, warranty or covenant contained in Section 3.1.18 hereof that has a Material Adverse Effect;
(xix) if Borrower breaches any covenant contained in Section 4.9 hereof and such breach continues for ten (10) days;
(xx) if there shall be a default under any of the other Loan Documents beyond any applicable cure periods contained in such Loan Documents, whether as to Borrower, Guarantor or the Properties, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Obligations or to permit Agent to accelerate the maturity of all or any portion of the Obligations;
(xxi) if Borrower fails to obtain or maintain an Interest Rate Cap Agreement or replacement thereof in accordance with Section 2.6 and/or Section 2.7 hereof;
(xxii) Guarantor breaches any of the Guarantor Financial Covenants;
(xxiii) if Borrower or Guarantor shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement or any other Loan Document not specified in subsections (i) to (xxii) above, and such Default shall continue for ten (10) days after notice to Borrower and/or Guarantor from Agent, in the case of any such Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice to Borrower and/or Guarantor from Agent in the case of any other such Default; provided, however, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such 30-day period, and provided further that Borrower and/or Guarantor shall have commenced to cure such Default within such 30-day period shall and thereafter diligently and expeditiously proceed to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower and/or Guarantor in the exercise of due diligence to cure such Default, such additional period not to exceed ninety (90) days;
(xxiv) if a Mortgage Loan Default occurs; or
(xxv) the Liens created pursuant to any Loan Document shall cease to be a fully perfected enforceable first priority security interest or any portion of the Collateral is Transferred without Lender’s prior written consent, provided, that Borrower shall have the right to cure any involuntary Lien on any portion of the Collateral within ten (10) Business Days of notice of such Lien.
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Section 8.2 Remedies .
8.2.1 Acceleration . Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vii) , (viii) or (ix) of Section 8.1 above) and at any time thereafter, Agent may, in addition to any other rights or remedies available to Agent and Lenders pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand (and Borrower hereby expressly waives any such notice or demand), that Agent deems advisable to protect and enforce its and Lenders’ rights against Borrower and in and to the Collateral, including declaring the Obligations to be immediately due and payable, and Agent may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and the Collateral, including all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vii) , (viii) or (ix) of Section 8.1 above, the Obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable in full, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding.
8.2.2 Remedies Cumulative . During the continuance of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Agent and Lenders against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Agent at any time and from time to time, whether or not all or any of the Obligations shall be declared due and payable, and whether or not Agent shall have commenced any Equity Collateral Enforcement Action or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Collateral. The rights, powers and remedies of Agent under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Agent and Lenders may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Agent’s and Lenders’ rights, powers and remedies may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Agent may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Agent and Lenders permitted by law or contract or as set forth herein or in the other Loan Documents or by equity. Without limiting the generality of the foregoing, if an Event of Default is continuing (i) neither Agent nor any Lender shall be subject to any “one action” or “election of remedies” law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Agent and Lenders shall remain in full force and effect until Agent and Lenders have exhausted all of their remedies against the Collateral and the Collateral has been sold and/or otherwise realized upon in satisfaction of the Obligations or the Obligations have been paid in full. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon.
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8.2.3 Severance .
(a) During the continuance of an Event of Default, Agent shall have the right from time to time to partially foreclose any Pledged Equity Interest constituting part of the Collateral in any manner and for any amounts secured by the Pledge Agreement or other Loan Documents then due and payable as determined by Agent in its sole discretion, including the following circumstances: (i) in the event Borrower defaults beyond any applicable grace or cure period in the payment of one or more scheduled payments of principal and interest, Agent may foreclose any Pledged Equity Interest constituting part of the Collateral to recover such delinquent payments, or (ii) in the event Agent elects to accelerate less than the entire Outstanding Principal Balance, Agent may foreclose any Pledged Equity Interest constituting part of the Collateral to recover so much of the principal balance of the Loan as Agent may accelerate and such other sums secured by the Pledge Agreement or other Loan Documents as Agent may elect. Notwithstanding one or more partial foreclosures, each Pledged Equity Interest constituting part of the Collateral shall remain subject to the Pledge Agreement to secure payment of the sums secured by the Pledge Agreement or other Loan Documents and not previously recovered.
(b) During the continuance of an Event of Default, Agent shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate notes, pledges and other security documents in such denominations as Agent shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Agent from time to time, promptly after the request of Agent, a severance agreement and such other documents as Agent shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Agent. Borrower hereby absolutely and irrevocably appoints Agent as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Agent shall not make or execute any such documents under such power until three (3) days after notice has been given to Borrower by Agent of Agent’s intent to exercise its rights under such power.
(c) During the continuance of an Event of Default, any amounts recovered from the Collateral or any other collateral for the Loan after an Event of Default may be applied by Agent toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents, in such order, priority and proportions as Agent in its sole discretion shall determine.
8.2.4 Agent’s Right to Perform . If Borrower fails to perform any covenant or obligation contained herein and such failure shall continue for a period of five (5) Business Days after Borrower’s receipt of written notice thereof from Agent, without in any way limiting Agent’s right to exercise any of its rights, powers or remedies as provided hereunder, or under any of the other Loan Documents, Agent may, but shall have no obligation to, perform, or cause the performance of, any covenant or obligation, and all costs, expenses, liabilities, penalties and fines of Agent incurred or paid in connection therewith shall be payable by Borrower to Agent upon demand and if not paid shall be added to the Obligations (and to the extent permitted under applicable laws, secured by the Pledge Agreement and the other Loan Documents) and shall bear interest thereafter at the Default Rate. Notwithstanding the foregoing, Agent shall have no obligation to send notice to Borrower of any such failure.
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Section 8.3 Right to Cure Event of Defaults . Upon the occurrence and during the continuance of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, make any payment or do or perform any act required of Borrower hereunder in such manner and to such extent as Lender may deem necessary to protect the security hereof. Subject to the terms of the Mortgage Loan Agreement, Lender is authorized to enter upon the Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Property for such purposes, and the cost and expense thereof (including reasonable attorneys’ fees to the extent permitted by law), with interest as provided in this Section 8.3, shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such costs and expenses incurred by Lender in remedying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any action or proceeding shall bear interest at the Default Rate, for the period after such cost or expense was incurred until the date of payment to Lender and shall be deemed to constitute a portion of the Debt and be secured by the liens, claims and security interests provided to Lender under the Loan Documents and shall be immediately due and payable upon demand by Lender therefor.
Section 8.4 Power of Attorney . For the purpose of carrying out the provisions and exercising the rights, powers and privileges granted in this Article 8, Borrower hereby irrevocably appoints Lender as its true and lawful attorney-in-fact to execute, acknowledge and deliver any instruments and do and perform any acts such as are referred to in this Article 8 in the name and on behalf of Borrower. This power of attorney is a power coupled with an interest and cannot be revoked.
Article 9
SALE AND SECURITIZATION OF LOAN
Section 9.1 Sale of Loan and Securitization .
Subject to Section 9.4 hereof:
(a) Agent and Lenders shall have the right (i) to sell or otherwise transfer the Loan or any portion thereof as a whole loan, (ii) to sell participation interests in the Loan, or (iii) to securitize the Loan or any portion thereof in a single asset securitization or a pooled loan securitization. (The transactions referred to in clauses (i) , (ii) and (iii) are each hereinafter referred to as a “ Secondary Market Transaction ” and the transactions referred to in clause (iii) shall hereinafter be referred to as a “ Securitization ”. Any certificates, notes or other securities issued in connection with a Secondary Market Transaction are hereinafter referred to as “ Securities ”). At Agent’s election, each note and/or component comprising the Loan may be subject to one or more Secondary Market Transactions.
(b) If requested by Agent, Borrower shall reasonably cooperate with Agent and assist Agent in satisfying the market standards to which Agent customarily adheres or which may be required in the marketplace, by prospective investors, the Rating Agencies, applicable Legal Requirements and/or otherwise in the marketplace in connection with any Secondary Market Transactions, including to:
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(i) (A) provide updated financial and other information with respect to each Property, the business operated at each Property, Mortgage Borrower, Borrower and the Manager, including, without limitation, the information set forth on Exhibit A attached hereto, (B) provide updated budgets and rent rolls (including itemized percentage of floor area occupied and percentage of aggregate base rent for each Tenant) relating to each Property, and (C) provide updated appraisals, market studies, environmental reviews and reports (Phase I’s and, if appropriate, Phase II’s), property condition reports and other due diligence investigations of each Property (the “ Updated Information ”), together, if customary, with appropriate verification of the Updated Information through letters of auditors or opinions of counsel reasonably acceptable to Agent and the Rating Agencies;
(ii) provide opinions of counsel, which may be relied upon by Agent, trustee in any Securitization, underwriters, NRSROs and their respective counsel, agents and representatives, as to non-consolidation, fraudulent conveyance and true sale or any other opinion customary in Secondary Market Transactions or reasonably required by the Rating Agencies with respect to each Property, the Loan Documents, and Mortgage Borrower, Borrower and its Affiliates, which counsel and opinions shall be reasonably acceptable to Agent and the Rating Agencies;
(iii) provide updated, as of the closing date of any Secondary Market Transaction, representations and warranties made in the Loan Documents and such additional representations and warranties as the Rating Agencies may require; and
(iv) (A) review any Disclosure Document or any interim draft thereof furnished by Agent to Borrower with respect to information contained therein that was furnished to Agent by or on behalf of Mortgage Borrower or Borrower in connection with the preparation of such Disclosure Document or in connection with the underwriting or closing of the Loan, including financial statements of Mortgage Borrower, Borrower and Guarantor, operating statements and rent rolls with respect to the Properties, and (B) within three (3) Business Days following Borrower’s receipt thereof, provide to Agent in writing any revisions to such Disclosure Document or interim draft thereof necessary or advisable to insure that such reviewed information does not contain any untrue statement of a material fact or omit to state any material fact necessary to make statements contained therein not misleading.
(c) If, at the time a Disclosure Document is being prepared for a Securitization, Agent reasonably expects that Borrower alone or Borrower and one or more Affiliates of Borrower (including any guarantor or other Person that is directly or indirectly committed by contract or otherwise to make payments on all or a part of the Loan and taking into account the Mortgage Loan which Borrower agrees is a Related Loan) collectively, or the Properties alone or the Properties and Related Properties collectively, will be a Significant Obligor, Borrower shall furnish to Agent upon request the following financial information:
(i) if Agent expects that the principal amount of the Loan together with any Related Loans, as of the cut-off date for such Securitization, may equal or exceed ten percent (10%) (but less than twenty percent (20%)) of the aggregate principal amount of all mortgage loans included or expected to be included in the Securitization, net operating income for each Property and the Related Properties for the most recent Fiscal Year and interim period as required under Item 1112(b)(1) of Regulation AB (or, if the Loan is not treated as a non-recourse loan under Instruction 3 for Item 1101(k) of Regulation AB, selected financial data meeting the requirements and covering the time periods specified in Item 301 of Regulation S-K and Item 1112(b)(1) of Regulation AB), or
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(ii) if Agent expects that the principal amount of the Loan together with any Related Loans, as of the cut-off date for such Securitization, may equal or exceed twenty percent (20%) of the aggregate principal amount of all mortgage loans included or expected to be included in the Securitization, the financial statements required under Item 1112(b)(2) of Regulation AB (which includes, but may not be limited to, a balance sheet with respect to the entity that Agent determines to be a Significant Obligor for the two most recent Fiscal Years and applicable interim periods, meeting the requirements of Rule 3-01 of Regulation S-X, and statements of income and statements of cash flows with respect to each Property for the three most recent Fiscal Years and applicable interim periods, meeting the requirements of Rule 3-02 of Regulation S-X (or if Agent determines that the Properties are the Significant Obligor and the Properties (other than properties that are hotels, nursing homes, or other properties that would be deemed to constitute a business and not real estate under Regulation S-X or other legal requirements) were acquired from an unaffiliated third party and the other conditions set forth in Rule 3-14 of Regulation S-X have been met, the financial statements required by Rule 3-14 of Regulation S-X)).
(d) Further, if requested by Agent, Borrower shall, promptly upon Agent’s request, furnish to Agent financial data or financial statements meeting the requirements of Item 1112(b)(1) or (2) of Regulation AB, as specified by Agent, for any Tenant under any Lease at any Property if, in connection with a Securitization, Agent expects there to be, as of the cutoff date for such Securitization, a concentration with respect to such Tenant or group of Affiliated Tenants under any Lease within all of the mortgage loans included or expected to be included in the Securitization such that such Tenant or group of Affiliated Tenants under any Lease would constitute a Significant Obligor. Borrower shall furnish to Agent, in connection with the preparation of the Disclosure Documents and on an ongoing basis, financial data and/or financial statements with respect to such Tenants under any Lease meeting the requirements of Item 1112(b)(1) or (2) of Regulation AB, as specified by Agent, but only for so long as such entity or entities are a Significant Obligor and either (x) filings pursuant to the Exchange Act in connection with or relating to the Securitization (an “ Exchange Act Filing ”) are required to be made under applicable Legal Requirements or (y) comparable information is required to otherwise be “available” to holders of the Securities under Regulation AB or applicable Legal Requirements.
(e) If Agent reasonably determines that Borrower alone or Borrower and one or more Affiliates of Borrower collectively, or the Properties alone or the Properties and Related Properties collectively, are a Significant Obligor, then Borrower shall furnish to Agent, on an ongoing basis, selected financial data or financial statements meeting the requirements of Item 1112(b)(1) or (2) of Regulation AB, as specified by Agent, but only for so long as such entity or entities are a Significant Obligor and either (x) Exchange Act Filings are required to be made under applicable Legal Requirements or (y) comparable information is required to otherwise be “available” to holders of the Securities under Regulation AB or applicable Legal Requirements.
(f) Any financial data or financial statements provided pursuant to this Section 9.1 shall be furnished to Agent within the following time periods:
(i) with respect to information requested in connection with the preparation of Disclosure Documents for a Securitization, within ten (10) Business Days after notice from Agent; and
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(ii) with respect to ongoing information required under Section 9.1(d) and (e) above, (1) not later than thirty (30) days after the end of each fiscal quarter of Borrower and (2) not later than seventy-five (75) days after the end of each Fiscal Year of Borrower.
(g) If requested by Agent, Borrower shall provide Agent, promptly, and in any event within five (5) Business Days following Agent’s request therefor, with any other or additional financial statements, or financial, statistical or operating information, as Agent shall reasonably determine to be required pursuant to Regulation S-K or Regulation S-X, as applicable, Regulation AB, or any amendment, modification or replacement thereto or other Legal Requirements relating to a Securitization or as shall otherwise be reasonably requested by the Agent.
(h) If requested by Agent, whether in connection with a Securitization or at any time thereafter during which the Loan and any Related Loans are included in a Securitization, but not more than three times within any twelve (12) month period, Borrower shall provide Agent, within five (5) days after Agent’s request, a list of Tenants (including all affiliates of such Tenants) that in the aggregate of all the Properties (1) occupy 10% or more (but less than 20%) of the total floor area of the improvements or represent 10% or more (but less than 20%) of aggregate base rent, and (2) occupy 20% or more of the total floor area of the improvements or represent 20% or more of aggregate base rent.
(i) All financial statements provided by Borrower pursuant to this Section 9.1(c) , (d) , (e) or (f) shall be prepared in accordance with GAAP, and shall meet the requirements of Regulation S-K or Regulation S-X, as applicable, Regulation AB, and other applicable Legal Requirements. All financial statements relating to a Fiscal Year shall be audited by Independent Accountants in accordance with generally accepted auditing standards, Regulation S-X or Regulation S-K, as applicable, Regulation AB, and all other applicable Legal Requirements, shall be accompanied by the manually executed report of the Independent Accountants thereon, which report shall meet the requirements of Regulation S-K or Regulation S-X, as applicable, Regulation AB, and all other applicable Legal Requirements, and shall be further accompanied by a manually executed written consent of the Independent Accountants, in form and substance reasonably acceptable to Agent, to the inclusion of such financial statements in any Disclosure Document and any Exchange Act Filing and to the use of the name of such Independent Accountants and the reference to such Independent Accountants as “experts” in any Disclosure Document and Exchange Act Filing (or comparable information is required to otherwise be available to holders of the Securities under Regulation AB or applicable Legal Requirements), all of which shall be provided at the same time as the related financial statements are required to be provided. All other financial statements shall be certified by the chief financial officer or other authorized representative (whose function is similar to that of a chief financial officer) of Borrower, which certification shall state that such financial statements meet the requirements set forth in the first sentence of this paragraph.
(j) In connection with any Secondary Market Transaction, Agent shall have the right, and Borrower hereby authorizes Agent, to disclose any and all information in Agent’s possession regarding Borrower, Guarantor, any Manager, any Property and/or the Loan in any Disclosure Document, in any promotional or marketing materials that are prepared by or on behalf of Agent in connection with such Secondary Market Transaction or in connection with any oral or written presentation made by or on behalf of Agent, including without limitation, to any actual or potential investors and any Rating Agencies and other NRSROs.
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(k) Agent shall provide Borrower with prior written notice if Regulation S-K, Regulation S-X or Regulation AB is applicable pursuant to a Securitization.
(l) If, pursuant to Securitization of the Mortgage Loan, Mortgage Borrower is obligated to furnish financial information pursuant to Section 9.1(c) of the Mortgage Loan Agreement, Borrower shall furnish such information to Agent simultaneously with delivery of such information to Mortgage Borrower, whether or not the Loan is subject to a Securitization.
Section 9.2 Securitization Indemnification .
(a) Borrower understands that information provided to Agent by Borrower and their agents, counsel and representatives relating to Mortgage Borrower, Borrower, Guarantor, their respective constituent owners, and the Properties (such information, whether provided pursuant to Section 9.1 above or otherwise in connection with the Loan, collectively, the “ Borrower Provided Information ”; which “Borrower Provided Information” shall be deemed not to include (i) an untrue statement of any material fact contained in Borrower Provided Third Party Report, except to the extent Borrower or Guarantor had actual knowledge at the time Borrower or Guarantor provided Borrower Provided Third Party Report that Borrower Provided Third Party Report contained such untrue statement of material fact and Borrower failed to alert Agent to same, or (ii) an omission of a material fact in Borrower Provided Third Party Report (which omission shall be deemed material if such fact should have been included in Borrower Provided Third Party Report in order to make the statements, in light of the circumstances under which they were made, not misleading), except to the extent Borrower or Guarantor had actual knowledge at the time Borrower or Guarantor provided Borrower Provided Third Party Report that Borrower Provided Third Party Report reflected such omission and Borrower failed to alert Agent to same) may be included in preliminary and final disclosure documents in connection with any Secondary Market Transaction, including a Securitization, including an offering circular, a prospectus, prospectus supplement, private placement memorandum or other offering document (each, a “ Disclosure Document ”) and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “ Securities Act ”), or the Securities and Exchange Act of 1934, as amended (the “ Exchange Act ”), and may be made available to investors or prospective investors in the Securities, investment banking firms, NRSROs, accounting firms, law firms and other third-party advisory and service providers relating to any Secondary Market Transaction, including a Securitization. Borrower also understands that the findings and conclusions of any third-party due diligence report obtained by the Agent, the Issuer or the Securitization placement agent or underwriter may be made publicly available if required, and in the manner prescribed, by Section 15E(s)(4)(A) of the Exchange Act and any rules promulgated thereunder.
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(b) Borrower hereby agrees to indemnify Agent (and for purposes of this Section 9.2 , Agent shall include the initial agent, initial lenders, their successors and assigns, and their respective officers and directors) and each Person who controls the Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “ Lender Group ”), the issuer of the Securities (the “ Issuer ” and for purposes of this Section 9.2 , Issuer shall include its officers, director and each Person who controls the Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and any placement agent or underwriter with respect to the Securitization, each of their respective officers and directors and each Person who controls the placement agent or underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “ Underwriter Group ”) for any actual losses, claims, damages or liabilities (collectively, the “ Liabilities ”) to which Agent, Lenders, the Lender Group, the Issuer or the Underwriter Group may become subject insofar as the Liabilities arise out of, or are based upon, (A) any untrue statement or alleged untrue statement of any material fact contained in the Borrower Provided Information, (B) the omission or alleged omission to state therein a material fact required to be stated in Borrower Provided Information or necessary in order to make the statements in Borrower Provided Information, in light of the circumstances under which they were made, not misleading, or (C) a breach of the representations and warranties made by Borrower in Section 3.1.31 of this Agreement (Full and Accurate Disclosure); except, in each case, that (I) Borrower’s obligation to indemnify for any Liabilities that arise in connection with a Disclosure Document that derives in part from information contained in Borrower Provided Information and in part from information either prepared by the Lender Group, the Issuer, the Underwriter Group or any other Person shall be limited to any untrue statement or omission of material fact contained in Borrower Provided Information known to Borrower that results directly from the Borrower Provided Information (or omission from the Borrower Provided Information) and (II) Borrower shall have no responsibility for (w) any statements contained in any Disclosure Document to which Borrower or its authorized representative have objected to (or requested changes to) in writing to Agent or that were derived from Borrower Provided Third Party Reports, (x) numbers which have been submitted by Borrower and adjusted by any Indemnified Person from those submitted by Borrower, to the extent of such adjustment, (y) third party reports, such as environmental and physical condition reports that do not constitute Borrower Provided Third Party Reports, and (z) any financial projections. Borrower also agrees to reimburse Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group for any actual legal or other expenses reasonably incurred by Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group in connection with investigating or defending the Liabilities. Borrower’s liability under this paragraph will be limited to Liability that arises out of, or is based upon, an untrue statement or omission made in reliance upon, and in conformity with, information furnished to Agent by or on behalf of Borrower in connection with the preparation of the Disclosure Document or in connection with the underwriting or closing of the Loan, including financial statements of Borrower, Mortgage Borrower and Guarantor, operating statements and rent rolls with respect to the Properties. This indemnification provision will be in addition to any liability which Borrower may otherwise have. Borrower acknowledges and agrees that any Person that is included in the Lender Group, the Issuer and/or the Underwriter Group that is not a direct party to this Agreement shall be deemed to be a third-party beneficiary to this Agreement with respect to this Section 9.2(b) .
(c) In connection with any Exchange Act Filing or other reports containing comparable information that is required to be made “available” to holders of the Securities under Regulation AB or applicable Legal Requirements, Borrower agrees to (i) indemnify Agent, Lenders, the Lender Group, the Issuer and the Underwriter Group for Liabilities to which Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group may become subject insofar as the Liabilities arise out of, or are based upon, an alleged untrue statement or alleged omission or an untrue statement or omission made in reliance upon, and in conformity with, Borrower Provided Information furnished to Agent by or on behalf of Borrower in connection with the preparation of the Disclosure Document or in connection with the underwriting or closing of the Loan, including financial statements of Borrower, Mortgage Borrower or Guarantor, operating statements and rent rolls with respect to any Property, and (ii) reimburse Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group for any actual legal or other expenses reasonably incurred by Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group in connection with defending or investigating the Liabilities.
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(d) Promptly after receipt by an indemnified party under this Section 9.2 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9.2 , notify the indemnifying party in writing of the commencement thereof, but the omission to so notify the indemnifying party will not relieve the indemnifying party from any liability which the indemnifying party may have to any indemnified party hereunder except to the extent that failure to notify causes prejudice to the indemnifying party. In the event that any action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled, jointly with any other indemnifying party, to participate therein and, to the extent that it (or they) may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party pursuant to the immediately preceding sentence of this Section 9.2(d) , such indemnifying party shall not pay for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are any legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party at the cost of the indemnifying party. The indemnifying party shall not be liable for the expenses of more than one separate counsel unless an indemnified party shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to any other indemnified party. Without the prior written consent of Agent (which consent shall not be unreasonably withheld or delayed), no indemnifying party shall settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action, suit or proceeding) unless the indemnifying party shall have given Agent reasonable prior written notice thereof and shall have obtained an unconditional release of each indemnified party hereunder from all liability arising out of such claim, action, suit or proceedings, and such settlement requires no statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of the indemnified party.
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(e) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 9.2(b) or (c) is for any reason held to be unenforceable as to an indemnified party in respect of any Liabilities (or action in respect thereof) referred to therein which would otherwise be indemnifiable under Section 9.2(b) or (c) , the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Liabilities (or action in respect thereof); provided, however, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (i) the Issuer’s and applicable Borrower’s relative knowledge and access to information concerning the matter with respect to which the claim was asserted; (ii) the opportunity to correct and prevent any statement or omission; and (iii) any other equitable considerations appropriate in the circumstances. Agent and Borrower hereby agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation. In no event shall Borrower be required to indemnify an indemnified party with respect to any matter to the extent arising from the gross negligence or willful misconduct of an indemnified party.
(f) The liabilities and obligations of both Borrower and Agent under this Section 9.2 shall survive the termination of this Agreement and the satisfaction and discharge of the Debt.
Section 9.3 Severance . Subject to Section 9.4 hereof:
9.3.1 Severance Documentation . Agent, without in any way limiting Agent’s other rights hereunder, in its sole and absolute discretion, shall have the right, at any time (whether prior to or after any sale, participation or Securitization of all or any portion of the Loan), to require Borrower (at no material cost to Borrower) to execute and deliver “component” notes and/or modify the Loan in order to create one or more senior and subordinate notes (i.e., a senior/junior or senior/junior/junior-most mezzanine loan structure) and/or one or more additional components of the Note or Notes (including the implementation of one or more New Mezzanine Loans (in accordance with Section 9.3.2 below)), reduce the number of components of the Note or Notes, revise the interest rate for each component, reallocate the principal balances of the Notes and/or the components, increase or decrease the monthly debt service payments for each component or eliminate the component structure and/or the multiple note structure of the Loan (including the elimination of the related allocations of principal and interest payments), provided that (a) the Outstanding Principal Balance of all components immediately after the effective date of such modification equals the Outstanding Principal Balance immediately prior to such modification and the weighted average of the interest rates for all components immediately after the effective date of such modification equals the interest rate of the original Note immediately prior to such modification, (b) the obligations of Borrower shall not be materially increased hereby and (c) such “component” notes and/or senior and subordinate notes shall be structured such that permitted prepayments (other than prepayments made in connection with a Casualty or Condemnation) shall not, provided no Event of Default is then continuing, result in any “rate creep”. At Agent’s election, each note comprising the Loan may be subject to one or more Securitizations. Agent shall have the right to modify the Note and/or Notes and any components in accordance with this Section 9.3 and, provided that such modification shall comply with the terms of this Section 9.3 , it shall become immediately effective.
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9.3.2 New Mezzanine Loan Option . Agent, without in any way limiting Agent’s other rights hereunder, in its sole and absolute discretion, shall have the right, at any time (whether prior to or after any Secondary Market Transaction), to create one or more mezzanine loans (each, a “ New Mezzanine Loan ”), to establish different interest rates and to reallocate the Outstanding Principal Balance and monthly debt service payments for the Loan to the Loan and such New Mezzanine Loan(s) and to require the payment of the Loan and any New Mezzanine Loan(s) in such order of priority as may be designated by Agent; provided , (A) that the outstanding principal balance of the Loan and such New Mezzanine Loan(s) immediately after the effective date of the creation of such New Mezzanine Loan(s) equals the Outstanding Principal Balance immediately prior to such modification and the weighted average of the interest rates for the Loan and such New Mezzanine Loan(s) immediately after the effective date of the creation of such New Mezzanine Loan(s) equals the interest rate of the original Note immediately prior to such modification, (B) the Loan and such New Mezzanine Loan(s) shall be structured such that permitted prepayments (other than prepayments made in connection with a Casualty or Condemnation) shall not, provided no Event of Default is then continuing, result in any “rate creep” and (C) the creation of such New Mezzanine Loan shall not result in a material increase of Borrower’s obligations hereunder. Borrower shall cause the formation of one or more special purpose, bankruptcy remote entities as required by Agent in order to serve as the borrower under any New Mezzanine Loan (each, a “ New Mezzanine Loan Borrower ”) and the applicable organizational documents of Borrower shall be amended and modified as necessary or required in the formation of any New Mezzanine Loan Borrower to substantially conform to the organizational documents of Borrower as of the Closing Date, including “Article 8 opt in” provisions, the creation of certificated interests and the use of independent managers for each New Mezzanine Loan Borrower.
9.3.3 Cooperation; Execution; Delivery . Borrower shall reasonably cooperate with all reasonable requests of Agent in connection with this Section 9.3 . If requested by Agent, Borrower shall promptly execute and deliver such documents as shall be reasonably required by Agent and requested by any Rating Agency in connection with any modification or New Mezzanine Loan pursuant to this Section 9.3 , all in form and substance reasonably satisfactory to Agent and Borrower and satisfactory to any applicable Rating Agency, including, the severance of security documents if requested and/or, in connection with the creation of any New Mezzanine Loan: (i) execution and delivery of a promissory note, certificated interests and loan documents necessary to evidence such New Mezzanine Loan, (ii) execution and delivery of such amendments to the Loan Documents as are necessary in connection with the creation of such New Mezzanine Loan, (iii) delivery of opinions of legal counsel with respect to due execution, authority and enforceability of any modification documents or documents evidencing or securing any New Mezzanine Loan, as applicable and (iv) with respect to any New Mezzanine Loan, delivery of an additional Insolvency Opinion for the Loan and a substantive non-consolidation opinion; each as reasonably acceptable to Agent, prospective investors and/or the Rating Agencies. In the event Borrower fails to execute and deliver such documents to Agent within five (5) Business Days following such request by Agent, Borrower hereby absolutely and irrevocably appoints Agent as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect such transactions, Borrower hereby ratifying all that such attorney shall do by virtue thereof. It shall be an Event of Default under this Agreement, the Note, the Pledge Agreement and the other Loan Documents if Borrower fails to comply with any of the terms, covenants or conditions of this Section 9.3 after expiration of ten (10) Business Days after notice thereof.
Section 9.4 Costs and Expenses . Notwithstanding anything to the contrary contained in this Article 9 , Borrower shall not be required to incur any material costs or expenses in the performance of its obligations under Sections 9.1, 9.2 or 9.3 above (including the reasonable fees and expenses of Borrower’s accountants, consultants and counsel) in excess of $10,000.
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Article 10
MISCELLANEOUS
Section 10.1 Exculpation .
(a) Subject to the qualifications below, Agent shall not enforce the liability and obligation of Borrower to perform and observe the Obligations contained in the Note, this Agreement, the Pledge Agreement or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Agent may bring an Equity Collateral Enforcement Action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its (and the Lenders’) interest under the Note, this Agreement, the Pledge Agreement and the other Loan Documents, or in all or any of the Collateral or any other collateral given to Agent (on behalf of Lenders) pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower’s interest in the Collateral and in any other collateral given to Agent (on behalf of Lenders), and Agent (on behalf of Lenders), by accepting the Note, this Agreement, the Pledge Agreement and the other Loan Documents, shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under or by reason of or under or in connection with the Note, this Agreement, the Pledge Agreement or the other Loan Documents. The provisions of this Section 10.1 shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Agent to name Borrower as a party defendant in any action or suit for foreclosure and sale under the Pledge Agreement; (c) affect the validity or enforceability of any of the Loan Documents or any guaranty made in connection with the Loan or any of the rights and remedies of Agent and Lenders thereunder; (d) impair the right of Agent to exercise its rights under the Pledge Agreement to exercise voting control over the Pledged Equity Interests prior to the completion of a UCC foreclosure sale; (e) impair the enforcement of any Loan Documents; (f) impair the enforcement of the Environmental Indemnity; (g) constitute a prohibition against Agent to seek a deficiency judgment against Borrower in order to fully realize the security granted by the Pledge Agreement or to commence any other appropriate action or proceeding in order for Agent to exercise its remedies against all or any of the Collateral; or (h) constitute a waiver of the right of Agent to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage (excluding punitive damages except in the case of punitive damages paid by Agent or any Lender to a third party where such damages do not directly arise as a result of the acts of Agent), cost, expense, liability, claim or other obligation actually incurred by Agent or any Lender (including reasonable attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following (all such liability and obligation of Borrower for any or all of the following being referred to herein as “ Borrower’s Recourse Liabilities ”):
(i) fraud, willful misconduct, intentional misrepresentation of a material fact known to any Borrower Affiliate or failure to disclose a material fact known to any Borrower Affiliate by or on behalf of any Borrower Affiliate, including by reason of any claim under the Racketeer Influenced and Corrupt Organizations Act (RICO);
(ii) the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity;
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(iii) wrongful removal or destruction of any portion of any Property or damage to any Property caused by willful misconduct or gross negligence of Borrower Affiliate;
(iv) any physical waste of any of the Properties by any Borrower Affiliate;
(v) the forfeiture by any Borrower Affiliate of any Property or any Collateral, or any portion thereof, because of the conduct or purported conduct of criminal activity by any Borrower Affiliate or any of their respective agents or representatives in connection therewith;
(vi) the misappropriation or conversion by or on behalf of any Borrower Affiliate of (A) any Insurance Proceeds paid by reason of any loss, damage or destruction to any Property or any Net Liquidation Proceeds After Debt Service, (B) any Awards or other amounts received in connection with the Condemnation of all or a portion of any Property, (C) any Gross Revenues (including Rents, Insurance Proceeds, security deposits, advance deposits or any other deposits and Lease Termination Payments), (D) any other funds due under the Loan Documents, including, in connection with any of the foregoing, by reason of failure to comply with Section 6.1 hereof or breach of the Cash Management Agreement, or (E) any dividends or distributions by Mortgage Borrower;
(vii) failure to pay charges for labor or materials or other charges that can create Liens on any portion of any Property, other than charges incurred by or on behalf of Agent or a receiver put in place by Agent, subject to Permitted Encumbrances, or on any portion of the Collateral, subject to the Lien of the Loan Documents;
(viii) the failure to pay (A) Taxes unless (x) Rents received during the tax period in question are insufficient to pay all of Mortgage Borrower’s current and/or past due liabilities (including such Taxes) with respect to the Properties or (y) funds to pay such Taxes were, at the time in question, available in the Tax Account and neither Borrower nor Mortgage Borrower has attempted to delay, prevent, enjoin or otherwise disrupt or interfere with the payment of such sums and Agent failed to pay (or make such Tax Funds available to pay) such Taxes or (B) transfer taxes incurred by any Lender Party in connection with an Equity Collateral Enforcement Action under the Pledge Agreement or under any other Loan Documents (it being agreed that, although Borrower shall be responsible for any transfer taxes incurred in connection with the transfer of title pursuant to a foreclosure, assignment in lieu of foreclosure or similar exercise of remedies, Borrower shall not be responsible for any transfer taxes incurred by a Lender Party in connection with a subsequent sale of all or any portion of the Collateral after such Lender Party shall have so acquired title to such Collateral);
(ix) failure to obtain and maintain the fully paid for Policies in accordance with Section 5.1.1 hereof; unless (x) Rents received during the period in question are insufficient to pay all of Mortgage Borrower’s current and/or past due liabilities (including such Policies) with respect to the Properties or (y) funds to pay such Insurance Premiums were, at the time in question, available in the Insurance Account and neither Borrower nor Mortgage Borrower has attempted to delay, prevent, enjoin or otherwise disrupt or interfere with the payment of such sums and Agent failed to pay (or make such Insurance Funds available to pay) such Insurance Premiums;
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(x) Borrower’s indemnification of Agent set forth in Section 9.2 hereof;
(xi) any (A) actual or alleged violation or breach of any applicable Rent Regulation Laws (including any actual or alleged overcharges in, or rollback to, rent payable by any current or former Tenant) and/or (B) any breach of the covenants set forth in Section 4.33 hereof;
(xii) a breach of the covenants set forth in Section 4.4 hereof (other than those breaches covered by clause (i) of the Springing Recourse Events below, and breaches of the covenants set forth in clauses (f) and (i) in the definition of “Special Purpose Bankruptcy Remote Entity” attached hereto as Schedule V );
(xiii) any cost or expense incurred by Agent or any Lender in connection with the enforcement of its rights and remedies hereunder or under any other Loan Document;
(xiv) the loss or impairment of the lien and/or security interest of the Pledge Agreement, or the priority thereof, against the Collateral (or any part thereof) as a result of the intentional acts or intentional omissions of any Borrower Affiliate;
(xv) any amendment or modification of (A) any of the Borrower Organizational Documents or Mortgage Borrower Organizational Documents without the prior written consent of Agent or (B) any agreement for which Agent has approval rights under the Loan Documents (a “ Material Agreement ”) without the prior written consent of Agent to the extent such prior written consent is required by the Loan Documents; and/or
(xvi) any liabilities and obligations of Borrower or Mortgage Borrower arising out of:
(A) indemnification obligations accrued in favor of any Borrower Affiliate on or prior to any acquisition of title to the Collateral pursuant to a UCC foreclosure sale, a UCC strict foreclosure, an assignment in lieu of foreclosure or other enforcement action under the Loan Documents (collectively, an “ Equity Collateral Enforcement Action ”; and the date on which an Equity Collateral Enforcement Action is consummated, an “ Equity Collateral Transfer Date ”);
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(B) any obligation of any Borrower Affiliate accruing prior to, on or after the Equity Collateral Transfer Date to pay (1) legal fees to legal counsel engaged by Borrower Affiliate prior to the Equity Collateral Transfer Date, (2) amounts due under any Affiliate Agreement (unless such Affiliate Agreement has been assumed in writing by the Person acquiring the Collateral on or after the Equity Collateral Transfer Date), or (3) amounts due under any non-Affiliate Agreement that has been entered into without the prior written approval of Agent to the extent such prior written approval was required under the Loan Documents (unless such non-Affiliate Agreement has been assumed in writing by the Person acquiring the Collateral on or after the Equity Collateral Transfer Date), but in all events excluding any liability or obligation in connection with: (w) the Mortgage Loan, other than any indemnified obligations or claims under the Mortgage Loan for actions, conditions or events that occurred prior to the Equity Collateral Transfer Date, (x) any Lease existing on the Closing Date or entered into after the Closing Date in accordance with the Loan Documents, (y) prospective liabilities for capital expenditures for the Properties approved by Agent pursuant to the Loan Agreement, unless lender or Mortgage Lender has funded such amounts and such funded amounts were not utilized by Borrower or Mortgage Borrower to pay such capital expenditures, and (z) unpaid expenses incurred by Mortgage Borrower to Persons that are not Borrower Affiliates in the ordinary course of business with respect to the Properties for up to sixty (60) days preceding the Equity Collateral Transfer Date not to exceed $250,000 in the aggregate and not to include amounts covered by clause (C) below;
(C) the cost of all unpaid Taxes, debt service (other than the principal amount of the Mortgage Loan on account of acceleration thereof by the Mortgage Lender) and other payments due under the Mortgage Loan, Operating Expenses and Other Charges until the Equity Collateral Transfer Date, provided that, with respect to Taxes, Operating Expenses and Other Charges, only to the extent that there was sufficient cash flow from the Property to pay same and such amounts were not paid by Mortgage Borrower or Borrower;
(xvii) any dividend or distribution made in violation of Section 4.36 hereof;
(xviii) any breach of any representation, warranty or covenant set forth in Sections 4(b), (c), (d), and (j) or Sections 5(a), (b), (c), (d), (e) and (g) of the Pledge Agreement; and/or
(xix) any losses, damages, costs, expenses, liabilities, claims or other obligations imposed upon or incurred by or asserted against Agent or any Lender arising out of or in any way relating to the Equinox Litigation.
(b) Notwithstanding anything to the contrary in this Agreement or any of the other Loan Documents, (A) neither Agent nor any Lender shall be deemed to have waived any right which Agent or any Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Obligations or to require that all collateral shall continue to secure all of the Obligations owing to Lender in accordance with the Loan Documents, and (B) the Obligations shall be fully recourse to Borrower in the event that any of the following occur (each, a “ Springing Recourse Event ”):
(i) either (x) a breach of the covenant set forth in Section 4.4 hereof or a breach by any Mortgage Borrower of the “special purpose entity” covenants contained in the applicable Mortgage Loan Documents, in each case with respect to clause (d) of the definition of Special Purpose Bankruptcy Remote Entity (or the equivalent with respect to the Mortgage Loan Documents), that results in the substantive consolidation of the assets and liabilities of Borrower or Mortgage Borrower with any other Person as a result of such breach, or (y) a breach of the covenants set forth in Section 4.4 hereof with respect to clauses (a), (b), (l) and (n) of the definition of Special Purpose Bankruptcy Remote Entity (“ Specific SPE Covenants ”) or a breach by Mortgage Borrower of the “special purpose entity” covenants contained in the applicable Mortgage Loan Documents relating to the Specific SPE Covenants;
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(ii) Borrower fails to obtain Agent’s prior consent to any subordinate financing secured by the Property or other voluntary Lien encumbering the Property directly or indirectly (to the extent Agent consent is required pursuant to this Agreement);
(iii) Borrower fails to obtain Agent’s prior consent to any Transfer of the Collateral or the Property or any interest therein or any Transfer of any direct or indirect interest in Borrower, in either case as required by this Agreement other than a Permitted Transfer;
(iv) Borrower, Mortgage Borrower or any Guarantor files a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;
(v) Mortgage Borrower is substantively consolidated with any other Person or Borrower is substantively consolidated with another Person; unless such consolidation was involuntary and not consented to by Borrower, Mortgage Borrower or any Guarantor and is discharged, stayed or dismissed within thirty (30) days following the occurrence of such consolidation;
(vi) the filing of an involuntary petition against Borrower, any Guarantor or Mortgage Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by any other Person in which Borrower, any Guarantor or Mortgage Borrower colludes with or otherwise assists such Person, and/or Borrower, any Guarantor and/or Mortgage Borrower solicits or causes to be solicited petitioning creditors for any involuntary petition against Borrower, any Guarantor or Mortgage Borrower by any Person;
(vii) Borrower, any Guarantor or Mortgage Borrower files an answer consenting to, or otherwise acquiescing in, or joining in, any involuntary petition filed against it by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;
(viii) Borrower or any Affiliate, officer, director or representative which controls Borrower or any Guarantor consents to, or acquiesces in, or joins in (other than at Agent’s express written request), an application for the appointment of a custodian, receiver, trustee or examiner for Borrower or Guarantor or any portion of the Collateral owned by Borrower;
(ix) Borrower or any Guarantor makes an assignment for the benefit of creditors or admits, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due which admission is used as evidence of Borrower’s or such Guarantor’s insolvency in connection with an involuntary petition filed against Borrower or such Guarantor under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by a Person other than Agent (provided, that if Borrower admits in writing to Agent, any Lender or any servicer of the Loan that (A) Borrower cannot cause the Mortgage Borrower to pay expenses of operating the Property, (B) Borrower cannot pay amounts due under the Loan or (C) Borrower cannot refinance the Loan on the Maturity Date, and Borrower does not make any other admission in writing other than those described in clauses (A) - (C), such admission shall not constitute Borrower’s “admitting in writing its insolvency or inability to pay its debts as they become due”);
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(x) if Borrower Affiliate, in connection with any enforcement action or exercise or assertion of any right or remedy by or on behalf of Agent or any Lender under or in connection with the Guaranty, the Note, the Pledge Agreement or any other Loan Document, seeks a defense, judicial intervention or injunctive or other equitable relief of any kind, or asserts in a pleading filed in connection with a judicial proceeding or an Equity Collateral Enforcement Action any defense against Agent or any Lender or any right in connection with any security for the Loan, except for defenses and counterclaims raised in good faith; or
(xi) Borrower, any Guarantor or Borrower Affiliate contests or opposes any motion made by Agent or Lender to obtain relief from the automatic stay or seeks to reinstate the automatic stay in the event of any federal, state or foreign bankruptcy or insolvency proceeding involving Borrower, Mortgage Borrower or any Guarantor.
Section 10.2 Survival; Successors and Assigns . This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lenders of the Loan and the execution and delivery to Lenders of the Note, and shall continue in full force and effect so long as all or any of the Obligations are outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Agent and Lenders.
Section 10.3 Agent’s Discretion; Rating Agency Review Waiver .
(a) Whenever pursuant to this Agreement Agent exercises any right given to it to approve or disapprove any matter, or any arrangement or term is to be satisfactory to Agent, the decision of Agent to approve or disapprove such matter or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Agent and shall be final and conclusive. Prior to a Securitization, whenever pursuant to this Agreement the Rating Agencies are given any right to approve or disapprove any matter, or any arrangement or term is to be satisfactory to the Rating Agencies, the decision of Agent to approve or disapprove such matter or to decide whether arrangements or terms are satisfactory or not satisfactory, based upon Agent’s determination of Rating Agency criteria, shall be substituted therefor.
(b) Whenever, pursuant to this Agreement or any other Loan Documents, a Rating Agency Confirmation is required from each applicable Rating Agency, in the event that any applicable Rating Agency “declines review”, “waives review” or otherwise indicates in writing or otherwise to Agent’s or Servicer’s satisfaction that no Rating Agency Confirmation will or needs to be issued with respect to the matter in question (each, a “ Review Waiver ”), then the Rating Agency Confirmation requirement shall be deemed to be satisfied with respect to such matter. It is expressly agreed and understood, however, that receipt of a Review Waiver (i) from any one Rating Agency shall not be binding or apply with respect to any other Rating Agency and (ii) with respect to one matter shall not apply or be deemed to apply to any subsequent matter for which Rating Agency Confirmation is required.
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(c) Prior to a Securitization or in the event that there is a Review Waiver, if Agent does not have a separate and independent approval right with respect to the matter in question, then the term Rating Agency Confirmation shall be deemed instead to require the prior written consent of Agent.
Section 10.4 Governing Law .
(a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY AGENT AND LENDERS AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED ACCORDING TO, THE LAW OF THE STATE, COMMONWEALTH OR DISTRICT, AS APPLICABLE, IN WHICH THE PROPERTIES LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, COMMONWEALTH OR DISTRICT, AS APPLICABLE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
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(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST AGENT, ANY LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY AT AGENT’S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND BORROWER, AGENT AND EACH LENDER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER, AGENT AND EACH LENDER HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER AGREES THAT SERVICE OF PROCESS UPON BORROWER AT THE ADDRESS FOR BORROWER SET FORTH HEREIN AND WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO AGENT OF ANY CHANGE IN THE ADDRESS FOR BORROWER SET FORTH HEREIN, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE AN AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE AN AUTHORIZED AGENT IF BORROWER CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION WHERE COLLATERAL IS LOCATED.
Section 10.5 Modification, Waiver in Writing . No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party or parties against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on, Borrower shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Neither any failure nor any delay on the part of Agent in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder or under any other Loan Document, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement or any other Loan Document, Agent shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Agent shall have the right to waive or reduce any time periods that Agent is entitled to under the Loan Documents in its sole and absolute discretion.
Section 10.6 Notices . All notices, demands, requests, consents, approvals or other communications (any of the foregoing, a “ Notice ”) required, permitted or desired to be given hereunder shall be in writing and shall be sent by facsimile (with answer back acknowledged) or by “PDF” or by registered or certified mail, postage prepaid, return receipt requested, or delivered by hand or by reputable overnight courier, addressed to the party to be so notified at its address hereinafter set forth, or to such other address as such party may hereafter specify in accordance with the provisions of this Section 10.6 . Any Notice shall be deemed to have been received: (a) three (3) days after the date such Notice is mailed, (b) on the date of sending by facsimile or “PDF” if sent during business hours on a Business Day (otherwise on the next Business Day), (c) on the date of delivery by hand if delivered during business hours on a Business Day (otherwise on the next Business Day), and (d) on the next Business Day if sent by an overnight commercial courier, in each case addressed to the parties as follows:
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If to Agent: | 50 Murray Mezz Funding LLC |
c/o SL Green Realty Corp. | |
420 Lexington Avenue | |
New York, New York 10170 | |
Attention: Andrew Levine | |
E-mail: andrew.levine@slgreen.com | |
Facsimile No.: (212) 356-4135 | |
with a copy to: | 50 Murray Mezz Funding LLC |
c/o SL Green Realty Corp. | |
420 Lexington Avenue | |
New York, New York 10170 | |
Attention: Andrew Falk | |
E-mail: andrew.falk@slgreen.com | |
Facsimile No.: (212) 216-1785 | |
with a copy to: | Allen & Overy LLP |
1221 Avenue of the Americas | |
New York, NY 10020 | |
Attention: Kevin J. O’Shea, Esq. | |
E-mail: kevin.o’shea@allenovery.com | |
Facsimile No.: (212) 610-6399 | |
If to Lender: | at their respective Applicable Lending Office set forth opposite their signatures hereto. |
If to Borrower: | Clipper Equity LLC |
46-11 12th Avenue, Suite 1L | |
Brooklyn, New York 11219 | |
Attention: David Bistricer | |
E-mail: david@clipperequity.com | |
Facsimile No.: (718) 438-1290 | |
with copies to: | Sukenik, Segal & Graff, P.C. |
450 Seventh Avenue, 42nd Floor, | |
New York, New York 10123 | |
Attention: Josh Graff, Esq. | |
Facsimile No. (212) 779-8095 |
Any party may change the address to which any such Notice is to be delivered by furnishing ten (10) days written notice of such change to the other parties in accordance with the provisions of this Section 10.6 . Notices shall be deemed to have been given on the date as set forth above, even if there is an inability to actually deliver any such Notice because of a changed address of which no Notice was given, or there is a rejection or refusal to accept any Notice offered for delivery. Notice for any party may be given by its respective counsel. Additionally, Notice from Agent may also be given by Servicer and Agent hereby acknowledges and agrees that Borrower shall be entitled to rely on any Notice given by Servicer as if it had been sent by Agent.
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Section 10.7 Waiver of Trial by Jury . BORROWER, AGENT AND EACH LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AGENT AND EACH LENDER AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER.
Section 10.8 Headings, Schedules and Exhibits . The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof.
Section 10.9 Severability . Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
Section 10.10 Preferences . Agent shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the Obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Agent, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Agent.
Section 10.11 Waiver of Notice . Borrower shall not be entitled to any notices of any nature whatsoever from Agent except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Agent to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Agent with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Agent to Borrower.
Section 10.12 Remedies of Borrower . In the event that a claim or adjudication is made that Agent or its agents have acted unreasonably or unreasonably delayed acting in any case where, by law or under this Agreement or the other Loan Documents, Agent or such agent, as the case may be, has an obligation to act reasonably or promptly, neither Agent nor its agents shall be liable for any monetary damages and Borrower’s sole remedy shall be limited to commencing an action seeking injunctive relief or declaratory judgment. Any action or proceeding to determine whether Agent has acted reasonably shall be determined by an action seeking declaratory judgment.
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Section 10.13 Offsets, Counterclaims and Defenses . Any assignee of Agent’s or any Lender’s interest in and to this Agreement and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by one or more Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower.
Section 10.14 No Joint Venture or Partnership; No Third Party Beneficiaries .
(a) Borrower and Agent (on behalf of Lenders) intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common or joint tenancy relationship between Borrower, Agent and/or any Lender or to grant Agent and/or any Lender any interest in the Properties or Collateral other than that of secured party, beneficiary or lender.
(a) The Loan Documents are solely for the benefit of Agent (on behalf of Lenders) and Borrower (and the Lender Group, the Issuer and the Underwriter Group with respect to Section 9.2(b) ) and nothing contained in any Loan Document shall be deemed to confer upon anyone other than the Agent, Lenders and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained therein.
Section 10.15 Publicity . All news releases, publicity or advertising by either party through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Agent, Lenders, the Affiliate of any Lender that acts as the issuer with respect to a Securitization or any of their other Affiliates (x) shall be prohibited prior to the final Securitization of the Loan and (y) after the final Securitization of the Loan, shall be subject to the prior written approval of the other party; provided, however, that the foregoing shall not prohibit (a) Agent from issuing customary “tombstone” advertisements with respect to the Loan, (b) any customary disclosure by Agent or its Affiliates related to or arising out of a Securitization or Secondary Market Transaction involving the Loan or the New Mezzanine Loan, or (c) any disclosure required by Legal Requirements, including the Exchange Act, to which Agent or any Lender may be subject.
Section 10.16 Waiver of Marshalling of Assets . To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower’s members or partners, as applicable, and others with interests in Borrower, and of any Property, and shall not assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Agent (on behalf of Lenders) under the Loan Documents to a sale of any Collateral for the collection of the Obligations without any prior or different resort for collection, or of the right of Agent (on behalf of Lenders) to the payment of the Obligations out of the net proceeds of any Collateral in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Collateral, any equitable right otherwise available to Borrower which would require the separate sale of any part of the Collateral or require Lender to exhaust its remedies against any part of the Collateral or any combination of the Collateral before proceeding against any other part of the Collateral or combination of the Collateral; and further in the event of such foreclosure Borrower does hereby expressly consents to and authorizes, at the option of Lender, the foreclosure and sale either separately or together of any combination of the Collateral.
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Section 10.17 Certain Waivers . Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Agent, any Lender or their agents or otherwise to offset any obligations to make the payments required by the Loan Documents. No failure by Agent to perform any of its obligations hereunder shall be a valid defense to, or result in any offset against, any payments which Borrower is obligated to make under any of the Loan Documents. Without limiting any of the other provisions contained herein, Borrower hereby unconditionally and irrevocably waives, to the maximum extent not prohibited by applicable law, any rights it may have to claim or recover against Agent or any Lender in any legal action or proceeding any special, exemplary, punitive or consequential damages.
Section 10.18 Conflict; Construction of Documents; Reliance . In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own judgment and advisors in entering into the Loan, without relying in any manner on any statements, representations or recommendations of Agent, any Lender or any parent, subsidiary or affiliate of Agent or any Lender. Agent shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or affiliate of Agent of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Agent’s exercise of any such rights or remedies. Borrower acknowledges that Agent engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates.
Section 10.19 Brokers and Financial Advisors . Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower shall indemnify, defend and hold Agent and each Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind (including Agent’s and each Lender’s reasonable attorneys’ fees and expenses) in any way relating to or arising out of a claim by any Person that such Person acted on behalf of Borrower, Agent or any Lender (unless it is determined that such Person is alleged to be owed solely due to engagement by or through Agent or any Lender) in connection with the transactions contemplated herein. The provisions of this Section 10.19 shall survive the expiration and termination of this Agreement and the payment of the Obligations.
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Section 10.20 Prior Agreements . This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto and their respective affiliates in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, including any confidentiality agreements or any similar agreements between or among any such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents.
Section 10.21 Servicer .
(a) At the option of Agent, the Loan may be serviced by a servicer or special servicer (the “ Servicer ”) selected by Agent and Agent may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the “ Servicing Agreement ”) between Agent and Servicer. Borrower shall not be responsible for any set-up fees or any other initial costs relating to or arising under the Servicing Agreement. Borrower shall not be responsible for payment of any monthly or annual master servicing fee due to the Servicer under the Servicing Agreement.
(b) Other than as set forth in Section 10.21(a) above, Borrower shall pay all of the fees and expenses of the Servicer and any reasonable third-party fees and expenses in connection with the Loan, including any prepayments, approvals under the Loan Documents, requested by Borrower, other requests under the Loan, assumption of Borrower’s obligations or modification of the Loan, as well as any fees and expenses in connection with the special servicing or work-out of the Loan or enforcement of the Loan Documents, including special servicing fees, operating or trust advisor fees (if the Loan is a specially serviced loan or in connection with a workout), work-out fees, liquidation fees, attorneys’ fees and expenses and other fees and expenses in connection with the modification or restructuring of the Loan.
Section 10.22 Intentionally Omitted .
Section 10.23 Creation of Security Interest . Notwithstanding any other provision set forth in this Agreement, the Note, the Pledge Agreement or any of the other Loan Documents, Agent may at any time create a security interest in all or any portion of its rights under this Agreement, the Note, the Pledge Agreement and any other Loan Document (including the advances owing to it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.
Section 10.24 Taxes . Any and all payments by Borrower hereunder and under the other Loan Documents shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on Agent’s or any Lender’s income, and franchise taxes imposed on Agent or any Lender by the law or regulation of any Governmental Authority (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to in this Section 10.24 as “ Applicable Taxes ”). If Borrower shall be required by law to deduct any Applicable Taxes from or in respect of any sum payable hereunder to Agent (on behalf of Lender), the following shall apply: (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 10.24 ), such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Payments pursuant to this Section 10.24 shall be made within ten (10) days after the date Agent makes written demand therefor.
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Section 10.25 Waiver of Rights, Defenses and Claims . Borrower hereby unconditionally and irrevocably waives all rights, defenses and claims that Borrower may have based on the fact that certain terms and provisions of the Mortgage Loan Agreement, including without limitation certain definitions set forth in Section 1.1 of the Mortgage Loan Agreement, are incorporated into this Agreement by reference.
Section 10.26 Cross Default; Cross Collateralization . Borrower acknowledges that Lenders have made the Loan to Borrower upon the security of its collective interest in the Collateral and in reliance upon the aggregate of the Collateral (and, indirectly, the Properties) taken together being of greater value as collateral security than the sum of the Collateral (and, indirectly, the Properties) taken separately. Borrower agrees that the Collateral is and will be structurally cross-collateralized and cross-defaulted since the Pledged Equity Interests in each Property will both be pledged together under the Pledge Agreement.
Section 10.27 Intentionally Omitted .
Section 10.28 Counterparts . 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 shall together constitute one and the same instrument.
Section 10.29 Set-Off . In addition to any rights and remedies of Agent and Lenders provided by this Agreement and by law, Agent shall have the right in its sole discretion, without prior notice to Borrower, any such notice being expressly waived by Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Agent, any Lender or any Affiliate thereof to or for the credit or the account of Borrower; provided however, Agent may only exercise such right during the continuance of an Event of Default. Agent agrees promptly to notify Borrower after any such set-off and application made by Agent; provided that the failure to give such notice shall not affect the validity of such set-off and application.
Section 10.30 Modification, Waiver in Writing; Approvals .
(a) Subject to the additional requirements of Section 10.30(c) through (i) , no modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement or of any other Loan Document shall be effective unless the same shall be in a writing signed by Agent and, in the case of modifications and amendments, Borrower, and then such waiver or consent shall be effective only in the specific instance, and for the purpose for which given. Neither any failure nor any delay on the part of Agent or any Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder or under any other Loan Document, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement or any other Loan Document, neither Agent nor any Lender shall be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Agent shall have the right to waive or reduce any time periods that Lenders and/or Agent is entitled to under the Loan Documents in its sole and absolute discretion.
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(b) Subject to Section 10.30(c) through (i) hereof, Agent may make, give or take any consent, approval, waiver, amendment, decision, or other action pursuant to the Loan Documents without the approval of any Lender. Notwithstanding the preceding sentence, Agent shall have the right to (i) request instructions from Lenders with respect to any approval, consent, waiver, decision or other action or (ii) in its sole and absolute discretion, rely upon such instructions (or refrain from taking any action in the absence thereof) in performing its duties hereunder, and any action taken or failure to act pursuant thereto shall be binding on all Lenders. With respect to any action or other matter arising in connection with an Event of Default, to the extent the Lenders have consented to the exercise of rights and remedies by the Agent on their behalf or with the deemed consent or approval of the Lenders, Agent shall be permitted to take any related action (or refrain from taking any action) to enforce and carry out such rights and remedies of Agent and Lenders under the Loan Documents on account of such Event of Default. Notwithstanding anything to the contrary contained herein, Agent may refrain from doing anything (including disclosing any information) which might, in its good faith determination, constitute a breach of any law or expose Agent to any civil or criminal liability. Wherever this Agreement specifies a minimum period of notice to be given to Agent, Agent may, in its discretion, accept a shorter notice period.
(c) Borrower hereby acknowledges and agrees that notwithstanding the fact that the Loan may be serviced by Servicer, prior to a Securitization of the entire Loan, all requests for approval and consents hereunder and in every instance in which Lenders’ consent or approval is required, all copies of documents, reports, requests and other delivery obligations of Borrower and Guarantor required hereunder shall be delivered by Borrower or Guarantor, as applicable, to Agent.
(d) In the event a decision with respect to any action affecting the Loan (a “ Decision ”) is required to be made, Agent shall promptly so notify each Lender (each such notice, a “ Decision Notice ”). The Decision Notice shall (i) set forth Agent’s recommendation as to the proposed course of action or decision with respect to such Decision, (ii) include all information in Agent’s possession that Agent reasonably believes is necessary for Lenders to make a decision and (iii) ask for the approval of Lenders with respect to such course of action or decision and (iv) set forth the specific date by which Lenders’ approval or disapproval of the action or decision recommended in the Decision Notice must be given. In the event Agent does not receive from any Lender written approval or disapproval of the action or decision recommended in the Decision Notice within ten (10) Business Days (or by such shorter period as may be requested by Borrower or Agent in accordance with the Loan Documents or is otherwise required by the terms of the Loan Documents or by Agent if Agent in good faith reasonably believes a more prompt response is necessary or appropriate and such shorter period is set forth in the Decision Notice, but which shall in no event be fewer than three (3) Business Days from the date of delivery of the Decision Notice) of the date on which Agent has delivered such Decision Notice to the Lenders, then Agent shall send such Lender a second reminder notice. Each second reminder notice shall, at the top of such notice, set forth a legend in all caps and bolded text as follows: “THIS IS A REMINDER NOTICE RELATING TO AN ACTION OR DECISION CONCERNING THE LOAN WITH RESPECT TO 53 PARK PLACE AND 110 CHURCH STREET IN NEW YORK, NEW YORK, RECOMMENDED BY AGENT IN THAT CERTAIN NOTICE DATED AS OF [_______]. IF AGENT DOES NOT RECEIVE A WRITTEN APPROVAL OR DISAPPROVAL FROM THE ADDRESSEE OF SUCH ACTION OR DECISION WITHIN TWO (2) BUSINESS DAYS AFTER THE DATE HEREOF, WHICH DATE IS [_______], SUCH ADDRESSEE SHALL BE DEEMED TO HAVE APPROVED SUCH ACTION OR DECISION.” If Agent does not receive from any Lender written approval or disapproval of the action or decision recommended in the original Decision Notice within two (2) Business Days after the second reminder notice, such Lender shall be deemed to have approved the action or decision proposed therein.
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(e) Agent may, at any time, and must, if requested to do so by the Lenders, convene a meeting of Lenders.
(f) The Lenders shall have the right to cause a vote to be taken with respect to any Decision. Upon the taking of such vote and the obtaining of approval or disapproval of the Lenders, the Agent shall then be required to act, or not to act, in accordance with such Lender approval or disapproval.
(g) In the event that the Lenders approve the commencement of a foreclosure or other exercise of remedies, Agent shall declare the outstanding principal balance of the Loan, all interest thereon and all other amounts payable under the Loan Documents to be immediately due and payable and shall promptly commence and complete such foreclosure or other exercise of remedies; provided that such action is not stayed by any bankruptcy or insolvency proceeding or any other injunction or court order. If, after commencing such foreclosure, Agent is directed to cease such action or to take another course of action by the Lenders under the terms of this Agreement, Agent shall follow such direction. In the event that the Lenders have not approved the commencement of a foreclosure or other exercise of remedies within the initial ninety (90) days following the occurrence of an Event of Default, then Agent shall be permitted, without the consent of the Lenders to exercise any remedy available at law or equity including, without limitation, to (i) accelerate the Loan, (ii) commence and diligently pursue a foreclosure proceeding and/or (iii) exercise such other remedies as are appropriate.
(h) No modification of any provision of the Loan Documents, or consent to any departure by Borrower therefrom, shall modify any provision of the Loan Documents relating to the Agent without the written consent of the Agent and Borrower.
(i) Agent shall have the right to provide, in a separate agreement between Agent and certain Lenders, that only the consent of a certain percentage of Lenders shall be required with respect to certain Decisions.
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Section 10.31 Assignments and Participations .
(a) Subject to Section 10.31(a)(ii) below, at the assignor Lender’s sole cost and provided that the economic and other terms of the Loan shall remain the same for Borrower and Guarantor, with the prior consent of Agent, which consent not to be unreasonably withheld, conditioned or delayed, any Lender may at any time assign and delegate to one or more Qualified Lenders (each an “ Assignee ”) all or any part of such Lender’s rights and obligations under this Agreement (including all or a portion of its Ratable Share of the Loan at the time owing to it) and the other Obligations held by such Lender hereunder; provided , however , that Borrower and Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to Borrower and Agent by such Lender and the Assignee and such assignment shall have been recorded in the Register in accordance with Section 10.31(a)(ii) , (ii) such Lender and its Assignee shall have delivered to Borrower and Agent an assignment and acceptance agreement in the form attached hereto as Schedule XIV (or such other form as may be modified by Agent, an “ Assignment and Acceptance ”) with such changes thereto as are reasonably acceptable to Agent with respect to such assignment, sale, negotiation, pledge, hypothecation or other transfer and are in compliance with this Section 10.31 , and (iii) the Assignee has paid to the Agent a processing fee in the amount of Three Thousand Five Hundred and No/100 Dollars ($3,500.00). Notwithstanding the foregoing, no written consent of Agent shall be required (i) in connection with any assignment and delegation by a Lender to an Affiliate of such Lender or to another Lender or its Affiliate, (ii) in connection with any Securitization, or (iii) in connection with the assignment, transfer, sale, or pledge of all or any portion of its rights or obligations in and to the Loan under any repurchase or warehouse facility (including any assignment or pledge of the Loan to the Federal Home Loan Bank system or a preferred equity transaction related to the Loan by the Federal Home Loan Bank system). During the continuance of an Event of Default any Lender may assign and delegate to any Person, regardless of whether such Person is a Qualified Lender. Any assignment and delegation pursuant to this Section 10.31(a)(i) shall be at Lender’s sole cost and shall not subject Borrower or Guarantor to any cost or increased liability under the terms of the Loan Documents. For so long as an Affiliate of SLG is a Lender under the Loan, SLG, or an Affiliate thereof shall continue to act as Agent. Nothing contained in this Section 10.31(a) shall be deemed to restrict a Lender’s right to sell a participation of up to 100% of its interest; provided , however , that a participation of 100% of the initial Lender’s interest in the Loan shall not relieve the obligation for an Affiliate SLG to remain Agent hereunder to the extent required hereunder.
(i) From and after the date that Agent notifies the assignor Lender and Borrower that it has received an executed Assignment and Acceptance Agreement and payment of the above-referenced processing fee: (A) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned to it pursuant to such Assignment and Acceptance Agreement, shall have the rights and obligations of a Lender under the Loan Documents, (B) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it and assumed by the Assignee pursuant to such Assignment and Acceptance Agreement, relinquish its rights and be released from its obligations under the Loan Documents (but shall be entitled to indemnification as otherwise provided in this Agreement with respect to any events occurring prior to the assignment) and (C) this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Ratable Share of each Lender resulting therefrom.
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(ii) Borrower, Agent and Lender shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Ratable Share of the Loan listed therein for all purposes hereof, and no assignment or transfer of any such Ratable Share of the Loan shall be effective, in each case, unless and until receipt by Agent of a fully executed Assignment and Acceptance Agreement effecting the assignment or transfer thereof, together with the required forms and certificates regarding tax matters and any fees payable in connection with such assignment, in each case, as provided in Section 10.31(a) . Each assignment shall be recorded in the Register promptly following receipt by Agent of the fully executed Assignment and Acceptance Agreement and all other necessary documents and approvals, prompt notice thereof shall be provided to Borrower and a copy of such Assignment and Acceptance Agreement shall be maintained, as applicable. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding absent manifest error on any subsequent holder, assignee or transferee of the corresponding portion of the Loan.
(b) Within ten (10) Business Days after its receipt of an executed Assignment and Acceptance Agreement and notice by the Agent that it has received payment of the processing fee (which notice shall also be sent by the Agent to each Lender), Borrower shall, if requested by the Assignee, execute and deliver to Agent, new Notes (in substantially the same form and substance as the original notes) evidencing such Assignee’s portion of the Loan, provided that the applicable original notes are returned to Borrower.
(c) If any assignee, participant or other transferee of the Loan or any portion thereof or interest therein requests in writing, at such assignee’s, participants or other transferee’s sole cost, Borrower shall deliver to such Person updated opinions of Borrower’s and Guarantor’s New York counsel with respect to the enforceability, due authorization and due execution of any new Loan Documents entered into in connection with the related assignment, participation or transfer, which opinions shall be in substantially the same form as the opinions delivered as of the Closing Date, and dated as of such date as the updated opinions are delivered, as modified as required to properly render such updated opinions on such date and updated, and shall be addressed, for purposes of reliance thereon, to such assignee, participant or transferee, as applicable.
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(d) Upon assignment, all references to the assignor Lender in this Agreement and in any Loan Document shall be deemed to refer to such Assignee or successor in interest and such Assignee or successor in interest shall thereafter stand in the place of such assignor Lender in all respects. Notwithstanding anything to the contrary in the preceding sentence, Borrower agrees that each participant shall be entitled to the benefits of Section 2.9 to the same extent as if it were Lender and had acquired its interest by assignment; provided that such participant shall not be entitled to receive any greater payment under Section 2.9 , with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a change in law that occurs after the participant acquired the applicable participation. Agent, acting solely for this purpose as an agent of Borrower, shall maintain at one of its offices in the United States of America a copy of each assignment delivered to it and a register for the recordation of the names and addresses of Lenders and each of Lenders’ assignees and the principal amount (and stated interest) on the Loan owing to Lenders and each of Lenders’ assignees pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive absent manifest error, and Borrower, Lender and Agent shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower and Lenders, at any reasonable time and from time to time upon reasonable prior notice. If a Lender sells a participation, such Lender shall, acting solely for this purpose as an agent of Borrower, maintain a register on which it enters the name and address of each participant and the principal amount (and stated interest) of each participant’s interest in the Loan or other obligations under the Loan Documents (the “ Participant Register ”); provided that such Lender shall not have any obligation to disclose all or any portion of the Participant Register (including the identity of any participant or any information relating to a participant’s interest in the Loan or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that the Loan or other obligation is in registered form under Section 5f.103-1(c) of the U.S. Department of Treasury regulations. The entries in the Participant Register shall be conclusive absent manifest error, and Lenders shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.
(e) Borrower acknowledges and agrees that Agent and each Lender may provide to any actual or proposed Assignee originals or copies of this Agreement, any other Loan Documents and any other documents, instruments, certificates, opinions, insurance policies, financial statements and other information, letters of credit, reports, requisitions and other materials and information at any time submitted by or on behalf of Borrower, Mortgage Borrower, Guarantor or other Persons and/or received by Agent or any Lender in connection with the Loan, provided that with respect to materials from Guarantor not otherwise required to be delivered by Guarantor under the Guaranty, any such proposed Assignee agrees to keep all such materials and information confidential.
Section 10.32 Intercreditor Agreement .
Lender and Mortgage Lender are parties to a certain intercreditor agreement dated as of the date hereof (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “ Intercreditor Agreement ”) memorializing their relative rights and obligations with respect to the Loan, the Mortgage Loan, Borrower, Mortgage Borrower, the Collateral and the Property. Borrower hereby acknowledges and agrees that (a) such Intercreditor Agreement is intended solely for the benefit of Lender and Mortgage Lender and (b) no Borrower Affiliate is an intended third-party beneficiary of any of the provisions therein and no such Person shall be entitled to rely on any of the provisions contained therein. Lender and Mortgage Lender shall have no obligation to disclose to any Borrower Affiliate the contents of the Intercreditor Agreement. Borrower’s obligations hereunder are independent of such Intercreditor Agreement and remain unmodified by the terms and provisions thereof. In the event Lender is required pursuant to the terms of the Intercreditor Agreement to pay over to Mortgage Lender any payment or distribution of assets, whether in cash, property or securities which otherwise would have been applied to the Debt, including, without limitation, any proceeds of the Property previously received by Lender on account of the Loan, then Borrower agrees to indemnify Lender for any amounts so paid, and any amount so paid shall continue to be owing pursuant to the Loan Documents as part of the Debt notwithstanding the prior receipt of such payment by Lender.
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Section 10.33 Mortgage Loan Defaults .
10.33.1 Borrower agrees to notify Lender promptly upon the occurrence of any Mortgage Loan Default. If any Mortgage Loan Default occurs, Borrower agrees that Lender shall have the immediate right, without prior notice to Borrower, but shall be under no obligation to (A) pay all or any part of the Mortgage Loan and any other sums that are then due and payable, and perform any act or take any action on behalf of Borrower and/or Mortgage Borrower as may be appropriate, to cause all of the terms, covenants and conditions of the Mortgage Loan Documents on the part of Mortgage Borrower to be performed or observed thereunder to be promptly performed or observed, and (B) pay any other amounts and take any other action as Lender, in its sole and absolute discretion, shall deem advisable to protect or preserve the rights and interests of Lender in the Loan and/or the Collateral. Borrower shall not impede, interfere with, hinder or delay, and shall not permit Mortgage Borrower to impede, interfere with, hinder or delay, any effort or action on the part of Lender to cure any Mortgage Loan Default or asserted Mortgage Loan Default, or to otherwise protect or preserve Lender’s interests in the Loan and the Collateral following a Mortgage Loan Default or asserted Mortgage Loan Default.
10.33.2 Borrower hereby grants Lender and its designees the right to enter upon the Property at any time following the occurrence and during the continuance of any Mortgage Loan Default, or the assertion by Mortgage Lender that a Mortgage Loan Default has occurred, for the purpose of taking any such action or to appear in, defend or bring any action or proceeding to protect Lender’s interest. Lender may take such action as Lender deems reasonably necessary or desirable to carry out the intents and purposes of this subsection (including communicating with Mortgage Lender with respect to any Mortgage Loan Defaults), without prior notice to, or consent from, Borrower or Mortgage Borrower. Lender shall have no obligation to complete any cure or attempted cure undertaken or commenced by Lender.
10.33.3 All sums so paid and the costs and expenses incurred by Lender in exercising rights under this Section 10.33 (including its reasonable attorneys’ fees and costs) (A) shall be added to the Debt, (B) shall bear interest at the Default Rate for the period from the date that such costs or expenses were incurred to the date of payment to Lender, and (C) shall be secured by the Pledge Agreement. Borrower hereby indemnifies Lender from and against all losses of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender as a result of the foregoing actions. In the event that Lender makes any payment in respect of the Mortgage Loan, Lender shall be subrogated to all of the rights of Mortgage Lender under the Mortgage Loan Documents against the Property, in addition to all other rights it may have under the Loan Documents.
10.33.4 If Lender shall receive a copy of any notice of a Mortgage Loan Default sent by Mortgage Lender, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender, in good faith, in reliance thereon. As a material inducement to Lender’s making the Loan, Borrower hereby absolutely and unconditionally releases and waives all claims against Lender arising out of Lender’s exercise of its rights and remedies provided in this Section 10.33.4, except for Lender’s gross negligence or willful misconduct.
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Section 10.34 Discussions with Mortgage Lender . If Lender shall receive a copy of any notice of a Mortgage Loan Default sent by Mortgage Lender, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender, in good faith, in reliance thereon. As a material inducement to Lender’s making the Loan, Borrower hereby absolutely and unconditionally releases and waives all claims against Lender arising out of Lender’s exercise of its rights and remedies provided in this Section 10.34 , except for Lender’s gross negligence or willful misconduct.
Section 10.35 Independent Approval Rights . If any action, proposed action or other decision is consented to or approved by Mortgage Lender, such consent or approval shall not be binding or controlling on Lender. Borrower hereby acknowledges and agrees that (a) the risks of Mortgage Lender in making the Mortgage Loan are different from the risks of Lender in making the Loan, (b) in determining whether to grant, deny, withhold or condition any requested consent or approval, Mortgage Lender and Lender may reasonably reach different conclusions, and (c) Lender has an absolute independent right to grant, deny, withhold or condition any requested consent or approval based on its own point of view, but subject to the standards of consent set forth herein. Furthermore, the denial by Lender of a requested consent or approval shall not create any liability or other obligation of Lender if the denial of such consent or approval results directly or indirectly in a Mortgage Loan Default, and Borrower hereby waives any claim of liability against Lender arising from any such denial unless Lender has not complied with any applicable standard for consent. The rights described above may be exercised by any entity which owns and controls, directly or indirectly, substantially all of the interests in Lender.
Section 10.36 Acknowledgement and Consent to Bail-In of EEA Financial Institutions .
(a) Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among the respective parties thereto, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(i) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(ii) the effects of any Bail-in Action on any such liability, including, if applicable:
(A) a reduction in full or in part or cancellation of any such liability;
(B) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
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(C) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
(b) As used in this Section 10.36 the following terms have the following meanings ascribed thereto: (i) “ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution; (ii)“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule; (iii) “ EEA Financial Institution ” means (x) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority; (y) any entity established in an EEA Member Country which is a parent of an institution described in clause (x) of this definition, or (x) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (x) or (y) of this definition and is subject to consolidated supervision with its parent; (iv) “ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway or any other member state of the European Economic Area; (v) “ EEA Resolution Authority ” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution; (vi) “ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time; and (vii) “ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
Article 11
AGENT
Section 11.1 Appointment and Authorization .
(a) Each Lender hereby irrevocably designates and appoints Agent as the administrative agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes Agent, as the administrative agent for such Lender, to take such action on its behalf and in Agent’s designated capacity under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto and Borrower shall be entitled to rely on any decision, action or notice given to or by Agent and Agent’s sole decision-making authority with respect to all matters related to “Lender” with respect to the Loan Documents without any further notice to or consent from any other Lender. Notwithstanding any provision to the contrary elsewhere in this Agreement and the other Loan Documents, Agent shall not have any duties or responsibilities, except those expressly set forth herein or therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent.
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(b) Subject to Section 10.31 , no individual Lender or group of Lenders shall have any right to modify or waive, or consent to the departure of any party from any provision of any Loan Document, or secure or enforce the Obligations. All such rights, on behalf of Agent or any Lender or Lenders, shall be held and exercised solely by and at the option of Agent for the Ratable benefit of Lenders. Except as expressly otherwise provided in this Agreement or the other Loan Documents, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions on behalf of Lenders which Agent is expressly entitled to exercise or take under this Agreement or the other Loan Documents, including (i) the determination if and to what extent matters or items subject to Agent’s satisfaction are acceptable or otherwise within its discretion, (ii) the making of Administrative Agent Advances, and (iii) the exercise of remedies under this Agreement or any other Loan Document, and any action so taken or not taken shall be deemed consented to by Lenders.
(c) In case of the pendency of any bankruptcy, receivership, insolvency, liquidation, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to Borrower, no individual Lender or group of Lenders shall have the right, and Agent (irrespective of whether the principal of the Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Agent shall have made any demand on Borrower) shall to the extent given such rights under the Loan Documents, be exclusively entitled and empowered on behalf of itself and Lenders, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loan and all other Obligations that are then owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of Lenders and Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of Lender and Agent and their respective counsel and all other amounts, in each case, due Lender and Agent hereunder allowed in such judicial proceeding;
(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same pursuant to the Loan Documents; and
(iii) any custodian, receiver, assignee, trustee, liquidator, conservator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to Agent and, in the event that Agent shall consent to the making of such payments directly to Lender, to pay to Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agent and its counsel, and any other amounts, in each case, due Agent hereunder. Nothing contained herein shall be deemed to authorize Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of Lender except as approved by the Lenders or to authorize Agent to vote in respect of the claims of Lenders except as approved by the Lenders in any such proceeding.
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Section 11.2 Delegation of Duties . Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in fact selected by it with reasonable care.
Section 11.3 Exculpatory Provisions . Neither Agent nor any of its officers, directors, employees, agents, attorneys in fact or affiliates shall be (i) liable to any Lender or Borrower or Guarantor for any action lawfully taken or omitted to be taken by it or such Person or Persons under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person or Persons’ own gross negligence or willful misconduct) or (ii) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by Borrower or Guarantor or any officer thereof contained in any Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of Borrower or Guarantor to perform its obligations thereunder. Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Borrower.
Section 11.4 Reliance by Agent . Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrower and/or Guarantor), independent accountants and other experts selected by Agent. Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with this Agreement and all actions required in connection with such transfer shall have been taken. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of one hundred percent (100%) of Lenders (or any other instructing group of Lenders specified by this Agreement or by a separate agreement between Agent and any Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of one hundred percent (100%) of Lenders (or any other instructing group of Lenders specified by this Agreement or by a separate agreement between Agent and any Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders and all future holders of all or any interest in the Loan.
Section 11.5 Notice of Default . Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default under the Loan Documents unless Agent shall have received notice from a Lender or Borrower, describing such Default or Event of Default and stating that such notice is a “notice of default”. In the event that Agent shall receive such a notice, Agent shall promptly give notice thereof to Lenders. Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Lenders (or any other instructing group of Lenders specified by this Agreement or by a separate agreement between Agent and any Lenders); provided that unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of Lenders.
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Section 11.6 Non-Reliance on Agent and Other Lenders . Each Lender expressly acknowledges that neither Agent nor any of its respective officers, directors, employees, agents, attorneys in fact or affiliates have made any representations or warranties to it and that no act by Agent hereafter taken, including any review of the affairs of Borrower or any affiliate of Borrower, shall be deemed to constitute any representation or warranty by Agent to Lender. Each Lender represents to Agent that it has, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of any investigation into the business, operations, property, financial and other condition and creditworthiness of Borrower and its Affiliates and made its own decision to make its Ratable Share of the Loan hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Borrower and its Affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lender by Agent hereunder, Agent shall not have any duty or responsibility to provide Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of Borrower or any Affiliate of Borrower that may come into the possession of Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.
Section 11.7 Indemnification . Lenders agree to indemnify Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting any obligation of Borrower to do so pursuant to the Loan Documents), ratably according to their respective Ratable Share on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Loan shall have been paid in full, ratably in accordance with such Ratable Share immediately prior to such date), for, and to save Agent harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (including, without limitation, at any time following the payment of the Loan) be imposed on, incurred by or asserted against Agent in any way relating to or arising out of, the Loan, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from Agent’s gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Debt and the termination of this Agreement.
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Section 11.8 Agent in its Individual Capacity . Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with Borrower or any Affiliate of Borrower as though Agent were not administrative agent hereunder. With respect to the Ratable Share of the Loan made or held by it at any time, Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Agent, and the terms “Lender” and “Lenders” shall include Agent in its individual capacity.
Section 11.9 Successor Agent . Agent may resign as administrative agent under this Agreement and the other Loan Documents upon thirty (30) days’ notice to Lenders and Borrower; provided, that for so long as SLG is a Lender hereunder, SLG, or an Affiliate thereof, shall be the Agent hereunder unless an Event of Default then exists, in which case SLG need not remain as Agent. The Lenders (which for the purposes thereof, shall not include the pro rata interest of the Lender then serving as Agent) may, upon reasonable written notice to Agent and Borrower, elect to remove Agent if it is determined in a final, non-appealable judgment by a court of competent jurisdiction that Agent has engaged in gross negligence or willful misconduct. If Agent shall resign as administrative agent under this Agreement and the other Loan Documents or if the Lenders shall elect to remove Agent for cause as aforesaid, then, subject to the following sentence, the Lenders shall appoint from among the Lenders (or an Affiliate of any Lender) a successor Agent (with the consent of such successor Agent and notice to Borrower) for Lender, whereupon such successor Agent shall succeed to the rights, powers and duties of Agent, and the term “Agent” shall mean such successor Agent effective upon such appointment, consent and notice, and Agent’s rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Loan. If no successor Agent has accepted appointment as administrative agent by the date that is thirty (30) days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of Agent hereunder until such time, if any, as the Lenders, appoint a successor Agent as provided for above. After any retiring Agent’s resignation hereunder as Agent or removal for cause as aforesaid upon the election of the Lenders, the provisions of the Loan Documents shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents.
Section 11.10 Administrative Agent Advances .
(a) Agent is authorized, from time to time, in Agent’s sole discretion to expend funds to the extent permitted by the Loan Documents, on behalf of Lender (“ Administrative Agent Advances ”), when Agent deems necessary or desirable to preserve or protect the Properties or any portion thereof (including those with respect to property taxes, insurance premiums, and other costs, fees and expenses with respect to operation, leasing, management, improvements, maintenance, repair, sale and disposition) (A) subject to Section 8.2 , during the continuance of an Event of Default, and (B) after acquisition of all or a portion of any Property by foreclosure or other exercise of remedies hereunder.
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(b) Administrative Agent Advances shall constitute obligatory advances of Lender under this Agreement, shall be repayable by Lenders on demand and shall be Obligations that are secured by the Loan Documents, and if unpaid by Lenders, as set forth below, shall bear interest at the rate applicable to such amount under the Loan. Agent shall notify each Lender in writing of each Administrative Agent Advance. Upon receipt of notice from Agent of its making of an Administrative Agent Advance, each Lender shall make the amount of such Lender’s Ratable Share of the outstanding principal amount of the Administrative Agent Advance available to Agent, in same day funds in lawful money of the United States of America, to such account of Agent as Agent may designate on the first Business Day after Agent provides Lender with notice of the making of such Administrative Agent Advance.
Section 11.11 Ratable Share . (i) The liabilities of Lenders shall be several and not joint, (ii) no Lender shall be responsible for the obligations of any other Lender, and (iii) each Lender shall be liable to Borrower only for its respective Ratable Share of the Loan. Notwithstanding anything to the contrary herein, all indemnities by Borrower and obligations for costs, expenses, damages or advances set forth herein shall run to and benefit each Lender in accordance with its Ratable Share.
Section 11.12 Intentionally Omitted .
Section 11.13 Modifications to Article 11 . Borrower, Agent and Lenders acknowledge and agree that the provisions of this Article 11 solely govern the relationship among the Lenders and Agent and do not alter or otherwise modify the provisions of this Agreement applicable to Borrower or otherwise apply to Borrower. The provisions of this Article 11 may be modified without Borrower’s consent so long as such modifications do not alter any of Borrower’s rights or obligations under this Agreement or any of the other Loan Documents or otherwise alter the economic terms of the Loan or the Loan Documents in any manner ( provided , however that Borrower shall be given notice of any such modification).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.
Agent: | ||
50 Murray Mezz Funding LLC , individually and as Agent for one or more Lenders | ||
By: | /s/ Andrew S. Levine | |
Name: Andrew S. Levine, Esq. | ||
Title: Executive Vice President | ||
Lenders: | ||
50 Murray Mezz Funding LLC , | ||
a Delaware limited liability company | ||
By: | /s/ Andrew S. Levine | |
Name: Andrew S. Levine, Esq. | ||
Title: Executive Vice President |
[ signatures continue on following page ]
Signature Page to 50 Murray Street & 53 Park Place First Mezzanine Loan Agreement
Borrower: | |||
50 MURRAY MEZZ LLC , | |||
a Delaware limited liability company | |||
By: | /s/ David Bistricer | ||
Name: | David Bistricer | ||
Title: | Authorized Signatory |
Signature Page to 50 Murray Street & 53 Park Place First Mezzanine Loan Agreement
Exhibit 10.49
LOAN AGREEMENT
Dated as of November 10, 2016
By and Among
50 MURRAY STREET ACQUISITION LLC ,
as Borrower
And
DEUTSCHE BANK AG, NEW YORK BRANCH
,
and any other lending institutions which may from time to time become a party hereto
as Lenders,
And
DEUTSCHE BANK AG, NEW YORK BRANCH
,
as Agent
TABLE OF CONTENTS
Page | ||
Article 1 DEFINITIONS; PRINCIPLES OF CONSTRUCTION | 1 | |
Section 1.1 | Specific Definitions | 1 |
Section 1.2 | Index of Other Definitions | 26 |
Section 1.3 | Principles of Construction | 29 |
Article 2 THE LOAN | 29 | |
Section 2.1 | The Loan | 29 |
2.1.1 | Agreement to Lend and Borrow | 29 |
2.1.2 | Single Disbursement to Borrower | 29 |
2.1.3 | The Note | 29 |
2.1.4 | Use of Proceeds | 29 |
Section 2.2 | Interest Rate | 29 |
2.2.1 | Interest Rate | 29 |
2.2.2 | Default Rate | 30 |
2.2.3 | Interest Calculation | 30 |
2.2.4 | Usury Savings | 31 |
2.2.5 | Breakage Indemnity | 31 |
Section 2.3 | Loan Payments | 31 |
2.3.1 | Payments | 31 |
2.3.2 | Payments Generally | 31 |
2.3.3 | Payment on Maturity Date | 32 |
2.3.4 | Late Payment Charge | 32 |
2.3.5 | Method and Place of Payment | 32 |
2.3.6 | Forwarding of Payments by Agent | 32 |
2.3.7 | Ratable Shares/ Pro Rata Treatment of Payments | 32 |
Section 2.4 | Prepayments | 33 |
2.4.1 | Prepayments | 33 |
2.4.2 | Voluntary Prepayments | 33 |
2.4.3 | Mandatory Prepayments | 33 |
2.4.4 | Prepayments After Default | 33 |
2.4.5 | Prepayment/Repayment Conditions | 34 |
Section 2.5 | Release Upon Payment in Full | 35 |
2.5.1 | Release of Properties | 35 |
2.5.2 | Assignment of Mortgage Lien | 35 |
Section 2.6 | Interest Rate Cap Agreement | 35 |
2.6.1 | Interest Rate Cap Agreement | 35 |
2.6.2 | Pledge and Collateral Assignment | 35 |
2.6.3 | Covenants | 36 |
2.6.4 | Powers of Borrower Prior to an Event of Default | 37 |
2.6.5 | Representations and Warranties | 37 |
2.6.6 | Payments | 38 |
2.6.7 | Remedies | 38 |
2.6.8 | Sales of Rate Cap Collateral | 40 |
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2.6.9 | Public Sales Not Possible | 41 |
2.6.10 | Receipt of Sale Proceeds | 41 |
2.6.11 | Replacement Interest Rate Cap Agreement | 41 |
Section 2.7 | Extension Options | 41 |
2.7.1 | Extension Options | 41 |
2.7.2 | Extension Documentation | 43 |
Section 2.8 | Spread Maintenance Premium | 43 |
Section 2.9 | Regulatory Change; Taxes | 43 |
2.9.1 | Increased Costs | 43 |
2.9.2 | Special Taxes | 44 |
2.9.3 | Other Taxes | 44 |
2.9.4 | Withholding Taxes | 44 |
Section 2.10 | Defaulting Lender | 44 |
Article 3 REPRESENTATIONS AND WARRANTIES | 45 | |
Section 3.1 | Borrower Representations | 45 |
3.1.1 | Organization; Special Purpose | 45 |
3.1.2 | Proceedings; Enforceability | 45 |
3.1.3 | No Conflicts | 45 |
3.1.4 | Litigation | 45 |
3.1.5 | Agreements | 46 |
3.1.6 | Consents | 46 |
3.1.7 | Properties; Title | 46 |
3.1.8 | ERISA; No Plan Assets | 47 |
3.1.9 | Compliance | 48 |
3.1.10 | Financial Information | 48 |
3.1.11 | Easements; Utilities and Public Access | 49 |
3.1.12 | Assignment of Leases | 49 |
3.1.13 | Insurance | 49 |
3.1.14 | Flood Zone | 49 |
3.1.15 | Physical Condition | 49 |
3.1.16 | Boundaries | 49 |
3.1.17 | Leases | 50 |
3.1.18 | Tax Filings | 51 |
3.1.19 | No Fraudulent Transfer | 51 |
3.1.20 | Federal Reserve Regulations | 52 |
3.1.21 | Organizational Chart | 52 |
3.1.22 | Organizational Status | 52 |
3.1.23 | Bank Holding Company | 52 |
3.1.24 | No Casualty | 52 |
3.1.25 | Purchase Options | 52 |
3.1.26 | FIRPTA | 52 |
3.1.27 | Investment Company Act | 52 |
3.1.28 | Fiscal Year | 52 |
3.1.29 | Other Debt | 52 |
3.1.30 | Contracts | 52 |
3.1.31 | Full and Accurate Disclosure | 53 |
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3.1.32 | Other Obligations and Liabilities | 53 |
3.1.33 | Intellectual Property/Websites | 53 |
3.1.34 | Operations Agreements | 53 |
3.1.35 | Illegal Activity | 53 |
3.1.36 | Residential Tax Benefits | 53 |
Section 3.2 | Survival of Representations | 54 |
Article 4 BORROWER COVENANTS | 54 | |
Section 4.1 | Payment and Performance of Obligations | 54 |
Section 4.2 | Due on Sale and Encumbrance; Transfers of Interests | 54 |
Section 4.3 | Liens | 55 |
Section 4.4 | Special Purpose | 55 |
Section 4.5 | Existence; Compliance with Legal Requirements | 55 |
Section 4.6 | Taxes and Other Charges | 56 |
Section 4.7 | Litigation | 56 |
Section 4.8 | Title to the Properties | 56 |
Section 4.9 | Financial Reporting | 56 |
4.9.1 | Generally | 56 |
4.9.2 | Quarterly Reports | 57 |
4.9.3 | Annual Reports | 58 |
4.9.4 | Other Reports | 58 |
4.9.5 | Annual Budget | 59 |
4.9.6 | Extraordinary Operating Expenses | 59 |
4.9.7 | Breach | 60 |
Section 4.10 | Access to Properties | 60 |
Section 4.11 | Leases | 60 |
4.11.1 | Generally | 60 |
4.11.2 | Approvals | 60 |
4.11.3 | Covenants | 62 |
4.11.4 | Security Deposits | 63 |
Section 4.12 | Repairs; Maintenance and Compliance; Alterations | 63 |
4.12.1 | Repairs; Maintenance and Compliance | 63 |
4.12.2 | Alterations | 64 |
Section 4.13 | Approval of Major Contracts | 65 |
Section 4.14 | Property Management | 66 |
4.14.1 | Management Agreement | 66 |
4.14.2 | Prohibition Against Termination or Modification | 66 |
4.14.3 | Replacement of Manager | 66 |
Section 4.15 | Performance by Borrower; Compliance with Agreements | 67 |
Section 4.16 | Licenses; Intellectual Property; Website | 67 |
4.16.1 | Licenses | 67 |
4.16.2 | Intellectual Property | 67 |
4.16.3 | Website | 67 |
Section 4.17 | Further Assurances | 67 |
Section 4.18 | Estoppel Statement | 68 |
Section 4.19 | Notice of Default | 69 |
Section 4.20 | Cooperate in Legal Proceedings | 69 |
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Section 4.21 | Indebtedness | 69 |
Section 4.22 | Business and Operations | 69 |
Section 4.23 | Dissolution | 69 |
Section 4.24 | Debt Cancellation | 70 |
Section 4.25 | Affiliate Transactions | 70 |
Section 4.26 | No Joint Assessment | 70 |
Section 4.27 | Principal Place of Business | 70 |
Section 4.28 | Change of Name, Identity or Structure | 70 |
Section 4.29 | Costs and Expenses | 71 |
Section 4.30 | Indemnity | 72 |
Section 4.31 | ERISA | 72 |
Section 4.32 | Patriot Act Compliance | 73 |
Section 4.33 | Residential Tax Benefits | 74 |
Article 5 INSURANCE, CASUALTY AND CONDEMNATION | 75 | |
Section 5.1 | Insurance | 75 |
5.1.1 | Insurance Policies | 75 |
5.1.2 | Insurance Company | 80 |
Section 5.2 | Casualty | 81 |
Section 5.3 | Condemnation | 82 |
Section 5.4 | Restoration | 82 |
Article 6 CASH MANAGEMENT AND RESERVE FUNDS | 88 | |
Section 6.1 | Cash Management Arrangements | 88 |
Section 6.2 | Required Repairs | 88 |
Section 6.3 | Tax Funds | 88 |
6.3.1 | Deposits of Tax Funds | 88 |
6.3.2 | Release of Tax Funds | 88 |
Section 6.4 | Insurance Funds | 89 |
6.4.1 | Deposits of Insurance Funds | 89 |
6.4.2 | Release of Insurance Funds | 89 |
6.4.3 | Acceptable Blanket Policy | 89 |
Section 6.5 | Capital Expenditure Funds | 89 |
6.5.1 | Deposits of Capital Expenditure Funds | 89 |
6.5.2 | Release of Capital Expenditure Funds | 90 |
Section 6.6 | Rollover Funds | 90 |
6.6.1 | Deposits of Rollover Funds | 90 |
6.6.2 | Release of Rollover Funds | 91 |
Section 6.7 | Casualty and Condemnation Account | 92 |
Section 6.8 | Cash Collateral Funds | 92 |
Section 6.9 | Property Cash Flow Allocation | 92 |
6.9.1 | Order of Priority of Funds in Deposit Account | 92 |
6.9.2 | Failure to Make Payments | 93 |
6.9.3 | Application After Event of Default | 93 |
Section 6.10 | Security Interest in Reserve Funds | 94 |
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Article 7 PERMITTED TRANSFERS | 94 | |
Section 7.1 | Permitted Transfer of the Entire Properties | 94 |
Section 7.2 | Permitted Transfers | 97 |
Section 7.3 | Cost and Expenses; Searches; Copies | 100 |
Article 8 DEFAULTS | 101 | |
Section 8.1 | Events of Default | 101 |
Section 8.2 | Remedies | 104 |
8.2.1 | Acceleration | 104 |
8.2.2 | Remedies Cumulative | 104 |
8.2.3 | Severance | 105 |
8.2.4 | Agent’s Right to Perform | 105 |
Article 9 SALE AND SECURITIZATION OF MORTGAGE | 106 | |
Section 9.1 | Sale of Mortgage and Securitization | 106 |
Section 9.2 | Securitization Indemnification | 109 |
Section 9.3 | Severance | 112 |
9.3.1 | Severance Documentation | 112 |
9.3.2 | Intentionally Omitted | 113 |
9.3.3 | Cooperation; Execution; Delivery | 113 |
Section 9.4 | Costs and Expenses | 113 |
Article 10 MISCELLANEOUS | 114 | |
Section 10.1 | Exculpation | 114 |
Section 10.2 | Survival; Successors and Assigns | 117 |
Section 10.3 | Agent’s Discretion; Rating Agency Review Waiver | 117 |
Section 10.4 | Governing Law | 118 |
Section 10.5 | Modification, Waiver in Writing | 119 |
Section 10.6 | Notices | 119 |
Section 10.7 | Waiver of Trial by Jury | 121 |
Section 10.8 | Headings, Schedules and Exhibits | 121 |
Section 10.9 | Severability | 121 |
Section 10.10 | Preferences | 121 |
Section 10.11 | Waiver of Notice | 121 |
Section 10.12 | Remedies of Borrower | 122 |
Section 10.13 | Offsets, Counterclaims and Defenses | 122 |
Section 10.14 | No Joint Venture or Partnership; No Third Party Beneficiaries | 122 |
Section 10.15 | Publicity | 122 |
Section 10.16 | Waiver of Marshalling of Assets | 123 |
Section 10.17 | Certain Waivers | 123 |
Section 10.18 | Conflict; Construction of Documents; Reliance | 123 |
Section 10.19 | Brokers and Financial Advisors | 123 |
Section 10.20 | Prior Agreements | 124 |
Section 10.21 | Servicer | 124 |
Section 10.22 | Joint and Several Liability | 124 |
Section 10.23 | Creation of Security Interest | 124 |
Section 10.24 | Taxes | 125 |
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Section 10.25 | Counterparts | 125 |
Section 10.26 | Set-Off | 125 |
Section 10.27 | Modification, Waiver in Writing; Approvals | 125 |
Section 10.28 | Assignments and Participations | 128 |
Section 10.29 | Acknowledgement and Consent to Bail-In of EEA Financial Institutions | 130 |
Article 11 AGENT | 131 | |
Section 11.1 | Appointment and Authorization | 131 |
Section 11.2 | Delegation of Duties | 132 |
Section 11.3 | Exculpatory Provisions | 133 |
Section 11.4 | Reliance by Agent | 133 |
Section 11.5 | Notice of Default | 133 |
Section 11.6 | Non-Reliance on Agent and Other Lenders | 134 |
Section 11.7 | Indemnification | 134 |
Section 11.8 | Agent in its Individual Capacity | 134 |
Section 11.9 | Successor Agent | 135 |
Section 11.10 | Administrative Agent Advances | 135 |
Section 11.11 | Ratable Share | 136 |
Section 11.12 | Letters of Credit | 136 |
Section 11.13 | Modifications to Article 11 | 136 |
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Schedules and Exhibits
Schedules : | ||
Schedule I | - | Rent Rolls |
Schedule II | - | Required Repairs |
Schedule III | - | Organization of Borrower |
Schedule IV | - | Exceptions to Representations and Warranties |
Schedule V | - | Definition of Special Purpose Bankruptcy Remote Entity |
Schedule VI | - | Intellectual Property/Websites |
Schedule VII | - | Allocated Loan Amounts |
Schedule VIII | - | Form of Tenant Estoppel Certificate |
Schedule IX | - | Ratable Share |
Schedule X | - | Form of Assignment and Acceptance |
Exhibits : | ||
Exhibit A | - | Secondary Market Transaction Information |
vii
LOAN AGREEMENT
THIS LOAN AGREEMENT , dated as of November 10, 2016 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “ Agreement ”), by and among DEUTSCHE BANK AG, NEW YORK BRANCH , a branch of Deutsche Bank AG, a German Bank, authorized by the New York Department of Financial Services, having an address at 60 Wall Street, 10th Floor, New York, New York 10005 (collectively, together with its successors and permitted assigns hereunder, including any Assignee (as defined herein) hereunder and such other co-lenders as may exist from time to time, each a “ Lender ” and collectively, the “ Lenders ”), DEUTSCHE BANK AG, NEW YORK BRANCH , a branch of Deutsche Bank AG, a German Bank, authorized by the New York Department of Financial Services (“ DB ”), having an address at 60 Wall Street, New York, New York 10005, as administrative agent (including any of its successors and assigns, “ Agent ”) for itself and the other Lenders party hereto from time to time, and 50 MURRAY STREET ACQUISITION LLC a Delaware limited liability company, having an address at c/o Clipper Equity LLC, 46-11 12 th Avenue, Suite 1L, Brooklyn, New York 11219 (together with its permitted successors and assigns, “ Borrower ”).
All capitalized terms used herein shall have the respective meanings set forth in Article 1 hereof.
WITNESSETH:
WHEREAS , Borrower desires to obtain the Loan from Lenders; and
WHEREAS , Lenders are willing to make the Loan to Borrower, subject to and in accordance with the terms and conditions of this Agreement and the other Loan Documents.
NOW, THEREFORE , in consideration of the covenants set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree, represent and warrant as follows:
Article 1
DEFINITIONS; PRINCIPLES OF CONSTRUCTION
Section 1.1 Specific Definitions .
For all purposes of this Agreement, except as otherwise expressly provided:
“ Acceptable Accounting Method ” shall mean either (a) GAAP, (b) Federal income tax basis of accounting or (c) with respect to Guarantor, a Guarantor Acceptable Accounting Method (as defined in the Guaranty), in each case consistently applied with respect to the applicable financial statements and reporting required under the Loan Documents.
“ Acknowledgment ” shall mean the Acknowledgment, dated on or about the date hereof made by Counterparty, or as applicable, Approved Counterparty.
“ Adjusted Actual Vacancy Rate ” shall mean, as of any date of calculation, an assumed vacancy rate, expressed as a percentage and calculated as (i) annualized market rents (as determined by Agent in its reasonable discretion) for units that are vacant as of such calculation date over (ii) GPR.
“ Affiliate ” shall mean, as to any Person, any other Person that (i) owns directly or indirectly ten percent (10%) or more of all equity interests in such Person, and/or (ii) is in Control of, is Controlled by or is under common ownership or Control with such Person, and/or (iii) is a director or officer of such Person or of an Affiliate of such Person, and/or (iv) is the spouse, issue or parent of such Person or of an Affiliate of such Person.
“ Allocated Loan Amount ” shall mean, with respect to each Property, the amount set forth with respect to such Property on Schedule VII .
“ ALTA ” shall mean American Land Title Association or any successor thereto.
“ Alteration Threshold ” shall mean, with respect to each Property, two percent (2%) of the Outstanding Principal Balance.
“ Annual Budget ” shall mean the operating and capital budget for the Property owned by Borrower setting forth, on a month-by-month basis, in reasonable detail, each line item of Borrower’s good faith estimate of anticipated operating income, operating expenses and Capital Expenditures for the applicable Fiscal Year.
“ Appraised Value ” shall mean the fair market value of the Properties reflected in an appraisal paid for by Borrower that is (i) dated not more than ninety (90) days prior to the date of calculation, (ii) signed by a qualified, independent MAI appraiser selected or approved by Agent, (iii) addressed to Agent and Lenders and their successors and assigns, (iv) made in compliance with the requirements of the Uniform Standard of Professional Appraisal Practice, or any successor thereto, and Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and the regulations promulgated thereunder, and (v) otherwise reasonably satisfactory to Agent in all material respects.
“ Approved Capital Expenditures ” shall mean Capital Expenditures incurred by Borrower and are either (i) included in the Approved Annual Budget (subject to a variance of up to five percent (5%) in the aggregate) or (ii) approved by Agent, which approval shall not be unreasonably withheld or delayed.
“ Approved Counterparty ” shall mean a bank or other financial institution which has and maintains (i) a long-term unsecured debt rating of “A-” or higher by S&P and (ii) a long-term unsecured debt rating of not less than “A3” by Moody’s; provided however , that SMBC Capital Markets, Inc. (with an Acceptable SMBC Credit Support Party as its credit support party) will be an Acceptable Counterparty so long as the rating of its credit support party (provided such credit support party shall be an Acceptable SMBC Credit Support Party) is not downgraded, withdrawn or qualified by S&P or Moody’s from the long and short term ratings issued by such rating agencies below the lesser of the above rating (as applicable) or its ratings as of the date hereof. As used herein, an “ Acceptable SMBC Credit Support Party” shall mean (x) Sumitomo Mitsui Banking Corporation or a replacement guarantor that meets the foregoing rating requirements and provides a guaranty on a form approved by Agent/Lender and (y) provided any such credit support party guaranty guaranties all current and future obligations under the Interest Rate Cap Agreement or Replacement Interest Rate Cap Agreement, as applicable.
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“ Approved Leasing Expenses ” shall mean actual out-of-pocket expenses incurred by Borrower in leasing commercial space at the Properties pursuant to commercial Leases entered into in accordance with the Loan Documents, including brokerage commissions and tenant improvements, which expenses (i) are (A) specifically approved by Agent in connection with approving the applicable commercial Lease, (B) incurred in the ordinary course of business and on market terms and conditions in connection with commercial Leases which do not require Agent’s approval under the Loan Documents, and Agent shall have received (and approved, if applicable) a budget for such tenant improvement costs and a schedule of leasing commission payments payable in connection therewith, or (C) otherwise approved by Agent, which approval shall not be unreasonably withheld or delayed, and (ii) are substantiated by executed Lease documents and brokerage agreements.
“ Approved Replacement Guarantor ” shall mean one or more Persons that satisfy the conditions set forth in clauses (x) and (y) of the definition of “Qualified Transferee” and whose identity, experience, financial condition and creditworthiness, including net worth and liquidity, is reasonably acceptable to Agent, for which Agent has received a Rating Agency Confirmation from each applicable Rating Agency and who Controls Borrower (or any Transferee Borrower) or owns a direct or indirect interest in Borrower (or any Transferee Borrower). If two or more Approved Replacement Guarantors are delivering replacement guaranties and replacement environmental indemnities to Agent (on behalf of Lenders), then (i) only one such Approved Replacement Guarantor must Control Borrower (or Transferee Borrower), directly or indirectly (provided that each such Approved Replacement Guarantor must own a direct or indirect interest in Borrower (or Transferee Borrower)) and (ii) the obligations of all Approved Replacement Guarantors shall be joint and several.
“ Assignment of Agreements ” shall mean that certain Assignment of Agreements, Licenses, Permits and Contracts, dated as of the date hereof, from Borrower, as assignor, to Agent (on behalf of Lenders), as assignee.
“ Assignment of Leases ” shall mean that certain first priority Assignment of Leases and Rents, dated as of the date hereof and executed and delivered by Borrower, as assignor, to Agent (on behalf of Lenders), as assignee.
“ Assignment of Management Agreement ” shall mean that certain Assignment of Management Agreement and Subordination of Management Fees dated as of the date hereof among Borrower, Clipper Manager and Agent (on behalf of Lenders).
“ Assumed Note Rate ” shall mean an interest rate equal to the sum of 1% plus the Spread plus the LIBOR Floor.
“ Award ” shall mean any compensation paid by any Governmental Authority in connection with a Condemnation in respect to all or any part of any Property.
“ Bankruptcy Code ” shall mean Title 11 of the United States Code entitled “Bankruptcy”, as amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors’ rights.
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“ Borrower’s Knowledge ” shall mean the actual knowledge of (i) David Bistricer, (ii) Sam Levinson or (iii) such Person or Persons who is primarily responsible for the ownership, operation or acquisition of any Property or who is reasonably likely to be familiar with the subject matter qualified by such phrase; and in each case, after conducting such due diligence in connection with the Properties, the Borrower, the borrowing of the Loan and the representations that are qualified in this Agreement as being made to “Borrower’s Knowledge” as is customary for Borrower in connection with the acquisition of similar properties to the Properties.
“ Borrower Provided Third Party Report ” shall mean any statement, report or document provided to Agent by or on behalf of Borrower by a party who is not an Affiliate of Borrower.
“ Business Day ” shall mean any day other than a Saturday, a Sunday or a legal holiday on which national banks are not open for general business in (i) the State of New York, (ii) the state where the corporate trust office of the Trustee is located, or (iii) the state where the servicing offices of the Servicer are located.
“ Calculation Date ” shall mean the last day of each calendar quarter during the Term.
“ Capital Expenditures ” for any period shall mean amounts expended for replacements and alterations to any Property (excluding tenant improvements) and required to be capitalized according to GAAP.
“ Cash Management Agreement ” shall mean that certain Deposit Account Agreement of even date herewith among Agent (on behalf of Lenders), Borrower, Clipper Manager and Wells Fargo Bank, National Association.
“ Clearing Account Agreement ” shall mean that certain Deposit Account Control Agreement dated the date hereof by and among Borrower, Agent (on behalf of Lenders) and Wells Fargo Bank, National Association.
“ Clipper Management Agreement ” shall mean that certain Management Agreement, dated as of November 8, 2016, by and between Borrower and Clipper Manager, pursuant to which Clipper Manager provides management and other services with respect to the Properties.
“ Clipper Manager ” shall mean Clipper Realty L.P., a Delaware limited partnership.
“ Closing Date ” shall mean the date of the funding of the Loan.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.
“ Collection Period ” shall mean, with respect to any Monthly Payment Date, the period of days from and including the immediately preceding Monthly Payment Date to and including the date immediately prior to such Monthly Payment Date.
“ Combined Debt Service ” shall mean, with respect to any particular period, the scheduled principal (if any) and interest payments due under (i) the Note and (ii) the Current Mezzanine Note, due in such period.
4
“ Combined Debt Yield ” shall mean, for any date of calculation by Agent, the percentage obtained by dividing (i) the Underwritten Net Cash Flow as of such date by (ii) the sum of the Outstanding Principal Balance as of such date and the outstanding principal amount of the Current Mezzanine Loan as of such date.
“ Condemnation ” shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting any Property or any part thereof.
“ Control ” shall mean, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise, and the terms Controlled, Controlling and Common Control shall have correlative meanings.
“ Counterparty ” shall mean, (i) with respect to the Interest Rate Cap Agreement, SMBC Capital Markets, Inc. and (ii) with respect to any Replacement Interest Rate Cap Agreement, any Approved Counterparty thereunder.
“ Current Mezzanine Lender Payment Instruction ” shall mean a notice, which notice may be in the form of the monthly payment invoice sent to Current Mezzanine Loan Borrower, setting forth the Monthly Current Mezzanine Debt Service Payment and with respect to the initial notice or if there is any change from the initial notice or any prior notice, (i) the Current Mezzanine Loan Account and (ii) wire instructions for such payment.
“ Current Mezzanine Loan ” shall mean that certain mezzanine loan in the principal amount of $75,000,000 made on the date hereof by Current Mezzanine Loan Lender to Current Mezzanine Loan Borrower, and evidenced and secured by the Current Mezzanine Loan Documents.
“ Current Mezzanine Loan Account ” shall mean the “Deposit Account” as defined in the Current Mezzanine Loan Agreement.
“ Current Mezzanine Loan Borrower ” shall mean 50 Murray Mezz LLC, a Delaware limited liability company.
“ Current Mezzanine Loan Default ” shall mean an “Event of Default” under the Current Mezzanine Loan and as defined in the Current Mezzanine Loan Documents and Lender may conclusively rely on any notice from Current Mezzanine Loan Lender of such Current Mezzanine Loan Default without any inquiry into the validity thereof.
“ Current Mezzanine Loan Default Revocation Notice ” shall mean a notice from Current Mezzanine Loan Lender, with respect to the Current Mezzanine Loan (upon which Lender may conclusively rely without any inquiry into the validity thereof) that a Current Mezzanine Loan Default under the Current Mezzanine Loan of which Lender was previously notified has either been cured or waived.
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“C urrent Mezzanine Loan Documents ” shall mean (i) the First Mezzanine Loan Agreement (the “ Current Mezzanine Loan Agreement ”) between Current Mezzanine Loan Lender and Current Mezzanine Loan Borrower, (ii) the First Mezzanine Promissory Note (the “ Current Mezzanine Note ”) in the original principal amount of the Current Mezzanine Loan made by Current Mezzanine Loan Borrower and payable to Current Mezzanine Loan Lender, (iii) the First Mezzanine Pledge and Security Agreement made by Current Mezzanine Loan Borrower in favor of Current Mezzanine Loan Lender, (iv) each UCC Financing Statement executed by Current Mezzanine Loan Borrower in favor of Current Mezzanine Loan Lender in connection with the foregoing and (v) any other “Loan Document”, as defined in the Current Mezzanine Loan Agreement, as each of the foregoing may be modified, amended and restated from time to time in accordance with the terms and provisions of the Intercreditor Agreement.
“ Current Mezzanine Loan Lender ” shall mean 50 Murray Mezz Funding LLC, a Delaware limited liability company, in its capacity as the holder of the Current Mezzanine Loan and any subsequent holder of the Current Mezzanine Loan to whom the Current Mezzanine Loan has been assigned or transferred pursuant to the terms of the Intercreditor Agreement.
“ Current Mezzanine Payment Account ” shall mean an account into which Deposit Bank shall deposit from the Deposit Account the amounts required to be deposited pursuant to Section 6.9.1(x) hereof or Section 6.9.1(xi)(B)(2) hereof, as applicable.
“ Debt ” shall mean the Outstanding Principal Balance together with all interest accrued and unpaid thereon and all other sums (including the Spread Maintenance Premium) due to Lenders from time to time in respect of the Loan under the Note, this Agreement, the Mortgage, the Environmental Indemnity or any other Loan Document.
“ Debt Service ” shall mean, with respect to any particular period, the scheduled principal (if any) and interest payments due under the Note in such period.
“ Debt Service Coverage Ratio ” shall mean, a ratio, as reasonably determined by Agent in which:
(a) the numerator is the Underwritten Net Cash Flow; and
(b) the denominator is the aggregate of (i) annual interest payment due under the Note assuming an interest rate equal to the Strike Price plus the Spread, and (ii) annual interest payment due under the Current Mezzanine Note assuming an interest rate equal to the Strike Price plus the Spread (as such terms are defined in the Current Mezzanine Note).
“ Debt Yield ” shall mean, for any date of calculation by Agent, the percentage obtained by dividing (i) the Underwritten Net Cash Flow as of such date by (ii) the sum of the Outstanding Principal Balance as of such date.
“ Default ” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would constitute an Event of Default.
“ Default Rate ” shall mean, with respect to the Loan, a rate per annum equal to the lesser of (i) the Maximum Legal Rate or (ii) four percent (4%) above the Interest Rate.
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“ Defaulting Lender ” means, subject to Section 2.10 of this Agreement, any Lender that (a) has failed to (i) fund all or any portion of the Loan required to be funded by it under the Loan Documents within one (1) Business Day of the date when such amount was required to be funded thereunder unless such Lender notifies Agent and Borrower in writing that such failure is the result of one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) having not been then satisfied, or (ii) pay to Agent any other amount required to be paid by it under the Loan Documents within two Business Days of the date when due, (b) has notified Borrower or the Agent in writing that it does not intend to comply with its funding obligations under this Agreement, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund the Loan hereunder and states that such position is based on a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) not being satisfied at such time), (c) has failed, within three Business Days after written request by Agent or Borrower, to confirm in writing to Agent and Borrower that it will comply with its prospective funding obligations hereunder ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the applicable Agent and Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under the Bankruptcy Code of the United States of America, any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.10 ) upon delivery of written notice of such determination to Borrower and each Lender.
“ Deposit Account ” shall mean an Eligible Account at the Deposit Bank.
“ Deposit Bank ” shall mean the bank or banks selected by Agent to maintain the Deposit Account. Agent may in its sole discretion change the Deposit Bank from time to time.
“ Eligibility Requirements ” shall mean, with respect to any Person, that such Person (A) has total assets (in name or under management) in excess of $600,000,000 and (except with respect to a pension advisory firm or similar fiduciary) capital/statutory surplus or shareholder’s equity of at least $250,000,000, in each case excluding the Property and (B) is regularly engaged in the business of owning, operating or investing in commercial real estate properties.
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“ Eligible Account ” shall mean a separate and identifiable account from all other funds held by the holding institution that is either (i) an account or accounts (or subaccounts thereof) maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (ii) a segregated trust account or accounts (or subaccounts thereof) maintained with the corporate trust department of a federal depository institution or state chartered depository institution subject to regulations regarding fiduciary funds on deposit similar to Title 12 of the Code of Federal Regulations §9.10(b), having in either case corporate trust powers, acting in its fiduciary capacity, and a combined capital and surplus of at least $50,000,000, subject to supervision or examination by federal and state authorities and having a long-term unsecured debt rating of “BBB-” or higher by S&P and “A2” or higher by Moody’s and a short-term unsecured debt rating of “A-1” or higher by S&P and “P-1” or higher by Moody’s. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.
“ Eligible Institution ” shall mean either (a) Wells Fargo Bank, National Association or (b) a depository institution or trust company insured by the Federal Deposit Insurance Corporation the short term unsecured debt obligations or commercial paper of which are rated at least “A-1” by S&P, “P-1” by Moody’s and “F1” by Fitch (and the long term unsecured debt obligations of such depository institution are rated at least “A” by Fitch) in the case of accounts in which funds are held for thirty (30) days or less or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least (i) “A” by S&P, (ii) “A” by Fitch (and the short term deposits or short term unsecured debt obligations or commercial paper of such depository institution are rated no less than “F1” by Fitch), and (iii) “A2” by Moody’s, or in the case of Letters of Credit, the long term unsecured debt obligations of which are rated at least (i) “A+” by S&P, (ii) “A+” by Fitch (and the short term deposits or short term unsecured debt obligations or commercial paper of such depository institution are rated no less than “F1” by Fitch) and (iii) “A1” by Moody’s; provided, however, for purposes of the Deposit Bank, the definition of Eligible Institution shall have the meaning set forth in the Cash Management Agreement.
“ Equinox Litigation ” shall mean that certain litigation entitled Equinox Tribeca, Inc. v. 50 Murray Street Acquisition, LLC, as successor in interest to Lionshead 110 Development, LLC, filed under index no. 650689/2016 in the Supreme Court of the State of New York, County of New York and any other counterclaim, claim, action, lawsuit or proceeding based on the facts and circumstances contained therein.
“ Environmental Indemnity ” shall mean that certain Environmental Indemnity Agreement dated as of the date hereof executed by Borrower and Guarantor in connection with the Loan for the benefit of Agent (for itself and on behalf of Lenders).
“ ERISA Affiliate ” shall mean any trade or business (whether or not incorporated) which is a member of the same controlled group of corporations or group of trades or businesses under common control with Borrower or, in the case of a Guarantor who is an entity, the Guarantor is treated as a single employer together with Borrower or, in the case of a Guarantor who is an entity, the Guarantor under Sections 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA.
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“ ERISA Event ” shall mean (i) the failure on the part of Borrower, Guarantor, or any ERISA Affiliate to make any required contribution to a Multiemployer Plan when due; (ii) a determination that any Multiemployer Plan (other than the Multiemployer Plan to which contributions are required under the Union Contract) is, or is expected to be, in “critical” or “endangered” status under Section 432 of the Code or Section 305 of ERISA; (iii) the imposition of liability on Borrower or Guarantor, or any ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA or as a result of contract or indemnification relating to any Plan or Multiemployer Plan; (iv) the withdrawal of Borrower, Guarantor, or any ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan or the receipt by Borrower, Guarantor, or any ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (v) the occurrence of a non-exempt “prohibited transaction” (within the meaning of Section 4975 of the Code or Section 406 of ERISA, respectively) with respect to any Plan which could reasonably be expected to result in liability to Borrower or Guarantor; (vi) there is any investigation or review by any governmental agency, or action, suit, proceeding or arbitration concerning any matter with respect to any Employee Benefit Plan; or (vii) the assertion of a material claim (other than routine claims for benefits) against any Plan or the assets thereof, or against Borrower, Guarantor, or any ERISA Affiliates in connection with any Multiemployer Plan or Plan.
“ Employee Benefit Plan ” shall mean any employee benefit plan within the meaning of section 3(3) of ERISA maintained by Borrower, Guarantor, or any ERISA Affiliate or to which Borrower, Guarantor, or any ERISA Affiliate makes contributions or with respect to which any of them has any liability.
“ Extension Fee ” shall mean a non-refundable fee equal to (i) 0.25% of the Outstanding Principal Balance in connection with Borrower’s exercise of the Second Extension Option and payable prior to the First Extended Maturity Date and (ii) 0.25% of the Outstanding Principal Balance in connection with Borrower’s exercise of the Third Extension Option and payable prior to the Second Extended Maturity Date.
“ Extension Option ” shall mean the First Extension Option, the Second Extension Option, or the Third Extension Option, as applicable.
“ Extension Strike Price ” shall mean the lower of (i) 3.50% and (ii) a strike price, determined by Agent following the exercise by Borrower of any Extension Option, equal to such annual interest rate as shall result in the Debt Service Coverage Ratio being not less than 1.05:1.00.
“ Fiscal Year ” shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the Term.
“ Fitch ” shall mean Fitch, Inc.
“ GAAP ” shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such entity as may be in general use by significant segments of the U.S. accounting profession.
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“ Governmental Authority ” shall mean any court, board, agency, department, committee, commission, central bank, office or authority of any nature whatsoever (including any political subdivision or instrumentality thereof) for any governmental or quasi-governmental unit (whether federal, state, commonwealth, county, district, municipal, city, parish, provincial or otherwise) (whether of the government of the United States or any other nation) now or hereafter in existence (including any supra-national bodies such as the European Union or the European Central Bank and any intergovernmental organizations such as the United Nations).
“ GPR ” shall mean the sum of (i) annualized actual in place rents under bona fide residential Leases at the Properties and (ii) annualized market rents (as determined by Agent in its reasonable discretion) for units that are vacant as of the applicable date of calculation.
“ Gross Revenue ” shall mean all revenue derived from the ownership and operation of the Properties from whatever source, including Rents and any Insurance Proceeds (whether or not Agent elects to treat any such Insurance Proceeds as business or rental interruption Insurance Proceeds pursuant to Section 5.4(f) hereof).
“ Guarantor ” shall mean, individually or collectively as the context requires, David Bistricer, an individual, Trapeze Inc., Clipper Realty, Inc. or any other Person that now or hereafter guarantees the obligations of Borrower under any Loan Document.
“ Guarantor Financial Covenants ” shall mean those covenants set forth in Section 5.2 of the Guaranty.
“ Guaranty ” shall mean that certain Guaranty of Recourse Obligations of even date herewith from Guarantor for the benefit of Agent (for itself and on behalf of Lenders).
“ Indebtedness ” shall mean, for any Person, without duplication: (i) all indebtedness of such Person for borrowed money, for amounts drawn under a letter of credit, or for the deferred purchase price of property for which such Person or its assets is liable, (ii) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person would be liable if such amounts were advanced thereunder, (iii) all amounts required to be paid by such Person as a guaranteed payment to partners or a preferred or special dividend, including any mandatory redemption of shares or interests, (iv) all indebtedness guaranteed by such Person, directly or indirectly, (v) all obligations under leases that constitute capital leases for which such Person is liable, (vi) all obligations of such Person under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case for which such Person is liable or its assets are liable, whether such Person (or its assets) is liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss, (vii) all obligations under any PACE loans and (viii) any other contractual obligation for the payment of money which are not settled within thirty (30) days.
“ Independent ” shall mean, when used with respect to any Person, a Person who: (i) does not have any direct financial interest or any material indirect financial interest in Borrower or in any Affiliate of Borrower, (ii) is not connected with Borrower or any Affiliate of Borrower as an officer, employee, promoter, underwriter, trustee, partner, member, manager, creditor, director, supplier, customer or person performing similar functions and (iii) is not a member of the immediate family of a Person defined in (i) or (ii) above.
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“ Independent Accountant ” shall mean (i) a firm of nationally recognized, certified public accountants which is Independent and which is selected by Borrower and reasonably acceptable to Agent, (ii) such other certified public accountant(s) selected by Borrower, which is Independent and reasonably acceptable to Agent, or (iii) Mayer Rispler & Co. or BDO Seidman, LLP (provided that Agent reserves the right to disapprove Meyer Rispler & Co. or BDO Seidman, LLP as an approved Independent Accountant and to require a replacement Independent Accountant if Meyer Rispler & Co. or BDO Seidman, LLP are not preparing the requisite financial statements substantially in accordance with the provisions contained herein).
“ Insolvency Opinion ” shall mean that certain bankruptcy non-consolidation opinion letter dated the date hereof delivered by Backenroth Frankel & Krinsky LLP in connection with the Loan.
“ Intercreditor Agreement ” means the intercreditor agreement between Lender, as senior lender, and Current Mezzanine Loan Lender, as mezzanine lender, dated as of the date of origination of the Current Mezzanine Loan, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“ Interest Determination Date ” shall mean, (A) with respect to the Initial Interest Period, the date that is two (2) Business Days before the Closing Date and (B) with respect to any other Interest Period, the date which is two (2) Business Days prior to the fifteenth (15 th ) day of each calendar month; provided, however, that at the option of Agent in connection with a Securitization, an additional Interest Determination Date shall occur on the date which is two (2) Business Days prior to the closing date of the Securitization (which shall adjust the Interest Rate for the remainder of the then-current Interest Period). When used with respect to an Interest Determination Date, Business Day shall mean any day on which banks are open for dealing in foreign currency and exchange in London.
“ Interest Rate ” shall mean, with respect to each Interest Period, an interest rate per annum equal to (i) for a LIBOR Loan, the sum of (a) the greater of LIBOR, determined as of the Interest Determination Date immediately preceding the commencement of such Interest Period and the LIBOR Floor, plus (b) the Spread (or, when applicable pursuant to this Agreement or any other Loan Document, the Default Rate); and (ii) for a Prime Loan, the sum of (a) the greater of the Prime Rate and the Prime Rate Floor, plus (b) the Prime Rate Spread (or, when applicable pursuant to this Agreement or any other Loan Document, the applicable Default Rate).
“ Interest Rate Cap Agreement ” shall mean the Confirmation and Agreement (together with the confirmation and schedules relating thereto), dated on or about the date hereof between the Counterparty and Borrower and collaterally assigned to Agent (on behalf of Lenders) pursuant to this Agreement. After delivery of a Replacement Interest Rate Cap Agreement to Agent (on behalf of Lenders), the term Interest Rate Cap Agreement shall be deemed to mean such Replacement Interest Rate Cap Agreement. The Interest Rate Cap Agreement shall be governed by the laws of the State of New York and shall contain each of the following:
(a) the notional amount of the Interest Rate Cap Agreement shall be equal to the maximum principal amount of the Loan;
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(b) the remaining term of the Interest Rate Cap Agreement shall at all times extend through the end of the Interest Period in which the Maturity Date occurs as extended from time to time pursuant to this Agreement and the Loan Documents;
(c) the Interest Rate Cap Agreement shall be issued by the Counterparty to Borrower and shall be pledged to Agent (on behalf of Lenders) by Borrower in accordance with this Agreement;
(d) the Counterparty under the Interest Rate Cap Agreement shall be obligated to make a stream of payments, directly to the Clearing Account (whether or not an Event of Default has occurred) from time to time equal to the product of (i) the notional amount of such Interest Rate Cap Agreement multiplied by (ii) the excess, if any, of LIBOR (including any upward rounding under the definition of LIBOR) over the Strike Price and shall provide that such payment shall be made on a monthly basis in each case not later than (after giving effect to and assuming the passage of any cure period afforded to such Counterparty under the Interest Rate Cap Agreement, which cure period shall not in any event be more than three Business Days) each Monthly Payment Date;
(e) the Counterparty under the Interest Rate Cap Agreement shall execute and deliver the Acknowledgment; and
(f) the Interest Rate Cap Agreement shall impose no material obligation on the beneficiary thereof (after payment of the acquisition cost) and shall be in all material respects satisfactory in form and substance to Agent in its reasonable determination and shall satisfy applicable Rating Agency standards and requirements, including, without limitation, provisions satisfying Rating Agencies standards, requirements and criteria (i) that incorporate representations by the Counterparty that no withholding taxes shall apply to payments by the Counterparty, and provide for “gross up” payments by the Counterparty for any withholding tax, (ii) whereby the Counterparty agrees not to file or join in the filing of any petition against Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, and (iii) that incorporate, if the Interest Rate Cap Agreement contemplates collateral posting by the Counterparty, a credit support annex setting forth the mechanics for collateral to be calculated and posted that are consistent with Rating Agency standards, requirements and criteria.
“ Key Principal(s) ” shall mean, David Bistricer, Trapeze Inc. and Clipper Realty Inc.
“ Lease ” shall mean any lease, sublease or sub-sublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy, all or any portion of any space in a Property, and every modification, amendment or other agreement (whether written or oral and whether now or hereafter in effect) relating to such lease, sublease, sub-sublease or other agreement entered into in connection with such lease, sublease, sub-sublease or other agreement, and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto, whether before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code.
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“ Legal Requirements ” shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting the Loan, any Secondary Market Transaction with respect to the Loan, Borrower or any Property or any part thereof or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, including, without limitation, the Securities Act, the Exchange Act, Regulation AB, the rules and regulations promulgated pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, zoning and land use laws, the Americans with Disabilities Act of 1990, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting any Property or any part thereof, including any which may (i) require repairs, modifications or alterations in or to any Property or any part thereof, or (ii) in any way limit the use and enjoyment thereof.
“ Letter of Credit ” shall mean an irrevocable, unconditional, transferable (without payment of any transfer fee), clean sight draft letter of credit acceptable to Agent and the Rating Agencies (either an evergreen letter of credit or one which does not expire until at least thirty (30) Business Days after the Stated Maturity Date) in favor of Agent (on behalf of Lenders) and entitling Agent to draw thereon in New York, New York, issued by a domestic Eligible Institution or the U.S. agency or branch of a foreign Eligible Institution. If at any time the bank issuing any such Letter of Credit shall cease to be an Eligible Institution, Agent shall have the right immediately to draw down the same in full and hold the proceeds of such draw in accordance with the applicable provisions hereof.
“ LIBOR ” shall mean, with respect to each Interest Period and each Interest Determination Date, the rate per annum (rounded upwards, if necessary, to the nearest 1/1,000 of 1%) calculated by the Agent as set forth below:
(a) The rate for deposits in U.S. Dollars for a one-month period that appears on Reuters Screen LIBOR01 Page (or its equivalent) as of 11:00 a.m., London time, on such Interest Determination Date.
(b) If such rate does not appear on Reuters Screen LIBOR01 Page (or its equivalent) as of 11:00 a.m., London time, on the applicable Interest Determination Date, the Agent shall request the principal London office of any four major reference banks in the London interbank market selected by the Agent to provide such reference bank’s offered quotation to prime banks in the London interbank market for deposits in United States dollars for a one-month period as of 11:00 a.m., London time, on such Interest Determination Date in a principal amount of not less than $1,000,000 that is representative for a single transaction in the relevant market at the relevant time. If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Agent shall request any three major banks in New York City selected by the Agent to provide such bank’s rates for loans in U.S. Dollars to leading European banks for a one-month period as of 11:00 a.m., New York City time, on such Interest Determination Date in a principal amount not less than $1,000,000 that is representative for a single transaction in the relevant market at the relevant time, and if at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates.
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In no event shall LIBOR be less than zero.
“ LIBOR Floor ” shall mean 0.00%.
“ LIBOR Loan ” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon LIBOR.
“ Lien ” shall mean any mortgage, deed of trust, lien (statutory or otherwise), pledge, hypothecation, easement, restrictive covenant, preference, assignment, security interest, or any other encumbrance, charge or transfer of, or any agreement to enter into or create any of the foregoing, on or affecting all or any portion of any Property or any interest therein, or any direct or indirect interest in Borrower, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances.
“ Loan ” shall mean the loan in the original principal amount of Three Hundred Thirty Five Million and No/100 Dollars ($335,000,000.00) made by Lenders to Borrower pursuant to this Agreement.
“ Loan Documents ” shall mean, collectively, this Agreement, the Note, the Mortgage, the Assignment of Leases, the Cash Management Agreement, the Clearing Account Agreement, the Assignment of Agreements, the Environmental Indemnity, the Assignment of Management Agreement, the Guaranty and any other documents, agreements and instruments now or hereafter evidencing, securing or delivered to Agent (on behalf of Lenders) and Lenders in connection with the Loan, as the same may be (and each of the foregoing defined terms shall refer to such documents as they may be) amended, restated, replaced, supplemented or otherwise modified from time to time.
“ Loan to Value Ratio ” shall mean the ratio, as of a particular date, in which the numerator is equal to the aggregate of the Outstanding Principal Balance of the Loan and the denominator is equal to the Appraised Value of the Properties remaining subject to the Lien of the Loan Documents, as determined by Agent in its sole discretion.
“ Low Debt Yield Period ” shall commence if, as of any Calculation Date, (i) the Debt Yield is less than 5.25% or (ii) the Combined Debt Yield is less than 4.30% and shall end if the Properties have achieved a Debt Yield of at least 5.45% and a Combined Debt Yield of at least 4.50% for two consecutive Calculation Dates.
“ Major Contract ” shall mean (i) any management agreement, (ii) any brokerage or leasing agreement; provided, however, a brokerage or leasing agreement shall not be considered a Major Contract if it is (A) with a nationally or regionally recognized brokerage or leasing company and (B) cancelable on thirty (30) days or less notice without requiring the payment of termination fees or payments of any kind (other than paying amounts due through the date of cancellation) and without any so-called “tail” liability for leases entered into more than six (6) months after such cancelation or termination, (iii) the Union Contract, (iv) any cleaning, maintenance, service or other contract or agreement of any kind (other than Leases) of a material nature (materiality for these purposes shall mean, contracts which (1) extend beyond one year (unless cancelable on thirty (30) days or less notice without requiring the payment of termination fees or payments of any kind (other than paying amounts due through the date of cancellation) and (2) have annual gross payment obligations of at least $500,000), in either case relating to the ownership, leasing, management, use, operation, maintenance, repair or restoration of the Property, whether written or oral, or (v) management, brokerage, leasing, cleaning, maintenance, service or other contract or agreement of any kind (other than Leases) that is between Borrower and an Affiliate of Borrower.
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“ Major Lease ” shall mean (a) with respect to non-residential Leases, any Lease which, either individually, or when taken together with any other commercial Lease with the same Tenant or its Affiliates, and assuming the exercise of all expansion rights and all preferential rights to lease additional space contained in such commercial Lease, (i) covers more than 15,000 rentable square feet, (ii) contains an option or other preferential right to purchase all or any portion of any Property, (iii) is with an Affiliate of Borrower as Tenant, except for Permitted Affiliate Residential Leases, or (iv) is entered into during the continuance of an Event of Default or other Trigger Period, and (b) with respect to residential Leases which, either individually, or when taken together with any other Lease with the same Tenant or its Affiliates, and assuming the exercise of all expansion rights and all preferential rights to lease additional space contained in such residential Lease, (i) covers more than fifty (50) apartment units or (ii) contains an option or other preferential right to purchase all or any portion of any Property.
“ Management Agreement ” shall mean the Clipper Management Agreement or any replacement management agreement entered into by and between Borrower and Manager in accordance with the terms of the Loan Documents, in each case, pursuant to which the Manager is to provide management and other services with respect to a Property or the Properties.
“ Manager ” shall mean (i) Clipper Manager or (ii) any other manager engaged in accordance with the terms and conditions of the Loan Documents.
“ Material Adverse Effect ” shall mean the occurrence or existence of a condition or event which would (i) have a material adverse effect on (A) the value of a Property, (B) the financial condition of Borrower, (C) the ability of Guarantor to maintain a Net Worth (as defined in the Guaranty) of not less than the Net Worth Threshold (as defined in the Guaranty), (D) the Underwritten Net Cash Flow or (E) the ability of Borrower or Guarantor to pay any amounts under the Loan Documents as they become due, (ii) prevent Borrower or Guarantor from performing their respective material obligations under this Agreement or any of the other Loan Documents, and/or (iii) prevent or materially impede or limit Agent’s or any Lender’s ability to exercise its rights and remedies provided by the Loan Documents.
“ Material Alteration ” shall mean any alteration affecting structural elements of the Improvements, utility or HVAC system contained in any Improvements or the exterior of any Property, the cost of which exceeds the Alteration Threshold; provided, however, that in no event shall (i) any Required Repairs, (ii) any tenant improvement work performed pursuant to any Lease existing on the date hereof or entered into hereafter in accordance with the provisions of this Agreement, or (iii) alterations performed as part of a Restoration, constitute a Material Alteration.
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“ Maturity Date ” shall mean the Stated Maturity Date, provided that (a) in the event of the exercise by Borrower of the First Extension Option pursuant to Section 2.7 , the Maturity Date shall be the First Extended Maturity Date, (b) in the event of the exercise by Borrower of the Second Extension Option pursuant to Section 2.7 , the Maturity Date shall be the Second Extended Maturity Date, and (c) in the event of the exercise by Borrower of the Third Extension Option pursuant to Section 2.7 , the Maturity Date shall be the Third Extended Maturity Date, or such earlier date on which the final payment of principal of the Note becomes due and payable as herein or therein provided, whether at the Stated Maturity Date, by declaration of acceleration, or otherwise.
“ Maximum Legal Rate ” shall mean the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such Governmental Authority whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.
“ Monthly Current Mezzanine Debt Service Payment ” shall mean, as to each Monthly Payment Date, the amount payable by Current Mezzanine Loan Borrower on each such Monthly Payment Date pursuant to the Current Mezzanine Loan Documents (determined on the basis of the Spread under the Current Mezzanine Loan Note plus the then applicable Strike Price or Extension Strike Price under the Current Mezzanine Loan Note, provided, however, if the Strike Price exceeds LIBOR, then such scheduled payment of interest shall be calculated based on the LIBOR instead of the Strike Price).
“ Monthly Operating Expense Budgeted Amount ” shall mean the monthly amount set forth in the Approved Annual Budget for operating expenses for the calendar month in which such Monthly Payment Date occurs; provided that management fees payable to Manager as part of the Monthly Operating Expense Budgeted Amount shall not exceed 3% of Rents (the “ Management Fee Cap ”).
“ Monthly Payment Date ” shall mean the ninth (9 th ) day of every calendar month occurring during the Term. The first Monthly Payment Date shall be December 9, 2016.
“ Moody’s ” shall mean Moody’s Investors Service, Inc.
“ Mortgage ” shall mean the Consolidated, Amended and Restated Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of the date hereof and executed and delivered by Borrower; delivered as security for the Loan and encumbering the Properties owned by Borrower, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.
“ Multiemployer Plan ” shall mean a “multiemployer plan” (as defined in Section 3(37) or Section 4001(a)(3) of ERISA) subject to Title IV of ERISA, (i) to which Borrower, Guarantor, or any of their ERISA Affiliates is making or accruing or has (or has had) an obligation to make or accrue contributions, or (ii) with respect to which Borrower, Guarantor, or any of their ERISA Affiliates could be subjected to any liability whether under Title IV of ERISA or by contract or agreement or otherwise.
“ NRSRO ” shall mean any credit rating agency that has elected to be treated as a nationally recognized statistical rating organization for purposes of Section 15E of the Exchange Act, without regard to whether or not such credit rating agency has been engaged by Agent or its designees in connection with, or in anticipation of, a Securitization.
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“ Obligations ” shall mean, collectively, Borrower’s obligations for the payment of the Debt and the performance of the Other Obligations.
“ Officer’s Certificate ” shall mean a certificate delivered to Agent by Borrower which is signed by an authorized senior officer of Borrower or an Affiliate.
“ Operating Expenses ” shall mean, for any period, without duplication, all expenses actually paid or payable by Borrower during such period in connection with the operation, management, maintenance, repair and use of the Properties, determined on an accrual basis, and, except to the extent otherwise provided in this definition, in accordance with an Acceptable Accounting Method. Operating Expenses specifically shall include (i) all expenses incurred for the period in question based on quarterly financial statements delivered to Agent in accordance with Section 4.9.2 hereof , (ii) all payments required to be made pursuant to any Operations Agreements, (iii) property management fees in an amount equal to the greater of two percent (2.0%) of Operating Income and the management fees actually paid under the Management Agreement, (iv) administrative, payroll, security and general expenses for the Properties, (v) the cost of utilities, inventories and fixed asset supplies consumed in the operation of the Properties, (vi) a reasonable reserve for uncollectible accounts, (vii) costs and fees of Independent professionals (including, without limitation, legal, accounting, consultants and other professional expenses), technical consultants, operational experts (including quality assurance inspectors) or other third parties retained to perform services required or permitted hereunder, (viii) association dues, (ix) computer processing charges, (x) operational equipment and other lease payments as reasonably approved by Agent, (xi) Taxes and Other Charges (other than income taxes or Other Charges in the nature of income taxes) and insurance premiums and (xii) all underwritten reserves required by Agent hereunder (without duplication of actual reserves collected). Notwithstanding the foregoing, Operating Expenses shall not include (1) depreciation or amortization, (2) income taxes or Other Charges in the nature of income taxes, (3) any expenses (including legal, accounting and other professional fees, expenses and disbursements) incurred in connection with the making of the Loan or the sale, exchange, transfer, financing or refinancing of all or any portion of the Properties or in connection with the recovery of Insurance Proceeds or Awards which are applied to prepay the Note, (4) Capital Expenditures, (5) debt service and (6) any item of expense which would otherwise be considered within Operating Expenses pursuant to the provisions above but is paid directly by any Tenant.
“ Operating Income ” shall mean, for any period, all income of Borrower during such period from the use, ownership or operation of the Properties, including:
(a) all amounts payable to Borrower by any Person as Rent and other amounts under Leases or other agreements relating to any Property;
(b) business interruption insurance proceeds allocable to the applicable reporting period; and
(c) all other amounts which in accordance with an Acceptable Accounting Method, are included in Borrower’s annual financial statements as operating income attributable to the Properties.
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Notwithstanding the foregoing, Operating Income shall not include (a) any Insurance Proceeds (other than business interruption and/or rental loss insurance proceeds and only to the extent allocable to the applicable reporting period), (b) any proceeds resulting from the Transfer of all or any portion of any Property, (c) any Rent attributable to a Lease prior to the date in which the Tenant thereunder has taken occupancy or in which the actual payment of rent is required to commence thereunder, (d) any item of income otherwise included in Operating Income but paid directly by any Tenant to a Person other than Borrower as an offset or deduction against Rent payable by such Tenant, provided such item of income is for payment of an item of expense (such as payments for utilities paid directly to a utility company) and such expense is otherwise excluded from the definition of Operating Expenses pursuant to clause “ (7) ” of the definition thereof, (e) security deposits received from Tenants until forfeited or applied, (f) any Lease Termination Payments and (g) any Rents paid by or on behalf of any Tenant under a Lease which is the subject of any proceeding or action relating to its bankruptcy, reorganization or other arrangement pursuant to federal bankruptcy law or any similar federal or state law or which has been adjudicated a bankrupt or insolvent unless such Lease has been assumed by the trustee in such proceeding or action. Operating Income shall be calculated on the accrual basis of accounting and, except to the extent otherwise provided in this definition, in accordance with an Acceptable Accounting Method.
“ Operations Agreements ” shall mean any covenants, restrictions, easements, declarations or agreements of record relating to the construction, operation or use of any Property, together with all amendments, modifications or supplements thereto.
“ Other Charges ” shall mean all ground rents, maintenance charges, impositions other than Taxes and any other charges, including vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Property, now or hereafter levied or assessed or imposed against any Property or any part thereof.
“ Other Obligations ” shall mean (a) the performance of all obligations of Borrower contained herein; (b) the performance of each obligation of Borrower contained in any other Loan Document; and (c) the performance of each obligation of Borrower contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of this Agreement, the Note or any other Loan Document.
“ Outstanding Principal Balance ” shall mean, as of any date, the outstanding principal balance of the Loan.
“ PACE Loan ” shall mean (x) any “Property-Assessed Clean Energy loan” or (y) any other indebtedness, without regard to the name given to such indebtedness, which is (i) incurred for improvements to the Property for the purpose of increasing energy efficiency, increasing use of renewable energy sources, resource conservation, or a combination of the foregoing, and (ii) repaid through multi-year assessments against the Property.
“ Patriot Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT ACT) of 2001, as the same was restored and amended by Uniting and Strengthening America by Fulfilling Rights and Ensuring Effective Discipline Over Monitoring Act (USA FREEDOM Act) of 2015 and as the same may be further amended, extended, replaced or otherwise modified from time to time, and any corresponding provisions of future laws.
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“ Permitted Encumbrances ” shall mean, collectively, (i) the Liens and security interests created by the Loan Documents, (ii) all encumbrances and other matters disclosed in the Title Insurance Policies, (iii) Liens, if any, for Taxes or Other Charges imposed by any Governmental Authority not yet due or delinquent, or that are being contested in accordance with Section 4.3 hereof, (iv) any workers’, mechanics’, judicial or other similar Liens on a Property provided that any such Lien is bonded, discharged, or insured over pursuant to an endorsement to the Title Insurance Policy reasonably acceptable to Agent, within thirty (30) days after Borrower first receives written notice of such Lien, (v) such other title and survey exceptions as Agent has approved or may approve in writing in Agent’s reasonable discretion, (vi) the Current Mezzanine Loan Liens, (vii) customary utility easements which do not impair the value of the Property and (viii) such other liens as are expressly permitted under the provisions of the Loan Documents.
“ Person ” shall mean any individual, corporation, partnership, limited liability company, joint venture, estate, trust, unincorporated association, any other entity, any Governmental Authority and any fiduciary acting in such capacity on behalf of any of the foregoing.
“ Physical Conditions Report ” shall mean, collectively, those certain Property Condition Reports, prepared by CBRE (Project Nos. PC61029310-101 and PC61029310-102) and dated as of October 19, 2016.
“ Plan ” shall mean a plan as defined in Section 3(3) of ERISA subject to Title IV of ERISA other than a Multiemployer Plan, (i) maintained or sponsored by Borrower, Guarantor, or any of their ERISA Affiliates or (ii) with respect to which Borrower, Guarantor, or any of their ERISA Affiliates could be subjected to any liability whether under Title IV of ERISA or by contract or agreement or otherwise.
“ Prepayment Notice ” shall mean a prior revocable written notice to Agent specifying the proposed Business Day on which a prepayment of the Debt is intended to be made pursuant to Section 2.4 hereof, which date shall be no earlier than ten (10) days after the date of such Prepayment Notice and no later than sixty (60) days after the date of such Prepayment Notice, provided that, upon giving of at least three (3) Business Days’ prior notice to Agent, Borrower may revoke such Prepayment Notice or change the intended date of such prepayment to any Business Day specified in such notice to Agent; provided, further, that if Borrower delivers a Prepayment Notice and revokes such notice, Borrower shall reimburse Agent and Lenders for all out-of-pocket costs and expenses incurred by Agent and Lenders with respect to the actions taken as a result of such revoked Prepayment Notice (including reasonable attorneys fees).
“ Prime Rate ” shall mean the rate of interest published in The Wall Street Journal from time to time as the “Prime Rate”. If more than one “Prime Rate” is published in The Wall Street Journal for a day, the average of such “Prime Rates” will be used, and such average will be rounded up to the nearest 1/100th of one percent (0.01%). If The Wall Street Journal ceases to publish the “Prime Rate,” Agent will select an equivalent publication that publishes such “Prime Rate,” and if such “Prime Rates” are no longer generally published or are limited, regulated or administered by a governmental or quasi-governmental body, then Agent will select a comparable interest rate index.
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“ Prime Rate Floor ” shall mean, in connection with any conversion of the Loan from a LIBOR Loan to a Prime Rate Loan, the difference between (a) the sum of the LIBOR Floor plus the Spread, minus (b) the Prime Rate Spread; provided, however, that if such difference is a negative number, then the Prime Rate Floor shall be zero.
“ Prime Rate Loan ” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon the Prime Rate.
“ Prime Rate Spread ” shall mean, in connection with any conversion of the Loan from a LIBOR Loan to a Prime Rate Loan, the difference (expressed as the number of basis points) between (a) the sum of (i) LIBOR, determined as of the Interest Determination Date for which LIBOR was last available, plus (ii) the Spread, minus (b) the Prime Rate as of such Interest Determination Date; provided, however, that if such difference is a negative number, then the Prime Rate Spread shall be zero.
“ Properties ” shall mean, collectively, the parcels of real property and Improvements now or hereafter erected or installed thereon and all personal property owned by Borrower and encumbered by the Mortgage; together with all rights pertaining to such real property and Improvements, and all other collateral for the Loan as more particularly described in the granting clause of the Mortgage. The Properties are located at 50 Murray Street (aka 110-120 Church Street), New York, New York (the “ 110 Church Property ”) and 53 Park Place, New York, New York (the “ 53 Park Place Property ”).
“ Public Vehicle ” shall mean a Person whose securities are listed and traded on the New York Stock Exchange or another nationally recognized stock exchange and shall include a majority owned subsidiary of any such Person or any operating partnership through which such Person conducts all or substantially all of its business.
“ Qualified Lender ” shall mean (x) DB or any Affiliate of DB or (y) any Person other than a natural Person that is any of the following, provided that any such Person shall at all times satisfy the Eligibility Requirements and is not a Defaulting Lender:
(a) | a commercial bank organized under the laws of the United States, or any state thereof which regularly invests in or makes commercial real estate loans; |
(b) | a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development (the “ OECD ”), or a political subdivision of any such country which regularly invests in or makes commercial real estate loans ( provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD); |
(c) | a Person that is engaged in the business of commercial real estate banking and that is: (1) an Affiliate of Lender, or (2) a Person of which a Lender is a subsidiary; |
(d) | an insurance company, mutual fund or other financial institution organized under the laws of the United States, any state thereof, any other country which is a member of the OECD or a political subdivision of any such country which regularly invests in or makes commercial real estate loans; |
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(e) | a fund (other than a mutual fund) which regularly invests in or makes commercial real estate loans; or |
(f) | the trustee, administrator or receiver (or their respective nominees, collateral agents or collateral trustees) of, a mortgage pool securing covered mortgage bonds issued by an eligible German bank (Pfandbriefbanken) or by any other Person otherwise permitted to issue covered mortgage bonds (Hypothekenpfandbriefe) under German bond law (Pfandbriefgesetz 2005, as the same may be amended or modified. |
provided , however , that “Qualified Lender” shall not include: (i) Borrower, (ii) the constituent members of Borrower or Guarantor, and (iii) any Defaulting Lender (so long as such Lender remains a Defaulting Lender).
“ Qualified Manager ” shall mean (i) Clipper Manager, (ii) Clipper Equity LLC or (iii) a Manager approved by Agent in Agent’s sole discretion.
“ Qualified Transferee ” shall mean a transferee for whom, prior to the Transfer, Agent shall have received: (x) evidence that the proposed transferee (1) has never been indicted or convicted of, or pled guilty or no contest to, a felony, (2) has never been indicted or convicted of, or pled guilty or no contest to, a Patriot Act Offense and is not on any Government List, (3) has never been the subject of a voluntary or involuntary (to the extent the same has not been discharged) bankruptcy proceeding and (4) has no material outstanding judgments against such proposed transferee and (y) if the proposed transferee will obtain Control of or obtain a direct or indirect interest of 10% or more in Borrower as a result of such proposed transfer, a credit check against such proposed transferee that is reasonably acceptable to Agent.
“ Ratable Share ”, “ Ratable ” or “ ratably ” shall mean, with respect to any Lender, its share of the Loan based on the proportion of the Outstanding Principal Balance advanced or held by such Lender to the total outstanding principal amount of the Loan. The Ratable Share of each Lender on the date of this Agreement after giving effect to the funding of the Loan on the Closing Date is set forth on Schedule IX attached hereto and made a part hereof.
“ Rating Agencies ” shall mean any nationally-recognized statistical rating organization (e.g. Standard & Poor’s Ratings Services, Moody’s Investor Service, Inc., Fitch, Inc., DBRS, Inc. or any successor thereto) that has been or will be engaged by Agent or its designees in connection with, or in anticipation of, a Securitization; provided , that following a Securitization, it shall refer to the Rating Agencies that actually rated the Securities.
“ Rating Agency Confirmation ” shall mean a written affirmation from each of the Rating Agencies that the credit rating of the Securities by such Rating Agency immediately prior to the occurrence of the event with respect to which such Rating Agency Confirmation is sought will not be qualified, downgraded or withdrawn as a result of the occurrence of such event, which affirmation may be granted or withheld in such Rating Agency’s sole and absolute discretion.
“ Regulation AB ” shall mean Regulation AB under the Securities Act and the Exchange Act, as such Regulation may be amended from time to time.
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“ Regulatory Change ” shall mean, at any time hereafter, (i) any change in any Legal Requirement (including by repeal, amendment or otherwise) or in the interpretation or application thereof by any central bank or other Governmental Authority or (ii) any new or revised request, guidance or directive issued by any central bank or other Governmental Authority and applicable to the Agent and Lenders.
“ Related Loan ” shall mean a loan to an Affiliate of Borrower or Guarantor or secured by a Related Property, that is included in a Securitization with the Loan, and any other loan that is cross-collateralized with the Loan.
“ Related Property ” shall mean a parcel of real property, together with improvements thereon and personal property related thereto, that is “related” within the meaning of the definition of Significant Obligor, to any Property.
“ REMIC Trust ” shall mean a “real estate mortgage investment conduit” within the meaning of Section 860D of the Code that holds the Note.
“ Rent Regulation Laws ” shall mean the Emergency Tenant Protection Act of 1974, New York City Rent Stabilization Law (Chapter 4, Title 26 of the New York City Administrative Code, the New York City Rent Stabilization Code (Chapter VIII, Subtitle S, Title 9 of the New York City Rules and Regulations), the New York City Rent and Eviction Regulations (Subchapter B, Chapter VII, Subtitle S, Title 9 of the New York City Rules and Regulations, any Legal Requirement applicable to residential rent overcharges or rent rollbacks, harassment or mistreatment of residential tenants, any other law, rule, statute or regulation that imposes limitations on, or otherwise regulates, rent that may be charged to residential tenants or obligations on the part of landlords to renew residential leases, and any regulations promulgated thereunder, as each of the foregoing may have been or may hereafter be amended or replaced from time to time.
“ Rents ” shall mean all rents, rent equivalents, “additional rent” (i.e. pass-throughs for operating expenses, real estate tax escalations and/or real estate tax pass-throughs, payments by Tenants on account of electrical consumption, porters’ wage escalations, condenser water charges and tap-in fees, freight elevator and HVAC overtime charges, charges for excessive rubbish removal and other sundry charges), moneys payable as damages (including payments by reason of the rejection of a Lease in a bankruptcy proceeding) or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, fees, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other payment and consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower, Manager (excluding management fees paid to Manager) or any of their respective agents or employees from any and all sources arising from or attributable to each Property, including all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the lease, sublease, license, concession or other grant of the right of the use and occupancy of each Property or rendering of services by Borrower, Manager or any of their respective agents or employees and Insurance Proceeds, if any, from business interruption or other loss of income insurance, but only to the extent such Insurance Proceeds are treated as business or rental interruption Insurance Proceeds pursuant to Section 5.4(f) hereof.
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“ Repayment Date ” shall mean the date of a prepayment of the Loan pursuant to the provisions of Section 2.4 hereof.
“ Replacement Interest Rate Cap Agreement ” shall mean an interest rate cap agreement from an Approved Counterparty with terms that are the same in all material respects as the terms of the Interest Rate Cap Agreement except that the same shall be effective as of (i) in connection with a replacement pursuant to Section 2.6.3(c) following a downgrade, withdrawal or qualification of the long-term unsecured debt rating of the Counterparty, the date required in Section 2.6 or (ii) in connection with a replacement (or extension of the then-existing Interest Rate Cap Agreement) in connection with an extension of the Maturity Date pursuant to Section 2.7 , the date required in Section 2.7 ; provided that to the extent any such interest rate cap agreement does not meet the foregoing requirements, a Replacement Interest Rate Cap Agreement shall be such interest rate cap agreement approved in writing by Agent, and if the Loan or any portion thereof is included in a Securitization, each of the Rating Agencies with respect thereto.
“ Reserve Funds ” shall mean, collectively, all funds deposited by Borrower with Agent or Deposit Bank pursuant to Article 6 of this Agreement, including, but not limited to, the Capital Expenditure Funds, the Insurance Funds, the Tax Funds, the Casualty and Condemnation Funds, the Cash Collateral Funds and the Rollover Funds.
“ Restoration ” shall mean the repair, restoration and re-tenanting of a Property after a Casualty or Condemnation as nearly as possible to the condition such Property was in immediately prior to such Casualty or Condemnation, with such alterations as may be reasonably approved by Agent.
“ Restoration DSCR ” shall mean, as of any date of determination, the ratio of (a) the Underwritten Net Cash Flow of the Properties, based on Rents in place (annualized and including rental loss insurance proceeds) and expenses on a pro forma basis (and therefore exclusive of expenses relating to such Restoration), to (b) an amount equal to the annual Debt Service.
“ S&P ” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.
“ Significant Obligor ” shall have the meaning set forth in Item 1101(k) of Regulation AB under the Securities Act.
“ Special Taxes ” shall mean any and all present or future taxes, levies, imposts, deductions, charges or withholdings, or any liabilities with respect thereto, including those arising after the Closing Date as a result of the adoption of or any change in law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority but excluding, in the case of Agent and Lenders, such taxes (including income taxes, franchise taxes and branch profit taxes) as are imposed on or measured by Agent’s and Lenders’ net income by the United States of America or any Governmental Authority of the jurisdiction under the laws under which Agent and any Lender is organized or maintains a lending office.
“ Spread ” shall mean three hundred and five basis points 3.05037% per annum.
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“ Spread Maintenance Date ” shall mean November 9, 2017 , which is the first anniversary of the Closing Date.
“ Spread Maintenance Premium ” with respect to any payment or prepayment of principal (or acceleration of the Loan) on or prior to the Spread Maintenance Date, an amount equal to the product of the following: (A) the amount of such prepayment (or the amount of principal so accelerated), multiplied by (B) the Spread, multiplied by (C) a fraction (expressed as a percentage) having a numerator equal to the number of months difference between the Monthly Payment Date immediately succeeding the Spread Maintenance Date and the date such prepayment occurs (or the last day of the Interest Period through which interest has been paid by Borrower) and a denominator equal to twelve (12).
“ State ” shall mean New York.
“ Stated Maturity Date ” shall mean November 9, 2018, as the same may be extended pursuant to Section 2.7 hereof.
“ Strike Price ” shall mean 2.00% per annum.
“ Survey ” shall mean a survey of each Property prepared by a surveyor licensed in the State and satisfactory to Agent and the company or companies issuing the Title Insurance Policies, and containing a certification of such surveyor satisfactory to Agent.
“ Taxes ” shall mean (i) all real estate taxes, assessments, water rates or sewer rents (collectively, “ Real Estate Taxes ”) and (ii) personal property taxes, in each case now or hereafter levied or assessed or imposed against the Property or part thereof, together with all interest and penalties thereon. In no event shall any PACE Loan be considered a Tax for purposes of this Agreement.
“ Tenant ” shall mean any Person obligated by contract or otherwise to pay monies (including a percentage of gross income, revenue or profits) under any Lease now or hereafter affecting all or any part of a Property.
“ Term ” shall mean the entire term of this Agreement, which shall expire upon repayment in full of the Debt.
“ Title Insurance Policies ” shall mean ALTA mortgagee title insurance policies in the form reasonably acceptable to Agent issued with respect to each Property and insuring the Lien of the Mortgage.
“ Trigger Period ” shall commence upon (i) the occurrence of an Event of Default, (ii) the commencement of a Low Debt Yield Period or (iii) the occurrence of a Current Mezzanine Loan Default; and shall end if, (A) with respect to a Trigger Period continuing pursuant to clause (i) , the Event of Default commencing the Trigger Period has been cured and such cure has been accepted by Agent (and no other Event of Default is then continuing) or (B) with respect to a Trigger Period continuing due to clause (ii) , the Low Debt Yield Period has ended pursuant to the terms hereof or (C) with respect to a Trigger Period continuing due to clause (iii), receipt by Agent of a Current Mezzanine Loan Default Revocation Notice.
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“ TRIPRA ” shall mean the Terrorism Risk Insurance Program Reauthorization Act of 2015 or any replacement, reauthorization or extension thereof.
“ Trustee ” shall mean any trustee holding the Loan in a Securitization.
“ UCC ” or “ Uniform Commercial Code ” shall mean the Uniform Commercial Code as in effect in the State (with respect to fixtures), the State of New York or the state in which any of the Cash Management Accounts are located, as the case may be.
“ Underwritten Net Cash Flow ” shall mean, as of the end of any calendar quarter for which Underwritten Net Cash Flow is determined (or ending at such other date for which Underwritten Net Cash Flow is determined), the excess of:
(a) the sum of: (1) annualized actual in place base rents and monthly recoveries received by Borrower under bona fide non-residential Leases at the Properties with Tenants in occupancy, open for business and paying full, unabated rent as of the date of such calculation, and actual percentage rents received by Borrower under such Leases for the twelve (12) months preceding such calculation; plus (2) the GPR; plus (3) actual net cash flow receipts received by Borrower from sources at the Properties (except as described in foregoing clauses (1) and (2)) to the extent such receipts are recurring in nature and properly included as Operating Income for such twelve month calculation period over
(b) for the twelve (12) month period preceding the month in which such Underwritten Net Cash Flow is calculated, the sum of Operating Expenses over such twelve (12) month period, in each case adjusted to reflect Agent’s reasonable determination of: (i) with respect to the non-residential portion of the Property, a vacancy factor equal to the greater of (A) the actual vacancy rate at the Properties (excluding the area consisting of residential space), and (B) 3% of the rentable area of commercial space at the Properties; (ii) with respect to the residential portion of the Property, a vacancy factor equal to the greater of (A) the Adjusted Actual Vacancy Rate at the Properties, as determined by Agent, and (B) 3% of GPR; (iii) subtraction of (A) an imputed capital improvement requirement amount equal to $0.20 per rentable square foot of commercial space at the Properties per annum (regardless of whether a reserve therefor is required hereunder or the amount of such reserve) and (B) $373 per residential apartment at the Properties per annum; (iv) exclusion of amounts representing non-recurring items; and (v) amounts received from (A) commercial Tenants not currently in occupancy and not paying full, unabated rent, (B) Tenants affiliated with Borrower or Guarantor, (C) commercial Tenants in default or in bankruptcy and (D) commercial Tenants under month-to-month Leases or Leases expiring within the forthcoming ninety (90) days. Agent’s calculation of Underwritten Net Cash Flow shall be final absent manifest error.
“ Union Contract ” shall mean that certain 2014 Apartment Building Agreement between Realty Advisory Board on Labor Relations Incorporated and Service Employees International Union, Local 32BJ (“ Local 32BJ ”), effective April 21, 2014 to April 20, 2018.
“ U.S. Obligations ” shall mean securities evidencing an obligation to timely pay principal and/or interest in a full and timely manner that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged, and (ii) not subject to prepayment, call or early redemption.
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Section 1.2 Index of Other Definitions . The following terms are defined in the sections or Loan Documents as indicated below:
“ 421-g Tax Benefits ” - 3.1.36
“ Acceptable SMBC Credit Support Party ” - 1.1 (Definition of “Approved Counterparty”)
“ Accounts ” - 6.1
“ Act ” - Schedule V
“ Acceptable Blanket Policy ” - 5.1.1(c)
“ Administrative Agent Advances ” – 11.10(a)
“ Agreement ” - Introductory Paragraph
“ Applicable Taxes ” - 10.24
“
Approved Annual Budget
” - 4.9.5
“
Approved Extraordinary Operating Expense
” - 4.9.6
“ Approved Monthly BI Expenses ” - 5.4(f)
“ Assignee ” – 10.28
“ Assignment and Acceptance ” – 10.28(a)
“ Available Cash ” - 6.9.1
“ Bail-In Action ” – 10.29
“ Bail-In Legislation ” – 10.29
“ Borrower ” - Introductory Paragraph
“Borrower Provided Information ” - 9.2
“ Borrower’s Recourse Liabilities ” - 10.1
“ Breakage Costs ” - 2.2.5
“ Capital Expenditure Account ” - 6.5.1
“ Capital Expenditure Funds ” - 6.5.1
“ Cash Collateral Account ” - 6.8
“ Cash Collateral Funds ” - 6.8
“ Cash Management Accounts ” - 6.10
“ Casualty ” - 5.2
“ Casualty and Condemnation Account ” - 6.7
“ Casualty and Condemnation Funds ” - 6.7
“ Casualty Consultant ” - 5.4(b)(iii)
“ Casualty Retainage ” - 5.4(b)(iv)
“ Cause ” - Schedule V
“ Clearing Account ” - 6.1
“ Clearing Bank ” - 6.1
“ Committee ” - Schedule V
“ Condemnation Proceeds ” - 5.4(b)
“ Contributing Employer ” – 4.31(e)
“ Counterparty Opinion ” - 2.6.3
“ DB ” - Introductory Paragraph
“ Debt Service Account ” - Cash Management Agreement
“ Decision Notice ” – 10.27(e)
“DHCR” – 4.33
“ Disclosure Document ” - 9.2(a)
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“ Easements ” - 3.1.11
“ EEA Financial Institution ” – 10.29
“ EEA Member Country ” – 10.29
“ EEA Resolution Authority ” – 10.29
“ Embargoed Person ” - 4.32(c)
“ Equipment ” - Mortgage
“ ERISA ” - 4.31
“ EU Bail-In Legislation Schedule ” – 10.29
“ Event of Default ” - 8.1
“ Exchange Act ” - 9.2(a)
“ Exchange Act Filing ” - 9.1(d)
“ Extraordinary Operating Expense ” - 4.9.6
“ Final Order ” – 4.33
“ First Extended Maturity Date ” - 2.7.1
“ First Extension Notice ” - 2.7.1
“ First Extension Option ” - 2.7.1
“ Government Lists ” - 4.32(b)
“ Improvements ” - Mortgage
“ Increased Costs ” - 2.9.1
“ Indemnified Liabilities ” - 4.30
“ Independent Director ” - Schedule V
“ Independent Manager ” - Schedule V
“ Initial Interest Period ” - 2.3.1
“ Insurance Account ” - 6.4.1
“ Insurance Funds ” - 6.4.1
“ Insurance Premiums ” - 5.1.1(b)
“ Insurance Proceeds ” - 5.4(b)
“ Intellectual Property ” - 3.1.33
“ Interest Period ” - 2.3.2
“ Interest Shortfall ” - 2.4.5
“ Key Principal Estate ” - 7.2(g)(v)
“ Lease Termination Payments ” - 6.6.1(b)(i)
“ Lender ” - Introductory Paragraph
“ Lender Group ” - 9.2(b)
“ Liabilities ” - 9.2(b)
“ Licenses ” - 3.1.9
“ Nationally Recognized Service Company ” - Schedule V
“ Net Proceeds ” - 5.4(b)
“ Net Proceeds Deficiency ” - 5.4(b)(vi)
“ Note ” - 2.1.3
“ Notice ” - 10.6
“ OECD ” – 1.1 (Definition of “ Qualified Lender ”)
“ OFAC ” - 4.32(b)
“ Other Taxes ” - 2.9.3
“ Participant Register ” – 10.28(e)
“ Patriot Act Offense ” - 4.32(b)
“ Permitted Affiliate Residential Leases ” - 4.11.1
“ Permitted Equipment Financing ” - 4.21
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“ Permitted Indebtedness ” - 4.21
“ Permitted Investments ” - Cash Management Agreement
“ Permitted Transfer ” - 7.2
“ PML ” - 5.1.1(a)
“ Policies ” - 5.1.1(b)
“ Qualified Carrier ” - 5.1.1(i)
“ Radius ” - 5.1.1(a)
“ Rate Cap Collateral ” - 2.6.2
“ Register ” – 10.28(d)
“ Required Records ” - 4.9.7
“ Required Repairs ” - 6.2.1
“ Review Waiver ” - 10.3(b)
“ Rollover Account ” - 6.6.1(b)
“ Rollover Funds ” - 6.6.1(a)
“ RPTL ” - 3.1.36
“ RPTL Tax Benefit Law ” - 3.1.36
“ Second Extended Maturity Date ” - 2.7.1
“ Second Extension Notice ” - 2.7.1
“ Second Extension Option ” - 2.7.1
“ Secondary Market Transaction ” - 9.1(a)
“ Securities ” - 9.1(a)
“ Securities Act ” - 9.2(a)
“ Securitization ” - 9.1(a)
“ Servicer ” - 10.21
“ Servicing Agreement ” - 10.21
“ Sole Member ” - Schedule V
“ Special Member ” - Schedule V
“ Special Purpose Bankruptcy Remote Entity ” - Schedule V
“ Specific SPE Covenants ” - 10.1
“ Springing Recourse Event ” - 10.1
“ Succeeding Interest Period ” - 2.4.5
“ Tax Account ” - 6.3.1
“ Tax Funds ” - 6.3.1
“ Terrorism Premium Cap ” - 5.1.1(e)
“ Third Extended Maturity Date ” - 2.7.1
“ Third Extension Notice ” - 2.7.1
“ Third Extension Option ” - 2.7.1
“ Transfer ” - 4.2
“ Transfer and Assumption ” - 7.1
“ Transferee Borrower ” - 7.1
“ Underwriter Group ” - 9.2(b)
“ Updated Information ” - 9.1(b)(i)
“ Write-Down and Conversion Powers ” – 10.29
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Section 1.3 Principles of Construction . All references to sections and schedules are to sections and schedules in or to this Agreement unless otherwise specified. Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document as a whole and not to any particular provision hereof or thereof. When used in this Agreement or any other Loan Document, the word “including” shall mean “including but not limited to”. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.
Article 2
THE LOAN
Section 2.1 The Loan .
2.1.1 Agreement to Lend and Borrow . Subject to and upon the terms and conditions set forth herein, Lenders shall make the Loan to Borrower and Borrower shall accept the Loan from Lenders on the Closing Date.
2.1.2 Single Disbursement to Borrower . Borrower shall receive only one borrowing hereunder in respect of the Loan and any amount borrowed and repaid hereunder in respect of the Loan may not be reborrowed.
2.1.3 The Note . The Loan shall be evidenced by that certain Consolidated, Amended and Restated Promissory Note of even date herewith, in the stated principal amount of Three Hundred Thirty Five Million and No/100 Dollars ($335,000,000.00) executed by Borrower and payable to the order of Lenders in evidence of the Loan (as the same may hereafter be amended, supplemented, restated, increased, extended or consolidated from time to time, the “ Note ”) and shall be repaid in accordance with the terms of this Agreement, the Note and the other Loan Documents.
2.1.4 Use of Proceeds . Borrower shall use proceeds of the Loan (together with the Current Mezzanine Loan) to (i) pay and discharge any existing loans relating to the Property, (ii) pay all past-due Taxes, Insurance Premiums and Other Charges, if any, in respect of the Properties, (iii) make deposits of the Reserve Funds, (iv) pay costs and expenses incurred in connection with the closing of the Loan and the Current Mezzanine Loan, and (v) to the extent any proceeds remain after satisfying clauses (i) through (iv) above, for such lawful purpose as Borrower shall designate.
Section 2.2 Interest Rate .
2.2.1 Interest Rate .
(a) Interest on the Outstanding Principal Balance shall accrue throughout the Term at the Interest Rate.
(b) Subject to the terms and conditions hereof, the Loan shall be a LIBOR Loan. In the event that Agent shall have determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank Eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Agent shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the next succeeding Interest Determination Date. If such notice is given, the Loan shall be converted, as of the first day of the next succeeding Interest Period, to a Prime Rate Loan. Notwithstanding any provision of this Agreement to the contrary, in no event shall Borrower have the right to convert a LIBOR Loan to a Prime Rate Loan.
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(c) If, pursuant to the terms hereof, the Loan has been converted to a Prime Rate Loan and Agent shall determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Agent shall give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the next succeeding Interest Determination Date. If such notice is given, the Loan shall be converted, as of the first day of the next succeeding Interest Period, to a LIBOR Loan. Notwithstanding any provision of this Agreement to the contrary, in no event shall Borrower have the right to convert a Prime Rate Loan to a LIBOR Loan.
(d) If the adoption of any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for any Lender to maintain a LIBOR Loan as contemplated hereunder, (i) the obligation of such Lender hereunder to make or maintain a LIBOR Loan or to convert a Prime Rate Loan to a LIBOR Loan shall be canceled forthwith and (ii) any outstanding LIBOR Loan shall be converted automatically to a Prime Rate Loan on the first day of the next succeeding Interest Period, or upon such earlier date as may be required by law. Borrower hereby agrees to promptly pay to such Lender, upon demand, any additional amounts necessary to compensate such Lender for any costs incurred by such Lender in making any conversion in accordance with this Agreement, including without limitation, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain the LIBOR Loan hereunder. Such Lender’s notice of such costs, as certified to Borrower, shall be conclusive absent manifest error.
2.2.2 Default Rate . In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the Outstanding Principal Balance and, to the extent not prohibited by applicable law, all other portions of the Debt, shall accrue interest at the Default Rate, calculated from the date such payment was due or such Default shall have occurred without regard to any grace or cure periods contained herein. Interest at the Default Rate shall be paid immediately upon demand, which demand may be made as frequently as Agent shall elect, to the extent not prohibited by applicable law.
2.2.3 Interest Calculation . Interest on the Outstanding Principal Balance shall be calculated by multiplying (A) the actual number of days elapsed in the period for which the calculation is being made by (B) a daily rate based on a three hundred sixty (360) day year (that is, the Interest Rate expressed as an annual rate divided by 360) by (C) the Outstanding Principal Balance. The accrual period for calculating interest due on each Monthly Payment Date shall be the Interest Period in which such Monthly Payment Date occurs.
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2.2.4 Usury Savings . This Agreement and the other Loan Documents are subject to the express condition that at no time shall Borrower be required to pay interest on the Outstanding Principal Balance at a rate which could subject Agent or any Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the Outstanding Principal Balance at a rate in excess of the Maximum Legal Rate, the Interest Rate shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Agent or any Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.
2.2.5 Breakage Indemnity . Borrower shall indemnify Agent for its own account or for the account of the applicable Lender(s) (as the case may be) against any loss or expense which Agent or any Lender may actually sustain or incur in liquidating or redeploying deposits from third parties acquired to effect or maintain the Loan or any part thereof as a consequence of (i) any payment or prepayment of the Loan or any portion thereof made on a date other than a Monthly Payment Date and (ii) any default in payment or prepayment of the Outstanding Principal Balance or any part thereof or interest accrued thereon, as and when due and payable (at the date thereof or otherwise, and whether by acceleration or otherwise) (collectively, “ Breakage Costs ”). Agent shall deliver to Borrower a statement for any such sums which it (or any Lender) is entitled to receive pursuant to this Section 2.2.5 , which statement shall be binding and conclusive absent manifest error. Borrower’s obligations under this Section 2.2.5 are in addition to Borrower’s obligations to pay any Spread Maintenance Premium applicable to a payment or prepayment of the Loan.
Section 2.3 Loan Payments .
2.3.1 Payments . On the date hereof, Borrower shall pay interest on the unpaid Outstanding Principal Balance from the date hereof through and including November 14, 2016 (the “ Initial Interest Period ”). On December 9, 2016 and each Monthly Payment Date thereafter during the Term, Borrower shall pay interest on the unpaid Outstanding Principal Balance accruing through the last day of the Interest Period in which such Monthly Payment Date occurs. Borrower shall also pay to Agent all amounts required in respect of Reserve Funds as set forth in Article 6 hereof.
2.3.2 Payments Generally . After the Initial Interest Period, each interest accrual period thereafter (each, an “ Interest Period ”) shall commence on the fifteenth (15 th ) calendar day of a calendar month and ending on (and including) the fourteenth (14 th ) calendar day of the following calendar month; provided, that in the event that the Agent elects to reset LIBOR as provided in the definition of the term “Interest Determination Date” (i) the Interest Period then in effect shall end on (and include) the calendar day prior to the Securitization Date and (ii) a new Interest Period shall commence on the Securitization Date and shall end on (and include) the next fourteenth (14 th ) day of a calendar month to occur. For purposes of making payments hereunder, but not for purposes of calculating interest accrual periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding Business Day. Agent shall have the right from time to time, in its sole discretion, upon not less than ten (10) days prior written notice to Borrower, to change the Monthly Payment Date to a different calendar day and, if requested by Agent, Borrower shall promptly execute an amendment to this Agreement to evidence such change; provided, however, that if Agent shall have elected to change the Monthly Payment Date as aforesaid, Agent shall have the option, but not the obligation, to adjust the Interest Period and the Interest Determination Date accordingly. All amounts due pursuant to this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever.
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2.3.3 Payment on Maturity Date . Borrower shall pay to Agent on the Maturity Date the Outstanding Principal Balance, all accrued and unpaid interest and all other amounts due hereunder and under the Note, the Mortgage and the other Loan Documents.
2.3.4 Late Payment Charge . If any principal, interest or any other sum due under the Loan Documents (other than the Outstanding Principal Balance due and payable on the Maturity Date) is not paid by Borrower on the date on which it is due, Borrower shall pay to Agent upon demand an amount equal to the lesser of four percent (4%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray the expense incurred by Agent in handling and processing such delinquent payment and to compensate Lenders for the loss of the use of such delinquent payment. Any such amount shall be secured by the Mortgage and the other Loan Documents to the extent permitted by law.
2.3.5 Method and Place of Payment .
(a) Except as otherwise specifically provided herein or any other Loan Document, all payments and prepayments under this Agreement and the Note shall be made to Agent not later than 3:00 p.m., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Agent’s office or at such other place as Agent shall from time to time designate, and any funds received by Agent after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.
(b) Whenever any payment to be made hereunder or under any other Loan Document shall be stated to be due on a day which is not a Business Day, the due date thereof shall be the immediately preceding Business Day.
(c) All payments required to be made by Borrower hereunder or under the Note or the other Loan Documents shall be made irrespective of, and without deduction for, any setoff, claim or counterclaim and shall be made irrespective of any defense thereto.
2.3.6 Forwarding of Payments by Agent . Except as otherwise agreed by Agent and Lender, each payment received by Agent under this Agreement or the Note for the account of any Lender shall be paid by Agent promptly to such Lender, in immediately available funds, for the Loan or other portion of the Debt in respect of which such payment is made.
2.3.7 Ratable Shares/ Pro Rata Treatment of Payments . Except to the extent otherwise provided herein: (a) the Loan shall be allocated Ratably among the Lenders according to the amounts of their Ratable Share; (b) each payment or prepayment of principal of the Loan by Borrower (including those made from Net Proceeds) shall be made Ratably for the account of the Lender; (c) each payment of interest on the Loan by Borrower shall be made for the Ratable account of Lender and (d) all losses, costs and expenses suffered by the Agent and/or the Lenders relating to the Loan, in each case, shall be allocated by Agent pro rata among the Lenders in accordance with their respective Ratable Shares.
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Section 2.4 Prepayments .
2.4.1 Prepayments . Except as otherwise provided herein, Borrower shall not have the right to prepay the Loan in whole or in part prior to the Stated Maturity Date.
2.4.2 Voluntary Prepayments . Borrower shall have the right, only on a Business Day, to prepay the Outstanding Principal Balance in whole, but not in part (except for partial prepayments pursuant to clauses (b) and/or (f) of Section 2.7.1 ) upon satisfaction of the following conditions:
(a) Borrower shall deliver to Agent a Prepayment Notice; and
(b) Borrower shall comply with the provisions set forth in Section 2.4.5 ; provided that if such prepayment is made on or after the Spread Maintenance Date, such prepayment shall be without any prepayment penalties set forth in clause (iv) of Section 2.4.5(a) .
2.4.3 Mandatory Prepayments . If Agent is not obligated to make Net Proceeds available to Borrower for Restoration and determines not to make any such Net Proceeds available to Borrower for Restoration, on the next occurring Monthly Payment Date following the date on which (a) Agent actually receives any Net Proceeds, and (b) Agent has determined that such Net Proceeds shall be applied against the Debt, Borrower shall prepay, or authorize Agent to apply Net Proceeds as a prepayment of, the Debt in an amount equal to one hundred percent (100%) of such Net Proceeds. Except during an Event of Default, such Net Proceeds shall be applied by Agent as follows in the following order of priority: First, to any other amounts (other than principal and interest) then due and payable under the Loan Documents, including any costs and expenses of Agent and Lenders in connection with such prepayment); Second ; accrued and unpaid interest at the Interest Rate; and Third, to the Outstanding Principal Balance. Notwithstanding anything herein to the contrary, so long as no Event of Default is continuing, no Spread Maintenance Premium or any other prepayment premium, penalty or fee shall be due in connection with any prepayment made pursuant to this Section 2.4.3 . In no event shall any Spread Maintenance Premium be due in connection with any prepayment with Net Proceeds or pursuant to Section 5.4(c) made after the Spread Maintenance Date. Any partial principal prepayment under this Section 2.4.3 shall be applied to the last payments of principal due under the Loan.
2.4.4 Prepayments After Default . If, during the continuance of an Event of Default, payment of all or any part of the Debt is tendered by Borrower and accepted by Agent or is otherwise recovered by Agent (including through application of any Reserve Funds), such tender or recovery shall be deemed to be a voluntary prepayment by Borrower in violation of the prohibition against prepayment set forth in Section 2.4.1 hereof, and Borrower shall pay, as part of the Debt, all of: (i) all accrued interest calculated at the Interest Rate on the amount of principal being prepaid through and including the date of such prepayment together with an amount equal to the interest that would have accrued at the Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment, (ii) the Interest Shortfall, if applicable, with respect to the amount prepaid; (iii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clauses (i) and (ii), and (iv) an amount equal to the Spread Maintenance Premium (if made before the Spread Maintenance Date).
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2.4.5 Prepayment/Repayment Conditions .
(a) On the date on which a prepayment, voluntary or mandatory, is made under the Note or as required under this Agreement, which date must be a Business Day, Borrower shall pay to Agent:
(i) all accrued and unpaid interest calculated at the Interest Rate on the amount of principal being prepaid through and including the Repayment Date together with an amount equal to the interest that would have accrued at the Interest Rate on the amount of principal being prepaid through the end of the Interest Period in which such prepayment occurs, notwithstanding that such Interest Period extends beyond the date of prepayment;
(ii) if such prepayment is made during the period from and including the first day after a Monthly Payment Date through and including the last day of the Interest Period in which such Monthly Payment Date occurs, all interest on the principal amount being prepaid which would have accrued from the first day of the Interest Period immediately following the Interest Period in which the prepayment occurs (the “ Succeeding Interest Period ”) through and including the end of the Succeeding Interest Period, calculated at (A) the Interest Rate if such prepayment occurs on or after the Interest Determination Date for the Succeeding Interest Period or (B) the Assumed Note Rate if such prepayment occurs before the Interest Determination Date for the Succeeding Interest Period (the “ Interest Shortfall ”);
(iii) Breakage Costs, if any, without duplication of any sums paid pursuant to the preceding clauses (i) and (ii);
(iv) the Spread Maintenance Premium applicable thereto (if such prepayment occurs on or prior to the Spread Maintenance Date); and
(v) all other sums, then due under the Note, this Agreement, the Mortgage, and the other Loan Documents.
(b) If the Interest Shortfall was calculated based upon the Assumed Note Rate, upon determination of LIBOR on the Interest Determination Date for the Succeeding Interest Period, (i) if the Interest Rate for such Succeeding Interest Period is less than the Assumed Note Rate, Agent shall promptly refund to Borrower the amount of the Interest Shortfall paid, calculated at a rate equal to the difference between the Assumed Note Rate and the Interest Rate for such Interest Period, or (ii) if the Interest Rate is greater than the Assumed Note Rate, Borrower shall promptly (and in no event later than the ninth (9th) day of the following month) pay Agent the amount of such additional Interest Shortfall calculated at a rate equal to the amount by which Interest Rate exceeds the Assumed Note Rate.
(c) Without duplication of any amounts paid by Borrower pursuant to the foregoing clause (a) , Borrower shall pay all reasonable costs and expenses of Agent and Lenders incurred in connection with the repayment or prepayment (including without limitation, any costs and expenses associated with a release of the Lien of the Mortgage as set forth in Section 2.5 below and reasonable attorneys’ fees and expenses).
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Section 2.5 Release Upon Payment in Full .
2.5.1 Release of Properties . Agent shall, upon the written request and at the expense of Borrower, upon payment in full of the Debt in accordance with the terms and provisions of the Loan Documents, release the Lien of the Mortgage. Agent shall deliver to Borrower on the Repayment Date a release of Lien (and related Loan Documents) executed by Agent. Such release shall be in a form appropriate in the jurisdiction in which the Property is located and contain standard provisions protecting the rights of the releasing lender. Borrower shall pay all costs, taxes and expenses associated with the release of the Lien of the Mortgage, including Agent’s reasonable attorneys’ fees.
2.5.2 Assignment of Mortgage Lien . Notwithstanding anything to the contrary in this Article 2, upon the request of Borrower, and in lieu of releasing the Lien of the Mortgage, Agent shall take the actions with respect to the Mortgage in accordance with, and subject to, the terms and conditions set forth in Section 15.01(f) of the Mortgage.
Section 2.6 Interest Rate Cap Agreement .
2.6.1 Interest Rate Cap Agreement . Prior to or contemporaneously with the Closing Date, Borrower shall have obtained, and thereafter maintain in effect, the Interest Rate Cap Agreement, which shall have a term expiring no earlier than the last day of the Interest Period in which the Stated Maturity Date occurs and have a notional amount which shall not at any time be less than the Outstanding Principal Balance. The Interest Rate Cap Agreement shall have a strike rate equal to the Strike Price.
2.6.2 Pledge and Collateral Assignment . As security for the full and punctual payment and performance of the Obligations when due (whether upon stated maturity, by acceleration, early termination or otherwise), Borrower, as pledgor, hereby pledges, assigns, hypothecates, transfers and delivers to Agent (on behalf of Lenders) as collateral and hereby grant to Agent (on behalf of Lenders) a continuing first priority lien on and security interest in, to and under all of the following whether now owned or hereafter acquired and whether now existing or hereafter arising (the “ Rate Cap Collateral ”): all of the right, title and interest of Borrower in and to (i) the Interest Rate Cap Agreement; (ii) all payments, distributions, disbursements or proceeds due, owing, payable or required to be delivered to Borrower in respect of the Interest Rate Cap Agreement or arising out of the Interest Rate Cap Agreement, whether as contractual obligations, damages or otherwise; and (iii) all of Borrower’s claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the Interest Rate Cap Agreement, in each case including all accessions and additions to, substitutions for and replacements, products and proceeds of any or all of the foregoing.
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2.6.3 Covenants .
(a) Borrower shall comply in all material respects with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Counterparty under the Interest Rate Cap Agreement to Borrower or Agent shall be deposited immediately into the Clearing Account pursuant to Section 6.1 . Subject to the terms hereof, provided no Event of Default has occurred and is continuing, Borrower shall be entitled to exercise all rights, powers and privileges of Borrower under, and to control the prosecution of all claims with respect to, the Interest Rate Cap Agreement and the other Rate Cap Collateral. Borrower shall take all actions reasonably requested by Agent to enforce Borrower’s rights under the Interest Rate Cap Agreement in the event of a default by the Counterparty thereunder and shall not waive, amend or otherwise modify any of its rights thereunder in any material respect.
(b) Borrower shall in all material respects defend Agent’s and Lenders’ right, title and interest in and to the Rate Cap Collateral pledged by Borrower pursuant hereto or in which it has granted a security interest pursuant hereto against the claims and demands of all other Persons, except those claiming by, through or under Agent (on behalf of Lenders).
(c) In the event of any downgrade, withdrawal or qualification of the rating of the Counterparty such that it ceases to qualify as an “Approved Counterparty”, Borrower shall replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement not later than ten (10) Business Days following receipt of notice from Agent, Servicer or any other Person of such downgrade, withdrawal or qualification.
(d) In the event that Borrower fails to purchase and deliver to Agent the Interest Rate Cap Agreement as and when required hereunder, Agent may purchase the Interest Rate Cap Agreement and the out-of-pocket cost incurred by Agent in purchasing the Interest Rate Cap Agreement shall be paid by Borrower to Agent with interest thereon at the Default Rate from the date such cost was incurred by Agent until such cost is paid by Borrower to Agent.
(e) Borrower shall not sell, assign, or otherwise dispose of, or mortgage, pledge or grant a security interest in, any of the Rate Cap Collateral or any interest therein, and any sale, assignment, mortgage, pledge or security interest whatsoever made in violation of this covenant shall be a nullity and of no force and effect, and upon demand of Agent, shall forthwith be cancelled or satisfied by an appropriate instrument in writing.
(f) Borrower shall not (i) without the prior written consent of Agent, which consent shall not be unreasonably withheld, modify, amend or supplement the terms of the Interest Rate Cap Agreement, (ii) without the prior written consent of Agent, which consent shall not be unreasonably withheld, except in accordance with the terms of the Interest Rate Cap Agreement, cause the termination of the Interest Rate Cap Agreement prior to its stated maturity date, (iii) without the prior written consent of Agent, which consent shall not be unreasonably withheld, except as aforesaid, waive or release any obligation of the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) under the Interest Rate Cap Agreement, (iv) without the prior written consent of Agent, which consent shall not be unreasonably withheld, consent or agree to any act or omission to act on the part of the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) which, without such consent or agreement, would constitute a default under the Interest Rate Cap Agreement, (v) fail to exercise promptly and diligently each and every material right which it may have under the Interest Rate Cap Agreement, (vi) take or intentionally omit to take any action or intentionally suffer or permit any action to be omitted or taken, the taking or omission of which would result in any right of offset against sums payable under the Interest Rate Cap Agreement or any defense by the Counterparty (or any successor or substitute party to the Interest Rate Cap Agreement) to payment or (vii) fail to give prompt notice to Agent of any notice of default given by or to Borrower under or with respect to the Interest Rate Cap Agreement, together with a complete copy of such notice. If Borrower shall have received written notice that the Securitization shall have occurred, no consent by Agent provided for in this Section 2.6.3 (f) shall be given by Agent unless Agent shall have received a Rating Agency Confirmation.
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(g) In connection with an Interest Rate Cap Agreement, within ten (10) days after execution of the Interest Rate Cap Agreement, Borrower shall obtain and deliver to Agent an opinion of counsel from counsel (which counsel may be in-house counsel for the Counterparty) for the Counterparty upon which Agent and its successors and assigns may rely (the “ Counterparty Opinion ”), under New York law and, if the Counterparty is a non-U.S. entity, the applicable foreign law, which shall provide in relevant part, that: (i) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Agreement; (ii) the execution and delivery of the Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property; (iii) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and (iv) the Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
2.6.4 Powers of Borrower Prior to an Event of Default . Subject to the provisions of Section 2.6.3(a) , provided no Event of Default has occurred and is continuing, Borrower shall be entitled to exercise all rights, powers and privileges of Borrower under, and to control the prosecution of all claims with respect to, the Interest Rate Cap Agreement and the other Rate Cap Collateral.
2.6.5 Representations and Warranties . Borrower hereby covenants with, and represents and warrants to, Agent and Lenders as follows:
(a) The Interest Rate Cap Agreement constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
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(b) The Rate Cap Collateral is free and clear of all claims or security interests of every nature whatsoever, except such as are created pursuant to this Agreement and the other Loan Documents, and Borrower has the right to pledge and grant a security interest in the same as herein provided without the consent of any other Person other than any such consent that has been obtained and is in full force and effect.
(c) The Rate Cap Collateral has been duly and validly pledged hereunder. All consents and approvals required to be obtained by Borrower for the consummation of the transactions contemplated by this Agreement have been obtained.
(d) Giving effect to the aforesaid grant and assignment to Agent (on behalf of Lenders), Agent (on behalf of Lenders) has, as of the date of this Agreement, and as to Rate Cap Collateral acquired from time to time after such date, shall have, a valid, and upon proper filing, perfected and continuing first priority lien upon and security interest in the Rate Cap Collateral; provided that no representation or warranty is made with respect to the perfected status of the security interest of Agent (on behalf of Lenders) in the proceeds of Rate Cap Collateral consisting of “cash proceeds” or “non-cash proceeds” as defined in the UCC except if, and to the extent, the provisions of Section 9-306 of the UCC shall be complied with.
(e) Except for financing statements filed or to be filed in favor of Agent (on behalf of Lenders) as secured party, there are no financing statements under the UCC covering any or all of the Rate Cap Collateral and Borrower shall not, without the prior written consent of Agent, until payment in full of all of the Obligations, execute and file in any public office, any enforceable financing statement or statements covering any or all of the Rate Cap Collateral, except financing statements filed or to be filed in favor of Agent (on behalf of Lenders) as secured party.
2.6.6 Payments . If Borrower at any time shall be entitled to receive any payments with respect to the Interest Rate Cap Agreement, such amounts shall, immediately upon becoming payable to Borrower, be deposited by Counterparty into the Clearing Account.
2.6.7 Remedies . Subject to the provisions of the Interest Rate Cap Agreement, if an Event of Default shall occur and then be continuing:
(a) Agent, without obligation to resort to any other security, right or remedy granted under any other agreement or instrument, shall have the right to, in addition to all rights, powers and remedies of a secured party pursuant to the UCC, at any time and from time to time, sell, resell, assign and deliver, in its sole discretion, any or all of the Rate Cap Collateral (in one or more parcels and at the same or different times) and all right, title and interest, claim and demand therein and right of redemption thereof, at public or private sale, for cash, upon credit or for future delivery, and in connection therewith Agent may grant options and may impose reasonable conditions such as requiring any purchaser to represent that any “securities” constituting any part of the Rate Cap Collateral are being purchased for investment only, Borrower hereby waiving and releasing any and all equity or right of redemption to the fullest extent permitted by the UCC or applicable law. If all or any of the Rate Cap Collateral is sold by Agent upon credit or for future delivery, Agent shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, Agent may resell such Rate Cap Collateral. It is expressly agreed that Agent may exercise its rights with respect to less than all of the Rate Cap Collateral, leaving unexercised its rights with respect to the remainder of the Rate Cap Collateral, provided, however, that such partial exercise shall in no way restrict or jeopardize Agent’s right to exercise its rights with respect to all or any other portion of the Rate Cap Collateral at a later time or times.
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(b) Agent may exercise, either by itself or by its nominee or designee, in the name of Borrower, all of Agent’s (on behalf of Lenders) rights, powers and remedies in respect of the Rate Cap Collateral, hereunder and under law.
(c) Borrower hereby irrevocably, in the name of Borrower or otherwise, authorizes and empowers Agent and assigns and transfers unto Agent, and constitutes and appoints Agent its true and lawful attorney-in-fact, and as its agent, irrevocably, with full power of substitution for Borrower and in the name of Borrower, (i) to exercise and enforce every right, power, remedy, authority, option and privilege of Borrower under the Interest Rate Cap Agreement, including any power to subordinate or modify the Interest Rate Cap Agreement (but not, unless an Event of Default exists and is continuing, the right to terminate or cancel the Interest Rate Cap Agreement), or to give any notices, or to take any action resulting in such subordination, termination, cancellation or modification and (ii) in order to more fully vest in Agent the rights and remedies provided for herein, to exercise all of the rights, remedies and powers granted to Agent in this Agreement, and Borrower further authorizes and empowers Agent, as Borrower’s attorney-in-fact, and as its agent, irrevocably, with full power of substitution for Borrower and in the name of Borrower, to give any authorization, to furnish any information, to make any demands, to execute any instruments and to take any and all other action on behalf of and in the name of Borrower which in the opinion of Agent may be necessary or appropriate to be given, furnished, made, exercised or taken under the Interest Rate Cap Agreement, in order to comply therewith, to perform the conditions thereof or to prevent or remedy any default by Borrower thereunder or to enforce any of the rights of Borrower thereunder. These powers-of-attorney are irrevocable and coupled with an interest, and any similar or dissimilar powers heretofore given by Borrower in respect of the Rate Cap Collateral to any other Person are hereby revoked.
(d) Agent may, without notice to, or assent by, Borrower or any other Person (to the extent permitted by law), but without affecting any of the Obligations, in the name of Borrower or in the name of Agent, notify the Counterparty, or if applicable, any other counterparty to the Interest Rate Cap Agreement, to make payment and performance directly to Agent; extend the time of payment and performance of, compromise or settle for cash, credit or otherwise, and upon any terms and conditions, any obligations owing to Borrower, or claims of Borrower, under the Interest Rate Cap Agreement; file any claims, commence, maintain or discontinue any actions, suits or other proceedings deemed by Agent necessary or advisable for the purpose of collecting upon or enforcing the Interest Rate Cap Agreement; and execute any instrument and do all other things deemed necessary and proper by Agent to protect and preserve and realize upon the Rate Cap Collateral and the other rights contemplated hereby.
(e) Pursuant to the powers-of-attorney provided for above, Agent may take any action and exercise and execute any instrument which it may deem necessary or advisable to accomplish the purposes hereof; provided, however, that Agent shall not be permitted to take any action pursuant to said power-of-attorney that would conflict with any limitation on Agent’s rights with respect to the Rate Cap Collateral. Without limiting the generality of the foregoing, Agent, after the occurrence and during the continuance of an Event of Default, shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Borrower representing: (i) any payment of obligations owed pursuant to the Interest Rate Cap Agreement, (ii) interest accruing on any of the Rate Cap Collateral or (iii) any other payment or distribution payable in respect of the Rate Cap Collateral or any part thereof, and for and in the name, place and stead of Borrower, to execute endorsements, assignments or other instruments of conveyance or transfer in respect of any property which is or may become a part of the Rate Cap Collateral hereunder.
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(f) Agent may exercise all of the rights and remedies of a secured party under the UCC.
(g) Without limiting any other provision of this Agreement or any of Borrower’s rights hereunder, and without waiving or releasing Borrower from any obligation or default hereunder, Agent shall have the right, but not the obligation, to perform any act or take any appropriate action, as it, in its reasonable judgment, may deem necessary to protect the security of this Agreement, to cure such Event of Default or to cause any term, covenant, condition or obligation required under this Agreement or the Interest Rate Cap Agreement to be performed or observed by Borrower to be promptly performed or observed on behalf of Borrower. All amounts advanced by, or on behalf of, Agent in exercising its rights under this Section 2.6.7(g) (including, but not limited to, reasonable legal expenses and disbursements incurred in connection therewith), together with interest thereon at the Default Rate from the date of each such advance, shall be payable by Borrower to Agent upon demand and shall be secured by this Agreement.
2.6.8 Sales of Rate Cap Collateral . Following the occurrence and during the continuance of an Event of Default, no demand, advertisement or notice, all of which are, to the fullest extent permitted by law, hereby expressly waived by Borrower, shall be required in connection with any sale or other disposition of all or any part of the Rate Cap Collateral, except that Agent shall give Borrower at least thirty (30) Business Days’ prior written notice of the time and place of any public sale or of the time when and the place where any private sale or other disposition is to be made, which notice Borrower hereby agrees is reasonable, all other demands, advertisements and notices being hereby waived. To the extent permitted by law, Agent shall not be obligated to make any sale of the Rate Cap Collateral if it shall determine not to do so, regardless of the fact that notice of sale may have been given, and Agent may without notice or publication adjourn any public or private sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. Upon each private sale of the Rate Cap Collateral of a type customarily sold in a recognized market and upon each public sale, unless prohibited by any applicable statute which cannot be waived, Agent (or its nominee or designee) may purchase any or all of the Rate Cap Collateral being sold, free and discharged from any trusts, claims, equity or right of redemption of Borrower, all of which are hereby waived and released to the extent permitted by law, and may make payment therefor by credit against any of the Obligations in lieu of cash or any other obligations. In the case of all sales of the Rate Cap Collateral, public or private, Borrower shall pay all reasonable costs and expenses of every kind for sale or delivery, including brokers’ and attorneys’ fees and disbursements and any tax imposed thereon. However, the proceeds of sale of Rate Cap Collateral shall be available to cover such costs and expenses, and, after deducting such costs and expenses from the proceeds of sale, Agent shall apply any residue to the payment of the Obligations in the order of priority as set forth in this Agreement.
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2.6.9 Public Sales Not Possible . Borrower acknowledges that the terms of the Interest Rate Cap Agreement may prohibit public sales, that the Rate Cap Collateral may not be of the type appropriately sold at public sales, and that such sales may be prohibited by law. In light of these considerations, Borrower agrees that private sales of the Rate Cap Collateral shall not be deemed to have been made in a commercially unreasonably manner by mere virtue of having been made privately.
2.6.10 Receipt of Sale Proceeds . Following the occurrence and during the continuance of an Event of Default, upon any sale of the Rate Cap Collateral by Agent hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt by Agent or the officer making the sale or the proceeds of such sale shall be a sufficient discharge to the purchaser or purchasers of the Rate Cap Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to Agent or such officer or be answerable in any way for the misapplication or non-application thereof.
2.6.11 Replacement Interest Rate Cap Agreement . If, in connection with Borrower’s exercise of any Extension Option pursuant to Section 2.7 hereof, Borrower delivers a Replacement Interest Rate Cap Agreement, all the provisions of this Section 2.6 applicable to the Interest Rate Cap Agreement delivered on the Closing Date shall be applicable to the Replacement Interest Rate Cap Agreement.
Section 2.7 Extension Options .
2.7.1 Extension Options . Subject to the provisions of this Section 2.7 , Borrower shall have the option (the “ First Extension Option ”), by irrevocable written notice (the “ First Extension Notice ”) delivered to Agent no later than thirty (30) days prior to the Stated Maturity Date, to extend the Maturity Date to November 9, 2019 (the “ First Extended Maturity Date ”). In the event Borrower shall have exercised the First Extension Option, Borrower shall have the option (the “ Second Extension Option ”), by irrevocable written notice (the “ Second Extension Notice ”) delivered to Agent no later than thirty (30) days prior to the First Extended Maturity Date, to extend the First Extended Maturity Date to November 9, 2020 (the “ Second Extended Maturity Date ”). In the event Borrower shall have exercised the Second Extension Option, Borrower shall have the option (the “ Third Extension Option ”), by irrevocable written notice (the “ Third Extension Notice ”) delivered to Agent no later than thirty (30) days prior to the Second Extended Maturity Date, to extend the Second Extended Maturity Date to November 9, 2021 (the “ Third Extended Maturity Date ”). Borrower’s right to so extend the Maturity Date shall be subject to the satisfaction of the following conditions precedent prior to each extension hereunder:
(a) (i) no Event of Default shall have occurred and be continuing on the date Borrower delivers the First Extension Notice, the Second Extension Notice or the Third Extension Notice, as applicable, and (ii) no Event of Default shall have occurred and be continuing on the Stated Maturity Date, the First Extended Maturity Date and the Second Extended Maturity Date, as applicable;
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(b) Borrower shall (i) obtain and deliver to Agent not later than one (1) Business Day prior to the first day of the term of the Loan as extended, one or more Replacement Interest Rate Cap Agreements from an Approved Counterparty, in a notional amount equal to the Outstanding Principal Balance, which Replacement Interest Rate Cap Agreement(s) shall be (A) effective for the period commencing on the day immediately following the then applicable Maturity Date (prior to giving effect to the applicable Extension Option) and ending on the last day of the Interest Period in which the applicable extended Maturity Date occurs, (B) have a strike price equal to the Extension Strike Price; provided, Borrower shall be permitted to prepay, on a pro rata basis, a portion of the Loan (subject to and in accordance with Section 2.4.2 ) in an amount that maximizes the Extension Strike Price, and (C) otherwise on the same terms set forth in Section 2.6 and (ii) execute and deliver an Acknowledgement with respect to each such Replacement Interest Rate Cap Agreement;
(c) Borrower shall deliver a Counterparty Opinion with respect to the Replacement Interest Rate Cap Agreement and the related Acknowledgment;
(d) all amounts due and payable by Borrower and any other Person pursuant to this Agreement or the other Loan Documents as of the Stated Maturity Date, the First Extended Maturity Date or the Second Extended Maturity Date, as applicable, and all out-of-pocket costs and expenses of Agent and Lenders, including reasonable fees and expenses of Agent’s and Lender’s counsel, in connection with the Loan and/or the applicable extension of the Term shall have been paid in full;
(e) on the First Extended Maturity Date and the Second Extended Maturity Date, Borrower shall pay to Agent the applicable Extension Fee;
(f) the Properties shall have achieved, on the date Borrower delivers the First Extension Notice, the Second Extension Notice or the Third Extension Notice, as applicable, and on the Stated Maturity Date, the First Extended Maturity Date and the Second Extended Maturity Date, respectively, a Debt Yield of no less than 6.50%; provided, however, if the Properties do not satisfy the foregoing Debt Yield requirements provided in this Section 2.7.1(f) , Borrower shall be permitted to prepay a portion of the Loan (subject to and in accordance with Section 2.4.2 ) in an amount that would be sufficient such that the Debt Yield test set forth above shall be satisfied;
(g) after giving effect to any partial prepayments of the Loan under clause (f) of this Section 2.7.1 , the Properties shall have achieved, on the date Borrower delivers the First Extension Notice, the Second Extension Notice or the Third Extension Notice, as applicable, and on the Stated Maturity Date, the First Extended Maturity Date and the Second Extended Maturity Date, respectively, a Combined Debt Yield of no less than 5.30%; provided, however, if the Properties do not satisfy the foregoing Combined Debt Yield requirements provided in this Section 2.7.1(g) , Current Mezzanine Borrower shall be permitted to prepay a portion of the Current Mezzanine Loan (subject to and in accordance with Section 2.4.2 of the Current Mezzanine Loan Agreement) in an amount that would be sufficient such that the Combined Debt Yield test set forth above shall be satisfied; and
(h) Current Mezzanine Borrower shall have (i) timely exercised the extension option to extend the Current Mezzanine Loan, and (ii) been entitled pursuant to the terms of the Current Mezzanine Loan Documents to exercise such extension option and (iii) paid any extension fee required pursuant to the terms of the Current Mezzanine Note.
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If Borrower is unable to satisfy all of the foregoing conditions within the applicable time frames for each, Agent shall have no obligation to extend or further extend (as applicable) the Stated Maturity Date hereunder.
2.7.2 Extension Documentation . As soon as practicable following an extension of the Maturity Date pursuant to this Section 2.7 , Borrower shall, if requested by Agent, execute and deliver an amendment of and/or restatement of the Note and shall, if requested by Agent, enter into such amendments to the related Loan Documents as may be reasonably required to evidence the extension of the Maturity Date as provided in this Section 2.7 ; provided, however, that no failure by Borrower to enter into any such amendments and/or restatements shall affect the rights or obligations of Borrower or Agent with respect to the extension of the Maturity Date, and no such amendments shall materially increase the obligations or decrease the rights of Borrower or Guarantor under the Loan Documents.
Section 2.8 Spread Maintenance Premium . Except as otherwise expressly provided herein, upon any repayment or prepayment of the Loan (including in connection with an acceleration of the Loan) made on or prior to the Spread Maintenance Date, Borrower shall pay to Agent on the date of such repayment or prepayment (or acceleration of the Loan) the Spread Maintenance Premium applicable thereto. All Spread Maintenance Premium payments hereunder shall be deemed to be earned by Lenders upon the funding of the Loan.
Section 2.9 Regulatory Change; Taxes .
2.9.1 Increased Costs . If as a result of any Regulatory Change or compliance of any Lender therewith, the basis of taxation of payments to any Lender or any company Controlling any Lender of the principal of or interest on the Loan is changed or any Lender or the company Controlling any Lender shall be subject to (i) any tax, duty, charge or withholding of any kind with respect to this Agreement (excluding federal taxation of the overall net income of such Lender or the company Controlling such Lender); or (ii) any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities, of any Lender or any company Controlling any Lender is imposed, modified or deemed applicable; or (iii) any other condition affecting loans to borrowers subject to LIBOR-based interest rates is imposed on any Lender or any company Controlling any Lender and such Lender reasonably determines that, by reason thereof, the cost to such Lender or any company Controlling such Lender of making, maintaining or extending the Loan to Borrower is increased, or any amount receivable by such Lender or any company Controlling such Lender hereunder in respect of any portion of the Loan to Borrower is reduced, in each case by an amount deemed by such Lender in good faith to be material (such increases in cost and reductions in amounts receivable being herein called “ Increased Costs ”), then such Lender shall provide notice thereof to Borrower and Borrower agrees that it will pay to such Lender within five (5) days after such Lender’s written request such additional amount or amounts as will compensate such Lender or any company Controlling such Lender for such Increased Costs to the extent such Lender reasonably determines that such Increased Costs are allocable to the Loan. If any Lender requests compensation under this Section 2.9.1 , such Lender shall, if requested by notice by Borrower to such Lender, furnish to Borrower a statement setting forth the basis for requesting such compensation and the method for determining the amount thereof.
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2.9.2 Special Taxes . Borrower shall make all payments hereunder free and clear of and without deduction for Special Taxes. If Borrower shall be required by law to deduct any Special Taxes from or in respect of any sum payable hereunder or under any other Loan Document to Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.9.2 ) each Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.
2.9.3 Other Taxes . In addition, Borrower agrees to pay any present or future stamp or documentary taxes or other excise or property taxes, charges, or similar levies which arise from any payment made hereunder, or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the other Loan Documents, or the Loan (hereinafter referred to as “ Other Taxes ”).
2.9.4 Withholding Taxes . At Borrower’s reasonable request and to the extent reasonably necessary to establish that the holder of the Loan is exempt from the withholding of Applicable Taxes under the Code, Agent shall provide Borrower with United States Revenue Service Forms 424, 1001, W-8, W-9, W-8BEN, W-8IM4, W-8ECI and/or such other forms or documents as may be applicable to establish the extent, if any, to which a payment to Agent or Lender is exempt from withholding or deduction of such taxes. For the purposes hereof, “ Applicable Taxes ” shall mean any and all present or future taxes, levies, imposts, deductions, charges or withholdings imposed by the United States, and all liabilities with respect thereto, excluding taxes imposed on Agent’s or Lender’s income or gross receipts, and franchise taxes imposed on Agent or Lender by the law or regulation of the United States. Borrower has the right to withhold taxes from payments with respect any Obligations to the extent required by any applicable Governmental Authority.
Section 2.10 Defaulting Lender .
(a) Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law, such Defaulting Lender shall be deemed not to be a “Lender” for purposes of any modification, waiver or consent with respect to any provision of the Loan Documents that requires the approval of the Lenders.
(b) If a Lender is no longer a Defaulting Lender, Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase at par that portion of its Ratable Share of the Loan funded by other Lenders or take such other actions as the Agent may determine to be necessary to cause the Loan to be held pro rata by the Lenders in accordance with their Ratable Share. Upon satisfaction of the conditions set forth in the preceding sentence, including those set forth in Agent’s notice, the applicable Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of Borrower while that Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
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(c) The Agent, or a Qualified Lender shall have the right (but not the obligation) to purchase from any Defaulting Lender, and each Defaulting Lender shall, upon such request, sell and assign to the Agent or such Qualified Lender, all of the Defaulting Lender’s outstanding Ratable Share of the Loan. Such sale shall be consummated promptly after Agent has arranged for a purchase by the Agent or a Qualified Lender pursuant to an Assignment and Acceptance, and at a price equal to the outstanding principal balance of the Defaulting Lender’s Ratable Share of the Loan, plus accrued interest, without premium or discount.
Article 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Borrower Representations . Borrower represents and warrants as of the Closing Date that, except to the extent (if any) disclosed on Schedule IV hereto with reference to a specific subsection of this Section 3.1 :
3.1.1 Organization; Special Purpose . Borrower is duly organized, validly existing and in good standing with full power and authority to own its assets and conduct its business, and is duly qualified and in good standing in the jurisdiction in which the Properties are located and in which the ownership or lease of its property or the conduct of its business requires such qualification, and Borrower has taken all necessary limited liability company action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents by it, and has the limited liability company power and authority to execute, deliver and perform under this Agreement, the other Loan Documents and all the transactions contemplated hereby. Borrower is a Special Purpose Bankruptcy Remote Entity.
3.1.2 Proceedings; Enforceability . This Agreement and the other Loan Documents have been duly authorized, executed and delivered by Borrower and constitute a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower or Guarantor including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable, and none of Borrower or Guarantor have asserted any right of rescission, set-off, counterclaim or defense with respect thereto.
3.1.3 No Conflicts . The execution and delivery of this Agreement and the other Loan Documents by Borrower and the performance of its Obligations hereunder and thereunder will not conflict with any provision of any law or regulation to which Borrower is subject, or conflict with, result in a breach of, or constitute a default under, any of the terms, conditions or provisions of Borrower’s organizational documents or any agreement or instrument to which Borrower is a party or by which it is bound, or any order or decree applicable to Borrower, or result in the creation or imposition of any Lien on Borrower’s assets or property (other than pursuant to the Loan Documents).
3.1.4 Litigation . There is no action, suit, proceeding or investigation pending or, to Borrower’s Knowledge, threatened in writing against Borrower, Guarantor, the Manager or any Property in any court or by or before any other Governmental Authority which, if adversely determined, could reasonably likely result in a Material Adverse Effect.
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3.1.5 Agreements . Borrower is not a party to any agreement or instrument or subject to any restriction which might materially and adversely affect Borrower or any Property, or Borrower’s business, properties or assets, operations or financial condition. Borrower is not in default with respect to any order or decree of any court or any order, regulation or demand of any Governmental Authority, which default might have consequences that would materially and adversely affect the financial condition or operations of Borrower or its properties or might have consequences that would materially and adversely affect its performance hereunder. Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Permitted Encumbrance or any other agreement or instrument to which it is a party or by which it or any Property is bound.
3.1.6 Consents . No consent, approval, authorization or order of any court or Governmental Authority is required for the execution, delivery and performance by Borrower of, or compliance by Borrower with, this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby, other than those which have been obtained by Borrower.
3.1.7 Properties; Title .
(a) Borrower has insurable fee simple title to the real property comprising part of the Properties and good title to the balance of the Properties owned by it, free and clear of all Liens whatsoever except the Permitted Encumbrances. The Mortgage, when properly recorded in the appropriate records, together with any Uniform Commercial Code financing statements required to be filed in connection therewith, when properly filed in the appropriate records, will create (i) valid, first priority, perfected Liens on Borrower’s interest in the Properties, subject only to Permitted Encumbrances, and (ii) perfected security interests in and to, and perfected collateral assignments of, all personalty (including the Leases), to the extent that a security interest therein may be perfected by the filing of a financing statement in accordance with the UCC, all in accordance with the terms thereof, in each case subject only to the Permitted Encumbrances. Except as disclosed to Agent in writing, there are no mechanics’, materialman’s or other similar Liens or claims which have been filed for work, labor or materials affecting any Property which are or may be Liens prior to, or equal or coordinate with, the Lien of the Mortgage. None of the Permitted Encumbrances, individually or in the aggregate, could likely result in a Material Adverse Effect.
(b) All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid under applicable Legal Requirements in connection with the transfer of the Properties to Borrower have been paid or are being paid simultaneously herewith. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid under applicable Legal Requirements in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including the Mortgage, have been paid or are being paid simultaneously herewith. All taxes and governmental assessments due and owing in respect of the Properties have been paid, or an escrow of funds in an amount sufficient to cover such payments has been established hereunder or are insured against by the Title Insurance Policies.
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(c) Each Property is comprised of one (1) or more parcels which constitute separate tax lots and do not constitute a portion of any other tax lot not a part of such Property.
(d) No Condemnation or other proceeding has been commenced or, to Borrower’s Knowledge, is contemplated with respect to all or any portion of any Property or for the relocation of roadways providing access to such Property.
(e) To Borrower’s Knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Property, nor are there any contemplated improvements to such Property that may result in such special or other assessments.
3.1.8 ERISA; No Plan Assets . As of the date hereof and throughout the Term (i) none of Borrower or Guarantor are themselves an “employee benefit plan,” as defined in Section 3(3) of ERISA or a “plan” within the meaning of Section 4975 of the Code, (ii) none of the assets of Borrower or Guarantor constitutes or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101 as modified in operation by Section 3(42) of ERISA, (iii) Borrower and Guarantor are not and will not be a “governmental plan” within the meaning of Section 3(32) of ERISA, and (iv) transactions by or with Borrower or Guarantor are not and will not be subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans. Borrower has not engaged in any transaction in connection with any Plan that could subject Borrower to either a material civil penalty assessed pursuant to the provisions of Section 502 of ERISA or a material tax imposed under the provisions of Section 4975 of the Code. As of the date hereof, neither the Borrower nor, in the case of a Guarantor who is an entity, the Guarantor, nor any ERISA Affiliate maintains, sponsors or contributes to or has any obligations with respect to a Plan or has maintained or sponsored or contributed to or had any obligations with respect to any Plan for the six plan year period prior to the date hereof. Borrower is in compliance in all material respects with the applicable provisions of ERISA and the provisions of the Code relating to Employee Benefit Plans and the regulations and published interpretations thereunder and there are no material claims pending with respect to any such plan; (ii) no ERISA Event has occurred in the six-year period prior to the date on which this representation is made or deemed made or is reasonably expected to occur and (iii) all material amounts required by applicable law with respect to, or by the terms of, any retiree welfare benefit arrangement maintained by Borrower or to which Borrower has an obligation to contribute have been accrued in accordance with Statement of Financial Accounting Standards No. 106. There would be no material liability (contingent or otherwise) of Borrower and any ERISA Affiliates with respect to the complete or partial withdrawal from all Multiemployer Plans if such a withdrawal were to occur as of the date hereof. All employees employed at the Properties are the employees of Borrower, and, except for the Union Contract, neither Borrower nor any ERISA Affiliates has any obligation or liability with respect to any collective bargaining agreement or plans thereunder. Borrower and, with respect to the Properties, Manager (1) are not involved in or been threatened in writing with any work stoppage, labor strike, slowdown or lockout labor dispute, material grievance or litigation relating to labor matters involving any employees at the Properties, including, without limitation, claims relating to a violation of any federal, state or local labor, safety or employment laws (domestic or foreign) and/or charges of unfair labor practices or discrimination complaints, (2) have not engaged in any unfair labor practices within the meaning of the National Labor Relations Act or similar law, and (3) are in compliance with, and not liable for non-compliance of any party with respect to, applicable labor and employment laws including wage-hour laws, tax withholding and other relevant laws relating to employees and independent contractors.
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3.1.9 Compliance . Except as set forth in the zoning reports delivered to Agent in connection with closing of the Loan and the municipal searches received by Agent, Borrower and each Property (including, but not limited to the Improvements) and the use thereof comply in all material respects with all applicable Legal Requirements, including parking, building and zoning and land use laws, ordinances, regulations and codes (it being understood that all representations and warranties as to environmental Legal Requirements are as set forth in the Environmental Indemnity, and as to RPTL Tax Benefit Law are as set forth in Section 3.1.36 hereof). Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, the violation of which might materially adversely affect the condition financial condition or business of Borrower. Borrower has not committed any act which may give any Governmental Authority the right to cause Borrower to forfeit the Properties or any part thereof or any monies paid in performance of Borrower’s Obligations under any of the Loan Documents. Each Property is used exclusively for multi-family residential, commercial and other appurtenant and related uses. Except as set forth in the zoning reports delivered to Agent in connection with closing of the Loan, in the event that all or any part of the Improvements are destroyed or damaged, said Improvements can be legally reconstructed to their condition prior to such damage or destruction, and thereafter exist for the same use without violating any zoning or other ordinances applicable thereto and without the necessity of obtaining any variances or special permits. No legal proceedings are pending or, to Borrower’s Knowledge, threatened in writing with respect to the zoning of any Property. Neither the zoning nor any other right to construct, use or operate any Property is in any way dependent upon or related to any property other than such Property. All certifications, permits, licenses and approvals, including without limitation, certificates of completion and occupancy permits (either temporary or permanent) required of Borrower for the legal use, occupancy and operation of the Properties for their current uses (collectively, the “ Licenses ”), have been obtained and are in full force and effect. The use being made of each Property is in conformity in all material respects with the certificate(s) of occupancy issued for such Property and all other material restrictions, covenants and conditions affecting such Property.
3.1.10 Financial Information . All financial data, including the statements of cash flow and income and operating expense with respect to the Borrower, the Guarantor and the Properties that have been delivered to Agent in connection with the Loan (i) are true, complete and correct in all material respects, (ii) accurately represent the financial condition of the Properties as of the date of such reports, and (iii) have been prepared in accordance with an Acceptable Accounting Method throughout the periods covered, except as disclosed therein. Borrower has no contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Borrower and reasonably likely to have a materially adverse effect on any Property or the operation thereof, except as referred to or reflected in said financial statements. Since the date of the financial statements, there has been no material adverse change in the financial condition, operations or business of Borrower or any Property from that set forth in said financial statements.
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3.1.11 Easements; Utilities and Public Access . To Borrower’s Knowledge, all easements, cross easements, licenses, air rights and rights-of-way or other similar property interests (collectively, “ Easements ”), if any, necessary for the full utilization of the Improvements for their intended purposes have been obtained, are described in the Title Insurance Policies and are in full force and effect without default thereunder. Each Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service such Property for its intended uses. All public utilities necessary or convenient to the full use and enjoyment of each Property are, to Borrower’s Knowledge, located in the public right-of-way abutting such Property, and, to Borrower’s Knowledge, all such utilities are connected so as to serve such Property without passing over other property absent a valid irrevocable easement. All roads necessary for the use of each Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities.
3.1.12 Assignment of Leases . The Assignment of Leases creates valid assignments of, or valid security interests in, certain rights under the Leases, subject only to a license granted to Borrower to exercise certain rights and to perform certain obligations of the lessor under the Leases, including the right to operate the Properties. No Person other than Agent and Lenders has any interest in or assignment of the Leases or any portion of the Rents due and payable or to become due and payable thereunder.
3.1.13 Insurance . Borrower has obtained and has delivered to Agent certificates of insurance evidencing the issuance of all of the Policies, with all premiums prepaid thereunder, reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No claims have been made under any of the Policies, and, to Borrower’s Knowledge, no Person, including Borrower, has done, by act or omission, anything which would impair the coverage of any of the Policies.
3.1.14 Flood Zone . No Improvements are located in an area identified by the Federal Emergency Management Agency as a special flood hazard area, or, if so located the flood insurance required pursuant to Section 5.1.1(a) hereof is in full force and effect with respect to such Property.
3.1.15 Physical Condition . Except as may be expressly set forth in the Physical Conditions Reports, to Borrower’s Knowledge, each Property, including all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; there exists no structural or other material defects or damages in any Property, whether latent or otherwise, and Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in any Property, or any part thereof, which would materially and adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or any termination or threatened termination of any policy of insurance or bond.
3.1.16 Boundaries . Except as set forth in the Title Insurance Policies, to Borrower’s Knowledge all of the Improvements which were included in determining the appraised value of each Property lie wholly within the boundaries and building restriction lines of such Property, and no improvements on adjoining properties encroach upon any Property, and no easements or other encumbrances affecting any Property encroach upon any of the Improvements, so as to affect the value or marketability of such Property, except those which are set forth on the Survey of such Property and insured against by the Title Insurance Policy for such Property.
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3.1.17 Leases .
(a) The rent rolls attached hereto as Schedule I are true, complete and correct and no Property is subject to any Leases other than the Leases described in Schedule I . Borrower is the owner and lessor of landlord’s interest in the Leases. No Person has any possessory interest in any Property or right to occupy the same except under and pursuant to the provisions of the Leases.
(b) With respect to residential Leases, except as set forth on the rent rolls attached hereto as Schedule I : (i) the Leases are in full force and effect and there are no material defaults thereunder by either party beyond any applicable notice or cure period, and, to Borrower’s Knowledge, except for certain rent arrearages that have been disclosed to Agent as of the date of this Agreement, there are no conditions that, with the passage of time or the giving of notice, or both, would constitute defaults thereunder, (ii) the copies of the Leases delivered to Agent are true and complete, and, to Borrower’s Knowledge, there are no oral agreements with respect thereto, (iii) no Rent (including security deposits but not including last month’s rent) has been paid more than one (1) month in advance of its due date, (iv) any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by Borrower to any Tenant has already been received by such Tenant, (v) Borrower has delivered to Agent a true, correct and complete list of all security deposits made by Tenants at any Property which have not been applied (including accrued interest thereon), all of which are held by Borrower in accordance with the terms of the applicable Lease and applicable Legal Requirements, (vi) to Borrower’s Knowledge, each Tenant under a Major Lease is free from bankruptcy or reorganization proceedings, and (vii) there are no brokerage fees or commissions due and payable in connection with the leasing of space at any Property, except as has been previously disclosed to Agent in writing, and no such fees or commissions will become due and payable in the future in connection with the Leases, including by reason of any extension of such Lease or expansion of the space leased thereunder, except as has previously been disclosed to Agent in writing.
(c) With respect to non-residential Leases, except as set forth on the rent rolls attached hereto as Schedule I : (i) the Leases are in full force and effect and there are no defaults thereunder by either party beyond any applicable notice or cure period, and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute defaults thereunder, (ii) the copies of the Leases delivered to Agent are true and complete, and there are no oral agreements with respect thereto, (iii) no Rent (including security deposits) has been paid more than one (1) month in advance of its due date, (iv) all work to be performed by Borrower under any Lease has been performed as required and has been accepted by the applicable Tenant, (v) any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by Borrower to any Tenant has already been received by such Tenant, (vi) the Tenants under the Leases have accepted possession of and are in occupancy of all of their respective demised Property and have commenced the payment of full, unabated rent under the Leases, (vii) Borrower has delivered to Agent a true, correct and complete list of all security deposits made by Tenants at any Property which have not been applied (including accrued interest thereon), all of which are held by Borrower in accordance with the terms of the applicable Lease and applicable Legal Requirements, (viii) each Tenant under a Major Lease is free from bankruptcy or reorganization proceedings, (ix) no Tenant under any Lease (or any sublease) is an Affiliate of Borrower, (x) the Tenants under the Leases are open for business and paying full, unabated rent and no Tenant has informed Borrower in writing that it intends to discontinue its business at its premises, (xi) there are no brokerage fees or commissions due and payable in connection with the leasing of space at any Property, except as has been previously disclosed to Agent in writing, and no such fees or commissions will become due and payable in the future in connection with the Leases, including by reason of any extension of such Lease or expansion of the space leased thereunder, except as has previously been disclosed to Agent in writing, (xii) no Tenant under any Lease has any right or option for additional space in the Improvements and (xiii) to Borrower’s Knowledge, no Tenant has assigned its Lease or sublet all or any portion of the premises demised thereby, and no such Tenant holds its leased premises under assignment or sublease, nor does anyone except such Tenant and its employees occupy such leased premises. There has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is still in effect.
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(d) No Tenant under any Lease has a right or option pursuant to such Lease to purchase all or any part of the leased premises or the building of which the leased premises are a part.
3.1.18 Tax Filings . To the extent required, Borrower has filed (or has obtained effective extensions for filing) all federal, state, commonwealth, district and local tax returns required to be filed and has paid or made adequate provision for the payment of all federal, state, commonwealth, district and local taxes, charges and assessments payable by Borrower. Borrower’s tax returns (if any) properly reflect the income and taxes of Borrower for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit.
3.1.19 No Fraudulent Transfer . Borrower has not entered into the transaction or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and Borrower has received reasonably equivalent value in exchange for its Obligations under the Loan Documents. After giving effect to the Loan, the fair saleable value of Borrower’s assets exceeds and will, immediately following the making of the Loan, exceed Borrower’s total liabilities, including subordinated, unliquidated, disputed and contingent liabilities; (ii) the fair saleable value of Borrower’s assets is, and immediately following the making of the Loan, will be, greater than Borrower’s probable liabilities, including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured; (iii) Borrower’s assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted; and (iv) Borrower does not intend to, and does not believe that it will, incur Indebtedness and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such Indebtedness and liabilities as they mature (taking into account the timing and amounts of cash to be received by Borrower and the amounts to be payable on or in respect of the obligations of Borrower). No petition in bankruptcy has been filed against Borrower or any constituent Person of Borrower, and neither Borrower or any constituent Person of Borrower has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. Neither Borrower or any constituent Persons of Borrower are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of Borrower’s assets or properties, and Borrower does not have Borrower’s Knowledge of any constituent Person contemplating the filing of any such petition against it or such constituent Persons.
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3.1.20 Federal Reserve Regulations . No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents.
3.1.21 Organizational Chart . The organizational chart attached as Schedule III , relating to Borrower and certain Affiliates and other parties, is true, complete and correct on and as of the date hereof. No Person other than those Persons shown on Schedule III have any ownership interest in, or right of control, directly or indirectly, in Borrower.
3.1.22 Organizational Status . Borrower’s exact legal name, organizational type (e.g., corporation, limited liability company) and the jurisdiction in which Borrower is organized are set forth on the organizational chart attached hereto as Schedule III . Borrower’s Tax I.D. number is 47-2418604 and Organizational I.D. number is 5647853.
3.1.23 Bank Holding Company . Borrower is not a “bank holding company” or a direct or indirect subsidiary of a “bank holding company” as defined in the Bank Holding Company Act of 1956, as amended, and Regulation Y thereunder of the Board of Governors of the Federal Reserve System.
3.1.24 No Casualty . No Improvements at any Property have suffered a material casualty or damage which has not been fully repaired and the cost thereof fully paid.
3.1.25 Purchase Options . No Property or any part thereof is subject to any purchase options, rights of first refusal, rights of first offer or other similar rights in favor of third parties.
3.1.26 FIRPTA . Borrower is not a “foreign person” within the meaning of Sections 1445 or 7701 of the Code.
3.1.27 Investment Company Act . Borrower is not (i) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject to any other United States federal or state law or regulation which purports to restrict or regulate its ability to borrow money.
3.1.28 Fiscal Year . Each fiscal year of Borrower commences on January 1.
3.1.29 Other Debt . There is no indebtedness with respect to any Property or any excess cash flow or any residual interest therein, whether secured or unsecured, other than Permitted Encumbrances and Permitted Indebtedness.
3.1.30 Contracts .
(a) Borrower has not entered into, nor is bound by, any Major Contract which continues in existence, except those previously disclosed in writing to Agent.
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(b) Each of the Major Contracts is in full force and effect, there are no monetary or other material defaults by Borrower thereunder and, to Borrower’s Knowledge, there are no monetary or other material defaults thereunder by any other party thereto. None of Borrower, Manager or any other Person acting on Borrower’s behalf has given or received any notice of default under any of the Major Contracts that remains uncured or in dispute.
(c) Borrower has delivered true, correct and complete copies of the Major Contracts (including all amendments and supplements thereto) to Agent.
(d) No Major Contract has as a party an Affiliate of Borrower. All fees and other compensation for services previously performed under the Management Agreements have been paid in full.
3.1.31 Full and Accurate Disclosure . No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading in light of the circumstances under which they were made. There is no material fact presently known to Borrower which has not been disclosed to Agent which materially adversely affects, or as far as Borrower can foresee, might materially adversely affect, any Property or the business, operations or condition (financial or otherwise) of Borrower.
3.1.32 Other Obligations and Liabilities . Borrower has no liabilities or other obligations that arose or accrued prior to the date hereof that, either individually or in the aggregate, could have a Material Adverse Effect. Borrower has no known contingent liabilities (other than the ongoing litigation relating to 421-g Tax Benefits at the Property, which, if adversely decided, would not have a Material Adverse Effect).
3.1.33 Intellectual Property/Websites . Other than as set forth on Schedule VI , neither Borrower nor any Affiliate (i) has or holds any tradenames, trademarks, servicemarks, logos, copyrights, patents or other intellectual property (collectively, “ Intellectual Property ”) with respect to any Property or the use or operations thereof or (ii) is the registered holder of any website with respect to such Property (other than Tenant websites).
3.1.34 Operations Agreements . To Borrower’s Knowledge, (i) each Operations Agreement is in full force and effect, (ii) Borrower is not in default thereunder, and, (iii) there are no conditions which, with the passage of time or the giving of notice, or both, would constitute a default thereunder.
3.1.35 Illegal Activity . No portion of any Property has been or will be purchased in the future, in each case by Borrower or any Affiliate of Borrower, with proceeds of any illegal activity.
3.1.36 Residential Tax Benefits . The Property is receiving real estate tax benefits (the “ 421-g Tax Benefits ”) pursuant to Real Property Tax Law (the “ RPTL ”) § 421-g (the “ RPTL Tax Benefit Law ”). The “Exemption” for the 110 Church Property expired June 30, 2015 and the 110 Church Property is currently receiving an “Abatement”, which ends June 30, 2017. The “Abatement” for the 53 Park Place Property expired June 30, 2015. The 421-g Tax Benefits for the 110 Church Property is currently subject to a phase-out such that Borrower will be paying real estate taxes without any 421-g Tax Benefits on July 1, 2017 with respect to such Property.
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Section 3.2 Survival of Representations . The representations and warranties set forth in Section 3.1 and elsewhere in this Agreement and the other Loan Documents shall (i) survive until the Obligations have been paid and performed in full and (ii) be deemed to have been relied upon by Agent and Lenders notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf.
Article
4
BORROWER COVENANTS
Until the end of the Term, Borrower hereby covenants and agrees with Agent and Lenders that:
Section 4.1 Payment and Performance of Obligations . Borrower shall pay and otherwise perform the Obligations in accordance with the terms of this Agreement and the other Loan Documents.
Section 4.2 Due on Sale and Encumbrance; Transfers of Interests . Borrower acknowledges that Agent and Lenders have examined and relied on the experience of Borrower and its stockholders, general partners and members, as applicable, and principals of Borrower in owning and operating properties such as the Properties in agreeing to make the Loan, and will continue to rely on Borrower’s ownership of the Property owned by Borrower as a means of maintaining the value of the Properties as security for repayment of the Debt and the performance of the Other Obligations. Borrower acknowledges that Agent and Lenders have a valid interest in maintaining the value of the Properties so as to ensure that, should Borrower default in the repayment of the Debt or the performance of the Other Obligations, Agent can recover the Debt by a sale of the Properties. Therefore, without the prior written consent of Agent, but, in each instance, subject to the provisions of Article 7 , neither Borrower nor any other Person having a direct or indirect ownership or beneficial interest in Borrower shall sell, convey, mortgage, grant, bargain, encumber, pledge, assign or transfer any Property or any part thereof, or any interest, direct or indirect, in Borrower, whether voluntarily or involuntarily or enter into or subject the Property to a PACE Loan (a “ Transfer ”). A Transfer within the meaning of this Section 4.2 shall be deemed to include (i) an installment sales agreement wherein Borrower agrees to sell a Property or any part thereof for a price to be paid in installments; (ii) an agreement by Borrower for the leasing of all or a substantial part of a Property for any purpose other than the actual occupancy by a space Tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower’s right, title and interest in and to any Leases or any Rents; (iii) if Borrower, Guarantor or any general partner, managing member or controlling shareholder of Borrower or Guarantor is a corporation, the voluntary or involuntary sale, conveyance or transfer of such corporation’s stock (or the stock of any corporation directly or indirectly controlling such corporation by operation of law or otherwise) or the creation or issuance of new stock; (iv) if Borrower, Guarantor or any general partner, managing member or controlling shareholder of Borrower or Guarantor is a limited or general partnership, joint venture or limited liability company, the change, removal, resignation or addition of a general partner, managing partner, limited partner, joint venturer or member or the transfer of the partnership interest of any general partner, managing partner or limited partner or the transfer of the interest of any joint venturer or member; and (v) any pledge, hypothecation, assignment, transfer or other encumbrance of any direct or indirect ownership interest in Borrower.
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Section 4.3 Liens . Borrower shall not create, incur, assume or permit to exist any Lien on any direct or indirect interest in Borrower or any portion of any Property, except for the Permitted Encumbrances. After prior notice to Agent, Borrower, at its own expense, may contest by appropriate legal proceeding, conducted in good faith and with due diligence, the amount or validity of any Liens, provided that (i) no Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with all applicable statutes, laws and ordinances; (iii) neither the applicable Property nor any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, canceled or lost; (iv) Borrower shall promptly upon final determination thereof pay the amount of any such Liens, together with all costs, interest and penalties which may be payable in connection therewith; (v) to insure the payment of such Liens, Borrower shall deliver to Agent either (A) cash, or other security as may be reasonably acceptable to Agent, in an amount not to exceed one hundred ten percent (110%) of the contested amount or (B) a payment and performance bond in an amount equal to one hundred percent (100%) of the contested amount from a surety acceptable to Agent in its reasonable discretion, (vi) failure to pay such Liens will not subject Agent to any civil or criminal liability, (vii) such contest shall not affect the ownership, use or occupancy of the applicable Property, and (viii) Borrower shall, upon request by Agent, give Agent prompt notice of the status of such proceedings and/or confirmation of the continuing satisfaction of the conditions set forth in clauses (i) through (vii) of this Section 4.3 . Agent may pay over any such cash or other security held by Agent to the claimant entitled thereto at any time when, in the reasonable judgment of Agent, the entitlement of such claimant is established or the applicable Property (or any part thereof or interest therein) shall be in imminent danger of being sold, forfeited, terminated, cancelled or lost or there shall be any imminent danger of the Lien of the Mortgage secured by such Property being primed by any related Lien.
Section 4.4 Special Purpose . Without in any way limiting the provisions of this Article 4 , Borrower shall at all times be a Special Purpose Bankruptcy Remote Entity. Borrower shall not directly or indirectly make any change, amendment or modification to its organizational documents, or otherwise take any action which could result in Borrower not being a Special Purpose Bankruptcy Remote Entity.
Section 4.5 Existence; Compliance with Legal Requirements . Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence and all rights, licenses, permits, franchises and all applicable governmental authorizations necessary for the operation of the Properties and comply in all material respects with all Legal Requirements applicable to it and the Properties (it being understood that, with respect to RPTL Tax Benefits Law and Rent Regulation Laws, compliance with Section 4.33 shall constitute compliance with Legal Requirements hereunder).
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Section 4.6 Taxes and Other Charges . Borrower shall pay all Taxes and Other Charges now or hereafter levied, assessed or imposed as the same become due and payable, and shall furnish to Agent receipts for the payment of the Taxes and the Other Charges prior to the date the same shall become delinquent (provided, however, that Borrower need not pay Taxes directly nor furnish such receipts for payment of Taxes to the extent that funds to pay for such Taxes have been deposited into the Tax Account pursuant to Section 6.3 ). Borrower shall not permit or suffer, and shall promptly discharge, any Lien or charge against any Property with respect to Taxes and Other Charges, and shall promptly pay for all utility services provided to such Property. After prior notice to Agent, Borrower, at its own expense, may contest by appropriate legal proceeding, conducted in good faith and with due diligence, the amount or validity of any Taxes or Other Charges, provided that (i) no Event of Default has occurred and remains uncured; (ii) such proceeding shall be permitted under and be conducted in accordance with all applicable statutes, laws and ordinances; (iii) no Property or any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, canceled or lost; (iv) Borrower shall promptly upon final determination thereof pay the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (v) such proceeding shall suspend the collection of the contested Taxes or Other Charges from the applicable Property; (vi) Borrower shall deposit with Agent cash, or other security as may be reasonably requested by Agent, in an amount not to exceed one hundred ten percent (110%) of the contested amount, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon, provided that no such cash or other security shall be required in the amount of such Taxes or Other Charges if Agent reasonably determines that there are sufficient funds in the Tax Account for payment of such Taxes or Other Charges and any interest or penalties that may accrue thereon, (vii) failure to pay such Taxes or Other Charges will not subject Agent or any Lenders to any civil or criminal liability, (viii) such contest shall not affect the ownership, use or occupancy of the applicable Property, and (ix) Borrower shall, upon reasonable request by Agent, give Agent prompt notice of the status of such proceedings and/or confirmation of the continuing satisfaction of the conditions set forth in clauses (i) through (viii) of this Section 4.6 . Agent may pay over any such cash or other security held by Agent to the claimant entitled thereto at any time when, in the judgment of Agent, the entitlement of such claimant is established or the applicable Property (or any part thereof or interest therein) shall be in imminent danger of being sold, forfeited, terminated cancelled or lost or there shall be any imminent danger of the Lien of the Mortgage secured by such Property being primed by any related Lien.
Section 4.7 Litigation . Borrower shall give prompt notice to Agent of any litigation or governmental proceedings pending or threatened in writing against any Property, Borrower, Manager (solely with respect to a Property) or Guarantor which, if adversely determined, would likely have a Material Adverse Effect.
Section 4.8 Title to the Properties . Borrower shall warrant and defend (a) its title to the Properties and every part thereof, subject only to Permitted Encumbrances and (b) the validity and priority of the Lien of the Mortgage, the Assignment of Leases and this Agreement on the Properties, subject only to Permitted Encumbrances, in each case against the claims of all Persons whomsoever. Borrower shall reimburse Agent and Lenders for any losses, out-of-pocket costs, damages or out-of-pocket expenses (including reasonable attorneys’ fees and court costs) incurred by Agent or any Lenders if an interest in any Property, other than as permitted hereunder, is claimed by another Person, other than a Person claiming by, through or under Agent (on behalf of Lenders).
Section 4.9 Financial Reporting .
4.9.1 Generally . Borrower shall keep and maintain or will cause to be kept and maintained proper and accurate books and records, in accordance with an Acceptable Accounting Method, and, to the extent required under Section 9.1 hereof, the requirements of Regulation AB, reflecting the financial affairs of Borrower and all items of income and expense in connection with the operation of the Properties. Agent shall have the right from time to time during normal business hours upon two (2) days’ prior notice (which may be given orally) to Borrower to examine such books and records at the office of Borrower or other Person maintaining such books and records and to make such copies or extracts thereof as Agent shall reasonably require. After an Event of Default, Borrower shall pay any out-of-pocket costs incurred by Agent to examine such books, records and accounts, as Agent shall determine to be necessary or appropriate in the protection of Agent’s and Lenders’ interests.
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4.9.2 Quarterly Reports . Not later than forty-five (45) days following the end of each fiscal quarter (or each calendar month prior to a Securitization of the Loan), Borrower shall deliver to Agent:
(i) unaudited financial statements, internally prepared in accordance with an Acceptable Accounting Method including a balance sheet and profit and loss statement as of the end of such quarter (or month) and for the corresponding quarter (or month) of the previous year, and a statement of revenues and expenses for such quarter (or month) and the year to date, and a comparison of the year to date results with the Annual Budget for such period and the Fiscal Year. Such statements for each quarter (or month) shall be accompanied by an Officer’s Certificate certifying to the best of the signer’s knowledge, (A) that such statements fairly represent the financial condition and results of operations of Borrower and (B) that as of the date of such Officer’s Certificate, no Event of Default exists under this Agreement, the Note or any other Loan Document or, if so, specifying the nature and status of each such Event of Default and the action then being taken by Borrower or proposed to be taken to remedy such Event of Default. Such financial statements shall contain such other information as shall be reasonably requested by Agent for purposes of calculations to be made by Agent pursuant to the terms hereof.
(ii) a true, correct and complete rent roll for the Properties, dated as of the last month of such fiscal quarter (or month), showing the percentage of gross leasable area of the Properties, if any, leased as of the last day of the preceding calendar quarter (or month), the current annual rent for the Properties, the expiration date of each Lease, whether, with respect to any non-residential Lease or Major Lease, to Borrower’s Knowledge any portion of the Properties has been sublet, and if it has, the name of the subtenant, and such rent roll shall be accompanied by an Officer’s Certificate certifying that such rent roll is true, correct and complete in all material respects as of its date and stating whether Borrower, within the past three (3) months, has issued a notice of default with respect to any non-residential Lease or Major Lease which has not been cured and the nature of such default.
Notwithstanding anything to the contrary above, Borrower may deliver such reports on a consolidated basis, provided that (i) appropriate notation shall be made on such consolidated reports to indicate the separateness of Borrower and to indicate that Borrower’s assets and credit are not available to satisfy the debts and other obligations of any other Person, and (ii) such assets shall be listed on Borrower’s own separate balance sheet; and (3) Borrower will file its own tax returns (to the extent Borrower is required to file any tax returns) and will not file a consolidated federal income tax return with any other Person.
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4.9.3 Annual Reports . Borrower shall deliver to Agent:
(i) Not later than eighty-five (85) days after the end of each Fiscal Year of Borrower’s operations, unaudited financial statements, internally prepared in accordance with an Acceptable Accounting Method, covering the Properties, including a balance sheet as of the end of such year, a statement of revenues and expenses for such year and the fourth quarter thereof, and stating in comparative form the figures for the previous Fiscal Year and the Annual Budget for such Fiscal Year, as well as the supplemental schedule of net income or loss presenting the net income or loss for the Properties and occupancy statistics for the Properties. Such annual financial statements shall be accompanied by an Officer’s Certificate in the form required pursuant to Section 4.9.2(i) above;
(ii) Not later than one hundred twenty (120) days after the end of each Fiscal Year of Borrower’s operations, audited financial statements certified by an Independent Accountant in accordance with an Acceptable Accounting Method, and, to the extent required under Section 9.1 hereof, the requirements of Regulation AB, covering the Properties, including a balance sheet as of the end of such year, a statement of revenues and expenses for such year and the fourth quarter thereof, and stating in comparative form the figures for the previous Fiscal Year and the Annual Budget for such Fiscal Year, as well as the supplemental schedule of net income or loss presenting the net income or loss for such Property and occupancy statistics for such Property. Such annual financial statements shall be in the form of an annual combined balance sheet of Borrower (and no other entities), together with the related combined statements of operations, members’ capital and cash flows, including a combined balance sheet and statement of income for the Properties on a combined basis and shall be accompanied by an Officer’s Certificate in the form required pursuant to Section 4.9.2(i) above; and
(iii) Not later than ninety (90) days after the end of each Fiscal Year of Borrower’s operations, a consolidated annual summary of any and all Capital Expenditures made at the Properties during the prior twelve (12) month period.
4.9.4 Other Reports .
(a) Borrower shall, within ten (10) Business Days after request by Agent or, if all or part of the Loan is being or has been included in a Securitization, by the Rating Agencies, furnish or cause to be furnished to Agent and, if applicable, the Rating Agencies, in such manner and in such detail as may be reasonably requested by Agent or the Rating Agencies, such reasonable additional information as may be reasonably requested with respect to the Properties.
(b) Borrower shall submit to Agent the financial data and financial statements required, and within the time periods required, under clauses (f) and (g) of Section 9.1 , if and when available.
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4.9.5 Annual Budget .
(a) Borrower shall submit to Agent by November 15 of each year the Annual Budget relating to each Property for the succeeding Fiscal Year, or the Borrower at its option shall submit by such date such Annual Budget for all the Properties in the aggregate. Agent shall have the right to approve each Annual Budget (which approval shall not be unreasonably withheld so long as no Event of Default is continuing). Annual Budgets approved by Agent shall hereinafter be referred to as an “ Approved Annual Budget ”. Until such time that any Annual Budget has been approved by Agent, the prior Approved Annual Budget shall apply for all purposes hereunder (with such adjustments as reasonably determined by Agent to reflect actual increases in Taxes, Insurance Premiums and utilities expenses). Neither Borrower nor Manager shall change or modify the Annual Budget that has been approved by Agent without the prior written consent of Agent.
(b) Notwithstanding anything to the contrary contained in this Section 4.9.5 , provided no Event of Default is continuing, whenever Agent’s approval or consent is required pursuant to the provisions of this Section 4.9.5 , Agent’s approval or consent, as the case may be, shall be deemed given if:
(i) the first correspondence from Borrower to Agent requesting such approval or consent is in an envelope marked “PRIORITY” and contains a bold-faced, conspicuous (in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating that “ FIRST NOTICE : THIS IS A REQUEST FOR CONSENT UNDER THE LOAN BY DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT, TO 50 MURRAY STREET ACQUISITION LLC. FAILURE TO RESPOND TO THIS REQUEST WITHIN FIFTEEN (15) BUSINESS DAYS MAY RESULT IN THE REQUEST BEING DEEMED GRANTED ”, and is accompanied by the information and documents required above, and any other information reasonably requested by Agent in writing prior to the expiration of such fifteen (15) Business Day period in order to adequately review the same has been delivered; and
(ii) if Agent fails to respond or to deny such request for approval in writing within the first ten (10) Business Days of such fifteen (15) Business Day period, a second notice requesting approval is delivered to Agent from Borrower in an envelope marked “PRIORITY” containing a bold-faced, conspicuous (in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating that “ SECOND AND FINAL NOTICE : THIS IS A REQUEST FOR CONSENT UNDER THE LOAN BY DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT, TO 50 MURRAY STREET ACQUISITION LLC. IF YOU FAIL TO PROVIDE A SUBSTANTIVE RESPONSE (E.G., APPROVAL, DENIAL OR REQUEST FOR CLARIFICATION OR MORE INFORMATION) TO THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN ” and Agent fails to provide a substantive response to such request for approval within such five (5) Business Day period.
4.9.6 Extraordinary Operating Expenses . In the event that Borrower incurs an extraordinary operating expense not set forth in the Approved Annual Budget relating to the Properties (each an “ Extraordinary Operating Expense ”), then Borrower shall promptly deliver to Agent a reasonably detailed explanation of such proposed Extraordinary Operating Expense for Agent’s approval. Any Extraordinary Operating Expense approved by Agent is referred to herein as an “ Approved Extraordinary Operating Expense ”. Any Funds distributed to Borrower for the payment of Approved Extraordinary Operating Expenses pursuant to Section 6.9.1 shall be used by Borrower only to pay for such Approved Extraordinary Operating Expenses or reimburse Borrower for such Approved Extraordinary Operating Expenses, as applicable.
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4.9.7 Breach . If Borrower fails to provide to Agent or its designee any of the financial statements, certificates, reports or information (the “ Required Records ”) required by this Section 4.9 within thirty (30) days after the date upon which such Required Record is due, Agent shall have the option, upon fifteen (15) days’ notice to Borrower, to gain access to Borrower’s books and records and prepare or have prepared at Borrower’s expense, any Required Records not delivered by Borrower.
Section 4.10 Access to Properties . Subject to the rights of Tenants under Leases, Borrower shall permit agents, representatives, consultants and employees of Agent to perform non-invasive inspections at the Properties or any part thereof during normal business hours upon reasonable advance notice (which may be given orally).
Section 4.11 Leases .
4.11.1 Generally . Upon request, Borrower shall furnish Agent with executed copies of all Leases then in effect. All renewals of Leases and all proposed leases shall provide for rental rates and terms reasonably comparable to existing local market rates and shall be arm’s length transactions with bona fide, independent third-party Tenants, provided, however, Borrower may enter into up to five (5) new Leases or renewal Leases with Affiliates of Borrower or of Guarantor or with an on-site property manager provided that each such new Lease or renewal Lease is on terms reasonably comparable to existing local market rates (“ Permitted Affiliate Residential Leases ”). Within ten (10) days after the execution of a non-residential Lease or any renewals, amendments or modification of a non-residential Lease, Borrower shall deliver to Agent a copy thereof, together with Borrower’s certification that such commercial Lease (or such renewal, amendment or modification) was entered into in accordance with the terms of this Agreement.
4.11.2 Approvals .
(a) With respect to residential Leases:
(i) Subject to Section 4.11.2(e) below, Borrower shall not enter into a proposed Major Lease or a proposed renewal, extension or modification of an existing Major Lease without the prior written consent of Agent, which consent shall not be unreasonably withheld.
(ii) Provided that no Event of Default is continuing, renewals, amendments and modifications of existing Leases and proposed leases, shall not be subject to the prior approval of Agent provided (i) the proposed lease would not be a Major Lease or the existing Lease as amended or modified or the renewal Lease would not be a Major Lease and (ii) the Lease as amended or modified or the renewal Lease or series of leases or proposed lease or series of leases: (A) shall be written substantially in accordance with the standard form of residential Lease which shall have been approved by Agent, (B) shall provide for net effective rental rates reasonably comparable to existing local market rates or as required pursuant to applicable Legal Requirements, (C) shall not contain any option to purchase, any right of first refusal to purchase, any right to terminate (except in the event of the destruction or condemnation of substantially all of the applicable Property), any requirement for a non-disturbance or recognition agreement, or any other provision which might adversely affect the rights of Agent or any Lender under the Loan Documents in any material respect, and (D) shall have a term (together with all extensions and renewal options) of not less than six (6) months nor more than two (2) years; provided, however, with respect to any month-to-month holdover Lease, such Lease may be permitted to holdover for a total aggregate period of up to four (4) months without the prior approval of Agent. Upon Agent’s request, which, unless an Event of Default is continuing, Agent may make no more than three times in any twelve (12)-month period, Borrower shall deliver to Agent copies of all Leases which are entered into pursuant to the preceding sentence and which have not been previously delivered to Agent together with Borrower’s certification that it has satisfied all of the conditions of the preceding sentence within fifteen (15) days after Agent’s request for a copy of such Lease.
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(b) With respect to non-residential Leases, any Lease and any renewals, amendments or modification of a Lease (provided such Lease or Lease renewal, amendment or modification is not a Major Lease or a renewal, amendment or modification to a Major Lease, unless such renewal, amendment or modification is made unilaterally in accordance with an express provision of such Lease) that meets the following requirements may be entered into by Borrower without Agent’s prior consent: (i) provides for economic terms, including rental rates, reasonably comparable to existing local market rates for similar properties and is otherwise on commercially reasonable terms, (ii) has a term (together with all extension and renewal options) of not less than three (3) years or more than ten (10) years, (iii) unless a subordination, non-disturbance and attornment agreement is delivered pursuant to this Section 4.11.2 , provides that such Lease is subordinate to the Mortgage and Assignment of Leases and that the Tenant thereunder will attorn to Agent and any purchaser at a foreclosure sale, provided, with respect to Major Leases, such subordination and attornment may be conditioned upon receipt of a signed subordination, non-disturbance and attornment agreement from Agent on Agent’s standard form (with such changes approved by Agent) or such other form reasonably acceptable to Agent (and such subordination, non-disturbance and attornment agreement shall be at Borrower’s sole cost and expense), (iv) is with Tenants that are creditworthy, in the reasonable business judgment of Borrower, (v) is not with an Affiliate of Borrower or Guarantor, and (vi) does not contain any option to purchase, any right of first refusal to purchase, any right to terminate (except if such termination right is triggered by the destruction or condemnation of substantially all of the Property, or the failure to complete tenant improvements within the proscribed time period) or any other terms which would have a Material Adverse Effect. All other non-residential Leases (including Major Leases) and all renewals, amendments and modifications thereof executed after the date hereof shall be subject to Agent’s prior approval, such approval, so long as there is no Event of Default continuing, shall not be unreasonably withheld or delayed.
(c) Borrower shall not permit or consent to any assignment or sublease of any Major Lease without Agent’s prior written approval (other than assignments or subleases expressly permitted under any Major Lease pursuant to a unilateral right of the Tenant thereunder not requiring the consent of Borrower), which approval shall not be unreasonably withheld. Agent, at Borrower’s sole cost and expense, shall execute and deliver its standard form of subordination, non-disturbance and attornment agreement to Tenants under any future Major Lease approved by Agent upon request, with such commercially reasonable changes as may be requested by such Tenants and which are acceptable to Agent in Agent’s reasonable discretion.
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(d) Borrower shall have the right, without the consent or approval of Agent, to terminate or accept a surrender of any Lease that is not a Major Lease so long as such termination or surrender is (A) (i) by reason of a tenant default and (ii) in a commercially reasonable manner to preserve and protect the applicable Property or (B) with respect to residential Leases that are not with Affiliates of Borrower or Guarantor, provided that no Trigger Period is then continuing, (i) the aggregate amount of Leases being terminated without the consent or approval of Agent for the trailing twelve (12) month period shall be no more than twenty (20) units, (ii) such termination is in the reasonable business judgment of Borrower and (iii) such termination or surrender would not result in a Low Debt Yield Period.
(e) Notwithstanding anything to the contrary contained in this Section 4.11.2 or in clauses (ii) and (v) of Section 4.11.3 , provided no Event of Default is continuing, whenever Agent’s approval or consent is required pursuant to the provisions of this Section 4.11.2 , Agent’s approval or consent, as the case may be, shall be deemed given if:
(i) the first correspondence from Borrower to Agent requesting such approval or consent is in an envelope marked “PRIORITY” and contains a bold-faced, conspicuous (in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating that “ FIRST NOTICE : THIS IS A REQUEST FOR CONSENT UNDER THE LOAN BY DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT, TO 50 MURRAY STREET ACQUISITION LLC. FAILURE TO RESPOND TO THIS REQUEST WITHIN FIFTEEN (15) BUSINESS DAYS MAY RESULT IN THE REQUEST BEING DEEMED GRANTED ”, and is accompanied by the information and documents required above, and any other information reasonably requested by Agent in writing prior to the expiration of such fifteen (15) Business Day period in order to adequately review the same has been delivered; and
(ii) if Agent fails to respond or to deny such request for approval in writing within the first ten (10) Business Days of such fifteen (15) Business Day period, a second notice requesting approval is delivered to Agent from Borrower in an envelope marked “PRIORITY” containing a bold-faced, conspicuous (in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating that “ SECOND AND FINAL NOTICE : THIS IS A REQUEST FOR CONSENT UNDER THE LOAN BY DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT, TO 50 MURRAY STREET ACQUISITION LLC. IF YOU FAIL TO PROVIDE A SUBSTANTIVE RESPONSE (E.G., APPROVAL, DENIAL OR REQUEST FOR CLARIFICATION OR MORE INFORMATION) TO THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN ” and Agent fails to provide a substantive response to such request for approval within such five (5) Business Day period.
4.11.3 Covenants . Borrower (i) shall observe and perform the obligations imposed upon the lessor under the Leases in all material respects and in a commercially reasonable manner; (ii) shall enforce the terms, covenants and conditions contained in the Leases upon the part of the Tenants thereunder to be observed or performed in a commercially reasonable manner, provided, however, Borrower shall not terminate or accept a surrender of a Major Lease without Agent’s prior approval, which approval shall not be unreasonably withheld; (iii) shall not collect any of the Rents more than one (1) month in advance (other than security deposits and the payment of the last month’s rent under residential Leases); (iv) shall not execute any assignment of lessor’s interest in the Leases or the Rents (except as contemplated by the Loan Documents); and (v) unless otherwise permitted in accordance with Section 4.11.2(a), (b), (c) or (d) , other than with respect to residential Leases in the ordinary course of business, shall not alter, modify or change any Lease so as to change the amount of or payment date for rent, change the expiration date, grant any option for additional space or term, materially reduce the obligations of the Tenant or increase the obligations of the lessor without Agent’s prior approval, which approval shall not be unreasonably withheld. Borrower shall promptly send copies to Agent of all written notices of material default which Borrower shall receive under the Leases.
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4.11.4 Security Deposits . All security deposits of Tenants, whether held in cash or any other form, shall be held in compliance with all Legal Requirements, and shall not be commingled with any other funds of Borrower. During the continuance of an Event of Default, Borrower shall, within five (5) Business Days of Agent’s request, if permitted by applicable Legal Requirements, cause all such security deposits (and any interest theretofore earned thereon) to be transferred into the Deposit Account (which shall then be held by Deposit Bank in a separate Account), which shall be held by Deposit Bank subject to the terms of the Leases. With respect to commercial Leases or residential Major Leases, any bond or other instrument which Borrower is permitted to hold in lieu of cash security deposits under any applicable Legal Requirements (i) shall be maintained in full force and effect in the full amount of such deposits unless replaced by cash deposits as herein above described, (ii) shall be issued by an institution reasonably satisfactory to Agent, (iii) shall, if permitted pursuant to any Legal Requirements, name Agent as payee or mortgagee thereunder (or at Agent’s option, be fully assignable to Agent), and (iv) shall in all respects comply with any applicable Legal Requirements and otherwise be reasonably acceptable to Agent. Borrower shall, upon request (which, unless an Event of Default is continuing, shall not be required to be given more than twice in any twelve (12)-month period), provide Agent with evidence reasonably acceptable to Agent of Borrower’s compliance with the foregoing.
Section 4.12 Repairs; Maintenance and Compliance; Alterations .
4.12.1 Repairs; Maintenance and Compliance . Borrower shall at all times maintain, preserve and protect all franchises and trade names, and Borrower shall cause the Properties to be maintained in a good and safe condition and repair and shall not remove, demolish or alter the Improvements or Equipment (except for alterations performed in accordance with Section 4.12.2 below and normal replacement of Equipment with Equipment of equivalent value and functionality). Borrower shall promptly comply with all Legal Requirements and promptly cure properly any violation of a Legal Requirement (it being understood that, with respect to RPTL Tax Benefits Law and Rent Regulation Laws, compliance with Section 4.33 shall constitute compliance with Legal Requirements hereunder). After prior notice to Agent, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the need to cure any such violation of Legal Requirements, provided that (i) no Event of Default has occurred and is continuing; (ii) such proceeding shall be permitted under and be conducted in accordance with all applicable statutes, laws and ordinances; (iii) neither the applicable Property nor any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, canceled or lost; (iv) Borrower shall promptly upon final determination thereof complete such cure, together with all costs, interest and penalties which may be payable in connection therewith; (v) as may reasonably be requested by Agent, Borrower shall deliver to Agent either (A) cash, or other security as may be reasonably acceptable to Agent, in an amount equal to one hundred ten percent (110%) of the costs necessary to cure such violation or (B) a payment and performance bond in an amount equal to one hundred percent (100%) of the costs necessary to cure such violation from a surety acceptable to Agent in its reasonable discretion, (vi) failure to cure such violation will not subject Agent or any Lender to any civil or criminal liability, (vii) such contest shall not affect the ownership, use or occupancy of the applicable Property, and (viii) Borrower shall, upon request by Agent, give Agent prompt notice of the status of such proceedings and/or confirmation of the continuing satisfaction of the conditions set forth in clauses (i) through (vii) of this Section 4.12.1 . Agent may pay over any such cash or other security held by Agent to cure such violation at any time when, in the reasonable judgment of Agent, the validity of the violation is established or the applicable Property (or any part thereof or interest therein) shall be in imminent danger of being sold, forfeited, terminated, cancelled or lost or there shall be any imminent danger of the Lien of the Mortgage secured by such Property being primed by due to such violation. Borrower shall notify Agent in writing within two (2) Business Days after Borrower first receives notice of any such non-compliance. Borrower shall promptly repair, replace or rebuild any part of any Property that becomes damaged, worn or dilapidated and shall complete and pay for any Improvements at any time in the process of construction or repair.
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4.12.2 Alterations .
(a) Borrower may, without Agent’s consent, perform alterations to the Improvements and Equipment which (i) do not constitute a Material Alteration, (ii) do not adversely affect Borrower’s financial condition or the value or net operating income of such Property and (iii) are in the ordinary course of Borrower’s business. Borrower shall not perform any Material Alteration without Agent’s prior written consent. Agent may, as a condition to giving its consent to a Material Alteration, require that Borrower delivers to Agent security for payment of the cost of such Material Alteration and as additional security for Borrower’s Obligations under the Loan Documents, which security may be any of the following: (i) cash, (ii) a Letter of Credit, (iii) U.S. Obligations, (iv) other securities acceptable to Agent, provided that Agent shall have received a Rating Agency Confirmation as to the form and issuer of same, or (v) a completion bond. Such security shall be in an amount equal to the excess of the total unpaid amounts incurred and to be incurred with respect to such alterations to the Improvements (other than such amounts to be paid or reimbursed by Tenants under the Leases) over the Alteration Threshold for such Property, and Agent may apply such security from time to time at the option of Agent to pay for such alterations. Agent hereby consents to the Required Repairs. Upon substantial completion of any Material Alteration, Borrower shall provide evidence satisfactory to Agent that (i) the Material Alteration was constructed in accordance with applicable Legal Requirements, (ii) all contractors, subcontractors, materialmen and professionals who provided work, materials or services in connection with the Material Alteration have been paid in full and have delivered unconditional releases of liens, and (iii) all material licenses and permits necessary for the use, operation and occupancy (which may be temporary or permanent) of the Material Alteration (other than those which depend on the performance of tenant improvement work) have been issued. If Borrower has provided cash security, as provided above, such cash shall be released by Agent to fund such Material Alterations, and if Borrower has provided non-cash security, as provided above, except to the extent applied by Agent to fund such Material Alterations, Agent shall release and return such security upon Borrower’s satisfaction of the requirements of the preceding sentence.
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(b) Notwithstanding anything to the contrary contained in this Section 4.12.2 , provided no Event of Default is continuing, whenever Agent’s approval or consent is required pursuant to the provisions of this Section 4.12.2 , Agent’s approval or consent, as the case may be, shall be deemed given if:
(i) the first correspondence from Borrower to Agent requesting such approval or consent is in an envelope marked “PRIORITY” and contains a bold-faced, conspicuous (in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating that “ FIRST NOTICE (MATERIAL ALTERATION) : THIS IS A REQUEST FOR CONSENT (MATERIAL ALTERATION) UNDER THE LOAN BY DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT, TO 50 MURRAY STREET ACQUISITION LLC. FAILURE TO RESPOND TO THIS REQUEST WITHIN THIRTY (30) BUSINESS DAYS MAY RESULT IN THE REQUEST BEING DEEMED GRANTED ”, and is accompanied by the information and documents required above, and any other information reasonably requested by Agent in writing prior to the expiration of such thirty (30) Business Day period in order to adequately review the same has been delivered;
(ii) if Agent fails to respond or to deny such request for approval in writing within the first twenty (20) Business Days of such thirty (30) Business Day period, a second notice requesting approval is delivered to Agent from Borrower in an envelope marked “PRIORITY” containing a bold-faced, conspicuous (in a font size that is not less than fourteen (14)) legend at the top of the first page thereof stating that “ SECOND AND FINAL NOTICE (MATERIAL ALTERATION) : THIS IS A REQUEST FOR CONSENT (MATERIAL ALTERATION) UNDER THE LOAN BY DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT, TO 50 MURRAY STREET ACQUISITION LLC. IF YOU FAIL TO PROVIDE A SUBSTANTIVE RESPONSE (E.G., APPROVAL, DENIAL OR REQUEST FOR CLARIFICATION OR MORE INFORMATION) TO THIS REQUEST FOR APPROVAL IN WRITING WITHIN TEN (10) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN ” and Agent fails to provide a substantive response to such request for approval within such ten (10) Business Day period; and
(iii) Borrower shall have delivered such security for the payment of the cost of such Material Alteration and as additional security for Borrower’s Obligations under the Loan Documents as required in accordance with clause (a) of this Section 4.12.2 .
Section 4.13 Approval of Major Contracts . Borrower shall be required to obtain Agent’s prior written approval of any and all Major Contracts affecting any Property, which approval shall not be unreasonably withheld. Borrower and, with respect to the Properties, Manager shall comply with all applicable labor and employment laws relating to employees and independent contractors and with the Union Contract, and shall make all payments provided for under the Union Contract when due.
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Section 4.14 Property Management .
4.14.1 Management Agreement . Borrower shall (i) cause Manager to manage the Property owned by it in accordance with a Management Agreement, (ii) diligently perform and observe in all material respects all of the terms, covenants and conditions of such Management Agreement on the part of Borrower to be performed and observed, (iii) promptly notify Agent of any material default under such Management Agreement of which it has knowledge and deliver a copy of any default notice sent to Manager, (iv) promptly deliver to Agent a copy of each financial statement, business plan, capital expenditures plan, report and estimate received by it under such Management Agreement, and (v) promptly enforce the performance and observance of all of the material covenants required to be performed and observed by Manager under its Management Agreement in a commercially reasonable manner. If Borrower shall default in the performance or observance of any material term, covenant or condition of its Management Agreement on the part of Borrower to be performed or observed beyond the expiration of any applicable grace or cure period, then, without limiting Agent’s other rights or remedies under this Agreement or the other Loan Documents, and without waiving or releasing Borrower from any of its Obligations hereunder or under its Management Agreement, Agent shall have the right, but shall be under no obligation, to pay any sums and to perform any act as may be appropriate to cause all the material terms, covenants and conditions of such Management Agreement on the part of Borrower to be performed or observed.
4.14.2 Prohibition Against Termination or Modification . Borrower shall not (i) surrender, terminate, cancel, modify, renew or extend its Management Agreement, (ii) enter into any other agreement relating to the management or operation of the Property owned by it with Manager or any other Person, (iii) consent to the assignment by the Manager of its interest under any Management Agreement, or (iv) waive or release any of its rights and remedies under any Management Agreement, in each case without the express consent of Agent, which consent shall not be unreasonably withheld; provided, however, with respect to a new property manager such consent may be conditioned upon Borrower delivering a Rating Agency Confirmation from each applicable rating agency as to such new property manager and management agreement. Notwithstanding the foregoing, however, provided no Event of Default is continuing, the approval of Agent and the Rating Agencies shall not be required with respect to the appointment of a Qualified Manager. If at any time Agent consents to the appointment of a new property manager or a Qualified Manager is appointed, such new property manager (including a Qualified Manager) and Borrower shall, as a condition of Agent’s consent, execute (i) a management agreement in form and substance reasonably acceptable to Agent, (ii) a subordination of management agreement in a form reasonably acceptable to Agent and (iii) deliver an updated Insolvency Opinion if such manager is an Affiliate of Borrower, Guarantor or Key Principal.
4.14.3 Replacement of Manager . Agent shall have the right to require Borrower to replace the Manager with (x) a Qualified Manager selected by Borrower or (y) another property manager chosen by Borrower and approved by Agent (provided, that such approval may be conditioned upon Borrower delivering a Rating Agency Confirmation as to such new property manager and management agreement) upon the occurrence of any one or more of the following events: (i) at any time following the occurrence and during the continuance of an Event of Default, (ii) if Manager shall be in material default under any Management Agreement beyond any applicable notice and cure period, (iii) if Manager shall become insolvent or a debtor in any bankruptcy or insolvency proceeding, or (iv) if at any time the Manager has engaged in gross negligence, fraud, willful misconduct or misappropriation of funds.
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Section 4.15 Performance by Borrower; Compliance with Agreements .
(a) Borrower shall in a timely manner and in all material respects observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, Borrower without the prior consent of Agent.
(b) Borrower shall at all times comply in all material respects with all Operations Agreements. Borrower agrees that without the prior written consent of Agent, which consent shall not be unreasonably withheld, Borrower will not amend, modify or terminate any of the Operations Agreements.
Section 4.16 Licenses; Intellectual Property; Website .
4.16.1 Licenses . Borrower shall keep and maintain all Licenses necessary for the operation of the Properties as a multifamily residential facility and commercial property. Borrower shall not transfer any Licenses required for the operation of Properties.
4.16.2 Intellectual Property . Borrower shall keep and maintain all Intellectual Property relating to the use or operation of the Properties and all Intellectual Property shall be held by and (if applicable) registered in the name of Borrower. Borrower shall not Transfer or let lapse any Intellectual Property without Agent’s prior consent, which consent shall not be unreasonably withheld.
4.16.3 Website . Any website with respect to any Property (other than Tenant websites) shall be maintained by or on behalf of the Borrower that owns such Property and any such website shall be registered in the name of Borrower within ten (10) Business Days after the Closing Date, or such additional time as necessary provided that Borrower is using commercially reasonable efforts to register such website in Borrower’s name. Borrower shall not Transfer any such website without Agent’s prior consent, which consent shall not be unreasonably withheld.
Section 4.17 Further Assurances . Borrower shall, at Borrower’s sole cost and expense:
(a) furnish to Agent all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, and each and every other document, certificate, agreement and instrument required to be furnished by Borrower pursuant to the terms of the Loan Documents or which are reasonably requested by Agent in connection therewith;
(b) cure any defects in the execution and delivery of the Loan Documents and execute and deliver, or cause to be executed and delivered, to Agent such documents, instruments, certificates, assignments and other writings, and do such other acts reasonably necessary or desirable, to correct any omissions in the Loan Documents, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the Obligations, as Agent may reasonably require;
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(c) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Agent may reasonably require from time to time. Notwithstanding the foregoing, in no event shall Borrower be required to take any action pursuant to this Section 4.17 that materially increases the obligations or decreases the rights of Borrower or Guarantor under the Loan Documents unless such action is to cure a defect or correct any omission, such that the action provides Agent with the benefit of its bargain under this Agreement or the other Loan Documents; and
(d) do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, deeds of trust, mortgages, assignments, notices of assignments, transfers and assurances (which shall be in form and substance reasonably acceptable to Agent) as Agent shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Agent the property and rights mortgaged, deeded, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Agent, or for carrying out the intention or facilitating the performance of the terms of the Mortgage or for filing, registering or recording the Mortgage, or for complying with all Legal Requirements in all material respects. Borrower, if reasonably requested by Agent, will execute and deliver, and hereby authorizes Agent, following ten (10) days notice to Borrower and Borrower’s failure to comply within such ten (10) day period, to execute in the name of Borrower or without the signature of Borrower to the extent Agent may lawfully do so, one or more financing statements to evidence more effectively the security interest of Agent (on behalf of Lenders) in any Property. Upon the occurrence and during the continuance of an Event of Default, Borrower grants to Agent an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Agent at law and in equity, including, without limitation, such rights and remedies available to Agent pursuant to this Section 4.17 .
Section 4.18 Estoppel Statement .
(a) After request by Agent, Borrower shall within ten (10) Business Days furnish Agent with a statement, duly acknowledged and certified, stating (i) the Outstanding Principal Balance of the Note, (ii) the Interest Rate, (iii) the date installments of interest and/or principal were last paid, (iv) any offsets or defenses to the payment and performance of the Obligations, if any, which are within Borrower’s Knowledge as of the date of such statement and (v) that this Agreement and the other Loan Documents have not been modified or if modified, giving particulars of such modification. Except during the continuance of an Event of Default or prior to the full Securitization of the Loan, Borrower shall not be required to provide such statement more than twice in any twelve (12)-month period.
(b) Borrower shall use commercially reasonable efforts to obtain and deliver to Agent, as promptly as possible following Agent’s request, an estoppel certificate from each Tenant under any Lease (provided that Borrower shall only be required to use commercially reasonable efforts to obtain an estoppel certificate from any Tenant not required to provide an estoppel certificate under its Lease) in the form of Schedule VIII attached hereto or in such other form reasonably acceptable to Agent; provided, that Borrower shall not be required to obtain and deliver such certificates more frequently than three (3) times in any calendar year.
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(c) Borrower shall use commercially reasonable efforts to obtain and deliver to Agent, upon request, estoppel certificates from each party under any Operations Agreement, in form and substance reasonably satisfactory to Agent; provided, that Borrower shall not be required to deliver such certificates more than three (3) times during the Term and not more frequently than once per calendar year (or twice during any calendar year in which a Securitization occurs).
Section 4.19 Notice of Default . Borrower shall promptly advise Agent of the occurrence of any Event of Default of which Borrower has knowledge.
Section 4.20 Cooperate in Legal Proceedings . Borrower shall cooperate in a commercially reasonable manner with Agent with respect to any proceedings before any court, board or other Governmental Authority which may in any way affect the rights of Agent or any Lender hereunder or any rights obtained by Agent or any Lender under any of the other Loan Documents and, in connection therewith, permit Agent, at its election, to participate in any such proceedings.
Section 4.21 Indebtedness . Borrower shall not directly or indirectly create, incur or assume any indebtedness other than (i) the Debt and (ii) unsecured trade payables incurred in the ordinary course of business relating to the ownership and operation of the Properties and (iii) Permitted Equipment Financing (hereinafter defined), which in the case of such unsecured trade payables and Permitted Equipment Financing (A) are not evidenced by a note, (B) do not exceed, at any time, a maximum aggregate amount of three percent (3%) of the Allocated Loan Amount of the Property to which such unsecured trade payable or Permitted Equipment Financing relates or of the original amount of the Loan and (C) are paid within sixty (60) days of the date incurred (collectively, “ Permitted Indebtedness ”). As used herein, “ Permitted Equipment Financing ” means equipment financing that is (i) entered into in the ordinary course of Borrower’s business, (ii) for equipment related to the ownership and operation of any Property whose removal would not materially damage or impair the value of such Property, and (iii) which is secured only by the financed equipment.
Section 4.22 Business and Operations . Borrower will continue to engage in the businesses presently conducted by it in all material respects as and to the extent the same are reasonably necessary in Borrower’s commercially reasonable judgment for the ownership, maintenance, management and operation of the Properties. Borrower will qualify to do business and will remain in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the Properties.
Section 4.23 Dissolution . Borrower shall not (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (ii) engage in any business activity not related to the ownership and operation of the Property, (iii) transfer, lease or sell, in one transaction or any combination of transactions, all or substantially all of the property or assets of Borrower except to the extent expressly permitted by the Loan Documents, or (iv) cause, permit or suffer Borrower to (A) dissolve, wind up or liquidate or take any action, or omit to take any action, as a result of which Borrower would be dissolved, wound up or liquidated in whole or in part, or (B) amend, modify, waive or terminate the certificate of formation or operating agreement of Borrower, in each case without obtaining the prior consent of Agent.
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Section 4.24 Debt Cancellation . Borrower shall not cancel or otherwise forgive or release any claim or debt (other than the termination of Leases in accordance herewith or any claim or debt less than or equal to $50,000, but no more than $150,000 in the aggregate per any twelve (12) month period) owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower’s business.
Section 4.25 Affiliate Transactions . Other than with respect to the Clipper Management Agreement, Borrower shall not enter into, or be a party to, any transaction with an Affiliate of Borrower or any of the partners, members or shareholders, as applicable, of Borrower except in the ordinary course of business and on terms which are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm’s-length transaction with an unrelated third party.
Section 4.26 No Joint Assessment . Borrower shall not suffer, permit or initiate the joint assessment of any Property (i) with any other real property constituting a tax lot separate from such Property, and (ii) with any portion of such Property which may be deemed to constitute personal property, or any other procedure whereby the Lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such Property.
Section 4.27 Principal Place of Business . Borrower shall not change its principal place of business from the address set forth on the first page of this Agreement without first giving Agent thirty (30) days prior written notice.
Section 4.28 Change of Name, Identity or Structure . Borrower shall not change its name, identity (including its trade name or names) or, except as permitted by Article 7 hereof, convert from its current organizational structure without notifying Agent of such change in writing at least thirty (30) days prior to the effective date of such change and without first obtaining the prior written consent of Agent; provided, however, that Borrower shall at all times be a Delaware limited liability company or a Delaware limited partnership. Borrower shall deliver to Agent, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by Agent to establish or maintain the validity, perfection and priority of the security interest granted herein. At the request of Agent, Borrower shall execute a certificate in form satisfactory to Agent listing the trade names under which Borrower intends to operate the Properties, and representing and warranting that Borrower does business under no other trade name with respect to the Properties.
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Section 4.29 Costs and Expenses .
(a) Except as otherwise expressed herein or in any of the other Loan Documents, Borrower shall pay or, if Borrower fails to pay, reimburse Agent and Lenders upon receipt of notice from Agent, for all out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Agent and Lenders in connection with (i) Borrower’s ongoing performance of and compliance with Borrower’s agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including confirming compliance with environmental and insurance requirements (except to the extent expressly set forth in Section 10.21(a) hereof); (ii) Agent’s and Lenders’ ongoing performance of and compliance with all agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date (except to the extent expressly set forth in Section 10.21(a) hereof); (iii) the negotiation, preparation, execution and delivery of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Borrower; (iv) filing and recording of any Loan Documents; (v) title insurance, surveys, inspections and appraisals that Agent is authorized to obtain by the terms of the Loan Documents; (vi) the creation, perfection or protection of Agent’s and Lenders’ Liens in the Properties and the Accounts (including out-of-pocket fees and expenses for title and lien searches, intangibles taxes, personal property taxes, mortgage recording taxes, due diligence expenses, travel expenses, accounting firm fees, costs of appraisals, environmental reports and Agent’s Consultant, surveys and engineering reports); (vii) enforcing or preserving any rights in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, the Loan Documents, any Property, or any other security given for the Loan; (viii) fees charged by Servicer (except to the extent expressly set forth in Section 10.21 ) or, if a Securitization has occurred, the Rating Agencies in connection with the Loan or any modification thereof; and (ix) enforcing any Obligations of or collecting any payments due from Borrower under this Agreement, the other Loan Documents or with respect to any Property or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” or of any insolvency or bankruptcy proceedings (including actual fees and expenses for title and lien searches, intangible taxes, personal property taxes, mortgage recording taxes, due diligence expenses, travel expenses, accounting firm fees, costs of appraisals, environmental reports and Agent’s Consultant, surveys and engineering reports); provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Agent.
(b) In addition, in connection with any Rating Agency Confirmation, Review Waiver or other Rating Agency consent, approval or review requested or required hereunder (other than the initial review of the Loan by the Rating Agencies in connection with a Securitization), Borrower shall pay all of the actual costs and expenses of Agent, Lenders, Servicer and each Rating Agency in connection therewith, and, if applicable, shall pay any actual fees imposed by any Rating Agency in connection therewith.
(c) Any costs and expenses due and payable by Borrower hereunder which are not paid by Borrower within ten (10) days after demand may be paid from any amounts in the Deposit Account, with notice thereof to Borrower. The obligations and liabilities of Borrower under this Section 4.29 shall (i) become part of the Obligations, (ii) be secured by the Loan Documents and (iii) survive the Term and the exercise by Agent of any of its rights or remedies under the Loan Documents, including the acquisition of the Properties by foreclosure or a conveyance in lieu of foreclosure.
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Section 4.30 Indemnity . Borrower shall indemnify, defend and hold harmless Agent and Lenders from and against any and all actual liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Agent and Lenders in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Agent and/or any Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Agent or any Lender in any manner relating to or arising out of (i) any breach by Borrower of its Obligations under, or any material misrepresentation by Borrower contained in, this Agreement or the other Loan Documents; (ii) the use or intended use of the proceeds of the Loan; (iii) the Borrower Provided Information; (iv) ownership of the Mortgage, the Property or any interest therein, or receipt of any Rents (including due to any Increased Costs, Special Taxes or Other Taxes but excluding due to compliance with bank regulatory requirements or similar Lender compliance); (v) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about any Property or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (vi) any use, nonuse or condition in, on or about any Property or on adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (vii) performance of any labor or services or the furnishing of any materials or other property in respect of any Property; (viii) any failure of any Property to comply with any Legal Requirement (it being understood that with respect to environmental Legal Requirements, the Environmental Indemnity shall govern); (ix) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with any Lease or other transaction involving any Property or any part thereof, or any liability asserted against Agent or any Lender with respect thereto; and (x) the claims of any lessee of any portion of any Property or any Person acting through or under any lessee or otherwise arising under or as a consequence of any Lease (collectively, the “ Indemnified Liabilities ”); provided, however, that Borrower shall not have any obligation to Agent and Lenders hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Agent and/or any Lender, as applicable. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Agent and Lenders.
Section 4.31 ERISA .
(a) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Agent, any Lender or any assignee of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) or Section 4975 of the Code.
(b) Borrower shall not permit the assets of Borrower to become “plan assets,” within the meaning of 29 C.F.R. 2510.3-101, as modified in application by Section 3(42) of ERISA.
(c) Borrower shall deliver to Agent such certifications or other evidence from time to time throughout the Term, as reasonably requested by Agent, that (A) Borrower and Guarantor are not an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (B) Borrower and Guarantor are not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) the assets of Borrower and Guarantor do not constitute “plan assets” within the meaning of 29 C.F.R §2510.3-101 as modified in application by Section 3(42) of ERISA of any “benefit plan investor” as defined in Section 3(42) of ERISA.
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(d) Borrower and Guarantor shall not (i) sponsor or contribute to, or permit any ERISA Affiliate to sponsor or contribute to, any Plan; (ii) engage, or permit any ERISA Affiliate to engage, in any non-exempt prohibited transaction described in Section 406 of ERISA or 4975 of the Code; (iii) fail to make any contribution or payment to any Multiemployer Plan which it or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (iv) incur, or permit any ERISA Affiliate to incur, any liability whether under ERISA or by contract or agreement or otherwise in connection with a complete or partial withdrawal, as such terms are defined in Part I of Subtitle E of Title IV of ERISA, from any Multiemployer Plan or (v) permit any ERISA Event to occur other than any such events or conditions that existed and were disclosed to Agent as of the date hereof.
(e) With respect to each Multiemployer Plan for which Borrower or any ERISA Affiliate has an obligation to make contributions or other liability, within the meaning of Section 101(l) of ERISA (a “ Contributing Employer ”), upon request by Agent in writing, and no more frequently than once in a twelve (12) month period, Borrower shall request, or cause to be requested, in accordance with Section 101(1)(1) of ERISA, that the plan sponsor or administrator of the applicable Multiemployer Plan provide an estimate of the amount of the Contributing Employer’s withdrawal liability under Title IV of ERISA if the Contributing Employer were to have completely withdrawn from the applicable Multiemployer Plan on the last day of the plan year preceding the date of the request, and shall provide such information to Agent within 10 days after the receipt from the plan sponsor or administrator of the applicable Multiemployer Plan.
Section 4.32 Patriot Act Compliance .
(a) Borrower will use its good faith and commercially reasonable efforts to comply with the Patriot Act and all applicable requirements of Governmental Authorities having jurisdiction over Borrower and/or the Properties, including those relating to money laundering and terrorism. Agent shall have the right to audit Borrower’s compliance with the Patriot Act and all applicable requirements of Governmental Authorities having jurisdiction over Borrower and/or the Properties, including those relating to money laundering and terrorism. In the event that Borrower fails to comply with the Patriot Act or any such requirements of Governmental Authorities, then Agent may, at its option, cause Borrower to comply therewith and any and all costs and expenses incurred by Agent and any Lender in connection therewith shall be secured by the Mortgage and the other Loan Documents and shall be immediately due and payable.
(b) Neither Borrower nor any owner of a direct or indirect interest in Borrower (i) is listed on any Government Lists, (ii) is a person who has been determined by competent authority to be subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept. 23, 2001) or any other similar prohibitions contained in the rules and regulations of OFAC or in any enabling legislation or other Presidential Executive Orders in respect thereof, (iii) has been previously indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense, or (iv) to Borrower’s Knowledge, is currently under investigation by any Governmental Authority for alleged criminal activity. For purposes hereof, the term “ Patriot Act Offense ” means any violation of the criminal laws of the United States of America or of any of the several states, or that would be a criminal violation if committed within the jurisdiction of the United States of America or any of the several states, relating to terrorism or the laundering of monetary instruments, including any offense under (A) the criminal laws against terrorism; (B) the criminal laws against money laundering, (C) the Bank Secrecy Act, as amended, (D) the Money Laundering Control Act of 1986, as amended, or (E) the Patriot Act. “ Patriot Act Offense ” also includes the crimes of conspiracy to commit, or aiding and abetting another to commit, a Patriot Act Offense. For purposes hereof, the term “ Government Lists ” means (1) the Specially Designated Nationals and Blocked Persons Lists maintained by the Office of Foreign Assets Control (“ OFAC ”), (2) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC that Agent notified Borrower in writing is now included in “ Government Lists ”, or (3) any similar lists maintained by the United States Department of State, the United States Department of Commerce or any other Governmental Authority or pursuant to any Executive Order of the President of the United States of America that Agent notified Borrower in writing is now included in “ Government Lists ”.
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(c) At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of Borrower, Key Principals or Guarantor shall constitute property of, or shall be beneficially owned, directly or indirectly, by any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder, with the result that the investment in Borrower, Key Principals or Guarantor, as applicable (whether directly or indirectly), would be prohibited by law (each, an “ Embargoed Person ”), or the Loan made by Lenders would be in violation of law, (b) no Embargoed Person shall have any interest of any nature whatsoever in Borrower, Key Principals or Guarantor, as applicable, with the result that the investment in Borrower, Key Principals or Guarantor, as applicable (whether directly or indirectly), would be prohibited by law or the Loan would be in violation of law, and (c) none of the funds of Borrower, Key Principals or Guarantor, as applicable, shall be derived from any unlawful activity with the result that the investment in Borrower, Key Principals or Guarantor, as applicable (whether directly or indirectly), would be prohibited by law or the Loan would be in violation of law.
Section 4.33 Residential Tax Benefits .
(a) If a court of competent jurisdiction or administrative agency issues a binding determination to the effect that the Rent Regulations Laws have been breached, and Borrower shall have exhausted and/or waived any right to further appeal such determination (provided that, the time period in which Borrower may appeal such determination shall not exceed eighteen (18) months from the date of such binding determination), including, but not limited to, any Petition for Administrative Review and/or any proceeding brought pursuant to Civil Practice Law and Rules Article 78, thereby rendering such determination final and non-appealable (the “ Final Order ”), then Borrower shall: (i) comply with such Final Order’s direction as to the RPTL Tax Benefit Law compliance and any further direction that such Rents be registered with the New York State Division of Housing and Community Renewal (“ DHCR ”), and (ii) comply with the Rent Regulation Laws, the RPTL Tax Benefits Law and the regulations issued under each of the foregoing (including the prevailing wage requirements, if applicable) until the expiration 421-g Tax Benefits or any other date as ordered by a court or administrative agency of competent jurisdiction. Borrower shall promptly respond to and defend against any notice of revocation of the 421-g Tax Benefits received from any Governmental Authority, and promptly after the receipt of any such notice, Borrower shall send a copy of the same to Agent.
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(b) Borrower shall at all times maintain as business records (i) copies of any and all contracts, invoices and canceled checks (front and back) which establish the scope of any apartment improvements, and which substantiate any resulting rent increases based on the installation of apartment improvements and (ii) proof of service and filing of any residential apartment DHCR rent registrations made by or on behalf of Borrower.
Article
5
INSURANCE, CASUALTY AND CONDEMNATION
Section 5.1 Insurance .
5.1.1 Insurance Policies .
(a) Borrower, at its sole cost and expense, shall obtain and maintain during the entire Term, or cause to be maintained, insurance policies for Borrower and each of the Properties, providing at least the following coverages:
(i) Property insurance against loss or damage by fire, any type of wind (including named storms), lightning and such other perils as are included in a standard “special form” or an “all-risk” policy, and against loss or damage by all other risks and hazards covered by a standard extended coverage insurance policy, with no exclusion for damage or destruction caused by the acts of “Terrorists” (or, subject to Section 5.1.1(i) below, standalone coverage with respect thereto) riot and civil commotion, vandalism, malicious mischief, burglary and theft (A) in an amount equal to one hundred percent (100%) of the “ Full Replacement Cost ” of such Property, which for purposes of this Agreement shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) to be written on a no coinsurance form or containing an agreed amount endorsement with respect to the Improvements and personal property at such Property waiving all co-insurance provisions; and (C) containing “ Ordinance or Law Coverage ” if any of the Improvements or the use of such Property shall at any time constitute legal non-conforming structures or uses, and compensating for loss to the undamaged portion of the building (with a limit equal to replacement cost), the cost of demolition and the increased costs of construction, each in amounts as required by Agent. In addition, Borrower shall obtain: (y) if any portion of the Improvements or Personal Property is currently or at any time in the future located in a federally designated special flood hazard area (“SFHA”), flood hazard insurance for all such Improvements and/or Personal Property located in the SFHA in an amount equal to the (1) maximum amount of building and, if applicable, contents insurance available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended plus (2) such additional coverage as Agent shall require; If none of the Improvements is so identified, such flood hazard insurance shall be no less than $10,000,00 and (z) earthquake insurance in amounts and in form and substance satisfactory to Agent ( provided that Agent shall not require earthquake insurance unless such Property is located in an area with a high degree of seismic activity and a Probable Maximum Loss (“ PML ”) or Scenario Expected Loss (“SEL”) of greater than 20%), provided that the insurance pursuant to clauses (y) and (z) hereof shall be on terms consistent with the comprehensive all risk insurance policy required under this subsection (i); If none of the Improvements is so identified, such Earthquake hazard insurance shall be no less than $10,000,000;
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(ii) commercial general liability insurance, including coverages against claims for personal injury, bodily injury, death or property damage occurring upon, in or about such Property, such insurance (A) to be on the so-called “occurrence” form and containing minimum limits per occurrence of One Million and No/100 Dollars ($1,000,000.00), with a combined limit per policy year, excluding umbrella coverage, of not less than Two Million and No/100 Dollars ($2,000,000.00); (B) to continue at not less than the aforesaid limit until required to be changed by Agent by reason of changed economic conditions making such protection inadequate; and (C) to cover at least the following hazards: (1) such premises and operations; (2) products and completed operations on an “if any” basis; (3) independent contractors; and (4) contractual liability for all insured contracts to the extent the same is available;
(iii) rental loss and/or business income interruption insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in subsection (i) above, subsection (vi) below and Section 5.1.1(h) below; (C) covering the entire period of restoration of the Property and containing an extended period of indemnity endorsement which provides that after the physical loss to the Improvements and Personal Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of twelve (12) months from the date that such Property is repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (D) in an amount equal to one hundred percent (100%) of the projected Gross Revenue from such Property (less non-continuing expenses) for a period of twenty four (24) months from the date that such Property is repaired or replaced and operations are resumed. The amount of such business income insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower’s reasonable estimate of the Gross Revenue from such Property (less non-continuing expenses) for the succeeding twenty four (24) month period. All proceeds payable to Agent pursuant to this subsection shall be held by Agent and shall be applied to the Obligations secured by the Loan Documents from time to time due and payable hereunder and under the Note; provided, however, that nothing herein contained shall be deemed to relieve Borrower of its Obligations to pay the Debt on the respective dates of payment provided for in the Note and the other Loan Documents except to the extent such amounts are actually paid out of the proceeds of such business income insurance;
(iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements, and only if such property or liability coverage forms do not otherwise apply, (A) commercial general liability and umbrella liability insurance covering claims related to the construction, repairs, or alterations being made which are not covered by or under the terms or provisions of the commercial general liability and umbrella liability insurance policy required herein in this Section 5.1.1(a) ; (B) Borrower shall cause its construction manager (CM) or General Contractor (GC) and shall have the CM/GC cause its contractors and sub-contractors (TRADES) to maintain similar coverage to that which is provided in Sections 5.1.1(ii) and 5.1.1(vii) . Such policies shall (i) maintain limits of liability as follows: (a) $50,000,000 commercial liability and automobile liability for CM/GC and $5,000,000 for Trades (b) $500,000 employers liability and (C) the insurance provided for in subsection (i) above written in a so-called builder’s risk completed value form (1) on a non-reporting basis, (2) against all risks insured against pursuant to subsection (i) above, (3) including permission to occupy such Property, and (4) with an agreed amount endorsement waiving co-insurance provisions;
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(v) workers’ compensation, subject to the statutory limits of the state in which such Property is located, and employer’s liability insurance with limits which are required from time to time by Agent in respect of any work or operations on or about such Property, or in connection with such Property or its operation (if applicable);
(vi) comprehensive boiler and machinery/equipment breakdown insurance, if applicable, in amounts as shall be reasonably required by Agent on terms consistent with the commercial property insurance policy required under subsection (i) above;
(vii) umbrella liability insurance in addition to primary coverage in an amount not less than one hundred million dollars ($100,000,000) per occurrence on terms consistent with the commercial general liability insurance policy required under subsection (ii) above and subsection (viii) below;
(viii) motor vehicle liability coverage for all owned and non-owned vehicles, including rented and leased vehicles containing minimum limits per occurrence, including umbrella coverage, with limits which are reasonably required from time to time by Agent;
(ix) intentionally omitted;
(x) insurance against employee dishonesty with respect to any employee of Borrower in an amount not less than one (1) month of Gross Revenue from the Properties and with a deductible not greater than Twenty Five Thousand and No/100 Dollars ($25,000.00); and
(xi) upon sixty (60) days’ notice, such other reasonable insurance and in such reasonable amounts as Agent from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for properties similar to such Property located in or around the region in which such Property is located.
(b) All insurance provided for in Section 5.1.1(a) shall be obtained under valid and enforceable policies (collectively, the “ Policies ” or in the singular, the “ Policy ”) and shall be subject to the reasonable approval of Agent as to form and substance, including insurance companies, amounts, deductibles, loss payees and insureds. Not less than ten (10) days prior to the expiration dates of the Policies theretofore furnished to Agent, certificates of insurance evidencing the Policies (and, upon the written request of Agent, and within thirty (30) days following such request, copies of such Policies) accompanied by evidence reasonably satisfactory to Agent of payment of the premiums then due thereunder (the “ Insurance Premiums ”), shall be delivered by Borrower to Agent.
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(c) Any blanket insurance Policy shall otherwise provide the same protection as would a separate Policy insuring only the Properties in compliance with the provisions of Section 5.1.1(a) (any such blanket policy, an “ Acceptable Blanket Policy ”). Borrower shall provide schedule of locations and values for all properties insured under blanket insurance Policy, for review by Lender.
(d) All Policies of insurance provided for or contemplated by Section 5.1.1(a) , , shall name Borrower as a named insured and, with respect to the Policies of liability insurance, except for the Policies referenced in Section 5.1.1 (a)(v) and (viii) , shall name Agent (on behalf of Lenders) and its successors and/or assigns as additional insured, as its interests may appear, and in the case of Policies of property insurance, including but not limited to special form/all risk, boiler and machinery, terrorism, windstorm, flood and earthquake insurance, shall contain a standard non-contributing mortgagee clause in favor of Agent (on behalf of Lenders) providing that the loss thereunder shall be payable to Agent unless below the threshold for Borrower to handle such claim without Agent intervention as provided in Section 5.2 below. Additionally, if Borrower obtains property insurance coverage in addition to or in excess of that required by Section 5.1.1(a)(i) , then such insurance policies shall also contain a standard non-contributing mortgagee clause in favor of Agent (on behalf of Lenders) providing that the loss thereunder shall be payable to Agent.
(e) All Policies of insurance provided for in Section 5.1.1(a) shall:
(i) with respect to the Policies of property insurance, contain clauses or endorsements to the effect that, (1) no act or negligence of Borrower, or anyone acting for Borrower, or of any Tenant or other occupant, or failure to comply with the provisions of any Policy, which might otherwise result in a forfeiture of the insurance or any part thereof, or foreclosure or similar action shall in any way affect the validity or enforceability of the insurance insofar as Agent is concerned (2) the Policies shall not be cancelled without at least 30 days’ written notice to Lender, except ten (10) days’ notice for non-payment of premium and (3) the issuer(s) of the Policies shall give written notice to Lender if the issuers elect not to renew the Policies prior to its expiration;
(ii) with respect to all Policies of liability insurance, if obtainable by Borrower using commercially reasonable efforts, contain clauses or endorsements to the effect that, (1) the Policy shall not be canceled without at least thirty (30) days’ written notice to Agent and any other party named therein as an additional insured (other than in the case of non-payment in which case only ten days prior notice, or the shortest time allowed by applicable Legal Requirement (whichever is longer), will be required) and shall not be materially changed (other than to increase the coverage provided thereby) without such a thirty (30) day notice and (2) the issuers thereof shall give notice to Lender if the issuers elect not to renew such Policies prior to its expiration. If the issuers cannot or will not provide notice, the Borrower shall be obligated to provide such notice; and
(iii) not contain any clause or provision that would make either Agent nor any Lender liable for any Insurance Premiums thereon or subject to any assessments thereunder (except, prior to an Event of Default, to the extent of any Insurance Funds then on deposit in the Insurance Account); and
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(f) If at any time Agent is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Agent shall have the right, without notice to Borrower, to take such action as Agent deems necessary to protect its interest in the applicable Property, including the obtaining of such insurance coverage consistent with the terms of Section 5.1.1(a) as Agent in its reasonable discretion deems appropriate and all premiums incurred by Agent in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Agent upon demand and until paid shall be secured by the Mortgage and shall bear interest at the Default Rate; provided, however, that the foregoing shall not apply in the event that the amounts required to pay any applicable Insurance Premiums have been deposited into the Insurance Account pursuant to Section 6.4 hereof.
(g) In the event of foreclosure of the Mortgage or other transfer of title to the Properties in extinguishment in whole or in part of the Obligations, all right, title and interest of Borrower in and to the Policies that are not blanket Policies then in force concerning the Properties and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Agent or other transferee in the event of such other transfer of title.
(h) The property insurance, commercial general liability, umbrella liability insurance and rental loss and/or business interruption insurance required under Sections 5.1.1(a)(i), (ii), (iii) and (vii) above shall cover perils of terrorism and acts of terrorism (or at least not specifically exclude same) and Borrower shall maintain property insurance, commercial general liability, umbrella liability insurance and rental loss and/or business interruption insurance for loss resulting from perils and acts of terrorism on terms (including amounts) consistent with those required under Sections 5.1.1(a)(i), (ii), (iii) and (vii) above (or at least not specifically excluding same) at all times during the term of the Loan. For so long as the Terrorism Risk Insurance Program Reauthorization Act of 2015 or subsequent statute, reauthorization, extension thereof (“TRIPRA”) is in effect and continues to cover both foreign and domestic acts, Lender shall accept terrorism insurance with coverage against acts which are “certified” within the meaning of TRIPRA.
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(i) Notwithstanding anything in subsection (a)(i) or (h) above to the contrary, Borrower shall be required to obtain and maintain coverage in its property insurance Policy (or by a separate Policy) against loss or damage by terrorist acts in an amount equal to 100% of the “Full Replacement Cost” of the Properties plus the rental loss and/or business interruption coverage under subsection (a)(iii) above; provided that such coverage is available. In the event that such coverage with respect to terrorist acts is not included as part of the “all risk” property policy required by subsection (a)(i) above, Borrower shall, nevertheless be required to obtain coverage for terrorism (as standalone coverage) in an amount equal to 100% of the “Full Replacement Cost” of such Property plus the rental loss and/or business interruption coverage under subsection (a)(iii) above; provided that such coverage is available. Borrower shall obtain the coverage required under this clause (i) from a carrier which otherwise satisfies the rating criteria specified in Section 5.1.2 below (a “ Qualified Carrier ”) or in the event that such coverage is not available from a Qualified Carrier, Borrower shall obtain such coverage from the highest rated insurance company providing such coverage. To the extent that insurance pursuant to this Section 5.1.1(i) is maintained pursuant to a blanket policy, if such blanket policy covers more than one property within a one thousand foot radius of the Property (the “ Radius ”), the limits of any such policy shall be adequate to maintain the coverage set forth in this Section 5.1.1(i) for the Property and all other locations combined within the Radius that are covered by such blanket policy calculated on a total insured value basis, to the extent such coverage is commercially available. Notwithstanding the foregoing, , in the event TRIPRA is no longer in effect, Borrower shall be required to carry terrorism insurance throughout the term of the Loan as required herein this clause (i), but in such event Borrower shall not be required to pay any Insurance Premiums solely with respect to such terrorism coverage in excess of the Terrorism Premium Cap (hereinafter defined) and, if the cost of such terrorism coverage exceeds the Terrorism Premium Cap, Borrower shall purchase the maximum amount of terrorism coverage available with funds equal to the Terrorism Premium Cap; provided that if the Insurance Premiums payable with respect to such terrorism coverage exceeds the Terrorism Premium Cap, Agent may, at its option (1) purchase such stand-alone terrorism Policy, with Borrower paying such portion of the Insurance Premiums with respect thereto equal to the Terrorism Premium Cap and the Agent paying such portion of the Insurance Premiums in excess of the Terrorism Premium Cap or (2) modify the deductible amounts, policy limits and other required policy terms to reduce the Insurance Premiums payable with respect to such stand-alone terrorism Policy to the Terrorism Premium Cap. As used herein, “ Terrorism Premium Cap ” means an amount equal to two times the amount of the insurance premium that is payable in respect of the property and business interruption/rental loss insurance required under the Loan Documents (without giving effect to the cost of terrorism and earthquake components of such Property and business interruption/rental loss insurance) at the time that such terrorism coverage is excluded from the applicable Policy.
5.1.2 Insurance Company . All Policies required pursuant to Section 5.1.1 , (i) shall be issued by companies authorized or licensed to do business in the state where the Properties are located, with (1) a financial strength and claims paying ability rating of (x) “A” or better by S&P and, (y) “A2” or better by Moody’s, to the extent Moody’s rates the insurance company and rates the Securities; provided, however for multi-layered policies, (A) if four (4) or fewer insurance companies issue the Policies, then at least 75% of the insurance coverage represented by the Policies must be provided by insurance companies with a rating of “A” or better by S&P and “A2” or better by Moody’s, to the extent Moody’s rates the insurance company and rates the Securities, with no carrier below “BBB” by S&P and “Baa2” or better by Moody’s, to the extent Moody’s rates the insurance company and rates Securities, or (B) if five (5) or more insurance companies issue the Policies, then at least sixty percent (60%) of the insurance coverage represented by the Policies must be provided by insurance companies with a rating of “A” or better by S&P and “A2” or better by Moody’s, to the extent Moody’s rates the insurance company and rates the Securities, with no carrier below “BBB” by S&P and “Baa2” or better by Moody’s, to the extent Moody’s rates the insurance company and rates the Securities, and (2) a rating of A:X or better in the current Best’s Insurance Reports; (ii) shall, with respect to all property insurance policies and rental loss and/or business interruption insurance policies, contain a Standard Mortgagee Clause/Lender’s Loss Payable Endorsement, or their equivalents, naming Agent (on behalf of Lenders) as the person to whom all payments made by such insurance company shall be paid; (iii) shall contain a waiver of subrogation against Agent; (iv) shall contain such provisions as Agent deems reasonably necessary or desirable to protect its interest including endorsements providing (A) that neither Borrower, Agent, Lender nor any other party shall be a co-insurer under said Policies, and (B) for a deductible per loss of an amount not more than that which is customarily maintained by prudent owners of properties with a standard of operation and maintenance comparable to and in the general vicinity of such Property, but in no event in excess of an amount reasonably acceptable to Agent; and (v) shall be reasonably satisfactory in form and substance to Agent and shall be reasonably approved by Agent as to amounts, form, risk coverage, deductibles, loss payees and insureds. In addition to the insurance coverages described in Section 5.1.1 above, Borrower shall obtain such other insurance as may from time to time be reasonably required by Agent in order to protect its interests and which covers risks that are commonly insured for properties similar to the Properties located in or around the region in which the Properties are located. Certified copies of the Policies shall be delivered to Agent at the address below (or to such other address or Person as Agent shall designate from time to time by notice to Borrower) on the date hereof with respect to the current Policies and within thirty (30) days after the effective date thereof with respect to all renewal Policies:
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DEUTSCHE BANK AG, NEW YORK BRANCH,
AS AGENT, its successors and/or assigns as their interest may appear
60 Wall Street, 10th Floor
New York, NY 10005
Attn: Karen Bernsohn
Borrower shall pay the Insurance Premiums annually in advance as the same become due and payable and shall furnish to Agent evidence of the renewal of each of the Policies with receipts for the payment of the Insurance Premiums or other evidence of such payment reasonably satisfactory to Agent (provided, however, that Borrower shall not be required to pay such Insurance Premiums or furnish such evidence of payment to Agent in the event that the amounts required to pay such Insurance Premiums have been deposited into the Insurance Account pursuant to Section 6.4 hereof). Within thirty (30) days after request by Agent, Borrower shall obtain such increases in the amounts of coverage required hereunder as may be reasonably requested by Agent, taking into consideration changes in the value of money over time, changes in liability laws, and changes in prudent customs and practices.
Section 5.2 Casualty . If any Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a “ Casualty ”), Borrower shall give prompt notice thereof to Agent. Following the occurrence of a Casualty, Borrower, regardless of whether insurance proceeds are available, shall promptly proceed to restore, repair, replace or rebuild the affected Property in accordance with Legal Requirements to be of at least equal value and of substantially the same character as prior to such damage or destruction. Agent may, but shall not be obligated to make proof of loss if not made promptly by Borrower. In addition, Agent may participate in any settlement discussions with any insurance companies (and shall approve any final settlement) (i) if an Event of Default is continuing or (ii) with respect to any Casualty in which the Net Proceeds or the costs of completing the Restoration are equal to or greater than, with respect to the affected Property, two percent (2%) of the Allocated Loan Amount for such Property, and Borrower shall deliver to Agent all instruments required by Agent to permit such participation. Except as set forth in the foregoing sentence, any Insurance Proceeds in connection with any Casualty (whether or not Agent elects to settle and adjust the claim or Borrower settles such claim) shall be due and payable solely to Agent and held by Agent in accordance with the terms of this Agreement. In the event Borrower or any party other than Agent is a payee on any check representing Insurance Proceeds with respect to any Casualty, Borrower shall immediately endorse, and cause all such third parties to endorse, such check payable to the order of Agent (on behalf of Lenders). Borrower hereby irrevocably appoints Agent as its attorney-in-fact, coupled with an interest, to endorse any such check payable to the order of Agent (on behalf of Lenders). Borrower hereby releases Agent and Lenders from any and all liability with respect to the settlement and adjustment by Agent of any claims in respect of any Casualty, except to the extent such liability arises as a result of the gross negligence or willful misconduct of Agent or any Lender.
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Section 5.3 Condemnation . Borrower shall promptly give Agent notice of the actual or threatened in writing commencement of any proceeding for the Condemnation of all or any portion of any Property and shall deliver to Agent copies of any and all papers served in connection with such proceedings. Agent may participate in any such proceedings, and Borrower shall from time to time deliver to Agent all instruments requested by it to permit such participation. Borrower shall, at its expense, diligently prosecute any such proceedings, and shall consult with Agent, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Agent, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Agent shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If any Property or any portion thereof is taken by a condemning authority, Borrower shall promptly commence and diligently prosecute the Restoration of such Property and otherwise comply with the provisions of Section 5.4 , whether or not an Award is available to pay the costs of such Restoration. If such Property is sold, through foreclosure or otherwise, prior to the receipt by Agent of the Award, Agent shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt.
Section 5.4 Restoration . The following provisions shall apply in connection with the Restoration:
(a) If the Net Proceeds shall be less than, with respect to the affected Property, two percent (2%) of the Allocated Loan Amount for such Property, and provided no Event of Default is continuing, the Net Proceeds will be disbursed by Agent to Borrower upon receipt, provided that all of the conditions set forth in Section 5.4(b)(i) are met and Borrower delivers to Agent a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Agreement.
(b) If the Net Proceeds are equal to or greater than, with respect to the affected Property, two percent (2%) of the Allocated Loan Amount for such Property, the Net Proceeds will be held by Agent and Agent shall make the Net Proceeds available for the Restoration in accordance with the provisions of this Section 5.4 . The term “ Net Proceeds ” shall mean: (i) the net amount of all insurance proceeds received by Agent pursuant to Section 5.1.1 (a)(i), (iii), (iv), and (vi) and Section 5.1.1(h) as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same (“ Insurance Proceeds ”), or (ii) the net amount of the Award, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting same (“ Condemnation Proceeds ”), whichever the case may be.
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(i) The Net Proceeds shall be made available to Borrower for Restoration upon the determination of Agent, in its reasonable discretion, that the following conditions are met:
(A) no Event of Default shall have occurred and be continuing;
(B) (1) in the event the Net Proceeds are Insurance Proceeds, less than thirty-five percent (35%) of the total floor area of the Improvements on the affected Property has been damaged, destroyed or rendered unusable as a result of such Casualty or (2) in the event the Net Proceeds are Condemnation Proceeds, less than ten percent (10%) of the total floor areas of the Improvements on such Property has been damaged, destroyed or rendered unusable as a result of such Condemnation;
(C) Leases demising in the aggregate a percentage amount equal to or greater than sixty-five percent (65%) of the total rentable space in the affected Property which has been demised under executed and delivered Leases in effect as of the date of the occurrence of such Casualty or Condemnation, whichever the case may be, shall remain in full force and effect during and after the completion of the Restoration without abatement of rent beyond the time required for Restoration, notwithstanding the occurrence of any such Casualty or Condemnation, whichever the case may be, and will make all necessary repairs and restorations thereto that are not being made by Borrower as part of the Restoration at its sole cost and expense;
(D) Borrower shall commence (which, for the purposes hereof, includes the pursuit of building permits and/or starting the design or architectural phase and/or commencing construction) the Restoration as soon as reasonably practicable (but in no event later than ninety (90) days after such Casualty or Condemnation, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion;
(E) Agent shall be reasonably satisfied that any operating deficits, including all scheduled payments of principal and interest under the Note, which will be incurred with respect to the affected Property as a result of the occurrence of any such Casualty or Condemnation, whichever the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Section 5.1.1(a)(iii) , if applicable, or (3) by other funds of Borrower;
(F) Agent shall be reasonably satisfied that the Restoration will be completed on or before the earliest to occur of (1) the date three (3) months prior to the then current Stated Maturity Date, (2) the earliest date required for such completion under the terms of any applicable Major Lease, (3) such time as may be required under applicable Legal Requirements or (4) one (1) month prior to the expiration of the insurance coverage referred to in Section 5.1.1(a)(iii) ;
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(G) the affected Property and the use thereof after the Restoration will be in material compliance with and permitted under all applicable Legal Requirements;
(H) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable Legal Requirements in all material respects;
(I) such Casualty or Condemnation, as applicable, does not result in the permanent loss of access to the affected Property or the related Improvements;
(J) the Restoration DSCR, after giving effect to the Restoration, shall be equal to or greater than 1.64 to 1.00;
(K) the Loan to Value Ratio after giving effect to the Restoration, shall be equal to or less than 73%;
(L) Borrower shall deliver, or cause to be delivered, to Agent a signed detailed budget approved in writing by Borrower’s architect or engineer or cost consultant stating the entire cost of completing the Restoration, which budget shall be reasonably acceptable to Agent; and
(M) the Net Proceeds together with any cash or cash equivalent deposited by Borrower with Agent are sufficient in Agent’s reasonable discretion to cover the cost of the Restoration.
(ii) The Net Proceeds shall be held by Agent in the Casualty and Condemnation Account and, until disbursed in accordance with the provisions of this Section 5.4(b) , shall constitute additional security for the Debt and the Obligations under the Loan Documents. The Net Proceeds shall be disbursed by Agent to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence reasonably satisfactory to Agent that (A) all materials installed and work and labor performed (except to the extent that they are to be paid for out of the requested disbursement) in connection with the Restoration have been paid for in full, and (B) there exist no notices of pendency, stop orders, mechanic’s or materialman’s liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the affected Property which have not either been fully bonded to the reasonable satisfaction of Agent and discharged of record or in the alternative fully insured to the reasonable satisfaction of Agent by the title company issuing the Title Insurance Policy for the affected Property.
(iii) All plans and specifications required in connection with the Restoration shall be subject to the prior reasonable approval of Agent and an independent consulting engineer selected by Agent (the “ Casualty Consultant ”). Agent shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to the reasonable approval of Agent and the Casualty Consultant. All out-of-pocket costs and expenses incurred by Agent and any Lender in connection with recovering, holding and advancing the Net Proceeds for the Restoration including, without limitation, reasonable attorneys’ fees and disbursements and the Casualty Consultant’s reasonable fees and disbursements, shall be paid by Borrower.
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(iv) In no event shall Agent be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Casualty Consultant, less the Casualty Retainage. The term “ Casualty Retainage ” shall mean, as to each contractor, subcontractor or materialman engaged in the Restoration, an amount equal to ten percent (10%) of the costs actually incurred for work in place as part of the Restoration, as certified by the Casualty Consultant, until the Restoration has been completed. The Casualty Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Section 5.4(b) , be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Casualty Retainage shall not be released until the Casualty Consultant certifies to Agent that the Restoration has been completed in accordance with the provisions of this Section 5.4(b) and that all approvals necessary for the re-occupancy and use of the affected Property have been obtained from all appropriate Governmental Authorities, and Agent receives evidence reasonably satisfactory to Agent that the costs of the Restoration have been paid in full or will be paid in full out of the Casualty Retainage; provided, however, that Agent will release the portion of the Casualty Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which (i) the Casualty Consultant certifies to Agent that such contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of such contractor’s, subcontractor’s or materialman’s contract, (ii) the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Agent or by the title company issuing the Title Insurance Policy for the affected Property, and (iii) Agent receives an endorsement to the Title Insurance Policy for the affected Property insuring the continued priority of the Lien of the Mortgage and evidence of payment of any premium payable for such endorsement. If required by Agent, the release of any such portion of the Casualty Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman.
(v) Agent shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month.
(vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the reasonable opinion of Agent in consultation with the Casualty Consultant, be sufficient to pay in full the balance of the costs which are reasonably estimated by the Casualty Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the “ Net Proceeds Deficiency ”) with Agent (for deposit into the Casualty and Condemnation Account) before any further disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Agent shall be deposited by Agent into the Casualty and Condemnation Account and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Section 5.4(b) shall constitute additional security for the Obligations.
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(vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Agent after the Casualty Consultant certifies to Agent that the Restoration has been completed in accordance with the provisions of this Section 5.4(b) , and the receipt by Agent of evidence reasonably satisfactory to Agent that all costs incurred in connection with the Restoration have been paid in full, shall be applied by Agent on the next Payment Date in accordance with Section 6.9.1 , provided no Event of Default shall have occurred and shall be continuing.
(c) Notwithstanding anything to the contrary set forth in this Agreement, including the provisions of this Section 5.4 , if the Loan is included in a REMIC Trust and, immediately following a release of any portion of the Lien of the Mortgage following a Casualty or Condemnation (but taking into account any proposed Restoration of the remaining Property), the ratio of the unpaid principal balance of the Loan to the value of the remaining Property is greater than 125% (such value to be determined, in Agent’s sole discretion, by any commercially reasonable method permitted to a REMIC Trust; and which shall exclude the value of personal property or going concern value, if any), the Outstanding Principal Balance must be paid down by an amount equal to the least of the following amounts: (i) the net Award (after payment of Agent’s and Lenders’ costs and expenses and any other fees and expenses that have been approved by Agent) or the net Insurance Proceeds (after payment of Agent’s and Lenders’ costs and expenses and any other fees and expenses that have been approved by Agent), as the case may be, or (ii) a “qualified amount” as that term is defined in the IRS Revenue Procedure 2010-30, as the same may be amended, replaced, supplemented or modified from time to time, unless Agent receives an opinion of counsel that if such amount is not paid, the applicable Securitization will not fail to maintain its status as a REMIC Trust as a result of the related release of such portion of the Lien of the Mortgage. If and to the extent the preceding sentence applies, only such amount of the net Award or net Insurance Proceeds (as applicable), if any, in excess of the amount required to pay down the principal balance of the Loan may be released for purposes of Restoration or released to Borrower as otherwise expressly provided in this Section 5.4 .
(d) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Section 5.4(b)(vii) may be retained and applied by Agent in accordance with Section 2.4.3 hereof toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Agent in its sole discretion shall deem proper, or, at the discretion of Agent, the same may be paid, either in whole or in part, to Borrower for such purposes as Agent shall approve, in its discretion. Additionally, prior to the Spread Maintenance Date if an Event of Default is continuing, then Borrower shall pay to Agent, with respect to any payment of the Debt pursuant to this Section 5.4(d) , an additional amount equal to the Spread Maintenance Premium; provided, however, that if an Event of Default is not continuing, then no Spread Maintenance Premium shall be payable.
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(e) In the event of foreclosure of the Mortgage, or other transfer of title to any Property in extinguishment in whole or in part of the Debt all right, title and interest of Borrower in and to the Policies that are not blanket Policies then in force concerning such Property and all proceeds payable thereunder shall thereupon vest in the purchaser at such foreclosure or Agent or other transferee in the event of such other transfer of title.
(f) Notwithstanding anything to the contrary contained herein, if in connection with a Casualty, any insurance company makes a payment under a property or business or rental interruption insurance Policy that Borrower proposes be treated as business or rental interruption insurance, then, notwithstanding any designation (or lack of designation) by the insurance company as to the purpose of such payment, as between Agent and Borrower, such payment shall not be treated as business or rental interruption Insurance Proceeds unless Borrower (i) has demonstrated to Agent’s satisfaction that the remaining Net Proceeds that have been received from the property insurance companies are sufficient to pay 100% of the cost of the Restoration or, if such Net Proceeds are to be applied to repay the Obligations in accordance with the terms hereof, that such remaining Net Proceeds will be sufficient to satisfy the Obligations in full or (ii) to the extent Borrower is not able to satisfy Agent as to the sufficiency of the remaining funds to pay 100% of the Restoration or to satisfy the Obligations in full prior to distribution of Net Proceeds, Borrower has agreed to fund any shortfall from funds other than from Gross Revenues or borrowed funds and has provided such security as Agent may require to insure payment of such shortfalls. To the extent any payment under a property or business or rental interruption insurance Policy is treated as business or rental interruption insurance in accordance with this paragraph (f), such funds shall be deposited into the Casualty and Condemnation Account. Provided that no Event of Default then exists, Insurance Proceeds treated as business or rental interruption insurance in accordance with this paragraph (f) (to the extent of available funds) shall be (A) first applied by Agent, on each Monthly Payment Date, to pay for Combined Debt Service, deposits of Reserve Funds and payments of Monthly Operating Expense Budgeted Amount and Approved Extraordinary Operating Expenses actually incurred (collectively, the “ Approved Monthly BI Expenses ”) for such month pursuant to, and in the priorities set forth in, Section 6.9.1 , and (B) second, to the extent that Agent determines that the amount of business or rental interruption Insurance Proceeds then remaining in the Casualty and Condemnation Account is sufficient to pay for all future Approved Monthly BI Expenses through the completion of the subject Restoration, disbursed by Agent to Borrower in an aggregate amount under this clause (B) not to exceed the Approved Monthly BI Expenses actually incurred by Borrower from the date of the applicable Casualty to the date of the first installment of business or rental interruption Insurance Proceeds advanced by the applicable insurance company (as evidenced by supporting documentation by Borrower that is reasonably acceptable to Agent). Provided no Trigger Period then exists, all remaining business or rental interruption insurance proceeds shall be disbursed to Borrower upon the completion of the subject Restoration and the recommencement of full unabated rent being paid by the Tenants under the Leases required to remain in place pursuant to Section 5.4(b)(i)(C) .
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Article 6
CASH MANAGEMENT AND RESERVE FUNDS
Section 6.1 Cash Management Arrangements . Borrower shall cause all Rents (other than security deposits of Tenants, which shall be held in accordance with Section 4.11.4 ) relating to its Property to be transmitted directly by non-residential Tenants of such Property into a trust account (the “ Clearing Account ”) established and maintained by Borrower at an Eligible Institution selected by Borrower and reasonably approved by Agent (the “ Clearing Bank ”) as more fully described in the Clearing Account Agreement. Without in any way limiting the foregoing, with respect to all Gross Revenues received by Borrower or Manager, including all Rents from residential Tenants of the Properties, (i) such amounts shall be deemed to be collateral for the Obligations and shall be held in trust for the benefit, and as the property, of Agent (on behalf of Lenders), (ii) such amounts shall not be commingled with any other funds or property of Borrower or Manager, and (iii) Borrower or Manager shall deposit or cause to be deposited such amounts in the Clearing Account within two (2) Business Days of receipt (other than security deposits of Tenants, which shall be held in accordance with Section 4.11.4 ). Funds deposited into the Clearing Account shall be swept by the Clearing Bank on a daily basis into the Deposit Account and applied and disbursed in accordance with this Agreement. Funds in the Deposit Account that are invested shall be invested in Permitted Investments, as more particularly set forth and defined in the Cash Management Agreement. Agent may also establish subaccounts of the Deposit Account which shall at all times be Eligible Accounts (and may be ledger or book entry accounts and not actual accounts) (such subaccounts are referred to herein as “ Accounts ”). The Deposit Account and all other Accounts will be under the sole control and dominion of Agent, and Borrower shall not have any right of withdrawal therefrom. Borrower shall pay for all expenses of opening and maintaining all of the above accounts.
Section 6.2 Required Repairs . Borrower shall perform the repairs and other work at the Properties as set forth on Schedule II (such repairs and other work hereinafter referred to as “ Required Repairs ”) and shall complete each of the Required Repairs on or before the respective deadline for each repair as set forth on Schedule II .
Section 6.3 Tax Funds .
6.3.1 Deposits of Tax Funds . Borrower shall deposit with Agent on each Monthly Payment Date, an amount equal to one-twelfth of the Real Estate Taxes that Agent estimates will be payable during the next ensuing twelve (12) months (initially, $777,797), in order to accumulate sufficient funds to pay all such Real Estate Taxes at least thirty (30) days prior to their respective due dates, which amounts shall be transferred into an Account (the “ Tax Account ”). Amounts deposited from time to time into the Tax Account pursuant to this Section 6.3.1 are referred to herein as the “ Tax Funds ”. If at any time Agent reasonably determines that the Tax Funds will not be sufficient to pay the Real Estate Taxes, Agent shall notify Borrower of such determination and the monthly deposits for Taxes shall be increased by the amount that Agent estimates is sufficient to make up the deficiency at least ten (10) days prior to the respective due dates for the Real Estate Taxes; provided, that if Borrower receives notice of any deficiency after the date that is ten (10) days prior to the date that Real Estate Taxes are due, Borrower will deposit with or on behalf of Agent such amount within one (1) Business Day after its receipt of such notice.
6.3.2 Release of Tax Funds . Provided no Event of Default shall exist and remain uncured, Agent shall apply or cause to be applied Tax Funds in the Tax Account to payments of Real Estate Taxes. In making any payment relating to Real Estate Taxes, Agent may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Real Estate Taxes) without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount of the Tax Funds shall exceed the amounts due for Real Estate Taxes and provided that no Trigger Period exists, Agent shall, at Borrower’s option, return any excess to Borrower or credit such excess against future payments to be made to the Tax Funds. Any Tax Funds remaining in the Tax Account after the Obligations have been paid in full shall be applied by Agent on the next Payment Date in accordance with Section 6.9.1 .
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Section 6.4 Insurance Funds .
6.4.1 Deposits of Insurance Funds . Borrower shall deposit with or on behalf of Agent (i) on the Closing Date, an amount equal to $410,399.38 and (ii) on each Monthly Payment Date, an amount equal to one-twelfth of the Insurance Premiums that Agent estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof (initially $34,199.95) in order to accumulate sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies, which amounts shall be transferred into an Account established at Deposit Bank to hold such funds (the “ Insurance Account ”). Amounts deposited from time to time into the Insurance Account pursuant to this Section 6.4.1 are referred to herein as the “ Insurance Funds ”. If at any time Agent reasonably determines that the Insurance Funds will not be sufficient to pay the Insurance Premiums, Agent shall notify Borrower of such determination and the monthly deposits for Insurance Premiums shall be increased by the amount that Agent estimates is sufficient to make up the deficiency at least thirty (30) days prior to expiration of the Policies.
6.4.2 Release of Insurance Funds . Provided no Event of Default shall exist and remain uncured, Agent shall apply or cause to be applied Insurance Funds in the Insurance Account to the timely payment of Insurance Premiums, provided Borrower shall furnish Agent with all bills, invoices and statements for the Insurance Premiums for which such funds are required at least ten (10) Business Days prior to the date on which such charges first become payable. In making any payment relating to Insurance Premiums, Agent may do so according to any bill, statement or estimate procured from the insurer or its agent, without inquiry into the accuracy of such bill, statement or estimate. If the amount of the Insurance Funds shall exceed the amounts due for Insurance Premiums, Agent shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Insurance Funds. Any Insurance Funds remaining in the Insurance Account after the Obligations have been paid in full shall be applied by Agent on the next Payment Date in accordance with Section 6.9.1 .
6.4.3 Acceptable Blanket Policy . Notwithstanding anything to the contrary contained in Section 6.4.1 , in the event that an Acceptable Blanket Policy is in effect with respect to all of the Policies required pursuant to Section 5.1 , deposits into the Insurance Account required for Insurance Premiums pursuant to Section 6.4.1 above shall be suspended to the extent that Insurance Premiums relate to such Acceptable Blanket Policy.
Section 6.5 Capital Expenditure Funds .
6.5.1 Deposits of Capital Expenditure Funds . Borrower shall deposit with or on behalf of Agent (i) on the Closing Date, an amount equal to $69,053 (which funds shall have been advanced by Current Mezzanine Lender to Current Mezzanine Borrower and then contributed to Borrower from Current Mezzanine Borrower as a capital contribution) and (ii) on each Monthly Payment Date, the amount of $16,550.00, for annual Capital Expenditures, which amounts shall be transferred into an Account (the “ Capital Expenditure Account ”). Amounts deposited from time to time into the Capital Expenditure Account pursuant to this Section 6.5.1 are referred to herein as the “ Capital Expenditure Funds ”.
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6.5.2 Release of Capital Expenditure Funds . Provided no Event of Default is continuing, Agent shall disburse or cause to be disbursed Capital Expenditure Funds to Borrower out of the Capital Expenditure Account for payment for, or for reimbursement of Borrower for its advance of, Capital Expenditures, within ten (10) days after the delivery by Borrower to Agent of a request therefor (but not more often than once per month), in increments of at least $10,000 (or a lesser amount if the total amount in the Capital Expenditure Account is less than $10,000, in which case only one disbursement of the amount remaining in the account shall be made) provided that: (i) such disbursement is for an Approved Capital Expenditure; (ii) the request for disbursement is accompanied by (A) an Officer’s Certificate from Borrower (1) stating that the items to be funded or reimbursed by the requested disbursement are Approved Capital Expenditures, and a description thereof, (2) stating that all Approved Capital Expenditures to be funded or reimbursed by the requested disbursement have been completed or completed to the extent of the requested disbursement (other than with respect to deposits necessary or required as a down-payment to initiate an Approved Capital Expenditure), in a good and workmanlike manner and in accordance with all applicable Legal Requirements, (3) stating that the Approved Capital Expenditures (or the relevant portions thereof) to be funded or reimbursed from the disbursement in question have not been the subject of a previous disbursement, (4) stating that all previous disbursements of Capital Expenditure Funds have been used to pay or reimburse the previously identified Approved Capital Expenditures, and (5) stating that all outstanding trade payables (other than those to be paid from the requested disbursement, those constituting Permitted Indebtedness or other requested disbursements then pending) have been paid in full, (B) a copy of any license, permit or other approval required by any Governmental Authority in connection with the Approved Capital Expenditures to be funded or reimbursed from such disbursement and not previously delivered to Agent, (C) if the amount of such Approved Capital Expenditures to be funded exceeds $100,000 in the aggregate, copies of appropriate lien waivers, conditional lien waivers, or other evidence of payment satisfactory to Agent, (D) if the cost of such Approved Capital Expenditures to be funded exceeds $100,000 in the aggregate, at Agent’s option, a title search for the applicable Property indicating that such Property is free from all Liens, claims and other encumbrances not previously approved by Agent, and (E) such other evidence as Agent shall reasonably request to demonstrate that the Approved Capital Expenditures to be funded by the requested disbursement have been completed and are paid for or will be paid upon such disbursement to Borrower (or the portion thereof as to which such request for disbursement has been submitted has been completed and is paid for (other than any retention amount which is not a part of such disbursement request) or will be paid upon such disbursement to Borrower) and (iii) if such disbursement request is for $50,000 or more, Agent shall have (if it desires) verified (by an inspection conducted at Borrower’s expense to the extent of Agent’s out-of-pocket costs and expenses of conducting such inspection) performance of the work associated with such Approved Capital Expenditure. Any such inspection shall be conducted in accordance with Section 4.10 .
Section 6.6 Rollover Funds .
6.6.1 Deposits of Rollover Funds .
(a) Amounts deposited from time to time into the Rollover Account pursuant to this Section 6.6.1 are referred to herein as the “ Rollover Funds ”.
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(b) The following items shall be deposited into an Account (the “ Rollover Account ”) and held as Rollover Funds and shall be disbursed and released as set forth in Section 6.6.2 below, and Borrower shall advise Agent at the time of receipt thereof of the nature of such receipt so that Agent shall have sufficient time to instruct the Deposit Bank to deposit and hold such amounts in the Rollover Account pursuant to the Cash Management Agreement:
(i) All sums paid with respect to (A) a modification of any commercial Lease or otherwise paid in connection with Borrower taking any action under any commercial Lease (e.g., granting a consent) or waiving any provision thereof, (B) any settlement of claims of Borrower against third parties in connection with any commercial Lease, (C) any rejection, termination, surrender or cancellation of any commercial Lease (including in any bankruptcy case) or any lease buy-out or surrender payment from any Tenant under a commercial Lease (including any payment relating to unamortized tenant improvements and/or leasing commissions and/or application of any security deposits) (collectively, “ Lease Termination Payments ”), and (D) any sum received from any commercial Tenant to obtain a consent to an assignment or sublet or otherwise, or any holdover rents or use and occupancy fees from any commercial Tenant or former commercial Tenant (to the extent not being paid for use and occupancy or holdover rent); provided, however, Borrower may retain its reasonable out-of-pocket costs and expenses incurred in connection with items (A) through (D) above; and
(ii) Any other extraordinary event pursuant to which Borrower receives payments or income (in whatever form) derived from or generated by the use, ownership or operation of the Properties not otherwise covered by this Agreement or the Cash Management Agreement.
6.6.2 Release of Rollover Funds . Provided no Event of Default is continuing, Agent shall disburse or cause to be disbursed Rollover Funds to Borrower out of the Rollover Account for the direct payment of, or for reimbursement of Borrower for its advance of, amounts to be funded from Rollover Funds, within ten (10) days after the delivery by Borrower to Agent of a request therefor (but not more often than once per month), in increments of at least $10,000 provided that: (i) such disbursement is for an Approved Leasing Expense; (ii) the request for disbursement is accompanied by (A) an Officer’s Certificate from Borrower (1) stating that the items to be funded or reimbursed by the requested disbursement are Approved Leasing Expenses, and a description thereof, (2) stating that any tenant improvements at the applicable Property to be funded by the requested disbursement or the relevant portion thereof as to which such request for funds relates (other than with respect to deposits necessary or required as a down-payment to initiate a tenant improvement) have been completed in a good and workmanlike manner and in accordance with all applicable Legal Requirements, (3) stating that the Approved Leasing Expenses (or the relevant portions thereof) to be funded or reimbursed from the disbursement in question have not been the subject of a previous disbursement, (4) stating that all previous disbursements of Rollover Funds have been used to pay or reimburse the previously identified Approved Leasing Expenses, and (5) stating that all outstanding trade payables (other than those to be paid from the requested disbursement, those constituting Permitted Indebtedness or other requested disbursements then pending) have been paid in full, (B) a copy of any license, permit or other approval by any Governmental Authority required in connection with any tenant improvements to be funded or reimbursed from such disbursement and not previously delivered to Agent, (C) if the amount of such Rollover Funds to be funded exceeds $100,000 in the aggregate, copies of appropriate lien waivers, conditional lien waivers or other evidence of payment satisfactory to Agent, (D) if the amount of such Rollover Funds to be funded exceeds $100,000 in the aggregate, at Agent’s option, a title search for the applicable Property indicating that such Property is free from all Liens, claims and other encumbrances not previously approved by Agent, (E) if requested by Agent, with respect to disbursements from the Rollover Account for tenant improvement costs, a current Tenant estoppel certificate in form and substance reasonably acceptable to Agent, and (F) such other evidence as Agent shall reasonably request to demonstrate that the Approved Leasing Expenses to be funded by the requested disbursement have been completed and are paid for or will be paid upon such disbursement to Borrower (or the portion thereof as to which such request for disbursement has been submitted has been completed and is paid for (other than any retention amount which is not a part of such disbursement request) or will be paid upon such disbursement to Borrower).
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Section 6.7 Casualty and Condemnation Account . Borrower shall pay, or cause to be paid, to Agent all Insurance Proceeds or Awards due to any Casualty or Condemnation in accordance with the provisions of Sections 5.2 and 5.3 (but subject to Section 5.4(a) ), which amounts shall be transferred into an Account (the “ Casualty and Condemnation Account ”). Amounts deposited from time to time into the Casualty and Condemnation Account pursuant to this Section 6.7 are referred to herein as the “ Casualty and Condemnation Funds ”. All Casualty and Condemnation Funds shall be held, disbursed and/or applied in accordance with the provisions of Section 5.4 hereof.
Section 6.8 Cash Collateral Funds . If a Trigger Period shall be continuing, all Available Cash shall be paid to Agent, which amounts shall be transferred by Agent into an Account (the “ Cash Collateral Account ”) to be held by Agent as cash collateral for the Debt. Amounts on deposit from time to time in the Cash Collateral Account pursuant to this Section 6.8 are referred to as the “ Cash Collateral Funds ”. Any Cash Collateral Funds on deposit in the Cash Collateral Account not previously disbursed or applied shall, upon the termination of such Trigger Period, be added to the Rents disbursed on the next Monthly Payment Date pursuant to Section 6.9.1 . Notwithstanding the foregoing, Agent shall have the right, but not the obligation, at any time during the continuance of an Event of Default, in its sole and absolute discretion to apply any and all Cash Collateral Funds then on deposit in the Cash Collateral Account to the Debt or Obligations, in such order and in such manner as Agent shall elect in its sole and absolute discretion, including to make a prepayment of principal (together with, if such Event of Default occurred on or prior to the Spread Maintenance Date, the applicable Spread Maintenance Premium, if any, applicable thereto) or any other amounts due hereunder.
Section 6.9 Property Cash Flow Allocation .
6.9.1 Order of Priority of Funds in Deposit Account . On each Monthly Payment Date during the Term, except during the continuance of an Event of Default, all funds deposited into the Deposit Account during the immediately preceding Collection Period shall be applied on such Monthly Payment Date in the following order of priority:
(i) First, to the Tax Account, to make the required payments of Tax Funds as required under Section 6.3 ;
(ii) Second, to the Insurance Account, to make any required payments of Insurance Funds as required under Section 6.4 ;
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(iii) Third, to Agent, funds sufficient to pay the interest due on such Monthly Payment Date;
(iv) Fourth, to the Capital Expenditure Account, to make the required payments of Capital Expenditure Funds as required under Section 6.5 ;
(v) Fifth, to the Rollover Account, to make the required payments of Rollover Funds as required under Section 6.6 ;
(vi) Sixth, to Agent, of any other amounts then due and payable under the Loan Documents;
(vii) Seventh, to Borrower if a Trigger Period is continuing, funds in an amount equal to the Monthly Operating Expense Budgeted Amount;
(viii) Eighth, to Borrower if a Trigger Period is continuing, payments for Approved Extraordinary Operating Expenses, if any;
(ix) Intentionally omitted;
(x) Ninth, to the Current Mezzanine Payment Account, funds in an amount equal to the Monthly Current Mezzanine Debt Service Payment due and owing on such Monthly Payment Date, plus any additional amount (other than principal payments) due and owing under the Current Mezzanine Loan, in accordance with the Current Mezzanine Lender Payment Instruction with respect to such Monthly Payment Date; and
(xi) Lastly all amounts remaining after payment of the amounts set forth in clauses (i) through (x) above (the “ Available Cash ”):
(A) during a Trigger Period, to the Cash Collateral Account to be held or disbursed in accordance with Section 6.8 ; or
(B) If no Trigger Period is continuing, to Borrower.
6.9.2 Failure to Make Payments . The failure of Borrower to make all of the payments required under clauses (i) through (vi) of Section 6.9.1 in full on each Monthly Payment Date shall constitute an Event of Default under this Agreement; provided, however, if adequate funds are available in the Deposit Account for such payments, and Borrower is not otherwise in Default hereunder, the failure by the Deposit Bank to allocate such funds into the appropriate Accounts shall not constitute an Event of Default.
6.9.3 Application After Event of Default . Notwithstanding anything to the contrary contained in this Article 6 , upon the occurrence and during the continuance of an Event of Default, Agent, at its option, may apply any Gross Revenue then in the possession of Agent, Servicer or Deposit Bank (including any Reserve Funds on deposit in any Cash Management Account) to the payment of the Debt in such order, proportion and priority as Agent may determine in its sole and absolute discretion. Agent’s right to withdraw and apply any of the foregoing funds shall be in addition to all other rights and remedies provided to Agent under the Loan Documents.
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Section 6.10 Security Interest in Reserve Funds . As security for payment of the Debt and the performance by Borrower of all other terms, conditions and provisions of the Loan Documents, Borrower hereby pledges and assigns to Agent and Lenders, and grants to Agent and Lenders a security interest in, all Borrower’s right, title and interest in and to all Gross Revenue and in and to all payments to or monies held in the Clearing Account, the Deposit Account and Accounts created pursuant to this Agreement (collectively, the “ Cash Management Accounts ”). Borrower hereby grants to Agent and Lenders a continuing security interest in, and agrees to hold in trust for the benefit of Agent and Lenders, all Rents in its possession prior to the (i) payment of such Gross Revenue to Agent or (ii) deposit of such Gross Revenue into the Deposit Account. Borrower shall not, without obtaining the prior written consent of Agent, further pledge, assign or grant any security interest in any Cash Management Account, or permit any Lien to attach thereto, or any levy to be made thereon, or any UCC Financing Statements, except those naming Agent (on behalf of Lender) as the secured party, to be filed with respect thereto. This Agreement is, among other things, intended by the parties to be a security agreement for purposes of the UCC. Upon the occurrence and during the continuance of an Event of Default, Agent may apply any sums in any Cash Management Account in any order and in any manner as Agent shall elect in Agent’s discretion without seeking the appointment of a receiver and without adversely affecting the rights of Agent to foreclose the Lien of the Mortgage or exercise its other rights under the Loan Documents. Cash Management Accounts shall not constitute trust funds and may be commingled with other monies held by Agent. Provided no Event of Default exists, all interest which accrues on the funds in any Account (other than the Tax Account and the Insurance Account) shall accrue for the benefit of Borrower and shall be taxable to Borrower and shall be added to and disbursed in the same manner and under the same conditions as the principal sum on which said interest accrued. Upon repayment in full of the Debt, all remaining funds in the Accounts, if any, shall be promptly disbursed to Borrower.
Article
7
PERMITTED TRANSFERS
Section 7.1 Permitted Transfer of the Entire Properties .
(a) Notwithstanding the provisions of Section 4.2 , Borrower shall have, following the earlier of six (6) months after the Closing Date and a Securitization of the Loan, the right to convey the Properties to a new borrower (the “ Transferee Borrower ”), and have Transferee Borrower assume all of Borrower’s obligations under the Loan Documents, and have replacement guarantors and indemnitors replace the guarantor and indemnitors with respect to all of the obligations of the indemnitors and guarantor of the Loan Documents from and after the date of such transfer (collectively, a “ Transfer and Assumption ”), subject to the terms and full satisfaction of all of the conditions precedent set forth in Section 7.1(b) .
(b) A Transfer and Assumption shall be subject to the following conditions:
(i) Borrower has provided Agent with not less than sixty (60) days prior written notice, which notice shall contain sufficient detail to enable Agent to determine that the Transferee Borrower complies with the requirements set forth herein;
(ii) no Event of Default has occurred and is continuing;
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(iii) Transferee Borrower shall be a Special Purpose Bankruptcy Remote Entity in accordance with Section 4.4 and Schedule V ;
(iv) Transferee Borrower shall be Controlled by a Person who (x) is a Qualified Transferee with a minimum ownership interest in the Transferee Borrower reasonably acceptable to Agent and (y) whose identity, experience, financial condition and creditworthiness, including net worth and liquidity, is acceptable to Agent in Agent’s sole discretion;
(v) the Properties shall be managed by a Qualified Manager or by a property manager reasonably acceptable to Agent;
(vi) Transferee Borrower shall have executed and delivered to Agent an assumption agreement in form and substance reasonably acceptable to Agent;
(vii) each replacement guarantor and indemnitor is an Approved Replacement Guarantor;
(viii) each Approved Replacement Guarantor shall deliver to Agent a guaranty of recourse obligations (in the same form as the guaranty of recourse obligations delivered to Agent (on behalf of Lenders) by Guarantor on the date hereof) and an environmental indemnity agreement (in the same form as the environmental indemnity agreement delivered to Agent (on behalf of Lenders) by Guarantor on the date hereof), pursuant to which, in each case, the Approved Replacement Guarantor(s) agree(s) to be liable under each such guaranty of recourse obligations from and after the date of such Transfer and Assumption and under such environmental indemnity agreement (whereupon the previous guarantor shall be released from any further liability under the guaranty of recourse obligations and environmental indemnity agreement for acts that arise from and after the date of such Transfer and Assumption and such Approved Replacement Guarantor(s) shall be the “Guarantor” for all purposes set forth in this Agreement);
(ix) Transferee Borrower shall submit to Agent true, correct and complete copies of all documents reasonably requested by Agent concerning the organization and existence of Transferee Borrower and each Approved Replacement Guarantor;
(x) satisfactory Patriot Act, OFAC and similar searches shall have been received by Agent with respect to (A) each Approved Replacement Guarantor, (B) Transferee Borrower, (C) any Person that Controls Transferee Borrower or owns an equity interest in Borrower which equals or exceeds ten percent (10%) and (D) any other Person reasonably required by Agent in order for Agent to fulfill its then-current Patriot Act compliance guidelines;
(xi) following the securitization of the Loan, Agent shall have received a Rating Agency Confirmation from each of the applicable Rating Agencies (if required pursuant to a Pooling and Servicing Agreement entered into in connection with the Securitization of the Loan);
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(xii) counsel to Transferee Borrower and each Approved Replacement Guarantor(s) shall deliver to Agent opinions in form and substance reasonably satisfactory to Agent as to such matters as Agent shall require, which may include opinions as to substantially the same matters as were required in connection with the origination of the Loan (including a new substantive non-consolidation opinion);
(xiii) Borrower shall cause to be delivered to Agent, an endorsement (relating to the change in the identity of the vestee and execution and delivery of the Transfer and Assumption documents) to each Title Insurance Policy in form and substance acceptable to Agent, in Agent’s reasonable discretion;
(xiv) Transferee Borrower and/or Borrower, as the case may be, shall deliver to Agent, upon such conveyance, a transfer fee equal to (A) $250,000 for the first Transfer and Assumption or (B) 0.5% of the Outstanding Principal Balance for each subsequent Transfer and Assumption;
(xv) the proposed Transfer and Assumption shall not constitute or cause a default under the Current Mezzanine Loan;
(xvi) intentionally omitted;
(xvii) there shall be a simultaneous “Transfer and Assumption” (as such term is defined in the Current Mezzanine Loan Agreement) pursuant to and in accordance with terms and provisions set forth in the Current Mezzanine Loan Agreement;
(xviii) intentionally omitted;
(xix) if the Interest Rate Cap Agreement shall have terminated as a result of such Transfer and Assumption, Borrower or the Transferee Borrower shall (i) obtain and deliver to Agent not later than one (1) Business Day prior to the first day of the Transfer and Assumption, one or more Replacement Interest Rate Cap Agreements from an Approved Counterparty, in a notional amount equal to the Outstanding Principal Balance, which Replacement Interest Rate Cap Agreement(s) shall be (A) effective for the period commencing on the day immediately following the Transfer and Assumption and ending on the last day of the Interest Period in which the Maturity Date occurs, (B) have a strike price equal to the Strike Price (or the Extension Strike Price, if applicable), and (C) otherwise be on the same terms as are set forth in Section 2.6 and (ii) execute and deliver an Acknowledgement with respect to each such Replacement Interest Rate Cap Agreement;
(xx) Borrower or the Transferee Borrower shall deliver a Counterparty Opinion with respect to the Replacement Interest Rate Cap Agreement and the related Acknowledgment within ten (10) days after the closing of such Transfer and Assumption;
(xxi) Borrower or the Transferee Borrower shall pay all of Agent’s and Lenders’ reasonable out-of-pocket costs and expenses in connection with the Transfer and Assumption. Agent may, as a condition to evaluating any requested consent to a transfer, require that Borrower posts a cash deposit with Agent in an amount equal to Agent’s and Lenders’ anticipated costs and expenses in evaluating any such request for consent; and
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(xxii) Borrower shall have otherwise received Agent’s written consent to such Transfer and Assumption which consent may be withheld in Agent’s sole discretion (provided, however, such consent shall, after the Securitization of the entire Loan, not be unreasonably withheld; provided, further, that such consent may be conditioned upon Borrower delivering a Rating Agency Confirmation to Agent as to such Transfer and Assumption).
(c) Notwithstanding anything to the contrary set forth in this Agreement, upon the closing of a Transfer and Assumption, Agent shall release Borrower from all obligations under the Loan Documents.
(d) It shall not be a Default or an Event of Default hereunder if a Transfer and Assumption to which Agent has consented does not close for any reason whatsoever.
Section 7.2 Permitted Transfers . Notwithstanding anything to the contrary contained in Section 4.2 or in any Loan Document, the following Transfers (herein, the “ Permitted Transfers ”) shall be permitted hereunder:
(a) a Lease entered into in accordance with the Loan Documents;
(b) a Permitted Encumbrance;
(c) the transfer of publicly traded shares on a nationally or internationally recognized stock exchange in any indirect equity owner of Borrower;
(d) a Transfer of any direct or indirect interest in Borrower related to or in connection with the estate planning of such transferor to (1) an immediate family member of such interest holder (or to partnerships or limited liability companies Controlled solely by one or more of such family members) or (2) a trust established for the benefit of such immediate family member, provided that:
(i) Borrower shall provide to Agent thirty (30) days prior written notice thereof;
(ii) such Transfer shall not otherwise result in a change of Control of Borrower or change of the day to day management and operations of the Properties;
(iii) Borrower shall continue to be a Special Purpose Bankruptcy Remote Entity;
(iv) if such Transfer would cause the transferee, together with its Affiliates, to increase its direct or indirect interest in Borrower to an amount which equals or exceeds ten percent (10%), such transferee shall be a Qualified Transferee;
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(v) if such Transfer shall cause the transferee together with its Affiliates to acquire or to increase its direct or indirect interest in Borrower to an amount which equals or exceeds forty-nine percent (49%), to the extent that Agent reasonably determines that the pairings in the most recently delivered non-consolidation opinion with respect to the Loan no longer apply, Borrower shall deliver to Agent a non-consolidation opinion in form and substance reasonably satisfactory to Agent and satisfactory to the applicable Rating Agencies;
(e) the Transfer of direct and/or indirect interests in Borrower to Current Mezzanine Loan Lender or its designee in accordance with the terms and provisions of the Intercreditor Agreement;
(f) intentionally omitted;
(g) a Transfer of any direct or indirect interest in Borrower that occurs by devise or bequest or by operation of law upon the death or legal incapacity of a natural person that was the holder of such interest, provided that:
(i) Borrower shall give Agent notice of such Transfer together with copies of all instruments effecting such Transfer not less than thirty (30) days after the date of such Transfer;
(ii) Borrower shall continue to be a Special Purpose Bankruptcy Remote Entity;
(iii) the Properties shall continue to be managed by a Qualified Manager or by a property manager reasonably acceptable to Agent and acceptable to the applicable Rating Agencies;
(iv) if such Transfer would cause the transferee, together with its Affiliates, to increase its direct or indirect interest in Borrower to an amount which equals or exceeds ten percent (10%), such transferee shall be a Qualified Transferee;
(v) if such Transfer results in a change of Control of Borrower to a Person other than (A) David Bistricer (directly or indirectly) or (B) the estate of David Bistricer (during the pendency of the settlement by the estate of David Bistricer and if such Transfer occurs as a result of the death of David Bistricer) (the “ Key Principal Estate ”); (x) if such Transfer occurs prior to the occurrence of a Securitization, such Transfer is approved by Agent in writing within 30 days after any such Transfer, which approval shall not be unreasonably withheld or (y) from and after a Securitization, Borrower shall deliver a Rating Agency Confirmation from each applicable Rating Agency within sixty (60) days after any such Transfer (or such longer time as may reasonably be necessary for Borrower to obtain the Rating Agency Confirmations, provided Borrower is diligently pursuing same); and
(vi) if such Transfer shall cause (x) a change of Control of Borrower or (y) the transferee together with its Affiliates to acquire or to increase its direct or indirect interest in Borrower to an amount which equals or exceeds forty-nine percent (49%), then, to the extent that Agent reasonably determines that the pairings in the most recently delivered non-consolidation opinion with respect to the Loan no longer apply, Borrower shall deliver to Agent a non-consolidation opinion in form and substance reasonably satisfactory to Agent and the applicable Rating Agencies within thirty (30) days of Agent’s request for such non-consolidation opinion;
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(h) provided that no Event of Default shall then exist, one or more Transfers of any direct or indirect interest in Borrower shall be permitted without Agent’s consent provided that:
(i) no such Transfer shall (x) cause the transferee (other than Key Principal), together with its Affiliates, to increase its direct or indirect interest in Borrower to an amount which equals or exceeds forty-nine percent (49%) or (y) result in a change in Control of Borrower;
(ii) Borrower shall continue to be a Special Purpose Bankruptcy Remote Entity;
(iii) if such Transfer would cause the transferee, together with its Affiliates, to increase its direct or indirect interest in Borrower to an amount which equals or exceeds ten percent (10%), (x) such transferee is a Qualified Transferee and (y) Borrower shall provide to Agent thirty (30) days prior written notice thereof;
(iv) after giving effect to such Transfer, (x) David Bistricer shall continue to Control the day to day operations of Borrower, (y) the Key Principals collectively shall continue to own at least twenty-nine percent (29%) of all equity interests (direct or indirect) of Borrower and (z) David Bistricer shall continue to own at least nine percent (9%) of all equity interests (direct or indirect) of Borrower; and
(v) the Properties shall continue to be managed by a Qualified Manager or by a property manager reasonably acceptable to Agent and acceptable to the applicable Rating Agencies;
(i) a Condemnation.
(j) a Transfer and Assumption; and/or
(k) the Transfer of interests in a Public Vehicle during the period from the formation of such Public Vehicle until the Public Vehicle becomes publicly-listed on the New York Stock Exchange or another nationally recognized stock exchange shall be permitted hereunder.
For purposes of clause (d) above, “immediate family member” shall mean a sibling, family trust, parent, spouse, child (or step-child), grandchild or other lineal descendant of the interest holder.
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Notwithstanding anything to the contrary contained in this Section 7.2 , if, as a result of any Permitted Transfer, Guarantor no longer Controls Borrower and owns any direct or indirect interest in Borrower (or if there were two or more Guarantors immediately prior to such Permitted Transfer, no Guarantor any longer Controls Borrower or any such Guarantor no longer has a direct or indirect interest in Borrower), it shall also be a condition hereunder that one or more Approved Replacement Guarantors shall execute and deliver a guaranty of recourse obligations (in the same form as the guaranty of recourse obligations delivered to Agent (on behalf of Lenders) by Guarantor on the date hereof) and an environmental indemnity agreement (in the same form as the environmental indemnity agreement delivered to Agent (on behalf of Lenders) by Guarantor on the date hereof) on or prior to the date of such Permitted Transfer (or, in the case of a Permitted Transfer described in clause (g), within thirty (30) days after the date of such Permitted Transfer), pursuant to which, in each case, the Approved Replacement Guarantor(s) agree(s) to be liable under each such guaranty of recourse obligations from and after the date of such Permitted Transfer and under such environmental indemnity agreement (whereupon the previous guarantor shall be released from any further liability under the guaranty of recourse obligations and environmental indemnity agreement from acts that arise from and after the date of such Permitted Transfer and such Approved Replacement Guarantor(s) shall be the “Guarantor” for all purposes set forth in this Agreement; provided, however, that the previous guarantors shall have the burden of proof with respect to any events or acts that such guarantors allege to have occurred after the date of any such release in accordance with the terms hereof and the replacement guarantors shall have the burden of proof with respect to any events or acts that such replacement guarantors allege to have occurred prior to the date such guarantors became replacement guarantors hereunder); provided, further, in connection with a Permitted Transfer as set forth in clauses (e) and (f) above, previous guarantor shall not be released and shall remain liable with respect to clause (xi) of Section 10.1 hereof and the Guaranteed Obligations (as defined in the Guaranty) set forth in clause (iii) of the definition of such term).
Section 7.3 Cost and Expenses; Searches; Copies .
(a) Borrower shall pay all out-of-pocket costs and expenses of Agent and Lenders in connection with any Transfer, whether or not such Transfer is deemed to be a Permitted Transfer, including, without limitation, all reasonable fees and expenses of Agent’s and Lenders’ counsel, and the reasonable cost of any required counsel opinions related to REMIC or other securitization or tax issues and any Rating Agency fees.
(b) Borrower shall provide Agent with copies of all organizational documents (if any) relating to any Permitted Transfer.
(c) In connection with any Permitted Transfer, to the extent a transferee shall own ten percent (10%) or more of the direct or indirect ownership interests in Borrower immediately following such transfer (provided such transferee owned less than ten percent (10%) of the direct or indirect ownership interests in Borrower as of the Closing Date), Borrower shall deliver (and Borrower shall be responsible for any reasonable out of pocket costs and expenses in connection therewith), customary searches reasonably requested by Agent in writing (including credit, judgment, lien, litigation, bankruptcy, criminal and watch list) reasonably acceptable to Agent with respect to such transferee.
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Article
8
DEFAULTS
Section 8.1 Events of Default . Each of the following events shall constitute an event of default hereunder (an “ Event of Default ”):
(i) if (A) the Obligations are not paid in full on the Maturity Date, (B) any regularly scheduled monthly payment of interest, and, if applicable, principal due under the Note is not paid in full on the applicable Monthly Payment Date (unless Agent shall have failed to make such payment in accordance with Section 6.9.1 hereof), (C) any prepayment of principal due under this Agreement or the Note is not paid when due, (D) the Spread Maintenance Premium is not paid when due, or (E) unless Agent shall have failed to make such deposit in accordance with Section 6.9.1 hereof, any deposit to the Reserve Funds is not made on the required deposit date therefor;
(ii) if any other amount payable pursuant to this Agreement, the Note or any other Loan Document (other than as set forth in the foregoing clause (i) ) is not paid in full when due and payable in accordance with the provisions of the applicable Loan Document, with such failure continuing for ten (10) Business Days after Agent delivers written notice thereof to Borrower (unless Agent shall have failed to make such payment in accordance with Section 6.9.1 hereof);
(iii) if any of the Taxes or Other Charges are not paid prior to delinquency, subject to the right of Borrower to contest such Taxes and Other Charges as provided in Section 4.6 hereof (provided that it shall not be an Event of Default if such past due Taxes are Real Estate Taxes and there are sufficient funds in the Tax Account to pay such amounts when due, no other Event of Default is then continuing and Agent or Servicer fails to make such payment in violation of this Agreement);
(iv) if the Policies are not (A) delivered to Agent within ten (10) days of Agent’s written request and (B) kept in full force and effect, each in accordance with the terms and conditions hereof;
(v) a Transfer other than a Permitted Transfer occurs;
(vi) if any certification, representation or warranty made by Borrower or Guarantor herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Agent shall have been false or misleading in any material respect as of the date such representation or warranty was made (provided, however, as to (A) any such false or misleading certification, representation or warranty which was not known to Borrower to be false or misleading when made or submitted to Agent, and the condition causing such certification, representation or warranty to be false or misleading is susceptible of being cured, the same shall not be an Event of Default hereunder unless Borrower fails within thirty (30) days following written notice thereof to Borrower to undertake and complete all action necessary to either cure the same or make such certification, representation or warranty true and correct in all material respects as and when made or (B) a Default under this clause (vi) that is due to a breach in a representation caused by an adverse ruling after the Closing Date with respect to Rent Regulation Law, such breach shall be deemed cured if Borrower complies with such adverse ruling);
(vii) if Borrower or Guarantor shall make an assignment for the benefit of creditors;
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(viii) if a receiver, liquidator or trustee shall be appointed for Borrower or Guarantor or if Borrower or Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower or Guarantor, or if any proceeding for the dissolution or liquidation of Borrower or Guarantor shall be instituted, or if Borrower is substantively consolidated with any other Person; provided, however, if such appointment, adjudication, petition, proceeding or consolidation was involuntary and not consented to by Borrower or Guarantor, upon the same not being discharged, stayed or dismissed within sixty (60) days following its filing;
(ix) if Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents;
(x) if any of the factual assumptions contained in the Insolvency Opinion, or in any other non-consolidation opinion delivered to Agent in connection with the Loan, or in any other non-consolidation opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect (provided, however, that such untruth shall not constitute an Event of Default if within ten (10) days after request by Agent, Borrower shall cause counsel reasonably acceptable to Agent (provided that the counsel that delivered the Insolvency Opinion in connection with the closing of the Loan shall be deemed reasonably acceptable to Agent) to deliver a new non-consolidation opinion to the effect that the failure of such factual assumption to be true shall not in any material manner impair, negate or amend the opinions rendered in the Insolvency Opinion (or such other non-consolidation opinion most recently delivered to Agent) in any material respect, which opinion shall be acceptable to Agent in its reasonable discretion and, in connection with or following a Securitization, acceptable to the Rating Agencies);
(xi) a breach of the covenants set forth in Section 4.31 hereof;
(xii) a breach of the covenants set forth in Sections 4.4 , or 4.23 hereof, provided, however, that such breach shall not constitute an Event of Default if (A) such breach was inadvertent, immaterial and non-recurring, (B) if such breach is curable, Borrower shall promptly cure such breach within ten (10) days of notice from Agent and (C) within ten (10) days after request by Agent, Borrower shall cause counsel to deliver a new non-consolidation opinion to the effect that the breach shall not in any material manner impair, negate or amend the opinions rendered in the Insolvency Opinion (or such other non-consolidation opinion most recently delivered to Agent) in any material respect, which opinion shall be acceptable to Agent in its reasonable discretion and, in connection with or following a Securitization, acceptable to the Rating Agencies);
(xiii) if Borrower shall be in default beyond any applicable grace or cure period under any mortgage or security agreement (except Permitted Equipment Financing) covering any part of any Property whether it be superior, pari passu or junior in Lien to the Mortgage;
(xiv) subject to Borrower’s right to contest set forth in Section 4.3 of this Agreement, if any Property becomes subject to any mechanic’s, materialman’s or other Lien (and such Lien is not removed within five (5) days) except a Permitted Encumbrance or a Lien for Taxes not then due and payable;
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(xv) the alteration, improvement, demolition or removal of any material portion of the Improvements without the prior consent of Agent, other than in accordance with this Agreement and the Leases at the Properties entered into in accordance with the Loan Documents;
(xvi) if, without Agent’s prior written consent, which consent shall not have been unreasonably withheld, (i) a Management Agreement is terminated by Borrower (other than as expressly permitted in this Agreement), (ii) there is a material change in a Management Agreement, or (iii) if there shall be a material default by Borrower under any Management Agreement beyond any applicable notice or grace period, provided that, such material default shall not constitute an Event of Default if, prior to the termination of the Management Agreement, Borrower enters into a new Management Agreement with a Replacement Manager in accordance with Section 4.14 of this Agreement;
(xvii) if Borrower or any Person owning a direct or indirect ownership interest (other than an indirect interest in Borrower of less than ten percent (10%) with no ability to Control) in Borrower shall be convicted of a Patriot Act Offense by a court of competent jurisdiction;
(xviii) a breach of any representation, warranty or covenant contained in Section 3.1.18 hereof that has a Material Adverse Effect;
(xix) if Borrower breaches any covenant contained in Section 4.9 hereof and such breach continues for ten (10) days;
(xx) if there shall be a default under any of the other Loan Documents beyond any applicable cure periods contained in such Loan Documents, whether as to Borrower, Guarantor or the Properties, or if any other such event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Obligations or to permit Agent to accelerate the maturity of all or any portion of the Obligations;
(xxi) if Borrower fails to obtain or maintain an Interest Rate Cap Agreement or replacement thereof in accordance with Section 2.6 and/or Section 2.7 hereof;
(xxii) Guarantor breaches any of the Guarantor Financial Covenants; or
(xxiii) if Borrower or Guarantor shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement or any other Loan Document not specified in subsections (i) to (xxii) above, and such Default shall continue for ten (10) days after notice to Borrower from Agent, in the case of any such Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice to Borrower from Agent in the case of any other such Default; provided, however, that if such non-monetary Default is susceptible of cure but cannot reasonably be cured within such 30-day period, and provided further that Borrower and/or Guarantor shall have commenced to cure such Default within such 30-day period shall and thereafter diligently and expeditiously proceed to cure the same, such 30-day period shall be extended for such time as is reasonably necessary for Borrower and/or Guarantor in the exercise of due diligence to cure such Default, such additional period not to exceed ninety (90) days.
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Section 8.2 Remedies .
8.2.1 Acceleration . Upon the occurrence of an Event of Default (other than an Event of Default described in clauses (vii) , (viii) or (ix) of Section 8.1 above) and at any time thereafter, Agent may, in addition to any other rights or remedies available to Agent and Lenders pursuant to this Agreement and the other Loan Documents or at law or in equity, take such action, without notice or demand (and Borrower hereby expressly waives any such notice or demand), that Agent deems advisable to protect and enforce its and Lenders’ rights against Borrower and in and to the Properties, including declaring the Obligations to be immediately due and payable, and Agent may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and the Properties, including all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vii) , (viii) or (ix) of Section 8.1 above, the Obligations of Borrower hereunder and under the other Loan Documents shall immediately and automatically become due and payable in full, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding.
8.2.2 Remedies Cumulative . During the continuance of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Agent and Lenders against Borrower under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrower or at law or in equity may be exercised by Agent at any time and from time to time, whether or not all or any of the Obligations shall be declared due and payable, and whether or not Agent shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to the Properties. The rights, powers and remedies of Agent under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Agent and Lenders may have against Borrower pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Agent’s and Lenders’ rights, powers and remedies may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Agent may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Agent and Lenders permitted by law or contract or as set forth herein or in the other Loan Documents or by equity. Without limiting the generality of the foregoing, if an Event of Default is continuing (i) neither Agent nor any Lender shall be subject to any “one action” or “election of remedies” law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Agent and Lenders shall remain in full force and effect until Agent and Lenders have exhausted all of their remedies against the Properties and the Mortgage has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Obligations or the Obligations have been paid in full. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by Borrower or to impair any remedy, right or power consequent thereon.
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8.2.3 Severance .
(a) During the continuance of an Event of Default, Agent shall have the right from time to time to partially foreclose the Mortgage in any manner and for any amounts secured by the Mortgage then due and payable as determined by Agent in its sole discretion, including the following circumstances: (i) in the event Borrower defaults beyond any applicable grace or cure period in the payment of one or more scheduled payments of principal and interest, Agent may foreclose the Mortgage to recover such delinquent payments, or (ii) in the event Agent elects to accelerate less than the entire Outstanding Principal Balance, Agent may foreclose the Mortgage to recover so much of the principal balance of the Loan as Agent may accelerate and such other sums secured by the Mortgage as Agent may elect. Notwithstanding one or more partial foreclosures, each Property shall remain subject to a Mortgage to secure payment of the sums secured by the Mortgage and not previously recovered.
(b) During the continuance of an Event of Default, Agent shall have the right from time to time to sever the Note and the other Loan Documents into one or more separate note, mortgages and other security documents in such denominations as Agent shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder. Borrower shall execute and deliver to Agent from time to time, promptly after the request of Agent, a severance agreement and such other documents as Agent shall request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Agent. Borrower hereby absolutely and irrevocably appoints Agent as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Agent shall not make or execute any such documents under such power until three (3) days after notice has been given to Borrower by Agent of Agent’s intent to exercise its rights under such power.
(c) During the continuance of an Event of Default, any amounts recovered from the Properties or any other collateral for the Loan after an Event of Default may be applied by Agent toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents, in such order, priority and proportions as Agent in its sole discretion shall determine.
8.2.4 Agent’s Right to Perform . If Borrower fails to perform any covenant or obligation contained herein and such failure shall continue for a period of five (5) Business Days after Borrower’s receipt of written notice thereof from Agent, without in any way limiting Agent’s right to exercise any of its rights, powers or remedies as provided hereunder, or under any of the other Loan Documents, Agent may, but shall have no obligation to, perform, or cause the performance of, any covenant or obligation, and all costs, expenses, liabilities, penalties and fines of Agent incurred or paid in connection therewith shall be payable by Borrower to Agent upon demand and if not paid shall be added to the Obligations (and to the extent permitted under applicable laws, secured by the Mortgage and the other Loan Documents) and shall bear interest thereafter at the Default Rate. Notwithstanding the foregoing, Agent shall have no obligation to send notice to Borrower of any such failure.
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Article
9
SALE AND SECURITIZATION OF MORTGAGE
Section 9.1 Sale of Mortgage and Securitization .
Subject to Section 9.4 hereof:
(a) Agent and Lenders shall have the right (i) to sell or otherwise transfer the Loan or any portion thereof as a whole loan, (ii) to sell participation interests in the Loan, or (iii) to securitize the Loan or any portion thereof in a single asset securitization or a pooled loan securitization. (The transactions referred to in clauses (i) , (ii) and (iii) are each hereinafter referred to as a “ Secondary Market Transaction ” and the transactions referred to in clause (iii) shall hereinafter be referred to as a “ Securitization ”. Any certificates, notes or other securities issued in connection with a Secondary Market Transaction are hereinafter referred to as “ Securities ”). At Agent’s election, each note and/or component comprising the Loan may be subject to one or more Secondary Market Transactions.
(b) If requested by Agent, Borrower shall reasonably cooperate with Agent and assist Agent in satisfying the market standards to which Agent customarily adheres or which may be required in the marketplace, by prospective investors, the Rating Agencies, applicable Legal Requirements and/or otherwise in the marketplace in connection with any Secondary Market Transactions, including to:
(i) (A) provide updated financial and other information with respect to each Property, the business operated at each Property, Borrower and the Manager, including, without limitation, the information set forth on Exhibit A attached hereto, (B) provide updated budgets and rent rolls (including itemized percentage of floor area occupied and percentage of aggregate base rent for each Tenant) relating to each Property, and (C) provide updated appraisals, market studies, environmental reviews and reports (Phase I’s and, if appropriate, Phase II’s), property condition reports and other due diligence investigations of each Property (the “ Updated Information ”), together, if customary, with appropriate verification of the Updated Information through letters of auditors or opinions of counsel reasonably acceptable to Agent and the Rating Agencies;
(ii) provide opinions of counsel, which may be relied upon by Agent, trustee in any Securitization, underwriters, NRSROs and their respective counsel, agents and representatives, as to non-consolidation, fraudulent conveyance and true sale or any other opinion customary in Secondary Market Transactions or reasonably required by the Rating Agencies with respect to each Property, the Loan Documents, and Borrower and its Affiliates, which counsel and opinions shall be reasonably acceptable to Agent and the Rating Agencies;
(iii) provide updated, as of the closing date of any Secondary Market Transaction, representations and warranties made in the Loan Documents and such additional representations and warranties as the Rating Agencies may require; and
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(iv) (A) review any Disclosure Document or any interim draft thereof furnished by Agent to Borrower with respect to information contained therein that was furnished to Agent by or on behalf of Borrower in connection with the preparation of such Disclosure Document or in connection with the underwriting or closing of the Loan, including financial statements of Borrower and Guarantor, operating statements and rent rolls with respect to the Properties, and (B) within three (3) Business Days following Borrower’s receipt thereof, provide to Agent in writing any revisions to such Disclosure Document or interim draft thereof necessary or advisable to insure that such reviewed information does not contain any untrue statement of a material fact or omit to state any material fact necessary to make statements contained therein not misleading.
(c) If, at the time a Disclosure Document is being prepared for a Securitization, Agent reasonably expects that Borrower alone or Borrower and one or more Affiliates of Borrower (including any guarantor or other Person that is directly or indirectly committed by contract or otherwise to make payments on all or a part of the Loan) collectively, or the Properties alone or the Properties and Related Properties collectively, will be a Significant Obligor, Borrower shall furnish to Agent upon request the following financial information:
(i) if Agent expects that the principal amount of the Loan together with any Related Loans, as of the cut-off date for such Securitization, may equal or exceed ten percent (10%) (but less than twenty percent (20%)) of the aggregate principal amount of all mortgage loans included or expected to be included in the Securitization, net operating income for each Property and the Related Properties for the most recent Fiscal Year and interim period as required under Item 1112(b)(1) of Regulation AB (or, if the Loan is not treated as a non-recourse loan under Instruction 3 for Item 1101(k) of Regulation AB, selected financial data meeting the requirements and covering the time periods specified in Item 301 of Regulation S-K and Item 1112(b)(1) of Regulation AB), or
(ii) if Agent expects that the principal amount of the Loan together with any Related Loans, as of the cut-off date for such Securitization, may equal or exceed twenty percent (20%) of the aggregate principal amount of all mortgage loans included or expected to be included in the Securitization, the financial statements required under Item 1112(b)(2) of Regulation AB (which includes, but may not be limited to, a balance sheet with respect to the entity that Agent determines to be a Significant Obligor for the two most recent Fiscal Years and applicable interim periods, meeting the requirements of Rule 3-01 of Regulation S-X, and statements of income and statements of cash flows with respect to each Property for the three most recent Fiscal Years and applicable interim periods, meeting the requirements of Rule 3-02 of Regulation S-X (or if Agent determines that the Properties are the Significant Obligor and the Properties (other than properties that are hotels, nursing homes, or other properties that would be deemed to constitute a business and not real estate under Regulation S-X or other legal requirements) were acquired from an unaffiliated third party and the other conditions set forth in Rule 3-14 of Regulation S-X have been met, the financial statements required by Rule 3-14 of Regulation S-X)).
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(d) Further, if requested by Agent, Borrower shall, promptly upon Agent’s request, furnish to Agent financial data or financial statements meeting the requirements of Item 1112(b)(1) or (2) of Regulation AB, as specified by Agent, for any Tenant under any Lease at any Property if, in connection with a Securitization, Agent expects there to be, as of the cutoff date for such Securitization, a concentration with respect to such Tenant or group of Affiliated Tenants under any Lease within all of the mortgage loans included or expected to be included in the Securitization such that such Tenant or group of Affiliated Tenants under any Lease would constitute a Significant Obligor. Borrower shall furnish to Agent, in connection with the preparation of the Disclosure Documents and on an ongoing basis, financial data and/or financial statements with respect to such Tenants under any Lease meeting the requirements of Item 1112(b)(1) or (2) of Regulation AB, as specified by Agent, but only for so long as such entity or entities are a Significant Obligor and either (x) filings pursuant to the Exchange Act in connection with or relating to the Securitization (an “ Exchange Act Filing ”) are required to be made under applicable Legal Requirements or (y) comparable information is required to otherwise be “available” to holders of the Securities under Regulation AB or applicable Legal Requirements.
(e) If Agent reasonably determines that Borrower alone or Borrower and one or more Affiliates of Borrower collectively, or the Properties alone or the Properties and Related Properties collectively, are a Significant Obligor, then Borrower shall furnish to Agent, on an ongoing basis, selected financial data or financial statements meeting the requirements of Item 1112(b)(1) or (2) of Regulation AB, as specified by Agent, but only for so long as such entity or entities are a Significant Obligor and either (x) Exchange Act Filings are required to be made under applicable Legal Requirements or (y) comparable information is required to otherwise be “available” to holders of the Securities under Regulation AB or applicable Legal Requirements.
(f) Any financial data or financial statements provided pursuant to this Section 9.1 shall be furnished to Agent within the following time periods:
(i) with respect to information requested in connection with the preparation of Disclosure Documents for a Securitization, within ten (10) Business Days after notice from Agent; and
(ii) with respect to ongoing information required under Section 9.1(d) and (e) above, (1) not later than thirty (30) days after the end of each fiscal quarter of Borrower and (2) not later than seventy-five (75) days after the end of each Fiscal Year of Borrower.
(g) If requested by Agent, Borrower shall provide Agent, promptly, and in any event within five (5) Business Days following Agent’s request therefor, with any other or additional financial statements, or financial, statistical or operating information, as Agent shall reasonably determine to be required pursuant to Regulation S-K or Regulation S-X, as applicable, Regulation AB, or any amendment, modification or replacement thereto or other Legal Requirements relating to a Securitization or as shall otherwise be reasonably requested by the Agent.
(h) If requested by Agent, whether in connection with a Securitization or at any time thereafter during which the Loan and any Related Loans are included in a Securitization, but not more than three times within any twelve (12) month period, Borrower shall provide Agent, within five (5) days after Agent’s request, a list of Tenants (including all affiliates of such Tenants) that in the aggregate of all the Properties (1) occupy 10% or more (but less than 20%) of the total floor area of the improvements or represent 10% or more (but less than 20%) of aggregate base rent, and (2) occupy 20% or more of the total floor area of the improvements or represent 20% or more of aggregate base rent.
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(i) All financial statements provided by Borrower pursuant to this Section 9.1(c) , (d) , (e) or (f) shall be prepared in accordance with GAAP, and shall meet the requirements of Regulation S-K or Regulation S-X, as applicable, Regulation AB, and other applicable Legal Requirements. All financial statements relating to a Fiscal Year shall be audited by Independent Accountants in accordance with generally accepted auditing standards, Regulation S-X or Regulation S-K, as applicable, Regulation AB, and all other applicable Legal Requirements, shall be accompanied by the manually executed report of the Independent Accountants thereon, which report shall meet the requirements of Regulation S-K or Regulation S-X, as applicable, Regulation AB, and all other applicable Legal Requirements, and shall be further accompanied by a manually executed written consent of the Independent Accountants, in form and substance reasonably acceptable to Agent, to the inclusion of such financial statements in any Disclosure Document and any Exchange Act Filing and to the use of the name of such Independent Accountants and the reference to such Independent Accountants as “experts” in any Disclosure Document and Exchange Act Filing (or comparable information is required to otherwise be available to holders of the Securities under Regulation AB or applicable Legal Requirements), all of which shall be provided at the same time as the related financial statements are required to be provided. All other financial statements shall be certified by the chief financial officer or other authorized representative (whose function is similar to that of a chief financial officer) of Borrower, which certification shall state that such financial statements meet the requirements set forth in the first sentence of this paragraph.
(j) In connection with any Secondary Market Transaction, Agent shall have the right, and Borrower hereby authorizes Agent, to disclose any and all information in Agent’s possession regarding Borrower, Guarantor, any Manager, any Property and/or the Loan in any Disclosure Document, in any promotional or marketing materials that are prepared by or on behalf of Agent in connection with such Secondary Market Transaction or in connection with any oral or written presentation made by or on behalf of Agent, including without limitation, to any actual or potential investors and any Rating Agencies and other NRSROs.
(k) Agent shall provide Borrower with prior written notice if Regulation S-K, Regulation S-X or Regulation AB is applicable pursuant to a Securitization.
Section 9.2 Securitization Indemnification .
(a) Borrower understands that information provided to Agent by Borrower and its agents, counsel and representatives relating to Borrower, Guarantor, their respective constituent owners, and the Properties (such information, whether provided pursuant to Section 9.1 above or otherwise in connection with the Loan, collectively, the “ Borrower Provided Information ”; which “Borrower Provided Information” shall be deemed not to include (i) an untrue statement of any material fact contained in the Borrower Provided Third Party Report, except to the extent Borrower or Guarantor had actual knowledge at the time Borrower or Guarantor provided the Borrower Provided Third Party Report that the Borrower Provided Third Party Report contained such untrue statement of material fact and Borrower failed to alert Agent to same, or (ii) an omission of a material fact in the Borrower Provided Third Party Report (which omission shall be deemed material if such fact should have been included in the Borrower Provided Third Party Report in order to make the statements, in light of the circumstances under which they were made, not misleading), except to the extent Borrower or Guarantor had actual knowledge at the time Borrower or Guarantor provided the Borrower Provided Third Party Report that the Borrower Provided Third Party Report reflected such omission and Borrower failed to alert Agent to same) may be included in preliminary and final disclosure documents in connection with any Secondary Market Transaction, including a Securitization, including an offering circular, a prospectus, prospectus supplement, private placement memorandum or other offering document (each, a “ Disclosure Document ”) and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “ Securities Act ”), or the Securities and Exchange Act of 1934, as amended (the “ Exchange Act ”), and may be made available to investors or prospective investors in the Securities, investment banking firms, NRSROs, accounting firms, law firms and other third-party advisory and service providers relating to any Secondary Market Transaction, including a Securitization. Borrower also understands that the findings and conclusions of any third-party due diligence report obtained by the Agent, the Issuer or the Securitization placement agent or underwriter may be made publicly available if required, and in the manner prescribed, by Section 15E(s)(4)(A) of the Exchange Act and any rules promulgated thereunder.
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(b) Borrower hereby agrees to indemnify Agent (and for purposes of this Section 9.2 , Agent shall include the initial agent, initial lenders, their successors and assigns, and their respective officers and directors) and each Person who controls the Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “ Lender Group ”), the issuer of the Securities (the “ Issuer ” and for purposes of this Section 9.2 , Issuer shall include its officers, director and each Person who controls the Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and any placement agent or underwriter with respect to the Securitization, each of their respective officers and directors and each Person who controls the placement agent or underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “ Underwriter Group ”) for any actual losses, claims, damages or liabilities (collectively, the “ Liabilities ”) to which Agent, Lenders, the Lender Group, the Issuer or the Underwriter Group may become subject insofar as the Liabilities arise out of, or are based upon, (A) any untrue statement or alleged untrue statement of any material fact contained in the Borrower Provided Information, (B) the omission or alleged omission to state therein a material fact required to be stated in the Borrower Provided Information or necessary in order to make the statements in the Borrower Provided Information, in light of the circumstances under which they were made, not misleading, or (C) a breach of the representations and warranties made by Borrower in Section 3.1.31 of this Agreement (Full and Accurate Disclosure); except, in each case, that (I) Borrower’s obligation to indemnify for any Liabilities that arise in connection with a Disclosure Document that derives in part from information contained in Borrower Provided Information and in part from information either prepared by the Lender Group, the Issuer, the Underwriter Group or any other Person shall be limited to any untrue statement or omission of material fact contained in Borrower Provided Information known to Borrower that results directly from the Borrower Provided Information (or omission from the Borrower Provided Information) and (II) Borrower shall have no responsibility for (w) any statements contained in any Disclosure Document to which Borrower or its authorized representative have objected to (or requested changes to) in writing to Agent or that were derived from Borrower Provided Third Party Reports, (x) numbers which have been submitted by Borrower and adjusted by any Indemnified Person from those submitted by Borrower, to the extent of such adjustment, (y) third party reports, such as environmental and physical condition reports that do not constitute Borrower Provided Third Party Reports, and (z) any financial projections. Borrower also agrees to reimburse Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group for any actual legal or other expenses reasonably incurred by Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group in connection with investigating or defending the Liabilities. Borrower’s liability under this paragraph will be limited to Liability that arises out of, or is based upon, an untrue statement or omission made in reliance upon, and in conformity with, information furnished to Agent by or on behalf of Borrower in connection with the preparation of the Disclosure Document or in connection with the underwriting or closing of the Loan, including financial statements of Borrower, operating statements and rent rolls with respect to the Properties. This indemnification provision will be in addition to any liability which Borrower may otherwise have. Borrower acknowledges and agrees that any Person that is included in the Lender Group, the Issuer and/or the Underwriter Group that is not a direct party to this Agreement shall be deemed to be a third-party beneficiary to this Agreement with respect to this Section 9.2(b) .
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(c) In connection with any Exchange Act Filing or other reports containing comparable information that is required to be made “available” to holders of the Securities under Regulation AB or applicable Legal Requirements, Borrower agrees to (i) indemnify Agent, Lenders, the Lender Group, the Issuer and the Underwriter Group for Liabilities to which Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group may become subject insofar as the Liabilities arise out of, or are based upon, an alleged untrue statement or alleged omission or an untrue statement or omission made in reliance upon, and in conformity with, Borrower Provided Information furnished to Agent by or on behalf of Borrower in connection with the preparation of the Disclosure Document or in connection with the underwriting or closing of the Loan, including financial statements of Borrower, operating statements and rent rolls with respect to any Property, and (ii) reimburse Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group for any actual legal or other expenses reasonably incurred by Agent, Lenders, the Lender Group, the Issuer and/or the Underwriter Group in connection with defending or investigating the Liabilities.
(d) Promptly after receipt by an indemnified party under this Section 9.2 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9.2 , notify the indemnifying party in writing of the commencement thereof, but the omission to so notify the indemnifying party will not relieve the indemnifying party from any liability which the indemnifying party may have to any indemnified party hereunder except to the extent that failure to notify causes prejudice to the indemnifying party. In the event that any action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled, jointly with any other indemnifying party, to participate therein and, to the extent that it (or they) may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party pursuant to the immediately preceding sentence of this Section 9.2(d) , such indemnifying party shall not pay for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are any legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party at the cost of the indemnifying party. The indemnifying party shall not be liable for the expenses of more than one separate counsel unless an indemnified party shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to any other indemnified party. Without the prior written consent of Agent (which consent shall not be unreasonably withheld or delayed), no indemnifying party shall settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action, suit or proceeding) unless the indemnifying party shall have given Agent reasonable prior written notice thereof and shall have obtained an unconditional release of each indemnified party hereunder from all liability arising out of such claim, action, suit or proceedings, and such settlement requires no statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of the Indemnified Party.
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(e) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 9.2(b) or (c) is for any reason held to be unenforceable as to an indemnified party in respect of any Liabilities (or action in respect thereof) referred to therein which would otherwise be indemnifiable under Section 9.2(b) or (c) , the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Liabilities (or action in respect thereof); provided, however, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (i) the Issuer’s and Borrower’s relative knowledge and access to information concerning the matter with respect to which the claim was asserted; (ii) the opportunity to correct and prevent any statement or omission; and (iii) any other equitable considerations appropriate in the circumstances. Agent and Borrower hereby agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation. In no event shall Borrower be required to indemnify an indemnified party with respect to any matter to the extent arising from the gross negligence or willful misconduct of an indemnified party.
(f) The liabilities and obligations of both Borrower and Agent under this Section 9.2 shall survive the termination of this Agreement and the satisfaction and discharge of the Debt.
Section 9.3 Severance . Subject to Section 9.4 hereof:
9.3.1 Severance Documentation . Agent, without in any way limiting Agent’s other rights hereunder, in its sole and absolute discretion, shall have the right, at any time (whether prior to or after any sale, participation or Securitization of all or any portion of the Loan), to require Borrower (at no material cost to Borrower) to execute and deliver “component” notes and/or modify the Loan in order to create one or more senior and subordinate notes (i.e., an A/B or A/B/C structure) and/or one or more additional components of the Note or Notes), reduce the number of components of the Note or Notes, revise the interest rate for each component, reallocate the principal balances of the Notes and/or the components, increase or decrease the monthly debt service payments for each component or eliminate the component structure and/or the multiple note structure of the Loan (including the elimination of the related allocations of principal and interest payments), provided that (a) the Outstanding Principal Balance of all components immediately after the effective date of such modification equals the Outstanding Principal Balance immediately prior to such modification and the weighted average of the interest rates for all components immediately after the effective date of such modification equals the interest rate of the original Note immediately prior to such modification, (b) the obligations of Borrower shall not be materially increased hereby and (c) such “component” notes and/or senior and subordinate notes shall be structured such that permitted prepayments (other than prepayments made in connection with a Casualty or Condemnation) shall not, provided no Event of Default is then continuing, result in any “rate creep”. At Agent’s election, each note comprising the Loan may be subject to one or more Securitizations. Agent shall have the right to modify the Note and/or Notes and any components in accordance with this Section 9.3 and, provided that such modification shall comply with the terms of this Section 9.3 , it shall become immediately effective.
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9.3.2 Intentionally Omitted .
9.3.3 Cooperation; Execution; Delivery . Borrower shall reasonably cooperate with all reasonable requests of Agent in connection with this Section 9.3 . If requested by Agent, Borrower shall promptly execute and deliver such documents as shall be reasonably required by Agent and requested by any Rating Agency in connection with any modification pursuant to this Section 9.3 , all in form and substance reasonably satisfactory to Agent and Borrower and satisfactory to any applicable Rating Agency, including, the severance of security documents. In the event Borrower fails to execute and deliver such documents to Agent within five (5) Business Days following such request by Agent, Borrower hereby absolutely and irrevocably appoints Agent as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect such transactions, Borrower hereby ratifying all that such attorney shall do by virtue thereof. It shall be an Event of Default under this Agreement, the Note, the Mortgage and the other Loan Documents if Borrower fails to comply with any of the terms, covenants or conditions of this Section 9.3 after expiration of ten (10) Business Days after notice thereof.
Section 9.4 Costs and Expenses . Notwithstanding anything to the contrary contained in this Article 9 , Borrower shall not be required to incur any material costs or expenses in the performance of its obligations under Sections 9.1(a) or (b) above or Section 9.3 above (including the reasonable fees and expenses of Borrower’s accountants, consultants and counsel) in excess of $10,000.
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Article
10
MISCELLANEOUS
Section 10.1 Exculpation . Subject to the qualifications below, Agent shall not enforce the liability and obligation of Borrower to perform and observe the Obligations contained in the Note, this Agreement, the Mortgage or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Agent may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its (and the Lenders’) interest under the Note, this Agreement, the Mortgage and the other Loan Documents, or in all or any of the Properties, the Gross Revenues or any other collateral given to Agent (on behalf of Lenders) pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower only to the extent of Borrower’s interest in the Properties, in the Gross Revenues and in any other collateral given to Agent (on behalf of Lenders), and Agent (on behalf of Lenders), by accepting the Note, this Agreement, the Mortgage and the other Loan Documents, shall not sue for, seek or demand any deficiency judgment against Borrower in any such action or proceeding under or by reason of or under or in connection with the Note, this Agreement, the Mortgage or the other Loan Documents. The provisions of this Section 10.1 shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Agent to name Borrower as a party defendant in any action or suit for foreclosure and sale under the Mortgage; (c) affect the validity or enforceability of any of the Loan Documents or any guaranty made in connection with the Loan or any of the rights and remedies of Agent and Lenders thereunder; (d) impair the right of Agent to obtain the appointment of a receiver; (e) impair the enforcement of the Assignment of Leases; (f) impair the enforcement of the Environmental Indemnity; (g) constitute a prohibition against Agent to seek a deficiency judgment against Borrower in order to fully realize the security granted by the Mortgage or to commence any other appropriate action or proceeding in order for Agent to exercise its remedies against all or any of the Properties; or (h) constitute a waiver of the right of Agent to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage (excluding punitive damages except in the case of punitive damages paid by Agent or any Lender to a third party where such damages do not directly arise as a result of the acts of Agent), cost, expense, liability, claim or other obligation actually incurred by Agent or any Lender (including reasonable attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following (all such liability and obligation of Borrower for any or all of the following being referred to herein as “ Borrower’s Recourse Liabilities ”):
(i) fraud, willful misconduct, intentional misrepresentation of a material fact known to Borrower or Guarantor or failure to disclose a material fact known to Borrower or Guarantor by or on behalf of Borrower, Guarantor, any Affiliate of Borrower or Guarantor, including by reason of any claim under the Racketeer Influenced and Corrupt Organizations Act (RICO);
(ii) the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity, subject to the terms and provisions of the Environmental Indemnity;
(iii) wrongful removal or destruction of any portion of any Property or damage to any Property caused by willful misconduct or gross negligence of Borrower, Guarantor or their respective Affiliates;
(iv) any physical waste of any of the Properties by Borrower, Guarantor or their respective Affiliates;
(v) the forfeiture by Borrower of any Property, or any portion thereof, because of the conduct or purported conduct of criminal activity by Borrower or Guarantor or any of their respective agents or representatives in connection therewith;
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(vi) the misappropriation or conversion by or on behalf of Borrower of (A) any Insurance Proceeds paid by reason of any loss, damage or destruction to any Property, (B) any Awards or other amounts received in connection with the Condemnation of all or a portion of any Property, or (C) any Gross Revenues (including Rents, Insurance Proceeds, security deposits, advance deposits or any other deposits and Lease Termination Payments) or (D) any other funds due under the Loan Documents, including, in connection with any of the foregoing, by reason of failure to comply with Section 6.1 hereof or breach of the Clearing Account Agreement or the Cash Management Agreement;
(vii) failure to pay charges for labor or materials or other charges (other than Taxes) that can create Liens on any portion of any Property, other than (i) charges incurred by or on behalf of Agent or a receiver put in place by Agent, subject to Permitted Encumbrances or (ii) charges that relate to a period from and after a foreclosure of the Loan or a conveyance in lieu of foreclosure of the Loan, unless such charges were incurred by Borrower, Guarantor or an Affiliate of Borrower or Guarantor;
(viii) the failure to pay Taxes or transfer taxes, other than those Taxes or transfer taxes that relate to a period from and after a foreclosure of the Loan or a conveyance in lieu of foreclosure of the Loan; unless (x) Rents received during the tax period in question are insufficient to pay all of Borrower’s current and/or past due liabilities (including such Taxes) with respect to the Properties or (y) funds to pay such Taxes were, at the time in question, available in the Tax Account and Agent failed to pay (or make such Tax Funds available to pay) such Taxes;
(ix) failure to obtain and maintain the fully paid for Policies in accordance with Section 5.1.1 hereof, other than the failure to obtain or maintain Policies that relate to a period from and after a foreclosure of the Loan or a conveyance in lieu of foreclosure of the Loan; unless (x) Rents received during the period in question are insufficient to pay all of Borrower’s current and/or past due liabilities (including such Policies) with respect to the Properties or (y) funds to pay such Insurance Premiums were, at the time in question, available in the Insurance Account and Agent failed to pay (or make such Insurance Funds available to pay) such Insurance Premiums;
(x) Borrower’s indemnification of Agent set forth in Section 9.2 hereof;
(xi) any (A) actual or alleged violation or breach of any applicable Rent Regulation Laws (including any actual or alleged overcharges in, or rollback to, rent payable by any current or former Tenant) and/or (B) any breach of the covenants set forth in Section 4.33 hereof;
(xii) a breach of the covenants set forth in Section 4.4 hereof (other than those breaches covered by clause (i) of the Springing Recourse Events below, and breaches of the covenants set forth in clauses (f) and (i) in the definition of “Special Purpose Bankruptcy Remote Entity” attached hereto as Schedule V );
(xiii) any cost or expense incurred by Agent or any Lender in connection with the enforcement of its rights and remedies hereunder or under any other Loan Document; and/or
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(xiv) any losses, damages, costs, expenses, liabilities, claims or other obligations imposed upon or incurred by or asserted against Agent or any Lender arising out of or in any way relating to the Equinox Litigation.
Notwithstanding anything to the contrary in this Agreement or any of the other Loan Documents, (A) neither Agent nor any Lender shall be deemed to have waived any right which Agent or any Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Obligations or to require that all collateral shall continue to secure all of the Obligations owing to Lender in accordance with the Loan Documents, and (B) the Obligations shall be fully recourse to Borrower in the event that any of the following occur (each, a “ Springing Recourse Event ”): (1) either (x) a breach of the covenant set forth in Section 4.4 hereof or a breach by Current Mezzanine Borrower of the “special purpose entity” covenants contained in the Current Mezzanine Loan Documents, in each case with respect to clause (d) of the definition of Special Purpose Bankruptcy Remote Entity (or the equivalent with respect to the Current Mezzanine Loan Documents), that results in the substantive consolidation of the assets and liabilities of Borrower or Current Mezzanine Borrower with any other Person as a result of such breach, or (y) a breach of the covenants set forth in Section 4.4 hereof with respect to clauses (a), (b), (l) and (n) of the definition of Special Purpose Bankruptcy Remote Entity (“ Specific SPE Covenants ”) or a breach by Current Mezzanine Borrower of the “special purpose entity” covenants contained in the Current Mezzanine Loan Documents relating to the Specific SPE Covenants, (2) Borrower fails to obtain Agent’s prior consent to any subordinate financing secured by any Property or other voluntary Lien encumbering any Property (to the extent Agent consent is required pursuant to this Agreement); (3) Borrower fails to obtain Agent’s prior consent to any Transfer of any Property or any interest therein or any Transfer of any direct or indirect interest in Borrower, in either case as required by the Mortgage or this Agreement other than a Permitted Transfer; (4) Borrower files a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (5) Borrower is substantively consolidated with any other Person or Current Mezzanine Borrower is substantively consolidated with another Person; unless such consolidation was involuntary and not consented to by Borrower, Current Mezzanine Borrower or any Guarantor and is discharged, stayed or dismissed within thirty (30) days following the occurrence of such consolidation; (6) the filing of an involuntary petition against Borrower or Current Mezzanine Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by any other Person in which Borrower or Current Mezzanine Borrower colludes with or otherwise assists such Person, and/or Borrower and/or Current Mezzanine Borrower solicits or causes to be solicited petitioning creditors for any involuntary petition against Borrower or Current Mezzanine Borrower by any Person; (7) Borrower or Current Mezzanine Borrower files an answer consenting to, or otherwise acquiescing in, or joining in, any involuntary petition filed against it by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (8) Borrower or any Affiliate, officer, director or representative which controls Borrower consents to, or acquiesces in, or joins in (other than at Agent’s express written request), an application for the appointment of a custodian, receiver, trustee or examiner for Borrower or any portion of the Properties; (9) Borrower makes an assignment for the benefit of creditors or admits, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due which admission is used as evidence of Borrower’s insolvency in connection with an involuntary petition filed against Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by a Person other than Agent (provided, that if Borrower admits in writing to Agent, any Lender or any servicer of the Loan that (A) Borrower cannot pay expenses of operating the Property, (B) Borrower cannot pay amounts due under the Loan or (C) Borrower cannot refinance the Loan on the Maturity Date, and Borrower does not make any other admission in writing other than those described in clauses (A) - (C), such admission shall not constitute Borrower’s “admitting in writing its insolvency or inability to pay its debts as they become due”); or (10) if any Guarantor (or any Person comprising any Guarantor), Borrower or any Affiliate of Borrower, in connection with any enforcement action or exercise or assertion of any right or remedy by or on behalf of Agent or any Lender under or in connection with the Guaranty, the Note, the Mortgage or any other Loan Document, seeks a defense, judicial intervention or injunctive or other equitable relief of any kind, or asserts in a pleading filed in connection with a judicial proceeding any defense against Agent or any Lender or any right in connection with any security for the Loan, except for defenses and counterclaims raised in good faith.
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Section 10.2 Survival; Successors and Assigns . This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lenders of the Loan and the execution and delivery to Lenders of the Note, and shall continue in full force and effect so long as all or any of the Obligations are outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Agent and Lenders.
Section 10.3 Agent’s Discretion; Rating Agency Review Waiver .
(a) Whenever pursuant to this Agreement Agent exercises any right given to it to approve or disapprove any matter, or any arrangement or term is to be satisfactory to Agent, the decision of Agent to approve or disapprove such matter or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Agent and shall be final and conclusive. Prior to a Securitization, whenever pursuant to this Agreement the Rating Agencies are given any right to approve or disapprove any matter, or any arrangement or term is to be satisfactory to the Rating Agencies, the decision of Agent to approve or disapprove such matter or to decide whether arrangements or terms are satisfactory or not satisfactory, based upon Agent’s determination of Rating Agency criteria, shall be substituted therefor.
(b) Whenever, pursuant to this Agreement or any other Loan Documents, a Rating Agency Confirmation is required from each applicable Rating Agency, in the event that any applicable Rating Agency “declines review”, “waives review” or otherwise indicates in writing or otherwise to Agent’s or Servicer’s satisfaction that no Rating Agency Confirmation will or needs to be issued with respect to the matter in question (each, a “ Review Waiver ”), then the Rating Agency Confirmation requirement shall be deemed to be satisfied with respect to such matter. It is expressly agreed and understood, however, that receipt of a Review Waiver (i) from any one Rating Agency shall not be binding or apply with respect to any other Rating Agency and (ii) with respect to one matter shall not apply or be deemed to apply to any subsequent matter for which Rating Agency Confirmation is required.
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(c) Prior to a Securitization or in the event that there is a Review Waiver, if Agent does not have a separate and independent approval right with respect to the matter in question, then the term Rating Agency Confirmation shall be deemed instead to require the prior written consent of Agent.
Section 10.4 Governing Law .
(a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY AGENT AND LENDERS AND ACCEPTED BY BORROWER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED ACCORDING TO, THE LAW OF THE STATE, COMMONWEALTH OR DISTRICT, AS APPLICABLE, IN WHICH THE PROPERTIES LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, COMMONWEALTH OR DISTRICT, AS APPLICABLE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
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(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST AGENT, ANY LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY AT AGENT’S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND BORROWER, AGENT AND EACH LENDER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER, AGENT AND EACH LENDER HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER AGREES THAT SERVICE OF PROCESS UPON BORROWER AT THE ADDRESS FOR BORROWER SET FORTH HEREIN AND WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO AGENT OF ANY CHANGE IN THE ADDRESS FOR BORROWER SET FORTH HEREIN, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE AN AUTHORIZED AGENT WITH AN OFFICE IN BROOKLYN, NEW YORK OR NEW YORK, NEW YORK (WHICH AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE AN AUTHORIZED AGENT IF BORROWER CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION WHERE COLLATERAL IS LOCATED.
Section 10.5 Modification, Waiver in Writing . No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement or of any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party or parties against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on, Borrower shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Neither any failure nor any delay on the part of Agent in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder or under any other Loan Document, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement or any other Loan Document, Agent shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Agent shall have the right to waive or reduce any time periods that Agent is entitled to under the Loan Documents in its sole and absolute discretion.
Section 10.6 Notices . All notices, demands, requests, consents, approvals or other communications (any of the foregoing, a “ Notice ”) required, permitted or desired to be given hereunder shall be in writing and shall be sent by facsimile (with answer back acknowledged) or by registered or certified mail, postage prepaid, return receipt requested, or delivered by hand or by reputable overnight courier, addressed to the party to be so notified at its address hereinafter set forth, or to such other address as such party may hereafter specify in accordance with the provisions of this Section 10.6 . Any Notice shall be deemed to have been received: (a) three (3) days after the date such Notice is mailed, (b) on the date of sending by facsimile if sent during business hours on a Business Day (otherwise on the next Business Day), (c) on the date of delivery by hand if delivered during business hours on a Business Day (otherwise on the next Business Day), and (d) on the next Business Day if sent by an overnight commercial courier, in each case addressed to the parties as follows:
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If to Agent: | Deutsche Bank AG, New York Branch |
60 Wall Street | |
New York, New York 10005 | |
Attention: David Goodman and Nick Manolas | |
Facsimile No. (212) 797-4489 | |
with a copy to: | Kaye Scholer LLP |
250 W. 55th Street | |
New York, New York 10019-9710 | |
Attention: Jeannie Bionda, Esq. | |
Facsimile No. (212) 836-6534 | |
If to Lender: | Deutsche Bank AG, New York Branch |
60 Wall Street | |
New York, New York 10005 | |
Attention: David Goodman and Nick Manolas | |
Facsimile No. (212) 797-4489 | |
and to: | Deutsche Bank AG, New York Branch |
60 Wall Street, 10th Floor | |
New York, New York 10005 | |
Attention: General Counsel | |
Facsimile No. (646) 736-5721 | |
with a copy to: | Kaye Scholer LLP |
250 W. 55th Street | |
New York, New York 10019-9710 | |
Attention: Jeannie Bionda, Esq. | |
Facsimile No. (212) 836-6534 | |
with a copy to: | Hanover Street Capital |
48 Wall Street, 14th Floor | |
New York NY 10005 | |
Attention: Amy Sinensky | |
Facsimile No.: (212) 380-9396 | |
If to Borrower: | c/o Clipper Equity LLC |
46-11 12 th Avenue, Suite 1L | |
Brooklyn, New York 11219 | |
Attention: David Bistricer | |
Facsimile No. (718) 438-1290 | |
with a copy to: | Sukenik, Segal & Graff, P.C. |
450 Seventh Avenue, 42nd Floor | |
New York, New York 10123 | |
Attention: Josh Graff, Esq. | |
Facsimile No. (212) 779-8095 |
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Any party may change the address to which any such Notice is to be delivered by furnishing ten (10) days written notice of such change to the other parties in accordance with the provisions of this Section 10.6 . Notices shall be deemed to have been given on the date as set forth above, even if there is an inability to actually deliver any such Notice because of a changed address of which no Notice was given, or there is a rejection or refusal to accept any Notice offered for delivery. Notice for any party may be given by its respective counsel. Additionally, Notice from Agent may also be given by Servicer and Agent hereby acknowledges and agrees that Borrower shall be entitled to rely on any Notice given by Servicer as if it had been sent by Agent.
Section 10.7 Waiver of Trial by Jury . BORROWER, AGENT AND EACH LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AGENT AND EACH LENDER AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER.
Section 10.8 Headings, Schedules and Exhibits . The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof.
Section 10.9 Severability . Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
Section 10.10 Preferences . Agent shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the Obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Agent, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Agent.
Section 10.11 Waiver of Notice . Borrower shall not be entitled to any notices of any nature whatsoever from Agent except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Agent to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Agent with respect to any matter for which this Agreement or the other Loan Documents do not specifically and expressly provide for the giving of notice by Agent to Borrower.
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Section 10.12 Remedies of Borrower . In the event that a claim or adjudication is made that Agent or its agents have acted unreasonably or unreasonably delayed acting in any case where, by law or under this Agreement or the other Loan Documents, Agent or such agent, as the case may be, has an obligation to act reasonably or promptly, neither Agent nor its agents shall be liable for any monetary damages and Borrower’s sole remedy shall be limited to commencing an action seeking injunctive relief or declaratory judgment. Any action or proceeding to determine whether Agent has acted reasonably shall be determined by an action seeking declaratory judgment.
Section 10.13 Offsets, Counterclaims and Defenses . Any assignee of Agent’s or any Lender’s interest in and to this Agreement and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrower may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by one or more Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower.
Section 10.14 No Joint Venture or Partnership; No Third Party Beneficiaries .
(a) Borrower and Agent (on behalf of Lenders) intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common or joint tenancy relationship between Borrower, Agent and/or any Lender or to grant Agent and/or any Lender any interest in the Properties other than that of mortgagee, beneficiary or lender.
(a) The Loan Documents are solely for the benefit of Agent (on behalf of Lenders) and Borrower (and the Lender Group, the Issuer and the Underwriter Group with respect to Section 9.2(b) ) and nothing contained in any Loan Document shall be deemed to confer upon anyone other than the Agent, Lenders and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained therein.
Section 10.15 Publicity . All news releases, publicity or advertising by either party through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents, to Agent, Lenders, the Affiliate of any Lender that acts as the issuer with respect to a Securitization or any of their other Affiliates (x) shall be prohibited prior to the final Securitization of the Loan and (y) after the final Securitization of the Loan, shall be subject to the prior written approval of the other party; provided, however, that the foregoing shall not prohibit (a) Agent from issuing customary “tombstone” advertisements with respect to the Loan, and (b) any customary disclosure by Agent or its Affiliates related to or arising out of a Securitization or Secondary Market Transaction involving the Loan.
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Section 10.16 Waiver of Marshalling of Assets . To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower’s members or partners, as applicable, and others with interests in Borrower, and of any Property, and shall not assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Agent (on behalf of Lenders) under the Loan Documents to a sale of any Property for the collection of the Obligations without any prior or different resort for collection, or of the right of Agent (on behalf of Lenders) to the payment of the Obligations out of the net proceeds of any Property in preference to every other claimant whatsoever.
Section 10.17 Certain Waivers . Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Agent, any Lender or their agents or otherwise to offset any obligations to make the payments required by the Loan Documents. No failure by Agent to perform any of its obligations hereunder shall be a valid defense to, or result in any offset against, any payments which Borrower is obligated to make under any of the Loan Documents. Without limiting any of the other provisions contained herein, Borrower hereby unconditionally and irrevocably waives, to the maximum extent not prohibited by applicable law, any rights it may have to claim or recover against Agent or any Lender in any legal action or proceeding any special, exemplary, punitive or consequential damages.
Section 10.18 Conflict; Construction of Documents; Reliance . In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Borrower acknowledges that, with respect to the Loan, Borrower shall rely solely on its own judgment and advisors in entering into the Loan, without relying in any manner on any statements, representations or recommendations of Agent, any Lender or any parent, subsidiary or affiliate of Agent or any Lender. Agent shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or affiliate of Agent of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Agent’s exercise of any such rights or remedies. Borrower acknowledges that Agent engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates.
Section 10.19 Brokers and Financial Advisors . Borrower hereby represents that it has dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower shall indemnify, defend and hold Agent and each Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind (including Agent’s and each Lender’s reasonable attorneys’ fees and expenses) in any way relating to or arising out of a claim by any Person that such Person acted on behalf of Borrower, Agent or any Lender (unless it is determined that such Person is alleged to be owed solely due to engagement by or through Agent or any Lender) in connection with the transactions contemplated herein. The provisions of this Section 10.19 shall survive the expiration and termination of this Agreement and the payment of the Obligations.
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Section 10.20 Prior Agreements . This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto and their respective affiliates in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, including any confidentiality agreements or any similar agreements between or among any such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents.
Section 10.21 Servicer .
(a) At the option of Agent, the Loan may be serviced by a servicer or special servicer (the “ Servicer ”) selected by Agent and Agent may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the “ Servicing Agreement ”) between Agent and Servicer. Borrower shall not be responsible for any set-up fees or any other initial costs relating to or arising under the Servicing Agreement. Borrower shall not be responsible for payment of any monthly or annual master servicing fee due to the Servicer under the Servicing Agreement.
(b) Other than as set forth in Section 10.21(a) above, Borrower shall pay all of the fees and expenses of the Servicer and any reasonable third-party fees and expenses in connection with the Loan, including any prepayments, releases of any Property, approvals under the Loan Documents, requested by Borrower, other requests under the Loan, assumption of Borrower’s obligations or modification of the Loan, as well as any fees and expenses in connection with the special servicing or work-out of the Loan or enforcement of the Loan Documents, including special servicing fees, operating or trust advisor fees (if the Loan is a specially serviced loan or in connection with a workout), work-out fees, liquidation fees, attorneys’ fees and expenses and other fees and expenses in connection with the modification or restructuring of the Loan.
Section 10.22 Joint and Several Liability . Borrower shall be jointly and severally liable for payment of the Debt and performance of all other obligations of Borrower (or any of them) under this Agreement or any other Loan Document.
Section 10.23 Creation of Security Interest . Notwithstanding any other provision set forth in this Agreement, the Note, the Mortgage or any of the other Loan Documents, Agent may at any time create a security interest in all or any portion of its rights under this Agreement, the Note, the Mortgage and any other Loan Document (including the advances owing to it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.
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Section 10.24 Taxes . Any and all payments by Borrower hereunder and under the other Loan Documents shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on Agent’s or any Lender’s income, and franchise taxes imposed on Agent or any Lender by the law or regulation of any Governmental Authority (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to in this Section 10.24 as “ Applicable Taxes ”). If Borrower shall be required by law to deduct any Applicable Taxes from or in respect of any sum payable hereunder to Agent (on behalf of Lender), the following shall apply: (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 10.24 ), such Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Payments pursuant to this Section 10.24 shall be made within ten (10) days after the date Agent makes written demand therefor.
Section 10.25 Counterparts . 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 shall together constitute one and the same instrument.
Section 10.26 Set-Off . In addition to any rights and remedies of Agent and Lenders provided by this Agreement and by law, Agent shall have the right in its sole discretion, without prior notice to Borrower, any such notice being expressly waived by Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Agent, any Lender or any Affiliate thereof to or for the credit or the account of Borrower; provided however, Agent may only exercise such right during the continuance of an Event of Default. Agent agrees promptly to notify Borrower after any such set-off and application made by Agent; provided that the failure to give such notice shall not affect the validity of such set-off and application.
Section 10.27 Modification, Waiver in Writing; Approvals .
(a) Subject to the additional requirements of Section 10.27(c) through (i) , no modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement or of any other Loan Document shall be effective unless the same shall be in a writing signed by Agent and, in the case of modifications and amendments, Borrower, and then such waiver or consent shall be effective only in the specific instance, and for the purpose for which given. Neither any failure nor any delay on the part of Agent or any Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder or under any other Loan Document, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement or any other Loan Document, neither Agent nor any Lender shall be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Agent shall have the right to waive or reduce any time periods that Lenders and/or Agent is entitled to under the Loan Documents in its sole and absolute discretion.
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(b) Subject to Section 10.27(c) through (i) hereof, Agent may make, give or take any consent, approval, waiver, amendment, decision, or other action pursuant to the Loan Documents without the approval of any Lender. Notwithstanding the preceding sentence, Agent shall have the right to (i) request instructions from Lenders with respect to any approval, consent, waiver, decision or other action or (ii) in its sole and absolute discretion, rely upon such instructions (or refrain from taking any action in the absence thereof) in performing its duties hereunder, and any action taken or failure to act pursuant thereto shall be binding on all Lenders. With respect to any action or other matter arising in connection with an Event of Default, to the extent the Lenders have consented to the exercise of rights and remedies by the Agent on their behalf or with the deemed consent or approval of the Lenders, Agent shall be permitted to take any related action (or refrain from taking any action) to enforce and carry out such rights and remedies of Agent and Lenders under the Loan Documents on account of such Event of Default. Notwithstanding anything to the contrary contained herein, Agent may refrain from doing anything (including disclosing any information) which might, in its good faith determination, constitute a breach of any law or expose Agent to any civil or criminal liability. Wherever this Agreement specifies a minimum period of notice to be given to Agent, Agent may, in its discretion, accept a shorter notice period.
(c) Borrower hereby acknowledges and agrees that notwithstanding the fact that the Loan may be serviced by Servicer, prior to a Securitization of the entire Loan, all requests for approval and consents hereunder and in every instance in which Lenders’ consent or approval is required, all copies of documents, reports, requests and other delivery obligations of Borrower and Guarantor required hereunder shall be delivered by Borrower or Guarantor, as applicable, to Agent.
(d) In the event a decision with respect to any action affecting the Loan (a “ Decision ”) is required to be made, Agent shall promptly so notify each Lender (each such notice, a “ Decision Notice ”). The Decision Notice shall (i) set forth Agent’s recommendation as to the proposed course of action or decision with respect to such Decision, (ii) include all information in Agent’s possession that Agent reasonably believes is necessary for Lenders to make a decision and (iii) ask for the approval of Lenders with respect to such course of action or decision and (iv) set forth the specific date by which Lenders’ approval or disapproval of the action or decision recommended in the Decision Notice must be given. In the event Agent does not receive from any Lender written approval or disapproval of the action or decision recommended in the Decision Notice within ten (10) Business Days (or by such shorter period as may be requested by Borrower or Agent in accordance with the Loan Documents or is otherwise required by the terms of the Loan Documents or by Agent if Agent in good faith reasonably believes a more prompt response is necessary or appropriate and such shorter period is set forth in the Decision Notice, but which shall in no event be fewer than three (3) Business Days from the date of delivery of the Decision Notice) of the date on which Agent has delivered such Decision Notice to the Lenders, then Agent shall send such Lender a second reminder notice. Each second reminder notice shall, at the top of such notice, set forth a legend in all caps and bolded text as follows: “THIS IS A REMINDER NOTICE RELATING TO AN ACTION OR DECISION CONCERNING THE LOAN WITH RESPECT TO 53 PARK PLACE AND 110 CHURCH STREET IN NEW YORK, NEW YORK, RECOMMENDED BY AGENT IN THAT CERTAIN NOTICE DATED AS OF [_______]. IF AGENT DOES NOT RECEIVE A WRITTEN APPROVAL OR DISAPPROVAL FROM THE ADDRESSEE OF SUCH ACTION OR DECISION WITHIN TWO (2) BUSINESS DAYS AFTER THE DATE HEREOF, WHICH DATE IS [_______], SUCH ADDRESSEE SHALL BE DEEMED TO HAVE APPROVED SUCH ACTION OR DECISION.” If Agent does not receive from any Lender written approval or disapproval of the action or decision recommended in the original Decision Notice within two (2) Business Days after the second reminder notice, such Lender shall be deemed to have approved the action or decision proposed therein.
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(e) Agent may, at any time, and must, if requested to do so by the Lenders, convene a meeting of Lenders.
(f) The Lenders shall have the right to cause a vote to be taken with respect to any Decision. Upon the taking of such vote and the obtaining of approval or disapproval of the Lenders, the Agent shall then be required to act, or not to act, in accordance with such Lender approval or disapproval.
(g) In the event that the Lenders approve the commencement of a foreclosure or other exercise of remedies, Agent shall declare the outstanding principal balance of the Loan, all interest thereon and all other amounts payable under the Loan Documents to be immediately due and payable and shall promptly commence and complete such foreclosure or other exercise of remedies; provided that such action is not stayed by any bankruptcy or insolvency proceeding or any other injunction or court order. If, after commencing such foreclosure, Agent is directed to cease such action or to take another course of action by the Lenders under the terms of this Agreement, Agent shall follow such direction. In the event that the Lenders have not approved the commencement of a foreclosure or other exercise of remedies within the initial ninety (90) days following the occurrence of an Event of Default, then Agent shall be permitted, without the consent of the Lenders to exercise any remedy available at law or equity including, without limitation, to (i) accelerate the Loan, (ii) commence and diligently pursue a foreclosure proceeding and/or (iii) exercise such other remedies as are appropriate.
(h) No modification of any provision of the Loan Documents, or consent to any departure by Borrower therefrom, shall modify any provision of the Loan Documents relating to the Agent without the written consent of the Agent and Borrower.
(i) Agent shall have the right to provide, in a separate agreement between Agent and certain Lenders, that only the consent of a certain percentage of Lenders shall be required with respect to certain Decisions.
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Section 10.28 Assignments and Participations .
(a) Subject to Section 10.28(a)(ii) below, at the assignor Lender’s sole cost and provided that the economic and other terms of the Loan shall remain the same for Borrower and Guarantor, with the prior consent of Agent, which consent not to be unreasonably withheld, conditioned or delayed, any Lender may at any time assign and delegate to one or more Qualified Lenders (each an “ Assignee ”) all or any part of such Lender’s rights and obligations under this Agreement (including all or a portion of its Ratable Share of the Loan at the time owing to it) and the other Obligations held by such Lender hereunder; provided , however , that Borrower and Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to Borrower and Agent by such Lender and the Assignee and such assignment shall have been recorded in the Register in accordance with Section 10.28(a)(ii) , (ii) such Lender and its Assignee shall have delivered to Borrower and Agent an assignment and acceptance agreement in the form attached hereto as Schedule X (or such other form as may be modified by Agent, an “ Assignment and Acceptance ”) with such changes thereto as are reasonably acceptable to Agent with respect to such assignment, sale, negotiation, pledge, hypothecation or other transfer and are in compliance with this Section 10.28 , and (iii) the Assignee has paid to the Agent a processing fee in the amount of Three Thousand Five Hundred and No/100 Dollars ($3,500.00). Notwithstanding the foregoing, no written consent of Agent shall be required (i) in connection with any assignment and delegation by a Lender to an Affiliate of such Lender or to another Lender or its Affiliate or (ii) in connection with any Securitization. During the continuance of an Event of Default any Lender may assign and delegate to any Person, regardless of whether such Person is a Qualified Lender. Any assignment and delegation pursuant to this Section 10.28(a)(i) shall be at Lender’s sole cost and shall not subject Borrower or Guarantor to any cost or increased liability under the terms of the Loan Documents. For so long as Deutsche Bank AG, New York Branch is a Lender under the Loan, DB, or an Affiliate thereof shall continue to act as Agent. Nothing contained in this Section 10.28(a) shall be deemed to restrict a Lender’s right to sell a participation of up to 100% of its interest; provided , however , that a participation of 100% of Deutsche Bank AG, New York Branch’s interest in the Loan shall not relieve DB or its Affiliates, of its obligation to remain Agent hereunder.
(i) From and after the date that Agent notifies the assignor Lender and Borrower that it has received an executed Assignment and Acceptance Agreement and payment of the above-referenced processing fee: (A) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned to it pursuant to such Assignment and Acceptance Agreement, shall have the rights and obligations of a Lender under the Loan Documents, (B) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it and assumed by the Assignee pursuant to such Assignment and Acceptance Agreement, relinquish its rights and be released from its obligations under the Loan Documents (but shall be entitled to indemnification as otherwise provided in this Agreement with respect to any events occurring prior to the assignment) and (C) this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Ratable Share of each Lender resulting therefrom.
(ii) Borrower, Agent and Lender shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Ratable Share of the Loan listed therein for all purposes hereof, and no assignment or transfer of any such Ratable Share of the Loan shall be effective, in each case, unless and until receipt by Agent of a fully executed Assignment and Acceptance Agreement effecting the assignment or transfer thereof, together with the required forms and certificates regarding tax matters and any fees payable in connection with such assignment, in each case, as provided in Section 10.28(a) . Each assignment shall be recorded in the Register promptly following receipt by Agent of the fully executed Assignment and Acceptance Agreement and all other necessary documents and approvals, prompt notice thereof shall be provided to Borrower and a copy of such Assignment and Acceptance Agreement shall be maintained, as applicable. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding absent manifest error on any subsequent holder, assignee or transferee of the corresponding portion of the Loan.
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(b) Within ten (10) Business Days after its receipt of an executed Assignment and Acceptance Agreement and notice by the Agent that it has received payment of the processing fee (which notice shall also be sent by the Agent to each Lender), Borrower shall, if requested by the Assignee, execute and deliver to Agent, new Notes (in substantially the same form and substance as the original notes) evidencing such Assignee’s portion of the Loan, provided that the applicable original notes are returned to Borrower.
(c) If any assignee, participant or other transferee of the Loan or any portion thereof or interest therein requests in writing, at such assignee’s, participants or other transferee’s sole cost, Borrower shall deliver to such Person updated opinions of Borrower’s and Guarantor’s New York counsel with respect to the enforceability, due authorization and due execution of any new Loan Documents entered into in connection with the related assignment, participation or transfer, which opinions shall be in substantially the same form as the opinions delivered as of the Closing Date, and dated as of such date as the updated opinions are delivered, as modified as required to properly render such updated opinions on such date and updated, and shall be addressed, for purposes of reliance thereon, to such assignee, participant or transferee, as applicable.
(d) Upon assignment, all references to the assignor Lender in this Agreement and in any Loan Document shall be deemed to refer to such Assignee or successor in interest and such Assignee or successor in interest shall thereafter stand in the place of such assignor Lender in all respects. Notwithstanding anything to the contrary in the preceding sentence, Borrower agrees that each participant shall be entitled to the benefits of Section 2.9 to the same extent as if it were Lender and had acquired its interest by assignment; provided that such participant shall not be entitled to receive any greater payment under Section 2.9 , with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a change in law that occurs after the participant acquired the applicable participation. Agent, acting solely for this purpose as an agent of Borrower, shall maintain at one of its offices in the United States of America a copy of each assignment delivered to it and a register for the recordation of the names and addresses of Lenders and each of Lenders’ assignees and the principal amount (and stated interest) on the Loan owing to Lenders and each of Lenders’ assignees pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive absent manifest error, and Borrower, Lender and Agent shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower and Lenders, at any reasonable time and from time to time upon reasonable prior notice. If a Lender sells a participation, such Lender shall, acting solely for this purpose as an agent of Borrower, maintain a register on which it enters the name and address of each participant and the principal amount (and stated interest) of each participant’s interest in the Loan or other obligations under the Loan Documents (the “ Participant Register ”); provided that such Lender shall not have any obligation to disclose all or any portion of the Participant Register (including the identity of any participant or any information relating to a participant’s interest in the Loan or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that the Loan or other obligation is in registered form under Section 5f.103-1(c) of the U.S. Department of Treasury regulations. The entries in the Participant Register shall be conclusive absent manifest error, and Lenders shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.
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(e) Borrower acknowledges and agrees that Agent and each Lender may provide to any actual or proposed Assignee originals or copies of this Agreement, any other Loan Documents and any other documents, instruments, certificates, opinions, insurance policies, financial statements and other information, letters of credit, reports, requisitions and other materials and information at any time submitted by or on behalf of Borrower, Guarantor or other Persons and/or received by Agent or any Lender in connection with the Loan, provided that with respect to materials from Guarantor not otherwise required to be delivered by Guarantor under the Guaranty, any such proposed Assignee agrees to keep all such materials and information confidential.
Section 10.29 Acknowledgement and Consent to Bail-In of EEA Financial Institutions .
(a) Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among the respective parties thereto, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(i) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(ii) the effects of any Bail-in Action on any such liability, including, if applicable:
(A) a reduction in full or in part or cancellation of any such liability;
(B) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(C) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
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(b) As used in this Section 10.27 the following terms have the following meanings ascribed thereto: (i) “ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution; (ii)“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule; (iii) “ EEA Financial Institution ” means (x) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority; (y) any entity established in an EEA Member Country which is a parent of an institution described in clause (x) of this definition, or (x) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (x) or (y) of this definition and is subject to consolidated supervision with its parent; (iv) “ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway or any other member state of the European Economic Area; (v) “ EEA Resolution Authority ” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution; (vi) “ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time; and (vii) “ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
Article 11
AGENT
Section 11.1 Appointment and Authorization .
(a) Each Lender hereby irrevocably designates and appoints Agent as the administrative agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes Agent, as the administrative agent for such Lender, to take such action on its behalf and in Agent’s designated capacity under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto and Borrower shall be entitled to rely on any decision, action or notice given to or by Agent and Agent’s sole decision-making authority with respect to all matters related to “Lender” with respect to the Loan Documents without any further notice to or consent from any other Lender. Notwithstanding any provision to the contrary elsewhere in this Agreement and the other Loan Documents, Agent shall not have any duties or responsibilities, except those expressly set forth herein or therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent.
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(b) Subject to Section 10.28 , no individual Lender or group of Lenders shall have any right to modify or waive, or consent to the departure of any party from any provision of any Loan Document, or secure or enforce the Obligations. All such rights, on behalf of Agent or any Lender or Lenders, shall be held and exercised solely by and at the option of Agent for the Ratable benefit of Lenders. Except as expressly otherwise provided in this Agreement or the other Loan Documents, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions on behalf of Lenders which Agent is expressly entitled to exercise or take under this Agreement or the other Loan Documents, including (i) the determination if and to what extent matters or items subject to Agent’s satisfaction are acceptable or otherwise within its discretion, (ii) the making of Administrative Agent Advances, and (iii) the exercise of remedies under this Agreement or any other Loan Document, and any action so taken or not taken shall be deemed consented to by Lenders.
(c) In case of the pendency of any bankruptcy, receivership, insolvency, liquidation, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to Borrower, no individual Lender or group of Lenders shall have the right, and Agent (irrespective of whether the principal of the Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Agent shall have made any demand on Borrower) shall to the extent given such rights under the Loan Documents, be exclusively entitled and empowered on behalf of itself and Lenders, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loan and all other Obligations that are then owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of Lenders and Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of Lender and Agent and their respective counsel and all other amounts, in each case, due Lender and Agent hereunder allowed in such judicial proceeding;
(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same pursuant to the Loan Documents; and
(iii) any custodian, receiver, assignee, trustee, liquidator, conservator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to Agent and, in the event that Agent shall consent to the making of such payments directly to Lender, to pay to Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agent and its counsel, and any other amounts, in each case, due Agent hereunder. Nothing contained herein shall be deemed to authorize Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of Lender except as approved by the Lenders or to authorize Agent to vote in respect of the claims of Lenders except as approved by the Lenders in any such proceeding.
Section 11.2 Delegation of Duties . Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in fact selected by it with reasonable care.
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Section 11.3 Exculpatory Provisions . Neither Agent nor any of its officers, directors, employees, agents, attorneys in fact or affiliates shall be (i) liable to any Lender or Borrower or Guarantor for any action lawfully taken or omitted to be taken by it or such Person or Persons under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person or Persons’ own gross negligence or willful misconduct) or (ii) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by Borrower or Guarantor or any officer thereof contained in any Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of Borrower or Guarantor to perform its obligations thereunder. Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Borrower.
Section 11.4 Reliance by Agent . Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrower and/or Guarantor), independent accountants and other experts selected by Agent. Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with this Agreement and all actions required in connection with such transfer shall have been taken. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of one hundred percent (100%) of Lenders (or any other instructing group of Lenders specified by this Agreement or by a separate agreement between Agent and any Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of one hundred percent (100%) of Lenders (or any other instructing group of Lenders specified by this Agreement or by a separate agreement between Agent and any Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders and all future holders of all or any interest in the Loan.
Section 11.5 Notice of Default . Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default under the Loan Documents unless Agent shall have received notice from a Lender or Borrower, describing such Default or Event of Default and stating that such notice is a “notice of default”. In the event that Agent shall receive such a notice, Agent shall promptly give notice thereof to Lenders. Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Lenders (or any other instructing group of Lenders specified by this Agreement or by a separate agreement between Agent and any Lenders); provided that unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of Lenders.
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Section 11.6 Non-Reliance on Agent and Other Lenders . Each Lender expressly acknowledges that neither Agent nor any of its respective officers, directors, employees, agents, attorneys in fact or affiliates have made any representations or warranties to it and that no act by Agent hereafter taken, including any review of the affairs of Borrower or any affiliate of Borrower, shall be deemed to constitute any representation or warranty by Agent to Lender. Each Lender represents to Agent that it has, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of any investigation into the business, operations, property, financial and other condition and creditworthiness of Borrower and its Affiliates and made its own decision to make its Ratable Share of the Loan hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Borrower and its Affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lender by Agent hereunder, Agent shall not have any duty or responsibility to provide Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of Borrower or any Affiliate of Borrower that may come into the possession of Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.
Section 11.7 Indemnification . Lenders agree to indemnify Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting any obligation of Borrower to do so pursuant to the Loan Documents), ratably according to their respective Ratable Share on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Loan shall have been paid in full, ratably in accordance with such Ratable Share immediately prior to such date), for, and to save Agent harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (including, without limitation, at any time following the payment of the Loan) be imposed on, incurred by or asserted against Agent in any way relating to or arising out of, the Loan, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from Agent’s gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Debt and the termination of this Agreement.
Section 11.8 Agent in its Individual Capacity . Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with Borrower or any Affiliate of Borrower as though Agent were not administrative agent hereunder. With respect to the Ratable Share of the Loan made or held by it at any time, Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Agent, and the terms “Lender” and “Lenders” shall include Agent in its individual capacity.
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Section 11.9 Successor Agent . Agent may resign as administrative agent under this Agreement and the other Loan Documents upon thirty (30) days’ notice to Lenders and Borrower; provided, that for so long as Deutsche Bank AG, New York Branch is a Lender hereunder, DB, or an Affiliate thereof, shall be the Agent hereunder. The Lenders (which for the purposes thereof, shall not include the pro rata interest of the Lender then serving as Agent) may, upon reasonable written notice to Agent and Borrower, elect to remove Agent if it is determined in a final, non-appealable judgment by a court of competent jurisdiction that Agent has engaged in gross negligence or willful misconduct. If Agent shall resign as administrative agent under this Agreement and the other Loan Documents or if the Lenders shall elect to remove Agent for cause as aforesaid, then, subject to the following sentence, the Lenders shall appoint from among the Lenders (or an Affiliate of any Lender) a successor Agent (with the consent of such successor Agent and notice to Borrower) for Lender, whereupon such successor Agent shall succeed to the rights, powers and duties of Agent, and the term “Agent” shall mean such successor Agent effective upon such appointment, consent and notice, and Agent’s rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Loan. If no successor Agent has accepted appointment as administrative agent by the date that is thirty (30) days following a retiring Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of Agent hereunder until such time, if any, as the Lenders, appoint a successor Agent as provided for above. After any retiring Agent’s resignation hereunder as Agent or removal for cause as aforesaid upon the election of the Lenders, the provisions of the Loan Documents shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Loan Documents.
Section 11.10 Administrative Agent Advances .
(a) Agent is authorized, from time to time, in Agent’s sole discretion to expend funds to the extent permitted by the Loan Documents, on behalf of Lender (“ Administrative Agent Advances ”), when Agent deems necessary or desirable to preserve or protect the Properties or any portion thereof (including those with respect to property taxes, insurance premiums, and other costs, fees and expenses with respect to operation, leasing, management, improvements, maintenance, repair, sale and disposition) (A) subject to Section 8.2, during the continuance of an Event of Default, and (B) after acquisition of all or a portion of any Property by foreclosure or other exercise of remedies hereunder.
(b) Administrative Agent Advances shall constitute obligatory advances of Lender under this Agreement, shall be repayable by Lenders on demand and shall be Obligations that are secured by the Properties, and if unpaid by Lenders, as set forth below, shall bear interest at the rate applicable to such amount under the Loan. Agent shall notify each Lender in writing of each Administrative Agent Advance. Upon receipt of notice from Agent of its making of an Administrative Agent Advance, each Lender shall make the amount of such Lender’s Ratable Share of the outstanding principal amount of the Administrative Agent Advance available to Agent, in same day funds in lawful money of the United States of America, to such account of Agent as Agent may designate on the first Business Day after Agent provides Lender with notice of the making of such Administrative Agent Advance.
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Section 11.11 Ratable Share . (i) The liabilities of Lenders shall be several and not joint, (ii) no Lender shall be responsible for the obligations of any other Lender, and (iii) each Lender shall be liable to Borrower only for its respective Ratable Share of the Loan. Notwithstanding anything to the contrary herein, all indemnities by Borrower and obligations for costs, expenses, damages or advances set forth herein shall run to and benefit each Lender in accordance with its Ratable Share.
Section 11.12 Letters of Credit . Each Lender agrees that, prior to the Securitization of the entire Loan, (i) any Letter of Credit delivered to Lenders in accordance with the terms of this Agreement shall name DB as the sole beneficiary thereunder for the benefit of the Lenders, and (ii) each authorizes DB to, and DB hereby agrees to, act as its agent with regard to the servicing and administration of all such Letters of Credit, and in the event DB draws upon any such Letter of Credit, each Lender authorizes DB to, and DB hereby agrees to, deposit the proceeds into the Cash Management Account (or into one or more of the Accounts) in the manner set forth herein. Upon the Securitization of the entire Loan, each Lender authorizes DB to, and DB hereby agrees to, assign to the Trustee all of DB’s and Lenders’ right, title and interest in and to each Letter of Credit issued in accordance with the terms of this Agreement that is then in DB’s and Lenders’ possession, whereupon without any further action by any of the Lenders, DB shall be released from any and all liability relating in any way to such Letter(s) of Credit.
Section 11.13 Modifications to Article 11 . Borrower, Agent and Lenders acknowledge and agree that the provisions of this Article 11 solely govern the relationship among the Lenders and Agent and do not alter or otherwise modify the provisions of this Agreement applicable to Borrower or otherwise apply to Borrower. The provisions of this Article 11 may be modified without Borrower’s consent so long as such modifications do not alter any of Borrower’ rights or obligations under this Agreement or any of the other Loan Documents or otherwise alter the economic terms of the Loan or the Loan Documents in any manner ( provided , however that Borrower shall be given notice of any such modification).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.
AGENT: | ||
DEUTSCHE BANK AG, NEW YORK BRANCH , a branch of Deutsche Bank AG, a German Bank, individually and as Agent for one or more Lenders | ||
By: | /s/ David Goodman | |
Name: David Goodman | ||
Title: Director | ||
By: | /s/ Lisa Paterson | |
Name: Lisa Paterson | ||
Title: Director | ||
LENDERS: | ||
DEUTSCHE BANK AG, NEW YORK BRANCH , a branch of Deutsche Bank AG, a German Bank | ||
By: | /s/ David Goodman | |
Name: David Goodman | ||
Title: Director | ||
By: | /s/ Lisa Paterson | |
Name: Lisa Paterson | ||
Title: Director |
[signatures continue on following page]
BORROWER: | |||
50 MURRAY STREET ACQUISITION LLC , | |||
a Delaware limited liability company | |||
By: | /s/ David Bistricer | ||
Name: | David Bistricer | ||
Title: | Authorized Signatory |
Exhibit 10.51
LEASE NO.:X8288
LEASE RENEWAL AND AMENDMENT AGREEMENT
LEASE RENEWAL AGREEMENT (the “Agreement”) made as of this 15th day of December, 2016, by and between 250 LIVINGSTON OWNER, LLC, successor-in-interest to NPMM Realty, Inc., having an office at 4611 12 th Avenue, Brooklyn, New York 11219 (hereinafter designated as "Landlord"), and THE CITY OF NEW YORK, a municipal corporation acting through the Department of Citywide Administrative Services, with an address at 1 Centre Street, 20th Floor North, New York, New York 10007.
WITNESSETH
WHEREAS, this Agreement is subject to public hearing and Mayoral approval pursuant to Section 824(a) of the New York City Charter, said hearing to be scheduled subsequent to the execution by the Landlord of this Agreement; and
FINAL | REVIEWED BY | ||
September 19, 2016 | Attorney _______________________ | Date | 10/22 / 16 |
Negotiator ___________________________ | Date | 9/22/16 | |
Asst. Comm., A & L, Asset Mgmt. _________ | Date | 10/26 / 16 | |
Director/Asst. Director, Design & Project Mgmt. N/A | Date | ||
Asst. Comm., D & PM, Asset Mgmt.______________ | Date |
WHEREAS, this Agreement may be executed by the Deputy Commissioner of the Department of Citywide Administrative Services after public hearing and Mayoral approval pursuant to Section 824(a) of the New York City Charter and subject to approval as to form by the Corporation Counsel of the City of New York; and
WHEREAS, Tenant and NPMM Realty Inc., Tenant’s predecessor-in-interest entered into a Lease dated as of January 1, 1997 (the "Lease") relating to a portion of the 1 st , 2 nd and 3 rd floors floor at 250 Livingston Street (Block 165, Lot 22) in the Borough of Brooklyn, a copy of which Lease is a nn exed hereto as Exhibit "A", which Lease was renewed by written notice given December 28, 2010; and
WHEREAS, the term of said Lease, as renewed, is to expire on December 31, 2016; and
WHEREAS, the Landlord by resolution duly adopted, authorized the execution of this Agreement by one of its members.
NOW, THEREFORE, in consideration of the mutual covenants and conditions hereinafter set forth, the parties hereto hereby agree as follows:
1. All capitalized terms shall have the meaning ascribed to them in the Lease, unless otherwise defined herein. Landlord and Tenant agree that the amount of rentable space being leased hereby shall be deemed to consist of 106,999 rentable square feet.
2. The term of the Lease as set forth in Article 1 of the Lease, scheduled to expire on December 31, 2106, is hereby renewed for a period commencing on January 1, 2017, and expiring on midnight of August 22, 2020 (the "Renewal Term").
3. (a) During the Renewal Term, the Tenant’s share of Operating Expenses and Taxes, as such terms are defined in the Lease, shall be calculated as currently provided for in Article 5 of the Lease.
– 2 – |
4. The annual “Base Rent”, as defined in the Lease, shall be at the rate of Four Million Two Hundred Seventy-Nine Thousand Nine Hundred and Sixty Dollars and No Cents ($4,279,960.00) per annum (Three Hundred Fifty-Six Thousand Six Hundred and Thirty-Three Dollars and Fifty-Six Cents $356,663.56 per month) for the Renewal Term.
5. Landlord shall pay all taxes, assessments, water rates and sewer rents levied against said premises or that may be liens thereon (and Tenant shall reimburse Landlord for its proportionate share of Real Estate Taxes (as said term is defined in the Lease), in the manner provided in the Lease. Should Landlord fail to pay said taxes, assessments, water rates and sewer rents, then Tenant, in addition to any and all other remedies it may have, may apply any rent due or that may become due and payable under this Lease to the payment of said taxes, assessments, water rates and sewer rents and so long as any of such items are unpaid, no action or proceeding may be maintained by Landlord against Tenant for nonpayment of rent. Nothing contained herein shall change Tenant’s obligation to reimburse Landlord for its proportionate share of Taxes as set forth in Article 5 of the Lease.
6. Article 4 of the Lease is hereby deleted so that Tenant shall have no right to terminate the Lease.
7. (a) Article 5 of the Lease shall be amended so that a subsection A. 1 (I) (8) is added thereto to read as follows:
(8) | Energy Efficient Capital Improvement(s) defined in subsection III below to the extent and in the manner specified therein but not if said Energy Efficient Capital Improvement(s) are part of the Work performed under Article 7 as stated in subsection III (iii) below. |
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(b) Article 5, Subsection II (13) of the Lease is hereby deleted and replaced by the following: The cost of any alterations, additions, changes, replacements and other items which under generally accepted accounting principles consistently applied(“GAAP”) are properly classified as capital expenditures, excepting only (A) Energy Efficient Capital Improvements(s) as defined and permitted in subsection III below and (B) such other capital expenditures which shall be made for replacements of Building equipment and property, the repair cost of which would exceed fifty percent (50%) of the cost of replacement and, accordingly, the Landlord reasonably determined the cost of repair warrants replacement thereof in lieu of repair, and such allowable expenditures shall be included on a straight line basis to the extent such items are amortized over their useful life in accordance with GAAP. Landlord shall furnish Tenant with reasonable evidence confirming both the repairs and the replacement cost referred to herein;
Article 5 of the Lease is hereby amended to add the following subsection:
III. Capital Improvement(s) Intended to Improve Energy Efficiency , as defined in (i) (a) of this subsection III and to the extent permitted in ( ii) of this subsection III, shall also be included in Operating Expenses, as follows.
(i) For the purposes of this subsection III only, the following definitions shall apply:
(a) “Energy Efficient Capital Improvements)” or “EECI” shall mean any alteration, addition, change, repair or replacement (whether structural or nonstructural) made by Landlord in or to the Building or the common areas or equipment or systems thereof which, under generally accepted accounting principles consistently applied, is properly classified as a capital expenditure; and which capital expenditure, as certified in writing by the Independent Engineers defined in paragraph (d) below, will reduce the Building’s consumption of electricity, oil, natural gas, steam, water or other utilities. The aggregate costs of any Energy Efficient Capital Improvement shall be deemed to include, without limitation, architectural, engineering and expediting fees, legal, consulting, inspection and commissioning fees actually incurred in connection therewith, but shall be deemed to exclude actual or imputed financing costs in connection therewith; provided, however, the costs of such Energy Efficient Capital Improvement shall be deemed reduced by the amount of any NYSERDA or similar government incentives for energy efficiency improvements actually received by Landlord to defray the costs of such Energy Efficient Capital Improvement, and shall further be reduced by any energy efficiency tax credits or similar energy efficiency-based tax incentives actually accruing to Landlord as a result of such Energy Efficient Capital Improvement.
– 4 – |
(b) | “EECI Base Year ” means each calendar year in which the EECI is completed and placed in service by Landlord. |
(c) | “Comparison Year ” means each calendar year subsequent to the EECI Base Year. |
(d) | “Independent Engineers ” means two (2) engineers selected by Landlord and approved by Tenant. From time to time, but not more than once during any period of twelve (12) consecutive months, Landlord and Tenant may each recommend two or more independent professional engineers, licensed by the State of New York, for inclusion on the list. Any such recommendations by Landlord or Tenant shall be subject to the written approval of the other party, which approval shall not be unreasonably withheld. |
(e) | “Simple Payback Period ” shall mean the length of time (expressed in months) obtained by dividing (x) the aggregate costs of any such Energy Efficient Capital Improvement by (y) the anticipated annual savings in utility costs (which shall be the average of the determinations by the two Independent Engineers of such annual savings) includable in Operating Expenses (the “Projected Annual Savings”). By way of example, if the aggregate costs of such Energy Efficient Capital Improvement is $2,000,000 and the Projected Annual Savings are $500,000 per annum, then the Simple Payback Period for such Energy Efficient Capital Improvement is forty-eight (48) months. The Projected Annual Savings and the Simple Payback Period shall be certified in writing by the Independent Engineers. |
(ii) | Commencing with the first Comparison Year following the EECI Base Year and for each Comparison Year thereafter for the duration of the Simple Payback Period, Landlord may include in Operating Expenses a portion of the aggregate costs of such Energy Efficient Capital Improvement equivalent to eighty percent (80%) of the Projected Annual Savings, so that the aggregate costs of such Energy Efficient Capital Improvement will be fully amortized over one hundred twenty-five percent (125%) of the Simple Payback Period. By way of example, if the aggregate costs of such Energy Efficient Capital Improvement is $2,000,000, the Projected Annual Savings are $500,000 and the Simple Payback Period for such Energy Efficient Capital Improvement is forty- eight (48) months, then Landlord may include $400,000 of the aggregate costs of such Energy Efficient Capital Improvement (i.e., an amount equivalent to 80% of the Projected Annual Savings) in Operating Expenses for five consecutive Comparison Years (i.e., sixty (60) months or 125% of the Simple Payback Period). |
– 5 – |
(iii) | Notwithstanding anything to the contrary contained herein or elsewhere in this Article or the Lease, in no event shall any of the Work performed under Article 7, even if otherwise deemed to be an Energy Efficient Capital Improvement(s), be included in Operating Expenses. |
8. Tenant shall continue to provide the services listed in Article 11 of the Lease, as set forth therein.
9. Article 22 of the Lease shall be amended so that NPMM Realty, Inc. and its address are deleted and the first addresses for notice for Tenant shall now read as follows:
DEPUTY CHIEF ASSET MANGEMENT OFFICER/LEASING
New York Department of Citywide Administrative Services
Asset Management
1 Centre Street, 20th Floor
New York, N.Y. 10007
and
DIRECTOR
Lease Space Management & Enforcement
New York City Human Resources Administration
250 Church Street, 14 th Floor, Room 1426
New York, New York 10013
10. Article 26 (A) of the lease is amended to state the date of the most current asbestos report for the Demised Premises, namely September 19, 2016.
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11. Landlord warrants and represents that (a) it is the owner in fee of the Building, the Demised Premises, and the real property on which they are located and is empowered and authorized to lease said premises as provided herein.
(b) The member of the limited liability company who owns the premises is as follows: Berkshire Equity LLC.
(c) Landlord hereby warrants that it is not in default of any obligation to the City of New York, nor is Landlord, its officers, principals or stockholders a defendant in any action instituted by the City.
Any misrepresentation by Landlord with regard to the foregoing warranties shall constitute a basis for rescission of this lease agreement.
12. All other terms, conditions, covenants, representations and warranties of the Lease not inconsistent herewith shall remain unchanged and in full force and effect during the renewal of the Term of the Lease and are hereby ratified, confirmed and incorporated herein.
(Signatures On Next Page)
– 7 – |
IN WITNESS WHEREOF, the parties hereto have executed this Renewal Agreement as of the day, month and year first above written.
250 LIVINGSTON OWNER LLC, | ||
Landlord | ||
By: | /s/ David Bistricer | |
Name: David Bistricer | ||
Title: | ||
THE CITY OF NEW YORK, | ||
Tenant | ||
By: | /s/ Ricardo E. Morales | |
Ricardo E. Morales | ||
Deputy Commissioner | ||
Department of Citywide | ||
Administrative Services |
Approved as to form: | |
Acting Corporation Counsel | |
NOV 22 2016 |
– 8 – |
STATE OF NEW YORK | ) |
SS: | |
COUNTY OF | ) |
On this 7 th day of November , 2016, before me personally came DAVID BISTRICER to me known to be the person described in and who executed the foregoing instrument and (s)he acknowledged to me that (s)he executed the same.
/s/ Jeffrey A. Kunin | |
Jeffrey A. Kunin | |
Notary Public, State of New York | |
No. 30-4955985 | |
Qualified in Nassau County | |
Commission Expires Sept. 11, 2017 |
STATE OF NEW YORK | ) |
SS: | |
COUNTY OF NEW YORK | ) |
On this 15th day of December, 2016, before me personally came Ricardo E. Morales to me known to be the Deputy Commissioner of the Department of Citywide Administrative Services of the City of New York, the person described in and who executed the foregoing instrument and he acknowledged to me that he executed the same.
/s/ J EFFREY A. M EDETSKY | |
JEFFREY A. MEDETSKY | |
Notary Public, State of New York | |
No. 02ME4806525 | |
Qualified in Kings County | |
Commission Expires April 30, 2018 |
– 9 – |
Wednesday,December 7, 2016 9
Upon one hundred and eighty (180) days prior notice, the proposed lease may be terminated by the Tenant at anytime after the fifth (5 th ) full lease year following Substantial Completion.
The Landlord shall prepare final plans and make alterations and improvements in accordance with plans and specifications attached to the lease. The alterations and improvements consist of Tenant Work. The total cost of the Tenant Work shall not exceed $990,906.44 and the Tenant shall reimburse the Landlord for Tenant Work, to be disbursed upon the substantial completion of the alterations and improvements.
Close the Hearing.
BOROUGH OF BROOKLYN
No. 4
R – 00227
PUBLIC HEARING, pursuant to the provisions of Section 824 of the New York City Charter, as submitted by the Department of Citywide Administrative Services, Asset Management, hereby authorizes a lease renewal and amendment agreement for the City of New York, as tenant, of approximately 106,999 rentable square feet on the first through third floors of the building located at 250 Livingston Street (Block 165, Lot 22) in the Borough of Brooklyn for the Human Resources Administration to use as an office, or for such other use as the Commissioner of the Department of Citywide Administrative Services may determine.
The proposed lease renewal shall be for the term January 1, 2017 through August 22, 2020 at an annual rent of $4,279,960.00, payable in equal monthly installments at the end of each month.
The Tenant shall have no termination rights.
Close the Hearing.
BOROUGH OF QUEENS
No. 5
R-00226
PUBLIC HEARING, pursuant to the provisions of Section 824 of the New York City Charter, as submitted by the Department of Citywide Administrative Services, Asset Management, hereby authorizes a Lease for the City of New York, as Tenant, of approximately 27,714 square feet of space consisting of 20,096 square feet of interior space and 7,618 square feet of exterior parking lot area, in a building located at 219 Beach 59 th Street (Block 15900, Lot 8) in the Borough of Queens for the Human Resources Administration to use as an office, or for such other use as the Commissioner of the Department of Citywide Administrative Services may determine.
THE MAYOR
CITY OF NEW YORK
December 7, 2016
CALENDAR NO. 4
WHEREAS, a lease renewal and amendment agreement for the City of New York, as tenant, of approximately 106,999 rentable square feet on the first through third floors of the building located at 250 Livingston Street (Block 165, Lot 22) in the Borough of Brooklyn for the Human Resources Administration to use as an office, or for such other use as the Commissioner of the Department of Citywide Administrative Services may determine;
WHEREAS, the proposed lease renewal shall be for the term January 1, 2017 through August 22, 2020 at an annual rent of $4,279,960.00, payable in equal monthly installments at the end of each month;
WHEREAS, the Tenant shall have no termination rights;
WHEREAS, there is no City-owned property or space in buildings under lease or license to the City that can be utilized to provide the space required by this Agency and the rent is fair and reasonable;
WHEREAS, the Office of Management and Budget has notified the Department of Citywide Administrative Services that funds for the rental of these premises will be provided when needed;
WHEREAS, as certified below, a duly noticed Real Property Public Hearing in the matter of a lease renewal and amendment pursuant to Section 824 of the City Charter, was held and closed by the Mayor on December 7, 2016, (Cal. No. 4). At such hearing no testimony was offered;
WHEREAS, the Hearing was closed without amendment;
WHEREAS, a lease has been executed by the Landlord;
CERTIFICATION by the Mayor’s Office of Contract Services/Public Hearing Unit of the actions at and final disposition of the Real Property Public Hearing held on December 7, 2016 (Cal. No. 4);
Jacqueline Galory | Hearing Secretary | December 9, 2016 | ||
Name | Title | Date |
NOW, after due consideration, the Mayor hereby authorizes the Department of Citywide Administrative Services, Asset Management, to lease the property described herein in accordance with the terms of a lease described in the Calendar of Public Hearings on Real Property Acquisition and Disposition dated December 7, 2016 (Cal. No. 4). The relevant portions of the Calendar are annexed hereto.
Date: | 12/9/16 | /s/ Michael Owh | |
Michael Owh, Director | |||
Mayor's Office of Contract Services |
( 2 ) |
AFFIRMATION
The undersigned Landlord, Lessor, Licensor or Optionor affirms and declares that said Landlord, Lessor, Licensor or Optionor is not in arrears to the City of New York upon debt, contract or taxes and is not a defaulter, as surety or otherwise, upon obligations to the City of New York, and has not been declared not responsible, or disqualified, by any agency of the City of New York, nor is there any proceeding pending relating to the responsibility or qualification of the proposer or bidder to receive public contracts except
Full name of Landlord, Lessor, Licensor or Optionor: |
250 LIVINGSTON OWNER LLC |
Address | Po Box 407 |
City | BROOKLYN | State | NY | Zip Code | 11219 |
CHECK ON BOX AND INCLUDE APPROPRIATE NUMBER
¨ A - | Individual or Sole Proprietorship* | |
SOCIAL SECURITY NUMBER | ||
þ B - |
Partnership, Joint Venture or other unincorporated Organization | |
LLC | EMPLOYER IDENTIFICATION NUMBER | |
46 - 1449451 |
¨ C - | Corporation | |
EMPLOYER IDENTIFICATION NUMBER | ||
/s/ D AVID B ISTRICER | |
Slgnature of an Officer or Duly Authorized Representative |
DAVID BISTRICER | 11/7/16 | |
Title and Printed Name of Signatory | Date |
If a corporation place seal here:
* | Under the Federal Privacy Act the furnishing of Social Security Numbers by Individuals on City contracts is voluntary. Failure to provide a Social Security Number will not result in an individual’s disqualification. Social Security Numbers will be used to identify Landlords, Lessors, Licensors or Optionors, to ensure their compliance with laws, to assist the City in enforcement of laws, as well as to provide the City a means of identifying businesses which seek City contracts. |
FOR DCAS ONLY: | ||
Agency | Address | IPIS Number |
EXHTBTT “A”
LEASE
LEASE N0. X7433
LEASE BETWEEN
THE CITY OF NEW YORK
DEPARTMENT OF CITYWIDE
ADMINISTRATIVE SERVICES
1 CENTRE STREET, 20TH FLOOR NORTH
NEW YORK, NEW YORK 10007
&
NPMM REALTY INC.
C/O BANK OF TOKYO-MITSUBISHI TRUST COMPANY
100 BROADWAY, 15TH FLOOR
NEW YORK, NEW YORK 10005
Premises: 240-250 Livingston Street (Block 165, Lot 22),
Borough of Brooklyn
Approximately 79,424 square feet of space
to be used by the
Human Resources Administration
****
Date Prepared __________________ | ||||
Review by: Attorney _________ | Date | 6/20/97 | ||
Architect ___ | Date | 6/9/97 | ||
Negotiator ________ | Date | 6/11/97 | ||
SENT TO LANDLORD _________ __ | Date |
FINAL
FEBRUARY 28, 1997
240 LIVINGSTON STREET
INDEX
ARTICLE | 1 | TERM | PAGE | 3 |
ARTICLE | 2 | RENT | PAGE | 4 |
ARTICLE | 3 | OPTION TO RENEW | PAGE | 5 |
ARTICLE | 4 | OPTION TO TERMINATE | PAGE | 5 |
ARTICLE | 5 | TAX AND OPERATING EXPENSE ESCALATIONS | PAGE | 6 |
ARTICLE | 6 | LANDLORD'S INTEREST IN PREMISES | PAGE | 15 |
ARTICLE | 7 | ALTERATIONS AND IMPROVEMENTS | PAGE | 16 |
ARTICLE | 8 | CERTIFICATE OF OCCUPANCY: COMPLIANCE WITH LAWS | PAGE | 23 |
ARTICLE | 9 | REAL ESTATE TAXES, ASSESSMENTS, WATER RATES, SEWER RENTS, ARREARS | PAGE | 25 |
ARTICLE | 10 | LANDLORD'S SERVICES | PAGE | 26 |
ARTICLE | 11 | TENANT'S SERVICES | PAGE | 29 |
ARTICLE | 12 | ALTERATIONS BY TENANT | PAGE | 30 |
ARTICLE | 13 | END OF TERM | PAGE | 30 |
ARTICLE | 14 | REPAIRS | PAGE | 30 |
ARTICLE | 15 | CONDEMNATION | PAGE | 33 |
ARTICLE | 16 | DESTRUCTION BY FIRE OR OTHER CASUALTY | PAGE | 34 |
ARTICLE | 17 | NO EMPLOYEE OF CITY HAS ANY INTEREST IN LEASE | PAGE | 35 |
ARTICLE | 18 | QUIET ENJOYMENT | PAGE | 36 |
ARTICLE | 19 | ACCESS BY DISABLED PERSONS | PAGE | 36 |
ARTICLE | 20 | SUBORDINATION AND NON-DISTURBANCE | PAGE | 36 |
ARTICLE | 21 | TENANT NOT A HOLDOVER TENANT | PAGE | 37 |
( i ) |
INDEX CONTINUED
ARTICLE | 22 | NOTICES | PAGE | 37 |
ARTICLE | 23 | FORCE MAJEURE | PAGE | 39 |
ARTICLE | 24 | SAVE HARMLESS | PAGE | 40 |
ARTICLE | 25 | INVESTIGATIONS | PAGE | 40 |
ARTICLE | 26 | ASBESTOS ABATEMENT | PAGE | 44 |
ARTICLE | 27 | LANDLORD’S REPRESENTATIONS | PAGE | |
ARTICLE | 28 | SIGNIFICANT RELATED PARTY TRANSACTIONS | PAGE | 48 |
ARTICLE | 29 | MISCELLANEOUS | PAGE | 48 |
ARTICLE | 30 | WAIVER | PAGE | 51 |
ARTICLE | 31 | BROKERAGE | PAGE | 51 |
ARTICLE | 32 | APPLICABLE LAW | PAGE | 52 |
ARTICLE | 33 | LEASE ENTIRE AGREEMENT | PAGE | 52 |
EXHIBITS
EXHIBIT “A” | FLOOR PLANS |
SCHEDULE 1 | ARREARS |
EXHIBIT “B” | BASE YEAR OPERATING EXPENSE SCHEDULE |
EXHIBIT “C” | CPI INDEX CALCULATION |
EXHIBIT “D” | SCOPE OF WORK |
EXHIBIT “E” | PREVENTIVE MAINTENANCE MEASURES |
EXHIBIT “F” | RULES AND REGULATIONS |
( ii ) |
THE CITY OF NEW YORK
DEPARTMENT OF CITYWIDE ADMINISTRATIVE SERVICES
DIVISION OF REAL ESTATE SERVICES
1 CENTRE STREET, 20TH FLOOR NORTH
NEW YORK, NY. 10007
AGREEMENT OF LEASE made as of this first (1st) day of January, 1997 between NPMM REALTY INC., whose address is c/o Bank of Tokyo-Mitsubishi Trust Company, 100 .Broadway, 15th Floor, New York, New York 10005, hereinafter designated as Landlord, and THE CITY OF NEW YORK, a municipal corporation, acting through the Department of Citywide Administrative Services, successor-in-interest to the Department of General Services with an address at 1 Centre Street, 20th Floor North, New York, New York 10007, hereinafter designated as Tenant.
WITNESSETH :
WHEREAS, the parties hereto desire to enter into a lease of approximately 79,424 square feet of office space on the terms and conditions set forth herein; and
WHEREAS, Tenant reregistered the lease agreement dated September 18, 1980 between 240 Livingston Co., Landlord’s predecessor-in-interest, and Tenant for the period from June 1, 1994 through December 31, 1996; and
WHEREAS, this lease is subject to public hearing and Mayoral approval pursuant to §1602 (3)(a) of the New York City Charter, said hearing to be scheduled subsequent to the execution by the Landlord of this Lease; and
WHEREAS, this lease may be executed by the Deputy Commissioner of the Department of Citywide Administrative Services after public hearing and Mayoral approval pursuant to §1602 (3)(a) of the New York City Charter and subject to approval as to form by the Corporation Counsel of the City of New York; and
WHEREAS, the Board of Directors of Landlord by resolution adopted on 10/16/96, authorized the execution of this Lease by one of its officers; and
Tenant hereby represents and warrants to Landlord that:
1. Tenant is a municipal corporation, duly organized, validly existing and in good standing under the laws of the State of New York.
2. Tenant has the full right and authority to enter into this Lease; and
3. The execution and delivery and performance of this Lease by Tenant (a) has been duly authorized, (b) does not require any approvals other than those hereinabove set forth, (c) does not conflict with the provisions of any instrument to which Tenant is a party or by which Tenant is bound, and (d) constitutes a valid, legal and binding obligation of Tenant.
NOW, THEREFORE, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord subject to public hearing and mayoral approval and subject to approval as to form by Corporation Counsel, the following described premises (hereinafter referred to as the "Demised Premises"): approximately 79,424 rentable square feet of office space on part of the 1st, 2nd and 3rd floors of the building (hereinafter referred to as the "Building") located at 240-250 Livingston Street (Block 165, Lot 22) in the Borough of Brooklyn. The Demised Premises shall be used for the type of office operation presently conducted by the Human Resources Administration or for such other similar purposes as the Commissioner of Citywide Administrative Services may determine, upon the terms and conditions hereinafter set forth, provided that such office purposes shall not impair or diminish the quality or character of the building and shall not increase the traffic in the Building. The floor plans of the leased area shall be made a part of the lease as Exhibit “A” and the square footage of same has been verified by the Bureau of Design of the Division of Real Estate Services of the Department of Citywide Administrative Services (hereinafter referred to as "DRES").
2 |
Notwithstanding the foregoing, except for the particular functions performed by the agencies and offices hereinabove set forth as of the Commencement Date of the Lease, thé Demised Premises shall not be used or occupied (i) to conduct a school, employment office or employment training facility, (ii) drug, alcohol or other type of substance abuse clinic or counseling service, (iii) as a child-care facility, (iv) for the preparation or service of food or beverages, (v) as a center for employment, training, rehabilitation, counseling or payments by mail, or (vi) for any other purposes not consistent with the first class character of the Building or which will substantially increase the traffic flow in the Building.
ARTICLE 1
TERM
The term of this Lease is fifteen (15) years, commencing on January 1, 1997 (the "Commencement Date") and expiring at midnight of the day (“Expiration Date”) before the fifteenth (15th) anniversary of such Commencement Date, or on December 31, 2011.
3 |
ARTICLE 2
RENT
The “Base Rent” shall commence on the Commencement Date and shall be at the annual rate of One Million Thirty-Two Thousand Five Hundred Twelve Dollars ($1,032,512.00) per annum from January 1, 1997 through December 31, 1999; One Million Seventy-Six Thousand Nine Hundred Eighty-Nine Dollars and Forty-Four Cents ($1,076,989.44) per annum from January 1, 2000 through December 31, 2002; One Million Two Hundred Sixteen Thousand Seven Hundred Seventy-Five Dollars and Sixty-Eight Cents ($1,216,775.68) per annum from January 1, 2003 through December 31, 2005; and One Million Three Hundred Seventy-Three Thousand Two Hundred Forty Dollars and Ninety-Six Cents ($1,373,240.96) per annum from January 1, 2006, through December 31, 2008; and One Million Five Hundred Forty-Eight Thousand Seven Hundred Sixty-Eight Dollars ($1,548,768.00) from January 1, 2009 through the Expiration Date; all other payments due to Landlord from Tenant under this lease shall be considered “Additional Rent.” Base Rent and Additional Rent shall be referred sometimes as “rent” in this Lease. All rent shall be payable in equal monthly installments at the end of each calendar month, provided that for the months in which the Commencement Date and the date of expiration of the term of this Lease occur, Tenant shall pay only a pro rata share of the monthly installment for the period of its occupancy. Pending any audit by Tenant or the Comptroller of the arrears due and owing from August 1, 1995 through December 31, 1996 under the prior lease agreement, as reregistered, for the Demised Premises (the "Arrears”), which Arrears are described on the attached Schedule 1, Tenant shall pay Landlord the amount of the Arrears. Upon completion of such audit, Tenant shall be allowed to deduct immediately the amount of the overcharges detected by the audit from the next installment of rent hereunder. All rent (Base Rent and Additional Rent) shall be payable at Landlord’s address hereinbefore set forth or at such other address as may be designated by Landlord from time to time, by notice in the manner provided in Article 22 hereof.
4 |
All bills sent by Landlord to Tenant shall have clearly reflected thereon the property, address, and block and lot for which the bill is being sent. All bills must be legible and must contain the address to which the payment should be sent. The name, address, and telephone number of the Landlord’s contact person for billing inquiries is as follows: Reza Khan, Williams Real Estate Co., Inc., 530 Fifth Avenue, New York, New York 10036 (212) 704-3811. Any change in the Landlord’s contact person must be provided to Tenant in the manner designated in Article 22 hereof.
ARTICLE 3
OPTION TO RENEW
The Tenant shall have the right to renew the Lease for a period of five (5) years from January 1, 2012 through December 31, 2016 (“Renewal Period”), upon the same terms and conditions as this Lease (including those pertaining to Additional Rent), except that the Base Rent for the Renewal Period shall be One Million Seven Hundred Seven Thousand Six Hundred Sixteen Dollars ($1,707,616.00) per annum. The Tenant shall exercise the option by written notification to the Landlord no later than twelve (12) months prior to the expiration of the Lease, or by December 31, 2010. The Landlord shall be required to notify Tenant in writing not earlier than one (1) year nor later than six (6) months in advance of the date by which the option must be exercised.
ARTICLE 4
OPTION TO TERMINATE
The Tenant shall have the right to terminate this Lease without any penalty or liability to Tenant, in whole only, effective as of the second (2nd) anniversary of the Commencement Date or at any time thereafter, upon One Hundred Twenty (120) days prior written notice to the Landlord.
5 |
ARTICLE 5
TAX AND OPERATING EXPENSE ESCALATIONS
The Landlord and the Tenant agree that in addition to the annual Base Rent provided for in the preceding paragraphs of this Lease, Additional Rent shall be payable, consisting of Real Estate Tax escalations and Operating Expense escalations as those terms are hereinafter defined. Tenant shall pay its pro rata share, which is thirty-two percent (32%) of any increase in direct Operating Expenses or Real Estate Taxes.
A.1. BASE YEAR OPERATING EXPENSES
“Base Year Operating Expenses” shall be defined as all reasonable costs and expenses, without duplication, paid or incurred by Landlord in Calendar Year 1995, i.e. the Operating Expense Base Year, in the reasonable exercise of Landlord's business judgment with respect to the following:
I. | Items included in Operating Expenses |
(1) | Labor costs [including salaries, wages, medical, surgical and general welfare benefits (including group life and medical insurance) and pension payments, payroll taxes, Workmen’s Compensation, Union Benefits paid by employer, unemployment insurance, social security and other similar taxes] for the services of the following classes of employees performing services required in connection with the operation, repair and maintenance of the Building: |
(i) | the Building manager who works full or part time (if part time the allocable labor costs to the Building) on the Building. |
(ii) | engineers, mechanics, electricians, plumbers, porters, janitors and other employees engaged on a full or part-time basis in the actual operation, repair and maintenance of any part of the Building, including cleaning, and the heating, air conditioning, ventilating, plumbing, electrical and elevator systems of the Building; provided that in the case of such part-time employees only the costs attributable to the Building shall be included. |
6 |
(2) | (i) | The competitive cost of materials and supplies used in the operation, repair and maintenance of the Building including painting of the Demised Premises and removal of graffiti, and including cleaning, and the real property on which it is located. |
(ii) | The competitive cost of independent contractors performing services required for the repair, operation and maintenance of the Building including extermination services once each month, including cleaning. |
(iii) | The costs of electricity and all other utilities for the common areas of the Building. |
(3) | The cost of casualty (war-risks if obtainable), workers compensation and property damage insurance; |
(4) | Management fees, provided that said management fee shall be no higher than that which is ordinary and customary in the real estate management industry in New York City. |
(5) | Repairs of replacements made to the Building and the Demised Premises by Landlord, at its expense, subject to those items contained in exclusions #2,9,10,12,13,14, and 17 of Article 5(A.1.)(II); and |
(6) | Straight line depreciation or amortization over a ten (10) year period (including interest at the rate of two percent (2%) in excess of the “prime rate” or “base rate” of Citibank, N. A. at the time such expenditure is made) for any expenditure for capital improvement during the Operating Expense Base Year only, which results in a reduction of Operating Expenses (limited, however, to the annual amount that such Operating Expense(s) is reduced for the applicable year). |
(7) | Accountants’ fees for services rendered in connection with the preparation of the Base Year Operating Expense report. |
II. | Items Excluded from Operating Expenses |
(1) | The cost of correcting defects in the construction of the Building or in the Building equipment, except that conditions (not occasioned by construction defects) resulting from ordinary wear and tear shall not be deemed defects for the purpose of this category; |
7 |
(2) | Cost of any repair made by Landlord to remedy damage caused by or resulting from the negligence of Landlord, its agents, servants or employees; |
(3) | Labor costs in respect to executives of Landlord not assigned to the Building as part of the normal Building operation staff; |
(4) | Taxes and Real Estate Taxes as defined below; |
(5) | Legal, accounting or other professional fees (including without limitation, brokerage, and finder's and advertising fees) incurred to attract, lease to, or procure new tenants; |
(6) | Any insurance premium, except as provided in I. above; |
(7) | Interest for late payments of water and sewer rents; |
(8) | The cost of any items to the extent Landlord is reimbursed by insurance or which are reimbursable by insurance; |
(9) | The cost of extraordinary services provided for other tenants within the premises respectively demised to such tenants; |
(10) | The costs attributable to the correction or remedying of any act or omission of any tenant in the Building where such tenant is liable for the correction or remedying of any such act or omission under its lease with Landlord; |
(11) | Any cost (of electricity or any other item) for which Landlord is reimbursed by any tenant of the Building; |
(12) | The cost of repair or rebuilding caused by fire or other casualty or condemnation; |
(13) | The cost of any alterations, additions, changes, replacements and other items which under generally accepted accounting principles consistently applied are properly classified as capital expenditures, excepting only such capital expenditures which shall be made for replacements of Building equipment and property during the Operating Expense Base Year, the repair cost of which would exceed fifty percent (50%) of the cost of replacement and accordingly, the Landlord reasonably determined the cost of repair warrants replacement thereof in lieu of repair, and such allowable expenditures shall be included on a straight line basis, as are set forth in subsection A.1.(I)(6) above. Landlord shall furnish Tenant with reasonable evidence confirming both the repairs and the replacement cost referred to herein; |
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(14) | The cost of any alterations to prepare space for occupancy of any tenant in the Building; |
(15) | Expenses resulting from any violations by Landlord of the terms of this Lease or any other lease in the Building; |
(16) | Refinancing costs and mortgage interest and amortization payments; |
(17) | Any item otherwise indicated in this Lease to be performed at Landlord's sole cost and expense; and |
(18) | Any item otherwise indicated in this Lease to be performed by Landlord but paid for by Tenant as additional rent or otherwise, other than as part of Operating Expenses. |
Subject to Tenant’s right of audit hereinafter set forth, the parties agree that the Base Year Operating Expenses constitute the amount of $792,684.00. For purposes of such audit, the intent of the parties is that Tenant shall pay its proportionate share of increases in Base Year Operating Expenses (i.e. Operating Expense Escalations) based on the Building being fully occupied. Accordingly, in determining the amount of Base Year Operating Expenses, if less than one hundred percent (100%) of the Building rentable area was occupied by tenant(s) at any time during any such Operating Expense Base Year, Base Year Operating Expenses shall be an amount equal to expenses which would have been incurred in the Building under an operating clause such as this one had such occupancy been one hundred percent (100%) throughout such Operating Expense Base Year. The above amount includes such an adjustment.
Landlord has furnished to Tenant a schedule of Operating Expenses for said Operating Expense Base Year, which has been adjusted for 100% occupancy of the Building and is annexed hereto as Exhibit “B”.
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Such schedule of Base Year Operating Expenses includes a statement signed by Landlord's CPA. To the best of Landlord's knowledge, there is complete and accurate documentation in Landlord’s managing agent's files to support each and every charge included in Base Year Operating Expenses.
Landlord must have supporting documents for each and every Base Year Operating Expense or it will be disallowed.
Such schedule of Base Year Operating Expenses has been accompanied by a report of Landlord's Certified Public Accountant, which report must be based upon an audit conducted in accordance with generally accepted auditing standards and state whether the schedules of Base Year Operating Expenses present fairly the Base Year Operating Expenses of Landlord, as defined in the Lease.
If Landlord fails to furnish any Statements under this Article relating to Operating Expense Escalations under A.2. below, Tenant may, upon thirty (30) days’ written notice and Landlord’s failure to furnish such statement within such thirty (30) day period, withhold all Additional Rent due and owing to Landlord, including but not limited to Real Estate Tax Escalations and Operating Expense Escalations under A.2. below, until Landlord furnishes the foregoing statements. Tenant's liability for Operating Expense Escalations due pursuant to this Article and/or Landlord's liability for refunding any overpayment shall survive the expiration of the term hereof.
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Pending any audit by the Tenant or Comptroller of Base Year Operating Expenses for the Operating Expense Base Year, Tenant shall pay Operating Expense Escalations pursuant to the foregoing provisions hereof for any Lease Year, defined below, as billed by Landlord, provided, however, that Tenant shall have the right to withhold a reasonably disputed amount on account of Operating Expense Escalations until the dispute in question is resolved; and upon completion of such audit Tenant shall be allowed to deduct immediately overcharges detected upon audit from any installment of rent then becoming due, or if at the end of the Lease term Tenant shall be entitled to a payment from Landlord for such amounts within seven (7) days of Lease termination or expiration.
Tenant shall have the right to copy, examine and audit Landlord's Base Year Operating Statement.
-A.2. Landlord’s Statement of Operating Expense Escalations—
Consumer Price Index Adjustments
1. Definitions
1.1 “Price Index” shall mean “The Consumer Price Index for U.S. City Average-All Urban Consumers (1982-84 equals 100), issued by the Bureau of Labor Statistics of the United States Department of Labor.
1.2 “Base Price Index” shall mean the Price Index for the month of October, 1995.
1.3 “Lease Year” shall mean each period of twelve (12) consecutive months, beginning on the first day of January, 1997, during the term of this Lease .
1.4 “Base Year Operating Expenses” shall mean the Operating Expenses for the Operating Expense Base Year, as defined in Section A. 1 above.
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2. “Operating Expense Escalation” shall mean a sum payable by Tenant to Landlord each Lease Year computed by multiplying the sum representing the Base Year Operating Expenses as defined under Subsection A. 1 of this Article 4 by the percentage, if any, by which the Price Index, as published for the month of October immediately preceding the first day of the Lease Year in question, shall exceed the Base Price Index. Such sum shall be multiplied by Thirty-Two percent (32%), which represents Tenant pro rata share of Operating Expenses for the Building. An example for calculating CPI Index changes is annexed hereto as Exhibit “C” (The “CPI Index Calculation”).
3. Such Operating Expense Escalation for every Lease Year which follows the Operating Expense Base Year shall be billed and paid as follows:
(a) At any time after January 1st of each Lease Year, Landlord shall deliver to Tenant a statement (hereinafter the “Statement”) showing the amount of such Operating Expense Escalation payable for the then current Lease Year, which amount shall be calculated by using the CPI for the immediately preceding October factor according to paragraph 2. above. Tenant shall pay Landlord the same sum, in equal monthly installments (such monthly installment hereinafter referred to as the “Amount”) on the last day of each and every month during such Lease Year. Notwithstanding anything to the contrary, actual payment of any Operating Expense Escalation shall not start until January 1, 1997.
4. Landlord shall not be obliged to make any adjustments or recomputations, retroactive or otherwise, by reason of any revision which may later be made in the figure of the Price Index first published for any month. The Price Index published for any Lease Year shall, for the purpose of this Subsection A.2., be deemed no lower than the Base Price Index.
5. If the Price Index ceases to use the 1982-84 average equaling 100 as the basis of calculation, then the Price Index shall be appropriately adjusted to reflect the change in the Price Index from that in effect at the date of this Lease. If such Price Index shall no longer be published by said Bureau, then any substitute or successor index published by said Bureau or other governmental agency of the United States, and similarly adjusted as aforesaid, shall be used. If such Price Index (or a successor or substitute index similarly adjusted) is not available, a reliable governmental or other reputable publication reasonably selected by Landlord and Tenant jointly and evaluating the information theretofore used in determining the Price Index shall be used.
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6. If any part of a year of the term of this Lease shall include any part of a Lease Year, Tenant’s liability under this Subsection A.2. shall be apportioned so that Tenant shall pay only such part of the sums required to be paid under this Subsection A.2. that shall be included in the term of this Lease.
B. REAL ESTATE TAX ESCALATIONS
The term "Taxes" and "Real Estate Taxes" as used herein, shall mean the real estate taxes and assessments (excluding special assessments) on or with respect to the Building and the land upon which it is located, assessed, levied, or imposed by any governmental authority having jurisdiction. Excluded from the foregoing enumerations of Taxes and Real Estate Taxes will be (i) any income, franchise, inheritance, capital stock, excise, excess profits, occupancy or rent, gift, estate, payroll or stamp taxes or foreign ownership or control taxes or any so-called "Gains Tax" imposed pursuant to Article 31-B of the New York State Tax Law (the "Gains Tax") and deed tax or transfer tax imposed by Article 29 of the New York State Tax Law, and any mortgage recording tax imposed by Article 11 of the New York State Tax Law, (ii) any expenses incurred by Landlord, or Landlord's estate, including payments to attorneys and appraisers, in contesting the Taxes and Real Estate Taxes by tax certiorari proceedings and such expenses and payments shall be the obligation of Landlord, and (iii) any Taxes resulting from an increase of the assessed value of the Building attributable to an increase in the rentable area of the Building. As of the date hereof, to the best of Landlord's knowledge, the only Taxes affecting the Building and/or the Land are the real estate taxes payable to the City of New York.
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Tenant covenants and agrees that for each tax fiscal year of the initial lease term commencing with the partial tax fiscal year which begins on January 1, 1997, where the total annual Real Estate Taxes imposed or assessed upon the land and Building for such lease year exceed the Real Estate Tax base for the New York City tax fiscal year 1995/96 (hereinafter referred to as the "Real Estate Real Estate Tax Base Year"), Tenant shall pay to Landlord as additional rent, a sum equal to thirty-two percent (32%) of such excess, which represents Tenant's proportionate share of such excess. The amount of such Additional Rent payable for any tax fiscal year having a duration of less than twelve (12) months shall be prorated and may be billed . and shall be paid retroactively. Tenant shall pay such share of such excess within forty-five (45) days after Landlord provides Tenant with reasonably satisfactory documented proof that it has paid such tax liability for each semi-annual period (a copy of either Landlord’s cancelled check in payment of such Taxes or an official receipt of the taxing authority shall be deemed sufficient proof for such purpose).
The Tax base for the Real Estate Tax Base Year shall be the annual Real Estate Taxes finally imposed or assessed on the land and Building for the Real Estate Tax Base Year.
Appropriate credit shall be given for any refund obtained by reason of a reduction in the assessed valuation made by the assessors or the courts at any time during this Lease or at any time thereafter relating to a tax fiscal year for which Tenant provides a payment hereunder. The original computations, as well as payments of additional rent, if any, under the provisions of this Article, shall be based on the original assessed valuation with adjustments to be made if and when the Tax refund, if any, has been paid to Landlord.
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If the assessment of the land and Building shall be reduced for the Real Estate Tax Base Year as a result of protests of proceedings filed therefor, then the Tax base shall be amended to the amount actually collectible by the City of New York for the base fiscal tax year on the corrected assessment. Landlord shall have an obligation to immediately notify Tenant in writing each time a tax assessment is challenged.
C. RIGHT TO AUDIT
Tenant and its authorized representative shall have the right to examine, copy and audit any and all books and records of Landlord, including but not limited to original invoices, originals of executed contracts, original cancelled checks, general ledgers and books of original entry, for the purpose of verifying the accuracy of any statement, including the statement of Arrears, furnished by Landlord to Tenant. All statements are subject to audit by the occupying agency or its representative and post-audit by the Office of the Comptroller. Landlord shall be required to retain the books and records required herein for six (6) years after the Period to which they relate.
Landlord shall have an affirmative obligation to notify Tenant of (i) any protest filed by any other tenant regarding any amounts billed pursuant to this Article; and (ii) any audits, resolution of audits, claims for refund of overpayments, settlements of overpayments, refunds of overpayments, and litigation and arbitration proceedings for recovery of overpayments, where such audits and other actions result in a determination that overcharges have occurred for litigation and arbitration proceedings for recovery of overpayments, “determination shall mean the trial—lower court or arbitrators determination, respectively, prior to any appeals.
ARTICLE 6
LANDLORD'S INTEREST IN PREMISES
Landlord warrants and represents that it is the owner in fee of the Building, the Demised Premises, and the real property on which they are located and is empowered and authorized to lease said premises as provided herein.
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ARTICLE 7
ALTERATIONS AND IMPROVEMENTS
(A) Landlord agrees, prior to the Substantial Completion Date, (as defined below), to make alterations and improvements (the “Work") based on preliminary plans and a scope of work (the "Scope of Work") prepared by HRA and approved by DRES and attached hereto as Exhibit “D” and made a part hereof. The Work consists of (i) alterations and improvements that Landlord shall perform at its own cost and expense, described in the Landlord’s Base Building Scope of Work (the “Landlord’s Base Building Work”), and (ii) alterations and improvements that Landlord shall perform at its own cost and expense, described in the Tenant’s Scope of Work (the “Tenant Work”). Landlord's Base Building Work and the Tenant Work are both fully described in Exhibit "D".
Landlord shall cause its selected architect (the “Architect”) to prepare and deliver to HRA architectural and engineering plans and specifications , as required by the Buildings Department (the "Final Plans"). The Final Plans must (i) be engineering and architecturally complete; (ii) be coordinated with existing building conditions and facilities; (iii) conform to all NYC codes and all other applicable requirements (including but not limited to terms and conditions in the professional services requirement document prepared by DRES, i.e. “Guide for Design Consultant”, but only with respect to work to be performed in the specific areas of the Demised Premises which require submission of Final Plans to the Buildings Department); (iv) clearly distinguish Landlord’s Base Building Work from Tenant’s Work; (v) be coordinated and based on the Preliminary Plans; and (vi) incorporate and elaborate on the Phasing Plan, in order to create a complete set of construction documents. Landlord or Landlord’s Architect shall prepare the Phasing Plan, which shall describe the sequence of the Work to be performed, as approved by HRA, which approval shall not be unreasonably withheld or delayed. The Final Plans must be filed by Landlord with the Building and Fire Departments and all other governmental authorities having jurisdiction.
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Within thirty five (35) business days from the execution and delivery of this Lease, Landlord shall cause said Architect to arrange for preparation of initial Final Plans and delivery of same to the Director of Facilities at HRA and the Buildings, Fire Department and other regulatory agencies which require said submission. HRA will review and either approve or disapprove the Final Plans, such approval not to be unreasonably withheld or delayed. In the event HRA shall not approve such Final Plans it shall indicate in writing the corrections reasonably required before such approval can be furnished. Thereafter, Landlord shall resubmit revised Final Plans within ten (10) business days and HRA shall approve or disapprove such revised drawings (which approval shall not be unreasonably withheld or delayed) and indicate whatever corrections it reasonably requires within ten (10) business days after its receipt thereof; following which Landlord shall within five (5) business days of his receipt of corrections required by HRA fully complete the revision of the Final Plans based on the requested corrections and furnish HRA with a complete set thereof for its approval which shall not be unreasonably withheld or delayed.
Within fifteen (15) days after HRA's approval of the Final Plans, and prior to the commencement of the Work, Landlord shall submit to HRA Building Department administrative approvals with respect to Final Plans. In the event that Landlord has not received the Buildings Department administrative approvals by the time HRA approves the Final Plans, then Landlord shall provide HRA with (a) reasonable written verification that it has not received the administrative approvals, and (b) a list of the most recent objections by the Buildings Department and Landlord's reply, and (c) written evidence that Landlord is diligently proceeding to obtain the Buildings Department approvals.
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Within ten (10) business days from approval of the Final Plans by the Buildings Department and prior to commencing construction, Landlord will submit a copy of the Building Permit to HRA. In the event Landlord has not received the Building Permit within ten (10) business days from said Final Plans approval, then Landlord shall (a) provide HRA with written verification that it has not received the Building Permit and (b) demonstrate to HRA that it has (i) diligently pursued and continues to diligently pursue obtaining said Building Permit, and (ii) responded in a timely manner to objections raised by the Buildings Department.
By virtue of the fact that Landlord is a wholly owned subsidiary of the Bank of Tokyo- Mitsubishi Trust Co., Landlord hereby warrants and represents that it has the financial capability and/or adequate financing to complete the Work in the time frames set forth herein. Landlord's misrepresentation with regard to its ability to provide adequate financing shall constitute a basis for rescission of this Lease.
Landlord shall have a continuing obligation to make regular periodic payments to its contractors at approximately thirty (30) day intervals in amounts reasonably commensurate with the amount of progress towards Substantial Completion from the start of work up to the date of Substantial Completion, to ensure diligent and timely completion of the Work.
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The Demised Premises shall be deemed "Substantially Complete" and "Substantial Completion" shall be deemed to have occurred (the "Substantial Completion Date") upon (1) certification by HRA of Landlord's completion of the Work excepting minor details of construction or decoration which do not adversely affect Tenant's use of the Demised Premises; and (2) receipt by Landlord and delivery to HRA of (i) all applicable Building Department and Fire Department inspection sign-offs (including but not limited to Building Department Post Permit TR-1, Equipment Use Permits, a new Certificate of Occupancy, electrical and plumbing sign-offs, Fire Department and elevator inspections and sign-offs and compliance with the terms and provisions of Article 26 of the Lease) (Asbestos) and (ii) certified air balancing report approved by Landlord's engineer as being in conformance with the Final Plans. HRA shall use reasonable efforts to certify or deny certification of Substantial Completion pursuant to (1) above within seven (7) business days after HRA receives written notice from Landlord of Landlord’s determination that the Work is Substantially Complete; such notice from Landlord must include all items under (2)(i) and (ii) above. In the event the Certificate of Occupancy and/or sign-offs are temporary, Landlord will keep them all in full force and effect and will be solely liable for all costs in connection therewith . Landlord, prior to the Substantial Completion Date, shall remove all violations, including but not limited to Building Code and Fire Code violations, now pending or which may be placed against the Demised Premises, except those violations caused by Tenant's breach of the terms of this Lease or caused by other tenants in the Building, which violations Landlord shall diligently proceed to advise such tenant to remove.
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(B) In the event Landlord (i) fails to commence construction of the Work within ten (10) business days after its receipt of Tenant's approval of the Final Plans and all necessary governmental permits and approvals and/or pursue completion of same diligently and in continuous manner, and/or (ii) fails to meet any applicable time frames under Subsection (A) above, subject, however, to force majeure and Tenant’s delay in providing Landlord access to the phased area after notice, then Tenant shall give Landlord written notice (hereinafter referred to as “Delay Notice”) advising Landlord of its failure to so commence and/or perform. If Landlord fails to commence the Work or perform its obligations under Subsection (A) above within ten (10) business days from the date of said Delay Notice, Tenant, in addition to any other remedy it may have, at it's option may: (i) as agent of the Landlord commence performance of the work and deduct the cost thereof from the rent to become due and payable pursuant to Article 2 hereof; or (ii) after sending a Second Delay Notice to Landlord and Landlord’s failing to proceed diligently within five (5) business days, terminate this Lease on ten (10) days written notice to Landlord. Tenant, however, shall not be required to exercise either of the foregoing rights. If Tenant elects not to terminate the Lease, and regardless of whether or not Tenant provides a written Delay Notice to Landlord or elects to perform the work as Landlord’s agent, it shall receive a rent credit subsequent to the target date for Substantial Completion equivalent to (i) one day of free rent if Landlord’s delay adversely affects Tenant’s occupancy of the Demised Premises and Tenant vacates the Demised Premises, or (ii) $870.40 per day, if Tenant remains in occupancy of the Demised Premises, for each day the commencement of the Work was delayed or time frames were not met, further resulting in Landlord’s delay in achieving Substantial Completion of the Work. The foregoing remedies will not be exercised by Tenant if Landlord (i) has timely filed all appropriate paperwork, but has not received the necessary governmental sign offs within the time frames described at the beginning of this paragraph for Landlord to commence the Work, and (ii) has demonstrated to HRA in writing that it is diligently pursuing receipt of said necessary sign offs.
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(C ) Notwithstanding anything to the contrary herein, in the event Landlord, after commencing the Work, fails to complete said alterations and improvements, after commencement of same, within six (6) months from Final Plans approval and receipt of the Building Permit, subject, however, to force majeure and Tenant’s delay in providing Landlord access to the phased area after notice, Tenant shall give Landlord written notice (hereinafter referred to as the "Completion Delay Notice") advising the Landlord of its failure to achieve timely Substantial Completion. If Landlord fails to achieve Substantial Completion within one (1) month from the date that Landlord receives such Completion Delay Notice, or if such work cannot be completed within said one (1) month and Landlord fails to act diligently, and continuously without interruption to Substantially Complete said work within a reasonable time, Tenant, in addition to any other remedy it may have, may: (i) as agent of Landlord, perform said work and deduct the cost thereof and/or from the rent to become due and payable pursuant to Article 2 hereof; or (ii) after sending a second Completion Delay Notice to Landlord and Landlord’s failing to achieve Substantial Completion one (1) month thereafter, terminate this Lease on ten (10) days written notice to Landlord. Tenant, however, shall not be required to exercise either of the foregoing rights. If Tenant elects not to terminate the Lease, and regardless of whether or not Tenant provides written Completion Delay Notice or elects to perform the work as Landlord's agent, it shall receive a rent credit subsequent to Substantial Completion equivalent to (i) one (1) day of free rent if Landlord’s delay adversely affects Tenant’s occupancy of the Demised Premises and Tenant vacates the Demised Premises, or (ii) $870.40 per day, if Tenant remains in occupancy of the Demised Premises, for each day Landlord has delayed Substantial Completion of the Work. The foregoing remedies will not be exercised by Tenant if Landlord (i) has substantially completed the Work, (ii) has timely filed all appropriate paperwork, but has not received the necessary governmental sign offs within the time frames described at the beginning of this paragraph for . Landlord to Substantially Complete the Work; and (iii) has demonstrated to HRA in writing that it is diligently pursuing receipt of said necessary sign offs.
In the event Substantial Completion has occurred , then with respect to as built drawings and minor details of construction or decoration which do not adversely affect Tenant's use of the Demised Premises, Tenant shall submit to Landlord a written list of such minor details including the as built drawings which it deems to be incomplete (hereinafter the "Punch List").
Landlord shall within thirty (30) days of receipt of the Punch List, commence performance and diligently proceed in a continuous manner to complete said work. In the event Landlord fails to commence the Punch List within thirty (30) days of receipt of the Punch List and thereafter diligently proceed to complete the same, Tenant, in addition to any other remedy it may have, may (i) as agent for the Landlord, perform said work and deduct the cost thereof from the rent due or that may become due and owing under this Lease or (ii) withhold rent due and owing to Landlord in the amount of $870.40 per day, until Landlord performs such work to the satisfaction of Tenant.
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With respect to Tenant's repair obligations, upon completion of the work, Landlord shall assign to Tenant the beneficial interest in all warranties and guarantees received by Landlord from contractors and materialmen engaged in the performance of the work, as well as the right to enforce any contracts made with such contractors and materialmen. Landlord hereby appoints Tenant as its attorney-in-fact to institute suit in Landlord's name and for Tenant's benefit and agrees to cooperate fully with Tenant in the event that Tenant seeks to enforce its rights with respect to the warranties and guarantees.
Notwithstanding anything to the contrary in Article 13 hereof, Landlord shall be solely responsible for the performance and cost of all repairs resulting from defects of materials and workmanship in construction and/or alterations and improvements of the Demised Premises or of the Building. Furthermore, and notwithstanding anything to the contrary contained in Article 13 hereof, if Landlord uses existing ductwork or ventilation equipment, it shall remain solely responsible for the performance and cost of repair or replacement of same during the entire term hereof.
Landlord acknowledges that the Demised Premises may be occupied and used by Tenant, its employees and invitees during the performance of the Work. Accordingly, Landlord shall, and shall cause it contractors, to use best efforts to minimize noise, dust and other conditions which may adversely affect Tenant, its invitees, children, employees, and workers, to take every reasonable precaution against injuries to persons or damage to property, and to provide for the safety of persons at the Demised Premises. Landlord shall be responsible for the initiation, maintenance and supervision of reasonable safety precautions and programs in connection with the performance of the Work. Prior to the commencement of the Work Landlord shall designate a qualified person to carry out such programs and notify Tenant of the person so designated.
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In accordance with the approved Phasing Plan, the occupying agency shall, upon ten (10) days prior notice from Landlord temporarily move its equipment and property, as necessary, in the affected area in order for Landlord to perform the Phase of the Work. Tenant shall allow Landlord access to the Demised Premises for the purpose of performing the Work, pursuant to the Phasing Plan, which approval shall not be unreasonably withheld or delayed. The unisex bathrooms to be installed by the Landlord shall be located within the Demised Premises at a location mutually satisfactory to Landlord and Tenant. If Tenant fails to provide Landlord access to the affected phased area of the Demised Premises to perform an item of work within ten (10) days after a second notice, Landlord shall not be required to perform said item of work for Substantial Completion and Landlord's time frame to Substantially Complete the Work shall be extended by such delay.
Landlord agrees to name, or cause its contractors to name, the City of New York as an additional named insured on their respective policies of public liability insurance, and furnish the Tenant with certificates of insurance to that effect, provided there is no additional charge therefor, or if Tenant agrees to pay said additional charge.
ARTICLE 8
CERTIFICATE OF OCCUPANCY: COMPLIANCE WITH LAWS
Landlord agrees to deliver to the Department of Citywide Administrative Services a Certificate of Occupancy or other sufficient indicia of legality for use of the premises for office purposes, and same shall be a prerequisite to the official assumption of occupancy by Tenant.
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At its own expense, Landlord agrees to obtain all permits necessary to legalize the Demised Premises, the alterations and improvements specified herein and to comply with all requirements, rules, laws, regulations and orders of Federal, State and local authorities and of any board of fire underwriters having jurisdiction over the Demised Premises or the real property of which they form a part, including, without limitation, the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq. ("ADA") during the term hereof or renewal term, if any. With respect to the ADA and regulations promulgated pursuant thereto, Landlord shall comply with and perform the Landlord's obligations, if any, as a public accommodation pursuant to Title III of the ADA. Landlord shall remove all violations which may be placed against the Demised Premises, including but not limited to Building Code and Fire Code violations, except those violations caused by Tenant's breach of the terms of this Lease.
In the event Landlord fails to comply with any of the provisions of this Article, Tenant, in addition to any other remedy it may have, after notice to Landlord and Landlord’s failure thereafter to diligently proceed to comply, (i) may, as agent of Landlord, perform the same and deduct the reasonable cost thereof from any rent due or that may become due and payable under this Lease or, (ii) may withhold an amount of rent equal to 133% of the reasonable cost of performing same as reasonably determined by Tenant until Landlord shall have performed same to Tenant’s reasonable satisfaction, at which time any amounts so withheld shall be promptly paid to Landlord.
Furthermore, in the event Tenant provides a second notice to Landlord of Landlord’s default under this Article and Landlord thereafter fails to commence compliance and thereafter diligently continue compliance with any of the provisions of this Article within fifteen (15) days following receipt of the second notice, and as a result of Landlord’s failure, (a) one third (1/3) of the Demised Premises is rendered unusable for business purposes and (b) Tenant vacates said portion of the Demised Premises, then Tenant may terminate this Lease on twenty (20) days written notice to Landlord.
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ARTICLE 9
REAL ESTATE TAXES, ASSESSMENTS, WATER RATES,
SEWER RENTS, ARREARS
(A) Landlord shall pay all real estate taxes, assessments, water rates and sewer rents levied against said Building and Land for the tax lot where the Demised Premises are located or that may be liens thereon. Landlord shall provide Tenant with receipted bills, payment receipts or other back-up information satisfactory to Tenant evidencing Landlord's payment thereof within five (5) business days after Tenant shall give notice to Landlord requesting such evidence of payment. Should Landlord fail to pay said taxes, assessments, water rates and sewer rents, then Tenant, in addition to any and all other remedies it may have, may apply any rent due or that may become due and payable under this Lease to the payment of said taxes, assessments, water rates and sewer rents and so long as any of such items are unpaid, no action or proceeding may be maintained by Landlord against Tenant for nonpayment of the rent so applied.
(B) Additionally, if Landlord is in any other arrears on the Property, Building and/or Demised Premises payable to the City of New York, including but not limited to taxes, water and sewer charges, rents, mortgage payments, if any and any other payments or obligations payable to the City of New York, after 30 days notice from Tenant to Landlord and Landlord’s failure to make such payment within said 30 day period, then Tenant may apply any rent due or that may become due and payable under this Lease to the payment of such arrears and as long as such arrears are unpaid, no action or proceeding, may be maintained by Landlord against Tenant for nonpayment of the rent so applied.
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ARTICLE 10
LANDLORD’S SERVICES
Landlord shall provide heat, hot and cold water, adequate elevator service, maintain the public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets (including supply and cleaning thereof) or other public parts of the building (collectively "common areas"), perform regular monthly extermination services to the Demised Premises and the common areas, and maintain the heating, ventilation and air conditioning equipment in good working order so as: (i) to provide air conditioning during the summer months at an average inside design temperature of seventy-five (75) degrees Fahrenheit dry bulb and a room relative humidity of fifty percent (50%) when the outside temperature is ninety-five (95) degrees Fahrenheit dry bulb coincident with a wet bulb temperature of seventy-five (75) degrees Fahrenheit, provided that, with respect to air conditioning, Tenant keeps the blinds closed in all windows exposed to direct sunlight and maintains a lighting and equipment load of not more than 4 1/2 watts per rentable square feet and a people load of not more than one person per 100 square feet; and (ii) to provide heating during the winter months at an average inside design temperature of seventy-two (72) degrees Fahrenheit dry bulb when the outside temperature is zero (0) degrees Fahrenheit dry bulb with a wind velocity of fifteen (15) miles per hour.
The foregoing Landlord's services shall be provided during the hours of 8:00 a.m. to 6:00 p.m. Monday through Friday inclusive, New York City holidays excluded, (“Business Hours”) except that elevator service and access to the Demised Premises shall be provided twenty-four (24) hours per day, seven (7) days per week, subject to Landlord’s reasonable rules and regulations.
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Within sixty (60) days after the execution of the Lease by Tenant, Landlord, at its sole cost and expense, shall perform all of the preventive maintenance measures set forth in Exhibit “E”, attached hereto and made a part hereof. Landlord, at its sole cost and expense, may, at its option, enter into a separate agreement for the maintenance of the roof and each of the building systems of the Demised Premises. Any such agreement may remain in effect during the term of the Lease and shall provide that the contractor perform all of the preventive maintenance measures set forth in Exhibit “E”. The contractor shall adhere to industry wide standards in performing its obligations under the maintenance agreement. Any such maintenance agreement shall further provide that within ten (10) business days after inspecting the roof or building systems the contractor shall prepare a written report. Such report shall (a) summarize contractor's, or Landlord’s, findings and recommendations for maintenance service and (b) state whether maintenance service has been rendered. Contractor or Landlord shall submit a copy of the report to Tenant within fifteen (15) days after it is completed.
Landlord shall paint the Demised Premises completely within sixty (60) days of the execution of this Lease by Tenant, and again when requested by Tenant after the fifth (5th) and tenth (10th) anniversaries of the Lease Term in accordance with Building Standard specifications and colors selected by Tenant from the Building Standard color chart; Furthermore, in the event Tenant exercises its option to renew the Lease, Landlord shall paint the Demised Premises completely in the sixteenth (16th) year of the Lease, as renewed.
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In the event Landlord fails to comply with any of the provisions of this Article within five (5) business days after written notice by Tenant, Tenant, in addition to any other remedy it may have, may (i) as agent of Landlord, perform the same and deduct the reasonable cost thereof from any rent due or that may become due and payable under this Lease, or (ii) withhold an amount of rent equal to 133% of the reasonable cost of such repairs as reasonably determined by Tenant until Landlord performs such repairs to the reasonable satisfaction of Tenant, at which time any amounts so withheld shall be promptly repaid to Landlord.
Anything to the contrary notwithstanding, in the event the repairs to be performed by the Landlord are required to correct a hazardous condition or to end an emergency which renders the premises unsuitable for the use set forth herein, Tenant shall give Landlord, its agent, superintendent or the person designated to receive such notice, immediate notice in writing, personally or by certified mail, and Landlord, shall commence the repairs by the next business day after receipt of such notice (the making of necessary telephone calls being deemed commencement) and diligently proceed in a continuous manner to complete said work. In the event Landlord fails to commence and complete said work after said notice, as aforesaid, Tenant, (i) as agent for the Landlord, may perform same and deduct the reasonable cost thereof from any rent due or that may become due and payable under this Lease or (ii) may withhold an amount of rent equal to 133% of the reasonable cost of such repairs as reasonably determined by Tenant until Landlord performs such repairs to the reasonable satisfaction of Tenant, at which time any amounts so withheld shall be promptly paid to Landlord.
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Furthermore, in the event Tenant provides a second notice (the “Second Notice”) to Landlord of Landlord’s default under this Article and Landlord thereafter fails to commence to cure and diligently proceed in a continuous manner to cure said default within fifteen (15) days following receipt of the Second Notice, and as a result of Landlord’s failure, (a) one third (1/3) of the Demised Premises is rendered unusable for business purposes and (b) Tenant vacates said portion of the Demised Premises, then Tenant may terminate this Lease on Twenty (20) days written notice to Landlord.
ARTICLE 11
TENANT'S SERVICES
Tenant shall pay for its electricity directly to the public utility company. Landlord shall, at its sole cost and expense, provide the meter and any necessary wiring. Tenant shall provide its own cleaning and rubbish removal services. Tenant shall close the blinds and windows in the Demised Premises at end of each business day.
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ARTICLE 12
ALTERATIONS BY TENANT
Tenant may make alterations, decorations, installations, additions and improvements in and to the Demised Premises and may erect signs therein or thereon. Tenant may make alterations, installations, additions and improvements in excess of Ten Thousand Dollars ($10,000.00) upon prior written consent of Landlord, which consent shall not be unreasonably delayed or withheld. All such work performed by Tenant shall be in compliance with all applicable laws and the Building Rules and Regulations, which Rules and Regulations are annexed hereto and made a part hereof as Exhibit “F”. All property of whatever kind or nature in or on the Demised Premises owned, installed or paid for by Tenant shall be and remain the property of Tenant and upon the termination of this Lease, renewal, extension or holdover period, Tenant shall remove such property. Tenant shall repair any damage to the Demised Premises caused by Tenant’s removal of its property upon the expiration or earlier termination of this Lease. If Tenant shall fail to remove such property upon termination of this Lease, renewal, extension or holdover period, the property shall be deemed to be surrendered, and may be removed by Landlord. Tenant shall reimburse Landlord for the reasonable actual cost of removing Tenant’s property within forty-five (45) days of receipt of Landlord’s reasonable back-up documentation.
ARTICLE 13
END OF TERM
Upon the expiration or other termination of the term of this Lease, Tenant shall quit and surrender the Demised Premises in good order and condition with ordinary wear and tear, and damage by the elements, including fire or other casualty, excepted, and in compliance with the provisions of Article 12.
ARTICLE 14
REPAIRS
Landlord shall make all interior, exterior and structural repairs, excluding such repairs necessitated by the negligence or improper conduct of Tenant or its invitees, but including maintenance, repair or replacement of the roof, windows and window glass, replacement of light bulbs and fluorescent lamps, elevators, plumbing, and electrical, heating and air conditioning systems, common areas, removal of graffiti from the exterior and interior of the Building and/or the Demised Premises, and all repairs needed because of Landlord's negligence or because of defective materials or workmanship in the construction and/or improvement of the Demised Premises or of the Building of which they are a part. Landlord shall repair and maintain any sidewalks, curbs and passageways adjoining and/or appurtenant to the Demised Premises in good, clean and orderly condition, free of dirt, rubbish, snow, ice and unlawful obstruction.
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In the event Landlord fails to fulfill its obligations, Tenant may, in addition to its other remedies, give written notice to Landlord specifying the repairs required by Tenant and Landlord shall commence performance of such work within five (5) business days after the giving of such notice and diligently proceed to complete said work. In the event Landlord fails to so commence or diligently proceed in a continuous manner to complete said work after said written notice, Tenant, in addition to any other remedy it may have, (i) may, as agent of Landlord, perform the same and deduct the cost thereof from any rent due or that may become due and payable under this Lease, or (ii) withhold an amount of rent equal to 133% of the reasonable cost of such repairs as reasonably determined by Tenant until Landlord performs such repairs to the reasonable satisfaction of Tenant, at which time any amounts so withheld shall be promptly paid to Landlord.
Anything to the contrary notwithstanding, in the event the repairs to be performed by the Landlord are required to correct a hazardous condition or to end an emergency which renders the premises unsuitable for the use set forth herein, Tenant shall give Landlord, its agent, superintendent or the person designated to receive such notice, immediate notice in writing, personally or by certified mail, and Landlord, shall commence the repairs by the next business day after receipt of such notice ( the making of necessary telephone calls being deemed commencement) and diligently proceed in a continuous manner to complete said work. In the event Landlord fails to commence and complete said work after said notice, as aforesaid, Tenant (i) may, as agent for the Landlord, perform same and deduct the reasonable cost thereof from any rent due or that may become due and payable under this Lease, (ii) may withhold an amount of rent equal to 133% of the reasonable cost of such repairs as reasonably determined by Tenant until Landlord performs such repairs to the reasonable satisfaction of Tenant at which time any amounts so withheld shall be promptly paid to Landlord, or (iii) may give Landlord a second notice (the “Second Notice”) of said default to Landlord.
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Furthermore, in the event Tenant provides a Second Notice to Landlord of Landlord’s default under this Article and Landlord thereafter fails to commence to cure and diligently proceed with continuity to cure said default within fifteen (15) days following receipt of the Second Notice, and as a result of Landlord’s failure, (a) one third (1/3) of the Demised Premises is rendered unusable for business purposes and (b) Tenant vacates said portion of the Demised Premises, then Tenant may terminate this Lease on twenty (20) days written notice to Landlord.
In the event Tenant is unable to use any part or all of the Demised Premises because of Landlord's failure to timely perform such work as set forth in the two preceding paragraphs hereof, the rent shall be reduced, during such period, proportionately to the diminution in space resulting from such failure.
In the event Tenant may still be able to use the Demised Premises for the purposes set forth in the Lease but Landlord’s failure to timely make repairs or provide services adversely affects Tenant’s operations within the Demised Premises in a material manner, Tenant shall be entitled, during such period, to a bona fide equitable reduction in rent.
Tenant may make such ordinary and nonstructural interior repairs as it deems necessary for its occupancy.
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ARTICLE 15
CONDEMNATION
If the whole of the Demised Premises shall be taken in condemnation, this Lease shall terminate upon the vesting of title in the condemnor and all rent and other charges paid or payable by Tenant shall be apportioned as of the date of vesting of title in such condemnation proceeding.
If only part of the Demised Premises shall be so taken in condemnation so that the remainder cannot be used for the intended purpose, then Tenant may either terminate this Lease as to the remainder of the premises on ten (10) days written notice to Landlord or remain in possession of the remaining portion of the premises under all of the terms, conditions and covenants of this Lease, except that the rent thereafter shall be apportioned and reduced from the date of each such partial taking to the amount equal to the product of the dollar amount of rent payable on such date and the number of square feet in the part remaining. If this Lease is not so terminated, the proceeds of any award for partial taking shall be applied by Landlord to the repair, restoration or replacement of the remaining premises, to their condition immediately prior to the condemnation (“Restoration”) and if there be any deficiency, it shall be made up by Landlord, but if there be any surplus, it shall belong to the Landlord. Said Restoration of the remaining premises shall be performed pursuant to plans and specifications reasonably approved by the Human Resources Administration and completed within six (6) months after such approval. In the event said Restoration is not completed within said six (6) months period, Tenant, in addition to any other remedy it may have, may terminate this Lease on ninety (90) days written notice or perform said Restoration and deduct the reasonable cost thereof from any rent which may be due and payable under this Lease.
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Tenant shall be entitled to apply for a separate award for the value of the improvements and fixtures made or paid for by Tenant upon that part of the premises taken in condemnation and hereby waives any claim for the value of its leasehold position.
ARTICLE 16
DESTRUCTION BY FIRE OR OTHER CASUALTY
If the whole of the Demised Premises is totally destroyed or damaged by fire or other casualty (“Casualty”), or destroyed or damaged by Casualty to such an extent that they are wholly or substantially unsuitable or untenantable for use for the purpose for which they are leased (“Total Casualty”), then from the date of such damage or destruction the rent shall abate fully until such time as Landlord fully repairs and restores the Demised Premises to its layout and condition immediately prior to the Casualty as reasonably certified by the Human Resources Administration.
Either party may terminate this Lease by notice to the other within thirty (30) days from the date of the Total Casualty. If no such notice is given, Landlord shall, within ninety (90) days after receipt of insurance proceeds, commence and diligently proceed with continuity to complete the repairs and restoration of the Demised Premises to their layout and condition prior to said Total Casualty. If Landlord fails to commence said repairs and restoration as above provided, or complete the same within one hundred and eighty (180) days after such commencement, Tenant may terminate this Lease on forty-five (45) days written notice or, in addition to any other remedy it may have, may perform such repairs and restoration and reimburse itself for the reasonable cost thereof from any rent due or that may become due and payable under this Lease.
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If the Demised Premises are partially damaged by Casualty, to the extent of less than a Total Casualty (“Partial Casualty”), Landlord shall, within ninety (90) days after receipt of applicable insurance proceeds, commence and diligently proceed to complete the repairs and restoration of the Demised Premises to their layout and condition prior to said Partial Casualty. If Landlord fails to commence as aforesaid or to complete the same within one hundred and twenty (120) days after such commencement, Tenant, in addition to any other remedy it may have, may terminate this Lease by giving Landlord forty-five (45) days written notice or may perform such repairs and restoration and reimburse itself for the reasonable cost thereof from any rent due or which may become due under this Lease.
From the date of such damage to the date of substantial completion of such repairs and restoration of the Partial Casualty as reasonably certified by the Human Resources Administration in writing, Tenant shall pay rent for that part of the premises it is using during the alterations and repairs on a square foot basis in an amount equal to the product of the dollar amount of rent per square foot payable on such date and the number of square feet being occupied by Tenant.
ARTICLE 17
NO EMPLOYEE OF CITY HAS ANY INTEREST IN LEASE
Landlord warrants and represents that no officer, agent, employee or representative of The City of New York has received any payment or other consideration for the making of this Lease and that no officer, agent, employee or representative of The City of New York has any interest, directly or indirectly, in this Lease or the proceeds thereof.
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ARTICLE 18
QUIET ENJOYMENT
Landlord covenants that Tenant, paying the rent reserved herein, and performing all of the other terms, covenants and conditions on its part to be performed, shall and may peaceably and quietly have, hold and enjoy the Demised Premises for the use and purpose stated in this Lease or for such other similar purposes as the Commissioner of Citywide Administrative Services may determine, subject to the terms of the introductory paragraph of this Lease preceding Article 1.
ARTICLE 19
ACCESS BY DISABLED PERSONS
Landlord represents that the premises demised herein are suitable for access by disabled persons.
ARTICLE 20
SUBORDINATION AND NON-DISTURBANCE
This Lease shall be subject and subordinate to all existing mortgages of record or future mortgages from a reputable lender or lending institution which may affect the real property of which the Demised Premises form a part, provided, and as a condition precedent to the subordination of this Lease to any of said future mortgages, the mortgagee shall execute and deliver to Tenant an agreement its then standard form and reasonably satisfactory to Tenant, whereby said mortgagee agrees that should it become necessary to foreclose such mortgage or should the mortgagee otherwise come into possession of the premises, such mortgagee will not join Tenant under this Lease in foreclosure or summary proceedings and will not disturb the use and occupancy of Tenant under this Lease so long as Tenant is not in default under any of the terms, covenants and conditions of this Lease.
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ARTICLE 21
TENANT NOT A HOLDOVER TENANT
Landlord agrees not to hold Tenant liable as holdover tenant should it continue to occupy the Demised Premises or any portion thereof after the expiration of the term of this Lease or renewal term, if any, but, in any such event, Tenant shall be deemed to be a tenant from month to month at a rental not less than the same rental as that of the last month of the demised term and the liability of Tenant shall in no event be greater than that of a Tenant from month to month, any law to the contrary notwithstanding.
ARTICLE 22
NOTICES
A. Any notice required to be given shall be in writing and shall be sent by certified mail and addressed to Landlord at NPMM REALTY, INC., c/o Bank of Tokyo-Mitsubishi Trust Company, 100 Broadway, 15th Floor, New York, New York 10005 (Attention: Mr. Richard Ference) or to Tenant addressed to:
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ASSISTANT COMMISSIONER FOR
LEASING AND DESIGN
Department of Citywide Administrative Services
Division of Real Estate Services
1 Centre Street, 20th Floor North, Room 2000
New York, N.Y. 10007
and
DIRECTOR
Human Resources Administration
Office of Food Stamps
240-250 Livingston Street
Brooklyn, New York 11201
and
ASSISTANT DEPUTY ADMINISTRATOR
Human Resources Administration
Office of Facilities Operations
260 11th Avenue, 6th Floor
New York, New York 10001
Either party may change its address as set forth herein by notice to the other in the manner provided for herein, provided that no notice of change of address shall be effective until the month following the month in which notice is given. Notice shall be deemed given as of the day of mailing.
B. Special Notices: In addition to any other notices expressly required under this Lease to be given by Landlord to Tenant, Landlord shall immediately give written notice to Tenant of (i) the giving of any notice or the taking of any action by the holder of any mortgage of the Premises, the result of which may be the foreclosure of, or the sale or taking of possession of, all or any part of the Premises, (ii) the commencement of a case in bankruptcy or under the laws of any state naming Landlord as the debtor, or (iii) the making by Landlord of an assignment or any other arrangement for the benefit of creditors under any state statute.
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Notwithstanding the foregoing, service of process to commence a summary proceeding pursuant to Article 7 of the Real Property Actions and Proceeding Law (“RPAPL”) relating to an occupancy by the City of New York or its agencies or officers of the Demised Premises which at its commencement was authorized under this Lease shall be served in manner required by CPLR Section 311.
ARTICLE 23
FORCE MAJEURE
Landlord, Tenant or any Mortgagee shall not be deemed in default if it is delayed in the performance of any act, matter or thing which it is obligated to perform hereunder, if such delay is an "unavoidable delay". An "unavoidable delay" shall mean (i) strikes, lockouts, or labor disputes; (ii) shortages of labor or materials; (iii) acts of God, governmental restrictions, regulations or controls, enemy or hostile governmental actions, civil commotion, insurrection, revolution, sabotage, fire, other casualty or other conditions similar to those enumerated in this Article; or (iv) any other circumstances beyond either party’s reasonable control. In the event of any unavoidable delay, all dates for performance shall automatically be extended by a period equal to the aggregate period of all such delays. In no event shall Tenant’s obligation to pay rent or additional rent as and when same becomes due be excused due to an unavoidable delay.
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ARTICLE 24
SAVE HARMLESS
Landlord and Tenant shall each indemnify and hold harmless the other party from and against any and all liability, fines, suits, claims, demands, expenses and actions of any kind or nature arising by reason of injury to person or property occurring on or about the Demised Premises, the Building, or the real property of which they form a part, occasioned in whole or in part by its acts or omissions or the acts or omissions of any person present by its license and/or permission, express or implied, or by reason of Landlord performing preventive maintenance pursuant to a maintenance contract, or by reason of Landlord's failure to comply with obligations arising under the ADA as set forth in Article 8 of this Lease.
ARTICLE 25
INVESTIGATIONS
1.1 The parties to this agreement agree to cooperate fully and faithfully with any investigation, audit or inquiry conducted by a State of New York (State) or City of New York (City) governmental agency or authority that is empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath, or conducted by the Inspector General of a governmental agency that is a party in interest to the transaction, submitted bid, submitted proposal, contract, lease, permit, or license that is the subject of the investigation, audit or inquiry.
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1.2(a) If any person who has been advised that his or her statement, and any information from such statement, will not be used against him or her in any subsequent criminal proceeding refuses to testify before a grand jury or other governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath concerning the award of or performance under any transaction, agreement, lease, permit, contract, or license entered into with the City, the State, or any political subdivision or public authority thereof, or the Port Authority of New York and New Jersey, or any local development corporation within the City, or any public benefit corporation organized under the laws of the State of New York, or;
1.2(b) If any person refuses to testify for a reason other than the assertion of his or her privilege against self-incrimination in an investigation, audit or inquiry conducted by a City or State governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to take testimony under oath, or by the Inspector General of the governmental agency that is a party in interest in, and is seeking testimony concerning the award of, or performance under, any transaction, agreement, lease, permit contract, or license entered into with the City, the State, or any political subdivision thereof or any local development corporation within the City, then;
1.3(a) The commissioner or agency head whose agency is a party in interest to the transaction , submitted bid, submitted proposal, contract, lease, permit, or license shall convene a hearing, upon not less than five (5) days written notice to the parties involved to determine if any penalties should attach for the failure of a person to testify.
1.3(b) If any non-governmental party to the hearing requests an adjournment, the commissioner or agency head who convened may, upon granting the adjournment, suspend any contract, lease, permit, or license pending the final determination pursuant to paragraph 1.5 below without the City incurring any penalty or damages for delay or otherwise.
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1.4 The penalties which may attach after a final determination by the commissioner or agency head may include but shall not exceed:
(a) The disqualification for a Period not to exceed five (5) years from the date of an adverse determination for any person, or any entity of which such person was a member at the time the testimony was sought, from submitting bids for, or transacting business with, or entering into or obtaining any contract, lease, permit or license with or from the City; and/or
(b) The cancellation or termination of any and all such existing City contracts, leases, permits or licenses that the refusal to testify concerns and that have not been assigned as permitted under this agreement, nor the proceeds of which pledged, to an unaffiliated and unrelated institutional lender for fair value prior to the issuance of the notice scheduling the hearing, without the City incurring any penalty or damages on account of such cancellation or termination; monies lawfully due for goods delivered, work done, rentals, or fees accrued prior to the cancellation or termination shall be paid by the City.
1.5 The commissioner or agency head shall consider and address in reaching his or her determination and in assessing an appropriate penalty the factors in paragraphs (a) and (b) below. He or she may also consider, if relevant and appropriate, the criteria established in paragraphs (c) and (d) below in addition to any other information which may be relevant and appropriate:
(a) | The party's good faith endeavors or lack thereof to cooperate fully and faithfully with any governmental investigation or audit, including but not limited to the discipline, discharge, or disassociation of any person failing to testify, the production of accurate and complete books and records, and the forthcoming testimony of all other members, agents, assignees or fiduciaries whose testimony is sought. |
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(b) | The relationship of the person who refused to testify to any entity that is a party to the hearing, including, but not limited to, whether the person. whose testimony is sought has an ownership interest in the entity and/or the degree of authority and responsibility the person has within the entity. |
(c) | The nexus of the testimony sought to the subject entity and its contracts, leases, permits or licenses with the City. |
(d) | The effect a penalty may have on an unaffiliated and unrelated party or entity that has a significant interest in an entity subject to penalties under 1.4 above, provided that the party or entity has given actual notice to the commissioner or agency head upon the acquisition of the interest, or at the hearing called for in 1.3(a) above gives notice and proves that such interest was previously acquired. Under either circumstance the party or entity must present evidence at the hearing demonstrating the potential adverse impact a penalty will have on such person or entity. |
1.6(a) The term "license" or "permit" as used herein shall be defined as a license, permit, franchise or concession not granted as a matter of right.
1.6(b) The term "person" as used herein shall be defined as any natural person doing business alone or associated with another person or entity as a partner, director, officer, principal or employee.
1.6(c) The term "entity" as used herein shall be defined as any firm, partnership, corporation, association, or person that receives monies, benefits, licenses, leases, or permits from or through the City or otherwise transacts business with the City.
1.6(d) The term "member" as used herein shall be defined as any person associated with another person or entity as a partner, director, officer, principal or employee.
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1.7 In addition to and notwithstanding any other provision of this Agreement, the Commissioner or agency head may in his or her sole discretion terminate this Agreement upon not less than three (3) days written notice in the event contractor fails to promptly report in writing to the Commissioner of Investigation of the City of New York any solicitation of money, goods, requests for future employment of other benefit or thing of value, by or on behalf of any employee of the City or other person, firm, corporation or entity for any purpose which may be related to the procurement or obtaining of this Lease by the Landlord, or affecting the performance of this Lease.
ARTICLE 26
ASBESTOS
Landlord and Tenant agree that during the term of this Lease (the "Lease Term") Landlord shall abate (i.e. remove, enclose, encapsulate and/or replace) and/or monitor and manage any asbestos-containing materials (including, but not limited to, any such materials on boilers, pipes, ducts, breechings, plenum , tanks, spray on or other insulation, and any affected floor tiles, plaster, and ceiling tiles) (collectively "ACM") in the Demised Premises and portions of the Building through which Tenant has access to the Demised Premises or which may affect the Demised Premises, upon and subject to the following terms and conditions:
(A) Tenant has provided Landlord with a Report dated May 18, 1992 (the "Report") of the Building and/or Demised Premises prepared by the Citywide Office of Safety and Health which Report states there was no ACM found in the Demised Premises. (However, Tenant makes no representation with respect to the accuracy or completeness of the Report. Landlord's reliance on the Report and on its conclusions or recommendations shall impose no liability whatsoever on Tenant. Landlord shall make no claim against the City of New York based on its reliance on, compliance with, or use of the Report or related in any manner to ACM in the Demised Premises or Building, whether or not disclosed in the Report).
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(B) In the event that a subsequent inspection ("Inspection") of the Demised Premises and portions of the Building through which Tenant has access to the Demised Premises or which may affect the Demised Premises, finds ACM, Landlord shall, at its sole cost and expense, promptly commence or cause an abatement of any deteriorated ACM, subject to reasonable concurrence by the Department of Citywide Administrative Services ("DCAS") and perform any work incidental thereto (the "ACM Work"), by a contractor approved by DCAS, which approval shall not be unreasonably withheld or delayed. Landlord shall, within a time frame to be mutually agreed to between Landlord and Tenant, diligently and in good faith complete the ACM Work. Landlord shall give Tenant at least ten (10) days advance written notice of commencement and phasing of any ACM Work. Performance of the ACM Work shall be in accordance with and shall comply with all applicable Federal, State, County and Municipal laws, rules, standards, regulations, requirements and ordinances (collectively "Laws and Procedures") governing ACM Work. The contractor performing the ACM Work shall file (and pay all fees associated with) all notices or documents, certifications or other communications required by the City, State and Federal governments as signed by the Landlord as the "Owner". The contractor shall simultaneously forward to Tenant copies of all notices, certifications or other communications given to Landlord or filed with the proper agencies or authorities relating to ACM. In addition, Landlord shall contract for on-site air testing which, in accordance with the rules and regulations of the New York City Asbestos Control Program, must be conducted by a party prescribed by applicable law. The party performing the on-site air testing is subject to prior written approval by DCAS, which approval shall not be unreasonably withheld or delayed.
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(C) As set forth above, Landlord shall be required to give Tenant not less than ten (10) days advance, written notice of the scheduling of each phase of the ACM Work so that Tenant may relocate its operations and personnel, if necessary, prior to the commencement thereof. Landlord shall consider Tenant's use and occupancy of the Demised Premises so as to minimize the negative impact of the ACM Work on Tenant's operations in and use of the Building and the Demised Premises. In the event Tenant must vacate the Demised Premises or any portion thereof because the ACM Work, in the sole, but reasonable, determination of Tenant, renders the Demised Premises unusable by Tenant, annual rent shall abate in the proportion that the portion of the Demised Premises which is rendered unusable bears to the entire Demised Premises for the period of time involved, provided it exceeds one full business day. Such abatement of rent shall continue until the Demised Premises or any portion thereof may be used for the purposes set forth in the Lease, as determined solely, but reasonably, by Tenant, and Tenant certifies same in writing.
(D) If Landlord fails to comply with the requirements of Subparagraph (B) and (C) above, Tenant shall, in addition to any other remedy it may have, have the option to effect the ACM Work on its own , as agent for Landlord by hiring any consultants, contractors or experts Tenant deems necessary to plan, effect and supervise the ACM Work and Tenant shall be entitled to offset all reasonable costs and expenses associated with the ACM Work against any amounts otherwise due or becoming due to Landlord as rent and additional rent under the terms of this Lease, which offset shall be in addition to any applicable abatement or reduction in rent under Subparagraph (C) above. Tenant shall not proceed with the ACM Work unless (a) written notice shall first be given to Landlord specifying the manner in which Tenant claims such ACM Work has not been properly completed and (b) Landlord shall have had thirty (30) days following receipt of such notice within which to commence and thereafter proceed diligently and continuously to complete said work. In the event Landlord fails to commence and thereafter proceed diligently and continuously to complete said work within said thirty (30) day period, Tenant may also, in addition to any other remedy it may have, terminate this Lease on not less than ten (10) days written notice to Landlord.
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(E) Following performance and completion of the ACM Work, Landlord shall, at its sole cost and expense, restore the Demised Premises to the condition that, in Tenant's sole, but reasonable opinion, permits Tenant to use the Demised Premises for the purposes set forth in the Lease. Landlord shall be solely responsible for all repairs arising out of the performance of the ACM Work. Landlord hereby agrees to save, hold harmless and indemnify Tenant, its employees, guests and invitees against any and all claims for bodily injury or property damage in connection, with the ACM Work and work incidental thereto.
(F) During the Lease Term, Landlord shall, at its sole cost and expense, have any non-deteriorated ACM disclosed by an Inspection under Subparagraph (B) above of the Demised Premises and portions of the Building through which Tenant has access to the Demised Premises or which may affect the Demised Premises, monitored pursuant to a plan reasonably approved by Tenant (the "Monitor Survey") by a New York City Department of Environmental Protection certified asbestos investigator at least once every one hundred eighty (180) days from the Inspection, and Landlord shall immediately provide Tenant with a copy of the results of each such Monitor Survey. The Monitor Survey shall be in accordance with the principles set forth in the EPA Document "Managing Asbestos In Place" (the "Green Book"), as it may be subsequently revised or replaced by a similar text. If any such Monitor Survey should reveal that ACM has deteriorated, Landlord shall so notify Tenant in writing within five (5) days of the completion of such survey which notice shall be accompanied by a copy of such survey. Landlord shall within five (5) days from the completion of such Monitor Survey commence and diligently proceed to comply with continuity with the provisions of this Article with respect to abatement of any
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ARTICLE 28
SIGNIFICANT RELATED PARTY TRANSACTIONS
Landlord shall be required to disclose and notify Tenant of any significant related party transactions the cost of which are included in the Base Year Operating Expenses. When such transactions occur prices of same must be in line with normal industry practice in New York City. Failure to notify Tenant of such related party transactions shall result in a disallowance of such costs that would otherwise be part of the Base Year Operating Expenses. If such related party transactions occurred and were disclosed but it is determined that the cost thereof was excessive, then such charges shall be disallowed to the extent they exceed normal industry prices in New York City.
ARTICLE 29
MISCELLANEOUS
A. Landlord and its agents shall have the right, (but not the obligation) to enter upon the Demised Premises, in any emergency at any time and at other reasonable times upon reasonable prior notice to Tenant , to examine the same and to make such repairs, replacements and improvements as Landlord may deem necessary or desirable to the Demised Premises or any other portion of the Building. Tenant shall permit Landlord to use, maintain and replace the present pipes and conduits in and to the Demised Premises and to erect new pipes and conduits therein provided they are concealed within the walls, floors or ceilings. Landlord may, during the progress of any work in the Demised Premises, take all necessary materials and equipment into said premises without the same constituting an eviction or entitling Tenant to any damages or abatement of rent while such work is in progress, provided that any work done by Landlord is done in a manner not to cause material inconvenience to Tenant, nor to cause a significant interruption of Tenant’s operations.
48 |
B. Throughout the term of this Lease, Landlord shall have the right to enter the Demised Premises during business hours upon reasonable prior notice to Tenant for the purpose of showing the same to prospective purchasers or mortgagees of the Building and, during the last twelve (12) months of the term of this Lease, for the purpose of showing the same to prospective tenants.
C. Landlord shall have the right at any time upon two (2) weeks prior written notice to Tenant, without the same constituting an eviction and without incurring any liability to Tenant, to change the arrangement and/or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of the Building and to change the name and/or address of the Building.
D. In the event of any liability by Landlord, Tenant agrees to look solely to Landlord’s estate and interest in the Land and Building, or the Lease of the Building, or of the Land and Building, and the premises, for the satisfaction of any right or remedy of Tenant for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord, and no other property or assets of Landlord shall be subject to levy, execution, attachment, or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder, or Tenant’s use and occupancy of the Demised Premises or any other liability of Landlord to Tenant arising hereunder. In no event shall Tenant make any claim against or seek to impose any personal liability upon any party, individuals, general or limited partners or any partnership or any stockholder, director or principal of or partner in Landlord or any party that holds any interest in Landlord.
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E. Tenant at any time, and from time to time, but only in connection with a financing, a sale or leasing of the Building, upon at least forty-five (45) days’ prior notice by Landlord, shall execute, acknowledge and deliver to Landlord, and/or to any other person, firm or corporation specified by Landlord, a statement certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the fixed rent and additional rent have been paid, and stating whether or not there exists any default by Landlord under this Lease, and, if so specifying each such default and such other reasonable information in connection with this Lease as shall be requested in said certificate.
F. For the purposes of this Lease, the term “Landlord”, as used in this Lease, means only the owner, or the mortgagee in possession, from time to time of the Land and Building (or the owner of a lease of the Building or of the Land and Building) of which the Demised Premises form a part, so that in the event of any sale or sales of said Land and Building, or of said lease, or in the event of a lease of said Building, or of the Land and Building, the then Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord thereafter arising or accruing after the date of such sale, conveyance or transfer, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the sale lessee of the Building, or of the Land and Building, that the purchaser or the lessee of the Building has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder.
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ARTICLE 30
NO WAIVER
The failure by Tenant to insist, in one or more instances upon the full performance of any of Landlord's covenants, conditions or obligations hereunder shall not be construed as a waiver of a subsequent breach of the same or any other covenant or condition, and the consent or approval by Tenant to or of any act by Landlord requiring Tenant's consent or approval shall not be construed to waive or render unnecessary Tenant's consent or approval to or of any subsequent similar act by Landlord. No provision of this lease shall be deemed to have been waived by Tenant unless such waiver be in writing signed by Tenant.
ARTICLE 31
BROKERAGE
Landlord and Tenant represent to the other that neither has dealt with any broker in connection with this Lease other than Williams Real Estate Co., Inc. (“Broker”). Landlord shall pay any commission owing to the Broker. Tenant and Landlord hereby indemnify and hold each other harmless against all loss, damage liability, cost and expense of any nature (including reasonable attorney’s fees and disbursements) based on any claim by any party other than the Broker with whom such indemnifying party has dealt for a commission or other than compensation in connection with this Lease which is based on the actions of such party or its agents or representatives. The indemnified party shall cooperate with the indemnifying party in any defense; the indemnified party shall not settle a claim, liability or action for which the indemnifying party has the obligation to defend or indemnify without the indemnify without the indemnifying party’s consent. The foregoing indemnifications shall survive any expiration or termination of this Lease.
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ARTICLE 32
APPLICABLE LAW
This Lease shall be governed by and construed in accordance with the internal laws of the State of New York.
ARTICLE 33
LEASE ENTIRE AGREEMENT
This Lease sets forth the entire Agreement between the parties, superseding all prior agreements and understandings, written or oral, and may not be altered or modified except by a writing signed by both parties.. This Lease shall be binding upon the parties hereto, their successors, legal representatives and assigns.
52 |
IN WITNESS WHEREOF , the said parties have caused this Lease to be executed the day and year first above written .
NPMM REALTY, INC., | ||
Landlord | ||
By | /s/ Richard Ference, VP | |
THE CITY OF NEW YORK, | ||
Tenant | ||
By | /s/ Lori Fierstein | |
Lori Fierstein | ||
Deputy Commissioner | ||
Department of Citywide | ||
Administrative Services | ||
Approved as to Form: | ||
Acting Corporation Counsel |
53 |
STATE OF NEW YORK | ) |
) SS.: | |
COUNTY OF NEW YORK | ) |
On this 5 th day of MAY 1997, before me personally came RICHARD FERENCE to me known who, being by me duly sworn, did depose and say that (s)he resides in that (s)he is VICE PRESIDENT of NPMM REALTY, INC., the corporation described in and which executed the foregoing instrument , that (s)he knows the corporate seal of said corporation and the seal affixed to said instrument is such corporate seal, that it was affixed by order of the Board of Directors of said corporation and that (s)he signed his name thereto by like order.
/s/ H ENRY S KOPP | |
HENRY SKOPP | |
Notary Public, State of New York | |
No. 41-9036400 | |
Qualified in Queens County | |
Commission Expires June 30, 1998 |
STATE OF NEW YORK | ) |
) SS.: | |
COUNTY OF NEW YORK | ) |
On this 21st day of July, 1997, before me personally came Lori Fierstein, to me known to be the Deputy Commissioner of the Department of Citywide Administrative Services of the City of New York, the person described in and who executed the foregoing instrument and she acknowledged to me that she executed the same.
/s/ L ISA M. S TENSON | |
LISA M. STENSON | |
Notary Public, State of New York | |
No. 03-4991138 | |
Qualified in Bronx County | |
Commission Expires February 28, 1998 |
54 |
AFFIRMATION
The undersigned Landlord, Lessor, Licensor or Optionor affirms and declares that said Landlord, Lessor, Licensor or Option or is not in arrears to the City of New York upon debt, contract or taxes and is not a defaulter, as surety or otherwise, upon obligation to the City of New York, and has not been declared not responsible, or disqualified, by any agency of the City of New York, nor is there any proceeding pending relating to the responsibility or qualification of the proposer or bidder to receive public contracts except
Full name of Landlord, Lessor, Licensor or Optioner:
NPMM Realty , Inc . | |
Address |
c/o Bank of Tokyo-Mitsubishi Trust Company 1251 Avenue of the Americas, 10th Floor |
City New York State New York Zip Code 10020
CHECK ONE BOX AND INCLUDE APPROPRIATE NUMBER:
¨ | A – | Individual or Sole Proprietorship* | |
SOCIAL SECURITY NUMBER | |||
¨ | B – | Partnership, Joint Venture or other Unincorporated Organization | |
EMPLOYER IDENTIFICATION NUMBER | |||
x | C – | Corporation | |
EMPLOYER IDENTIFICATION NUMBER |
NPMM Realty, Inc. | 133592402 |
By: | /s/ Richard Ference, VP | |
Signature of an Officer or Duly Authorized Representative |
Vice President | 6/30/97 | |
Title | Date |
If a corporation place seal here:
* | Under the Federal Privacy Act the furnishing of Social Security Numbers by Individuals on City contracts is voluntary. Failure to provide a Social Security Number will not result in an Individual's disqualification. Social Security Numbers will be used to identify Landlords, Lessors, Licensors or Optionors, to ensure their compliance with laws, to assist the City in enforcement of laws, as well as to provide the City a means of identifying businesses which seek City contracts. |
FOR DGS USE ONLY: |
Human Resources Administration | 240 - 250 Livingston St, Bk | — | ||
Agency | Address | Project Number | ||
5779U/24 |
THE MAYOR
CITY OF NEW YORK
CALENDAR NO. 1
WHEREAS, a lease for the City of New York, as Tenant, of approximately 79,424 rentable square feet of office space on part of the 1st through 3rd floors (the “Demised Premises”) in the building (the “Building”) located at 240-250 Livingston Street (Block 165, Lot 22), in the Borough of Brooklyn, is for the Food Stamps program of the Human Resources Administration to use as an office with 528 employees, or for such other use as the Commissioner of the Department of Citywide Administrative Services may determine;
WHEREAS, the proposed lease ( the “Lease”) shall be for a period of fifteen (15) years from January 1, 1997 ( the “Commencement Date”) at an annual rental of $1,032,512.00 ($13.00 per square foot) for the first three years, $1,076,989.44 ($13.56 per square foot) for the following three years, $1,216,775.68 ($15.32 per square foot) for the following three years, $1,373,240.96 ($17.29 per square foot) for the following three years, and $1,548,768.00 ($19.50 per square foot) for the last three years, payable in equal monthly installments at the end of each month. Pending an audit, Tenant shall pay arrears due and owing under the prior lease agreement dated September 18, 1980;
WHEREAS, the Lease may be terminated in whole only, effective as of the second (2nd) anniversary of the Commencement Date, or at any time thereafter, provided the Tenant gives the Landlord 120 days prior written notice;
WHEREAS, the Tenant shall have the right to renew the Lease for a period of five years at an annual rental of $1,707,616.00 ($21.50 per square foot) upon no less than twelve (12) months prior written notice to the Landlord, or by December 31, 2010;
WHEREAS, the Landlord shall, prior to the Substantial Completion Date (defined in the Lease), prepare final architectural plans and engineering plans and make alterations and improvements in accordance with a scope of work prepared by the Human Resources Administration and approved by the DCAS Division of Real Estate Services, which is attached to the Lease;
WHEREAS, the Landlord shall provide heat, air-conditioning, hot and cold water and elevator services during normal business hours 8:00 a.m. to 6:00 p.m. on Monday through Friday inclusive, holidays excepted, and access and elevator service twenty-four (24) hours per day, seven (7) days per week;
WHEREAS, tenant shall make ordinary, nonstructural interior repairs it deems necessary for its occupancy. The Tenant shall provide its own cleaning and rubbish removal services;
WHEREAS, the Landlord shall pay real estate taxes, assessments, water rates and sewer rents;
WHEREAS, the Tenant shall reimburse the Landlord, or receive credit, for Tenant’s proportionate share (32%) of any increase, or decrease, in real estate taxesover the real estate taxes for the base fiscal year 1995/96;
WHEREAS, the Tenant shall reimburse the Landlord for its proportionate share (32%) of the adjusted amount of the Landlord’s operating expenses above the operating expenses for the base calendar year 1995 (the “Base”). The amount of the adjustment shall be determined by multiplying the Base by the operating expense percent of change in the Consumer Price Index;
WHEREAS, unless caused by the Tenant’s negligence or acts, the Landlord shall make interior, exterior, and structural repairs, including but not limited to maintenance, repair and replacement to the roof, sidewalks, windows and window glass, elevators, plumbing, electrical, heating, ventilation and air-conditioning equipment;
WHEREAS, the Landlord shall paint the Demised Premises completely within sixty (60) days of the execution of this lease and again when requested by the Tenant after the fifth and tenth anniversaries of the lease term. In the event the renewal option is exercised by the City of New York, Landlord shall paint the Demised Premises in the sixteenth year of the Lease;
WHEREAS, the Tenant shall pay for its own electricity directly to the public utility company. The Landlord shall, at its sole cost and expense, provide the meter and any necessary wiring;
WHEREAS, the Citywide Office of Safety and Health has inspected the site and determined that there is no asbestos containing material (“ACM”) within the Demised Premises. In the event that a subsequent inspection (“Inspection”) reveals the presence of ACM, Landlord shall, at its sole cost and expense, cause an abatement of deteriorated ACM in the Demised Premises and portions of the Building through which Tenant has access or which may affect the Demised Premises. If the abatement requires Tenant to vacate any portion of the Demised Premises, then the rent shall be abated for the portion of the space that becomes untenantable during the asbestos removal;
( 2 ) |
WHEREAS , there is no City-owned property or space in buildings under lease or license to the City that can be utilized to provide the space required by this Agency and the rent is fair and reasonable;
WHEREAS, the Office of Management and Budget has notified the Department of Citywide Administrative Services that funds for the rental of these premises will be provided when needed;
WHEREAS, as certified below, a duly noticed Special Real Property Public Hearing in the matter of a lease pursuant to Section 1602 of the City Charter, was held and closed by the Mayor on July 1, 1997, (Cal. No. 1). At such hearing no testimony was offered;
WHEREAS, the Hearing was closed without amendment;
WHEREAS, the lease has been executed by the Landlord;
CERTIFICATION by the Mayor's Office of Contracts/ Public Hearing Unit of the actions at and final disposition of the Special Real Property Public Hearing held on July 1, 1997, (Cal. No. 1);
Jacqueline Galory | Hearing Secretary | July 2, 1997 | ||
Name | Title | Date |
NOW, after due consideration, the Mayor hereby authorizes the Department of Citywide Administrative Services, Division of Real Estate Services, to lease the property described herein in accordance with the terms of the lease described in the Calendar of Special Public Hearings on Real Property Acquisition and Disposition dated July 1, 1997, (Cal. No. 1). The relevant portions of the Calendar are annexed hereto.
Date: | 7/2/97 | /s/ Beth A. Kaswan | |
Beth A. Kaswan, Director | |||
Mayor's Office of Contracts |
( 3 ) |
EXHIBIT “A”
FLOOR PLANS
56 |
EXHIBIT A
Exhibit 10.52
EXECUTION VERSION
LIMITED PARTNERSHIP AGREEMENT
OF
CLIPPER REALTY L.P.
Dated as of: August 3, 2015
THE SECURITIES REFERENCED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE PARTNERSHIP, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.
Table of Contents
Page | |
ARTICLE I | |
DEFINED TERMS | |
Section 1.1 Definitions | 1 |
“704(c) Value” | 1 |
“Act” | 1 |
“Additional Limited Partner” | 1 |
“Adjusted Capital Account” | 1 |
“Adjusted Capital Account Deficit” | 2 |
“Adjusted Property” | 2 |
“Adjustment Factor” | 2 |
“Affiliate” | 3 |
“Agreed Value” | 3 |
“Agreement” | 3 |
“Articles of Incorporation” | 4 |
“Assignee” | 4 |
“Bankruptcy” | 4 |
“Book-Up Target” | 4 |
“Book-Tax Disparities” | 4 |
“Business Day” | 5 |
“Capital Account” | 5 |
“Capital Contribution” | 5 |
“Carrying Value” | 5 |
“Cash Amount” | 5 |
“Certificate” | 5 |
“Closing Price” | 5 |
“Code” | 6 |
“Common Share” | 6 |
“Consent” | 6 |
“Contributed Property” | 6 |
“Convertible Funding Debt” | 6 |
“Current Per Share Market Price” | 6 |
“Debt” | 6 |
“Deemed Partnership Unit Value” | 7 |
“Depreciation” | 7 |
“Economic Capital Account Balance” | 7 |
“EDGAR” | 7 |
“ERISA” | 7 |
“Exchange Act” | 7 |
“Final Adjustment” | 8 |
“Funding Debt” | 8 |
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“GAAP” | 8 |
“General Partner” | 8 |
“General Partner Payment” | 8 |
“General Partnership Interest” | 8 |
“Holder” | 8 |
“Incapacity” | 8 |
“Indemnified Party” | 8 |
“IRS” | 8 |
“Limited Partner” | 9 |
“Limited Partnership Interest” | 9 |
“Liquidating Event” | 9 |
“Liquidating Gains” | 9 |
“Liquidating Losses” | 9 |
“Liquidator” | 9 |
“LTIP Unit” | 9 |
“LTIP Unit Initial Sharing Percentage” | 9 |
“LTIP Unitholder” | 9 |
“Majority in Interest” | 9 |
“Net Income” | 10 |
“Net Loss” | 10 |
“New Securities” | 10 |
“Nonrecourse Built-in Gain” | 10 |
“Nonrecourse Deductions” | 10 |
“Nonrecourse Liability” | 10 |
“Notice of Redemption” | 10 |
“OP Unit” | 10 |
“OP Unit Economic Balance” | 10 |
“Ownership Limit” | 11 |
“Partner” | 11 |
“Partner Minimum Gain” | 11 |
“Partner Nonrecourse Debt” | 11 |
“Partner Nonrecourse Deductions” | 11 |
“Partnership” | 11 |
“Partnership Interest” | 11 |
“Partnership Minimum Gain” | 11 |
“Partnership Record Date” | 11 |
“Partnership Unit” | 12 |
“Partnership Year” | 12 |
“Percentage Interest” | 12 |
“Person” | 12 |
“Preferred Unit” | 12 |
“Publicly Traded” | 12 |
“Recapture Income” | 12 |
“Redeeming Partner” | 12 |
“Redemption Right” | 13 |
“Regulations” | 13 |
- ii -
“REIT” | 13 |
“REIT Expenses” | 13 |
“REIT Requirements” | 13 |
“Residual Gain” or “Residual Loss” | 13 |
“Safe Harbors” | 13 |
“SEC” | 14 |
“Securities Act” | 14 |
“Share” | 14 |
“Shares Amount” | 14 |
“Specified Redemption Date” | 14 |
“Subsidiary” | 14 |
“Substituted Limited Partner” | 14 |
“Successor Entity” | 15 |
“Terminating Capital Transaction” | 15 |
“Termination Transaction” | 15 |
“Unrealized Gain” | 15 |
“Unrealized Loss” | 15 |
“Unvested LTIP Unit” | 15 |
“Value” | 15 |
“Vested LTIP Unit” | 15 |
“Vesting Agreement” | 16 |
ARTICLE II | ||
ORGANIZATIONAL MATTERS | ||
Section 2.1 | Organization | 16 |
Section 2.2 | Name | 16 |
Section 2.3 | Registered Office and Agent; Principal Office | 16 |
Section 2.4 | Power of Attorney | 16 |
Section 2.5 | Term | 18 |
Section 2.6 | Admission of Limited Partners | 18 |
ARTICLE III | ||
PURPOSE | ||
Section 3.1 | Purpose and Business | 18 |
Section 3.2 | Powers | 19 |
Section 3.3 | Representations and Warranties by the Partners | 19 |
Section 3.4 | Partnership Only for Purposes Specified | 22 |
ARTICLE IV | ||
CAPITAL CONTRIBUTIONS AND ISSUANCES | ||
OF PARTNERSHIP INTERESTS | ||
Section 4.1 | Capital Contributions of the Partners | 22 |
Section 4.2 | Issuances of Partnership Interests. | 23 |
Section 4.3 | Contribution of Proceeds of Issuance of Securities by the General Partner | 26 |
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Section 4.4 | No Preemptive Rights | 26 |
Section 4.5 | Other Contribution Provisions | 26 |
Section 4.6 | No Interest on Capital | 26 |
ARTICLE V | ||
DISTRIBUTIONS | ||
Section 5.1 | Requirement and Characterization of Distributions | 27 |
Section 5.2 | Amounts Withheld | 27 |
Section 5.3 | Distributions Upon Liquidation | 27 |
Section 5.4 | Restricted Distributions | 27 |
Section 5.5 | Revisions to Reflect Issuance of Additional Partnership Interests | 28 |
Section 5.6 | Distributions in Kind | 28 |
ARTICLE VI | ||
ALLOCATIONS | ||
Section 6.1 | Allocations For Capital Account Purposes | 28 |
Section 6.2 | Revisions to Allocations to Reflect Issuance of Additional Partnership Interests | 31 |
ARTICLE VII | ||
MANAGEMENT AND OPERATIONS OF BUSINESS | ||
Section 7.1 | Management | 31 |
Section 7.2 | Amendment of Agreement and Certificate of Limited Partnership. | 37 |
Section 7.3 | Restrictions on General Partner Authority | 37 |
Section 7.4 | Reimbursement of the General Partner | 39 |
Section 7.5 | Outside Activities of the General Partner | 40 |
Section 7.6 | Transactions with Affiliates | 41 |
Section 7.7 | Indemnification | 42 |
Section 7.8 | Liability of the General Partner. | 44 |
Section 7.9 | Other Matters Concerning the General Partner | 45 |
Section 7.10 | Title to Partnership Assets | 46 |
Section 7.11 | Reliance by Third Parties | 46 |
Section 7.12 | Loans by Third Parties | 46 |
ARTICLE VIII | ||
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS | ||
Section 8.1 | Limitation of Liability | 47 |
Section 8.2 | Management of Business | 47 |
Section 8.3 | Return of Capital | 47 |
Section 8.4 | Rights of Limited Partners Relating to the Partnership | 47 |
Section 8.5 | Redemption Right | 49 |
Section 8.6 | Duties and Conflicts | 51 |
Section 8.7 | Bankruptcy of a Limited Partner | 52 |
Section 8.8 | Right of Offset | 52 |
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ARTICLE IX | ||
BOOKS, RECORDS, ACCOUNTING AND REPORTS | ||
Section 9.1 | Records and Accounting | 53 |
Section 9.2 | Fiscal Year | 53 |
Section 9.3 | Reports | 53 |
ARTICLE X | ||
TAX MATTERS | ||
Section 10.1 | Preparation of Tax Returns | 54 |
Section 10.2 | Tax Elections | 55 |
Section 10.3 | Tax Matters Partner | 55 |
Section 10.4 | Organizational Expenses | 57 |
Section 10.5 | Withholding | 57 |
ARTICLE XI | ||
TRANSFERS AND WITHDRAWALS | ||
Section 11.1 | Transfer | 58 |
Section 11.2 | Transfers of Partnership Interests of General Partner | 58 |
Section 11.3 | Limited Partners’ Rights to Transfer | 60 |
Section 11.4 | Substituted Limited Partners | 61 |
Section 11.5 | Assignees | 62 |
Section 11.6 | General Provisions | 62 |
ARTICLE XII | ||
ADMISSION OF PARTNERS | ||
Section 12.1 | Admission of Successor General Partner | 64 |
Section 12.2 | Admission of Additional Limited Partners | 65 |
ARTICLE XIII | ||
DISSOLUTION AND LIQUIDATION | ||
Section 13.1 | Dissolution | 65 |
Section 13.2 | Winding Up | 66 |
Section 13.3 | No Obligation to Restore Deficit. | 68 |
Section 13.4 | Deemed Distribution and Recontribution | 68 |
Section 13.5 | Rights of Limited Partners | 68 |
Section 13.6 | Notice of Dissolution | 68 |
Section 13.7 | Termination of Partnership and Cancellation of Certificate of Limited Partnership | 69 |
Section 13.8 | Reasonable Time for Winding Up | 69 |
Section 13.9 | Waiver of Partition | 69 |
Section 13.10 | Liability of Liquidator | 69 |
Section 13.11 | Documentation of Liquidation | 69 |
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ARTICLE XIV | ||
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS | ||
Section 14.1 | Amendments | 69 |
Section 14.2 | Meetings of the Partners | 72 |
ARTICLE XV | ||
GENERAL PROVISIONS | ||
Section 15.1 | Addresses and Notice | 73 |
Section 15.2 | Titles and Captions | 73 |
Section 15.3 | Pronouns and Plurals | 73 |
Section 15.4 | Further Action | 73 |
Section 15.5 | Binding Effect | 73 |
Section 15.6 | Creditors; Other Third Parties | 74 |
Section 15.7 | Waiver | 74 |
Section 15.8 | Counterparts | 74 |
Section 15.9 | Applicable law; Consent To Jurisdiction; Jury Trial | 75 |
Section 15.10 | Invalidity of Provisions | 75 |
Section 15.11 | Entire Agreement | 75 |
Section 15.12 | No Rights as Shareholders | 76 |
Section 15.13 | Limitation to Preserve REIT Status | 76 |
Section 15.14 | Investment Representations. | 77 |
Section 15.15 | Trust Provision | 77 |
Section 15.16 | Partners Not Agents | 77 |
- vi -
EXHIBIT A
PARTNERS AND
PARTNERSHIP INTERESTS
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C
SPECIAL ALLOCATION RULES
EXHIBIT D
NOTICE OF REDEMPTION
EXHIBIT E
DESIGNATION OF THE PREFERENCES, CONVERSION
AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DISTRIBUTIONS, QUALIFICATIONS AND TERMS
AND CONDITIONS OF REDEMPTION OF THE LTIP UNITS
LIMITED PARTNERSHIP AGREEMENT
OF
CLIPPER REALTY L.P.
THIS LIMITED PARTNERSHIP AGREEMENT OF Clipper Realty L.P. (this “ Agreement ”), dated as of August 3, 2015, is entered into by and among Clipper Realty Inc., a Maryland corporation (the “ General Partner ”), as the general partner of the Partnership, and the General Partner on behalf of and as attorney-in-fact for each of the persons identified on Exhibit A hereof as a Limited Partner in the Partnership, together with any other Persons who become Partners in the Partnership as provided herein.
In consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE
I
DEFINED TERMS
Section 1.1 Definitions .
Each of the following terms shall have the meaning set forth below:
“ 704(c) Value ” of any Contributed Property means the fair market value of such property or other consideration at the time of contribution, as determined by the General Partner using such reasonable method of valuation as it may adopt. The General Partner shall, in its sole and absolute discretion, use such method as it deems reasonable and appropriate to allocate the aggregate of the 704(c) Values of Contributed Properties contributed in a single or integrated transaction among such properties.
“ Act ” means the Delaware Revised Uniform Limited Partnership Act, 6 Del . C. §17-101, et seq ., as the same may hereafter be amended from time to time, and any successor thereto.
“ Additional Limited Partner ” means a Person who is admitted to the Partnership as a Limited Partner pursuant to Section 12.2 hereof and shown as such on the books and records of the Partnership.
“ Adjusted Capital Account ” means, with respect to a Partner, the Capital Account maintained for such Partner as of the end of each Partnership Year (i) increased by any amounts which such Partner is obligated to restore to the Partnership pursuant to any provision of this Agreement or is treated as obligated to restore to the Partnership pursuant to the provisions of Section 1.704-1(b)(2)(ii)(c) of the Regulations or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
- 1 - |
“ Adjusted Capital Account Deficit ” means, with respect to a Partner, the deficit balance, if any, in such Partner’s Adjusted Capital Account as of the end of the relevant Partnership Year.
“ Adjusted Property ” means any property or other asset the Carrying Value of which has been adjusted pursuant to Exhibit B hereof.
“ Adjustment Factor ” means 1.0; provided , however , that in the event that:
(i) the General Partner (a) declares or pays a dividend on the outstanding Common Shares wholly or partly in Common Shares or makes a distribution to all holders of the outstanding Common Shares wholly or partly in Common Shares, (b) splits or subdivides the outstanding Common Shares or (c) effects a reverse stock split or otherwise combines the outstanding Common Shares into a smaller number of Common Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of Common Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (ii) the denominator of which shall be the actual number of Common Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination;
(ii) the General Partner distributes any rights, options or warrants to all holders of Common Shares to subscribe for or to purchase or to otherwise acquire Common Shares (or other securities or rights convertible into, exchangeable for or exercisable for Common Shares) at a price per share less than the Value of a Common Share on the record date for such distribution (each a “ Distributed Right ”), then, as of the distribution date of such Distributed Rights, or, if later, the time such Distributed Rights become exercisable, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction (a) the numerator of which shall be the number of Common Shares issued and outstanding on the record date (or, if later, the date such Distributed Rights become exercisable) plus the maximum number of Common Shares purchasable under such Distributed Rights and (b) the denominator of which shall be the number of Common Shares issued and outstanding on the record date (or, if later, the date such Distributed Rights become exercisable) plus a fraction (1) the numerator of which is the maximum number of Common Shares purchasable under such Distributed Rights times the minimum purchase price per Common Share under such Distributed Rights and (2) the denominator of which is the Value of a Common Share as of the record date (or, if later, the date such Distributed Rights become exercisable);provided, however, that if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution of the Distributed Rights, to reflect a reduced maximum number of Common Shares or any change in the minimum purchase price for the purposes of the above fraction;
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(iii) the General Partner shall, by dividend or otherwise, distribute to all holders of Common Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (i) above, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business on the date fixed for determination of stockholders of the General Partner entitled to receive such distribution by a fraction (i) the numerator of which shall be such Value of a Common Share on the date fixed for such determination and (ii) the denominator of which shall be the Value of a Common Share on the dates fixed for such determination less the then fair market value (as determined by the General Partner, whose determination shall be conclusive) of the portion of the evidences of indebtedness or assets so distributed applicable to one Common Share; and
(iv) an entity other than the General Partner shall become the General Partner of the Partnership pursuant to any merger, consolidation or combination of the General Partner with or into another entity (the “ Successor Entity ”), the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor by the number of shares of the Successor Entity into which one Common Share is converted pursuant to such merger, consolidation or combination, determined as of the date of such merger, consolidation or combination.
Any adjustments to the Adjustment Factor shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event. Notwithstanding the foregoing, the Adjustment Factor shall not be adjusted in connection with an event described in clauses (i) or (ii) above if, in connection with such event, the Partnership makes a distribution of cash, Partnership Units, Common Shares and/or rights, options or warrants to acquire Partnership Units and/or Common Shares with respect to all applicable Partnership Units or effects a reverse split of, or otherwise combines, the Partnership Units, as applicable, that is comparable as a whole in all material respects with such an event, or in connection with an event described in clause (iv) above, the consideration in Section 11.2.B hereof is paid.
“ Affiliate ” means, with respect to any Person, (a) any Person directly or indirectly controlling or controlled by or under common control with such Person, (b) any director, general partner or trustee of such Person or any Person referred to in clause (a) above. For the purposes of this definition, “control” when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“ Agreed Value ” means (i) in the case of any Contributed Property, the 704(c) Value of such property at the time of its contribution to the Partnership, reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed; and (ii) in the case of any property distributed to a Partner by the Partnership, the Partnership’s Carrying Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Partner upon such distribution or to which such property is subject at the time of distribution as determined under Section 752 of the Code and the Regulations.
“ Agreement ” means this Limited Partnership Agreement, as it may be amended, supplemented or restated from time to time.
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“ Articles of Incorporation ” means the Articles of Incorporation of the General Partner, as filed with the Maryland State Department of Assessments and Taxation, or, if the General Partner is not a Maryland corporation, the equivalent corresponding organizational instrument(s) governing the General Partner, in either case as the same may be amended, supplemented or restated from time to time.
“ Assignee ” means any permitted transferee of a Partnership Unit that has not been admitted by the General Partner as a Substituted Limited Partner and, therefore, is entitled only to the rights set forth in Section 11.5 hereof.
“ Available Cash ” means, with respect to any period for which such calculation is being made, the amount of cash available for distribution by the Partnership as determined by the General Partner in its sole and absolute discretion.
“ Bankruptcy ” with respect to any Person shall be deemed to have occurred when (i) the Person commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against any such Person under any bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) the Person is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Person, (iii) the Person executes and delivers a general assignment for the benefit of the Person’s creditors, (iv) the Person files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Person in any proceeding of the nature described in clause (ii) above, (v) the Person seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Person or for all or any substantial part of the Person’s properties, (vi) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within 120 days after the commencement thereof, (vii) the appointment without the Person’s consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within 90 days of such appointment or (viii) an appointment referred to in clause (vii) above is not vacated within 90 days after the expiration of any such stay.
“ Book-Up Target ” for each LTIP Unit means the lesser of (i) the OP Unit Economic Balance as determined on the date such LTIP Unit was granted and as reduced (not to less than zero) by allocations of Liquidating Gains pursuant to Section 6.1.E(i) and reallocations of Economic Capital Account Balances to such LTIP Unit as a result of a forfeiture of an LTIP Unit, as determined by the General Partner and (ii) the amount required to be allocated to such LTIP Unit for the Economic Capital Account Balance, to the extent attributable to such LTIP Unit, to be equal to the OP Unit Economic Balance. Notwithstanding the foregoing, the Book-Up Target shall be equal to zero (0) for any LTIP Unit for which the Economic Capital Account Balance attributable to such LTIP Unit has, at any time, reached an amount equal to the OP Unit Economic Balance determined as of such time.
“ Book-Tax Disparities ” means, with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date. A Partner’s share of the Partnership’s Book-Tax Disparities in all of its Contributed Property and Adjusted Property will be the difference between such Partner’s Capital Account balance as maintained pursuant to Exhibit B hereof and the hypothetical balance of such Partner’s Capital Account computed as if it had been maintained, with respect to each such Contributed Property or Adjusted Property, strictly in accordance with federal income tax accounting principles.
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“ Business Day ” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York, are authorized or required by law to close.
“ Capital Account ” means, with respect to a Partner, the Capital Account maintained for that Partner pursuant to Exhibit B hereof.
“ Capital Contribution ” means, with respect to a Partner, all cash, cash equivalents and the Agreed Value of Contributed Property the Partner has contributed or is deemed to have contributed to the Partnership pursuant to Section 4.1, Section 4.2 or Section 4.3 hereof.
“ Carrying Value ” means (i) with respect to a Contributed Property or Adjusted Property, the 704(c) Value of such property reduced (but not below zero) by all Depreciation with respect to such Contributed Property or Adjusted Property, as the case may be, charged to the Partners’ Capital Accounts following the contribution of or adjustment with respect to such property; and (ii) with respect to any other Partnership property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with Exhibit B hereof, and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of Partnership properties, as deemed appropriate by the General Partner.
“ Cash Amount ” means with respect to a Redeeming Partner, the amount of cash equal to the product of (a) the Value of a Common Share and (b) such Redeeming Partner’s Shares Amount determined as of the date of receipt by the Partnership of such Redeeming Partner’s Notice of Redemption or, if such date is not a Business Day, the immediately preceding Business Day.
“ Certificate ” means the Certificate of Limited Partnership of the Partnership as filed in the office of the Delaware Secretary of State on July 21, 2015, as amended, restated and supplemented from time to time in accordance with the terms hereof and the Act.
“ Charity ” means an entity described in Section 501(c)(3) of the Code or any trust all the beneficiaries of which are such entities
“ Closing Price ” means, on any date, the last sale price for Common Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Common Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if such Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal National Securities Exchange on which such Common Shares are listed or admitted to trading or, if such Common Shares are not listed or admitted to trading on any National Securities Exchange, the last quoted price, or, if not so quoted, the principal other automated quotation system that may then be in use or, if such Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Common Shares selected by the Board of Directors of the General Partner or, in the event that no trading price is available for such Common Shares, the fair market value of the Common Shares, as determined in good faith by the Board of Directors of General Partner.
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“ Code ” means the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.
“ Common Share ” means a share of common stock of the General Partner, $0.01 par value per share.
“ Consent ” means the consent or approval by a Partner given in accordance with Section 14.2 hereof.
“ Contributed Property ” means each property or other asset (but excluding cash and cash equivalents), in such form as may be permitted by the Act, contributed or deemed contributed to the Partnership. Once the Carrying Value of a Contributed Property is adjusted pursuant to Exhibit B hereof, such property shall no longer constitute a Contributed Property for purposes of Exhibit B but shall thereafter be an Adjusted Property for such purposes.
“ Controlled Entity ” means, as to any Partner, (a) any corporation more than 25% of the outstanding voting stock of which is owned by such Partner and such Partner’s Family Members and Affiliates, (b) any trust, whether or not revocable, of which such Partner and such Partner’s Family Members and Affiliates are the sole initial income beneficiaries, (c) any partnership of which such Partner or such Partner’s Family Members and Affiliates are the managing partners and in which such Partner, such Partner’s Family Members and Affiliates hold partnership interests representing at 25% of such partnership’s capital and profits and (d) any limited liability company of which such Partner or such Partner’s Family Members and Affiliates are the managers and in which such Partner, such Partner’s Family Members and Affiliates hold membership interests representing at least 25% of such limited liability company’s capital and profits.
“ Convertible Funding Debt ” has the meaning set forth in Section 7.5.D hereof.
“ Current Per Share Market Price ” on any date shall mean the average of the Closing Prices for the five consecutive Trading Days ending on such date.
“ Debt ” means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or other assets or services, (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person, (iii) all indebtedness for borrowed money or for the deferred purchase price of property or other assets or services secured by any lien on any property or other assets owned by such Person, to the extent attributable to such Person’s interest in such property or other assets, even though such Person has not assumed or become liable for the payment thereof, and (iv) obligations of such Person incurred in connection with entering into a lease which, in accordance with GAAP, should be capitalized.
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“ Deemed Partnership Unit Value ” as of any date means the Current Per Share Market Price as of the Trading Day immediately preceding such date; provided , however , that Deemed Partnership Unit Value shall be adjusted in a manner consistent with the provisions of the definition of the term “Adjustment Factor” in the event of any stock dividend, stock split, stock distribution or similar transaction to avoid any dilution in the Redemption Rights of any Limited Partner.
“ Depreciation ” means, for each taxable year, an amount equal to the federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year, except that if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided , however , that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero (0), Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the General Partner.
“ Distributed Right ” shall have the meaning set forth in the definition of “Adjustment Factor.”
“ Economic Capital Account Balance ” means, with respect to LTIP Unitholders, their Capital Account balances, plus the amount of their shares of any Partner Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to their ownership of LTIP Units.
“ EDGAR ” means the Electronic Data Gathering, Analysis and Retrieval System or any successor system for filing information, documents or reports with the SEC.
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or Title of ERISA shall be deemed to include a reference to any corresponding provision of future law.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
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“ Family Member ” means, as to a Person that is an individual, such Person’s spouse, ancestors (whether by blood or by adoption or step-ancestors by marriage), descendants (whether by blood or by adoption or step-descendants by marriage), brothers and sisters, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law and descendants (whether by blood or by adoption or step-descendants by marriage) of a brother or sister and any limited liability company or inter vivos or testamentary trusts (whether revocable or irrevocable) of which only such Person, his or her spouse, ancestors (whether by blood or by adoption or step-ancestors by marriage), descendants (whether by blood or by adoption or step-descendants by marriage), brothers and sisters, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law and descendants (whether by blood or by adoption or step-descendants by marriage) of a brother or sister are initial income beneficiaries.
“ Final Adjustment ” shall have the meaning set forth in Section 10.3.B.
“ Funding Debt ” means any Debt incurred by or on behalf of the General Partner for the purpose of providing funds to the Partnership.
“ GAAP ” means U.S. generally accepted accounting principles.
“ General Partner ” means Clipper Realty Inc., a Maryland corporation, or any Person who becomes a successor general partner of the Partnership.
“ General Partner Payment ” has the meaning set forth in Section 15.13 hereof.
“ General Partnership Interest ” means a Partnership Interest held by the General Partner in its capacity as general partner of the Partnership. A General Partnership Interest may be (but is not required to be) expressed as a number of Partnership Units. The Percentage Interest in the Partnership represented by such General Partnership Interest is set forth in Exhibit A hereof, as such Exhibit may be amended and restated from time to time.
“ Holder ” means either (i) a Partner or (ii) an Assignee that owns a Partnership Unit.
“ Incapacity ” or “ Incapacitated ” means, (a) as to any Partner who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her person or his or her estate, (b) as to any Partner that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, or the revocation of the corporation’s charter, (c) as to any Partner that is a partnership, the dissolution and commencement of winding up of the partnership, (d) as to any Partner that is an estate, the distribution by the fiduciary of the estate’s entire interest in the Partnership, (e) as to any trustee of a trust that is a Partner, the termination of the trust (but not the substitution of a new trustee), and (b) the Bankruptcy of such Partner, or (f) as to any Partner, the Bankruptcy of such Partner.
“ Indemnified Party ” means (a) any Person made a party to a proceeding by reason of its status as (i) the General Partner or any successor thereto or (ii) an officer or director, as applicable, of the Partnership, the General Partner or a subsidiary thereof (including by reason of being named a Person who is about to become a director) and (b) such other Persons as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.
“ IRS ” means the United States Internal Revenue Service.
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“ Limited Partner ” means any Person named as a Limited Partner of the Partnership in Exhibit A hereof, as such Exhibit may be amended and restated from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Person’s capacity as a Limited Partner in the Partnership.
“ Limited Partnership Interest ” means a Partnership Interest of a Partner in the Partnership held by that Partner in its capacity as a Limited Partner and representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partnership Interest may be (but is not required to be) expressed as a number of Partnership Units.
“ Liquidating Event ” has the meaning set forth in Section 13.1 hereof.
“ Liquidating Gains ” means any net capital gain realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership, including but not limited to net capital gain realized in connection with an adjustment to the Carrying Value of Partnership assets under Section 1.D of Exhibit B hereof.
“ Liquidating Losses ” means any net capital loss realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership, including but not limited to net capital gain realized in connection with an adjustment to the Carrying Value of Partnership assets under Section 1.D of Exhibit B hereof.
“ Liquidator ” has the meaning set forth in Section 13.2.A hereof.
“ LTIP Unit ” means a Partnership Unit which is designated as an LTIP Unit and which has the rights, preferences and other privileges designated in Exhibit E hereof. The allocation of LTIP Units among the LTIP Unitholders shall be set forth on Exhibit A hereof, as may be amended from time to time.
“ LTIP Unit Initial Sharing Percentage ” means such percentage as is set forth in the vesting agreement or other applicable documentation pursuant to which such LTIP Unit was awarded or, if no such percentage is stated, 100%.
“ LTIP Unitholder ” means a holder of LTIP Units.
“ Majority in Interest ” means Partners who hold more than 50% of the outstanding Partnership Units; provided , however , with respect to any matter to be voted on by the Partners, (A) there also shall be included in the denominator of the computation all (i) Preferred Units of any class, or series thereof, if any, and (ii) any Partnership Units of any other class, or series thereof, if any, in each case that are expressly entitled to vote thereon with the holders of OP Units, as a single class, pursuant to the terms of such Partnership Unit or this Agreement, and (B) there shall be included in the numerator of the computation all Partnership Units of each class or series thereof reflected in the denominator that have been voted in favor of the matter proposed for consideration.
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“ National Securities Exchange ” means an exchange registered with the SEC under Section 6(a) of the Securities Exchange Act of 1934, as amended, or any other exchange (domestic or foreign, and whether or not so registered) designated by the General Partner as a National Securities Exchange.
“ Net Income ” means, for any taxable period, the excess, if any, of the Partnership’s items of income and gain for such taxable period over the Partnership’s items of loss and deduction for such taxable period. The items included in the calculation of Net Income shall be determined in accordance with federal income tax accounting principles, subject to the specific adjustments provided for in Exhibit B hereof. If an item of income, gain, loss or deduction that has been included in the initial computation of Net Income is subjected to the special allocation rules in Exhibit C hereof, Net Income or the resulting Net Loss, whichever the case may be, shall be recomputed without taking such item into account.
“ Net Loss ” means, for any taxable period, the excess, if any, of the Partnership’s items of loss and deduction for such taxable period over the Partnership’s items of income and gain for such taxable period. The items included in the calculation of Net Loss shall be determined in accordance with federal income tax accounting principles, subject to the specific adjustments provided for in Exhibit B hereof. If an item of income, gain, loss or deduction that has been included in the initial computation of Net Loss is subjected to the special allocation rules in Exhibit C hereof, Net Loss or the resulting Net Income, whichever the case may be, shall be recomputed without taking such item into account.
“ New Securities ” means (i) any rights, options, warrants or convertible or exchangeable securities having the right to subscribe for or purchase Shares, excluding grants under any Stock Option Plan, or (ii) any Debt issued by the General Partner that provides any of the rights described in clause (i) above.
“ Nonrecourse Built-in Gain ” has the meaning set forth in Regulations Section 1.752-3(a)(2).
“ Nonrecourse Deductions ” has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c).
“ Nonrecourse Liability ” has the meaning set forth in Regulations Section 1.752-1(a)(2).
“ Notice of Redemption ” means a Notice of Redemption substantially in the form of Exhibit D hereof.
“ OP Unit ” means a Partnership Unit, but does not include any LTIP Unit, Preferred Unit, or any other Partnership Unit specified in a Partnership Unit Designation as being other than an OP Unit.
“ OP Unit Economic Balance ” means (i) the Capital Account balance of the General Partner, plus the amount of the General Partner’s share of any Partner Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to the General Partner’s ownership of OP Units and computed on a hypothetical basis after taking into account all allocations through the date on which any allocation is made under Section 6.1.E, divided by (ii) the number of the General Partner’s OP Units.
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“ Outside Limited Partner ” means a holder of a Limited Partnership Interest that is not the General Partner nor an affiliate of the General Partner.
“ Ownership Limit ” means the restrictions on ownership and transfer of Common Shares imposed under the Articles of Incorporation.
“ Partner ” means the General Partner or a Limited Partner, and “ Partners ” means the General Partner and the Limited Partners collectively.
“ Partner Minimum Gain ” means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
“ Partner Nonrecourse Debt ” has the meaning set forth in Regulations Section 1.704-2(b)(4).
“ Partner Nonrecourse Deductions ” has the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2).
“ Partnership ” means the limited partnership heretofore formed and continued under the Act and pursuant to this Agreement, and any successor thereto.
“ Partnership Interest ” means a Limited Partnership Interest or the General Partnership Interest, as the context requires, and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be (but is not required to be) expressed as a number of Partnership Units. The General Partnership Interest and the Limited Partnership Interests shall have the differences in rights and privileges as specified in this Agreement.
“ Partnership Minimum Gain ” has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Partnership Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d).
“ Partnership Record Date ” means the record date established by the General Partner either (i) for the making of any distribution pursuant to Section 5.1 hereof, which record date shall be the same as the record date established by the General Partner for a distribution to its shareholders of some or all of its portion of such distribution received by the General Partner if the shares of common stock (or comparable equity interests) of the General Partner are Publicly Traded, or (ii) if applicable, for determining the Partners entitled to vote on or consent to any proposed action for which the consent or approval of the Partners is sought pursuant to Section 14.2 hereof.
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“ Partnership Unit ” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to Section 4.1 and Section 4.2 hereof, and includes OP Units, LTIP Units and any other class, or series thereof, of Partnership Units established after the date hereof, including Preferred Units. The number of Partnership Units outstanding and the Percentage Interests in the Partnership represented by such Partnership Units (other than Preferred Units) are set forth in Exhibit A hereof, as such Exhibit may be amended and restated from time to time. The ownership of Partnership Units shall be evidenced by such form of certificate for Partnership Units as the General Partner adopts from time to time unless the General Partner determines that the Partnership Units shall be uncertificated securities.
“ Partnership Unit Designation ” has the meaning set forth in Section 4.2.A.
“ Partnership Year ” means the fiscal year of the Partnership.
“ Percentage Interest ” means, as to a Partner, its interest in the Partnership (other than with respect to any interest in a Preferred Unit) as determined by dividing the total number of OP Units (and LTIP Units, other than to the extent provided in the applicable LTIP Unit designation) owned by such Partner by the total number of OP Units (and LTIP Units, other than to the extent provided in any applicable LTIP Unit designation) then outstanding as specified in Exhibit A hereof, as such exhibit may be amended and restated from time to time.
“ Person ” means any individual, corporation, sole proprietorship, partnership, limited liability company, cooperative, association, trust, joint venture or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
“ Preferred Unit ” means a Partnership Unit of any class or series thereof that (a) by its terms is entitled to a preference over OP Units with respect to the payment of distributions, including distributions upon liquidation or (b) has otherwise been designated by the General Partner as ranking senior in right, with respect to voting, redemption or otherwise, to the rights of OP Units.
“ Publicly Traded ” means listed or admitted to trading on the New York Stock Exchange, NYSE MKT, the NASDAQ Stock Market or another National Securities Exchange or any successor of the foregoing.
“ Recapture Income ” means any gain recognized by the Partnership upon the disposition of any property or asset of the Partnership, which gain is characterized as ordinary income because it represents the recapture of deductions previously taken with respect to such property or asset.
“ Redeemed Unit ” has the meaning set for in Section 8.5.A hereof.
“ Redeeming Partner ” has the meaning set forth in Section 8.5.A hereof.
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“ Redemption Right ” has the meaning set forth in Section 8.5.A hereof.
“ Register ” has the meaning set forth in Section 11.3.F hereof.
“ Regulations ” means the Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
“ REIT ” means a real estate investment trust under Section 856 of the Code.
“ REIT Expenses ” means (i) costs and expenses relating to the continuity of existence of the General Partner (and any Person in which the General Partner owns an equity interest, to the extent not prohibited by Section 7.5.A, other than the Partnership (which Persons shall, for purposes of this definition, be included within the definition of “General Partner” herein)), including taxes, fees and assessments associated therewith (other than federal, state or local income taxes imposed upon the General Partner as a result of its failure to distribute to its shareholders an amount equal to its taxable income), any and all costs, expenses or fees payable to any trustee or director of the General Partner or such other Persons, (ii) costs and expenses relating to any offer or registration of securities by the General Partner (the proceeds of which will be contributed or advanced to the Partnership) and all statements, reports, fees and expenses incidental thereto, including, without limitation, selling commissions and placement fees applicable to any such offer of securities (iii) costs and expenses associated with the preparation and filing of any periodic reports by the General Partner under federal, state or local laws or regulations, including tax returns and filings with the SEC and any stock exchanges on which the Common Shares are listed, (iv) costs and expenses associated with compliance by the General Partner with laws, orders, rules and regulations promulgated by any regulatory body, including the SEC, (v) costs and expenses associated with any 401(k) Plan, incentive plan, bonus plan or other plan providing for compensation for the employees of the General Partner, (vi) all other operating or administrative costs of the General Partner incurred in the ordinary course of its business, and (vii) such other costs and expenses, if any, as are specified by the General Partner in its discretion to be REIT Expenses; provided , however , that any of the foregoing expenses that are determined by the General Partner, in its sole and absolute discretion, to be expenses relating to the ownership and operation of, or for the benefit of, the Partnership shall be treated as reimbursable expenses under Section 7.4.B hereof rather than as “REIT Expenses”.
“ REIT Requirements ” has the meaning set forth in Section 5.1.A hereof.
“ Residual Gain ” or “ Residual Loss ” means any item of gain or loss, as the case may be, of the Partnership recognized for federal income tax purposes resulting from a sale, exchange or other disposition of Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C hereto to eliminate Book-Tax Disparities.
“ Rights ” is defined in the definition of “Shares Amount”.
“ Safe Harbors ” has the meaning set forth in Section 11.6.F hereof.
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“ SEC ” means the U.S. Securities and Exchange Commission.
“ Securities Act ” means the Securities Act of 1933, as amended.
“ Share ” means a share of stock (or other comparable equity interest) of the General Partner. Shares may be issued in one or more classes, or series thereof, in accordance with the terms of the Articles of Incorporation. In the event that the General Partner has outstanding securities of more than one class (or series thereof), the term “Shares” shall, as the context requires, be deemed to refer to the class or series of Shares that correspond to the class or series of Partnership Interests for which the reference to Shares is made. When used with reference to OP Units, the term “Shares” refers to Common Shares.
“ Shares Amount ” means a number of Common Shares equal to the product of (a) the number of Redeemed Units and (b) the Adjustment Factor in effect on the Specified Redemption Date with respect to such Redeemed Units; provided , however, that in the event the General Partner issues to all holders of Common Shares as of a certain record date rights, options, warrants or convertible or exchangeable securities entitling the General Partner’s stockholders to subscribe for or purchase Common Shares, or any other securities or property (collectively, the “ Rights ”), with the record date for such Rights issuance falling within the period starting on the date of the Notice of Redemption and ending on the day immediately preceding the Specified Redemption Date, which Rights will not be distributed before the relevant Specified Redemption Date, then the Shares Amount shall also include such Rights that a holder of that number of Common Shares would be entitled to receive, expressed, where relevant hereunder, in a number of Common Shares determined by the General Partner in good faith.
“ Specified Redemption Date ” means the 10 th Business Day following receipt by the Partnership of a Notice of Redemption; provided, that, if the Common Shares are not Publicly Traded, the Specified Redemption Date means the 30 th Business Day following receipt by the Partnership of a Notice of Redemption.
“ Stock Option Plan ” means any share or stock incentive plan or similar compensation arrangement of the General Partner, the Partnership or any Affiliate of the Partnership or the General Partner, as the context may require.
“ Subsidiary ” means, with respect to any Person, any real estate investment trust, corporation, partnership, limited liability company or other entity (i) of which a majority of (a) the voting power of the voting equity securities, or (b) the outstanding equity interests, is owned, directly or indirectly, by such Person, or (ii) of which (a) 25% of either the voting or power of the voting equity securities or the outstanding equity interests, is owned, directly or indirectly, by such Person and (b) is controlled by such Person. For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the term “controlled” has a meaning correlative to the foregoing.
“ Substituted Limited Partner ” means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4 hereof.
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“ Successor Entity ” has the meaning set forth in the definition of “Adjustment Factor” herein.
“ Terminating Capital Transaction ” means any sale or other disposition of all or substantially all of the assets of the Partnership for cash or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership.
“ Termination Transaction ” has the meaning set forth in Section 11.2.B hereof.
“ Trading Days ” means days on which the primary trading market for Common Shares, if any, is open for trading or, if the Common Shares are not listed or admitted to trading, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
“ Transfer ,” means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary or involuntary or by operation of law; provided, however, that “Transfer” does not include any exchange of Class B Units of limited liability company Subsidiaries (as defined in the limited liability company agreements of such Subsidiaries), pursuant to the exercise of the Redemption Right. The terms “ Transferred ” and “ Transferring ” have correlative meanings.
“ Unrealized Gain ” attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the fair market value of such property (as determined under Exhibit B hereto) as of such date, over (ii) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit B hereof) as of such date.
“ Unrealized Loss ” attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (i) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit B hereof) as of such date, over (ii) the fair market value of such property (as determined under Exhibit B hereof) as of such date.
“ Unvested LTIP Unit ” means all LTIP Units other than Vested LTIP Units.
“ Value ” means, on any date of determination with respect to a Common Share, the average of the daily Market Prices for ten consecutive trading days immediately preceding the date of determination; with respect to an exercise of the Redemption Right, the “date of determination” shall be the date of receipt by the Partnership of a Notice of Redemption or, if such date is not a Business Day, the immediately preceding Business Day. The term “ Market Price ” on any date shall mean, with respect to the Common Shares, the Closing Price for such Common Shares on such date. In the event that the Shares Amount includes Rights that a holder of Common Shares would be entitled to receive, then the Value of such Rights shall be determined by the General Partner, acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.
“ Vested LTIP Unit ” means all LTIP Units that have vested and are no longer subject to forfeiture under the terms of the relevant Vesting Agreement.
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“ Vesting Agreement ” has the meaning set forth in Exhibit E hereof.
ARTICLE
II
ORGANIZATIONAL MATTERS
Section 2.1 Organization .
The Partnership is a limited partnership formed and existing under the Act for the purposes and upon the terms and conditions set forth herein. Except as otherwise expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interests of each Partner shall be personal property for all purposes.
Section 2.2 Name .
The name of the Partnership is “Clipper Realty L.P.” The Partnership’s business may be conducted under any other name(s) selected by the General Partner, including the name of the General Partner or any Affiliate thereof. The words or letters “Limited Partnership,” “LP,” “Ltd.” or similar words or letters shall be included in the Partnership’s name when necessary to comply with the laws of any jurisdiction that so requires. The General Partner has the sole and exclusive right to change the name of the Partnership at any time and from time to time as it determines in discretion.
Section 2.3 Registered Office and Agent; Principal Office .
The address of the Partnership’s registered office in the State of Delaware is c/o United Corporate Services, Inc., 874 Walker Road Suite C, Dover, Delaware 19904. The registered agent for service of process on the Partnership in the State of Delaware at such registered office shall be United Corporate Services, Inc. or such other Person as the General Partner may select in its sole and absolute discretion by notice to the Limited Partners. The principal office of the Partnership shall be Clipper Realty L.P., 4611 12 th Avenue, Brooklyn, New York 11219 or such other place as the General Partner may designate from time to time in its sole and absolute discretion. The Partnership may maintain offices at such other place(s) within or outside the State of Delaware as the General Partner deems advisable in its sole and absolute discretion.
Section 2.4 Power of Attorney .
A. General . Each Limited Partner and each Assignee, upon receipt of its Partnership Interest, irrevocably constitutes and appoints the General Partner, any Liquidator, and, in each case any officers, directors, trustees, employees, attorneys-in-fact and other Persons acting on behalf thereof, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:
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(1) | execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices: (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the General Partner or the Liquidator, or in each case any Person acting on behalf thereof, deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership now conducts, or in the future may conduct, business or own property; (b) all instruments that the General Partner or the Liquidator, or in each case any Person acting on behalf thereof, deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or the Liquidator, or in each case any Person acting on behalf thereof, deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the General Partner or the Liquidator, or in each case any Person acting on behalf thereof, deems appropriate or necessary to reflect the distribution or exchange of assets of the Partnership pursuant to the terms of this Agreement; (e) all instruments relating to the admission, acceptance, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article XI, Article XII or Article XIII hereof or the Capital Contribution of any Partner; and (f) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of a Partnership Interest; and |
(2) | execute, swear to, seal, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, or in each case any Person acting on behalf thereof, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, or in each case any Person acting on behalf thereof, to effectuate the terms or intent of this Agreement. |
Nothing contained herein shall be construed as authorizing the General Partner or any Liquidator, or in each case any Person acting on behalf thereof, to amend this Agreement except in accordance with Article XIV hereof or as may be otherwise expressly provided for herein.
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B. Duration of Power . The foregoing power of attorney is irrevocable and is expressly acknowledged as a special power, coupled with an interest, in recognition of the fact that each of the Limited Partners and Assignees will be relying upon the power of the General Partner, any Liquidator and, in each case any Person acting on behalf thereof, to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partner’s or Assignee’s Partnership Units or other Partnership Interests (as the case may be) and shall extend to such Person’s heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner, any Liquidator and Persons acting on behalf of each, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner, any Liquidator and any Person acting on behalf of either of them, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner, the Liquidator and any Person acting on behalf of either of them, within 15 days after receipt of each request therefor, such further designation, powers of attorney and other instruments as the General Partner, the Liquidator or any Person acting on behalf of either of them (as the case may be), deems necessary or appropriate to effectuate this Agreement and the purposes of the Partnership.
Section 2.5 Term .
The term of the Partnership commenced on July 21, 2015, the date on which the Partnership’s Certificate of Limited Partnership was filed with the Secretary of State of the State of Delaware, and shall continue perpetually, unless the Partnership is dissolved pursuant to Article XIII hereof or as otherwise required by law.
Section 2.6 Admission of Limited Partners .
On the date hereof each of the Persons identified as a Limited Partner of the Partnership on Exhibit A hereof is hereby admitted to the Partnership as a Limited Partner of the Partnership. Additional Persons may be admitted as Limited Partners only in accordance with the terms of this Agreement, specifically including the provisions of Article XII.
ARTICLE
III
PURPOSE
Section 3.1 Purpose and Business .
The purpose and nature of the business to be conducted by the Partnership is (i) to conduct any business that may be lawfully conducted by a limited partnership under the Act; provided , however , that such business shall be limited to and conducted in such a manner as to permit the General Partner at all times to qualify as a REIT, unless the General Partner ceases to qualify as a REIT for reasons other than the conduct of the business of the Partnership or voluntarily revokes its election to be a REIT; (ii) to enter into any partnership, joint venture or other similar arrangement to engage in any of the foregoing or to own interests in any entity engaged, directly or indirectly, in any of the foregoing; and (iii) to do anything necessary, convenient or incidental to the foregoing. The Partners acknowledge that the status of the General Partner as a REIT inures to the benefit of all Partners and not solely to the General Partner.
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Section 3.2 Powers .
The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership, and shall have, without limitation, any and all of the powers that may be exercised on behalf of the Partnership by the General Partner pursuant to this Agreement including, without limitation, directly or through ownership of interests in other entities, to enter into, perform and carry out contracts of any kind, borrow or lend money and issue evidences of indebtedness, whether or not secured by mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and develop real property and interests therein, and lease, exchange, sell, transfer and dispose of real property or interests therein. Without limiting the foregoing, and notwithstanding anything to the contrary in this Agreement or the Act, any decision or act taken or other thing done by the General Partner on behalf of the Partnership, and any decision of the General Partner to refrain from taking any act or doing any other thing on behalf of the Partnership, undertaken by the General Partner on the basis or with the belief that such action or omission is necessary, useful or advisable or appropriate, as determined in the General Partner in its sole and absolute discretion, in order (i) to protect or further the ability of the General Partner to qualify and continue to qualify as a REIT, or (ii) to avoid the General Partner incurring any additional taxes under Section 857 or Section 4981 of the Code, or any related or successor provision of the Code or (iii) to avoid the violation any law, regulation or order of any governmental body or agency having jurisdiction over the General Partner or the Partnership or any securities of any of the foregoing, is expressly authorized by this Agreement, is deemed consented to by all of the Limited Partners, and does not, and will not be construed to, violate any duty of the General Partner to the Partnership or any other Partner.
Section 3.3 Representations and Warranties by the Partners .
A. Each Partner that is a natural person (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or Substituted Limited Partner) represents and warrants to, and covenants with and for the benefit of, each other Partner that (i) such Partner has the legal capacity to enter into this Agreement and perform his or her obligations hereunder, (ii) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby to be performed by such Partner do not and will not conflict with or result in a breach or violation of, or a default under, any agreement or other instrument by which such Partner or any of such Partner’s property is bound, or any statute, regulation, order or other law to which such Partner is subject, (iii) such Partner is a “United States person” within the meaning of Section 7701(a)(30) of the Code, (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms, except as such enforcement may be limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or transfer or other laws of general application affecting the rights and remedies of creditors and/or (b) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law), (v) no authorization, approval, consent or order of any court or governmental authority or agency or any other Person is required in connection with the execution and delivery of this Agreement or the becoming of an Additional Limited Partner or a Substituted Limited Partner, except as may have been received prior to the date of this Agreement (or, if applicable, the later date on which such Additional Limited Partner or Substituted Limited Partner is making this representation).
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B. Each Partner that is not a natural person (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or Substituted Limited Partner) represents and warrants to, and covenants with, each other Partner that (i) its execution and delivery of this Agreement and all transactions contemplated by this Agreement to be performed by such Partner have been duly authorized by all necessary action, including without limitation, that of such Partner’s managing member(s), general partner(s), managers, members, committee(s), trustee(s), beneficiaries, director(s), officer(s) and/or shareholder(s), as the case may be, as required, (ii) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall not conflict with, result in a breach or violation of, or a default under, such Partner’s certificate of limited partnership, partnership agreement, trust agreement, limited liability company operating agreement, declaration of trust, articles of incorporation or bylaws, as the case may be, any agreement or other instrument by which such Partner or any of such Partner’s properties or any of its partners, beneficiaries, trustees or shareholders, as the case may be, is or are bound, or any statute, regulation, order or other law to which such Partner or any of its members, partners, trustees, beneficiaries or shareholders, as the case may be, is or are subject, (iii) such Partner is a “United States person” within the meaning of Section 7701(a)(30) of the Code, (iv) this Agreement is binding upon, and enforceable against, such Partner in accordance with its terms, except as such enforcement may be limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or transfer or other laws of general application affecting the rights and remedies of creditors and (b) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law), and (v) no authorization, approval, consent or order of any court or governmental authority or agency or any other general partnership, limited partnership, limited liability company, limited liability partnership, corporation, joint venture, trust, business trust, cooperative or association is required in connection with the execution and delivery of this Agreement, except as may have been received prior to the date of this Agreement.
C. Each Partner (including, without limitation, each Additional Limited Partner or Substituted Limited Partner, as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner, as applicable) acknowledges, represents, warrants and agrees that it:
(1) | has acquired and continues to hold Partnership Units for its own account for investment purposes only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, at any particular time or under any predetermined circumstances, and will not sell or otherwise dispose of such Partnership Units except pursuant to the exercise of a Redemption Right or otherwise in accordance with this Agreement and in compliance with the registration requirements or exemption provisions of any applicable state securities law; |
(2) | is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and has knowledge and experience in financial and business matters sufficient to evaluate the risks of investment in the Partnership Units; |
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(3) | has a sufficiently high net worth that it is able to bear all risks of the investment in the Partnership Units for an indefinite period of time including the risk of a complete loss of its investment in the Partnership Units, and does not anticipate a need for the funds it has invested in the Partnership in what it understands to be a highly speculative and illiquid investment; and |
(4) | has made its own independent investigation of the Partnership and the business conducted and proposed to be conducted by the Partnership, including consultation with its own counsel and tax adviser, to the extent deemed necessary by it, as to all legal and taxation matters covered by this Agreement, and has not relied on the Partnership for any explanation of the application of the various federal or state securities laws or tax laws with regard to its acquisition of the Partnership Interest. |
D. Each Partner further represents, warrants, covenants and agrees as follows.
(1) | Upon request of the General Partner, it will promptly disclose to the General Partner the amount of Common Shares and other capital shares of the General Partner that it actually or constructively owns; and |
(2) | Without the consent of the General Partner, which may be given or withheld in the General Partner’s sole and absolute discretion, no Partner shall do any act or thing that would cause the Partnership at any time to have more than 100 partners (including as partners those Persons indirectly owning an interest in the Partnership through a partnership, limited liability company, S corporation or grantor trust (such entity, a “ flow through entity ”), but only if substantially all of the value of such person’s interest in the flow through entity is attributable to the flow through entity’s interest (direct or indirect) in the Partnership). |
E. The representations and warranties contained in this Section 3.3 shall survive the execution and delivery of this Agreement by each Partner (and, in the case of an Additional Limited Partner or a Substituted Limited Partner, the admission of such Additional Limited Partner or Substituted Limited Partner as a Limited Partner in the Partnership) and the dissolution, liquidation and termination of the Partnership.
F. Each Partner (including, without limitation, each Additional Limited Partner or Substituted Limited Partner, as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner, as applicable) hereby acknowledges that no representations as to potential profit, cash flows, funds from operations or yield, if any, in respect of the Partnership or the General Partner have been made by any Partner or Affiliate of any Partner or any employee or representative of any Partner or Affiliate of any Partner by virtue of this Agreement or otherwise (unless such representations are set forth in a separate written agreement given by a such Partner or other Person to or for the express benefit of the Partner in connection with the transactions resulting in such Person becoming a Partner), and that projections and any other information, including, without limitation, financial and descriptive information and documentation, which may have been in any manner submitted to such Partner shall not constitute any representation or warranty of any kind or nature, express or implied.
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G. Notwithstanding the foregoing, the General Partner may permit the modification of any of the representations and warranties contained in Section 3.3 hereof as applicable to any Partner (including, without limitation any Additional Limited Partner or Substituted Limited Partner or any transferee of either) provided that such representations and warranties, as modified, shall be set forth in a separate writing addressed to the Partnership and the General Partner.
Section 3.4 Partnership Only for Purposes Specified .
The Partnership is a limited partnership formed pursuant to the Act only for the purposes specified in Section 3.1 hereof, and this Agreement shall not be deemed to create a company, joint venture or partnership between or among the Partners with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Person, in such Person’s capacity as a Partner, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall the Partnership be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations, if any, arising pursuant to and as limited by the terms of this Agreement and the Act.
ARTICLE
IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
Section 4.1 Capital Contributions of the Partners .
A. Capital Contributions . At the time of each Partner’s execution of this Agreement, the Partner shall make or shall have previously made Capital Contributions as set forth for that partner in Exhibit A hereof. The Partners shall own Partnership Units of the class, or series thereof, and in the amount(s) set forth in Exhibit A and shall have a Percentage Interest in the Partnership which shall be set forth in Exhibit A , which Percentage Interest shall be adjusted in Exhibit A from time to time by the General Partner to the extent necessary to reflect accurately exchanges, redemptions, additional Capital Contributions, the issuance of additional Partnership Units (pursuant to any merger or otherwise), or similar events having an effect on any Partner’s Percentage Interest. Except as provided in Section 4.2, Section 7.5 and Section 10.5 hereof, the Limited Partners shall have no obligation or, except with the prior written consent of the General Partner, right to make any additional Capital Contributions or loans to the Partnership. Each Limited Partner that contributes any Contributed Property shall promptly provide the General Partner with any information regarding such Contributed Property that is requested by the General Partner, including for Partnership tax return reporting purposes. Capital Contributions by the General Partner in the form of cash and cash equivalents will be deemed to equal the U.S. Dollar value of the assets contributed by the General Partner plus (i) in the case of cash Capital Contributions funded by an offering of any equity interests in or other securities of the General Partner, the offering costs attributable to such cash Capital Contribution, and (ii) in the case of Partnership Units issued pursuant to Section 7.5.C hereof, an amount equal to the difference between the Value of the Common Shares sold pursuant to any Stock Option Plan and the net proceeds of such sale.
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B. General Partnership Interest . The General Partnership Interest shall be the OP Units held by the General Partner. The General Partner, in its sole and absolute discretion, may deem a number of its OP Units to be the General Partnership Interest and may deem the remainder of its OP Units to be Limited Partnership Interests that shall be held by the General Partner in the capacity of a Limited Partner in the Partnership.
C. Capital Contributions By Merger . To the extent the Partnership acquires any property by the merger of any other Person into the Partnership (or by merger with a subsidiary thereof), Persons who receive Partnership Interests in exchange for their interests in the Person merging into the Partnership (or merging with a subsidiary thereof) shall become Limited Partners and shall be deemed to have made Capital Contributions as provided in the applicable merger agreement and as set forth in Exhibit A hereof, as amended by the General Partner to reflect such deemed Capital Contributions.
Section 4.2 Issuances of Partnership Interests .
A. Issuance of Additional Partnership Units . The General Partner is hereby authorized, without the need for any vote or approval of any Partner or any other Person, to cause the Partnership, at any time or from time to time, to issue to any existing Partner (including the General Partner) or to any other Person (and to admit any such Person as Additional Limited Partner) additional Partnership Interests, in the form of Partnership Units (including, without limitation, OP Units, LTIP Units and Preferred Units), for such consideration and on such terms and conditions as shall be established by the General Partner, in its sole and absolute discretion without the approval of any Limited Partner, in one or more classes, or in one or more series of any of such classes, or otherwise with such designations, preferences, redemption and conversion rights, voting powers, and relative, participating, optional or other special rights, powers and duties, including rights, powers and duties senior to Limited Partnership Interests, all as shall be determined by the General Partner in its sole and absolute discretion subject to the laws of the State of Delaware, including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of such class of Partnership Interests, (ii) the right of each such class or series of such class of Partnership Interests to share in Partnership distributions and (iii) the rights of each such class or series of such class of Partnership Interests upon dissolution and liquidation of the Partnership, and such terms and conditions will be set forth in a written document thereafter attached to and made an exhibit to this Agreement which exhibit shall be an amendment to this Agreement and shall be incorporated herein by reference (each, a “ Partnership Unit Designation ”). Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Units (a) upon the conversion, redemption or exchange of any Debt, Partnership Units or other securities issued by the Partnership, (b) for less than fair market value, (c) for no consideration, (d) in connection with any merger of any other Person into the Partnership (or a subsidiary thereof), or (e) upon the contribution of property or assets to the Partnership. In the event that the Partnership issues Partnership Interests pursuant to this Section 4.2, the General Partner shall make such revisions to this Agreement (including but not limited to the revisions described in Section 5.5, Section 6.2 and Section 8.5 hereof) as it deems necessary to reflect the issuance of such additional Partnership Interests.
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B. Issuances to the General Partner . The General Partner is hereby authorized, without the need for any vote or approval of any Partner or any other Person, to cause the Partnership, at any time or from time to time, to issue to the General Partner additional Partnership Interests, provided that no additional Partnership Interests shall be issued to the General Partner unless: (i)(a) the additional Partnership Interests are issued in connection with an issuance of Common Shares or other securities by the General Partner (including Common Shares issued by the General Partner to satisfy the Partnership’s redemption obligation under Section 8.5 hereof or in connection with the merger of another entity into the General Partner or a subsidiary or affiliate of the General Partner), which securities have designations, preferences and other rights such that the economic interests attributable to such securities are substantially similar to the designations, preferences and other rights (except voting rights) of the additional Partnership Interests issued to the General Partner in accordance with this Section 4.2.B, as determined by the General Partner, and (b) the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the net proceeds or assets acquired, if any, raised in connection with such issuance, (ii) the additional Partnership Interests are issued to all Partners holding Partnership Interests in the same class in proportion to their respective Percentage Interests (or equivalent, in the case of Partnership Units that are not OP Units) in such class, or (iii) the additional Partnership Interests are issued in connection with a contribution of property or other assets to the Partnership by the General Partner. In addition, and for the avoidance of doubt, the General Partner may acquire Partnership Units from other Partners (or Assignees) on such terms as they may determine from time to time.
C. Issuances of Common Shares . The General Partner shall not issue any Common Shares (other than Common Shares issued pursuant to Section 8.5 hereof or pursuant to a dividend or distribution (including any Common Share split)), other equity securities of the General Partner, New Securities or Convertible Funding Debt other than to all holders of Common Shares unless (a) the General Partner shall cause, pursuant to this Section 4.2, the Partnership to issue to the General Partner Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially similar to those of such additional Common Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be; and (b) the General Partner contributes to the Partnership the proceeds, if any, from the issuance of such Common Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be, and, if applicable, from the exercise of rights contained in such Common Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be. Without limiting the foregoing, the General Partner is authorized to issue Common Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be, for less than fair market value, and the General Partner is authorized to cause the Partnership to issue to the General Partner corresponding Partnership Interests, so long as (a) the General Partner concludes in good faith that such issuance is in the interests of the General Partner and the Partnership (for example, and not by way of limitation, the issuance of Common Shares and corresponding Partnership Units pursuant to an employee share purchase plan providing for employee purchases of Common Shares at a discount from fair market value or employee share options that have an exercise price that is less than the fair market value of the Common Shares, either at the time of issuance or at the time of exercise, or in order to comply with the REIT share ownership requirements set forth in Section 856(a)(5) of the Code); and (b) the General Partner contributes all proceeds from such issuance and exercise to the Partnership.
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D. Redemption of Shares . Except as otherwise provided in Section 8.5 and so long as the General Partnership Interest is in the form of Partnership Units, if, at any time, any Common Shares or other equity securities of the General Partner are redeemed or otherwise repurchased (whether by exercise of a put or call, automatically or by means of another arrangement) by the General Partner for cash, the Partnership shall, immediately prior to such redemption or repurchase, redeem or repurchase a number of Partnership Units held by the General Partner equal to the number of Common Shares redeemed or repurchased multiplied by the Adjustment Factor, in the case of Common Shares (or, in the case of other equity securities of the General Partner, an equal number of Partnership Units held by the General Partner with designations, preferences and other rights, terms and provisions that are substantially the same as the designations, preferences and other rights, terms and provisions of such other equity securities upon the same terms and for the same price per Partnership Unit as such Common Shares or other equity securities of the General Partner are redeemed). If, at any time, any Common Shares are redeemed or otherwise repurchased by the General Partner and the General Partnership Interest is not in the form of Partnership Units, the Partnership shall, immediately prior to such redemption or repurchase, redeem or repurchase a portion of the General Partnership Interest held by the General Partner equal to the product of (i) the Common Shares so redeemed or repurchased, multiplied by (ii) the same price as such Common Shares are redeemed or repurchased.
E. Classes of Partnership Units . From and after the date of this Agreement, until such time as additional classes or series of Partnership Units are created pursuant to this Section 4.2, the Partnership Interests are classified as OP Units and LTIP Units. In accordance with this Section 4.2, the General Partner may, in its sole and absolute discretion, issue to newly admitted Partners Partnership Units of any other class or series thereof established by the Partnership in accordance with this Section 4.2 in exchange for the contribution by such Partners of cash, cash equivalents, real estate partnership interests, stock, notes or any other assets or consideration; provided that any Partnership Unit that is not specifically designated by the General Partner as being of a particular class shall be deemed to be an OP Unit unless the context clearly requires otherwise.
F. Issuance of LTIP Units . The Partnership shall be authorized to issue Partnership Units of a class designated as “LTIP Units.” From time to time the General Partner may, in its sole and absolute discretion, issue LTIP Units to Persons providing services to or for the benefit of the Partnership. LTIP Units are intended to qualify as profits interests in the Partnership and, for the avoidance of doubt, the provisions of Section 4.5 shall not apply to the issuance of LTIP Units. LTIP Units shall have the terms set forth in Exhibit E hereof.
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Section 4.3 Contribution of Proceeds of Issuance of Securities by the General Partner .
In connection with any primary offering by the General Partner of its Common Shares and any other issuance of Common Shares, other equity securities of the General Partner, New Securities or Convertible Funding Debt pursuant to Section 4.2 hereof, the General Partner shall contribute to the Partnership any proceeds (or a portion thereof) raised in connection with such issuance. Such contributions shall, in each case, be made in exchange for Partnership Interests or rights, options, warrants or convertible or exchangeable securities of the Partnership having designations, preferences and other rights, all such that the economic interests are substantially similar to those of the Common Shares, other equity securities of the General Partner, New Securities or Convertible Funding Debt contributed to the Partnership; provided , however , that in each case, if the proceeds actually received by the General Partner (also referred to herein as “net proceeds”) are less than the gross proceeds of such issuance as a result of any underwriter’s discount, commission or fees or other expenses paid or incurred in connection with such issuance, then the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount equal to the sum of the net proceeds of such issuance plus the amount of such underwriter’s discount, commission, fees and other expenses paid by the General Partner (which discount and expense shall be treated as an expense for the benefit of the Partnership in accordance with Section 7.4 hereof). In the case of employee purchases of New Securities at a discount from fair market value, the amount of such discount representing compensation to the employee, as determined by the General Partner, shall be treated as an expense of the issuance of such New Securities. All transfer, stamp or similar taxes payable upon any contribution provided for in this Section 4.3 shall be paid by the Partnership.
Section 4.4 No Preemptive Rights .
Except as expressly granted by the General Partner (on behalf of the Partnership) pursuant to other written agreements, if any, entered into from time to time in the General Partner’s sole and absolute discretion, no Person shall have any preemptive, preferential, participation or other similar right with respect to (i) additional Capital Contributions or loans to the Partnership, or to (ii) subscribe for or acquire any Partnership Interest.
Section 4.5 Other Contribution Provisions .
In the event that any Partner is admitted to the Partnership and is given a Capital Account in exchange for services rendered to the Partnership, such transaction shall be treated by the Partnership and the affected Partner as if the Partnership had compensated such Partner in cash for the fair market value of such services, and the Partner had contributed such cash to the capital of the Partnership.
Section 4.6 No Interest on Capital .
No Partner shall be entitled to, or receive, interest on its Capital Contributions or its Capital Account.
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ARTICLE
V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions .
Subject to the terms of any Partnership Unit Designation, the General Partner may cause the Partnership to distribute at least quarterly all, or such portion as the General Partner may in its sole and absolute discretion determine, of Available Cash generated by the Partnership during such quarter to the Holders of Partnership Interests on such Partnership Record Date with respect to such quarter (1) to the General Partner in the amount of the General Partner’s REIT Expenses (which the General Partner will use to pay such REIT Expenses), (2) thereafter to holders of Preferred Units in accordance with the rights of such Preferred Units, if any, in accordance with the relative priorities and other terms thereof, and (3) thereafter to the holders of OP Units and LTIP Units pro rata in accordance with their respective Percentage Interests, taking into account the provisions of Paragraph 2 of Exhibit E hereof. Notwithstanding anything herein to the contrary, in no event may a Partner receive a distribution with respect to a OP Unit for a quarter or shorter period if such Partner is entitled to receive a distribution for such quarter or shorter period with respect to a Common Share for which such OP Unit has been redeemed or exchanged. Unless otherwise expressly provided for herein or in a written agreement at the time a new class or new series of any class of Partnership Interests is created in accordance with Article IV hereof, no Partnership Interest shall be entitled to, or receive, a distribution in preference to any other Partnership Interest. For so long as the General Partner elects to qualify as a REIT, the General Partner shall make such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the qualification of the General Partner as a REIT, to make distributions to the Partners in amounts such that the General Partner will receive amounts sufficient to enable the General Partner to pay shareholder dividends that will (i) satisfy the requirements for qualification as a REIT under the Code and the Regulations (the “ REIT Requirements ”) and (ii) eliminate any federal income or excise tax liability for the General Partner.
Section 5.2 Amounts Withheld .
All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.5 hereof with respect to any allocation, payment or distribution to the Partners or Assignees shall be treated as amounts distributed to the Partners or Assignees pursuant to Section 5.1 hereof for all purposes under this Agreement.
Section 5.3 Distributions Upon Liquidation .
Proceeds from a Terminating Capital Transaction and any other cash received or reductions in reserves made after commencement of the liquidation of the Partnership shall be distributed to the Partners in accordance with Section 13.2 hereof.
Section 5.4 Restricted Distributions .
Notwithstanding anything herein to the contrary, the Partnership, and the General Partner on behalf of the Partnership, shall not make a distribution to any Partner on account of its interest in the Partnership if such distribution would violate the Act or other applicable law.
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Section 5.5 Revisions to Reflect Issuance of Additional Partnership Interests .
If the Partnership issues additional Partnership Interests to the General Partner or any Additional Limited Partner pursuant to Article IV hereof, the General Partner shall make such revisions to this Article V as it deems necessary to reflect the issuance of such additional Partnership Interests.
Section 5.6 Distributions in Kind .
No holder of Partnership Units may demand to receive property other than cash as provided in this Agreement. The General Partner may cause the Partnership to make a distribution in kind of Partnership assets or Partnership Interests to holders of Partnership Units, and such assets or Partnership Interests shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with the terms and conditions of this Agreement.
ARTICLE
VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes .
For purposes of maintaining the Capital Accounts and determining the rights of the Partners among themselves, the Partnership’s items of income, gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be allocated among the Partners in each Partnership Year (or portion thereof) as provided in this Section 6.1.
A. Net Income . After giving effect to the special allocations set forth in Section 1 of Exhibit C attached hereto, Net Income shall be allocated (i) first, to the General Partner to the extent that Net Losses previously allocated to the General Partner pursuant to Section 6.1.B(iii) hereof exceed Net Income previously allocated to the General Partner pursuant to this Section 6.1.A(i); (ii) second, to the holders of Preferred Units to the extent that Net Losses previously allocated to such Limited Partner pursuant to Section 6.1.B(ii) hereof exceed Net Income previously allocated to the Limited Partners pursuant to this Section 6.1.A(ii); (iii) third, to the holders of any Preferred Units in an amount equal to the distributions that such holders of Preferred Units are entitled to pursuant to clause (2) of Section 5.1, in accordance with relative priorities and other terms thereof; and (iv) fourth, to the holders of OP Units and LTIP Units pro rata in accordance with their respective Percentage Interests.
B. Net Losses . After giving effect to the special allocations set forth in Section 1 of Exhibit C hereof, Net Losses shall be allocated (i) first, to holders of OP Units and LTIP Units in proportion to their respective Percentage Interests; provided , however , that Net Losses shall not be allocated to any Limited Partner pursuant to this Section 6.1.B to the extent that such allocation would cause such Limited Partner to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) and shall be allocated to and among the Limited Partners without Adjusted Capital Account Deficits and the General Partner at the end of such taxable year (or portion thereof); (ii) second, to the extent all holders of OP Units and LTIP Units have Adjusted Capital Account Deficits, to the holders of Preferred Units in proportion to the number of Preferred Units held; provided , however , that Net Losses shall not be allocated to any such Limited Partner pursuant to this Section 6.1.B to the extent that such allocation would cause such Limited Partner to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) and shall be allocated to and among the Limited Partners without Adjusted Capital Account Deficits; and (iii) third, to the extent all Limited Partners have Adjusted Capital Account Deficits, Net Losses shall be allocated solely to the General Partner.
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C. Allocation of Nonrecourse Debt . For purposes of Regulations Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among the Partners in accordance with any permissible method determined by the General Partner.
D. Recapture Income . Any gain allocated to the Partners upon the sale or other taxable disposition of any Partnership asset shall, to the extent possible after taking into account other required allocations of gain pursuant to Exhibit C hereof, be characterized as Recapture Income, as required by Regulations Section 1.1245-1(e).
E. Special Allocations with Respect to LTIP Units .
(i) After giving effect to the special allocations set forth in Section 1 of Exhibit C hereof, and notwithstanding the provisions of Sections 6.1.A and Section 6.1.B hereof, but subject to the prior allocation of income and gain under Section 6.1.A(i) and Section 6.1.A(ii) hereof, any remaining Liquidating Gains shall first be allocated to the holders of LTIP Units until the Economic Capital Account Balances of such holders, to the extent attributable to their ownership of LTIP Units, are equal to (a) the OP Unit Economic Balance, multiplied by (b) the number of their LTIP Units; provided that no such Liquidating Gains will be allocated with respect to any particular LTIP Unit unless and to the extent that such Liquidating Gains, when aggregated with other Liquidating Gains realized since the issuance of such LTIP Unit, exceed Liquidating Losses realized since the issuance of such LTIP Unit.
(ii) Liquidating Gain allocated to an LTIP Unitholder under this Section 6.1.E will be attributed to specific LTIP Units of such LTIP Unitholder for purposes of determining (a) allocations under this Section 6.1.E, (b) the effect of the forfeiture or conversion of specific LTIP Units on such LTIP Unitholder’s Economic Capital Account Balance and (c) the ability of such LTIP Unitholder to convert specific LTIP Units into OP Units. Such Liquidating Gain will be attributed to LTIP Units in the following order: (a) first, to Vested LTIP Units held for more than two (2) years, (b) second, to Vested LTIP Units held for two (2) years or less, (c) third, to Unvested LTIP Units that have remaining vesting conditions that only require continued employment or service to the Partnership, the General Partner or an Affiliate of either for a certain period of time (with such Liquidating Gains being attributed in order of vesting from soonest vesting to latest vesting), and (d) fourth, to other Unvested LTIP Units (with such Liquidating Gains being attributed in order of issuance from earliest issued to latest issued). Within each such category, Liquidating Gain will be allocated serially (i.e., entirely to the first unit in the category, then entirely to the next unit in the category, and so on, until a full allocation is made to the last unit in the category) in the order of smallest Book-Up Target to largest Book-Up Target until the Economic Capital Account Balance of such LTIP Unitholder attributable to such LTIP Unitholder’s ownership of each LTIP Unit in the category is equal to the OP Unit Economic Balance; provided , however , that if there is not sufficient Liquidating Gain for the Economic Capital Account Balance of such LTIP Unitholder attributable to such LTIP Unitholder’s ownership of each LTIP Unit to be equal to the OP Unit Economic Balance and the Book-Up Target for any LTIP Unit is less than the amount required to be allocated to the LTIP Unit for the Economic Capital Account Balance attributable to the LTIP Unit to equal the OP Unit Economic Balance, then Liquidating Gains shall be allocated pursuant to the waterfall set forth in the second sentence of this Section 6.1.E(ii) until the Book-Up Target of each such LTIP Unit in each category has been reduced to zero (0) and, thereafter, any remaining Liquidating Gain shall be further allocated pursuant to such waterfall until the Economic Capital Account Balance of an LTIP Unitholder attributable to such LTIP Unitholder’s ownership of each LTIP Unit in the category is equal to the OP Unit Economic Balance.
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(iii) After giving effect to the special allocations set forth in Section 1 of Exhibit C hereof, and notwithstanding the provisions of Section 6.1.A and Section 6.1.B hereof, in the event that, due to distributions with respect to OP Units in which the LTIP Units do not participate or otherwise, the Economic Capital Account Balance of any present or former holder of LTIP Units, to the extent attributable to the holder’s ownership of LTIP Units, exceeds the target balance specified above, the amount of such excess shall be re-allocated to such LTIP Unitholder’s remaining LTIP Units to the same extent and in the same manner as would apply pursuant to Section 6.1.E(iv) hereof in the event of a forfeiture of LTIP Units. To the extent such excess may not be reallocated, any remaining Liquidating Losses shall be allocated to such LTIP Unitholder to the extent necessary to reduce or eliminate the disparity; provided , however , that if Liquidating Losses are insufficient to completely eliminate all such disparities, such losses shall be allocated among the LTIP Unitholders as reasonably determined by the General Partner.
(iv) If an LTIP Unitholder forfeits any LTIP Units to which Liquidating Gain has previously been allocated under this Section 6.1.E, the Capital Account associated with such forfeited LTIP Units will be re-allocated to that LTIP Unitholder’s remaining LTIP Units using a methodology similar to that described in Section 6.1.E(ii) hereof to the extent necessary to cause such LTIP Unitholder’s Economic Capital Account Balance attributable to each LTIP Unit to equal the OP Unit Economic Balance.
(v) In the event that Liquidating Gains or Liquidating Losses are allocated under this Section 6.1.E, Net Income allocable under Section 6.1.A hereof and any Net Losses shall be recomputed without regard to the Liquidating Gains or Liquidating Losses so allocated.
(vi) The parties agree that the intent of this Section 6.1.E is to make the Capital Account balance associated with each LTIP Unit economically equivalent to the Capital Account balance associated with the General Partner’s OP Unit Partnership Interest (on a per unit basis), but only if the Partnership has recognized cumulative net gains with respect to its assets since the issuance of the relevant LTIP Unit.
F. Section 704(c) Allocations . Subject to Exhibit B hereof, the General Partner shall be entitled to use such method as it determines, in its sole and absolute discretion, to allocate the aggregate of the 704(c) Values of Contributed Properties in a single or integrated transaction among the separate properties involved in such transaction.
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G. Allocations to Ensure Intended Results . Recognizing the complexity of the allocations pursuant to this Article VI, the General Partner is authorized to modify these allocations from time to time, in its sole and absolute discretion (including by making allocations of gross items of income, gain, loss or deduction rather than allocations of net items) to ensure that they achieve the intended results, to the extent permitted by Section 704(b) of the Code and the Regulations promulgated thereunder.
Section 6.2 Revisions to Allocations to Reflect Issuance of Additional Partnership Interests .
If the Partnership issues additional Partnership Interests to the General Partner or any Additional Limited Partner pursuant to Article IV hereof (including any preferred Limited Partnership Interest or Limited Partnership Interests with other terms), the General Partner shall make such revisions to this Article VI as it deems necessary in its sole and absolute discretion to reflect the terms of the issuance of such additional Partnership Interests, including making preferential allocations to classes or series of any classes of Partnership Interests that are entitled thereto. Such revisions shall not require the consent or approval of any other Partner.
ARTICLE
VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management .
A. Powers of General Partner . Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Limited Partners with or without cause, except with the consent of the General Partner, which can be withheld in the General Partner’s sole and absolute discretion. In addition to the powers now or hereafter granted to a general partner of a limited partnership under applicable law or that are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to Section 7.3 and Section 7.5.A hereof, shall have full and exclusive power and authority to do all things deemed necessary, desirable or convenient by it in its sole and absolute discretion to conduct the business of the Partnership, to exercise all powers set forth in Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1 hereof, including, without limitation:
(1) | the adding of obligations or surrendering of rights or powers granted to the General Partner or its Affiliates for the benefit of the Limited Partners; |
(2) | the making of any expenditures, the lending or borrowing of money and making payment on loans (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to its Partners in such amounts as will permit the General Partner (as long as the General Partner qualifies as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Section 4981 of the Code or any successor provision) and to make distributions to its shareholders sufficient to permit the General Partner to satisfy the REIT Requirements), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of the same by mortgage, deed of trust or other lien or encumbrance on the Partnership’s assets) and the incurring of any obligations the General Partner deems necessary or desirable in its sole and absolute discretion for the conduct of the activities of the Partnership; |
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(3) | the making of tax, regulatory and other filings or elections, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the Partnership’s business or assets; |
(4) | subject to Section 11.2 hereof, the acquisition, disposition, sale, lease, mortgage, pledge, encumbrance, hypothecation or exchange of any assets of the Partnership (including the exercise or grant of any conversion, option, privilege, or subscription right or other right available in connection with any assets of the Partnership at any time) or the merger or other combination of the Partnership (or a subsidiary thereof) with or into another entity (all of the foregoing subject to any prior approval only to the extent required by Section 7.3 hereof); |
(5) | the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership, the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms that it sees fit, including, without limitation, the financing of the conduct of the operations of the Partnership, the General Partner or any of the Partnership’s or the General Partner’s Subsidiaries, the lending of funds to other Persons (including, without limitation, the Subsidiaries of the Partnership and/or the General Partner) and the repayment of obligations of the Partnership and its Subsidiaries and any other Person in which it has an equity investment, and the making of capital contributions to its Subsidiaries; |
(6) | the management, operation, development, redevelopment, leasing, remodeling, provision of services, repair, alteration, maintenance, demolition, replacement, disposition or improvement of any real property or other asset of the Partnership or any Subsidiary of the Partnership; |
(7) | the negotiation, execution, delivery and performance of any contracts, leases, conveyances or other instruments that the General Partner in its sole and absolute discretion considers useful or necessary or convenient to the conduct of the Partnership’s operations or the implementation of the General Partner’s powers under this Agreement, including, without limitation, contracting with contractors, developers, consultants, government authorities, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnership’s assets; |
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(8) | the distribution of Partnership cash or other Partnership assets in accordance with this Agreement; |
(9) | holding, managing, investing and reinvesting cash and other assets of the Partnership; |
(10) | the collection and receipt of revenues and income of the Partnership; |
(11) | the establishment of one or more divisions of the Partnership, the selection and dismissal of employees of the Partnership (including, without limitation, employees who may be designated as officers with titles such as “president,” “vice president,” “secretary” and “treasurer” of the Partnership), and agents, outside attorneys, accountants, consultants and contractors of the Partnership, and the determination of their compensation and other terms of employment or hiring; |
(12) | the maintenance of insurance (including directors and officers insurance) for any purpose convenient or beneficial to the Partners, the Partnership or any Affiliate thereof as determined in the sole and absolute discretion of the General Partner; |
(13) | the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, limited liability companies, real estate investment trusts, corporations, entities that are treated as REITs, “taxable REIT subsidiaries,” or as foreign corporations for federal income tax purposes, joint ventures or other relationships that it deems desirable in its sole and absolute discretion (including, without limitation, the acquisition of interests in, and the contributions of property or the making of loans to, its Subsidiaries and any other Person in which it has an equity investment from time to time or the incurrence of indebtedness on behalf of such Persons or the guarantee of obligations of such Persons and the making of any tax, regulatory or other filing or election with respect to any of the foregoing Persons); provided , that as long as the General Partner has determined to continue to qualify as a REIT, the Partnership may not engage in any such formation, acquisition or contribution that would cause the General Partner to fail to qualify as a REIT; |
(14) | the control of any matters affecting the rights and obligations of the Partnership or any right or power granted to us or any of our affiliates for the benefit of the limited partners, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment of, any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurrence of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law; |
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(15) | the undertaking of any action in connection with the Partnership’s direct or indirect investment in any Subsidiary or any other Person (including, without limitation, the contribution or loan of funds by the Partnership to such Persons); |
(16) | the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as the General Partner may adopt in its sole and absolute discretion; |
(17) | the enforcement of any rights against any Partner pursuant to representations, warranties, covenants and indemnities relating to such Partner’s contribution of property or assets to the Partnership; |
(18) | the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership; |
(19) | the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person; |
(20) | the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest pursuant to contractual or other arrangements with such Person; |
(21) | the making, execution, delivery and performance of any and all deeds, leases, notes, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreements in writing necessary, appropriate or convenient, in the judgment of the General Partner, for the accomplishment of any of the powers of the General Partner enumerated in this Agreement; |
(22) | the issuance of additional Partnership Units and other partnership interests, as appropriate, in connection with Capital Contributions by Additional Limited Partners and additional Capital Contributions by Partners pursuant to Article IV hereof; |
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(23) | the selection of agents, outside attorneys, accountants, consultants and contractors of the General Partner, the determination of their compensation and other terms of hiring; |
(24) | the distribution of cash to acquire Partnership Units held by a Limited Partner in connection with a Limited Partner’s exercise of its Redemption Right under Section 8.5 hereof; |
(25) | the amendment and restatement of Exhibit A hereof to reflect at all times the Capital Contributions and Percentage Interests of the Partners as the same are adjusted from time to time to the extent necessary to reflect redemptions, Capital Contributions, the issuance of Partnership Units, the admission of any Additional Limited Partner or any Substituted Limited Partner or otherwise, which amendment and restatement, notwithstanding anything in this Agreement to the contrary, shall not be deemed an amendment of this Agreement, as long as the matter or event being reflected in Exhibit A otherwise is authorized by this Agreement; |
(26) | the approval and/or implementation of any merger (including a triangular merger), consolidation or other combination between the Partnership and another Person that is not prohibited under this Agreement, whether with or without Consent; the terms of Section 17-211(g) of the Act shall be applicable such that the General Partner shall have the right to effect any amendment to this Agreement or effect the adoption of a new partnership agreement for a limited partnership if it is the surviving or resulting limited partnership of the merger or consolidation (except as may be expressly prohibited under Section 14.1.C, Section 14.1.D or Section 14.1.F hereof); |
(27) | the taking of any and all action necessary, appropriate or useful to enable the General Partner to qualify as a REIT; and |
(28) | the taking of any and all actions necessary, or desirable in furtherance of, in connection with or incidental to the foregoing. |
Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing contained herein shall be deemed to authorize or require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties or to undertake any individual liability or obligation on behalf of the Partnership.
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Notwithstanding any other provisions of this Agreement or the Act to the contrary, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary, useful or advisable in order (i) to protect or further the ability of the General Partner and any of its Subsidiaries, as applicable, to continue to qualify as a REIT or (ii) to avoid the incurrence by the General Partner or any of its Subsidiaries of any taxes under Section 857 or Section 4981 of the Code, is expressly authorized under this Agreement and is deemed acknowledged and consented to by all of the Limited Partners. Nothing, however, in this Agreement shall be deemed to give rise to any liability on the part of a Limited Partner for any failure by the General Partner or any of its Subsidiaries to qualify or continue to qualify as a REIT or a failure to avoid incurring any taxes under Section 857 or Section 4981 of the Code, unless such failure(s) result from an act of a Limited Partner that constitutes a breach of this Agreement.
B. No Approval by Limited Partners . Each of the Limited Partners agrees that the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of this Agreement (except as provided in Section 7.3 hereof), the Act or any applicable law, rule or regulation, to the full extent permitted under the Act or other applicable law, rule or regulation. The execution, delivery or performance by the General Partner or the Partnership of any agreement authorized or permitted under this Agreement shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity.
C. Insurance . At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the properties of the Partnership, (ii) liability insurance for the Indemnified Parties hereunder and (iii) such other insurance as the General Partner, in its sole and absolute discretion, determines to be necessary.
D. Working Capital and Other Reserves . At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain any and all reserves, working capital amounts and other cash or similar balances in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time, including upon liquidation of the Partnership pursuant to Section 13.2 hereof.
E. No Obligations to Consider Tax Consequences . In exercising its authority under this Agreement, the General Partner may, but shall not be obligated to, take into account the tax consequences to any Partner (including the General Partner) of any action taken (or not taken) by it. None of the General Partner or the Partnership shall have any liability to a Limited Partner under any circumstances as a result of an income tax or other tax liability incurred by such Limited Partner as a result of an action of the General Partner taken (or not taken) pursuant to its authority under this Agreement and in accordance with Section 7.3 hereof.
F. General Partner’s Duties are Contractual . To the maximum extent permitted under the Act, the only duty that the General Partner owes to the Partnership, any Partner or any other Person (including any creditor of any Partner or Assignee of any Partnership Interest) is to perform its contractual obligations as expressly set forth in this Agreement in a manner consistent with the implied contractual covenant of good faith and fair dealing. The General Partner, in its capacity as such, does not and shall not have any other duty, fiduciary or otherwise (and the General Partner expressly disclaims any such other duty, fiduciary or otherwise), to the Partnership, any Partner or any other Person (including any creditor of any Partner or any Assignee of Partnership Interest). The provisions of this Agreement create contractual obligations of the General Partner only, and no such provisions shall be interpreted to create any fiduciary duties of the General Partner.
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Section 7.2 Amendment of Agreement and Certificate of Limited Partnership.
The General Partner has filed the Certificate with the Secretary of State of the State of Delaware as required by the Act. The Partners hereby agree and obligate themselves to use all reasonable efforts to execute, acknowledge, file, record and/or publish, as necessary, such amendments to this Agreement (or the Certificate) as may be required by the terms hereof or by law and such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and any other state, or the District of Columbia, in which the Partnership may elect to do business or own property. To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate or convenient, the General Partner shall file amendments to and restatements of the Certificate and do all of the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, or the District of Columbia, in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.4.A(4) hereof, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto or restatement thereof to any Limited Partner. Following the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment and restatement of Exhibit A hereof) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4 hereof.
Section 7.3 Restrictions on General Partner Authority .
The General Partner may not take any action in contravention of an express prohibition or limitation of this Agreement without the written Consent of (i) all Partners adversely affected thereby or (ii) such lower percentage of the Limited Partnership Interests as may be specifically provided for under a provision of this Agreement or the Act.
Nothing contained herein shall impose any obligation on any Person doing business with the Partnership to inquire as to whether or not the General Partner has properly exercised its authority in executing any contract, lease, mortgage, deed or any other instrument or document on behalf of the Partnership, and any such Person shall be fully protected in relying upon the implied authority of the General Partner in its capacity as such.
Notwithstanding any provision to the contrary, this Agreement shall not be amended, and no action may be taken by the General Partner without the consent of each Partner adversely affected thereby, if such amendment or action would (i) convert a Limited Partnership Interest in the Partnership into a General Partnership Interest (except as a result of the General Partner acquiring such Partnership Interest), (ii) modify the limited liability of a Limited Partner, (iii) alter the rights of any Partner to receive the distributions to which such Partner is entitled pursuant to Article V or Section 13.2 hereof, or alter the allocations specified in Article VI hereof (except, in any case, as permitted pursuant to Section 4.2, Section 7.2, and Article VI hereof), (iv) alter or modify the Redemption Rights, Cash Amount or Shares Amount as set forth in Section 8.5 hereof, or amend or modify any related definitions, (v) alter or modify Section 11.2, and (vi) amend this Section 7.3.
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Notwithstanding the foregoing, the General Partner will have the right, without the consent of the Limited Partners, to amend the Agreement as may be required to facilitate or implement any of the following purposes:
(1) | to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners; |
(2) | to reflect the admission, substitution or withdrawal of Partners or the termination of the Partnership in accordance with this Agreement, and to cause the Partnership to amend its books and records in connection with such admission, substitution or withdrawal; |
(3) | to reflect a change that is of an inconsequential nature or does not adversely affect the Limited Partners as such in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; |
(4) | to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; |
(5) | to set forth or amend the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of the holders of any additional Partnership Units or Partnership Interests issued or established pursuant to this Agreement; |
(6) | (a) to reflect such changes as are reasonably necessary for the General Partner to maintain or restore its qualification as a REIT or to satisfy the REIT Requirements; or (b) to reflect the Transfer of all or any part of a Partnership Interest among the General Partner, and any Qualified REIT Subsidiary or entity that is disregarded as an entity separate from the General Partner for U.S. federal income tax purposes; |
(7) | to modify either or both the manner in which items of Net Income or Net Loss are allocated pursuant to Article VI or the manner in which Capital Accounts are adjusted, computed or maintained (but only to the extent set forth in the definition of “Capital Account” or contemplated by the Code or the Regulations); |
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(8) | to issue additional Partnership Interests in accordance with Section 4.2; and |
(9) | to reflect any other modification to this Agreement as is reasonably necessary for the business or operations of the Partnership or the General Partner and which does not violate the first three paragraphs of this Section 7.03(d). |
Section 7.4 Reimbursement of the General Partner .
A. No Compensation . Except as provided in this Section 7.4 and elsewhere in this Agreement (including the provisions of Articles V and VI hereof regarding distributions, payments, reimbursements, credits and allocations to which it may be entitled), the General Partner shall not be compensated for its services as general partner of the Partnership.
B. Responsibility for Partnership Expenses . The Partnership shall be responsible for and shall pay all costs and expenses relating to the Partnership’s organization and/or reorganization, its ownership of properties and other assets and its administration and operations (including, without limitation, accounting, administrative, legal, technical, management and other services rendered to the Partnership). The General Partner shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole and absolute discretion, for all expenses it incurs relating to the operation of the Partnership and its ownership of an interest therein or otherwise for the benefit of the Partnership, including, without limitation, all expenses associated with compliance by the General Partner with laws, orders, rules and regulations promulgated by any regulatory body, expenses related to the operations of the General Partner and to the management and administration of any Subsidiary of the General Partner or the Partnership or any Affiliate of the Partnership, such as auditing expenses and filing fees and any and all salaries, compensation and expenses of officers and employees of the General Partner; provided that (i) the amount of any such reimbursement shall be reduced by (a) any interest earned by the General Partner with respect to bank accounts or other instruments or accounts held by it as permitted in Section 7.5.A hereof and (b) any amount derived by the General Partner from any investments permitted in Section 7.5.A and (ii) REIT Expenses shall not be treated as Partnership expenses for purposes of this Section 7.4.B. The General Partner shall determine in good faith the amount of expenses incurred by it related to the ownership and operation of, or for the benefit of, the Partnership. If certain expenses are incurred for the benefit of the Partnership and other entities (including the General Partner), such expenses will be allocated to the Partnership and such other entities in such a manner as the General Partner in its sole and absolute discretion deems fair and reasonable. Such reimbursements shall be in addition to any reimbursement to the General Partner pursuant to Section 10.3.C hereof and as a result of indemnification pursuant to Section 7.7 hereof. All payments and reimbursements hereunder shall be characterized for federal income tax purposes as expenses of the Partnership incurred on its behalf, and not as expenses of the General Partner.
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C. Partnership Interest Issuance Expenses . The General Partner shall also be reimbursed for all expenses it incurs relating to any issuance of additional Partnership Interests, Debt of the Partnership or rights, options, warrants or convertible or exchangeable securities pursuant to Article IV hereof (including, without limitation, all costs, expenses, damages and other payments resulting from or arising in connection with litigation related to any of the foregoing), all of which expenses are considered by the Partners to constitute expenses of, and for the benefit of, the Partnership.
D. Purchases of Common Shares by the General Partner . In the event that the General Partner shall elect to purchase from its shareholders Common Shares for the purpose of enabling the General Partner to satisfy any obligation of the General Partner under Section 8.5 hereof or in connection with a share repurchase or similar program or for the purpose of delivering such Common Shares to satisfy an obligation under any distribution reinvestment or share purchase program adopted by the General Partner, any employee share purchase plan adopted by the General Partner or any similar obligation or arrangement undertaken by the General Partner in the future, the purchase price paid by the General Partner for such Common Shares and any other expenses incurred by the General Partner in connection with such purchase shall be considered REIT Expenses and shall be reimbursed to the General Partner, subject to the conditions that: (i) if such Common Shares subsequently are to be sold by the General Partner, the General Partner pays to the Partnership any proceeds received by the General Partner for such Common Shares (which sales proceeds shall include the amount of distributions reinvested under any distribution reinvestment or similar program; provided that a transfer of Common Shares for Partnership Units pursuant to Section 8.5 hereof would not be considered a sale for such purposes); and (ii) if such Common Shares are not retransferred by the General Partner within 30 days after the purchase thereof, the General Partner shall cause the Partnership to cancel a number of Partnership Units of the appropriate class (rounded to the nearest whole Partnership Unit) held by the General Partner equal to the product attained by multiplying the number of such Common Shares by a fraction, the numerator of which is one and the denominator of which is the Adjustment Factor in effect on the date of such cancellation (in which case such reimbursement shall be treated as a distribution in redemption of Partnership Units held by the General Partner).
Section 7.5 Outside Activities of the General Partner .
A. General . The General Partner shall not directly or indirectly enter into or conduct any material business other than in connection with the ownership, acquisition and disposition of Partnership Interests and the management of the business and affairs of the Partnership, and such activities as are incidental thereto. The General Partner and any Affiliate of the General Partner may acquire Limited Partnership Interests and shall be entitled to exercise all rights of a Limited Partner relating to such Limited Partnership Interests.
B. Forfeiture of Shares . In the event the Partnership or the General Partner acquires Common Shares (or other equity securities of the General Partner) as a result of the forfeiture of such Common Shares (or other equity securities) under a restricted or similar share plan, then the General Partner shall cause the Partnership to cancel that number of Partnership Units of the appropriate class or appropriate series of any class equal to the number of Common Shares (or other equity securities) so acquired, and, if the Partnership acquired such Common Shares (or other equity securities), it shall transfer such Common Shares (or other equity securities) to the General Partner for cancellation.
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C. Stock Option Plan of the General Partner . If at any time or from time to time, the General Partner sells Common Shares pursuant to any Stock Option Plan, the General Partner shall transfer the net proceeds of the sale of such Common Shares to the Partnership as an additional Capital Contribution in exchange for an amount of additional Partnership Units equal to the number of Common Shares so sold divided by the Adjustment Factor.
D. Funding Debt . The General Partner may from time to time incur Funding Debt, including, without limitation, Funding Debt that is convertible into Common Shares or otherwise constitutes a class or series of a class of New Securities (“ Convertible Funding Debt ”), subject to the condition that the net proceeds of such Funding Debt are loaned to the Partnership; provided , that Convertible Funding Debt shall be issued pursuant to Section 4.2.C hereof; provided , further , that the General Partner shall not be obligated to lend the net proceeds of any Funding Debt to the Partnership in a manner that would be inconsistent with the General Partner’s ability to remain qualified as a REIT. If the General Partner enters into any Funding Debt, the loan to the Partnership shall be on comparable terms and conditions, including interest rate, repayment schedule and costs and expenses, as are applicable with respect to or incurred in connection with such Funding Debt.
Section 7.6 Transactions with Affiliates .
A. Loans and Contributions . The Partnership may lend or contribute funds or other assets to Persons in which it or the General Partner has an equity investment and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Affiliate or any other Person.
B. Transfers of Assets . The Partnership may transfer assets to joint ventures, other partnerships, limited liability companies, real estate investment trusts, corporations or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner, in its sole and absolute discretion, believes are advisable.
C. Employee Benefit and Stock Option Plans .
(i) The General Partner, in its sole and absolute discretion and without the approval of the Limited Partners, may propose and adopt, on behalf of the Partnership, employee benefit plans, Stock Option Plans, and similar plans funded by the Partnership for the benefit of employees of the General Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership, the General Partner or any Subsidiaries of the Partnership.
(ii) If at any time a stock option granted by the Partnership in connection with a Stock Option Plan is exercised in accordance with its terms, and the Partnership chooses not to acquire any or all of the stock required to satisfy such option through open market purchases, the General Partner shall, as soon as practicable after such exercise, give to the Partnership for use in satisfying such stock option the number of newly issued Common Shares for which such option is exercised (or, if such stock option is to be satisfied in part through open market purchases, the remaining number of newly issued Common Shares needed by the Partnership), and in exchange the Partnership will issue to the General Partner a number of Partnership Units equal to the number of Common Shares so given. Promptly thereafter, the General Partner shall provide the Limited Partners with notice of the number of Partnership Units so issued. The Partnership shall retain the exercise or purchase price paid by the holder of such option for the Common Shares such holder is entitled to receive upon such exercise.
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D. Rights of First Opportunity and Conflict Avoidance Arrangements . The General Partner is authorized to enter into, in the name and on behalf of the Partnership, and without the approval of the Limited Partners, a right of first opportunity arrangement and other conflict avoidance agreement with any Affiliate of the Partnership or the General Partner or any Limited Partner or any other Person, in each case on such terms as the General Partner determines in its sole and absolute discretion.
Section 7.7 Indemnification .
A. The Partnership shall, to the maximum extent permitted by applicable law in effect from time to time, indemnify, and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to each Indemnified Party; provided, however, that the Partnership shall not indemnify an Indemnified Party (1) for material acts or omissions that were committed in bad faith or were the result of active and deliberate dishonesty, (2) for any transaction for which such Indemnified received an improper personal benefit in money, property or services in violation or breach of any provision of this Agreement, or (3) in the case of any criminal proceeding, the Indemnified Party had reasonable cause to believe that the act or omission was unlawful. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnified Party, pursuant to a loan guaranty or otherwise (unless otherwise provided by the terms of any such guaranty or other instrument), for any indebtedness of the Partnership or any subsidiary of the Partnership (including any indebtedness which the Partnership or any subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnified Party having or potentially having liability for any such indebtedness. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnified Party did not meet the requisite standard of conduct set forth in this Section 7.7.A. The termination of any proceeding by conviction of an Indemnified Party or upon a plea of nolo contendere or its equivalent by an Indemnified Party, or an entry of an order of probation against an Indemnified Party prior to judgment, does not create a presumption that such Indemnified Party acted in a manner contrary to that specified in this Section 6.8(a) with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 6.8 shall be made only out of the assets of the Partnership and any insurance proceeds from the liability policy covering the General Partner and any Indemnified Party, and neither the General Partner nor any Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7.
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B. To the fullest extent permitted by law, and without requiring a preliminary determination of the Indemnified Party’s ultimate entitlement to indemnification under Section 7.7.A above, expenses incurred by an Indemnified Party who is a party to a proceeding or otherwise subject to or the focus of or is involved in any proceeding shall be paid or reimbursed by the Partnership as incurred by the Indemnified Party in advance of the final disposition of the proceeding upon receipt by the Partnership of (1) a written affirmation by the Indemnified Party of the Indemnified Party’s good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 7.7.B has been met and (2) a written undertaking by or on behalf of the Indemnified Party to repay the amount if it shall ultimately be determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnified Party or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnified Party who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnified Party unless otherwise provided in a written agreement with such Indemnified Party or in the writing pursuant to which such Indemnified Party is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnified Parties and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.
E. In no event may an Indemnified Party subject any of the Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.
F. An Indemnified Party shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnified Party had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
G. The provisions of this Section 7.7 are for the benefit of the Indemnified Parties, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the obligations of the Partnership or the limitations on the Partnership’s liability to any Indemnified Party under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
H. If and to the extent any payments to the General Partner pursuant to this Section 7.7 constitute gross income to the General Partner (as opposed to the repayment of advances made on behalf of the Partnership) such amounts shall be treated as “guaranteed payments” for the use of capital within the meaning of Code Section 707(c), shall be treated consistently therewith by the Partnership and all Partners, and shall not be treated as distributions for purposes of computing the Partners’ Capital Accounts.
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Section 7.8 Liability of the General Partner.
A. Notwithstanding anything to the contrary set forth in this Agreement, to the maximum extent that Delaware law in effect from time to time permits, none of the General Partner or any of its directors, partners or officers shall be liable or accountable in damages or otherwise to the Partnership, any Partners or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission if the General Partner or such director, partner or officer acted in good faith.
B. The Partners expressly agree that if there is a conflict between the duties owed by the General Partner’s directors and officers to the General Partner and its stockholders and the duties owed by the General Partner, in its capacity as the general partner of the Partnership, to the Partners, the General Partner may fulfill its duties to the Partners by acting in the best interests of the General Partner’s stockholders.
C. Subject to its obligations and duties as General Partner set forth in Section 7.1 hereof, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents (subject to the supervision and control of the Partnership). The General Partnership shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith.
D. To the extent that, at law or in equity, the General Partner has duties (including fiduciary duties) and liabilities relating thereto to the Partnership, its Partners, its Subsidiaries or the members of its Subsidiaries, the General Partner shall not be liable to the Partnership, its Partners, its Subsidiaries or the members of its Subsidiaries for its good faith reliance on the provisions of this Agreement.
E. Notwithstanding anything herein to the contrary, except for fraud, willful misconduct or gross negligence, or pursuant to any express indemnities given to the Partnership by any Partner pursuant to any other written instrument, no Partner shall have any personal liability whatsoever, to the Partnership or to the other Partners, for the debts or liabilities of the Partnership or the Partnership’s obligations hereunder, and the full recourse of the other Partners shall be limited to the interest of such Partners in the Partnership. To the fullest extent permitted by law, no officer, director, partner or stockholder of the General Partner shall be liable to the Partnership for money damages except for (1) active and deliberate dishonesty established by a nonappealable final judgment or (2) actual receipt of an improper benefit or profit in money, property or services.
Without limitation of the foregoing, and except for fraud, willful misconduct or gross negligence, or pursuant to any such express indemnity, no property or assets of any Partner, other than its interest in the Partnership, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Partners and arising out of, or in connection with, this Agreement.
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F. Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnership’s, and its officers’ and directors’, liability to the Partnership and the Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner .
A. Reliance on Documents . The General Partner may rely and shall be protected in acting or not acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties.
B. Reliance on Advisers . The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it (although it shall not, by virtue of this provision, be considered to be under any obligation to do so), and any act taken or not taken in reliance upon the opinion of any such Person as to matters which the General Partner reasonably believes to be within such Person’s professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.
C. Action Through Officers . The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the General Partner hereunder.
D. Actions to Maintain REIT Status or Avoid Taxation of the General Partner . Notwithstanding any other provisions of this Agreement (other than the limitations on the General Partner’s authority set forth in Section 7.3 and Section 7.5 hereof) or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the General Partner to continue to satisfy the REIT Requirements or (ii) to avoid the General Partner incurring any taxes under Section 337(d), Section 857, Section 1374 or Section 4981 of the Code, is authorized under this Agreement and is deemed consented to by all of the Limited Partners.
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Section 7.10 Title to Partnership Assets .
Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partners, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine in its sole and absolute discretion, including any Affiliate of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided , however , that the General Partner shall use its commercially reasonable efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties .
Notwithstanding anything to the contrary in this Agreement (other than the limitations on the General Partner’s authority set forth in Section 7.3 and Section 7.5 hereof), any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without consent or approval of any other Partner or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership, to enter into any contracts on behalf of the Partnership and to take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if the General Partner were the Partnership’s sole party in interest, both legally and beneficially. Each Limited Partner expressly waives any and all defenses or other remedies which may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or thing done or not done by the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership, and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.
Section 7.12 Loans by Third Parties .
The Partnership may incur Debt, or enter into similar credit, guaranty, financing or refinancing arrangements for any purpose (including, without limitation, in connection with any acquisition of property) with any Person in such amount and upon such terms, provisions and conditions as the General Partner determines in its sole and absolute discretion; provided , that the Partnership shall not incur any Debt that is recourse to the General Partner or any stockholder, officer or director of the General Partner unless, and then only to the extent that, the General Partner has expressly agreed. Any Debt incurred, or similar credit, guaranty, financing or refinancing arrangement(s) entered into, by the Partnership, may be convertible in whole or in party into Partnership Units (to be issued in accordance with Section 4.2 hereof), may be unsecured, may be secured by mortgage(s) or deed(s) of trust and/or assignments on or in respect of all or any portion of the assets of the Partnership or any other security made available by the Partnership, may include or be obtained through the public or private placement of debt and/or other instruments, domestic and foreign, may include provision for the option to acquire Partnership Units (to be issued in accordance with Section 4.2), and may include the acquisition of or provision for interest rate swaps, credit enhancers and/or other transactions or items in respect of such Debt incurred, or similar credit, guaranty, financing or refinancing arrangement(s) entered into.
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ARTICLE
VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability .
The Limited Partners shall have no liability under this Agreement except as expressly provided herein, including Section 10.5 hereof, or under the Act.
Section 8.2 Management of Business .
No Limited Partner or Assignee (other than the General Partner, any Affiliate of the General Partner designated by the General Partner for such purpose, or any officer, trustee, director, member, employee, partner or agent of the General Partner, the Partnership or any Affiliate thereof, in their capacity as such) shall take part in the operation, management or control (within the meaning of the Act) of the Partnership or the Partnership’s business, transact any business in the Partnership’s name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any Affiliate of the General Partner, or any officer, trustee, director, member, employee, partner or agent of the General Partner, the Partnership or any Affiliate thereof, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Return of Capital .
Except as provided by law or pursuant to the right of redemption set forth in Section 8.5 hereof, no Limited Partner shall be entitled to withdraw any part of its Capital Account or to demand or receive the return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. Except to the extent provided by Exhibit C hereof or as otherwise expressly provided herein, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee, either as to the return of Capital Contributions or as to profits, losses or distributions.
Section 8.4 Rights of Limited Partners Relating to the Partnership .
A. General . In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.D hereof, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner’s interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand in form and substance satisfactory to the General Partner (which, for avoidance of doubt, may be delivered by the General Partner in electronic form or by posting at a designated location in an electronic forum accessible by the requesting Limited Partner) and at such Limited Partner’s own expense (including such copying and administrative charges as the General Partner may establish from time to time):
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(1) | to obtain a copy of the most recent annual and quarterly reports prepared by the General Partner and distributed to its shareholders, including, if available, annual and quarterly reports filed with the SEC by the General Partner pursuant to the Exchange Act; |
(2) | to obtain a copy of the Partnership’s federal, state and local income tax returns for each Partnership Year; |
(3) | to obtain a current list of the name and last known business, residence or mailing address of each Partner as reflected in the Partnership’s records; |
(4) | to obtain a copy of this Agreement and the Certificate and all amendments thereto and restatements thereof, together with copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto and restatements thereof have been executed; and |
(5) | to obtain true and full information regarding the amount of cash and cash equivalents and a description and statement of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner. |
B. Notice of Adjustment Factor . The Partnership shall notify each Limited Partner, upon request, of the then current Adjustment Factor .
C. Notice of Extraordinary Transaction of the General Partner . The General Partner shall not make any extraordinary distribution of cash or property to its shareholders or effect a merger (including, without limitation, a triangular merger), a sale of all or substantially all of its assets or any other similar extraordinary transaction that requires public disclosure to its shareholders without notifying the Limited Partners of its intention to make such distribution or effect such merger, sale or other extraordinary transaction not later than the time, if any, at which the General Partner is required to provide notice of such transaction to its shareholders. This provision for such notice shall not be deemed (i) to permit any transaction that otherwise is prohibited by this Agreement or requires a Consent of the Limited Partners or (ii) to require a Consent of the Limited Partners to a transaction that does not otherwise require Consent under this Agreement. Each Limited Partner agrees, as a condition to the receipt of the notice pursuant hereto, to keep confidential the information set forth therein until such time as the General Partner has made public disclosure thereof and to use such information during such period of confidentiality solely for purposes of determining whether or not to exercise the Redemption Right; provided , however , that a Limited Partner may disclose such information to its attorney, accountant and/or financial adviser for purposes of obtaining advice with respect to such exercise so long as such attorney, accountant and/or financial adviser agrees to receive and hold such information subject to this confidentiality requirement.
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D. Confidentiality . Notwithstanding any other provision of this Section 8.4, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner reasonably believes to be in the nature of trade secrets or other information, the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or its business; or (ii) the Partnership is required by law or by agreements with an unaffiliated third party to keep confidential.
Section 8.5 Redemption Right .
A. General . Each holder of an OP Units (if other than the General Partner or any of its Subsidiaries) shall have the right (the “ Redemption Right ”), subject to the terms and conditions set forth herein and in any other such agreement, as applicable, to require the Partnership to redeem all or a portion of such OP Units held by such Limited Partner (such OP units being hereafter referred to as “ Redeemed Units ”) for the Cash Amount, unless the terms of such OP Units or a separate agreement entered into between the Partnership and the holder of such OP Units provide that such OP Units are not entitled to the Redemption Right or impose conditions on the exercise of the Redemption Right. The Limited Partner or Assignee who is exercising the Redemption Right (the “ Redeeming Partner ”) shall have any no right, with respect to any OP Units so redeemed, to receive any distributions paid on or after the Specified Redemption Date unless the record date for such distribution was a date prior to the Specified Redemption Date. Any Redemption Right exercise shall be pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the General Partner) by the Redeeming Partner. Once delivered, the Notice of Redemption shall be irrevocable, subject to the redemption of the Redeemed Units by the Partnership or the purchase of such OP Units by the General Partner in accordance with Section 8.5.B hereof. The Assignee of any Limited Partner may exercise the rights of such Limited Partner pursuant to this Section 8.5 in respect of any OP Units assigned to that Assignee, and such Limited Partner shall be deemed to have assigned such rights to such Assignee and shall be bound by the exercise of such rights by such Assignee. In connection with any exercise of such rights by an Assignee on behalf of a Limited Partner, the Cash Amount shall be paid by the Partnership directly to such Assignee and not to such Limited Partner. Any OP Units redeemed by the Partnership pursuant to this Section 8.5.A shall be cancelled upon such redemption.
B. General Partner Assumption of Right . (i) Notwithstanding the provisions of Section 8.5.A hereof, if a holder of an OP Unit has delivered to the Partnership a Notice of Redemption, then the General Partner may, in its sole and absolute discretion (subject to the limitations on ownership and transfer of the Common Shares set forth in the Articles of Incorporation), elect to assume and satisfy the Partnership’s redemption obligation and acquire some or all of the Redeemed Units from the Redeeming Partner in exchange for the Shares Amount (as of the Specified Redemption Date) and, if the General so elects, the Redeeming Partner shall sell the Redeemed Units to the General Partner in exchange for the Shares Amount. In such event, the Redeeming Partner shall have no right to cause the General Partner to redeem such Redeemed Units for the Cash Amount. The General Partner shall give such Redeeming Partner written notice of its election on or before the close of business on the fifth Business Day after the receipt of the Notice of Redemption.
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C. Exchange Right. The Shares Amount, if applicable, shall be delivered as duly authorized, validly issued, fully paid and nonassessable Common Shares and, if applicable, free of any pledge, lien, encumbrance or restriction, other than those provided in the Articles of Incorporation or the bylaws of the General Partner, the Securities Act, relevant state securities or blue sky laws and any applicable registration rights agreement with respect to such Common Shares entered into by the Redeeming Partner. Notwithstanding any delay in such delivery (but subject to Section 8.5.E), the Redeeming Partner shall be deemed the owner of such Common Shares for all purposes, including rights to vote or consent, and receive dividends, as of the Specified Redemption Date. In addition, the Common Shares for which the OP Units might be exchanged shall bear the legend set forth in the Articles of Incorporation.
D. Clipper Common Shares . Each Partner covenants and agrees with the General Partner that all Redeemed Units shall be delivered to the General Partner, free and clear of all liens, claims and encumbrances whatsoever and should any such liens, claims and/or encumbrances exist or arise with respect to such Redeemed Units, the General Partner shall be under no obligation to acquire the same.
E. Limitations . Notwithstanding the provisions of Sections 8.5.A, 8.5.B, 8.5.C or any other provision of this Agreement, a holder of OP Units (a) shall not be entitled to effect a redemption pursuant to the Redemption Right to the extent that, assuming the General Partner makes the election described in Section 8.5.B, the ownership or right to acquire Common Shares pursuant to such exchange by such holder on the Specified Redemption Date could cause such holder or any other Person to violate the restrictions on ownership and transfer of the General Partner’s stock set forth in the Articles of Incorporation, and (b) shall have no rights under this Agreement to acquire Common Shares which would otherwise be prohibited under the Articles of Incorporation. To the extent any attempted exercise of the Redemption Right would be in violation of this Section 8.5.E, it shall be null and void ab initio and such holder of an OP Unit shall not acquire any rights or economic interest in the cash otherwise payable, or the Common Shares otherwise issuable, upon such redemption.
F. Additional Conditions . Notwithstanding anything herein to the contrary (but subject to Section 8.5.E), with respect to any redemption pursuant to the Redemption Right: (a) without the consent of the General Partner, each holder of an OP Unit may not effect a redemption for less than 1,000 OP Units or, if the holder holds less than 1,000 OP Units, all of the OP Units held by such holder; (b) the consummation of any redemption of OP Units shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and (c) each Redeeming Partner shall continue to own all OP Units subject to any redemption, and be treated as a Partner with respect to such OP Units for all purposes of this Agreement, until such OP Units are transferred to the Partnership or the General Partner, as applicable, and paid for or exchanged for Common Shares on the Specified Redemption Date. Until a Specified Redemption Date, the Redeeming Partner shall have no rights as a stockholder of the General Partner with respect to such Redeeming Partner’s OP Units.
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H. Additional Partnership Interests . In the event that the Partnership issues Partnership Interests to any Additional Limited Partner pursuant to Article IV hereof and such additional Partnership Interests are, by their terms, to be entitled to the Redemption Right described in this Section 8.5, the General Partner shall make such amendments to this Section 8.5 as it determines are necessary to reflect the issuance of such Partnership Interests (including setting forth any restrictions on the exercise of the Redemption Right with respect to such Partnership Interests).
I. LTIP Unit Exception and Redemption of OP Units Issued Upon Conversion of LTIP Units . Holders of LTIP Units shall not be entitled to the Redemption Right provided for in Section 8.5.A hereof unless and until such LTIP Units have been converted into OP Units (or any other class or series of any other class of Partnership Units entitled to such Redemption Right) in accordance with their terms. Notwithstanding the foregoing, and except as otherwise permitted by the award, plan or other agreement pursuant to which an LTIP Unit was issued, the Redemption Right shall not be exercisable with respect to any OP Unit issued upon conversion of an LTIP Unit until on or after the date that is two years after the date on which the LTIP Unit was issued; provided , however , that the foregoing restriction shall not apply if the Redemption Right is exercised by a LTIP Unit holder in connection with a transaction that falls within the definition of a “change of control” under the agreement(s) pursuant to which the LTIP Units were issued to him.
Section 8.6 Duties and Conflicts
The Partners recognize that each of the other Partners, any Affiliate of any Partner and any officer, trustee, director, member, employee, agent, or shareholder of any Limited Partner have or may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf or on behalf of other entities with which they are affiliated or associated, which may be in conflict or competition with the business of the Partnership, or that are enhanced by the activities of the Partnership, and that it is not wrongful or improper for such Persons to carry on such other business interests, activities and investments in addition to those relating to the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. None of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person, and no such Person shall have any obligation pursuant to this Agreement to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character which, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person.
In addition, the Partners recognize that certain of the Limited Partners may have interests that conflict with those of the Partnership or Subsidiaries. In deciding whether to take any actions, such Limited Partners and any Affiliate of such Limited Partners shall be under no obligation to consider the separate interests of the Partnership or Subsidiary and shall have no fiduciary obligations to the Partnership or Subsidiary and shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by the other Partners in connection with such acts; nor shall the Partnership, the General Partner or any Subsidiary be under any obligation to consider the separate interests of the Limited Partners and any Affiliate of any Limited Partner in such Limited Partners’ independent capacities or have any fiduciary obligations to the Limited Partners and any Affiliate of any Limited Partner in such capacity or be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Limited Partners and any Affiliate of any Limited Partner in such independent capacities arising from actions or omissions taken by the Partnership or its Subsidiaries.
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Notwithstanding the foregoing, without the General Partner’s prior consent, no Limited Partner shall knowingly take any action, including acquiring, directly or indirectly, an interest in any tenant of a property which would have, through the actual or constructive ownership of any tenant of any property, the effect of causing the percentage of the gross income of the General Partner that fails to be treated as “rents from real property” within the meaning of Section 856(d) of the Code to exceed such percentage on the date hereof. Each Limited Partner shall have a duty to notify the General Partner on a timely basis of any potential acquisition or change in ownership that could reasonably be expected to have such effect.
Section 8.7 Bankruptcy of a Limited Partner
The Bankruptcy of any Limited Partner shall not cause a dissolution of the Partnership, but the rights of such Limited Partner to share in the Net Income or Net Losses of the Partnership and to receive distributions of Partnership funds shall, on the happening of such event, devolve to such Limited Partner’s successors or assigns, subject to the terms and conditions of this Agreement, and the Partnership shall continue as a limited partnership. However, in no event shall such Assignee(s) become a Limited Partner except in accordance with the terms of this Agreement.
Section 8.8 Right of Offset
The General Partner shall have the right to offset any amounts owed to the Partnership or the General Partner by any Limited Partner pursuant to (i) any written agreement between such Limited Partner and the Partnership, the General Partner or an Affiliate of either of them pursuant to which such Limited Partner acquired Partnership Units or (ii) the provisions of Section 5.2 of this Agreement, against any amounts owed to such Limited Partner by the Partnership or the General Partner hereunder, including the right to cancel or acquire, as applicable, the Partnership Units held by such Limited Partner, based on the Cash Amount that would be payable therefor, assuming a redemption as of the date of cancellation or acquisition, as applicable. In exercising the foregoing offset rights, the General Partner shall be required to give a Limited Partner, in the case of an offset against a distribution, five (5) days prior written notice ( provided , however , that if a distribution is to be made at any time during such five day period the General Partner may retain the distribution payable to any Limited Partner to whom such a written notice has been given to the extent of the amount owed by such Limited Partner pending the passage of such period and upon the passage of such period without payment of all amounts owed by the applicable Limited Partner, the General Partner shall be entitled to the right of offset described above, it being understood that if the Limited Partner pays in full the amount owed the General Partner shall promptly release the retained distribution to such Limited Partner) and, in the case of an offset against Partnership Units (through cancellation or acquisition), 10 days’ prior written notice, in each case of the amount owed (determined as of a date reasonably close to the date of such notice) and the proposed offset and the Limited Partner has not paid the amount owed within such period.
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ARTICLE
IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting .
The General Partner shall, at the cost and expense of the Partnership, keep or cause to be kept at the principal office of the Partnership those records and documents required to be maintained by the Act and other books and records deemed by the General Partner to be appropriate with respect to the Partnership’s business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on any digital or other information storage device; provided , that the records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with GAAP, or such other basis as the General Partner determines to be necessary or appropriate. Such books and records shall be kept on the basis of the Partnership Year. Each Partner, at such Partner’s own expense upon not less than 20 days prior written notice, shall have the right to inspect the books and records of the Partnership during normal business hours at the Partnership’s principal place of business. The written notice given by any Partner of such Partner’s desire to inspect the books and records of the Partnership shall specify the purpose of such inspection and how such purpose is reasonably related to such Partner’s interest in the Partnership. The General Partner shall have the right to keep confidential from such Partner for such period of time as the General Partner deems reasonable, any information the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which would not be in the best interests of the Partnership or could damage the Partnership or its business or which the Partnership is required by law or by agreement with a third party to keep confidential.
Section 9.2 Fiscal Year .
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports .
A. Annual Reports . As soon as practicable, but in no event later than the date on which the General Partner mails its annual report to its shareholders, the General Partner shall cause to be mailed to each Limited Partner as of the close of the Partnership Year, an annual report containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for such Partnership Year, presented in accordance with GAAP, such statements to be audited by a nationally recognized firm of independent public accountants selected by the General Partner. Notwithstanding the foregoing, the annual report of the General Partner filed pursuant to the Exchange Act shall satisfy the foregoing obligation of the Partnership, and such report shall be deemed delivered to each Partner if it is filed with the SEC via EDGAR.
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B. Quarterly Reports . If and to the extent that the General Partner mails quarterly reports to its shareholders, as soon as practicable, but in no event later than the date on which such reports are mailed, the General Partner shall cause to be mailed to each Limited Partner as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership, or of the General Partner, if such statements are prepared solely on a consolidated basis with the General Partner, and such other information as may be required by applicable law or regulation, or as the General Partner determines to be appropriate. Notwithstanding the foregoing, the quarterly reports of the General Partner filed pursuant to the Exchange Act shall satisfy the foregoing obligation of the Partnership, and such reports shall be deemed delivered to each Partner if they are filed with the SEC via EDGAR.
C. Other Reports . The Partnership shall also cause to be prepared and transmitted to the General Partner (i) such reports and/or information as are necessary for it to fulfill its obligations under the Securities Act, the Exchange Act and the applicable stock exchange rules, and under any other regulations to which such Partner or the Partnership may be subject, and (ii) such other reports and/or information as are necessary for the General Partner to determine and maintain its qualification as a REIT and its compliance with the REIT Requirements, but only for so long as the General Partner elects to remain qualified as a REIT, its earnings and profits derived from the Partnership, its liability for a tax as a consequence of its Partnership Interest and distributive share of taxable income or loss and items thereof, in each case in a manner that will permit the General Partner to comply with its respective obligations to file federal, state and local tax returns and information returns and to provide its stockholders with tax information.
D. Delivery Method . Notwithstanding the foregoing, the General Partner may deliver to the Limited Partners each of the reports described above, as well as any other communications that it may provide hereunder, by e-mail or by any other electronic means, including by posting the same on a website or other electronic forum access to which is made available to Limited Partners.
ARTICLE
X
TAX MATTERS
Section 10.1 Preparation of Tax Returns .
Consistent with all other provisions of this Agreement, the General Partner shall determine the methods to be used in the preparation of federal, state, and local income and other tax returns for the Partnership in connection with all items of Partnership income, gains, deductions, losses and other items, including, but not limited to, valuation of assets, the methods of Depreciation and cost recovery, credits and tax accounting methods and procedures, and all tax elections. The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall furnish by July 31 of the year immediately following each taxable year, or as soon as reasonably practicable thereafter, the tax information reasonably required by Limited Partners for federal and state income tax reporting purposes. If required under the Code or applicable state or local income tax law, the General Partner shall also arrange for the preparation and timely filing of all returns of income, gains, deductions, losses and other items required of the Subsidiaries of the Partnership for federal income tax purposes and shall use all reasonable efforts to furnish, as soon as reasonably practicable, the tax information required by the Limited Partners for U.S. federal and state income tax reporting purposes.
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Section 10.2 Tax Elections .
A. Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code; provided , however , that the General Partner shall make the election under Section 754 of the Code in accordance with applicable regulations thereunder. The General Partner shall have the right to seek to revoke any such election (including, without limitation, the election under Section 754 of the Code) upon the General Partner’s determination in its sole and absolute discretion that such revocation is in the best interests of the Partners.
B. To the extent provided for in Regulations, revenue rulings, revenue procedures and/or other IRS guidance issued after the date hereof, the Partnership is hereby authorized to, and at the direction of the General Partner shall, elect a safe harbor under which the fair market value of any Partnership Interests intended to qualify as a “profits interest” and issued after the effective date of such Regulations (or other guidance) will be treated as equal to the liquidation value of such Partnership Interests (i.e., a value equal to the total amount that would be distributed with respect to such interests if the Partnership sold all of its assets for their fair market value immediately after the issuance of such Partnership Interests, satisfied its liabilities (excluding any non-recourse liabilities to the extent the balance of such liabilities exceeds the fair market value of the assets that secure them) and distributed the net proceeds to the Partners under the terms of this Agreement). In the event that the Partnership makes a safe harbor election as described in the preceding sentence, each Partner hereby agrees to comply with all safe harbor requirements with respect to transfers of such Partnership Interests while the safe harbor election remains effective.
Section 10.3 Tax Matters Partner .
A. General . The General Partner shall be the “tax matters partner” of the Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the Code, upon receipt of notice from the IRS of the beginning of an administrative proceeding with respect to the Partnership, the tax matters partner shall furnish the IRS with the name, address, taxpayer identification number and profit interest of each of the Limited Partners and any Assignees; provided , however , that such information is provided to the Partnership by the Limited Partners and the Assignees.
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B. Powers . The tax matters partner is authorized, but not required:
(1) | to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a “ tax audit ” and such judicial proceedings being referred to as “ judicial review ”), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner or (ii) who is a “notice partner” (as defined in Section 6231(a)(8) of the Code) or a member of a “notice group” (as defined in Section 6223(b)(2) of the Code); |
(2) | in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a “ final adjustment ”) is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the United States Tax Court or the filing of a complaint for refund with the United States Claims Court or the District Court of the United States for the district in which the Partnership’s principal place of business is located; |
(3) | to intervene in any action brought by any other Partner for judicial review of a final adjustment; |
(4) | to file a request for an administrative adjustment with the IRS and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request; |
(5) | to enter into an agreement with the IRS to extend the period for assessing any tax which is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and |
(6) | to take any other action on behalf of the Partners or the Partnership in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations. |
The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 hereof shall be fully applicable to the tax matters partner in its capacity as such.
C. Reimbursement . The tax matters partner shall receive no compensation for its services. All third party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting and/or law firm to assist the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable.
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Section 10.4 Organizational Expenses .
The Partnership shall elect to deduct expenses, if any, incurred by it in organizing the Partnership ratably over a 180 month period as provided in Section 709 of the Code.
Section 10.5 Withholding .
Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local, or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the Code. Any amount paid on behalf of or with respect to a Limited Partner shall constitute a loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within 15 days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution which would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the available funds of the Partnership which would, but for such payment, be distributed to the Limited Partner. Any amounts withheld pursuant to clauses (i) or (ii) of this Section 10.5 shall be treated as having been distributed to such Limited Partner. Nothing in this Section 10.5 shall create any obligation on the General Partner to advance funds to the Partnership or to borrow funds from third parties in order to make payments on account of any liability of the Partnership under a withholding tax act. Each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Limited Partner’s Partnership Interest to secure such Limited Partner’s obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.5. In the event that a Limited Partner fails to pay any amounts owed to the Partnership pursuant to this Section 10.5 when due, the General Partner may, in its sole and absolute discretion, elect to make the payment to the Partnership on behalf of such defaulting Limited Partner, and in such event shall be deemed to have loaned such amount to such defaulting Limited Partner and shall succeed to all rights and remedies of the Partnership as against such defaulting Limited Partner. Without limitation, in such event the General Partner shall have the right to receive distributions that would otherwise be distributable to such defaulting Limited Partner until such time as such loan, together with all interest thereon, has been paid in full, and any such distributions so received by the General Partner shall be treated as having been distributed to the defaulting Limited Partner and immediately paid by the defaulting Limited Partner to the General Partner in repayment of such loan. Any amounts payable by a Limited Partner hereunder shall bear interest at the lesser of (A) the base rate on corporate loans at large U.S. money center commercial banks, as published from time to time in The Wall Street Journal , plus four (4) percentage points or (B) the maximum lawful rate of interest on such obligation, such interest to accrue from the date such amount is due (i.e., 15 days after demand) until such amount is paid in full. Each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder. Upon a Limited Partner’s complete withdrawal from the Partnership, such Limited Partner shall be required to restore funds to the Partnership to the extent that the cumulative amount of taxes withheld from or paid on behalf of, or with respect to, such Limited Partner exceeds the sum of such amounts (a) repaid to the Partnership by such Limited Partner, (b) withheld from distributions to such Limited Partner and (c) paid by the General Partner on behalf of such Limited Partner.
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ARTICLE
XI
TRANSFERS AND WITHDRAWALS
Section 11.1 T ransfer .
A. Definition . The term “transfer,” when used in this Article XI with respect to a Partnership Interest or a Partnership Unit, shall be deemed to refer to a transaction by which the General Partner purports to assign all or any part of its General Partnership Interest to another Person or by which a Limited Partner purports to assign all or any part of its Limited Partnership Interest to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. The term “transfer” when used in this Article XI does not include (a) any redemption or repurchase of Partnership Units by the Partnership from a Partner (including the General Partner) or (b) any acquisition of Partnership Units from a Limited Partner by the General Partner pursuant to Section 8.5 hereof or otherwise. No part of the interest of a Limited Partner shall be subject to the claims of any creditor, any spouse for alimony or support, or to legal process, and no part of the interest of a Limited Partner may be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement.
B. General . No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article XI. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article XI shall be null and void ab initio .
Section 11.2 Transfers of Partnership Interests of General Partner .
A. The General Partner may not transfer any of its Partnership Interest except in connection with (i) a transaction permitted under Section 11.2.B, (ii) any merger (including a triangular merger), consolidation or other combination with or into another Person following the consummation of which the equity holders of the surviving entity are substantially identical to the stockholders of the General Partner, (iii) a transfer to any Subsidiary of the General Partner or (iv) as otherwise expressly permitted under this Agreement, nor shall the General Partner withdraw as General Partner except in connection with a transaction permitted under Section 11.2.B or any merger, consolidation, or other combination permitted under clause (ii) of this Section 11.2.A.
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B. The General Partner shall not engage in any merger (including, without limitation, a triangular merger), consolidation or other combination with or into another Person (other than any transaction permitted by Section 11.2.A, any sale of all or substantially all of its assets or any reclassification, recapitalization or change of outstanding REIT Shares (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination as described in the definition of “Adjustment Factor”) (“ Termination Transaction ”), unless (i) it receives the consent of a Majority in Interest of the Outside Limited Partners, (ii) following such merger or other consolidation, substantially all of the assets of the surviving entity consist of OP Units or (iii) as a result of which all Limited Partners either will receive, or will have the right to receive, for each Partnership Unit an amount of cash, securities, or other property paid in the Termination Transaction to a holder of one Common Share; provided, however, that, if in connection with the Termination Transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than 50% of the outstanding Common Shares of the General Partner, each holder of Partnership Units shall be given the option to exchange its Partnership Units for the greatest amount of cash, securities, or other property which such holder would have received had it exercised the Redemption Right and received Common Shares in exchange for its Partnership Units immediately prior to the expiration of such purchase, tender or exchange offer.
C. The General Partner shall not enter into an agreement or other arrangement providing for or facilitating the creation of a General Partner other than the General Partner, unless the successor General Partner executes and delivers a counterpart to this Agreement in which such General Partner agrees to be fully bound by all of the terms and conditions contained herein that are applicable to a General Partner.
D. Upon any transfer of the General Partner’s Partnership Interest in accordance with the provisions of this Section 11.2, the transferee shall become a successor General Partner for all purposes herein, and shall be vested with the powers and rights of the transferor General Partner with respect to the Partnership Interest transferred, and shall be liable for all obligations and responsible for all duties of the General Partner, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and conditions of this Agreement with respect to the Partnership Interest so acquired. It is a condition to any transfer by the General Partner otherwise permitted hereunder that the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor General Partner under this Agreement with respect to such transferred Partnership Interest, and no such transfer shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners accruing prior to the date of such transfer. In the event that the General Partner withdraws from the Partnership, in violation of this Agreement or otherwise, or otherwise dissolves or terminates, or upon an event of Bankruptcy of the General Partner, the remaining Partners may agree in writing to continue the business and affairs of the Partnership by selecting a successor General Partner in accordance with the Act.
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Section 11.3 Limited Partners’ Rights to Transfer .
A. General . No Limited Partner shall transfer all or any portion of its Partnership Interest to any transferee without the written consent of the General Partner, which consent may be granted or withheld by the General Partner in its sole and absolute discretion; provided , however , that if a Limited Partner is subject to Incapacity, such Incapacitated Limited Partner may transfer all or any portion of its Partnership Interest without the prior consent of the General Partner so long as the transfer satisfies the other applicable requirements of this Article. Notwithstanding the foregoing, any Limited Partner may, at any time, without the consent or approval of the General Partner, (a) Transfer all or part of its Partnership Units to any Family Member (including a Transfer by a Family Member that is an inter vivos or testamentary trust (whether revocable or irrevocable) to a Family Member that is a beneficiary of such trust), any Charity, any Controlled Entity or any Affiliate or (b) pledge all or any portion of its Partnership Units to a lending institution as collateral or security for a bona fide loan or other extension of credit, and Transfer such pledged Partnership Units to such lending institution in connection with the exercise of remedies under such loan or extension of credit. To the extent such a Transfer is made to a Controlled Entity or any Affiliate and such Transferee thereafter ceases to be a Controlled Entity or Affiliate of such transferor Limited Partner, then a Transfer shall be deemed to occur at such time as such Transferee ceases to be a Controlled Entity or any Affiliate of such transferor. It is a condition to any transfer otherwise permitted under any provision of this Section 11.3 that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such transferred Partnership Units arising after the effective date of the transfer and no such transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by the successor entity by operation of law, and other than pursuant to an exercise of Redemption Rights pursuant to this Agreement wherein all obligations and liabilities of the transferor Partner arising from and after the date of such transfer shall be assumed by the General Partner) shall relieve the transferor Limited Partner of its obligations under this Agreement prior to the effective date of such transfer.
B. Incapacitated Limited Partners . If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner’s estate shall have all the rights of a Limited Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate and such power as the Incapacitated Limited Partner possessed to transfer all or any part of its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws . Without limiting the generality of Section 11.3.A hereof (and in addition to the requirements set forth in that section), the General Partner may prohibit any transfer by a Limited Partner of such Limited Partner’s Partnership Interest if, in the determination of the General Partner, after consulting with legal counsel, the proposed transfer would require filing of a registration statement under the Securities Act (and the filing has not been made or is not effective) or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Units.
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D. No Transfers Affecting Tax Status of Partnership . No transfer of Partnership Units by a Limited Partner (including in connection with a proposed redemption pursuant to Section 8.5 hereof) may be made to any Person if (i) in the determination of the General Partner, the transfer could result in the Partnership being treated as an association taxable as a corporation for federal income tax purposes or would result in a termination of the Partnership for federal income tax purposes (except as a result of the redemption for Common Shares of all OP Units, if any, held by all Outside Limited Partners or pursuant to a transaction not prohibited under Section 11.2 hereof), (ii) the General Partner determines that it would adversely affect the ability of the General Partner to continue to qualify as a REIT or would subject the General Partner to any additional taxes under Section 857 or Section 4981 of the Code, (iii) such transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in Section 3(14) of ERISA) or a “disqualified person” (as defined in Section 4975(e) of the Code), (iv) such transfer could, in the judgment of the General Partner, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.3-101, (v) such transfer would subject the Partnership to regulation under the Investment Company Act of 1940, as amended, the Investment Adviser’s Act of 1940, as amended, or the fiduciary responsibility provisions of ERISA, or (vi) such transfer would be effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code or otherwise would cause the Partnership to be treated as a “publicly traded partnership” within the meaning of Section 7704(b) of the Code and the regulations promulgated thereunder.
E. No Transfers to Holders of Nonrecourse Liabilities . No pledge or transfer of any Partnership Interest may be made to a lender to the Partnership or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose loan constitutes a Nonrecourse Liability without the General Partner’s prior consent, which may be given or withheld in the General Partner’s sole and absolute discretion; provided , that if the General Partner determines to grant its consent, as a condition to such consent the lender will be required to enter into an arrangement with the Partnership and the General Partner to exchange or redeem for the Cash Amount any Partnership Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a partner in the Partnership for purposes of allocating liabilities to such lender under Section 752 of the Code.
F. Register . The General Partner shall keep in the principal business office of the Partnership, or such other place as may be determined by the General Partner, a register for the Partnership on which the transfer of Partnership Units shall be shown (the “ Register ”). The Register shall not be deemed part of this Agreement. Nothing herein shall be deemed a consent to any transfer otherwise prohibited under this Agreement. Subject to the terms of this Agreement, the General Partner may take any action authorized hereunder in respect of the register without any need to obtain the consent of any other Partner. No action of any Limited Partner shall be required to amend or update the register. Except as required by law, no Limited Partner shall be entitled to receive a copy of the information set forth in the register relating to any Partner other than itself.
Section 11.4 Substituted Limited Partners .
A. Consent of General Partner . No Limited Partner shall have the right to substitute a transferee as a Limited Partner in his, her or its place. The General Partner shall have the sole and exclusive right to grant or withhold consent to the admission of a transferee of the interest of a Limited Partner pursuant to this Section 11.4 as a Substituted Limited Partner, which consent may be given or withheld by the General Partner in its sole and absolute discretion. The General Partner’s failure or refusal to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or any Partner. A Person shall be admitted to the Partnership as a Substituted Limited Partner only upon the aforementioned consent of the General Partner and the furnishing to the General Partner of (i) evidence of acceptance in form and substance satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof and (ii) such other documents or instruments as may be required in the discretion of the General Partner in order to effect such Person’s admission as a Substituted Limited Partner. The admission of any Person as a Substituted Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission, and subject to Section 11.6.C below.
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B. Rights of Substituted Limited Partner . A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article XI shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement.
C. Amendment and Restatement of Exhibit A . Upon the admission of a Substituted Limited Partner, the General Partner shall amend and restate Exhibit A hereof to reflect the name, address, Capital Account, number of Partnership Units, and Percentage Interest of such Substituted Limited Partner and to eliminate or adjust, if necessary, the name, address, Capital Account, number of Partnership Units and Percentage Interest of the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees .
If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee as a Substituted Limited Partner, as described in Section 11.4 hereof, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be deemed to have had assigned to it, and shall be entitled to receive, distributions from the Partnership and the share of Net Income, Net Losses, Recapture Income, and any other items, gain, loss, deduction and credit of the Partnership attributable to the Partnership Interest assigned to such transferee, but shall not be deemed to be a holder of a Partnership Interest for any other purpose under this Agreement, and shall not be entitled to vote such Partnership Interest in any matter presented to the Limited Partners for a vote (such Partnership Interest being deemed to have been voted on such matter in the same proportion as all other Partnership Interest held by Limited Partners are voted). If any Assignee desires to make a further assignment of any such Partnership Interest, such Assignee and such transfer shall be subject to all of the provisions of this Article XI to the same extent and in the same manner as any Limited Partner desiring to assign his, her or its Partnership Interest.
Section 11.6 General Provisions .
A. Withdrawal of Limited Partner . No Limited Partner may withdraw from the Partnership without the prior written consent of the General Partner, other than as a result of a permitted transfer of all of such Limited Partner’s Partnership Interest in accordance with this Article XI or pursuant to redemption of all of its Partnership Units, or the acquisition thereof by the General Partner, under Section 8.5 hereof.
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B. Termination of Status as Limited Partner . Any Limited Partner who shall transfer all of its Partnership Interest in a transfer permitted pursuant to this Article XI or pursuant to redemption of all of his, her or its Partnership Units under Section 8.5 hereof shall cease to be a Limited Partner upon the admission of all assignees of such Partnership Interest as Substituted Limited Partners. Similarly, any Limited Partner who shall transfer all of his, her or its Partnership Units pursuant to a redemption of all of his, her or its Partnership Units, or the acquisition thereof by the General Partner, under Section 8.5 hereof shall cease to be a Limited Partner.
C. Timing of Transfers . Transfers pursuant to this Article XI may only be made on the first day of a fiscal quarter of the Partnership, unless the General Partner otherwise agrees (in its sole and absolute discretion).
D. Allocations . If any Partnership Interest is transferred during any quarterly segment of the Partnership’s fiscal year in compliance with the provisions of this Article XI or redeemed or transferred pursuant to Section 8.5 hereof on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items attributable to such interest for such Partnership Year shall be divided and allocated between the transferor Partner and the transferee Partner by taking into account their varying interests during the Partnership Year in accordance with Section 706(d) of the Code, using the interim closing of the books method (unless the General Partner, in its sole and absolute discretion, elects to adopt a daily, weekly, or a monthly proration period, in which event Net Income, Net Losses, each item thereof and all other items attributable to such interest for such Partnership Year shall be prorated based upon the applicable method selected by the General Partner). Solely for purposes of making such allocations, each of such items for the calendar month in which the transfer or redemption occurs shall be allocated to the Person who is a Partner as of midnight New York City time on the last day of said month. All distributions attributable to such Partnership Interest with respect to which the Partnership Record Date is before the date of such transfer, assignment or redemption shall be made to the transferor Partner or the Redeeming Partner, as the case may be, and, in the case of a transfer or assignment other than a redemption, all distributions thereafter attributable to such Partnership Interest shall be made to the transferee Partner.
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E. Additional Restrictions . In addition to all other restrictions on transfer herein contained, including without limitation the provisions of this Article XI, in no event may any transfer or assignment of a Partnership Interest by any Partner or Assignee (including pursuant to Section 8.5 hereof) be made without the express consent of the General Partner, in its sole and absolute discretion, (i) to any Person who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of applicable law; (iii) of any component portion of a Partnership Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Partnership Interest; (iv) if the General Partner determines such transfer would cause a termination of the Partnership for federal or state income tax purposes (except as a result of the redemption for Common Shares of all OP Units held by all Limited Partners (other than the General Partner and its Subsidiaries) or pursuant to a transaction not prohibited under Section 11.2 hereof); (v) if the General Partner, in its sole and absolute discretion, determines such transfer could cause the Partnership to cease to be classified as a partnership for federal income tax purposes (except as a result of the redemption for Common Shares of all Partnership Units held by all Limited Partners (other than the General Partner and its Subsidiaries) or pursuant to a transaction not prohibited under Section 11.2 hereof); (vi) if such transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a “party-in-interest” (as defined in Section 3(14) of ERISA) or a “disqualified person” (as defined in Section 4975(c) of the Code); (vii) if such transfer would cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.1-101; (viii) if such transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (ix) if such transfer would be effectuated through an “established securities market” or a “secondary market” (or the substantial equivalent thereof) within the meaning of Section 7704 of the Code or such transfer would cause the Partnership to become a “publicly traded partnership,” as such term is defined in Section 469(k)(2) or Section 7704(b) of the Code; (x) if such transfer would subject the Partnership to regulation under the Investment Company Act of 1940, the Investment Adviser’s Act of 1940 or ERISA, each as amended; (xi) if such transfer could adversely affect the ability of the General Partner to remain qualified as a REIT; or (xii) if the General Partner determines such transfer would adversely affect the ability of the General Partner to continue to qualify as a REIT or subject the General Partner to any additional taxes under Section 857 or Section 4981 of the Code.
F. Avoidance of “Publicly Traded Partnership” Status . The General Partner shall (i) use commercially reasonable efforts (as determined by it in its sole and absolute discretion exercised in good faith) to monitor the transfers of interests in the Partnership to determine (a) if such interests are being traded on an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code and (b) whether additional transfers of interests would result in the Partnership being unable to qualify for at least one of the “safe harbors” set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as “readily tradable on a secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code) (the “ Safe Harbors ”) and (ii) take such steps as it believes are commercially reasonable and appropriate (as determined by it in its sole and absolute discretion exercised in good faith) to prevent any trading of interests or any recognition by the Partnership of transfers made on such markets and, except as otherwise provided herein, to ensure that at least one of the Safe Harbors is met.
ARTICLE
XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner .
A successor to all of the General Partner’s General Partnership Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective upon such transfer. Any such transferee shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner’s executing and delivering to the Partnership a written acceptance of all of the terms and conditions of this Agreement and such other documents or instruments as may be required to effect the admission. In the case of such admission on any day other than the first day of a Partnership Year, all items attributable to the General Partnership Interest for such Partnership Year shall be allocated between the transferring General Partner and such successor as provided in Section 11.6.D hereof.
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Section 12.2 Admission of Additional Limited Partners .
A. General . A Person who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance in form and substance satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof and (ii) such other documents or instruments as may be required in the sole and absolute discretion of the General Partner in order to effect such Person’s admission as an Additional Limited Partner.
B. General Partner’s Consent . No Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent shall be given or withheld in the General Partner’s sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission. Regardless of the means by which any Additional Limited Partner is admitted to the Partnership, such Additional Limited Partner shall, automatically upon such admission, become subject to and bound by all of the terms and conditions of this Agreement, including, without limitation, Section 2.4 hereof.
C. Allocations to Additional Limited Partners . If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Partnership Year, then Net Income, Net Losses, each item thereof and all other items allocable among Partners and Assignees for such Partnership Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Partnership Year in accordance with Section 706(d) of the Code, using the interim closing of the books method (unless the General Partner, in its sole and absolute discretion, elects to adopt a daily, weekly or monthly proration method, in which event Net Income, Net Losses, and each item thereof would be prorated based upon the applicable period selected by the General Partner). Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assignees including such Additional Limited Partner. All distributions with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner.
ARTICLE
XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution Events .
The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership without dissolution. The Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following events (each a “ Liquidating Event ”):
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(i) a final and non-appealable judgment is entered by a court of competent jurisdiction ruling that the General Partner is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect, unless, prior to the entry of such order or judgment, a Majority in Interest of the remaining Outside Limited Partners agree in writing, in their sole and absolute discretion, to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such order or judgment, of a successor General Partner;
(ii) an election to dissolve the Partnership made by the General Partner in its sole and absolute discretion;
(iii) the entry of a decree of judicial dissolution of the Partnership by a court of competent jurisdiction pursuant to the provisions of the Act;
(iv) the occurrence of any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership; or
(v) the incapacity or withdrawal of the General Partner, unless all of the remaining Partners in their sole and absolute discretion agree in writing to continue the business of the Partnership and to the appointment, effective as of a date prior to the date of such incapacity, of a substitute General Partner.
Section 13.2 Winding Up .
A. General . Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners. No Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership’s business. In the event of the winding up of the Partnership, a proper accounting (which shall be certified by independent public accountants) shall be made of the Capital Account of each Partner and of the Net Income and Net Losses of the Partnership from the date of the last previous accounting to the date of dissolution. The General Partner or, in the event there is no remaining General Partner, any Person elected by a Majority in Interest of the Limited Partners (the “ Liquidator ”) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership’s liabilities and property and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner in its sole and absolute discretion, include equity or other securities of the General Partner or any other entity) shall be applied and distributed in the following order:
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(1) | First, in satisfaction of all of the Partnership’s debts and liabilities to creditors other than the Partners in the order of priority as provided by law (whether by payment or the making of reasonable provision for payment thereof); |
(2) | Second, the establishment of reserves as determined by the General Partner to provide for contingent liabilities, if any; |
(3) | Third, to the payment and discharge of all of the Partnership’s debts and liabilities to the General Partner; |
(4) | Fourth, to the payment and discharge of all of the Partnership’s debts and liabilities to the other Partners; and |
(5) | The balance, if any, to the General Partner and Limited Partners in accordance with Section 5.1. |
The General Partner shall not receive any additional compensation for any services performed pursuant to this Article XIII.
B. Deferred Liquidation . Notwithstanding the provisions of Section 13.2.A hereof which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership’s assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy Partnership liabilities (including to those Partners as creditors) and/or distribute to the Partners, in lieu of cash or cash equivalents, as tenants in common and in accordance with the provisions of Section 13.2.A, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the Liquidator’s good faith judgment, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.
C. Deferred Liquidation . In the discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be made to the General Partner and Limited Partners pursuant to this Article XIII may be:
(1) | distributed to a trust established for the benefit of the General Partner and Limited Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or the General Partner arising out of or in connection with the Partnership. The assets of any such trust shall be distributed to the General Partner and Limited Partners from time to time, in the reasonable discretion of the Liquidator, in the same proportions as the amount distributed to such trust by the Partnership would otherwise have been distributed to the General Partner and Limited Partners pursuant to this Agreement; or |
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(2) | withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership; provided , that such withheld or escrowed amounts shall be distributed to the General Partner and Limited Partners in the manner and order of priority set forth in Section 13.2.A as soon as practicable. |
Section 13.3 No Obligation to Restore Deficit .
If any Partner has a deficit balance in his, her or its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever.
Section 13.4 Deemed Distribution and Recontribution .
Notwithstanding any other provision of this Article XIII, in the event the Partnership is “liquidated” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership’s property shall not be liquidated, the Partnership’s liabilities shall not be paid or discharged and the Partnership’s affairs shall not be wound up. Instead, for federal income tax purposes and for purposes of maintaining Capital Accounts pursuant to Exhibit B hereof, the Partnership shall be deemed to have contributed all Partnership property and liabilities to a new limited partnership in exchange for an interest in such new limited partnership and immediately thereafter, the Partnership will be deemed to liquidate by distributing interests in the new limited partnership to the Partners.
Section 13.5 Rights of Limited Partners .
Except as otherwise provided in this Agreement (i) each Limited Partner shall look solely to the assets of the Partnership for the return of his, her or its Capital Contributions and shall have no right or power to demand or receive property other than cash from the Partnership and (ii) no Limited Partner shall have priority over any other Partner as to the return of his, her or its Capital Contributions, distributions, or allocations.
Section 13.6 Notice of Dissolution .
In the event a Liquidating Event occurs or an event occurs that would, but for provisions of an election or objection by one or more Partners pursuant to Section 13.1 hereof, result in a dissolution of the Partnership, the General Partner shall, within 30 days thereafter, provide written notice thereof to each of the Partners and to all other parties with whom the Partnership regularly conducts business (as determined in the discretion of the General Partner) and shall publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the discretion of the General Partner).
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Section 13.7 Termination of Partnership and Cancellation of Certificate of Limited Partnership .
Upon the completion of the winding up of the Partnership and liquidation of its assets, as provided in Section 13.2 hereof, the Partnership shall be terminated by filing a certificate of cancellation with the Secretary of State of the State of Delaware, canceling all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Delaware and taking such other actions as may be necessary to terminate the Partnership.
Section 13.8 Reasonable Time for Winding Up .
A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect among the Partners during the period of liquidation.
Section 13.9 Waiver of Partition .
No Partner and no successor-in-interest to a Partner shall have the right while this Agreement remains in effect to have any Partnership property partitioned, or to file a complaint or institute any proceeding at law or in equity to have such property of the Partnership partitioned, and each Partner, on behalf of itself and its successors and assigns hereby irrevocably waives any such right. It is the intention of the Partners that the rights of the parties hereto and their successors-in-interest to Partnership property, as among themselves, shall be governed by this Agreement, and that the rights of the Partners and their respective successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement.
Section 13.10 Liability of Liquidator .
The Liquidator shall be indemnified and held harmless by the Partnership in the same manner and to the same degree as an Indemnified Party may be indemnified pursuant to Section 7.7 hereof.
Section 13.11 Documentation of Liquidation .
Upon the completion of the dissolution and liquidation of the Partnership, the Partnership shall terminate and the Liquidator shall have the authority to execute and record any and all documents or instruments required to effect the dissolution, liquidation and termination of the Partnership.
ARTICLE
XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments .
A. General . The General Partner has the sole and exclusive right to propose amendments to this Agreement. Following any such proposal (except with respect to an amendment pursuant to Section 14.1.B hereof), the General Partner shall submit any proposed amendment to the Limited Partners and shall seek the written vote of the Partners on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that it may deem appropriate. For purposes of obtaining a written vote, the General Partner may require a response within a reasonable specified time, but not less than 15 days, and failure to respond in such time period shall constitute a vote which is consistent with the General Partner’s recommendation with respect to the proposal. Except as otherwise provided in this Agreement, a proposed amendment shall be adopted and be effective as an amendment hereto if it is approved by the General Partner and it receives the Consent of a Majority in Interest.
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B. Amendments Not Requiring Limited Partner Approval . Subject to Section 14.1.C and 14.1.D, the General Partner shall have the sole and exclusive power, without the Consent of the Limited Partners, to amend this Agreement as may be required to reflect any changes to this Agreement that the General Partner deems necessary or appropriate in its sole and absolute discretion. Without limitation, the General Partner shall have the power, without the Consent of the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes:
(i) to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners;
(ii) to reflect the issuance of additional Partnership Units or the admission, substitution, termination, or withdrawal of Partners in accordance with this Agreement;
(iii) to set forth or amend the designations, rights (including Redemption Rights that differ from those specified in Section 8.5 hereof), powers, duties, and preferences of Partnership Units issued pursuant to Section 4.2.A hereof;
(iv) to reflect a change that is of an inconsequential nature and does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement;
(v) to reflect such changes as are reasonably necessary for the General Partner to maintain its status as a REIT, including changes which may be necessitated due to a change in applicable law (or an authoritative interpretation thereof) or a ruling of the IRS;
(vi) to modify how Capital Accounts are computed;
(vii) to include provisions in this Agreement that may be referenced in any rulings, regulations, notices, announcements, or other guidance regarding the federal income tax treatment of compensatory partnership interests issued and made effective after the date hereof or in connection with any elections that the General Partner determines to be necessary or advisable in respect of any such guidance. Any such amendment may include, without limitation, (a) a provision authorizing or directing the General Partner to make any election under the such guidance, (b) a covenant by the Partnership and all of the Partners to agree to comply with the such guidance, (c) an amendment to the Capital Account maintenance provisions and the allocation provisions contained in this Agreement so that such provisions comply with (I) the provisions of the Code and the Regulations as they apply to the issuance of compensatory partnership interests and (II) the requirements of such guidance and any election made by the General Partner with respect thereto, including, a provision requiring “forfeiture allocations” as appropriate. Any such amendments to this Agreement shall be binding upon all Partners; and
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(viii) to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law.
The General Partner shall notify the Limited Partners when any action under this Section 14.1.B is taken.
C. Amendments Requiring Certain Limited Partner Approval . Notwithstanding Section 14.1.A and Section 14.1.B hereof, this Agreement shall not be amended with respect to any Partner materially adversely effected thereby without the Consent of such Partner if such amendment would (i) convert a Limited Partner’s Partnership Interest in the Partnership into a General Partnership Interest; (ii) modify the limited liability of a Limited Partner in a manner adverse to such Limited Partner; (iii) alter rights of such Partner to receive distributions pursuant to Article V or Article XIII, or the allocations specified in Article VI (except as permitted pursuant to Section 4.2, Section 5.5, Section 6.2 and Section 14.1.B(iii) hereof) in a manner adverse to such Partner; (iv) alter or modify the Redemption Right and Shares Amount as set forth in Section 8.5 hereof, and the related definitions, in a manner adverse to such Partner (except as permitted in Section 8.5.E hereof); (v) cause the termination of the Partnership prior to the time set forth in Section 2.5 or 13.1 hereof or (vi) amend this Section 14.1.C; provided , however , that the Consent of each Partner adversely affected shall not be required for any amendment or action that affects all Partners holding the same class or the series of a class of Partnership Units on a uniform or pro rata basis. Any amendment consented to by any Partner shall be effective as to that Partner, notwithstanding the absence of such Consent by any other Partner. For the avoidance of doubt, any amendment that would require the Consent of Partners adversely affected pursuant to this Section 14.1.C shall be effective with respect to all Partners who are not adversely affected thereby without the Consent of such Partners.
D. Other Amendments Requiring Limited Partner Approval. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General Partner shall not amend Section 4.2.A, Section 7.5, Section 11.2 or Section 14.2 hereof without the Consent of a Majority in Interest.
E. Amendment and Restatement of Exhibit A Not An Amendment . Notwithstanding anything in this Article XIV or elsewhere in this Agreement to the contrary, any amendment and restatement of Exhibit A hereof by the General Partner to reflect events or changes otherwise authorized or permitted by this Agreement, whether pursuant to Section 7.1.A(23) hereof or otherwise, shall not be deemed an amendment of this Agreement and may be done at any time and from time to time, as necessary, by the General Partner without the Consent of the Limited Partners.
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F. Amendment by Merger . In the event that the Partnership participates in any merger (including a triangular merger), consolidation or combination with another entity in a transaction not otherwise prohibited by this Agreement and as a result of such merger, consolidation or combination this Agreement is to be amended (or a new agreement for a limited partnership or limited liability company, as applicable, is to be adopted for the surviving entity) and any of the Limited Partners will hold equity interests in the continuing or surviving entity, then any such amendments to this Agreement (or changes from this Agreement reflected in the new agreement for the surviving entity) that would have required the consents provided in Section 14.1.C and 14.1.D shall require such consents.
Section 14.2 Meetings of the Partners .
A. General . Meetings of the Partners may be called only by the General Partner. The call shall state the nature of the business to be transacted at the meeting. Notice of any such meeting shall be given to all Partners not less than seven days nor more than 30 days prior to the meeting date; provided that a Partner’s attendance at any meeting of Partners shall be deemed a waiver of the foregoing notice requirement with respect to such Partner. Partners may vote in person or by proxy at such meetings. Whenever the vote or Consent of Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.1.A hereof. Except as otherwise expressly provided in this Agreement, the Consent of holders of a Majority in Interest shall control.
B. Actions Without a Meeting . Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by a majority of the Percentage Interests of the Partners (or such other percentage as is expressly required by this Agreement). Such consent may be in one (1) instrument or in several instruments, and shall have the same force and effect as a vote of a Majority in Interest (or such other percentage as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified.
C. Proxy . Each Limited Partner may authorize any Person(s) to act for such Limited Partner by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or his, her or its attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it, such revocation to be effective upon the Partnership’s receipt of written notice of such revocation from the Limited Partner executive such proxy.
D. Conduct of Meeting . Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate in the sole and absolute discretion of the General Partner or such other Person, as the case may be. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the General Partner’s shareholders and may be held at the same time, and as part of, meetings of the General Partner’s shareholders.
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ARTICLE
XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice .
Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person, or by electronic communication (including by telecopy, facsimile, electronic mail or commercial courier service), by press release, by posting on the internet site or other comparable forum of the Partnership or the General Partner, or when sent by first class U.S. mail or courier to such Partner or Assignee at the address set forth in Exhibit A hereof or such other address of which such Partner or Assignee shall notify the General Partner in writing.
Section 15.2 Titles and Captions .
All article or section titles or captions in this Agreement are for convenience only and are to be ignored in interpreting and construing the provisions hereof. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to “Articles” and “Sections” are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals .
Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.4 Further Action .
The parties shall hereafter execute and deliver all documents, provide all information and do or not do such acts or things as may be necessary or appropriate to achieve the purposes of this Agreement and as are not inconsistent with the terms hereof.
Section 15.5 Binding Effect .
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, successors, executors, administrators, legal representatives and permitted assigns, except as otherwise expressly provided herein.
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Section 15.6 Creditors; Other Third Parties .
The provisions of this Agreement only define the interests of the parties between and among themselves; no other Person (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement. Other than as expressly set forth herein with regard to any Indemnified Party, no creditor of the Partnership or other third party having dealings with the Partnership shall have the right to enforce any of the provisions of this Agreement, or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective permitted successors and permitted assigns. None of the rights or obligations of the Partners set forth herein to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any Debt or other obligation of the Partnership or of any of the Partners.
Section 15.7 Waiver .
A. No failure by any party to insist on the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition.
B. The restrictions, conditions and other limitations on the rights and benefits of the Limited Partners contained in this Agreement, and the duties, covenants and other requirements of performance or notice by the Limited Partners, are for the benefit of the Partnership and, except for an obligation to pay money to the Partnership, may be waived or relinquished by the General Partner in its sole and absolute discretion (on behalf of the Partnership), in one or more instances, from time to time and at any time; provided , however , that any such waiver or relinquishment may not be made if it would have the effect of (i) creating liability for any other Limited Partner, (ii) causing the Partnership to cease to qualify as a limited partnership, (iii) reducing the amount of cash otherwise distributable to the Limited Partners (other than any such reduction that affects all of the Limited Partners holding the same class or the same series of a class of Partnership Units on a uniform or pro rata basis, if approved by a Majority in Interest of the Limited Partners holding such class or such series of a class of Partnership Units), (iv) resulting in the classification of the Partnership as an association or publicly traded partnership taxable as a corporation or (v) violating the Securities Act, the Exchange Act or any state “blue sky” or other securities laws; provided , further , that any waiver relating to compliance with the Ownership Limit or other restrictions in the Articles of Incorporation shall be made and shall be effective only as provided in the Articles of Incorporation.
Section 15.8 Counterparts .
This Agreement may be executed in counterparts, all of which together shall constitute one (1) agreement binding on all of the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing his, her or its signature hereto.
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Section 15.9 Applicable law; Consent To Jurisdiction; Jury Trial .
A. APPLICABLE LAW . THIS AGREEMENT (AND ANY DISPUTE, CONTROVERSY, PROCEEDINGS OR CLAIM OF WHATEVER NATURE ARISING OUT OF THIS AGREEMENT OR ITS FORMATION) SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. IN THE EVENT OF A CONFLICT BETWEEN ANY PROVISION OF THIS AGREEMENT AND ANY NON-MANDATORY PROVISION OF THE ACT, THE PROVISIONS OF THIS AGREEMENT SHALL CONTROL AND TAKE PRECEDENCE.
B. Consent to jurisdiction; WAIVER OF JURY TRIAL . Each Partner hereby (i) submits to the exclusive jurisdiction of any state or federal court sitting in the State of Delaware (collectively, the “ Delaware Courts ”), with respect to any dispute arising out of this Agreement or any transaction contemplated hereby to the extent such courts would have subject matter jurisdiction with respect to such dispute, (ii) irrevocably waives, and agrees not to assert by way of motion, defense, or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of any of the Delaware Courts, that its property is exempt or immune from attachment or execution, that the action is brought in an inconvenient forum, or that the venue of the action is improper, (iii) agrees that notice or the service of process in any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be properly served or delivered if delivered to such Partner at such Partner’s last known address as set forth in the Partnership’s books and records, and (iv) IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 15.10 Invalidity of Provisions .
If any provision of this Agreement, or the application of such provision to any Person or circumstance, shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein, or the application of such provision to Persons or circumstances other than those to which such provision is held invalid, illegal or unenforceable in any respect, shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
Section 15.11 Entire Agreement .
This Agreement and all Exhibits hereof (such Exhibits being incorporated herein by reference as if fully set forth herein) contains the entire understanding and agreement between and among the Partners with respect to the subject matter hereof and the rights, interests and obligations of the Partners with respect to the Partnership and supersede any and all prior written or oral understandings or agreements among them with respect the subject matter hereof. Notwithstanding any provision in this Agreement to the contrary, the Partners hereby acknowledge and agree that the General Partner, without the approval of any Limited Partner, may enter into side letters or similar written agreements with Limited Partners that are not an Affiliate of the General Partner, executed contemporaneously with the admission of such Limited Partner to the Partnership, which may have the effect of establishing rights under, or altering or supplementing the terms of, this Agreement, as negotiated with such Limited Partner and which the General Partner in its sole discretion deems necessary, desirable or appropriate. The parties hereto agree that any terms, conditions or provisions contained in such side letters or similar written agreements with a Limited Partner shall govern with respect to such Limited Partner notwithstanding the provisions of this Agreement.
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Section 15.12 No Rights as Shareholders .
Nothing contained in this Agreement shall be interpreted or construed as conferring upon the holders of Partnership Units any rights whatsoever as shareholders of the General Partner, including, without limitation, any right to receive dividends or other distributions made to shareholders of the General Partner or to vote or to consent or receive notice as shareholders in respect to any meeting of shareholders for the election of directors of the General Partner or any other matter.
Section 15.13 Limitation to Preserve REIT Status .
Notwithstanding anything else in this Agreement, with respect to any period in which the General Partner has elected to be treated as a REIT for federal income tax purposes, to the extent that any amount paid, credited, distributed or reimbursed by the Partnership to the General Partner or its officers, directors, employees or agents pursuant to Section 7.4 or Section 7.7 hereof, would constitute gross income to the General Partner for purposes of Section 856(c)(2) or 856(c)(3) of the Code (a “ General Partner Payment ”) then, notwithstanding any other provision of this Agreement, the amount of such General Partner Payments, as selected by the General Partner in its sole and absolute discretion from among items of potential distribution, reimbursement, fees, expenses and indemnities, shall be reduced for any Partnership Year so that the General Partner Payments, as so reduced, for or with respect to the General Partner shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) 4.9% of the General Partner’s total gross income (but not including the amount of any General Partner Payments) for the fiscal year over (b) the amount of gross income (within the meaning of Section 856(c)(2) of the Code) derived by the General Partner from sources other than those described in subsections (A) through (I) of Section 856(c)(2) of the Code (but not including the amount of any General Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 24.9% of the General Partner’s total gross income (but not including the amount of any General Partner Payments) for the fiscal year over (b) the amount of gross income (within the meaning of Section 856(c)(3) of the Code) derived by the General Partner (if it is to be qualified as a REIT) from sources other than those described in subsections (A) through (I) of Section 856(c)(3) of the Code (but not including the amount of any General Partner Payments);
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provided , however , that General Partner Payments in excess of the amounts set forth in subparagraphs (i) and (ii) of this Section 15.13 may be made if the General Partner, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts would not adversely affect the General Partner’s ability to qualify as a REIT. To the extent General Partner Payments may not be made in a Partnership Year due to the limitations set forth in this Section 15.13, such General Partner Payments shall carry over and be treated as arising in the following Partnership Year, if such carry over does not adversely affect the General Partner’s ability to qualify as a REIT (if it is to be qualified as a REIT); provided , however , that (i) as General Partner Payments are made, such payments shall be applied first to carry over amounts outstanding, if any, and (ii) with respect to carry over amounts for more than one (1) Partnership Year, such payments shall be applied to the earliest Partnership Year first. The purpose of the limitations contain in this Section 15.13 is to prevent the General Partner from failing to qualify as a REIT by reason of the General Partner’s share of items, including distributions, reimbursements, fees, expenses or indemnities, receivable directly or indirectly, from the Partnership, and this Section 15.13 shall be interpreted and applied to effectuate such purpose.
Section 15.14 Investment Representations.
A. Each Limited Partner acknowledges that it (i) has been given full and complete access to the Partnership, (ii) has had the opportunity to review all documents relevant to its decision to enter into this Agreement, and (iii) has had the opportunity to ask questions of the Partnership concerning its investment in the Partnership and the transactions contemplated hereby.
B. Each Limited Partner acknowledges that it understands that the Partnership Units to be purchased or otherwise acquired by it hereunder will not be registered under the Securities Act in reliance upon the exemption afforded by Section 4(a)(2) thereof for transactions by an issuer not involving any public offering, and will not be registered or qualified under any applicable state securities laws.
Section 15.15 Trust Provision .
This Agreement, to the extent executed by the trustee of a trust, is executed by such trustee solely as trustee and not in a separate capacity. Nothing herein shall create any liability on, or require the performance of any covenant by, any such trustee individually, nor shall anything herein subject the individual property of any trustee to any liability.
Section 15.16 Partners Not Agents .
Nothing herein shall be construed to constitute any Partner the agent of another Partner, except as specifically provided herein, or in any manner to limit the Partners in the carrying on of their own respective businesses or activities.
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IN WITNESS WHEREOF, the General Partner has executed this Agreement as of the date first written above.
CLIPPER REALTY INC. | |||
By: | /s/ David Bistricer | ||
Name: | David Bistricer | ||
Title: | Chief Executive Officer and President |
[ Signature Page to Clipper Realty L.P. Partnership Agreement ]
EXHIBIT A
CLIPPER REALTY L.P.
PARTNERS AND PARTNERSHIP INTERESTS
(as of August 3, 2015)
Partner | Partnership Units |
Capital
Contribution |
Percentage
Interest |
|||||||
General Partner: | ||||||||||
Clipper Realty Inc. | 11,422,606 OP Units | $ | 134,595,004.19 | 96.79 | % | |||||
Limited Partners: | ||||||||||
David Bistricer | 133,334 LTIP Units | 1.13 | % | |||||||
Sam Levinson | 100,000 LTIP Units | 0.85 | % | |||||||
Jacob Schwimmer | 46,667 LTIP Units | 0.39 | % | |||||||
Lawrence Kreider | 46,667 LTIP Units | 0.39 | % | |||||||
JJ Bistricer | 46,667 LTIP Units | 0.39 | % | |||||||
Howard Lorber | 1,667 LTIP Units | 0.01 | % | |||||||
Robert Ivanhoe | 1,667 LTIP Units | 0.01 | % | |||||||
Robert Verrone | 1,667 LTIP Units | 0.01 | % |
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EXHIBIT
B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate Capital Account in accordance with the rules of Regulations Section l.704-l(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions and any other deemed contributions made by such Partner to the Partnership pursuant to this Agreement and (ii) all items of Partnership income and gain (including income and gain exempt from tax) computed in accordance with Section 1.B hereof and allocated to such Partner pursuant to Section 6.1 of the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or Agreed Value of all actual and deemed distributions of cash or property made to such Partner pursuant to this Agreement and (y) all items of Partnership deduction and loss computed in accordance with Section 1.B hereof and allocated to such Partner pursuant to Section 6.1 of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain, deduction or loss to be reflected in the Partners’ Capital Accounts, unless otherwise specified in this Agreement, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes determined in accordance with Section 703(a) of the Code (for this purpose all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments:
(1) | Except as otherwise provided in Regulations Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Partnership, provided that the amounts of any adjustments to the adjusted bases of the assets of the Partnership made pursuant to Section 734 of the Code as a result of the distribution of property by the Partnership to a Partner (to the extent that such adjustments have not previously been reflected in the Partners’ Capital Accounts) shall be reflected in the Capital Accounts of the Partners in the manner and subject to the limitations prescribed in Regulations Section l.704-1(b)(2)(iv) (m)(4). |
(2) | The computation of all items of income, gain, and deduction shall be made without regard to the fact that items described in Sections 705(a)(l)(B) or 705(a)(2)(B) of the Code are not includable in gross income or are neither currently deductible nor capitalized for federal income tax purposes. |
(3) | Any income, gain or loss attributable to the taxable disposition of any Partnership property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Partnership’s Carrying Value with respect to such property as of such date. |
B- 1 |
(4) | In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year. |
(5) | In the event the Carrying Value of any Partnership asset is adjusted pursuant to Section 1.D hereof, the amount of any such adjustment shall be taken into account as gain or loss from the disposition of such asset. |
(6) | Any items specially allocated under Section 2 of Exhibit C hereof shall not be taken into account. |
C. Generally, a transferee (including any Assignee) of a Partnership Unit shall succeed to a pro rata portion of the Capital Account of the transferor. The Capital Accounts of such reconstituted Partnership shall be maintained in accordance with the principles of this Exhibit B.
D. (1) Consistent with the provisions of Regulations Section 1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the Carrying Values of all Partnership assets shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as of the times of the adjustments provided in Section 1.D(2) hereof, as if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such property and allocated pursuant to Section 6.1 of the Agreement.
(1) | Such adjustments shall be made as of the following times: (a) immediately prior to the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (b) immediately prior to the distribution by the Partnership to a Partner of more than a de minimis amount of property as consideration for an interest in the Partnership; (c) immediately prior to the acquisition of more than a de minimis additional interest in the Partnership by any new or existing Partner in consideration for such Partner's provision of services to or for the benefit of the Partnership; and (d) immediately prior to the liquidation of the Partnership within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g), provided , however , that adjustments pursuant to clauses (a), (b) and (c) above shall be made only if the General Partner determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership. |
(2) | In accordance with Regulations Section 1.704-l(b)(2)(iv)(e), the Carrying Value of Partnership assets distributed in kind shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as of the time any such asset is distributed. |
B- 2 |
(3) | In determining Unrealized Gain or Unrealized Loss for purposes of this Exhibit B , the aggregate cash amount and fair market value of all Partnership assets (including cash or cash equivalents) shall be determined by the General Partner using such reasonable method of valuation as it may adopt, or in the case of a liquidating distribution pursuant to Article XIII of the Agreement, shall be determined and allocated by the Liquidator using such reasonable methods of valuation as it may adopt. The General Partner, or the Liquidator, as the case may be, shall allocate such aggregate fair market value among the assets of the Partnership in such manner as it determines in its sole and absolute discretion to arrive at a fair market value for individual properties. |
E. The provisions of the Agreement (including this Exhibit B and the other Exhibits to the Agreement) relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership, the General Partner, or the Limited Partners) are computed in order to comply with such Regulations, the General Partner may make such modification without regard to Article VI of the Agreement, provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to Article XIII of the Agreement upon the dissolution of the Partnership. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership’s balance sheet, as computed for book purposes, in accordance with Regulations Section l.704-l(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section l.704-1(b).
2. No Interest
No interest shall be paid by the Partnership on Capital Contributions or on balances in Partners’ Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of its Capital Contribution or Capital Account or to receive any distribution from the Partnership, except as provided in Articles IV, V, VIII and XIII of the Agreement.
B- 3 |
EXHIBIT
C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules.
Notwithstanding any other provision of the Agreement or this Exhibit C , the following special allocations shall be made in the following order:
A. Minimum Gain Chargeback . Notwithstanding the provisions of Section 6.1 of the Agreement or any other provisions of this Exhibit C , if there is a net decrease in Partnership Minimum Gain during any Partnership Year, each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partner’s share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(f)(6). This Section 1.A is intended to comply with the minimum gain chargeback requirements in Regulations Section 1.704-2(f) and for purposes of this Section 1.A only, each Partner’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 6.1 of this Agreement with respect to such Partnership Year and without regard to any decrease in Partner Minimum Gain during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision of Section 6.1 of this Agreement or any other provisions of this Exhibit C (except Section 1.A hereof), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership Year, each Partner who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i) (5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Partner’s share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i) (5). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each General Partner and Limited Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i) (4). This Section 1.B is intended to comply with the minimum gain chargeback requirement in such Section of the Regulations and shall be interpreted consistently therewith. Solely for purposes of this Section 1.B, each Partner’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 6.1 of the Agreement or this Exhibit with respect to such Partnership Year, other than allocations pursuant to Section 1.A hereof.
C. Qualified Income Offset . In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Regulations Sections 1.704-l(b)(2)(ii)(d)(4), l.704-1(b)(2)(ii)(d)(5), or 1.704- l(b)(2)(ii)(d)(6), and after giving effect to the allocations required under Sections 1.A and 1.B hereof with respect to such Partnership Year, such Partner has an Adjusted Capital Account Deficit, items of Partnership income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain for the Partnership Year) shall be specially allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible. This Section 1.C is intended to constitute a “qualified income offset” under Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
C- 1 |
D. Gross Income Allocation . In the event that any Partner has an Adjusted Capital Account Deficit at the end of any Partnership Year (after taking into account allocations to be made under the preceding paragraphs hereof with respect to such Partnership Year), each such Partner shall be specially allocated items of Partnership income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain for the Partnership Year) in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit.
E. Nonrecourse Deductions . Nonrecourse Deductions for any Partnership Year shall be allocated to the Partners in accordance with their respective Percentage Interests. If the General Partner determines in its good faith discretion that the Partnership’s Nonrecourse Deductions must be allocated in a different ratio to satisfy the safe harbor requirements of the Regulations promulgated under Section 704(b) of the Code, the General Partner is authorized, upon notice to the Limited Partners, to revise the prescribed ratio for such Partnership Year to the numerically closest ratio which would satisfy such requirements.
F. Partner Nonrecourse Deductions . Any Partner Nonrecourse Deductions for any Partnership Year shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
G. Code Section 754 Adjustments . To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Regulations Section 1.704- l(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations.
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of “book” income, gain, loss or deduction is allocated pursuant to Section 6.1 of the Agreement and Section 1 of this Exhibit C .
B. In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, and deduction shall be allocated for federal income tax purposes among the Partners as follows:
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C. To the extent Regulations promulgated pursuant to Section 704(c) of the Code permit a Partnership to utilize alternative methods to eliminate the disparities between the Carrying Value of property and its adjusted basis, the General Partner shall have the authority to elect the method to be used by the Partnership and such election shall be binding on all Partners.
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EXHIBIT
D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) elects to redeem __________ OP Units in Clipper Realty L.P. in accordance with the terms of the Limited Partnership Agreement of Clipper Realty L.P., as amended (the “Partnership Agreement”), and the Redemption Right referred to therein, (ii) surrenders such OP Units and all right, title and interest therein and (iii) directs that promptly after the Specified Redemption Date the Cash Amount (as determined by the General Partner) deliverable upon exercise of the Redemption Right be delivered to the address specified below, and if Common Shares are to be delivered, such Common Shares be registered or placed in the name(s) and at the address(es) specified below. The undersigned hereby represents, warrants, and certifies that the undersigned (a) has marketable and unencumbered title to such OP Units, free and clear of the rights of or interests of any other person or entity, (b) has the full right, power and authority to redeem and surrender such OP Units as provided herein and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consult or approve such redemption and surrender. Capitalized terms used herein have the meanings assigned to them in the Partnership Agreement.
Dated: | Name of Limited Partner: |
(Signature of Limited Partner) | |
(Street Address) | |
(City) (State) (Zip Code) |
Signature Guaranteed by: |
If Shares are to be issued, issue to:
Name:
Please insert social security or identifying number:
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EXHIBIT E
DESIGNATION OF THE PREFERENCES, CONVERSION
AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DISTRIBUTIONS, QUALIFICATIONS AND TERMS
AND CONDITIONS OF REDEMPTION
OF THE
LTIP UNITS
The following are the terms of the LTIP Units:
1. | Vesting . |
A. Vesting, Generally . LTIP Units may, in the sole discretion of the General Partner, be issued subject to vesting, forfeiture and additional restrictions on transfer pursuant to the terms of an award, vesting or other similar agreement (a “ Vesting Agreement ”). The terms of any Vesting Agreement may be modified by the General Partner from time to time in its sole discretion, subject to any restrictions on amendment imposed by the relevant Vesting Agreement or by the terms of any plan pursuant to which the LTIP Units are issued, if applicable. LTIP Units that have vested and are no longer subject to forfeiture under the terms of a Vesting Agreement are referred to as “ Vested LTIP Units ”; all other LTIP Units are referred to as “ Unvested LTIP Units .” Subject to the terms of any Vesting Agreement, a holder of LTIP Units shall be entitled to transfer his or her LTIP Units pursuant to Article XI of the Agreement, including all restrictions therein.
B. Forfeiture or Transfer of Unvested LTIP Units . Unless otherwise specified in the relevant Vesting Agreement, upon the occurrence of any event specified in a Vesting Agreement resulting in either the forfeiture of any LTIP Units, or the right of the Partnership or the General Partner to repurchase LTIP Units at a specified purchase price, then upon the occurrence of the circumstances resulting in such forfeiture or if the Partnership or the General Partner exercises such right to repurchase, then the relevant LTIP Units shall immediately, and without any further action, be treated as cancelled or transferred to the General Partner, as applicable, and no longer outstanding for any purpose. Unless otherwise specified in the Vesting Agreement, no consideration or other payment shall be due with respect to any LTIP Units that have been forfeited, other than any distributions declared with a record date prior to the effective date of the forfeiture. In connection with any forfeiture or repurchase of LTIP Units, the balance of the portion of the Capital Account of the holder that is attributable to all of his or her LTIP Units shall be reduced by the amount, if any, by which it exceeds the target balance contemplated by Section 6.1.E of the Agreement, calculated with respect to the holder’s remaining LTIP Units, if any.
C. Legend . Any certificate evidencing an LTIP Unit shall bear an appropriate legend indicating that additional terms, conditions and restrictions on transfer, including without limitation any Vesting Agreement, apply to the LTIP Unit.
2. | Distributions . |
A. LTIP Distribution Amount . Commencing from the Distribution Participation Date (as defined below) established for any LTIP Units, for any quarterly or other period, holders of such LTIP Units shall be entitled to receive, if, when and as authorized by the General Partner out of funds legally available for the payment of distributions, regular cash distributions in an amount per unit equal to the amount that would have been payable to such holders if the LTIP Units had been OP Units for the quarterly or other period to which such distributions relate (assuming such LTIP Units was held for the entire quarter or other period) (the “ LTIP Distribution Amount ”). In addition, from and after the Distribution Participation Date, LTIP Units shall be entitled to receive, if, when and as authorized by the General Partner out of funds or other property legally available for the payment of distributions, non-liquidating special, extraordinary or other distributions which may be made from time to time, in an amount per unit equal to the amount of any non-liquidating special, extraordinary or other distributions that would have been payable to such holders if the LTIP Units had been OP Units (if applicable, assuming such LTIP Units were held for the entire period to which such distributions relate) which may be made from time to time. LTIP Units shall also be entitled to receive, if, when and as authorized by the General Partner out of funds or other property legally available for the payment of distributions, distributions representing proceeds of a sale or other disposition of all or substantially all of the assets of the Partnership in an amount per unit equal to the amount of any such distributions payable on the OP Units, if any, pursuant to Article V, whether made prior to, on or after the Distribution Participation Date, provided that the amount of such distributions shall not exceed the positive balances of the Capital Accounts of the holders of such LTIP Units to the extent attributable to the ownership of such LTIP Units. Distributions on the LTIP Units, if authorized, shall be payable on such dates and in such manner as may be authorized by the General Partner (any such date, a “ Distribution Payment Date ”); provided that the Distribution Payment Date and the record date for determining which holders of LTIP Units are entitled to receive a distribution shall be the same as the corresponding dates relating to the corresponding distribution on OP Units. Notwithstanding anything in the forgoing to the contrary, prior to the Distribution Participation Date with respect to an LTIP Unit, such LTIP Unit will only be entitled to receive such distributions, other than distributions representing proceeds of a sale or other disposition of all or substantially all of the assets of the Partnership, in an amount equal to the product of the LTIP Unit Initial Sharing Percentage for such LTIP Unit and the amount otherwise distributable with respect to such LTIP Unit pursuant to this Section 2.A.
B. Distribution Participation Date . The “ Distribution Participation Date ” for each LTIP Unit will be either such date as may be specified in the Vesting Agreement or other documentation pursuant to which such LTIP Units are issued, or if no Distribution Participation Date is so specified, the date on which such LTIP Unit is issued.
3. | Allocations . |
Commencing with the portion of the taxable year of the Partnership that begins on the Distribution Participation Date established for any LTIP Units, such LTIP Units shall be allocated Net Income and Net Loss in amounts per LTIP Unit equal to the amounts allocated per OP Unit, subject to the provisos of Section 6.1 of the Agreement. The General Partner is authorized in its discretion to delay or accelerate the participation of the LTIP Units in allocations of Net Income and Net Loss under this Section 3, or to adjust the allocations made under this Section 3 after the Distribution Participation Date, so that the ratio of (i) the total amount of Net Income or Net Loss allocated with respect to each LTIP Unit in the taxable year in which that LTIP Unit’s Distribution Participation Date falls (excluding special allocations under Section 6.1.E of the Agreement), to (ii) the total amount distributed to that LTIP Unit with respect to such period, is more nearly equal to the ratio of (i) the Net Income and Net Loss allocated with respect to the General Partner’s OP Units in such taxable year to (ii) the amounts distributed to the General Partner with respect to such OP Units in such taxable year. Until the Distribution Participation Date, each LTIP Unit will only be entitled to receive such allocations in an amount equal to the product of the LTIP Unit Initial Sharing Percentage for such LTIP Unit and the amount otherwise allocable with respect to such LTIP Unit pursuant to this Section 3.
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4. | Adjustments . |
The Partnership shall maintain at all times a one-to-one correspondence between Vested LTIP Units and OP Units for conversion, distribution and other purposes, including without limitation complying with the following procedures; provided that the foregoing is not intended to alter the special allocations pursuant to Section 6.1.E of the Agreement, differences between non-liquidating distributions to be made with respect to the LTIP Units and OP Units prior to the Distribution Participation Date for such LTIP Units, differences between liquidating distributions to be made with respect to the LTIP Units and OP Units pursuant to Section 13.2 of the Agreement or Section 2.A of this Exhibit E in the event that the Capital Accounts attributable to the LTIP Units are less than those attributable to the OP Units due to insufficient special allocations pursuant to Section 6.1.E of the Partnership Agreement or related provisions. If an Adjustment Event (as defined below) occurs, then the General Partner shall make a corresponding adjustment to the LTIP Units to maintain such one-for-one correspondence between OP Units and LTIP Units. The following shall be “ Adjustment Events ”: (A) the Partnership makes a distribution on all outstanding OP Units in Partnership Units, (B) the Partnership subdivides the outstanding OP Units into a greater number of units or combines the outstanding OP Units into a smaller number of units, or (C) the Partnership issues any Partnership Units in exchange for its outstanding OP Units by way of a reclassification or recapitalization of its OP Units. If more than one Adjustment Event occurs, the adjustment to the LTIP Units need be made only once using a single formula that takes into account each and every Adjustment Event as if all Adjustment Events occurred simultaneously. For the avoidance of doubt, the following shall not be Adjustment Events: (x) the issuance of Partnership Units in a financing, reorganization, acquisition or other similar business transaction, (y) the issuance of Partnership Units pursuant to any employee benefit or compensation plan or distribution reinvestment plan, or (z) the issuance of any Partnership Units to the General Partner in respect of a capital contribution to the Partnership of proceeds from the sale of securities by the General Partner. If the Partnership takes an action affecting the OP Units other than actions specifically described above as Adjustment Events and in the opinion of the General Partner such action would require an adjustment to the LTIP Units to maintain the one-to-one correspondence described above, the General Partner shall have the right to make such adjustment to the LTIP Units, to the extent permitted by law and by the terms of any plan pursuant to which the LTIP Units have been issued, in such manner and at such time as the General Partner, in its sole discretion, may determine to be appropriate under the circumstances. If an adjustment is made to the LTIP Units as herein provided the Partnership shall promptly file in the books and records of the Partnership an officer’s certificate setting forth such adjustment and a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after filing of such certificate, the Partnership shall mail a notice to each holder of LTIP Units setting forth the adjustment to his or her LTIP Units and the effective date of such adjustment.
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5. | Ranking . |
The LTIP Units shall rank on parity with OP Units in all respects, subject to the proviso in the first sentence of Section 4 of this Exhibit E.
6. | No Liquidation Preference. |
The LTIP Units shall have no liquidation preference.
7. | Right to Convert LTIP Units into OP Units . |
A. Conversion Right . A holder of LTIP Units shall have the right (the “ Conversion Right ”), at his or her option, at any time to convert all or a portion of his or her Vested LTIP Units into OP Units. Holders of LTIP Units shall not have the right to convert Unvested LTIP Units into OP Units until they become Vested LTIP Units; provided , however , that when a holder of LTIP Units is notified of the expected occurrence of an event that will cause his or her Unvested LTIP Units to become Vested LTIP Units, such Person may give the Partnership a Conversion Notice (as defined below) conditioned upon and effective as of the time of vesting, and such Conversion Notice, unless subsequently revoked by the holder of the LTIP Units prior to conversion, shall be accepted by the Partnership subject to such condition. The General Partner shall have the right at any time to cause a conversion of Vested LTIP Units into OP Units. In all cases, the conversion of any LTIP Units into OP Units shall be subject to the conditions and procedures set forth in this Section 7.
B. Number of Units Convertible . A holder of Vested LTIP Units may convert such Vested LTIP Units into an equal number of fully paid and non-assessable OP Units, giving effect to all adjustments (if any) made pursuant to Section 4. Notwithstanding the foregoing, in no event may an LTIP Unitholder convert a Vested LTIP Unit the Book-Up Target of which has not been reduced to zero.
C. Notice . In order to exercise his or her Conversion Right, a holder of LTIP Units shall deliver a notice (a “ Conversion Notice ”) in the form attached as Attachment A to this Exhibit E to the Partnership not less than 10 nor more than 60 days prior to a date (the “ Conversion Date ”) specified in such Conversion Notice. Each holder of LTIP Units covenants and agrees with the Partnership that all Vested LTIP Units to be converted pursuant to this Section 7 shall be free and clear of all liens. Notwithstanding anything herein to the contrary or the holding period requirement of Section 8.5A of the Agreement (but subject to the remainder of Section 8.5 of the Agreement), a holder of LTIP Units may deliver Notice of Redemption pursuant to Section 8.5 of the Agreement relating to those OP Units that will be issued to such holder upon conversion of such LTIP Units into OP Units in advance of the Conversion Date; provided , however , that the redemption of such OP Units by the Partnership shall in no event take place until the Conversion Date. For clarity, it is noted that the objective of this paragraph is to put a holder of LTIP Units in a position where, if he or she so wishes, the OP Units into which his or her Vested LTIP Units will be converted can be redeemed by the Partnership simultaneously with such conversion notwithstanding such OP Units were not held for one (1) year, with the further consequence that, if the General Partner elects to assume the Partnership’s redemption obligation with respect to such OP Units under Section 8.5 of the Agreement by delivering to such holder Shares rather than cash, then such holder can have such Shares issued to him or her simultaneously with the conversion of his or her Vested LTIP Units into OP Units. The General Partner shall cooperate with a holder of LTIP Units to coordinate the timing of the different events described in the foregoing sentence.
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D. Forced Conversion . The Partnership, at any time at the election of the General Partner, may cause any number of Vested LTIP Units held by a holder of LTIP Units to be converted (a “ Forced Conversion ”) into an equal number of OP Units, giving effect to all adjustments (if any) made pursuant to Section 4; provided , that the Partnership may not cause a Forced Conversion of any LTIP Units that would not at the time be eligible for conversion at the option of the holder of such LTIP Units pursuant to Section 7.B above. In order to exercise its right to cause a Forced Conversion, the Partnership shall deliver a notice (a “ Forced Conversion Notice ”) in the form attached as Attachment B to this Exhibit E to the applicable holder not less than 10 nor more than 60 days prior to the Conversion Date specified in such Forced Conversion Notice. A Forced Conversion Notice shall be provided in the manner provided in Section 15.1 of the Agreement.
E. Conversion Procedures . A conversion of Vested LTIP Units for which the holder thereof has given a Conversion Notice or the Partnership has given a Forced Conversion Notice shall occur automatically after the close of business on the applicable Conversion Date without any action on the part of such holder of LTIP Units, as of which time such holder of LTIP Units shall be credited on the books and records of the Partnership with the issuance as of the opening of business on the next day of the number of OP Units issuable upon such conversion. After the conversion of LTIP Units as aforesaid, the Partnership shall deliver to such holder of LTIP Units, upon his or her written request, a certificate of the General Partner certifying the number of OP Units and remaining LTIP Units, if any, held by such Person immediately after such conversion.
F. Treatment of Capital Account . For purposes of making future allocations under Section 6.1.E of the Agreement, the Economic Capital Account Balance of the applicable LTIP Unitholder shall be reduced, as of the date of conversion, by the amount of such Economic Capital Account Balance attributable to the converted LTIP Units.
G. Mandatory Conversion in Connection with a Transaction . If the Partnership or the General Partner shall be a party to any transaction (including without limitation a merger, consolidation, unit exchange, issuer tender offer for all or substantially all OP Units or other business combination or reorganization, or sale of all or substantially all of the Partnership’s assets, but excluding any transaction which constitutes an Adjustment Event), in each case as a result of which OP Units shall be exchanged for or converted into the right, or the holders of OP Units shall otherwise be entitled, to receive cash, securities or other property or any combination thereof (each of the foregoing being referred to herein as a “ Transaction ”), then the General Partner shall, immediately prior to the Transaction, exercise its right to cause a Forced Conversion with respect to the maximum number of LTIP Units then eligible for conversion, taking into account any allocations that occur in connection with the Transaction or that would occur in connection with the Transaction if the assets of the Partnership were sold at the Transaction price or, if applicable, at a value determined by the General Partner in good faith using the value attributed to the Partnership Units in the context of the Transaction (in which case the Conversion Date shall be the effective date of the Transaction and the conversion shall occur immediately prior to the effectiveness of the Transaction).
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In anticipation of such Forced Conversion and the consummation of the Transaction, the Partnership shall use commercially reasonable efforts to cause each holder of LTIP Units to be afforded the right to receive in connection with such Transaction in consideration for the OP Units into which his or her LTIP Units will be converted the same kind and amount of cash, securities and other property (or any combination thereof) receivable upon the consummation of such Transaction by a holder of the same number of OP Units assuming such holder of OP Units is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a “ Constituent Person ”), or an affiliate of a Constituent Person. In the event that holders of OP Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Transaction, prior to such Transaction the General Partner shall give prompt written notice to each holder of LTIP Units of such election, and shall use commercially reasonable efforts to afford such holders the right to elect, by written notice to the General Partner, the form or type of consideration to be received upon conversion of each LTIP Unit held by such holder into OP Units in connection with such Transaction. If a holder of LTIP Units fails to make such an election, such holder (and any of its transferees) shall receive upon conversion of each LTIP Unit held him or her (or by any of his or her transferees) the same kind and amount of consideration that a holder of a OP Unit would receive if such holder of OP Units failed to make such an election.
Subject to the rights of the Partnership and the General Partner under any Vesting Agreement and the terms of any plan under which LTIP Units are issued, the Partnership shall use commercially reasonable efforts to cause the terms of any Transaction to be consistent with the provisions of this Section 7 and to enter into an agreement with the successor or purchasing entity, as the case may be, for the benefit of any holders of LTIP Units whose LTIP Units will not be converted into OP Units in connection with the Transaction that will (i) contain provisions enabling the holders of LTIP Units that remain outstanding after such Transaction to convert their LTIP Units into securities as comparable as reasonably possible under the circumstances to the OP Units and (ii) preserve as far as reasonably possible under the circumstances the distribution, special allocation, conversion, and other rights set forth in the Agreement for the benefit of the holders of LTIP Units.
8. | Redemption at the Option of the Partnership. |
LTIP Units will not be redeemable at the option of the Partnership; provided , however , that the foregoing shall not prohibit the Partnership from repurchasing LTIP Units from the holder thereof if and to the extent such holder agrees to sell such LTIP Units.
E- 6 |
9. | Voting Rights. |
A. Voting with OP Units . Holders of LTIP Units shall have the right to vote on all matters submitted to a vote of the holders of OP Units; holders of LTIP Units and OP Units shall vote together as a single class, together with any other class or series of units of Limited Partnership Interest in the Partnership upon which like voting rights have been conferred. In any matter in which the LTIP Units are entitled to vote, including an action by written consent, each LTIP Unit shall be entitled to vote a Percentage Interest equal on a per unit basis to the Percentage Interest of the OP Units.
B. Special Approval Rights . Except as provided in Section 9.A above, holders of LTIP Units shall only (a) have those voting rights required from time to time by non-waivable provisions of applicable law, if any, and (b) have the additional voting rights that are expressly set forth in this Section 9.B. The General Partner and/or the Partnership shall not, without the affirmative vote of holders of more than 50% of the then outstanding LTIP Units affected thereby, given in person or by proxy, either in writing or at a meeting (voting separately as a class), take any action that would materially and adversely alter, change, modify or amend, whether by merger, consolidation or otherwise, the rights, powers or privileges of such LTIP Units, subject to the following exceptions:
(i) no separate consent of the holders of LTIP Units will be required if and to the extent that any such alteration, change, modification or amendment would equally, ratably and proportionately alter, change, modify or amend the rights, powers or privileges of the OP Units (in which event the holders of LTIP Units shall only have such voting rights, if any, as provided in Section 14.1 of the Agreement in accordance with Section 9.A above);
(ii) with respect to any merger, consolidation or other business combination or reorganization, so long as the LTIP Units either (x) are converted into OP Units immediately prior to the effectiveness of the transaction, (y) remain outstanding with the terms thereof materially unchanged, or (z) if the Partnership is not the surviving entity in such transaction, are exchanged for a security of the surviving entity with terms that are materially the same with respect to rights to allocations, distributions, redemption, conversion and voting as the LTIP Units and without any income, gain or loss expected to be recognized by the holder upon the exchange for federal income tax purposes (and with the terms of the OP Units or such other securities into which the LTIP Units (or the substitute security therefor) are convertible materially the same with respect to rights to allocations, distributions, redemption, conversion and voting), such merger, consolidation or other business combination or reorganization shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units, provided further, that if some, but not all, of the LTIP Units are converted into OP Units immediately prior to the effectiveness of the transaction (and neither clause (y) or (z) above is applicable), then the consent required pursuant to this Section will be the consent of the holders of more than 50% of the LTIP Units to be outstanding following such conversion and OP Units outstanding voting together as a single class pursuant to Section 9.A above;
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(iii) any creation or issuance of any OP Units or of any class or series of Partnership Units or Preferred Units of the Partnership (whether ranking junior to, on a parity with or senior to the LTIP Units with respect to payment of distributions, redemption rights and the distribution of assets upon liquidation, dissolution or winding up), which either (x) does not require the consent of the holders of OP Units or (y) does require such consent and is authorized by a vote of the holders of OP Units and LTIP Units voting together as a single class pursuant to Section 9.A above, together with any other class or series of units of limited partnership interest in the Partnership upon which like voting rights have been conferred, shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units;
(iv) any waiver by the Partnership of restrictions or limitations applicable to any outstanding LTIP Units with respect to any holder or holders thereof shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units with respect to other holders. The foregoing voting provisions will not apply if, as of or prior to the time when the action with respect to which such vote would otherwise be required will be taken or be effective, all outstanding LTIP Units shall have been converted and/or redeemed, or provision is made for such redemption and/or conversion to occur as of or prior to such time; and
(v) the General Partner shall have the power, without the consent of holders of LTIP Units, to amend the Agreement as may be required to reflect any change to the Agreement not otherwise specifically permitted by this Section 9.B that the General Partner deems necessary or appropriate in its sole discretion, provided that such change does not adversely affect or eliminate any right granted to holders of LTIP Units requiring their approval.
[ End of text ]
E- 8 |
Attachment A to Exhibit E
Notice of Election by Partner to Convert
LTIP Units into OP Units
The undersigned holder of LTIP Units hereby irrevocably elects to convert the number of Vested LTIP Units in Clipper Realty L.P. (the “ Partnership ”) set forth below into OP Units in accordance with the terms of the Limited Partnership Agreement of the Partnership, as amended. The undersigned hereby represents, warrants, and certifies that the undersigned: (a) has title to such LTIP Units, free and clear of the rights or interests of any other person or entity other than the Partnership; (b) has the full right, power, and authority to cause the conversion of such LTIP Units as provided herein; and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consent or approve such conversion.
Name of Holder: | |
(Please Print: Exact Name as Registered with Partnership) |
Number of LTIP Units to be Converted: |
Conversion Date: |
(Signature of Holder: Sign Exact Name as Registered with Partnership) |
(Street Address) | ||||
(City) | (State) | (Zip Code) |
Signature Guaranteed by: | ||||
Attachment B to Exhibit E
Notice of Election by Partnership to Force Conversion
of LTIP Units into OP Units
Clipper Realty L.P. (the “ Partnership ”) hereby irrevocably elects to cause the number of LTIP Units held by the holder of LTIP Units set forth below to be converted into OP Units in accordance with the terms of the Limited Partnership Agreement of the Partnership.
Name of Holder: | ||
(Please Print: Exact Name as Registered with Partnership) |
Number of LTIP Units to be Converted: |
Conversion Date: |
Exhibit 21.1
Subsidiaries of Clipper Realty Inc.
Name of Subsidiary | Jurisdiction of Incorporation/Formation | |
50 Murray Mezz LLC | Delaware | |
50 Murray Street Acquisition LLC | Delaware | |
50/53 JV LLC | Delaware | |
141 Livingston Owner LLC | Delaware | |
250 Livingston Owner LLC | Delaware | |
Aspen 2016 LLC | Delaware | |
Berkshire Equity LLC | Delaware | |
Clipper Realty L.P. | Delaware | |
Clipper TRS LLC | Delaware | |
Gunki Holdings LLC | Delaware | |
Kent Realty, LLC | New York | |
Renaissance Equity Holdings LLC | New York | |
Renaissance Equity Holdings LLC A | New York | |
Renaissance Equity Holdings LLC B | New York | |
Renaissance Equity Holdings LLC C | New York | |
Renaissance Equity Holdings LLC D | New York | |
Renaissance Equity Holdings LLC E | New York | |
Renaissance Equity Holdings LLC F | New York | |
Renaissance Equity Holdings LLC G | New York |
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Clipper Realty Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated March 30, 2016, relating to the consolidated and combined financial statements and schedule of Clipper Realty Inc. and Predecessor, which is contained in that Prospectus.
We also consent to the reference to us under the caption “Experts” in the Prospectus.
/s/ BDO USA, LLP | ||
BDO USA, LLP |
New York, New York
January 31, 2017
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITOR
We consent to the use in this Registration Statement on Form S-11 of Clipper Realty Inc. of our report dated October 9, 2015 relating to the statement of revenues and certain expenses of the properties located at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of New York, New York, for the year ended December 31, 2013, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading “Experts” in the Prospectus.
/s/ BERDON LLP
New York, New York
January 31, 2017
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITOR
We consent to the use in this Registration Statement on Form S-11 of Clipper Realty Inc. of our report dated March 29, 2016 relating to the statement of revenues and certain expenses of the Aspen property for the year ended December 31, 2015, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading “Experts” in the Prospectus.
/s/ LIPSKY GOODKIN & CO., P.C.
New York, New York
Jan. 30, 2017