Common use of Entity Specific Debt Clause in Contracts

Entity Specific Debt. In this example, all of the facts described in the Base Case above are the same, except that Company C is subject to $25 of Entity Specific Debt related to Shopping Center 2, which will be assumed by the Operating Partnership upon the completion of the Formation Transactions. This results in the following variation of the variable “AA” in the formula as applied to Shopping Center 2: Shopping Center 1 0 = 25 – 25 Shopping Center 2 -25 = 25 – 50 Shopping Center 3 0 = 25 – 25 Shopping Center 4 0 = 25 – 25 Total Portfolio Adjustment (“TPA”) -25 In addition, by virtue of the assumption by the Operating Partnership of this Entity Specific Debt in connection with the Formation Transactions, the Total Formation Transaction Value will have decreased by the $25 value of the Entity Specific Debt from $400 to $375. Applying the Equity Value formula reflecting these new facts and assuming that there is no increase or decrease in mortgage debt outstanding, the Equity Value of each of the four properties is as set forth below: Shopping Center 1 100 = 25% x [375 - (-25)] + 0 Shopping Center 2 75 = 25% x [375 - (-25)] + (-25) Shopping Center 3 100 = 25% x [375 - (-25)] + 0 Shopping Center 4 100 = 25% x [375 - (-25)] + 0 Total Equity Value 375 Here, through the operation of the Equity Value formula, all $25 of Company C’s Entity Specific Debt has been allocated to Shopping Center 2 and has not impacted the Equity Value of the other Target Assets. However, without further adjustment, Company C and Company D, each as a 50% owner of Shopping Center 2, are equally burdened by Company C’s Entity Specific Debt as show below: Allocated Share (unadjusted) of Equity Value before Inclusion of Entity Specific Debt: 50 = 100 x 50% 50 = 100 x 50% Allocated Share (unadjusted) of Equity Value after Inclusion of Entity Specific Debt: 37.5 = 75 x 50% 37.5 = 75 x 50% Decrease in Allocated Share (unadjusted) of Equity Value due to Inclusion of Entity Specific Debt: 12.5 = 50 - 37.5 12.5 = 50 - 37.5 Accordingly, by virtue of the operation of the Equity Value formula, Company C has only been allocated half ($12.5 of $25.0) of the Company C Entity Specific Debt obligation that should be allocated to Company C, and Company D has been allocated the remaining $12.5. In order to address this inequitable allocation of Company C Entity Specific Debt , the definition of “Allocated Share” provides for an adjustment to (i) reduce the amount that would otherwise be payable to Company C by the amount by which the Entity Specific Debt exceeds the amount of such obligation that was previously allocated to Company C and (ii) increase the amount payable to Company D by the amount of the Entity Specific Debt obligation that was previously allocated to Company D, with the following outcome: Allocated Share (adjusted): 25 = 37.5 - 12.5 50 = 37.5 + 12.5 As a result of this adjustment to the Allocated Shares of Company C and Company D, the economic impact of all of Company C’s Entity Specific Debt will be allocated to Company C.