Mezzanine Loan Agreement

MEZZANINE LOAN AGREEMENT Dated as of November 17, 2006 Between KBS REIT ACQUISITION V, LLC as Borrower and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. As Lender

Exhibit 10.38

 


MEZZANINE LOAN AGREEMENT

Dated as of November 17, 2006

Between

KBS REIT ACQUISITION V, LLC

as Borrower

And

GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.

as Lender

 



TABLE OF CONTENTS

 

          Page

1.

   DEFINITIONS; PRINCIPLES OF CONSTRUCTION    1
   1.1    Specific Definitions    1
   1.2    Index of Other Definitions    11
   1.3    Principles of Construction    12

2.

   GENERAL LOAN TERMS    12
   2.1    The Loan    12
   2.2    Interest; Monthly Payments    12
      2.2.1   

Generally

   12
      2.2.2   

Default Rate

   13
      2.2.3   

Taxes

   13
      2.2.4   

Breakage Indemnity

   13
      2.2.5   

New Payment Date

   13
   2.3    Loan Repayment    14
      2.3.1   

Repayment

   14
      2.3.2   

Mandatory Prepayments

   14
      2.3.3   

Optional Prepayments

   14
   2.4    Release of Collateral    14
   2.5    Payments and Computations    14
      2.5.1   

Making of Payments

   14
      2.5.2   

Computations

   15
      2.5.3   

Late Payment Charge

   15
   2.6    Origination Fee    15

3.

   CASH MANAGEMENT AND RESERVES    15
   3.1    Cash Management Arrangements    15
   3.2    [Intentionally deleted]    15
   3.3    Grant of Security Interest; Application of Funds    15
   3.4    Cash Flow Allocation    16
   3.5    Permitted REIT Distributions    17

4.

   REPRESENTATIONS AND WARRANTIES    17
   4.1    Organization; Special Purpose    17
   4.2    Proceedings; Enforceability    17
   4.3    No Conflicts    17

 

(i)


                    Page
   4.4    Litigation    17
   4.5    Agreements    18
   4.6    Title    18
   4.7    No Bankruptcy Filing    18
   4.8    Full and Accurate Disclosure    18
   4.9    Tax Filings    19
   4.10    No Plan Assets    19
   4.11    Compliance    19
   4.12    Contracts    20
   4.13    Federal Reserve Regulations; Investment Company Act    20
   4.14    Easements; Utilities and Public Access    20
   4.15    Physical Condition    20
   4.16    Leases    21
   4.17    Fraudulent Transfer    21
   4.18    Ownership of Borrower and Owner    22
   4.19    Purchase Options    22
   4.20    Management Agreement    22
   4.21    Hazardous Substances    22
   4.22    Name; Principal Place of Business    23
   4.23    Other Debt    23
   4.24    Pledged Collateral    23
   4.25    Senior Loan    23
   4.26    Perfection of Accounts    24
   4.27    No Contractual Obligations    24

5.

   COVENANTS    24
   5.1    Existence    24
   5.2    Taxes and Other Charges    24
   5.3    Access to Property    25
   5.4    Repairs; Maintenance and Compliance; Alterations    25
      5.4.1   

Repairs; Maintenance and Compliance

   25
      5.4.2   

Alterations

   25

 

(ii)


                   Page
  5.5    Performance of Other Agreements    26
  5.6    Cooperate in Legal Proceedings    26
  5.7    Further Assurances    26
  5.8    Environmental Matters    26
     5.8.1   

Hazardous Substances

   26
     5.8.2   

Environmental Monitoring

   27
  5.9    Title to the Pledged Collateral    29
  5.10    Leases    29
     5.10.1   

Generally

   29
     5.10.2   

Leasing

   29
     5.10.3   

Lease Execution and Modification

   30
     5.10.4   

Additional Covenants with respect to Leases

   30
  5.11    Estoppel Statement    30
  5.12    Property Management    30
     5.12.1   

Management Agreement

   30
     5.12.2   

Termination of Manager

   31
  5.13    Special Purpose Bankruptcy Remote Entity    31
  5.14    Assumption in Non-Consolidation Opinion    31
  5.15    Change in Business or Operation of Property    31
  5.16    Debt Cancellation    32
  5.17    Affiliate Transactions    32
  5.18    Zoning    32
  5.19    No Joint Assessment    32
  5.20    Principal Place of Business    32
  5.21    Change of Name, Identity or Structure    32
  5.22    Indebtedness    33
  5.23    Licenses    33
  5.24    Compliance with Restrictive Covenants, Etc.    33
  5.25    ERISA    33
  5.26    Prohibited Transfers    33
  5.27    Liens    33
  5.28    Dissolution    34
  5.29    Expenses    34

 

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                    Page
   5.30    Indemnity    34
   5.31    Limitation on Securities Issuances    35
   5.32    Patriot Act Compliance    36
   5.33    Limitation on Distributions    36
   5.34    Contractual Obligations    36

6.

   NOTICES AND REPORTING    37
   6.1    Notices    37
   6.2    Borrower Notices and Deliveries    37
   6.3    Financial Reporting    38
      6.3.1   

Bookkeeping

   38
      6.3.2   

Annual Reports

   38
      6.3.3   

Monthly/Quarterly Reports

   38
      6.3.4   

Other Reports

   39
      6.3.5   

Annual Budget

   40
      6.3.6   

Senior Loan

   40
      6.3.7   

Inspection

   40

7.

   INSURANCE; CASUALTY; AND CONDEMNATION    41
   7.1    Insurance    41
      7.1.1   

Coverage

   41
   7.2    Policies    43
   7.3    Casualty    44
      7.3.1   

Notice; Restoration

   44
      7.3.2   

Settlement of Proceeds

   45
   7.4    Condemnation    45
      7.4.1   

Notice; Restoration

   45
      7.4.2   

Collection of Award

   45
   7.5    Application of Proceeds or Award    46

8.

   DEFAULTS    46
   8.1    Events of Default    46
   8.2    Remedies    47
      8.2.1   

Acceleration

   48
      8.2.2   

Remedies Cumulative

   48
      8.2.3   

[Intentionally Omitted]

   48
      8.2.4   

Delay

   48
      8.2.5   

Lender’s Right to Perform

   49

 

(iv)


                    Page

9.

   SENIOR LOAN    49
   9.1    Compliance with Senior Loan Documents    49
   9.2    Senior Loan Defaults    49
   9.3    Senior Loan Estoppels    50
   9.4    No Amendments to Senior Loan Documents    51
   9.5    Acquisition of the Senior Loan    51
   9.6    Deed in Lieu of Foreclosure    51
   9.7    Refinancing or Prepayment of the Senior Loan    52
   9.8    Intercreditor Agreement    52

10.

   SPECIAL PROVISIONS    52
   10.1    Sale of Note and Secondary Market Transaction    52
      10.1.1   

General; Borrower Cooperation

   52
      10.1.2   

Use of Information

   53
      10.1.3   

Borrower’s Obligations Regarding Disclosure Documents

   53
      10.1.4   

Borrower Indemnity Regarding Filings

   54
      10.1.5   

Indemnification Procedure

   54
      10.1.6   

Contribution

   55
      10.1.7   

[Intentionally Omitted]

   55
      10.1.8   

Severance of Loan

   55

11.

   MISCELLANEOUS    56
   11.1    Exculpation    56
   11.2    Brokers and Financial Advisors    57
   11.3    Retention of Servicer    57
   11.4    Survival    58
   11.5    Lender’s Discretion    58
   11.6    Governing Law    58
   11.7    Modification, Waiver in Writing    58
   11.8    Trial by Jury    59
   11.9    Headings/Exhibits    59
   11.10    Severability    59
   11.11    Preferences    59
   11.12    Waiver of Notice    59
   11.13    Remedies of Borrower    59

 

(v)


              Page
  11.14   

Prior Agreements

   60
  11.15   

Offsets, Counterclaims and Defenses

   60
  11.16   

Publicity

   60
  11.17   

No Usury

   60
  11.18   

Conflict; Construction of Documents

   61
  11.19   

No Third Party Beneficiaries

   61
  11.20   

Assignment

   61
  11.21   

Proofs of Claim

   61
  11.22   

Waiver of Stay

   61
  11.23   

Certain Additional Rights of Lender

   62
  11.24   

Set-Off

   62
  11.25   

Counterparts

   63

 

Schedule 1 -

  

Exceptions to Representations and Warranties

Schedule 2

  

Rent Roll

Schedule 3 -

  

Organization of Borrower

Schedule 4 -

  

Definition of Special Purpose Bankruptcy Remote Entity

 

(vi)


MEZZANINE LOAN AGREEMENT

THIS MEZZANINE LOAN AGREEMENT dated as of November 17, 2006 (as the same may be modified, supplemented, amended or otherwise changed, this “Agreement”) is made between KBS REIT ACQUISITION V, LLC, a Delaware limited liability company (together with its permitted successors and assigns, “Borrower”), and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation (together with its successors and assigns, “Lender”).

 

1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION

1.1 Specific Definitions. The following terms have the meanings set forth below:

Affiliate: as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person.

Allocated Share: shall mean at any time and from time to time, an amount expressed as a percentage which is calculated by dividing the cost basis of the Property by the cost basis of all real property owned directly or indirectly by the REIT or the REIT Operating Partnership.

Approved Asset Manager: an entity Controlled by Peter M. Bren or Charles J. Schreiber, including KBS Capital Advisors LLC, or another asset manager reasonably acceptable to Lender.

Approved Capital Expenses: Capital Expenses incurred by Owner, provided that during a Cash Management Period, such Capital Expenses shall either be (i) included in the Approved Capital Budget for the current calendar month or (ii) approved by Lender.

Borrower’s Knowledge: the knowledge of Borrower or Owner or any of its respective directors, officers, members or employees. Such Borrower or Owner or any of its respective directors, officers, members or employees shall be deemed to have knowledge of any applicable fact if (i) such Person has actual knowledge of such fact, or (ii) such Person has received a notification of such fact.

Business Day: any day other than a Saturday, Sunday or any day on which commercial banks in New York, New York are authorized or required to close.

Capital Expenses: expenses that are capital in nature or required under GAAP to be capitalized.

Cash Management Period: shall have the meaning set forth in the Senior Loan Agreement.


Code: 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: all collateral securing or intended to secure the Debt, including the Pledged Collateral.

Contractual Obligation: 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.

Control: with respect to any Person, either (i) ownership directly or indirectly of 49% or more of all equity interests in such Person or (ii) 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.

Debt: the unpaid Principal, all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Loan or under any Loan Document.

Default: the occurrence of any event under any Loan Document which, with the giving of notice or passage of time, or both, would be an Event of Default.

Default Rate: a rate per annum equal to the lesser of (i) the maximum rate permitted by applicable law, or (ii) five percent (5%) above the Interest Rate, compounded monthly.

Deposit Bank: Wachovia Bank, National Association, or such other bank or depository selected by Lender in its discretion.

Determination Date” shall mean, with respect to any Interest Period, the date which is two Eurodollar Business Days prior to the commencement of such Interest Period.

Eligible Account: a separate and identifiable account from all other funds held by the holding institution that is either (i) an account or accounts (a) maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) as to which Lender has received a Rating Comfort Letter from each of the applicable Rating Agencies with respect to holding funds in such account, or (ii) a segregated trust account or accounts 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 and subject to supervision or examination by federal and state authorities. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.

Eligible Institution: a depository institution 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, in the case of accounts in

 

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which funds are held for thirty (30) days or less or, in the case of Letters of Credit or accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least “AA” by Fitch and S&P and “Aa2” by Moody’s.

ERISA: the Employment Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.

ERISA Affiliate: all members of a controlled group of corporations and all trades and business (whether or not incorporated) under common Control and all other entities which, together with Borrower and/or Owner, are treated as a single employer under any or all of Section 414(b) , (c) , (m) or (o) of the Code.

Eurodollar Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks in the City of London, England are closed for interbank or foreign exchange transactions.

Future Required Repairs: all repairs and capital improvements to the Property required to maintain and operate the Property, required to comply with any Leases or required to comply with applicable law.

GAAP: generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

Governmental Authority: any court, board, agency, commission, office or authority of any nature whatsoever or any governmental unit (federal, state, county, district, municipal, city or otherwise) now or hereafter in existence.

Guarantor: KBS Limited Partnership, a Delaware limited partnership.

Interest Period: (i) the period from the date of Loan funding through the first day thereafter that is the fifth day of the next succeeding calendar month and (ii) each period thereafter from the sixth day of each calendar month through the fifth day of the next succeeding calendar month; except that the Interest Period, if any, that would otherwise commence before and end after the Maturity Date shall end on the Maturity Date. Notwithstanding the foregoing, if Lender exercises its right to change the Payment Date to a New Payment Date in accordance with Section 2.2.5, then from and after such election, each Interest Period shall be the period from the New Payment Date in each calendar month through the day immediately preceding the next succeeding New Payment Date.

Interest Rate: for any Interest Period, the Spread plus LIBOR for such Interest Period (or, when applicable pursuant to this Agreement or any other Loan Document, the Default Rate).

Leases: all leases and other agreements or arrangements heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, the Property or the Improvements, including any guarantees, extensions, renewals, modifications or amendments thereof and all additional remainders, reversions and other rights and estates appurtenant thereunder.

 

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Legal Requirements: statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, Owner, any Loan Document or all or part of the Collateral or the Property or the construction, ownership, use, alteration or operation thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instrument, either of record or known to Borrower, at any time in force affecting all or part of the Property.

LIBOR: with respect to any Interest Period, a floating interest rate per annum (rounded upwards to the next 1/16 of 1%) equal to the rate for U.S. dollar deposits with one month maturities which appears on Telerate Page 3750 as of 11:00 am, London time on the related Interest Determination Date; provided, however, that if such rate does not appear on Telerate Page 3750, “LIBOR” shall mean a rate per annum equal to the rate at which U.S. dollar deposits in an amount approximately equal to the Loan, and with one month maturities, are offered in immediately available funds in the London Interbank Market to the London office of National Westminster Bank, Plc by leading banks in the Eurodollar market at 11:00 a.m., London time. “Telerate Page 3750” means the display designated as “Page 3750” on the Associated Press-Dow Jones Telerate Service (or such other page as may replace Page 3750 on the Associated Press-Dow Jones Telerate Service or such other service as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying British Banker’s Association interest settlement rates for U.S. Dollar deposits). Any LIBOR determined on the basis of the rate displayed on Telerate Page 3750 in accordance with the provisions hereof shall be subject to corrections, if any, made in such rate and displayed by the Associated Press-Dow Jones Telerate Service within one (1) hour of the time when such rate is first displayed by such Service.

Lien: 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 (i) all or any part of the Property or any interest therein, (ii) any direct or indirect interest in Owner, Borrower or Sole Member or (iii) all or part of the Collateral, 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: (i) any Casualty to the Property or any material portion thereof, (ii) any Condemnation of the Property or any material portion thereof, (iii) a Transfer of the Property in connection with realization thereon following an Event of Default under the Senior Loan, including without limitation a foreclosure sale, or (iv) any refinancing or payoff of the Property or the Senior Loan permitted hereunder (including any refund of reserves on deposit with Senior Lender (but not disbursements therefrom)).

Loan Documents: this Agreement and all other documents, agreements and instruments now or hereafter evidencing, securing or delivered to Lender in connection with the Loan, including the following, each of which is dated as of the date hereof: (i) the Promissory Note or Promissory Notes made by Borrower to Lender in the aggregate principal amount equal to the Loan (the “Note”), (ii) the Pledge and Security Agreement (the “Pledge”) made by

 

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Borrower in favor of Lender which creates a security interest in the 100% ownership interest of Borrower in Owner and related additional collateral (the “Pledged Collateral”), and (iii) the Subordinate Deposit Account Agreement (the “Subordinate Deposit Account Agreement”) among Borrower, Lender, Manager and the Deposit Bank; as each of the foregoing may be (and each of the foregoing defined terms shall refer to such documents as they may be) amended, restated, replaced, severed, split, supplemented or otherwise modified from time to time (including pursuant to Section 10.1.8).

Management Agreement: the Property Management Agreement dated November 17, 2006, between Borrower and Manager, pursuant to which Manager is to manage the Property, as same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with Section 5.12.

Manager: CB Richard Ellis – N.E. Partners, LP, a Delaware partnership, or any successor, assignee or replacement manager appointed by Borrower in accordance with Section 5.12.

Material Adverse Effect: occurrence or existence of a condition or event which would have a material adverse effect on (i) the business, profits, operations or financial condition of Borrower or Owner, (ii) the ability of Borrower to pay any amounts under the Loan Documents as they become due or (iii) the value of the Property or the Collateral.

Material Alteration: any alteration affecting structural elements of the Property the cost of which exceeds $1,000,000; provided, however, that in no event shall (i) any Future Required Repairs, (ii) any tenant improvement work performed pursuant to any Lease existing on the date of funding hereunder or entered into thereafter in accordance with the provisions of this Agreement, or (iii) alterations performed as part of a Restoration, constitute a Material Alteration.

Material Lease: all Leases which individually or in the aggregate with respect to the same tenant and its Affiliates (i) cover more than 10,000 square feet of the Improvements or (ii) have a term of more than five years (not taking into account any extension options).

Maturity Date: the date on which the final payment of principal of the Note becomes due and payable as therein provided, whether at the Stated Maturity Date, by declaration of acceleration, or otherwise.

Net Liquidation Proceeds after Debt Service: with respect to any Liquidation Event, all amounts paid to or received by or on behalf of Owner in connection with such Liquidation Event, including, without limitation, proceeds of any sale, refinancing or other disposition or liquidation, less (i) Lender’s and/or Senior Lender’s reasonable costs incurred in connection with the recovery thereof, (ii) the costs incurred by Owner in connection with a restoration of the Property made in accordance with the Senior Loan Documents, (iii) amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Senior Loan Documents (A) to Senior Lender or (B) to Owner under Section 3.11(a)(i), (iv) in the case of a foreclosure sale, disposition or Transfer of the Property in connection with realization thereon following an Event of Default under the Senior Loan, such reasonable and customary costs and

 

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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 Senior Lender under the Senior Loan Documents as Senior Lender shall be entitled to receive reimbursement for under the terms of the Senior Loan Documents and (vi) in the case of a refinancing of the Senior Loan, such costs and expenses (including reasonable attorneys’ fees) of such refinancing as shall be reasonably approved by Lender.

Net Operating Income: shall have the meaning set forth in the Senior Loan Agreement.

Officer’s Certificate: a certificate delivered to Lender by Borrower, or the REIT, as the case may be, which is signed by an authorized person on behalf of such party.

Other Charges: 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 the Property, now or hereafter levied or assessed or imposed against the Property or any part thereof.

Owner: KBS 825 University Avenue, LLC, a Delaware limited liability company.

Payment Date: the 6th day of each calendar month or, upon Lender’s exercise of its right to change the Payment Date in accordance with Section 2.2.5, the New Payment Date (in either case, if such day is not a Business Day, the Payment Date shall be the first Business Day thereafter).

Permitted Encumbrances: (i) the Liens created by the Loan Documents, (ii) the Liens created by the Senior Loan Documents, (iii) all Liens and other matters disclosed in the Title Insurance Policy, (iv) Liens, if any, for Taxes or Other Charges not yet due and payable and not delinquent, (v) any workers’, mechanics’ or other similar Liens on the Property provided that any such Lien is bonded or discharged within sixty (60) days after Borrower or Owner first receives notice of such Lien, (vi) such other title and survey exceptions as Lender approves in writing in Lender’s discretion, (vii) Liens incurred by the REIT Operating Partnership or any Person having any direct or indirect ownership interest in the REIT Operating Partnership.

Permitted REIT Distributions: distributions (directly or indirectly) by Owner to the REIT to the extent that, if not distributed to the REIT:

(i) the REIT would, as the result of the failure of Owner to receive cash from the Property, be unable to distribute all REIT taxable income with respect to the Property; or

(ii) the REIT would, solely as a result of the failure of Owner to receive cash from the Property, fail to satisfy its obligations to pay the Permitted REIT Operating Expenses after exhausting all other REIT resources available to pay such expenses.

Permitted REIT Operating Expenses: Allocated Share of all actual costs, expenses and/or amounts incurred by, or payable or reimbursable by, the REIT or the REIT

 

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Operating Partnership for any of the following: (a) charges and fees charged by banks, audit fees, tax preparation fees, legal fees (not including any legal fees incurred by Owner at the property level or in any litigation or legal matter concerning Lender, including a bankruptcy filing affecting Owner), accounting consulting fees related to emerging technical pronouncements, tax consulting fees relating to real estate investment trust issues, due diligence costs and fees arising from state and local taxes, fees and expenses incurred in connection with annual corporate filings, and local, state and federal income taxes, (b) professional fees related to corporate structuring and/or filings, consulting fees and filing fees arising from SEC reporting requirements including, without limitation, 10K filings, 10Q filings, and 8k filings, consulting fees and other fees and costs related to Sarbanes - Oxley 404 compliance requirements.

For purposes of calculating Permitted REIT Distributions, Permitted REIT Operating Expenses (i) may be included in the calculation of Permitted REIT Distributions only to the extent that funds are not available from resources of the REIT other than the Property to pay such Permitted REIT Operating Expenses, (ii) shall include, without limitation, annual depreciation in an amount not less than $640,000, and (iii) shall not exceed $75,000, in any calendar year.

Permitted Transfers:

(i) a Lease entered into in accordance with the Loan Documents and the Senior Loan Documents; or

(ii) a Permitted Encumbrance; or

(iii) provided that no Default or Event of Default shall then exist, a transfer or encumbrance of any indirect (but not any direct) interest in Borrower (including, without limitation, the transfer or encumbrance of any interest in the REIT Operating Partnership, KBS REIT Holdings LLC, or the REIT) provided that:

(A) such transfer or encumbrance shall not (x) result in both Charles J. Schreiber, Jr. and Peter M. Bren no longer Controlling the Approved Asset Manager or (y) result in Approved Asset Manager no longer being the sole asset manager of the REIT and solely responsible for the day-to-day management, operating, direction and supervision of the operations and administration of the REIT and its assets pursuant to that certain Advisory Agreement dated as of November 8, 2005, between Approved Asset Manager and the REIT;

(B) after giving effect to such Transfer, the REIT (or an Approved Mezzanine Lender) shall continue to own at least 51% of all equity interests (direct or indirect) in Borrower and the Approved Asset Manager shall continue to Control Borrower; and

(C) Borrower shall give Lender notice of such Transfer together with copies of all instruments effecting such Transfer not less than ten (10) days prior to the date of such Transfer.

 

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Person: any individual, corporation, partnership, limited liability company, joint venture, estate, trust, unincorporated association, any other person or entity, and any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

Plan: (i) an employee benefit or other plan established or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA Affiliate makes or is obligated to make contributions and (ii) which is subject to Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code.

Property: the parcel of real property and Improvements thereon owned by Owner and encumbered by the Mortgage; together with all rights pertaining to such real property and Improvements. The Property is located in Norwood, Massachusetts.

Rating Agency: each of Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”), and Fitch, Inc., a division of Fitch Ratings Ltd. (“Fitch”) or any other nationally-recognized statistical rating organization to the extent any of the foregoing have been engaged by Lender or its designee in connection with or in anticipation of any Secondary Market Transaction.

Rating Comfort Letter: a letter issued by each of the applicable Rating Agencies which confirms that the taking of the action referenced to therein will not result in any qualification, withdrawal or downgrading of any existing ratings of Securities created in a Secondary Market Transaction.

REIT: KBS Real Estate Investment Trust, Inc., a Maryland corporation.

REIT Operating Partnership: KBS Limited Partnership, a Delaware limited partnership.

Rents: all rents, rent equivalents, 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 (excluding security, utility and other deposits until such deposits are forfeited to Borrower or Manager by the Person that made such deposit), 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 Owner, Manager or any of their agents or employees from any and all sources arising from or attributable to the Property and the Improvements, including all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of the Property or rendering of services by Borrower, Manager or any of their agents or employees and proceeds, if any, from business interruption or other loss of income insurance.

Security Documents: collectively, (i) the Pledge, (ii) a notice of pledge to Owner, (iii) all Uniform Commercial Code financing statements required by this Agreement to be filed with respect to the security interests in personal property created pursuant to the Security

 

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Documents and (iv) all other documents and agreements executed or delivered to Lender by Borrower in connection with any of the foregoing documents.

Senior Deposit Account: the “Deposit Account” established pursuant to the terms of the Senior Loan Agreement (as such term is defined in Section 3.1 of the Senior Loan Agreement).

Senior Deposit Account Agreement: the Deposit Account Agreement dated the date hereof among Owner, Senior Lender, Manager and the Deposit Bank.

Senior Lender: Greenwich Capital Financial Products, Inc., or any successor holder of the Senior Loan.

Senior Loan: the $19,000,000 mortgage loan made by Senior Lender to Owner in accordance with the Senior Loan Agreement.

Senior Loan Agreement: the Loan Agreement dated as of the date hereof between Senior Lender and Owner, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, with the consent of Lender.

Senior Loan Documents: the “Loan Documents” as defined in the Senior Loan Agreement.

Senior Note: the Promissory Note dated the date hereof in the original principal amount of $19,000,000 made by Owner and payable to Senior Lender.

Servicer: a servicer selected by Lender to service the Loan, including any “master servicer” or “special servicer” appointed under the terms of any pooling and servicing agreement or similar agreement entered into as a result of a Secondary Market Transaction.

Sole Member: KBS Limited Partnership, a Delaware limited partnership, the sole member of Borrower.

Spread: (i) 1.5% from the date of funding and thereafter for the first eight full monthly Interest Periods through the fifth day of August, 2007;

(ii) Thereafter, (A) 2.5% if the aggregate of the Principal and the outstanding principal balance on the Senior Note does not exceed 80% of the appraised value of the Property as of the date of this Agreement, or (B) 3.5% if the aggregate of the Principal and the outstanding principal balance on the Senior Note exceeds 80% of the appraised value of the Property as of the date of this Agreement).

State: the state in which the Property is located.

Stated Maturity Date: December 6, 2007, as such date may be changed in accordance with Section 2.2.5.

 

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Subordinate Deposit Account: an Eligible Account at the Deposit Bank controlled by Lender.

Taxes: all real estate and personal property taxes, assessments, water rates or sewer rents, maintenance charges, impositions, vault charges and license fees, now or hereafter levied or assessed or imposed against all or part of the Property.

Term: the entire term of this Agreement, which shall expire upon repayment in full of the Debt and full performance of each and every obligation to be performed by Borrower pursuant to the Loan Documents.

Transfer: (i) any sale, conveyance, transfer, lease or assignment, or the entry into any agreement to sell, convey, transfer, lease or assign, whether by law or otherwise, of, on, in or affecting (w) all or part of the Property (including any legal or beneficial direct or indirect interest therein), (x) all or any part of the Collateral, (y) any direct or indirect interest in Borrower or Owner (including any profit interest), or (z) any direct or indirect interest in Sole Member or (ii) any change of Control of Borrower, Owner or Sole Member. For purposes hereof, (i) a Transfer of an interest in Borrower or Owner or Sole Member shall be deemed to include (a) if Borrower or Owner or Sole Member or controlling shareholder of Borrower or Owner or Sole Member 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 in one or a series of transactions by which an aggregate of more than ten percent (10%) of such corporation’s stock shall be vested in a party or parties who are not now stockholders or any change in the control of such corporation and (b) if Borrower, Owner, Sole Member or controlling shareholder of Borrower, Owner or Sole Member 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 (ii) a change of Control of Borrower or Owner or Sole Member shall be deemed to have occurred if (a) there is any change in the identity of any individual or entity or any group of individuals or entities who have the right, by virtue of any partnership agreement, articles of incorporation, by-laws, articles of organization, operating agreement or any other agreement, with or without taking any formative action, to cause Borrower or Owner (or Sole Member) to take some action or to prevent, restrict or impede Borrower (or Sole Member) from taking some action which, in either case, Borrower or Owner (or Sole Member) could take or could refrain from taking were it not for the rights of such individuals or (b) the individual or entity or group of individuals or entities that Control Borrower or Owner (and Sole Member) as described in clause (a) ever cease to own at least fifty-one percent (51%) of all equity interests (direct or indirect) in Borrower or Owner (and Sole Member).

UCC: the Uniform Commercial Code as in effect in the State of Delaware.

Welfare Plan: an employee welfare benefit plan, as defined in Section 3(1) of ERISA.

 

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1.2 Index of Other Definitions. The following terms are defined in the sections or Loan Documents indicated below:

Approved Annual Budget” - 6.3.5

Annual Budget “ - 6.3.5

Approved Capital Budget” - 6.3.5

Approved Operating Budget” - 6.3.5

Applicable Taxes” - 2.2.3

Award” - 7.3.2

Bankruptcy Proceeding” - 4.7

Borrower’s Recourse Liabilities” - 11.1

Cash Management Accounts” - 3.3

Casualty” - 7.2.1

Clearing Account Agreement” - Senior Loan Agreement

Condemnation” - 7.3.1

Disclosure Document” - 10.1.2

Easements” - 4.14

Environmental Laws” - 4.21

Equipment” - Mortgage

Event of Default” - 8.1

Exchange Act” - 10.1.2

Fitch” - 1.1 (Definition of Rating Agency)

GCM Group” - 10.1.3

Hazardous Substances” - 4.21

Improvements” - Mortgage

Indemnified Liabilities” - 5.30

Indemnified Party” - 5.30

Independent Director” - Schedule 4

Insurance Premiums” - 7.1.2

Insured Casualty” - 7.2.2

Intercreditor Agreement” - 9.8

Issuer” - 10.1.3

Late Payment Charge” - 2.5.3

Lender’s Consultant” - 5.7.1

Liabilities” - 10.1.3

Licenses” - 4.11

Loan” - 2.1

Moody’s” - 1.1 (Definition of Rating Agency)

Mortgage” - Senior Loan Agreement

New Payment Date”- 2.2.5

Note” - 1.1 (Definition of Loan Documents)

Notice” - 6.1

Permitted Indebtedness” - 5.22

Permitted Investments” - Subordinate Deposit Account Agreement

Pledge” - Section 1.1. (Definition of Loan Documents)

Pledged Collateral” - Section 1.1. (Definition of Loan Documents)

Policies” - 7.1.2

 

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Principal” - 2.1

Proceeds” - 7.2.2

Proposed Material Lease” - 5.10.2

Provided Information” - 10.1.1

Registration Statement” - 10.1.3

Remedial Work” - 5.7.2

Rent Roll” - 4.16

Required Records” - 6.3.6

Restoration” - Senior Loan Agreement

S&P” - 1.1 (Definition of Rating Agency)

Secondary Market Transaction” - 10.1.1

Securities” - 10.1.1

Securities Act” - 10.1.2

Special Purpose Bankruptcy Remote Entity” - 5.13

Springing Recourse Event” - 11.1

Subaccounts” - 3.1

Subordinate Deposit Account Agreement” - Section 1.1 (Definition of Loan Documents)

Title Insurance Policy” - Senior Loan Agreement

Toxic Mold” - 4.21

Underwriter Group” - 10.1.3

Underwriters” - 10.1.3

1.3 Principles of Construction. Unless otherwise specified, (i) all references to sections and schedules are to those in this Agreement, (ii) the words “hereof,” “herein” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision, (iii) all definitions are equally applicable to the singular and plural forms of the terms defined, (iv) the word “including” means “including but not limited to,” (v) accounting terms not specifically defined herein shall be construed in accordance with GAAP and (vi) all references to the Senior Loan Agreement, the Senior Note or any other Senior Loan Document shall mean the Senior Loan Agreement, the Senior Note or such other Senior Loan Document as in effect on the date hereof, as each of the same may hereafter be amended, restated, replaced, supplemented or otherwise modified, but only to the extent that Lender has consented to the foregoing pursuant to Section 9.4 of this Agreement.

 

2. GENERAL LOAN TERMS

2.1 The Loan. Lender is making a loan (the “Loan”) to Borrower in the original principal amount (the “Principal”) of $5,600,000, which shall mature on the Stated Maturity Date. Borrower acknowledges that the proceeds of the Loan shall be used solely to make a capital contribution to Owner. No amount repaid in respect of the Loan may be reborrowed.

2.2 Interest; Monthly Payments.

2.2.1 Generally. From and after the date the Loan is funded, interest on the unpaid Principal shall accrue at the Interest Rate and be payable as hereinafter provided. On the date the Loan is funded, Borrower shall pay interest on the unpaid Principal from the funding date through and including December 5, 2006. On January 6, 2007, and each Payment Date

 

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thereafter through and including the Maturity Date, Borrower shall pay interest on the unpaid Principal which has accrued through the last day of the Interest Period immediately preceding such Payment Date. All accrued and unpaid interest shall be due and payable on the Maturity Date. If the Loan is repaid on any date other than on a Payment Date (whether prior to or after the Stated Maturity Date), Borrower shall also pay interest that would have accrued on such repaid Principal to but not including the next Payment Date.

2.2.2 Default Rate. After the occurrence and during the continuance of an Event of Default, the entire unpaid Debt shall bear interest at the Default Rate, and shall be payable upon demand from time to time, to the extent permitted by applicable law.

2.2.3 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 Lender’s income, and franchise taxes imposed on 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 2.2.3 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 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 2.2.3), 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 2.2.3 shall be made within ten days after the date Lender makes written demand therefor.

2.2.4 Breakage Indemnity. Borrower shall indemnify Lender against any loss or expense which 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 Payment Date and (ii) any default in payment or prepayment of the Principal 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). Lender shall deliver to Borrower a statement for any such sums which it is entitled to receive pursuant to this Section 2.2.4, which statement shall be binding and conclusive absent manifest error.

2.2.5 New Payment Date. Lender shall have the right, to be exercised not more than once during the term of the Loan, to change the Payment Date to a date other than the sixth day of each month (a “New Payment Date”), on thirty (30) days’ written notice to Borrower; provided, however, that any such change in the Payment Date: (i) shall not modify the amount of regularly scheduled monthly interest payments, except that the first payment of interest payable on the New Payment Date shall be accompanied by interest at the interest rate herein provided for the period from the Payment Date in the month in which the New Payment Date first occurs to the New Payment Date, and (ii) shall change the Stated Maturity Date to the New Payment Date occurring in the month set forth in the definition of Stated Maturity Date.

 

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2.3 Loan Repayment.

2.3.1 Repayment. Borrower shall repay the entire outstanding principal balance of the Note in full on the Maturity Date, together with interest thereon to (but excluding) the date of repayment and any other amounts due and owing under the Loan Documents. Except during the continuance of an Event of Default, all proceeds of any repayment, including any prepayments of the Loan, shall be applied by Lender as follows in the following order of priority: First, accrued and unpaid interest at the Interest Rate; Second, to Principal; and Third, to any other amounts then due and owing under the Loan Documents. During the continuance of an Event of Default, all proceeds of repayment, including any payment or recovery on the Collateral (or any portion thereof) (whether through foreclosure or otherwise) shall, unless otherwise provided in the Loan Documents, be applied in such order and in such manner as Lender shall elect in Lender’s discretion.

2.3.2 Mandatory Prepayments.

(a) In the event of any Liquidation Event, Borrower shall cause the related Net Liquidation Proceeds After Debt Service to be deposited directly into the Subordinate Deposit Account, which shall then be applied by Lender on the next succeeding Payment Date towards the amount necessary to fully repay the Loan including all interest accrued to the date of prepayment and any other sums then due and payable by Borrower to Lender. Any amounts of Net Liquidation Proceeds After Debt Service in excess of the Debt shall be paid to Borrower.

(b) Borrower shall notify Lender of any Liquidation Event not later than one Business Day following the first date on which 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 has been entered into. The provisions of this Section 2.3.2 shall not be construed to contravene in any manner the restrictions and other provisions regarding refinancing of the Senior Loan or Transfer of the Property set forth in this Agreement and the other Loan Documents.

2.3.3 Optional Prepayments. Borrower shall have the right to prepay all or any portion of the Principal on any date provided that Borrower gives Lender at least fifteen (15) days’ prior written notice thereof. If any such prepayment is not made on a Payment Date, Borrower shall also pay interest that would have accrued on such prepaid Principal to but not including the next Payment Date.

2.4 Release of Collateral. Lender shall, upon the written request and at the expense of Borrower, upon payment in full of the Debt in accordance herewith, release the Liens of the Pledge and other Security Documents if not theretofore released.

2.5 Payments and Computations.

2.5.1 Making of Payments. Each payment by Borrower shall be made in funds settled through the New York Clearing House Interbank Payments System or other funds immediately available to Lender by 11:00 a.m., New York City time, on the date such payment is

 

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due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. Whenever any such payment shall be stated to be due on a day that is not a Business Day, such payment shall be made on the first Business Day thereafter. All such payments shall be made irrespective of, and without any deduction, set-off or counterclaim whatsoever and are payable without relief from valuation and appraisement laws and with all costs and charges incurred in the collection or enforcement thereof, including attorneys’ fees and court costs.

2.5.2 Computations. Interest payable under the Loan Documents shall be computed on the basis of the actual number of days elapsed over a 360-day year.

2.5.3 Late Payment Charge. If any Principal, interest or other sum due under any Loan Document is not paid by Borrower on the date on which it is due other than the payment due on the Maturity Date, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law (the “Late Payment Charge”), in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Such amount shall be secured by the Loan Documents.

2.6 Fees. On the date the loan is Funded, Borrower shall pay to Lender an origination fee equal to 0.25% of the Principal. On or before the first day of the fifth (5th) full calendar month of the Term, Borrower shall pay to Lender a facility fee equal to 0.125% of the then outstanding Principal and on or before the first day of the ninth (9th) full calendar month of the Term, Borrower shall pay to Lender a facility fee equal to 0.125% of the then outstanding Principal. Borrower’s failure to pay any such fee when due shall constitute an Event of Default hereunder.

 

3. CASH MANAGEMENT AND RESERVES

3.1 Cash Management Arrangements. Borrower shall cause Owner to cause all Rents to be deposited and applied in accordance with the Senior Loan Documents. During the continuance of a Cash Management Period, Borrower shall cause Owner to cause certain amounts on deposit in the Deposit Account to be deposited on each Payment Date by the Deposit Bank into the Subordinate Deposit Account as provided in Section 3.11 of the Senior Loan Agreement and applied and disbursed in accordance with this Agreement and the Subordinate Deposit Account Agreement. The Subordinate Deposit Account and all subaccounts established by Lender therein (which may be ledger or book entry accounts and not actual accounts) shall at all times be Eligible Accounts (such subaccounts are referred to herein as “Subaccounts”). The Subordinate Deposit Account and any Subaccount will be under the sole control and dominion of Lender, and Borrower shall have no right of withdrawal therefrom. Borrower shall pay for all expenses of opening and maintaining all of the above accounts.

3.2 [Intentionally deleted].

3.3 Grant of Security Interest; Application of 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 Lender, and grants to Lender a security interest in, all Borrower’s right, title and interest in and to all payments to or monies held

 

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in the Subordinate Deposit Account and all Subaccounts created pursuant to this Agreement (collectively, the “Cash Management Accounts”). Borrower shall not, without obtaining the prior written consent of Lender, 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 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, Lender may apply any sums in any Cash Management Account in any order and in any manner as Lender shall elect in Lender’s discretion without seeking the appointment of a receiver and without adversely affecting the rights of Lender to foreclose the Lien of the Security Documents 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 Lender; provided, that Owner shall be entitled to request Lender to open and maintain a separate Deposit Account (as defined in the Senior Loan Agreement) such that the funds with respect to the Property are not commingled with other monies held by Lender; provided, that Owner or Borrower shall pay the fees, costs and expenses with respect to such Deposit Account. All interest which accrues on the funds in any Cash Management 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 Subaccounts, if any, shall be promptly disbursed to Borrower.

3.4 Cash Flow Allocation.

(a) All amounts deposited into the Subordinate Deposit Account during the immediately preceding Interest Period shall be applied on each Payment Date as follows in the following order of priority: (i) First, to pay the monthly portion of the fees charged by the Deposit Bank in accordance with the Subordinate Deposit Account Agreement; and (ii) Second, to Lender to pay the interest due on such Payment Date (plus, if applicable, interest at the Default Rate and all other amounts, other than those described under other clauses of this Section 3.4, then due to Lender under the Loan Documents). Any amounts on deposit in the Subordinate Deposit Account and unapplied in accordance with the foregoing shall be returned to Borrower.

(b) The failure of Borrower to make all of the payments required under clauses (i) and (ii) of Section 3.4(a) in full on each Payment Date shall constitute an Event of Default under this Agreement; provided, however, if adequate funds are available in the Subordinate Deposit Account for such payments, the failure by the Deposit Bank to allocate such funds into the appropriate Subaccounts shall not constitute an Event of Default.

(c) Notwithstanding anything to the contrary contained in this Section 3.4, after the occurrence of an Event of Default, Lender may apply all amounts deposited into the Subordinate Deposit Account to the Debt in such order and in such manner as Lender shall elect in Lender’s sole and absolute discretion. Lender’s right to so apply such funds shall be in addition to all other rights and remedies provided to Lender under the Loan Documents.

 

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3.5 Permitted REIT Distributions. Notwithstanding anything stated to the contrary in this Section 3, Lender acknowledges and agrees that the funding of any amounts under this Section 3 is expressly subject to the provisions of Section 3.11 of the Senior Loan Agreement and the disbursement to Borrower of Permitted REIT Distributions to the extent provided therein.

 

4. REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender as of the funding date that, except to the extent (if any) disclosed on Schedule 1 with reference to a specific Section of this Article 4:

4.1 Organization; Special Purpose. Each of Borrower, Owner and Sole Member has been duly organized and is validly existing and in good standing under the laws of the state of its formation, with requisite power and authority, and all rights, licenses, permits and authorizations, governmental or otherwise, necessary to own its properties and to transact the business in which it is now engaged. Each of Borrower, Owner and Sole Member is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, business and operations. Each of Borrower, Owner is a Special Purpose Bankruptcy Remote Entity.

4.2 Proceedings; Enforceability. Borrower has taken all necessary action to authorize the execution, delivery and performance of the Loan Documents. The Loan Documents have been duly executed and delivered by Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and general principles of equity. The Loan Documents are not subject to, and Borrower has not asserted, any right of rescission, set-off, counterclaim or defense, including the defense of usury. No exercise of any of the terms of the Loan Documents, or any right thereunder, will render any Loan Document unenforceable.

4.3 No Conflicts. The execution, delivery and performance of the Loan Documents by Borrower and the transactions contemplated hereby 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 (other than pursuant to the Loan Documents) upon any of the property of Borrower or Owner pursuant to the terms of, any agreement or instrument to which Borrower or Owner is a party or by which its property 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 Borrower or Owner or any of their respective properties. Owner’s rights under the Licenses and the Management Agreement will not be adversely affected by the execution and delivery of the Loan Documents, Borrower’s performance thereunder, or the exercise of any remedies by Lender. Any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by Borrower of the Loan Documents has been obtained and is in full force and effect.

4.4 Litigation. To Borrower’s Knowledge, there are no actions, suits or other proceedings at law or in equity by or before any Governmental Authority now pending or

 

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threatened against or affecting Borrower, Sole Member, Owner, or the Property, which, if adversely determined, might have a Material Adverse Effect.

4.5 Agreements. Neither Borrower nor Owner is a party to any agreement or instrument or subject to any restriction which might have a Material Adverse Effect. Neither Borrower nor Owner is in default 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, the Collateral or the Property is bound which might have a Material Adverse Effect.

4.6 Title. To Borrower’s Knowledge, Owner has good, marketable and indefeasible title in fee to the real property and good title to the balance of the Property, free and clear of all Liens except the Permitted Encumbrances. The Pledge, together with any UCC Financing Statements required to be filed in connection therewith, will create a valid, perfected first priority lien on the Borrower’s interest in the Pledged Collateral, all in accordance with the terms thereof. The Permitted Encumbrances will not have a Material Adverse Effect. To Borrower’s Knowledge, no Condemnation or other proceeding has been commenced or is contemplated with respect to all or part of the Property or for the relocation of roadways providing access to the Property. To Borrower’s Knowledge and except as set forth in the Title Insurance Policy (as defined in the Senior Loan Agreement), there are no claims for payment for work, labor or materials affecting the Property which are or may become a Lien prior to, or of equal priority with, the Liens created by the Loan Documents. To Borrower’s Knowledge, there are no outstanding options to purchase or rights of first refusal affecting all or any portion of the Property. To Borrower’s Knowledge, the survey for the Property delivered to Senior Lender does not fail to reflect any material matter affecting the Property or the title thereto. Except as expressly set forth in the survey for the Property delivered to Lender, to Borrower’s Knowledge, all of the Improvements included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and no improvement on an adjoining property encroaches upon the Property, and no easement or other encumbrance upon the Property encroaches upon any of the Improvements, except those insured against by the Title Insurance Policy. Except as set forth in the Title Insurance Policy (as defined in the Senior Loan Agreement), and to Borrower’s Knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting the Property, or any contemplated improvements to the Property that may result in such special or other assessments.

4.7 No Bankruptcy Filing. Neither Owner nor Borrower is contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency law or the liquidation of all or a major portion of its property (a “Bankruptcy Proceeding”), and Borrower has no knowledge of any Person contemplating the filing of any such petition against Borrower or Owner. In addition, neither Borrower nor Sole Member has been a party to, or the subject of a Bankruptcy Proceeding for the past ten (10) years.

4.8 Full and Accurate Disclosure. No statement of fact made by Borrower in any Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained therein not misleading. There is no material fact presently known to Borrower that has not been disclosed to Lender which might have a Material Adverse Effect. All financial data, including the statements of cash flow and income and

 

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operating expense, that have been delivered to Lender in respect of Borrower, Owner, the Collateral and, to Borrower’s Knowledge, the Property (i) are true, complete and correct in all material respects, (ii) accurately represent the financial condition of Borrower, Owner and the Property as of the date of such reports, and (iii) to the extent prepared by an independent certified public accounting firm, have been prepared in accordance with GAAP consistently applied throughout the periods covered, except as disclosed therein. Neither Borrower nor Owner has any contingent liabilities, liabilities for delinquent taxes, unusual forward or long-term commitments, unrealized or anticipated losses from any unfavorable commitments or any liabilities or obligations not expressly permitted by this Agreement and the Senior Loan Agreement. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrower, Owner and, or to Borrower’s Knowledge, the Property from that set forth in said financial statements.

4.9 Tax Filings. To the extent required, Borrower and Owner have filed (or have obtained effective extensions for filing) all federal, state and local tax returns required to be filed and have paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by Borrower and Owner. Borrower believes that Borrower’s and Owner’s tax returns (if any) properly reflect the income and taxes of Borrower and Owner for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit.

4.10 No Plan Assets. As of the funding date and throughout the Term (i) neither Borrower nor Owner is or will be an “employee benefit plan,” as defined in Section 3(3) of ERISA, (ii) none of the assets of Borrower or Owner constitutes or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101, (iii) neither Borrower nor Owner is or will be a “governmental plan” within the meaning of Section 3(32) of ERISA, and (iv) transactions by or with Borrower or Owner are not and will not be subject to state statutes regulating investment of, and fiduciary obligations with respect to, governmental plans. As of the funding date, neither Borrower, nor Owner nor any member of a “controlled group of corporations” (within the meaning of Section 414 of the Code) maintains, sponsors or contributes to a “defined benefit plan” (within the meaning of Section 3(35) of ERISA) or a “multiemployer pension plan” (within the meaning of Section 3(37)(a) of ERISA).

4.11 Compliance. To Borrower’s Knowledge, and except as set forth in the survey and the zoning report for the Property delivered to Lender, Borrower, Owner and the Property and the use thereof comply in all material respects with all applicable Legal Requirements (including with respect to parking and applicable zoning and land use laws, regulations and ordinances). Neither Borrower nor Owner is in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, the violation of which might have a Material Adverse Effect. To Borrower’s Knowledge, the Property is used exclusively as a first class office building and other appurtenant and related uses. To Borrower’s Knowledge, 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. To Borrower’s Knowledge, no legal proceedings are pending or, to the knowledge of Borrower, threatened with respect to the zoning of the Property. Except as disclosed in the survey delivered to Lender and/or the title report

 

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delivered to Lender, 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. To Borrower’s Knowledge, all certifications, permits, licenses and approvals, including certificates of completion and occupancy permits required for the legal use, occupancy and operation of the Property (collectively, the “Licenses”), have been obtained and are in full force and effect. To Borrower’s Knowledge, the use being made of the Property is in conformity with the certificate of occupancy issued for the Property and all other restrictions, covenants and conditions affecting the Property.

4.12 Contracts. There are no service, maintenance or repair contracts affecting the Property that are not terminable on one (1) month’s notice or less without cause and without penalty or premium. All service, maintenance or repair contracts affecting the Property have been entered into at arms-length in the ordinary course of the business of Owner and provide for the payment of fees in amounts and upon terms comparable to existing market rates.

4.13 Federal Reserve Regulations; Investment Company Act. 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 that would be inconsistent with such Regulation U or any other regulation of such Board of Governors, or for any purpose prohibited by Legal Requirements or any Loan Document. 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; (ii) a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (iii) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

4.14 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 Policy and are in full force and effect without default thereunder. The Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service it for its intended uses. All public utilities necessary or convenient to the full use and enjoyment of the Property are located in the public right-of-way abutting the Property, and all such utilities are connected so as to serve the Property without passing over other property absent a valid easement. All roads necessary for the use of the Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities.

4.15 Physical Condition. The Property, including all Improvements, parking facilities, systems, Equipment and landscaping, are in good condition, order and repair in all material respects; to Borrower’s Knowledge, there exists no structural or other material defect or damages to the Property, whether latent or otherwise. Neither Borrower nor Owner has received notice from any insurance company or bonding company of any defect or inadequacy in the Property, or any part thereof, which would adversely affect its insurability or cause the imposition of extraordinary premiums or charges thereon or any termination of any policy of

 

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insurance or bond. Except as disclosed in the survey delivered to Lender, to Borrower’s Knowledge, no portion of the Property is located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards. The Improvements have suffered no material casualty or damage which has not been fully repaired and the cost thereof fully paid.

4.16 Leases. To Borrower’s Knowledge, the rent roll attached hereto as Schedule 2 (the “Rent Roll”) is true, complete and correct and the Property is not subject to any Leases other than the Leases described in the Rent Roll or in the title report delivered to Lender. Except as set forth on the Rent Roll or as otherwise disclosed to Lender in writing: To Borrower’s Knowledge, (i) each Lease is in full force and effect; (ii) the tenants under the Leases have accepted possession of and are in occupancy of all of their respective demised premises, have commenced the payment of rent under the Leases, and there are no offsets, claims or defenses to the enforcement thereof; (iii) all rents due and payable under the Leases have been paid and no portion thereof has been paid for any period more than thirty (30) days in advance; (iv) the rent payable under each Lease is the amount of fixed rent set forth in the Rent Roll, and there is no claim or basis for a claim by the tenant thereunder for an adjustment to the rent; (v) no tenant has made any claim against the landlord under any Lease which remains outstanding, there are no defaults on the part of the landlord under any Lease, and no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default; (vi) there is no present material default by the tenant under any Lease; (vii) all security deposits under Leases are as set forth on the Rent Roll and are held consistent with Section 3.8 of the Senior Loan Agreement; (viii) Owner is the sole owner of the entire lessor’s interest in each Lease; (ix) each Lease is the valid, binding and enforceable obligation of Owner and the applicable tenant thereunder; and (x) no Person has any possessory interest in, or right to occupy, the Property except under the terms of the Lease; and (xi) each Lease is subordinate to the Loan Documents, either pursuant to its terms or pursuant to a subordination and attornment agreement. None of the Leases contains any option to purchase or right of first refusal to purchase the Property or any part thereof. Neither the Leases nor the Rents have been assigned or pledged except to Senior Lender in accordance with the Senior Loan Documents, and no other Person has any interest therein except the tenants thereunder.

4.17 Fraudulent Transfer. Borrower has not entered into the Loan 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. Giving effect to the transactions contemplated by the Loan Documents, the fair saleable value of Borrower’s assets exceeds and will, immediately following the execution and delivery of the Loan Documents, exceed Borrower’s total probable liabilities, including subordinated, unliquidated, disputed or contingent liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. Borrower’s assets do not and, immediately following the execution and delivery of the Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).

 

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4.18 Ownership of Borrower and Owner. Borrower is the owner of 100% of the issued and outstanding ownership interests in Owner, free and clear of all Liens and encumbrances. No other ownership interests in Owner have been issued or are issuable. All of the ownership interests in Owner have been duly and validly issued, have been fully paid for and are non-assessable. There are no options or rights to acquire any ownership interests in Owner. The sole managing member of Borrower is the Sole Member. The direct membership interests in Borrower are owned free and clear of all Liens, warrants, options and rights to purchase. Borrower has no obligation to any Person to purchase, repurchase or issue any ownership interest in it. The organizational chart attached hereto as Schedule 3 is complete and accurate and illustrates all Persons (other than any Person who has direct or indirect ownership interest in the REIT) who have a direct or indirect ownership interest in Borrower and Owner other than those Persons who have a direct or indirect ownership in the REIT.

4.19 Purchase Options. To Borrower’s Knowledge, neither the Property nor any part thereof is subject to any purchase options or other similar rights in favor of third parties.

4.20 Management Agreement. The Management Agreement is in full force and effect. There is no default, breach or violation existing thereunder, and no event has occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation thereunder, by either party thereto.

4.21 Hazardous Substances. Except as set forth in the environmental reports respecting the Property obtained by Lender in connection with the making of this Agreement, and to Borrower’s Knowledge, (i) the Property is not in violation of any Legal Requirement pertaining to or imposing liability or standards of conduct concerning environmental regulation, contamination or clean-up, including the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Emergency Planning and Community Right-to-Know Act of 1986, the Hazardous Substances Transportation Act, the Solid Waste Disposal Act, the Clean Water Act, the Clean Air Act, the Toxic Substance Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act, any state super-lien and environmental clean-up statutes (including with respect to Toxic Mold), any local law requiring related permits and licenses and all amendments to and regulations in respect of the foregoing laws (collectively, “Environmental Laws”); (ii) 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, toxic and/or dangerous substances, toxic mold or fungus of a type that may pose a risk to human health or the environment or would negatively impact the value of the Property (“Toxic Mold”) or any other substances or materials which are included under or regulated by Environmental Laws (collectively, “Hazardous Substances”); (iii) no Hazardous Substances are or have been (including the period prior to Owner’s acquisition of the Property), discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from the Property other than in compliance with all Environmental Laws; (iv) no Hazardous Substances are present in, on or under any nearby real property which could migrate to or otherwise affect the Property; (v) no Toxic Mold is on or about the Property which requires remediation; (vi) no underground storage tanks exist on the Property and the Property has never been used as a landfill; and (vii) there have been no environmental investigations, studies, audits, reviews or other analyses conducted by or on behalf of Borrower which have not been provided to Lender.

 

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4.22 Name; Principal Place of Business. Borrower does not use and will not use any trade name and has not done and will not do business under any name other than its actual name set forth herein. The principal place of business of Borrower and Owner is the primary address for notices as set forth in Section 6.1, and neither Borrower nor Owner has any other place of business. Borrower is not subject to back-up withholding taxes.

4.23 Other Debt. There is no indebtedness with respect to Borrower, Owner or the Property or any excess cash flow or any residual interest therein, whether secured or unsecured, other than Permitted Encumbrances, the Senior Loan, Permitted Indebtedness and with respect to Owner, “Permitted Indebtedness” (as such term is defined in the Senior Loan Agreement).

4.24 Pledged Collateral.

(a) Borrower is the sole beneficial owner of the Pledged Collateral and no Lien exists or will exist (except the Permitted Encumbrances) upon the Pledged Collateral at any time (and no right or option to acquire the same exists in favor of any other Person).

(b) The Pledged 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).

(c) The chief place of business of Borrower and the office where Borrower keeps its records concerning the Pledged Collateral will be located at all times at the address specified as Borrower’s address in Section 6.1.

(d) There is no certificate or instrument evidencing or representing any of the Pledged Collateral.

(e) The Security Documents create a valid security interest in the Pledged Collateral, securing the payment of the Debt, and upon the filing in the appropriate filing offices of the financing statements to be executed and 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, Lender will succeed to all of the rights, titles and interest of Borrower in Owner without the consent of any other Person and will, without the consent of any other Person, be admitted as the sole member in Owner.

4.25 Senior Loan. The Senior Loan has been fully funded in the amount of $19,000,000. The outstanding principal balance of the Senior Loan, as of the Closing Date, is $19,000,000. No default, breach, violation or event of default has occurred under any Senior 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 an Event of Default under the Senior Loan Documents. Each and every representation and warranty of Owner, made to Senior Lender contained in any one or more of the Senior Loan Documents is true, correct, complete and accurate in all material respects as of the funding date and are hereby incorporated into this Agreement and deemed made hereunder as and when made thereunder and shall remain incorporated without regard to any waiver, amendment or other modification thereof by the Senior Lender or to whether the related Senior

 

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Loan Document has been repaid, defeased or otherwise terminated, unless otherwise consented to in writing by Lender.

4.26 Perfection of Accounts. Borrower hereby represents and warrants to Lender that:

(a) This Agreement, together with the other Loan Documents, create a valid and continuing security interest (as defined in the Uniform Commercial Code) in the Subordinate Deposit Account and the Subaccounts in favor of Lender, which security interest is prior to all other Liens, other than Permitted Encumbrances, and is enforceable as such against creditors of and purchasers from Borrower. Other than in connection with the Loan Documents and except for Permitted Encumbrances, Borrower has not sold or otherwise conveyed the Subordinate Deposit Account or any of the Subaccounts;

(b) The Subordinate Deposit Account and the Subaccounts constitute “deposit accounts” or “securities accounts” within the meaning of the Uniform Commercial Code; and

(c) None of the Subordinate Deposit Account or any of the Subaccounts are in the name of any Person other than Borrower, as pledgor, or Lender, as pledgee. Borrower has not consented to the Deposit Bank’s complying with instructions with respect to the Subordinate Deposit Account or any of the Subaccounts from any Person other than Lender.

4.27 No Contractual Obligations. Other than the Loan Documents and the organizational documents of Owner and Borrower, as of the date of this Agreement, Borrower is not subject to any Contractual Obligations and has not entered into any agreement, instrument or undertaking by which it or its assets are bound.

All of the representations and warranties in this Article 4 and elsewhere in the Loan Documents (i) shall survive for so long as any portion of the Debt remains owing to Lender and (ii) shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf, provided, however, that the representations, warranties and covenants set forth in Section 4.21 shall survive in perpetuity.

 

5. COVENANTS

Until the end of the Term, Borrower hereby covenants and agrees with Lender that:

5.1 Existence. Each of Borrower and Sole Member shall (and Borrower shall cause Owner to) (i) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, and franchises, (ii) continue to engage in the business presently conducted by it, (iii) obtain and maintain all Licenses, and (iv) qualify to do business and remain in good standing under the laws of each jurisdiction, in each case as and to the extent required for the ownership, maintenance, management and operation of the Property.

5.2 Taxes and Other Charges. Borrower shall (or shall cause Owner to) pay all Taxes and Other Charges as the same become due and payable, and deliver to Lender receipts for

 

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payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid no later than thirty (30) days before they would be delinquent if not paid (provided, however, that Borrower need not pay (or cause Owner to pay) such Taxes nor furnish (nor cause Owner to furnish) such receipts for payment of Taxes paid by Senior Lender pursuant to the Senior Loan Documents). Borrower shall promptly pay (or cause Owner to pay) for all franchise fees, income taxes and other impositions and taxes imposed by Governmental Authorities on Owner, Borrower and Sole Member. Borrower shall not suffer and shall promptly cause to be paid and discharged any Lien against the Property, and shall promptly pay (or cause Owner to pay) for all utility services provided to the Property. After prior notice to Lender, Borrower may cause Owner, at Owner’s expense, without paying such Taxes or Other Charges, to contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application of any Taxes or Other Charges, provided that (i) no Default or Event of Default has occurred and is continuing, (ii) such proceeding shall suspend the collection of the Taxes or such Other Charges, (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower or Owner is subject, including the Senior Loan Documents, and shall not constitute a default thereunder, (iv) no part of or interest in the Property will be in danger of being sold, forfeited, terminated, canceled or lost, (v) Borrower or Owner shall have furnished such security as may be required in the proceeding to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon, and (vi) Borrower shall promptly upon final determination thereof pay (or cause Owner to pay) the amount of such Taxes or Other Charges, together with all costs, interest and penalties. Lender may pay over any such security or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.

5.3 Access to Property. Subject to the rights of tenants under the Leases, Borrower shall permit (or cause Owner to permit) agents, representatives, consultants and employees of Lender to inspect the Property or any part thereof at reasonable hours upon reasonable advance notice.

5.4 Repairs; Maintenance and Compliance; Alterations.

5.4.1 Repairs; Maintenance and Compliance. Borrower shall cause Owner to at all times maintain, preserve and protect all franchises and trade names, and Borrower shall cause Owner to maintain the Property in a good and safe condition and repair and shall not (and shall not permit Owner to) remove, demolish or alter the Improvements or Equipment (except for alterations performed in accordance with Section 5.4.2 and normal replacement of Equipment with Equipment of equivalent value and functionality). Borrower shall promptly comply with all Legal Requirements and immediately cure (or cause Owner to cure) properly any violation of a Legal Requirement. Borrower shall notify Lender in writing within two (2) Business Days after Borrower first receives notice of any such non-compliance. Borrower shall (or shall cause Owner to) promptly repair, replace or rebuild any part of the Property that becomes damaged, worn or dilapidated and shall (or shall cause Owner to) complete and pay for any Improvements at any time in the process of construction or repair.

5.4.2 Alterations. Borrower may, without Lender’s consent, perform alterations to the Improvements and Equipment which (i) do not constitute a Material Alteration, (ii) do not

 

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adversely affect Borrower’s financial condition or the value or Net Operating Income of the Property and (iii) are in the ordinary course of Borrower’s and Owner’s business. Borrower shall not perform (and shall not allow Owner to perform) any Material Alteration without Lender’s prior written consent, which consent shall not be unreasonably withheld or delayed. Lender may, as a condition to giving its consent to a Material Alteration, require that Borrower deliver to Lender security for payment of the cost of such Material Alteration in an amount in excess of $1,000,000 of the cost of the Material Alteration as estimated by Lender (provided, however, that no such security will be required if Owner has provided adequate security for the same to Senior Lender in accordance with the Senior Loan Documents). Upon substantial completion of the Material Alteration, Borrower shall provide evidence satisfactory to Lender that (i) the Material Alteration was constructed in accordance with applicable Legal Requirements and substantially in accordance with plans and specifications approved by Lender (which approval shall not be unreasonably withheld or delayed), (ii) all contractors, subcontractors, materialmen and professionals who provided work, materials or services in connection with the Material Alteration have been paid in full and have delivered unconditional releases of lien and (iii) all material Licenses necessary for the use, operation and occupancy of the Material Alteration (other than those which depend on the performance of tenant improvement work) have been issued. Borrower shall or shall cause Owner to reimburse Lender upon demand for all out-of-pocket costs and expenses (including the reasonable fees of any architect, engineer or other professional engaged by Lender) incurred by Lender in reviewing plans and specifications or in making any determinations necessary to implement the provisions of this Section 5.4.2.

5.5 Performance of Other Agreements. Borrower shall observe and perform in all material respects each and every term to be observed or performed by it pursuant to the terms of any agreement or instrument affecting or pertaining to the Collateral or the Property, including the Loan Documents.

5.6 Cooperate in Legal Proceedings. Borrower shall cooperate fully with Lender with respect to, and permit Lender, at its option, to participate in, any proceedings before any Governmental Authority which may in any way affect the value of the Collateral or the rights of Lender under any Loan Document.

5.7 Further Assurances. Borrower shall, at Borrower’s sole cost and expense, (i) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the Collateral and/or for the better and more effective carrying out of the intents and purposes of the Loan Documents, as Lender may reasonably require from time to time; and (ii) upon Lender’s request therefor given from time to time after the occurrence of any Default or Event of Default pay for reports of UCC, federal tax lien, state tax lien, judgment and pending litigation searches with respect to Borrower and Sole Member, such search to be conducted by search firms reasonably designated by Lender in each of the locations reasonably designated by Lender.

5.8 Environmental Matters.

5.8.1 Hazardous Substances. So long as Owner is in possession of the Property, Borrower shall (or shall cause Owner to) (i) keep the Property free from Hazardous Substances and in compliance with all Environmental Laws, (ii) promptly notify Lender if

 

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Borrower shall become aware that (a) any Hazardous Substance is on or near the Property, (b) the Property is in violation of any Environmental Laws or (c) any condition on or near the Property shall pose a threat to the health, safety or welfare of humans and (iii) remove such Hazardous Substances and/or cure such violations and/or remove such threats, as applicable, as required by law, promptly after Borrower becomes aware of same, at Borrower’s sole expense. Nothing herein shall prevent Borrower from recovering such expenses from any other party that may be liable for such removal or cure.

5.8.2 Environmental Monitoring.

(a) Borrower shall give prompt written notice to Lender of (i) any proceeding or inquiry by any party (including any Governmental Authority) with respect to the presence of any Hazardous Substance on, under, from or about the Property, (ii) all claims made or threatened by any third party (including any Governmental Authority) against Borrower, Owner or the Property or any party occupying the Property relating to any loss or injury resulting from any Hazardous Substance, and (iii) Borrower’s or Owner’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. Upon becoming aware of the presence of mold or fungus at the Property, Borrower shall (or shall cause Owner to) (i) undertake an investigation to identify the source(s) of such mold or fungus and, to the extent required by applicable law, shall develop and implement an appropriate remediation plan to eliminate the presence of any Toxic Mold, (ii) perform or cause to be performed all acts reasonably necessary for the remediation of any Toxic Mold (including taking any action necessary to clean and disinfect any portions of the Property affected by Toxic Mold, including providing any necessary moisture control systems at the Property), and (iii) provide evidence reasonably satisfactory to Lender of the foregoing. Borrower shall permit (and shall cause Owner to permit) Lender to join and participate in, as a party if it so elects, any legal or administrative proceedings or other actions initiated with respect to the Property in connection with any Environmental Law or Hazardous Substance, and Borrower shall pay (or shall cause Owner to pay) all reasonable attorneys’ fees and disbursements incurred by Lender in connection therewith.

(b) Upon Lender’s request, if Lender, on its good faith judgment, determines that reasonable cause exists for the performance of an environmental inspection or audit of the Property, at any time and from time to time upon Lender’s request, Borrower shall (or shall cause Owner to) provide such inspection or audit of the Property prepared by a licensed hydrogeologist, licensed environmental engineer or qualified environmental consulting firm approved by Lender assessing the presence or absence of Hazardous Substances on, in or near the Property, and if Lender in its good faith judgment determines that reasonable cause exists for the performance of such environmental inspection or audit, then the cost and expense of such audit or inspection shall be paid by Borrower. Such inspections and audit may include soil borings and ground water monitoring. If Borrower (or Owner) fails to provide any 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.

 

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(c) If any environmental site assessment report prepared in connection with such inspection or audit recommends that an operations and maintenance plan be implemented for any Hazardous Substance, whether such Hazardous Substance existed prior to the ownership of the Property by Owner, or presently exists or is reasonably suspected of existing, Borrower shall cause (or shall cause Owner to cause) such operations and maintenance plan to be prepared and implemented at its expense upon request of Lender, to the extent required by applicable law, and with respect to any Toxic Mold, Borrower shall, to the extent required by applicable law, (or shall cause Owner to) take all action necessary to clean and disinfect any portions of the Improvements affected by Toxic Mold in or about the Improvements, including providing any necessary moisture control systems at the Property. If any investigation, site monitoring, containment, cleanup, removal, restoration or other work of any kind is reasonably necessary under an applicable Environmental Law (“Remedial Work”), Borrower shall commence (or shall cause Owner to commence) all such Remedial Work within thirty (30) days after written demand by Lender and thereafter diligently prosecute to completion all such Remedial Work within such period of time as may be required under applicable law). All Remedial Work shall be performed by licensed contractors approved in advance by Lender and under the supervision of a consulting engineer approved by Lender which approval shall not be unreasonably withheld or delayed. All costs of such Remedial Work shall be paid by Borrower or Owner, including Lender’s reasonable attorneys’ fees and disbursements incurred in connection with the monitoring or review of such Remedial Work. If Borrower does not (or does not cause Owner to) timely commence and diligently prosecute to completion the Remedial Work, Lender may (but shall not be obligated to) cause such Remedial Work to be performed at Borrower’s expense. Notwithstanding the foregoing, Borrower shall not be required to commence (or cause Owner to commence) such Remedial Work within the above specified time period: (x) if prevented from doing so by any Governmental Authority, (y) if commencing such Remedial Work within such time period would result in Borrower or Owner or such Remedial Work violating any Environmental Law, or (z) if Borrower or Owner, at its expense and after prior written notice to Lender, is contesting by appropriate legal, administrative or other proceedings, conducted in good faith and with due diligence, the need to perform Remedial Work. Owner shall have the right to contest the need to perform such Remedial Work, provided that, (1) Owner is permitted by the applicable Environmental Laws to delay performance of the Remedial Work pending such proceedings, (2) neither the Property nor any part thereof or interest therein will be sold, forfeited or lost if Owner fails to promptly perform the Remedial Work being contested, and if Owner fails to prevail in contest, Borrower or Owner would thereafter have the opportunity to perform such Remedial Work, (3) Lender would not, by virtue of such permitted contest, be exposed to any risk of any civil liability for which Borrower or Owner has not furnished additional security as provided in clause (4) below, or to any risk of criminal liability, and neither the Property nor any interest therein would be subject to the imposition of any Lien for which Borrower or Owner has not furnished additional security as provided in clause (4) below, as a result of the failure to perform such Remedial Work and (4) Borrower or Owner shall have furnished to Lender additional security in respect of the Remedial Work being contested and the loss or damage that may result from Borrower’s or Owner’s failure to prevail in such contest in such amount as may be reasonably requested by Lender but in no event less than the cost of such Remedial Work as estimated by Lender and Borrower or Lender’s Consultant and any loss or damage that may result from Borrower’s or Owner’s failure to prevail in such contest (provided, however, that no such security will be

 

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required if Owner has provided adequate security for the same to Senior Lender in accordance with the Senior Loan Documents).

(d) Borrower shall not install or permit to be installed on the Property any underground storage tank.

5.9 Title to the Pledged Collateral. Borrower will warrant and defend the title to the Collateral (and shall cause Owner to warrant and defend the title to the Property), and the validity and priority of all Liens granted or otherwise given to Lender under the Loan Documents, subject only to Permitted Encumbrances, against the claims of all Persons.

5.10 Leases.

5.10.1 Generally. Upon request, Borrower shall furnish (or shall cause Owner to furnish) Lender with executed copies of all Leases then in effect. All renewals of Leases and all proposed leases shall be arm’s length transactions with bona fide, independent third-party tenants.

5.10.2 Leasing. The following shall apply so long as (a) the Mezzanine Loan is outstanding or (b) an Event of Default is continuing: Borrower shall not permit Owner to enter into a proposed Material Lease or a proposed renewal, extension or modification of an existing Material Lease without the prior written consent of Lender, which consent shall not, so long as no Event of Default is continuing, be unreasonably withheld or delayed. Prior to seeking Lender’s consent to any Material Lease, Borrower shall or shall cause Owner to deliver to Lender a copy of such proposed lease (a “Proposed Material Lease”) blacklined to show changes from the standard form of Lease approved by Lender and then being used by Owner. Lender shall approve or disapprove each Proposed Material Lease or proposed renewal, extension or modification of an existing Material Lease for which Lender’s approval is required under this Agreement within five (5) Business Days of the submission by Borrower or Owner to Lender of a written request for such approval, accompanied by a final copy of the Proposed Material Lease or proposed renewal, extension or modification of an existing Material Lease. If requested by Borrower or Owner, Lender will grant conditional approvals of Proposed Material Leases or proposed renewals, extensions or modifications of existing Material Leases at any stage of the leasing process, from initial “term sheet” through negotiated lease drafts, provided that Lender shall retain the right to disapprove any such Proposed Material Lease or proposed renewal, extension or modification of an existing Material Lease, if subsequent to any preliminary approval material changes are made to the terms previously approved by Lender, or additional material terms are added that had not previously been considered and approved by Lender in connection with such Proposed Material Lease or proposed renewal, extension or modification of an existing Material Lease. Provided that no Event of Default is continuing, if Borrower or Owner provides Lender with a written request for approval (which written request shall specifically refer to this Section 5.10.2 and shall explicitly state in 14-point bold type that failure by Lender to approve or disapprove within five (5) Business Days will constitute a deemed approval) and Lender fails to reject the request in writing delivered to Borrower or Owner within five (5) Business Days after receipt by Lender of the request, the Proposed Material Lease or proposed renewal, extension or modification of an existing Material Lease shall be deemed

 

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approved by Lender, and Owner shall be entitled to enter into such Proposed Material Lease or proposed renewal, extension or modification of an existing Material Lease.

5.10.3 Lease Execution and Modification. In no event shall any Lease contain any option to purchase or any right of first refusal to purchase. Borrower shall deliver to Lender copies of all Leases within thirty (30) days after the execution of the Lease.

5.10.4 Additional Covenants with respect to Leases. Borrower shall cause Owner to (i) observe and perform the material obligations imposed upon the lessor under the Leases and shall not do or permit anything to impair the value of the Leases as security for the Debt; (ii) promptly send copies to Lender of all notices of default that Owner shall send or receive under any Lease; (iii) enforce, in accordance with commercially reasonable practices for properties similar to the Property, the terms, covenants and conditions in the Leases to be observed or performed by the lessees, short of termination thereof; (iv) not collect any of the Rents more than one (1) month in advance (other than security deposits); (v) not execute any other assignment of lessor’s interest in the Leases or the Rents (except as contemplated by the Loan Documents and the Senior Loan Documents); (vi) not modify any Lease in a manner inconsistent with this Section 5.10; and (vii) not convey or transfer or suffer or permit a conveyance or transfer of the Property so as to effect a merger of the estates and rights of, or a termination or diminution of the obligations of, lessees under Leases.

5.11 Estoppel Statement. After request by Lender, Borrower shall within ten days furnish Lender with a statement addressed to Lender, its successors and assigns, duly acknowledged and certified, setting forth (i) the unpaid Principal, (ii) the Interest Rate, (iii) the date installments of interest and/or Principal were last paid, (iv) any offsets or defenses to the payment of the Debt, and (v) that the Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification.

5.12 Property Management.

5.12.1 Management Agreement. Borrower shall (i) cause Owner to cause the Property to be managed pursuant to the Management Agreement; (ii) cause Owner to promptly perform and observe all of the covenants required to be performed and observed by it under the Management Agreement and do all things necessary to preserve and to keep unimpaired its rights thereunder; (iii) promptly notify (or cause Owner to notify) Lender of any default under the Management Agreement of which it is aware; (iv) if requested, promptly deliver (or cause Owner to deliver) to Lender a copy of each financial statement, business plan, capital expenditure plan, and property improvement plan and any other notice, report and estimate received by Owner under the Management Agreement; and (v) cause Owner to promptly enforce the performance and observance of all of the covenants required to be performed and observed by Manager under the Management Agreement, the failure of which covenants could cause a Material Adverse Effect. Without Lender’s prior written consent (not to be unreasonably withheld), Borrower shall not permit Owner to (a) surrender, terminate, cancel, extend or renew the Management Agreement or otherwise replace the Manager or enter into any other management agreement (except pursuant to Section 5.12.2 below); (b) reduce or consent to the reduction of the term of the Management Agreement; (c) increase or consent to the increase of the amount of any charges under the Management Agreement; (d) otherwise modify, change,

 

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supplement, alter or amend in any material respect, or waive or release any of its rights and remedies under, the Management Agreement; or (e) suffer or permit the occurrence and continuance of a default beyond any applicable cure period under the Management Agreement (or any successor management agreement) if such default permits the Manager to terminate the Management Agreement (or such successor management agreement). Borrower may from time to time cause Owner to appoint a successor manager to manage the Property, provided that (A) Borrower provides to Lender prompt notice of such appointment and provides to Lender such items and information regarding such appointment and successor manager as Lender may reasonably request, (B) the property management agreement with such successor manager provides compensation to the manager at market rates for similar properties and otherwise contains economic terms that are no less favorable to Borrower than such terms that were contained in the property management agreement with the prior property manager, (C) such successor manager executes a consent and subordination of management agreement substantially in the form of the Consent and Subordination of Manager of even date herewith executed and delivered by Manager to Lender and (D) such successor manager has the management expertise in managing properties similar in size and type to the property (provided that such condition shall be deemed satisfied if the successor manager is CB Richard Ellis, Jones Lang, or PM Realty Group).

5.12.2 Termination of Manager. If (i) an Event of Default shall be continuing, or (ii) upon the gross negligence, malfeasance or willful misconduct of the Manager, Borrower shall, at the request of Lender (subject, however, to the rights of Senior Lender under the Senior Loan Documents), cause Owner to terminate the Management Agreement, and, subject to the rights of Senior Lender under the Senior Loan Documents, replace Manager with a replacement manager acceptable to Lender in Lender’s discretion and the applicable Rating Agencies on terms and conditions satisfactory to Lender and the applicable Rating Agencies. Borrower’s failure to cause Owner to appoint an acceptable manager within thirty (30) days after Lender’s request of Borrower to terminate the Management Agreement shall constitute an immediate Event of Default.

5.13 Special Purpose Bankruptcy Remote Entity. Each of Borrower and Owner 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 or Owner’s organizational documents, or otherwise take any action which could result in Borrower or Owner not being a Special Purpose Bankruptcy Remote Entity. A “Special Purpose Bankruptcy Remote Entity” shall have the meaning set forth on Schedule 4 hereto.

5.14 Assumption in Non-Consolidation Opinion. Borrower and Sole Member shall each conduct its business so that the assumptions (with respect to each Person) made in that certain substantive non-consolidation opinion letter delivered by Borrower’s counsel in connection with the Loan, shall be true and correct in all respects.

5.15 Change in Business or Operation of Property. Borrower shall not enter into any line of business other than the ownership of Owner. Borrower shall not permit Owner to purchase or own any real property other than the Property or to enter into any line of business other than the ownership and operation of the Property, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in

 

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activities other than the continuance of its present business or otherwise cease to operate the Property as a first class office building property or terminate such business for any reason whatsoever (other than temporary cessation in connection with renovations to the Property).

5.16 Debt Cancellation. Borrower shall not cancel or otherwise forgive or release (or allow Owner to cancel or otherwise forgive or release) any claim or debt (other than termination of Leases in accordance herewith) owed to Borrower (or Owner) by any Person, except for adequate consideration and in the ordinary course of Borrower’s (or Owner’s) business.

5.17 Affiliate Transactions. Borrower shall not enter into, or be a party to (or permit Owner to enter into or be a party to), any transaction with an Affiliate of Borrower or Owner or any of the members of Borrower or Owner except in the ordinary course of business and on terms which are fully disclosed to Lender in advance and are no less favorable to Borrower or Owner or such Affiliate than would be obtained in a comparable arm’s-length transaction with an unrelated third party.

5.18 Zoning. Borrower shall not initiate or consent to (or permit Owner to initiate or consent to) any zoning reclassification of any portion of the Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of the Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, without the prior consent of Lender, which consent shall not be unreasonably withheld or delayed.

5.19 No Joint Assessment. Borrower shall not suffer, permit or initiate (or permit Owner to suffer, permit or initiate) the joint assessment of the Property (i) with any other real property constituting a tax lot separate from the Property, and (ii) with any portion of the Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to the Property.

5.20 Principal Place of Business. Borrower shall not (and shall not permit Owner to) change its principal place of business or chief executive office without first giving Lender thirty (30) days’ prior notice.

5.21 Change of Name, Identity or Structure. Borrower shall not (and shall not permit Owner to) change its name, identity (including its trade name or names) or Borrower’s or Owner’s corporate, partnership or other structure without notifying Lender of such change in writing at least thirty (30) days prior to the effective date of such change and, in the case of a change in Borrower’s or Owner’s structure that could result in Borrower not being a Special Purpose Bankruptcy Remote Entity or result in a violation of the transfer provisions of the Loan Documents, without first obtaining the prior written consent of Lender. Borrower shall (and shall cause Owner to) execute and deliver to Lender, prior to or contemporaneously with the effective date of any such change, any financing statement or financing statement change required by Lender to establish or maintain the validity, perfection and priority of the security interest granted herein. At the request of Lender, Borrower shall execute a certificate in form satisfactory to Lender listing the trade names under which Owner intends to operate the Property,

 

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and representing and warranting that Owner does business under no other trade name with respect to the Property.

5.22 Indebtedness. Borrower shall not permit Owner to create, incur or assume any indebtedness other than “Permitted Indebtedness” (as such term is defined in the Senior Loan Agreement). Borrower shall not create, incur or assume any indebtedness other than the Debt and unsecured trade payables, unsecured capital expenses and operating expenses incurred in the ordinary course of business relating to the ownership and management of the Owner (collectively, “Permitted Indebtedness”).

5.23 Licenses. Borrower shall not permit Owner to Transfer any License required for the operation of the Property.

5.24 Compliance with Restrictive Covenants, Etc. Borrower will not permit Owner to modify, waive in any material respect or release any Easements, restrictive covenants or other Permitted Encumbrances, or suffer, consent to or permit the foregoing, without Lender’s prior written consent, which consent may be granted or denied in Lender’s reasonable discretion.

5.25 ERISA.

(1) Borrower shall not engage or permit Owner to engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender 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 ERISA.

(2) Borrower shall not (and shall cause Owner not to) maintain, sponsor, contribute to or become obligated to contribute to, or suffer or permit any ERISA Affiliate of Borrower or Owner to, maintain, sponsor, contribute to or become obligated to contribute to, any Plan or any Welfare Plan or permit the assets of Borrower or Owner to become “plan assets,” whether by operation of law or under regulations promulgated under ERISA.

(3) Borrower shall deliver to Lender such certifications or other evidence from time to time throughout the Term, as requested by Lender in its sole discretion, that (a) neither Borrower nor Owner is or maintains 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) neither Borrower nor Owner is subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (c) the assets of Borrower do not constitute “plan assets” within the meaning of 29 C.F.R. Section 2510.3-101.

5.26 Prohibited Transfers. Borrower shall not directly or indirectly (or allow Owner to directly or indirectly) make, suffer or permit the occurrence of any Transfer other than a Permitted Transfer.

5.27 Liens. Without Lender’s prior written consent, Borrower shall not create, incur, assume, permit or suffer to exist any Lien on all or any portion of the Collateral or the Property or any direct or indirect legal or beneficial ownership interest in Borrower, Sole Member or

 

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Owner, except Liens in favor of Lender and Permitted Encumbrances, unless with respect to a Lien on the Property, such Lien is bonded or discharged within thirty (30) days after Borrower or Owner first receives notice of such Lien.

5.28 Dissolution. Borrower shall not and shall not permit Owner 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 and the Property or (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 Owner except to the extent expressly permitted by the Loan Documents and the Senior Loan Documents.

5.29 Expenses. Subject to Section 9.1.1(A), Borrower shall reimburse Lender upon receipt of notice for all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender or Servicer in connection with the Loan, including (i) the preparation, negotiation, execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby and all the costs of furnishing all opinions by counsel for Borrower; (ii) Borrower’s and Lender’s ongoing performance under and compliance with the Loan Documents, including confirming compliance with environmental and insurance requirements; (iii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications of or under any Loan Document and any other documents or matters requested by Lender; (iv) filing and recording of any Loan Documents; (v) title insurance with respect to the Pledged Collateral, inspections and appraisals; (vi) the creation, perfection or protection of Lender’s Liens in the Collateral and the Subordinate Deposit Account (including 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 Lender’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, the Collateral, or any other security given for the Loan; (viii) fees charged by Servicer or 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 any Loan Document or with respect to the Collateral or in connection with any refinancing or restructuring of the Loan in the nature of a “work-out”, or any insolvency or bankruptcy proceedings. 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 Subordinate Deposit Account, with notice thereof to Borrower. The obligations and liabilities of Borrower under this Section 5.29 shall survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents. Notwithstanding the foregoing, in no event shall any of the costs and expenses described in this Section 5.29 above include ongoing regular servicing fees relating to the day-to-day servicing of the Loan, for which Borrower shall not be charged.

5.30 Indemnity. Borrower shall defend, indemnify and hold harmless Lender and each of its Affiliates and their respective successors and assigns, including the directors, officers, partners, members, shareholders, participants, employees, professionals and agents of any of the foregoing (including any Servicer) and each other Person, if any, who Controls Lender, its Affiliates or any of the foregoing (each, an “Indemnified Party”), from and against any and all

 

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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 an Indemnified Party in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto, court costs and costs of appeal at all appellate levels, investigation and laboratory fees, consultant fees and litigation expenses), that may be imposed on, incurred by, or asserted against any Indemnified Party (collectively, the “Indemnified Liabilities”) in any manner, relating to or arising out of or by reason of the Loan, including: (i) any breach by Borrower of its obligations under, or any misrepresentation by Borrower contained in, any Loan Document; (ii) the use or intended use of the proceeds of the Loan; (iii) any information provided by or on behalf of Borrower, or contained in any documentation approved by Borrower; (iv) ownership of the Security Documents, the Collateral or any interest therein, or receipt of any Rents; (v) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the 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 the 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 the Property; (viii) the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release, or threatened release of any Hazardous Substance on, from or affecting the Property; (ix) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Substance; (x) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Substance; (xi) any violation of the Environmental Laws which is based upon or in any way related to such Hazardous Substance, including the costs and expenses of any Remedial Work; (xii) any failure of the Property to comply with any Legal Requirement; (xiii) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with any Lease or other transaction involving the Property or any part thereof, or any liability asserted against Lender with respect thereto; and (xiv) the claims of any lessee of any portion of the Property or any Person acting through or under any lessee or otherwise arising under or as a consequence of any Lease; provided, however, that Borrower shall not have any obligation to any Indemnified Party hereunder to the extent that it is finally judicially determined that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of such Indemnified Party and provided, further, that Borrower shall not have any obligation to any Indemnified Party to the extent that it is finally judicially determined that such Indemnified Liability arises solely from the failure of Lender or any third party or other respective agents to comply with any applicable federal, state or other securities or “blue sky” laws or regulations thereunder. Any amounts payable to any Indemnified Party by reason of the application of this paragraph shall be payable on demand and shall bear interest at the Default Rate from the date loss or damage is sustained by any Indemnified Party until paid. The obligations and liabilities of Borrower under this Section 5.30 shall survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents.

5.31 Limitation on Securities Issuances. None of Borrower or Owner shall issue any membership interests or other securities other than those that have been issued as of the funding date.

 

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5.32 Patriot Act Compliance. Borrower will use its good faith and commercially reasonable efforts to comply with the Patriot Act (as defined below) and all applicable requirements of governmental authorities having jurisdiction over Borrower and the Property, including those relating to money laundering and terrorism. Lender 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 the Property, 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 Lender may, at its option, cause Borrower to comply therewith and any and all reasonable costs and expenses incurred by Lender in connection therewith shall be secured by the Mortgage and the other Loan Documents and shall be immediately due and payable. For purposes hereof, the term “Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as the same may be amended from time to time, and corresponding provisions of future laws.

(a) Neither Borrower nor any member of Borrower or member of such member nor to Borrower’s knowledge, any owner of a direct or indirect interest in Borrower (a) is listed on any Government Lists (as defined below), (b) 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 (as defined below) or in any enabling legislation or other Presidential Executive Orders in respect thereof, (c) has been previously indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense (as defined below), or (d) 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 the (e) 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 (i) the Specially Designated Nationals and Blocked Persons Lists maintained by Office of Foreign Assets Control (“OFAC”), (ii) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC that Lender notified Borrower in writing is now included in “Governmental Lists”, or (iii) any similar lists maintained by the United States Department of State, the United States Department of Commerce or any other government authority or pursuant to any Executive Order of the President of the United States of America that Lender notified Borrower in writing is now included in “Governmental Lists”.

5.33 Limitation on Distributions. Following the occurrence and during the continuance of an Event of Default, Borrower shall not make any distributions to its members other than Permitted REIT Distributions as provided in Section 3.5 above.

5.34 Contractual Obligations. Other than the Loan Documents, the organizational documents of Borrower (and the initial membership interests in Borrower issued pursuant

 

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thereto) and Owner, neither Borrower nor any of its assets shall be subject to any Contractual Obligations, and Borrower shall not enter into any agreement, instrument or undertaking by which it or its assets are bound, except for such liabilities, not material in the aggregate, that are incidental to its activities as a regular member of Owner.

 

6. NOTICES AND REPORTING

6.1 Notices. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (a “Notice”) shall be given in writing and shall be effective for all purposes if either hand delivered with receipt acknowledged, or by a nationally recognized overnight delivery service (such as Federal Express), or by certified or registered United States mail, return receipt requested, postage prepaid, or by facsimile and confirmed by facsimile answer back, in each case addressed as follows (or to such other address or Person as a party shall designate from time to time by notice to the other party): If to Lender: Greenwich Capital Financial Products, Inc., 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Mortgage Loan Department, Telecopier (203) 618-2052, with a copy to: Allen Matkins Leck Gamble, Mallory & Natsis LLP, 515 South Figueroa Street, Seventh Floor, Los Angeles, California 90071-3398, Attention: Gregg J. Loubier, Telecopier: (213) 620-8816; if to Borrower: c/o KBS Capital Advisors, 620 Newport Center Drive, Suite 1300, Newport Beach, CA 92660, Attention: Stacie Yamane, Telecopier: (949) 417-6523, with a copy to: KBS Capital Advisors, 101 Arch Street, 17th Floor, Boston, Massachusetts 02110, Attention: John Kolb, Telecopier: (617) 345-9200. A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of overnight delivery, upon the first attempted delivery on a Business Day; or in the case of facsimile, upon the confirmation of such facsimile transmission.

6.2 Borrower Notices and Deliveries. Borrower shall (or shall cause Owner to) (a) give prompt written notice to Lender of: (i) any litigation, governmental proceedings or claims or investigations pending or threatened against Borrower, or Sole Member or Owner which might materially adversely affect Borrower’s, or Sole Member’s or Owner’s condition (financial or otherwise) or business or the Collateral; and (ii) any material adverse change in Borrower’s, or Sole Member’s or Owner’s condition, financial or otherwise, or of the occurrence of any Default or Event of Default of which Borrower has knowledge; and (b) furnish and provide to Lender: (i) any Securities and Exchange Commission or other public filings, if any, of Borrower, Sole Member, Owner, Manager, or any Affiliate of any of the foregoing within two (2) Business Days of such filing and (ii) all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, reasonably requested, from time to time, by Lender. In addition, after request by Lender, Borrower shall furnish to Lender (but no more frequently than twice in any year), (x) within ten (10) days, a certificate addressed to Lender, its successors and assigns reaffirming all representations and warranties of Borrower set forth in the Loan Documents as of the date requested by Lender or, to the extent of any changes to any such representations and warranties, so stating such changes, and (y) during an Event of Default, within thirty (30) days, tenant estoppel certificates addressed to Lender, its successors and assigns from each tenant at the Property in form and substance reasonably satisfactory to Lender.

 

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6.3 Financial Reporting.

6.3.1 Bookkeeping. Borrower shall keep (and shall cause Owner to keep) on a calendar year basis, in accordance with GAAP, proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and Owner and all items of income and expense and any services, Equipment or furnishings provided in connection with the operation of the Property, whether such income or expense is realized by Borrower, Owner, Manager or any Affiliate of Borrower or Owner. Lender shall have the right from time to time during normal business hours upon reasonable notice examine such books, records and accounts at the office of Borrower or other Person maintaining them, and to make such copies or extracts thereof as Lender shall desire. After an Event of Default, Borrower shall pay any costs incurred by Lender to examine such books, records and accounts, as Lender shall determine to be necessary or appropriate in the protection of Lender’s interest.

6.3.2 Annual Reports. Borrower shall furnish to Lender annually, within 120 days after each calendar year, a complete copy of the REIT’s annual financial statements prepared in accordance to GAAP audited by a “big four” accounting firm or another independent certified public accountant (accompanied by an unqualified opinion from such accounting firm or other independent certified public accountant) reasonably acceptable to Lender. In addition, Borrower shall furnish annual unaudited financial statements of the Borrower, each in accordance with GAAP and containing balance sheets and statements of profit and loss for Borrower, Owner and the Property in such form that is reasonably acceptable to Lender. Each such statement (x) shall be in form and substance that is reasonably acceptable to Lender, (y) shall set forth the financial condition and the income and expenses for the Property for the immediately preceding calendar year, including statements of annual Net Operating Income as well as (1) a list of tenants, if any, occupying more than twenty percent (20%) of the rentable space of the Property, (2) a breakdown showing (a) the year in which each Lease then in effect expires, (b) the percentage of rentable space covered by such Lease, (c) the percentage of base rent with respect to which Leases shall expire in each such year, expressed both on a per year and a cumulative basis and (z) shall be accompanied by an Officer’s Certificate certifying that to the best of their knowledge and belief (1) that such statement is true, correct, complete and accurate and presents fairly the financial condition of the Property and has been prepared in accordance with GAAP and (2) whether there exists a Default or Event of Default, and if so, the nature thereof, the period of time it has existed and the action then being taken to remedy it.

6.3.3 Monthly/Quarterly Reports.

(a) At any time prior to the date that Lender sells its entire interest in the Loan Documents, Borrower shall furnish (or shall cause Owner to furnish) to Lender within forty-five (45) days after the end of each calendar month the following items: (i) monthly and year-to-date operating statements, noting Net Operating Income and other information necessary and sufficient under GAAP to fairly represent the financial position and results of operation of the Property during such calendar month, all in form that is reasonably satisfactory to Lender; (ii) a balance sheet for such calendar month; (iii) a comparison of the budgeted income and expenses and the actual income and expenses for each month and year-to-date for the Property, together with a detailed explanation of any variances of ten percent (10%) or more between budgeted and actual amounts for such period and year-to-date; (iv) a statement of the actual

 

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Capital Expenses made by Borrower or Owner during each calendar month as of the last day of such calendar month; (v) a statement that neither Borrower nor Owner has incurred any indebtedness other than indebtedness permitted hereunder or under the Senior Loan Documents; (vi) an aged receivables report and (vii) rent rolls identifying the leased premises, names of all tenants, units leased, monthly rental and all other charges payable under each Lease, date to which paid, term of Lease, date of occupancy, date of expiration, material special provisions, concessions or inducements granted to tenants, and a year-by-year schedule showing by percentage the rentable area of the Improvements and the total base rent attributable to Leases expiring each year) and a delinquency report for the Property. Thereafter, Borrower shall furnish (or shall cause Owner to furnish) to Lender within forty-five (45) days after the end of each calendar quarter the following items: (i) quarterly and year-to-date operating statements, noting Net Operating Income and other information necessary and sufficient under GAAP to fairly represent the financial position and results of operation of the Property during such calendar quarter, all in form that is reasonably satisfactory to Lender; (ii) a balance sheet for such calendar quarter; (iii) a comparison of the budgeted income and expenses and the actual income and expenses for each quarter and year-to-date for the Property, together with a detailed explanation of any variances of ten percent (10%) or more between budgeted and actual amounts for such period and year-to-date; (iv) a statement of the actual Capital Expenses made by Borrower or Owner during each calendar quarter as of the last day of such calendar quarter; (v) a statement that neither Borrower nor Owner has incurred any indebtedness other than indebtedness permitted hereunder or under the Senior Loan Documents; (vi) an aged receivables report and (vii) rent rolls identifying the leased premises, names of all tenants, units leased, monthly rental and all other charges payable under each Lease, date to which paid, term of Lease, date of occupancy, date of expiration, material special provisions, concessions or inducements granted to tenants, and a year-by-year schedule showing by percentage the rentable area of the Improvements and the total base rent attributable to Leases expiring each year) and a delinquency report for the Property. Each such statement shall be accompanied by an Officer’s Certificate certifying to the best of his or her knowledge and belief (1) that such items are true, correct, accurate, and complete and fairly present the financial condition and results of the operations of Borrower, Owner and the Property in accordance with GAAP (subject to normal year-end adjustments) and (2) whether there exists a Default or an Event of Default, and if so, the nature thereof, the period of time it has existed and the action then being taken to remedy it.

(b) Borrower shall furnish to Lender within forty-five (45) days after the end of each calendar month the following items: (i) current monthly and year-to-date operating statements for the REIT in form satisfactory to Lender, including sources and uses of funds; (ii) a balance sheet for the REIT for such calendar month; and (iii) such other information with respect to the operation of the REIT as Lender may reasonably request. Each such statement shall be accompanied by an Officer’s Certificate certifying (1) that such items are true, correct, accurate, and complete and fairly present the financial condition and results of the operations of the REIT in accordance with GAAP (subject to normal year-end adjustments). Borrower shall also cause the REIT to provide the Lender a true, correct and complete copy of each 10Q and 8K filing of the REIT within 30 days after filing with the applicable governmental agency.

6.3.4 Other Reports. Borrower shall furnish (or shall cause Owner to furnish) to Lender, within ten (10) Business Days after request, such further detailed information with

 

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respect to the operation of the Property and the financial affairs of Borrower, Sole Member, Owner, Manager or the REIT as may be reasonably requested by Lender or any applicable Rating Agency.

6.3.5 Annual Budget. Borrower shall prepare and submit (or shall cause Owner or Manager to prepare and submit) to Lender within thirty (30) days after the commencement of a Cash Management Period and by November 30th of each year during the Term, for approval by Lender, which approval shall not be unreasonably withheld or delayed, a proposed pro forma budget for the Property for the succeeding calendar year (the “Annual Budget”, and each Annual Budget approved by Lender is referred to herein as the “Approved Annual Budget”)), and, promptly after preparation thereof, any revisions to such Annual Budget. The Annual Budget shall consist of (i) an operating expense budget showing, on a month-by-month basis, in reasonable detail, each line item of the Borrower’s anticipated operating income and operating expenses (on a cash and accrual basis), including amounts required to establish, maintain and/or increase any monthly payments required hereunder (and once such Annual Budget has been approved by Lender, such operating expense budget shall be referred to herein as the “Approved Operating Budget”), and (ii) a Capital Expense budget showing, on a month-by-month basis, in reasonable detail, each line item of anticipated Capital Expenses (and once such Annual Budget has been approved by Lender, such Capital Expense budget shall be referred to herein as the “Approved Capital Budget”). Until such time that any Annual Budget has been approved by Lender, the prior Approved Annual Budget shall apply for all purposes hereunder (with such adjustments as reasonably determined by Lender (including increases for any non-discretionary expenses)).

6.3.6 Senior Loan. Unless otherwise delivered to Lender pursuant to the provisions of this Section 6.3, Borrower will deliver (or cause Owner to deliver) to Lender all of the financial statements, reports, certificates and related items delivered or required to be delivered by Owner to Senior Lender under the Senior Loan Documents as and when due under the Senior Loan Documents.

6.3.7 Inspection. Borrower shall permit any authorized representatives designated by Lender to visit, examine, audit, and inspect, upon reasonable notice and during normal business hours, the Property including Borrower’s financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and business with its and their officers and independent public accountants (with Borrower’s representative(s) present in all instances), at such reasonable times during normal business hours and as often as may be reasonably requested. Borrower shall cause its Affiliates to make all books of account and records relating to the Property and Borrower so available at the office where the same are regularly maintained. Lender shall have the right to copy, duplicate and make abstracts from such books and records as Lender may require. During the continuance of an Event of Default, Borrower shall pay any costs incurred by Lender to examine such books, records and accounts. Borrower acknowledges and agrees that (i) all of such audits, inspections and reports shall be made for the sole benefit of Lender, and not for the benefit of Borrower or any third party, and neither Lender nor Lender’s auditors or inspectors or any of Lender’s representatives, agents or contractors assumes any responsibility or liability (except to Lender) by reason of such audits, inspections or reports, (ii) Borrower will not rely upon any of such audits, inspections or reports for any purpose whatsoever, and (iii) the performance of such

 

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audits, inspections and reports will not constitute a waiver of any of the provisions of this Agreement or any other Loan Document or any of the obligations of Borrower hereunder or thereunder. Borrower further acknowledges and agrees that neither Lender nor Lender’s inspector, representatives, agents or contractors shall be deemed to be in any way responsible for any matters related to design or construction of the Improvements or any construction work. At any time during the term of the Loan, Borrower shall cooperate with Lender and use reasonable efforts to assist Lender in obtaining an appraisal of the Property. Such cooperation and assistance from Borrower shall include but not be limited to the obligation to provide Lender or Lender’s appraiser with the following: (i) reasonable access to the Property, (ii) a current certified rent roll for the Property in form and substance satisfactory to Lender, including current asking rents and a history of change in asking rents and historical vacancy for the past three years, (iii) current and budgeted income and expense statements for the prior three years, (iv) the then existing site plan and survey of the Property, (v) the building plans and specifications, including typical elevation and floor plans, to the extent in Borrower’s possession or reasonably available to Borrower; (vi) the current and prior year real estate tax bills, (vii) a detailed list of past and scheduled capital improvements and the costs thereof, (viii) all environmental reports and other applicable information relating to the Property, and (ix) copies of all recent appraisals/property description information or brochures, including descriptions of amenities and services relating to the Property to the extent in Borrower’s possession or reasonably available to Borrower. The appraiser performing any such appraisal shall be engaged by Lender but Borrower shall not be responsible for any fees payable to said appraiser in connection with an appraisal of the Property. Borrower shall cooperate with Lender with respect to any proceedings before any Governmental Authority which may in any way affect the rights of Lender hereunder or any rights obtained by Lender under any of the Loan Documents and, in connection therewith, not prohibit Lender, at its election, from participating in any such proceedings.

 

7. INSURANCE; CASUALTY; AND CONDEMNATION

7.1 Insurance.

7.1.1 Coverage. Borrower, at its sole cost (or at Owner’s sole cost), for the mutual benefit of Borrower, Owner and Lender, shall cause Owner to obtain and maintain during the Term the following policies of insurance:

(a) Property insurance insuring against loss or damage customarily included under so called “all risk” or “special form” policies including fire, lightning, vandalism, and malicious mischief, boiler and machinery and, if required by Lender, flood and/or earthquake coverage and subject to subsection (j) below, coverage for damage or destruction caused by the acts of “Terrorists” (or such policies shall have no exclusion from coverage with respect thereto) and such other insurable hazards as, under good insurance practices, from time to time are insured against for other property and buildings similar to the premises in nature, use, location, height, and type of construction. Such insurance policy shall also insure for ordinance of law coverage, costs of demolition and increased cost of construction in amounts satisfactory to Lender. Each such insurance policy shall (i) be in an amount equal to 100% of the then replacement cost of the Improvements without deduction for physical depreciation and (ii) have deductibles no greater than $10,000 per occurrence, (iii) be paid annually in advance and (iv) be on a replacement cost basis and contain either no coinsurance or, if coinsurance, an agreed

 

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amount endorsement, and shall cover, without limitation, all tenant improvements and betterments that Owner is required to insure on a replacement cost basis. Senior Lender shall be named Mortgagee and Loss Payee on a Standard Mortgagee Endorsement.

(b) Flood insurance if following the funding date any part of the Property is located in an area now or hereafter designated by the Federal Emergency Management Agency as a Zone “A” & “V” Special Hazard Area, or such other similar Special Hazard Area. Such policy shall (i) be in an amount equal to (a) 100% of the full replacement cost of the Improvements on the Property (without any deduction for depreciation) or (b) such other amount as agreed to by Lender and (ii) have a maximum permissible deductible of $3,000. Without limiting Lender’s rights to require flood insurance in the future if any part of the Property is located in any such designated area, Lender hereby acknowledges that as of the funding date, such flood insurance is not required.

(c) Public liability insurance, including (i) “Commercial General Liability Insurance”, (ii) “Owned”, “Hired” and “Non Owned Auto Liability”; and (iii) umbrella liability coverage for personal injury, bodily injury, death, accident and property damage, such insurance providing in combination no less than containing minimum limits per occurrence of $2,000,000 and $4,000,000 in the aggregate for any policy year with no deductible or self insured retention; together with at least $25,000,000 excess and/or umbrella liability insurance for any and all claims. The policies described in this subsection shall also include coverage for elevators, escalators, independent contractors, “Contractual Liability” (covering, to the maximum extent permitted by law, Borrower’s obligation to indemnify Lender as required under this Agreement and the other Loan Documents), “Products” and “Completed Operations Liability” coverage.

(d) Rental loss and/or business interruption insurance (i) with Senior Lender being named as “Lender Loss Payee”, (ii) in an amount equal to one hundred percent (100%) of the projected Rents from the Property during the period of restoration; and (iii) containing an extended period of indemnity endorsement which provides that after the physical loss to the 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 the 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. The amount of such insurance shall be increased from time to time during the Term as and when the estimated or actual Rents increase.

(e) Comprehensive boiler and machinery insurance covering all mechanical and electrical equipment against physical damage, rent loss and improvements loss and covering, without limitation, all tenant improvements and betterments that Owner is required to insure pursuant to the lease on a replacement cost basis and in an amount equal to the lesser of (i) $2,000,000 and (ii) 100% of the full replacement cost of the Improvements on such Property (without any deduction for depreciation).

(f) Worker’s compensation and disability insurance with respect to any employees of Owner, as required by any Legal Requirement.

 

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(g) During any period of repair or restoration, builder’s “all-risk” insurance on the so called completed value basis in an amount equal to not less than the full insurable value of the Property, against such risks (including fire and extended coverage and collapse of the Improvements to agreed limits) as Lender may request, in form and substance acceptable to Lender.

(h) Coverage to compensate for ordinance of law, the cost of demolition and the increased cost of construction in an amount satisfactory to Lender.

(i) Such other insurance (including environmental liability insurance, earthquake insurance, mine subsidence insurance and windstorm insurance) as may from time to time be reasonably required by Lender in order to protect its interests. Without limiting Lender’s rights to require earthquake insurance in the future, Lender hereby acknowledges that as of the funding date, such earthquake insurance is not required.

(j) Notwithstanding anything in subsection (a) 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 Property; 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) above, Borrower shall, nevertheless be required to obtain coverage for terrorism (as stand alone coverage) (expressly excluding any loss due to flood caused by terrorist acts) in an amount equal to 100% of the “Full Replacement Cost” of the Property; provided that such coverage is available. Borrower shall obtain the coverage required under this subsection (j) from a carrier which otherwise satisfies the rating criteria specified in Section 7.1.2 (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.

7.2 Policies. All policies of insurance (the “Policies”) required pursuant to Section 7.1.1 shall (i) be issued by companies approved by Lender and licensed to do business in the State, with a claims paying ability rating of “A” or better by S&P (and the equivalent by any other Rating Agency) (provided, however for multi-layered policies, (a) if four (4) or less 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 claims paying ability rating of “A” or better by S&P (and the equivalent by any other Rating Agency), with no carrier below “BBB” (and the equivalent by any other Rating Agency) 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 claims paying ability rating of “A” or better by S&P (and the equivalent by any other Rating Agency), with no carrier below “BBB” (and the equivalent by any other Rating Agency), and a rating of A:XV or better in the current Best’s Insurance Reports; (ii) name Lender and Senior Lender and its successors and/or assigns as their interest may appear as the mortgagee (in the case of property insurance), loss payee (in the case of business interruption/loss of rents coverage) and an additional insured (in the case of liability insurance); (iii) contain (in the case of property insurance and subject to the rights of Senior Lender) a Non-Contributory Standard Mortgagee Clause and a Lender’s Loss Payable Endorsement, or their equivalents, naming Lender as the

 

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person to which all payments made by such insurance company shall be paid, subject to the rights of Senior Lender; (iv) contain a waiver of subrogation against Lender; (v) subject to the rights of Senior Lender, be assigned and the originals thereof delivered to Lender; (vi) contain such provisions as Lender deems reasonably necessary or desirable to protect its interest, including (a) endorsements providing that neither Borrower, Owner, Lender nor any other party shall be a co-insurer under the Policies, (b) that Lender shall receive at least thirty (30) days’ prior written notice of any modification, reduction or cancellation of any of the Policies, (c) an agreement whereby the insurer waives any right to claim any premiums and commissions against Lender, provided that the policy need not waive the requirement that the premium be paid in order for a claim to be paid to the insured and (d) providing that Lender is permitted to make payments to effect the continuation of such policy upon notice of cancellation due to non-payment of premiums; (vii) in the event any insurance policy (except for general public and other liability and workers compensation insurance) shall contain breach of warranty provisions, such policy shall provide that with respect to the interest of Lender, such insurance policy shall not be invalidated by and shall insure Lender regardless of (a) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (b) the occupancy or use of the premises for purposes more hazardous than permitted by the terms thereof, or (c) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of the Loan Documents; and (viii) be satisfactory in form and substance to Lender and approved by Lender as to amounts, form, risk coverage, deductibles, loss payees and insureds. Borrower shall cause Owner to pay the premiums for such Policies (the “Insurance Premiums”) as the same become due and payable and furnish to Lender evidence of the renewal of each of the Policies together with (unless such Insurance Premiums have been paid by Senior Lender pursuant to Section 3.3 of the Senior Loan Agreement) receipts for or other evidence of the payment of the Insurance Premiums reasonably satisfactory to Lender. If Borrower does not furnish such evidence and receipts at least thirty (30) days prior to the expiration of any expiring Policy, then Lender may, but shall not be obligated to, procure such insurance and pay the Insurance Premiums therefor, and Borrower shall reimburse Lender for the cost of such Insurance Premiums promptly on demand, with interest accruing at the Default Rate. Borrower shall deliver (or cause Owner to deliver) to Lender a certified copy of each Policy within thirty (30) days after its effective date. Within thirty (30) days after request by Lender, Borrower shall obtain (or cause Owner to obtain) such increases in the amounts of coverage required hereunder as may be reasonably requested by Lender, taking into consideration changes in the value of money over time, changes in liability laws, changes in prudent customs and practices, and the like.

7.3 Casualty.

7.3.1 Notice; Restoration. If the Property is damaged or destroyed, in whole or in part, by fire or other casualty (a “Casualty”), Borrower shall give prompt notice thereof to Lender. Following the occurrence of a Casualty, subject to the requirements of the Senior Loan Documents, Borrower, regardless of whether insurance proceeds are available, shall promptly proceed to restore, repair, replace or rebuild (or shall cause Owner to promptly proceed to restore, repair, replace or rebuild) the 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. Concurrently with the delivery to Senior Lender of any of the items required under Section 7.4.3 of the Senior Loan Agreement in connection with a Restoration by Owner,

 

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Borrower shall cause such items to be concurrently delivered to Lender for Lender’s prior approval.

7.3.2 Settlement of Proceeds. If a Casualty covered by any of the Policies (an “Insured Casualty”) occurs where the loss does not exceed $250,000, provided no Event of Default has occurred and is continuing, Borrower may cause Owner to settle and adjust any claim without the prior consent of Lender; provided such adjustment is carried out in a competent and timely manner, and Borrower is hereby authorized to permit Owner to collect and receipt for the insurance proceeds (the “Proceeds”). In the event of an Insured Casualty where the loss equals or exceeds $250,000, Lender may, in its sole discretion but subject to the rights of the Senior Lender, settle and adjust any claim without the consent of Borrower or Owner and agree with the insurer(s) on the amount to be paid on the loss, and the Proceeds shall, if required by Senior Lender, be due and payable solely to Senior Lender and held by Senior Lender in accordance with the terms of the Senior Loan Agreement. The expenses incurred by Lender in the adjustment and collection of the Proceeds shall become part of the Debt and shall be reimbursed by Borrower to Lender upon demand.

7.4 Condemnation.

7.4.1 Notice; Restoration. Borrower shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting the Property (a “Condemnation”) and shall deliver to Lender copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Borrower, regardless of whether an Award is available, shall promptly proceed to restore, repair, replace or rebuild (or cause Owner to promptly proceed to restore, repair, replace or rebuild) the Property in accordance with Legal Requirements to the extent practicable to be of at least equal value and of substantially the same character (and to have the same utility) as prior to such Condemnation.

7.4.2 Collection of Award. Subject to the rights of Senior Lender, in the event any award or payment in respect of a Condemnation (an “Award”) equals or exceeds $250,000 and if an Event of Default is continuing, Lender is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest, with exclusive power on behalf of Owner to collect, receive and retain any such Award and to make any compromise, adjustment or settlement in connection with such Condemnation. Notwithstanding any Condemnation (or any transfer made in lieu of or in anticipation of such Condemnation), Borrower shall continue to pay the Debt at the time and in the manner provided for in the Loan Documents, and the Debt shall not be reduced unless and until any Award shall have been actually received and applied by Lender to expenses of collecting the Award and to discharge of the Debt. Lender 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 in the Note. If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of such Award, Lender shall have the right, subject to the rights of Senior Lender and whether or not a deficiency judgment on the Note shall be recoverable or shall have been sought, recovered or denied, to receive all or a portion of the Award sufficient to pay the Debt. Borrower shall cause any Award that is payable to Borrower pursuant to Owner’s operating agreement to be paid directly to Lender, to be applied as provided in this Agreement, subject to the rights of the Senior Lender under the Senior Loan

 

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Documents. The expenses incurred by Lender in the adjustment and collection of the Proceeds shall become part of the Debt and shall be reimbursed by Borrower to Lender upon demand.

7.5 Application of Proceeds or Award. If, pursuant to the terms of the Senior Loan Documents, Owner is ever entitled to receive any portion of any Proceeds or Awards (i.e., such amounts are not required to be used for Restoration or to be applied to repayment of the Senior Loan), Borrower shall cause such portion of such Proceeds or Award to be deposited into the Subordinate Deposit Account and all such amounts shall then be applied to the payment of the Debt in accordance with Section 2.3.2.

 

8. DEFAULTS

8.1 Events of Default. An “Event of Default” shall exist with respect to the Loan if any of the following shall occur:

(a) any portion of the Debt is not paid within ten (10) days of the due date (other than amounts due on the Maturity Date and except to the extent a shorter grace period is expressly provided for in the Loan Documents with respect to the applicable payment);

(b) any of the Taxes are not paid when due, subject to Borrower’s and Owner’s right to contest Taxes in accordance with Section 5.2 and the Senior Loan Documents, as applicable and except to the extent sums sufficient to pay such Taxes have been deposited with Senior Lender in accordance with the Senior Loan Agreement;

(c) the Policies are not kept in full force and effect, or are not delivered to Lender upon request;

(d) a Transfer other than a Permitted Transfer occurs;

(e) any material representation or warranty made by Borrower or in any Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished by Borrower in connection with any Loan Document, shall be false or misleading in any material respect as of the date the representation or warranty was made; provided, however, as to any such false or misleading representation or warranty or statement which can be true and correct by reasonable action of Borrower and which false or misleading representation or warranty was made unintentionally, Borrower shall have a period of thirty (30) days following written notice to Borrower to undertake and complete all action necessary to make such representation, warranty or statement true and correct in all material respects (except that Borrower shall not have the benefit of this grace period if such false or misleading representation or warranty has already caused a Material Adverse Effect).

(f) Borrower, or Sole Member, Owner shall make an assignment for the benefit of creditors, or shall generally not be paying its debts as they become due;

(g) a receiver, liquidator or trustee shall be appointed for Borrower, Sole Member, Owner; or Borrower, Sole Member, Owner shall be adjudicated a bankrupt or insolvent; or 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

 

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acquiesced in by, Borrower, Sole Member, Owner, as the case may be; or any proceeding for the dissolution or liquidation of Borrower, Sole Member, Owner shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower, Sole Member, Owner, as the case may be, only upon the same not being discharged, stayed or dismissed within ninety (90) days;

(h) Borrower breaches any covenant contained in Sections 2.3.2(a) , 5.12.1 (a) - (f) , 5.13 (to the extent any breach under Section 5.13 could cause Borrower to be consolidated with any other Person in a bankruptcy or similar proceeding), 5.15, 5.22, 5.25, 5.28 or 9.7;

(i) except as expressly permitted hereunder, the actual or threatened alteration, improvement, demolition or removal of all or any of portion of the Improvements without the prior written consent of Lender;

(j) an Event of Default as defined or described elsewhere in this Agreement or in any other Loan Document occurs; or any other event shall occur or condition shall exist, if the effect of such event or condition is to accelerate or to permit Lender to accelerate the maturity of any portion of the Debt subject to any applicable notice and cure periods expressly provided therein;

(k) an Event of Default as defined or described in the Senior Loan Documents occurs;

(l) a default occurs under any term, covenant or provision set forth herein or in any other Loan Document which specifically contains a notice requirement or grace period and such notice has been given and such grace period has expired;

(m) any of the assumptions contained in any substantive non-consolidation opinion, delivered to Lender by Borrower’s counsel in connection with the Loan or otherwise hereunder, were not true and correct as of the date of such opinion or thereafter became untrue or incorrect;

(n) a default shall be continuing under any of the other terms, covenants or conditions of this Agreement or any other Loan Document not otherwise specified in this Section 8.1, for ten (10) business days after notice to Borrower from Lender, in the case of any default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other default; provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within such thirty (30)-day period, and Borrower shall have commenced to cure such default within such thirty (30)-day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30)-day period shall be extended for an additional period of time as is reasonably necessary for Borrower in the exercise of due diligence to cure such default, such additional period not to exceed ninety (90) days.

 

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8.2 Remedies.

8.2.1 Acceleration. Upon the occurrence of an Event of Default (other than an Event of Default described in paragraph (f) or (g) of Section 8.1) and at any time and from time to time thereafter, in addition to any other rights or remedies available to it pursuant to the Loan Documents or at law or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in and to the Collateral; including declaring the Debt to be immediately due and payable (including unpaid interest), Default Rate interest, Late Payment Charges and any other amounts owing by Borrower), without notice or demand; and upon any Event of Default described in paragraph (f) or (g) of Section 8.1, the Debt (including unpaid interest, Default Rate interest, Late Payment Charges and any other amounts owing by Borrower) shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained in any Loan Document to the contrary notwithstanding.

8.2.2 Remedies Cumulative. Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under the Loan Documents or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared, or be automatically, due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth in the Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing, (i) to the extent permitted by applicable law, Lender is not subject to any “one action” or “election of remedies” law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Collateral, the Pledge and other Security Documents have been foreclosed, the Collateral has been sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. To the extent permitted by applicable law, nothing contained in any Loan Document shall be construed as requiring Lender to resort to any portion of the Collateral for the satisfaction of any of the Debt in preference or priority to any other portion, and Lender may seek satisfaction out of all or less than all of the Collateral, in its discretion.

8.2.3 [Intentionally Omitted]

8.2.4 Delay. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default, or the granting of any indulgence or compromise by Lender shall impair any such remedy, right or power hereunder or 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 shall not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon. Notwithstanding any other provision of this Agreement, Lender reserves the right to seek a deficiency judgment or preserve a deficiency claim in connection with the

 

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foreclosure of the Collateral to the extent necessary to foreclose on all or less than all of any portion of such Collateral.

8.2.5 Lender’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 Business Days after Borrower’s receipt of written notice thereof from Lender, without in any way limiting Lender’s right to exercise any of its rights, powers or remedies as provided hereunder, or under any of the other Loan Documents, Lender may, but shall have no obligation to, perform, or cause performance of, such covenant or obligation, and all costs, expenses, liabilities, penalties and fines of Lender incurred or paid in connection therewith shall be payable by Borrower to Lender upon demand and if not paid shall be added to the Debt (and to the extent permitted under applicable laws, secured by the Pledge and other Loan Documents) and shall bear interest thereafter at the Default Rate. Notwithstanding the foregoing, Lender shall have no obligation to send notice to Borrower of any such failure.

 

9. SENIOR LOAN

9.1 Compliance with Senior Loan Documents. Borrower shall (or shall cause Owner to): (a) pay all principal, interest and other sums required to be paid by Owner under and pursuant to the provisions of the Senior Loan Documents (subject to any grace periods provided therein); (b) diligently perform and observe all of the terms, covenants and conditions of the Senior Loan Documents on the part of Owner to be performed and observed, unless such performance or observance shall be waived in writing by Senior Lender; (c) promptly notify Lender of the giving of any notice by Senior Lender to Owner or Borrower of any default by Owner in the performance or observance of any of the terms, covenants or conditions of the Senior Loan Documents on the part of Owner to be performed or observed and deliver to Lender a true copy of each such notice; (d) deliver a true, correct and complete copy of all notices, demands, requests or material correspondence (including electronically transmitted items) given or received by Owner to or from the Senior Lender or its agent; and (e) not enter into or be bound by any Senior Loan Documents that are not approved by Lender. Without limiting the foregoing, Borrower shall cause Owner to fund all reserves required to be funded pursuant to the Senior Loan Documents. In the event of a refinancing of the Senior Loan permitted by the terms of this Agreement, Borrower will cause all reserves on deposit with Senior Lender to be utilized by Owner to be applied to any new reserves required by the new senior lender.

9.2 Senior Loan Defaults.

(a) Without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrower from any of its obligations hereunder, if there shall occur any Event of Default under the Senior Loan, Borrower hereby expressly agrees that Lender shall have the immediate right, without prior notice to Borrower, but shall be under no obligation: (i) to pay all or any part of the Senior Loan and any other sums that are then due and payable, and to perform any act or take any action on behalf of Borrower and/or Owner as may be appropriate, to cause all of the terms, covenants and conditions of the Senior Loan Documents on the part of Owner to be performed or observed thereunder to be promptly performed or observed; and (ii) to 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

 

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interests of Lender in the Loan and/or the Collateral. All sums so paid and the costs and expenses incurred by Lender in exercising rights under this Section 9.2 (including attorneys’ fees) (i) shall constitute additional advances of the Loan to Borrower, (ii) shall increase the then unpaid Principal, (iii) 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, (iv) shall constitute a portion of the Debt, and (v) shall be secured by the Pledge.

(b) Borrower hereby indemnifies Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including 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 Lender as a result of the foregoing actions. Lender shall have no obligation to Borrower, Sole Member, Owner or any other party to make any such payment or performance. Borrower shall not impede, interfere with, hinder or delay, and shall not permit Owner to impede, interfere with, hinder or delay, any effort or action on the part of Lender to cure any default or asserted default under the Senior Loan, or to otherwise protect or preserve Lender’s interests in the Loan and the Collateral following a default or asserted default under the Senior Loan.

(c) Any default or breach by Owner under the Senior Loan Documents which is not cured prior to the expiration of any applicable grace, notice or cure period afforded to Owner under the Senior Loan Documents shall constitute an Event of Default, without regard to any subsequent payment or performance of any such obligations by Lender. Borrower hereby grants Lender and any person designated by Lender the right to enter upon the Property at any time following the occurrence and during the continuance of any default, or the assertion by Senior Lender that a default has occurred under the Senior Loan Documents, for the purpose of taking any such action or to appear in, defend or bring any action or proceeding to protect Borrower’s, Owner’s and/or 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 Senior Lender with respect to any Senior Loan defaults), without prior notice to, or consent from, Borrower. Lender shall have no obligation to complete any cure or attempted cure undertaken or commenced by Lender.

(d) If Lender shall receive a copy of any notice of default under the Senior Loan Documents sent by Senior Lender to Owner, 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 9.2, except for Lender’s gross negligence or willful misconduct. In the event that Lender makes any payment in respect of the Senior Loan, Lender shall be subrogated to all of the rights of Senior Lender under the Senior Loan Documents against the Property, in addition to all other rights it may have under the Loan Documents.

9.3 Senior Loan Estoppels. Borrower shall (or shall cause Owner to), from time to time, use reasonable efforts to obtain from Senior Lender such certificates of estoppel with respect to compliance by Owner with the terms of the Senior Loan Documents as may be

 

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reasonably requested by Lender. In the event or to the extent that Senior 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 Lender an estoppel executed by Borrower and Owner expressly representing to Lender the information requested by Lender regarding compliance by Owner with the terms of the Senior Loan Documents. Borrower hereby indemnifies Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including 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 Lender based in whole or in part upon any fact, event, condition, or circumstances relating to the Senior Loan which was misrepresented in, or which warrants disclosure and was omitted from such estoppel executed by Borrower and Owner.

9.4 No Amendments to Senior Loan Documents. Without obtaining the prior written consent of Lender, Borrower shall not cause or permit Owner to (i) enter into any amendment or modification of any of the Senior Loan Documents, (ii) grant to Senior Lender any consent or waiver or (iii) exercise any remedy available to Owner under the Senior Loan Documents or any right or election under the Senior Loan Documents. Borrower shall cause Owner to provide Lender with a copy of any amendment or modification to the Senior Loan Documents within five days after the execution thereof.

9.5 Acquisition of the Senior Loan. Neither Borrower, Sole Member or Owner or any Affiliate of any of them shall acquire or agree to acquire the Senior Loan, or any portion thereof or any interest therein, or any direct or indirect ownership interest in the holder of the Senior Loan, via purchase, transfer, exchange or otherwise, and any breach or attempted breach of this provision shall constitute an Event of Default hereunder. If, solely by operation of applicable subrogation law, Borrower, Sole Member or Owner or any Affiliate of any of them shall have failed to comply with the foregoing, then Borrower: (i) shall immediately notify Lender of such failure; (ii) shall cause any and all such prohibited parties acquiring any interest in the Senior Loan Documents: (a) not to enforce the Senior 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 promissory note evidencing the Senior Loan, (2) reconvey and release the lien securing the Senior Loan and any other collateral under the Senior Loan Documents, and (3) discontinue and terminate any enforcement proceeding(s) under the Senior Loan Documents.

9.6 Deed in Lieu of Foreclosure. Without the express prior written consent of Lender, Borrower shall not, and Borrower shall not cause, suffer or permit Owner to, enter into any deed-in-lieu or consensual foreclosure with or for the benefit of Senior Lender or any of its affiliates. Without the express prior written consent of Lender, Borrower shall not, and Borrower shall not cause, suffer or permit Owner to, enter into any consensual sale or other transaction in connection with the Senior Loan which could diminish, modify, terminate, impair or otherwise adversely affect the interests of Lender or Borrower, the Collateral or any portion thereof or any interest therein or of Owner in the Property or portion thereof or any interest therein.

 

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9.7 Refinancing or Prepayment of the Senior Loan. Neither Borrower, nor Sole Member nor Owner shall make any partial or full prepayments of amounts owing under the Senior Loan or refinance the Senior Loan without the prior written consent of Lender, unless such refinancing results in the concurrent payment in full of the Debt.

9.8 Intercreditor Agreement. Borrower hereby acknowledges and agrees that any intercreditor agreement entered into between Lender and Senior Lender (the “Intercreditor Agreement”) will be solely for the benefit of Lender and Senior Lender, and that Borrower and Owner shall not be intended third-party beneficiaries of any of the provisions therein, shall have no rights thereunder and shall not be entitled to rely on any of the provisions contained therein. Lender and Senior Lender shall have no obligation to disclose to Borrower the contents of the intercreditor agreement. Borrower’s obligations hereunder are and will be independent of such intercreditor agreement and shall remain unmodified by the terms and provisions thereof.

 

10. SPECIAL PROVISIONS

10.1 Sale of Note and Secondary Market Transaction.

10.1.1 General; Borrower Cooperation. Lender shall have the right at any time and from time to time (i) to sell or otherwise transfer the Loan or any portion thereof or the Loan Documents or any interest therein to one or more investors, (ii) to sell participation interests in the Loan to one or more investors (iii) to cause the Loan to be split into two or more separate loans or (iv) to securitize the Loan or any portion thereof in a single asset securitization or a pooled loan securitization of rated single or multi-class securities (the “Securities”) secured by or evidencing ownership interests in the Note and the Security Documents (each such sale, assignment, participation and/or securitization is referred to herein as a “Secondary Market Transaction”). In connection with any Secondary Market Transaction, Borrower shall use all reasonable efforts and cooperate fully and in good faith with Lender and otherwise assist Lender in satisfying the market standards to which Lender customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with any such Secondary Market Transactions, including: (a) to (i) provide such financial and other information with respect to the Property, the Collateral, Borrower, Owner and their Affiliates, Manager and any tenants of the Property, (ii) provide business plans and budgets relating to the Property and (iii) subject to the rights of tenants at the Property, perform or permit or cause to be performed or permitted such site inspection, appraisals, surveys, market studies, environmental reviews and reports, engineering reports and other due diligence investigations of the Property, as may be reasonably requested from time to time by Lender or the Rating Agencies or as may be necessary or appropriate in connection with a Secondary Market Transaction or Exchange Act requirements (the items provided to Lender pursuant to this paragraph (a) being called the “Provided Information”), together, if customary, with appropriate verification of and/or consents to the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to Lender and the Rating Agencies; (b) cause counsel to render opinions as to non-consolidation and any other opinion customary in securitization transactions with respect to the Collateral, the Property, Borrower, Owner and their Affiliates, which counsel and opinions shall be reasonably satisfactory to Lender and the Rating Agencies; (c) make such representations and warranties as of the closing date of any Secondary Market Transaction with respect to the Collateral, the Property, Borrower, Owner and the Loan Documents as are

 

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customarily provided in such transactions and as may be reasonably requested by Lender or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents; (d) provide current certificates of good standing and qualification with respect to Borrower, Sole Member and Owner from appropriate Governmental Authorities; and (e) execute such amendments to the Loan Documents and Borrower’s organizational documents, as may be requested by Lender or the Rating Agencies or otherwise to effect a Secondary Market Transaction, provided that nothing contained in this subsection (e) shall result in a material economic change in the transaction; provided that notwithstanding anything to the contrary in this Section 9.1.1, Borrower shall not be required to (i) incur any out-of-pocket expense in connection with the Secondary Market Transaction unless Lender agrees to pay for such out-of-pocket expenses as they are incurred by Borrower (including, without limitation, a change in the Spread or the state maturity of the Loan), (ii) agree to a modification of any Loan Document that would have a material impact upon the rights, liabilities, or responsibilities of Borrower, or (iii) take any actions that would impose a significant burden on Borrower. Borrower’s cooperation obligations set forth herein shall continue until the Loan has been paid in full.

10.1.2 Use of Information. Borrower understands that all or any portion of the Provided Information and the Required Records may be included in disclosure documents in connection with a Secondary Market Transaction, including a prospectus or private placement memorandum (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”), or provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers or other parties relating to the Secondary Market Transaction. If the Disclosure Document is required to be revised, Borrower shall cooperate with Lender in updating the Provided Information or Required Records for inclusion or summary in the Disclosure Document or for other use reasonably required in connection with a Secondary Market Transaction by providing all current information pertaining to Borrower, Owner, Manager, the Collateral and the Property necessary to keep the Disclosure Document accurate and complete in all material respects with respect to such matters.

10.1.3 Borrower’s Obligations Regarding Disclosure Documents. In connection with a Disclosure Document, Borrower shall: (a) if requested by Lender, certify in writing that Borrower has carefully examined those portions of such Disclosure Document, pertaining to Borrower, Owner, the Collateral, the Property, Manager and the Loan, and that such portions do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (b) indemnify (in a separate instrument of indemnity, if so requested by Lender) (i) any underwriter, syndicate member or placement agent (collectively, the “Underwriters”) retained by Lender or its issuing company affiliate (the “Issuer”) in connection with a Secondary Market Transaction, (ii) Lender and (iii) the Issuer that is named in the Disclosure Document or registration statement relating to a Secondary Market Transaction (the “Registration Statement”), and each of the Issuer’s directors, each of its officers who have signed the Registration Statement and each person or entity who controls the Issuer or the Lender within the meaning of Section 15 of the Securities Act or Section 30 of the Exchange

 

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Act (collectively within (iii) , the “GCM Group”), and each of its directors and each person who controls each of the Underwriters, within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act (collectively, the “Underwriter Group”) for any losses, claims, damages or liabilities (the “Liabilities”) to which Lender, the GCM Group or the Underwriter Group may become subject (including reimbursing all of them for any legal or other expenses actually incurred in connection with investigating or defending the Liabilities) insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any of the Provided Information or in any of the applicable portions of such sections of the Disclosure Document applicable to Borrower, Manager, Owner, the Collateral, the Property or the Loan, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated in the applicable portions of such sections or necessary in order to make the statements in the applicable portions of such sections in light of the circumstances under which they were made, not misleading, provided, however, that Borrower shall not be required to indemnify Lender for any Liabilities relating to untrue statements or omissions which Borrower identified to Lender in writing at the time of Borrower’s examination of such Disclosure Document.

10.1.4 Borrower Indemnity Regarding Filings. In connection with filings under the Exchange Act, Borrower shall (i) indemnify Lender, the GCM Group and the Underwriter Group for any Liabilities to which Lender, the GCM Group or the Underwriter Group may become subject insofar as the Liabilities arise out of or are based upon the omission or alleged omission to state in the Provided Information a material fact required to be stated in the Provided Information in order to make the statements in the Provided Information, in light of the circumstances under which they were made not misleading and (ii) reimburse Lender, the GCM Group or the Underwriter Group for any legal or other expenses actually incurred by Lender, GCM Group or the Underwriter Group in connection with defending or investigating the Liabilities.

10.1.5 Indemnification Procedure. Promptly after receipt by an indemnified party under Section 10.1.3 or 10.1.4 of notice of the commencement of any action for which a claim for indemnification is to be made against Borrower, such indemnified party shall notify Borrower in writing of such commencement, but the omission to so notify Borrower will not relieve Borrower from any liability that it may have to any indemnified party hereunder except to the extent that failure to notify causes prejudice to Borrower. If any action is brought against any indemnified party, and it notifies Borrower of the commencement thereof, Borrower 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 of commencement, to assume the defense thereof with counsel satisfactory to such indemnified party in its discretion. After notice from Borrower to such indemnified party under this Section 10.1.5, Borrower shall not be responsible 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 Borrower and an indemnified party, and any 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 Borrower, then 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 or parties.

 

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Borrower shall not be liable for the expenses of more than one separate counsel unless there are legal defenses available to it that are different from or additional to those available to another indemnified party.

10.1.6 Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 10.1.3 or 10.1.4 is for any reason held to be unenforceable by an indemnified party in respect of any Liabilities (or action in respect thereof) referred to therein which would otherwise be indemnifiable under Section 10.1.3 or 10.1.4, Borrower 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 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 GCM Group’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. Lender and Borrower hereby agree that it may not be equitable if the amount of such contribution were determined by pro rata or per capita allocation.

10.1.7 [Intentionally Omitted]

10.1.8 Severance of Loan. Lender shall have the right, at any time (whether prior to, in connection with, or after any Secondary Market Transaction), with respect to all or any portion of the Loan, to modify, split and/or sever all or any portion of the Loan as hereinafter provided. Without limiting the foregoing, Lender may (i) cause the Note and the Pledge to be split into a first and second loan, (ii) create one more senior and subordinate notes (i.e., an A/B or A/B/C structure), (iii) create multiple components of the Note or Notes (and allocate or reallocate the principal balance of the Loan among such components) or (iv) otherwise sever the Loan into two (2) or more loans secured by mortgages and by a pledge of partnership or membership interests (directly or indirectly) in Borrower (i.e., a senior loan/mezzanine loan structure), in each such case, in whatever proportion and whatever priority Lender determines; provided, however, in each such instance the outstanding principal balance of all the Notes evidencing the Loan (or components of such Notes) immediately after the effective date of such modification equals the outstanding principal balance of the Loan immediately prior to such modification and the weighted average of the interest rates for all such Notes (or components of such Notes) immediately after the effective date of such modification equals the interest rate of the original Note immediately prior to such modification. If requested by Lender, Borrower (and Borrower’s constituent members, if applicable) shall execute within two (2) Business Days after such request, such documentation as Lender may reasonably request to evidence and/or effectuate any such modification or severance. Borrower shall not be required to (A) incur any out-of-pocket expense in connection with any action taken pursuant to this Section 9.1.8 unless Lender agrees to pay for such out of pocket expenses as they are incurred by Borrower (including, without limitation, a change in the Spread or the stated maturity of the Loan), (B) agree to a modification of any Loan Document that would have a material impact upon the rights, liabilities, or responsibilities of Borrower, or (C) take any actions that would impose a significant burden on Borrower.

 

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11. MISCELLANEOUS

11.1 Exculpation. Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in the Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest and rights under the Loan Documents, or in all or any portion of the Collateral; 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 Lender 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 any Loan Document. The provisions of this Section shall not, however, (i) constitute a waiver, release or impairment of any obligation evidenced or secured by any Loan Document; (ii) impair the right of Lender to name Borrower as a party defendant in any action or suit under any of the Security Documents; (iii) 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 Lender thereunder; (iv) impair the right of Lender to obtain the appointment of a receiver; (v) constitute a prohibition against Lender to commence any other appropriate action or proceeding in order for Lender to fully realize the security granted by the Pledge or the other Security Documents or to exercise its remedies against all or any portion of the Collateral; or (vi) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower (but not any of its constituent members, partners, officers, directors or shareholders), by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including 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”): (a) fraud or intentional misrepresentation by Borrower, Sole Member, Owner or Guarantor in connection with obtaining the Loan; (b) intentional waste of the Property or any portion thereof, or after an Event of Default the removal or disposal of any portion of the Property; (c) any Proceeds paid by reason of any Insured Casualty or any Award received in connection with a Condemnation or other sums or payments attributable to the Property to the extent not applied in accordance with the provisions of the Loan Documents and the Senior Loan Documents (except to the extent that Borrower or Owner did not have the legal right, because of a bankruptcy, receivership or similar judicial proceeding, to direct disbursement of such sums or payments); (d) all Rents of the Property received or collected by or on behalf of Borrower or Owner after an Event of Default and not applied to payment of Principal and interest due under the Note or under the Senior Loan, and to the payment of actual and reasonable operating expenses of the Property, as they become due or payable (except to the extent that such application of such funds is prevented by bankruptcy, receivership, or similar judicial proceeding in which Borrower or Owner is legally prevented from directing the disbursement of such sums); (e) misappropriation (including failure to turn over to Lender on demand following an Event of Default) of tenant security deposits and rents collected in advance; (f) the failure by Borrower or Owner to pay Taxes or Insurance Premiums, provided Borrower shall not be liable to the extent funds to pay such amounts are available in the Tax and Insurance Subaccount pursuant to the Senior Loan Agreement and Senior Lender failed to pay same; (g) the failure to pay transfer fees and charges due Lender under the Loan Documents in connection with any subordinate financing or any transfer of all or

 

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any part of the Property or the Collateral, or any interest therein, from Borrower to Borrower’s transferee, or transfer of beneficial interest in Borrower; and (h) the breach of any representation, warranty, covenant or indemnification in any Loan Document concerning Environmental Laws or Hazardous Substances, including Sections 4.21 and 5.10, and clauses (viii) through (xi) of Section 5.30.

Notwithstanding anything to the contrary in this Agreement or any of the Loan Documents, (a) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a) , 506(b) , 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral shall continue to secure all of the Debt in accordance with the Loan Documents, and (b) Lender’s agreement not to pursue personal liability of Borrower as set forth above SHALL BECOME NULL AND VOID and shall be of no further force and effect, and the Debt shall be fully recourse to Borrower and Guarantor (but not any of Borrower’s constituent members, partners, officers, directors or shareholders) in the event that one or more of the following occurs (each, a “Springing Recourse Event”): (i) an Event of Default described in Section 8.1(d) shall have occurred (solely as a result of a voluntary Transfer), or (ii) a breach of the covenants set forth in Section 5.15, or (iii) Borrower’s voluntary commencement of proceedings to be adjudicated bankrupt or insolvent; Borrower’s consent to the institution of bankruptcy or insolvency proceedings against it; Borrower’s filing of a petition seeking, or consent to, reorganization or relief under any applicable federal or state law relating to bankruptcy or insolvency; Borrower’s consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of Borrower or a substantial part of Borrower’s property; Borrower’s assignment for the benefit of creditors; or the filing of an involuntary petition in bankruptcy or insolvency proceedings against Borrower by any principal of or owner of any interest in Borrower or any affiliate of or party related to Borrower (but excluding any owner or affiliate that indirectly owns or is affiliated with Borrower solely from its ownership of shares in the REIT).

11.2 Brokers and Financial Advisors. Borrower shall indemnify and hold Lender harmless from and against any and all claims, liabilities, costs and expenses (including attorneys’ fees, whether incurred in connection with enforcing this indemnity or defending claims of third parties) of any kind in any way relating to or arising from a claim by any Person (including Broker) that such Person acted on behalf of Borrower in connection with the transactions contemplated herein. Lender shall indemnify and hold Borrower harmless from and against any and all claims, liabilities, costs and expenses (including attorneys’ fees, whether incurred in connection with enforcing this indemnity or defending claims of third parties) of any kind in any way relating to or arising from a claim by any Person that such Person acted on behalf of Lender in connection with the transactions contemplated herein. The provisions of this Section 11.2 shall survive the expiration and termination of this Agreement and the repayment of the Debt.

11.3 Retention of Servicer. Lender reserves the right to retain the Servicer to act as its agent hereunder with such powers as are specifically delegated to the Servicer by Lender, whether pursuant to the terms of this Agreement, any pooling and servicing agreement or similar agreement entered into as a result of a Secondary Market Transaction, the Deposit Account Agreement or otherwise, together with such other powers as are reasonably incidental thereto. Borrower shall pay any reasonable fees and expenses of the Servicer (i) in connection with a release of the Property (or any portion thereof), (ii) in connection with an assumption or

 

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modification of the Loan, (iii) in connection with the enforcement of the Loan Documents or (iv) in connection with any other action or approval taken by Servicer hereunder on behalf of Lender (which shall not include ongoing regular servicing fees relating to the day-to-day servicing of the Loan, for which Borrower shall not be charged).

11.4 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as any of the Debt is unpaid or such longer period if expressly set forth in this Agreement. All Borrower’s covenants and agreements in this Agreement shall inure to the benefit of the respective legal representatives, successors and assigns of Lender.

11.5 Lender’s Discretion. Whenever pursuant to this Agreement or any other Loan Document, Lender exercises any right given to it to approve or disapprove, or consent or withhold consent, or any arrangement or term is to be satisfactory to Lender or is to be in Lender’s discretion, the decision of Lender to approve or disapprove, to consent or withhold consent, or to decide whether arrangements or terms are satisfactory or not satisfactory, or acceptable or unacceptable or in Lender’s discretion shall (except as is otherwise specifically herein provided) be in the reasonable discretion of Lender.

11.6 Governing Law. 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 AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS 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.

11.7 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 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 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 any Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under the Loan Documents, or to declare an Event of Default for failure to effect prompt payment of any such other amount.

 

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11.8 Trial by Jury. BORROWER AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO 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 AND 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. EITHER PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER.

11.9 Headings/Exhibits. The Section headings 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 Exhibits attached hereto, are hereby incorporated by reference as a part of the Agreement with the same force and effect as if set forth in the body hereof.

11.10 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.

11.11 Preferences. Upon the occurrence and continuance of an Event of Default, Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the Debt. To the extent Borrower makes a payment to Lender, or Lender receives proceeds of any collateral, which is in whole or part 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 Debt 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 Lender. This provision shall survive the expiration or termination of this Agreement and the repayment of the Debt.

11.12 Waiver of Notice. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or any other Loan Document specifically and expressly requires the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which no Loan Document specifically and expressly requires the giving of notice by Lender to Borrower.

11.13 Remedies of Borrower. If a claim or adjudication is made that Lender or any of its agents, including Servicer, has acted unreasonably or unreasonably delayed acting in any case where by law or under any Loan Document, Lender or any such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents, including Servicer, shall be liable for any monetary damages, and Borrower’s sole remedy shall

 

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be to commence an action seeking injunctive relief or declaratory judgment. Any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment. Borrower specifically waives any claim against Lender and its agents, including Servicer, with respect to actions taken by Lender or its agents on Borrower’s behalf.

11.14 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements, understandings and negotiations among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents.

11.15 Offsets, Counterclaims and Defenses. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents, including Servicer, or otherwise offset any obligations to make payments required under the Loan Documents.

11.16 Publicity. All news releases, publicity or advertising by Borrower or its Affiliates through any media intended to reach the general public, which refers to the Loan Documents, the Loan, Lender or any member of the GCM Group, a Loan purchaser, the Servicer or the trustee in a Secondary Market Transaction, shall be subject to the prior written approval of Lender, which approval shall not be unreasonably withheld. Lender shall have the right to issue any of the foregoing without Borrower’s approval. Notwithstanding anything stated to the contrary in this Section 11.16, nothing contained in this Section 11.16 shall prohibit or impair Borrower’s right to disclose information relating to the Loan and/or the Loan Documents (a) to any due diligence representatives and/or consultants that are engaged by, work for or are acting on behalf of, any securities dealers and/or broker dealers evaluating Borrower, (b) in connection with any filings (including any amendment or supplement to any S-11 filing) with governmental agencies (including the SEC) by the REIT, and (c) to any broker/dealers in the REIT’s broker/dealer network and any of the REIT investors.

11.17 No Usury. Borrower and Lender intend at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under state law) and that this Section 11.17 shall control every other agreement in the Loan Documents. If the applicable law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under the Note or any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Debt, or if Lender’s exercise of the option to accelerate the maturity of the Loan or any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by applicable law, then it is Borrower’s and Lender’s express intent that all excess amounts theretofore collected by Lender shall be credited against the unpaid Principal and all other Debt (or, if the Debt has been or would thereby be paid in full, refunded to Borrower), and the provisions of the Loan Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with applicable law, but so as to permit the recovery of the fullest amount otherwise called for thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Loan shall, to the extent permitted by applicable law, be

 

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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 Debt does not exceed the maximum lawful rate from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Notwithstanding anything to the contrary contained in any Loan Document, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

11.18 Conflict; Construction of Documents. 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 each is represented by separate counsel in connection with the negotiation and drafting of the Loan Documents and that the Loan Documents shall not be subject to the principle of construing their meaning against the party that drafted them.

11.19 No Third Party Beneficiaries. The Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in any Loan Document shall be deemed to confer upon anyone other than the Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained therein.

11.20 Assignment. The Loan, the Note, the Loan Documents and/or Lender’s rights, title, obligations and interests therein may be assigned by Lender and any of its successors and assigns to any Person at any time in its discretion, in whole or in part, whether by operation of law (pursuant to a merger or other successor in interest) or otherwise. Upon such assignment, all references to 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 Lender. Borrower may not assign its rights, title, interests or obligations under this Agreement or under any of the Loan Documents.

11.21 Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Borrower, Owner, or Sole Member, or any of their respective creditors or property, Lender, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Lender allowed in such proceedings for the entire Debt at the date of the institution of such proceedings and for any additional amount which may become due and payable by Borrower hereunder after such date.

11.22 Waiver of Stay. Borrower agrees (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive Borrower from paying all or any portion of the Debt or which may affect the covenants or the performance of this Agreement; and Borrower (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the holders, but will suffer and permit the execution of every such power as though no such law had been enacted.

 

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11.23 Certain Additional Rights of Lender. Notwithstanding anything to the contrary which may be contained in this Agreement, Lender shall have:

(i) the right to routinely consult with Borrower’s management regarding the significant business activities and business and financial developments of Borrower, provided, however, that such consultations shall not include discussions of environmental compliance programs or disposal of hazardous substances. Consultation meetings should occur on a regular basis (no less frequently than quarterly) with Lender having the right to call special meetings at any reasonable times;

(ii) the right, in accordance with the terms of this Agreement, to examine the books and records of Borrower at any time upon reasonable notice;

(iii) the right, in accordance with the terms of this Agreement, to receive monthly, quarterly and year-end financial reports, including balance sheets, statements of income, shareholder’s equity and cash flow, a management report and schedules of outstanding indebtedness;

(iv) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to restrict financing to be obtained with respect to the Collateral so long as any portion of the Debt remains outstanding;

(v) the right, without restricting any other right of Lender under this Agreement or the other Loan Documents (including any similar right), to restrict, upon the occurrence of an Event of Default, Borrower’s and Owner’s payments of management, consulting, director or similar fees to Affiliates of Borrower or Owner from the Rents;

(vi) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to approve any operating budget and/or capital budget of Borrower or Owner;

(vii) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to approve any acquisition by Borrower or Owner of any other significant property (other than personal property required for the day to day operation of Property); and

(viii) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to restrict the transfer of interests in Borrower held by its members, and the right to restrict the transfer of interests in such member, except for any transfer that is a Permitted Transfer.

The rights described above may be exercised directly or indirectly by any Person that owns substantially all of the ownership interests in Lender. The provisions of this Section are intended to satisfy the requirement of management rights for purposes of the Department of Labor “plan assets” regulation 29 C.F.R., Section 2510.3-101.

11.24 Set-Off. In addition to any rights and remedies of Lender provided by this Agreement and by law, following and during the continuance of an Event of Default, Lender

 

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shall have the right, 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 Lender or any Affiliate thereof to or for the credit or the account of Borrower.

11.25 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.

 

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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.

 

KBS REIT ACQUISITION V, LLC,

a Delaware limited liability company

By:   KBS Limited Partnership, a Delaware limited partnership, its sole member
  By:   KBS REAL ESTATE INVESTMENT TRUST, INC., a Maryland corporation, general partner
    By:   /s/ Charles J. Schreiber, Jr.
      Charles J. Schreiber, Jr.
      Chief Executive Officer
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation
By:   /s/ Authorized Signatory
  Name:  
  Title:  

 

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Schedule 1

Exceptions to Representations and Warranties

None.

Schedule 1

 

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Schedule 2

Rent Roll

Schedule 2

 

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Schedule 3

Organization of Borrower

Schedule 3

 

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Schedule 4

Definition of Special Purpose Bankruptcy Remote Entity

A “Special Purpose Bankruptcy Remote Entity” means (x) a limited liability company that is a Single Member Bankruptcy Remote LLC or (y) a corporation, limited partnership or limited liability company which at all times since its formation and at all times thereafter (i) was and will be organized solely for the purpose of (a) owning the Property or (b) acting as a general partner of the limited partnership that owns the Property or member of the limited liability company that owns the Property; (ii) has not engaged and will not engage in any business unrelated to (a) the ownership of the Property, (b) acting as general partner of the limited partnership that owns the Property or (c) acting as a member of the limited liability company that owns the Property, as applicable; (iii) has not had and will not have any assets other than those related to the Property or its partnership or member interest in the limited partnership or limited liability company that owns the Property, as applicable; (iv) has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, asset sale (except as expressly permitted by this Agreement), transfer of partnership or membership interests or the like, or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation or operating agreement (as applicable); (v) [Intentionally Omitted]; (vi) [Intentionally Omitted]; (vii) [Intentionally Omitted]; (viii) if such entity is a limited liability company, has and will have articles of organization, a certificate of formation and/or an operating agreement, as applicable, providing that (a) such entity will dissolve only upon the bankruptcy of the managing member, (b) the vote of a majority-in-interest of the remaining members is sufficient to continue the life of the limited liability company in the event of such bankruptcy of the managing member and (c) if the vote of a majority-in-interest of the remaining members to continue the life of the limited liability company following the bankruptcy of the managing member is not obtained, the limited liability company may not liquidate the Property without the consent of the applicable Rating Agencies for as long as the Loan is outstanding; (ix) has not, and without the unanimous consent of all of its partners, directors or members (including all Independent Directors), as applicable, will not, with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest (a) file a bankruptcy, insolvency or reorganization petition or otherwise institute insolvency proceedings or otherwise seek any relief under any laws relating to the relief from debts or the protection of debtors generally, (b) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for such entity or for all or any portion of such entity’s properties, (c) make any assignment for the benefit of such entity’s creditors or (d) take any action that might cause such entity to become insolvent; (x) has remained and will remain solvent and has maintained and will maintain adequate capital in light of its contemplated business operations; (xi) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity; (xii) has maintained and will maintain its accounts, books and records separate from any other Person and will file its own tax returns; (xiii) has maintained and will maintain its books, records, resolutions and agreements as official records; (xiv) has not commingled and will not commingle its funds or assets with those of any other Person; (xv) has held and will hold its assets in its own name; (xvi) has conducted and will conduct its business in its name, (xvii) has maintained and will maintain its

Schedule 4

 

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financial statements, accounting records and other entity documents separate from any other Person; (xviii) has paid and will pay its own liabilities, including the salaries of its own employees, out of its own funds and assets; (xix) has observed and will observe all partnership, corporate or limited liability company formalities, as applicable; (xx) has maintained and will maintain an arm’s-length relationship with its Affiliates; (xxi) (a) if such entity owns the Property, has and will have no indebtedness other than the Loan and unsecured trade payables in the ordinary course of business relating to the ownership and operation of Property which (1) do not exceed, at any time, a maximum amount of 1% of the original amount of the Principal and (2) are paid within thirty (30) days of the date incurred, or (b) if such entity acts as the general partner of a limited partnership which owns the Property, has and will have no indebtedness other than unsecured trade payables in the ordinary course of business relating to acting as general partner of the limited partnership which owns the Property which (1) do not exceed, at any time, $100,000 and (2) are paid within sixty (60) days of the date incurred, or (c) if such entity acts as a managing member of a limited liability company which owns the Property, has and will have no indebtedness other than unsecured trade payables in the ordinary course of business relating to acting as a member of the limited liability company which owns the Property which (1) do not exceed, at any time, $100,000 and (2) are paid within sixty (60) days of the date incurred; (xxii) has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except for the Loan; (xxiii) has not and will not acquire obligations or securities of its partners, members or shareholders; (xxiv) has allocated and will allocate fairly and reasonably shared expenses, including shared office space, and uses separate stationery, invoices and checks; (xxv) except in connection with the Loan, has not pledged and will not pledge its assets for the benefit of any other Person; (xxvi) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name and not as a division or part of any other Person; (xxvii) has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (xxviii) has not made and will not make loans to any Person; (xxix) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it; (xxx) has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arm’s-length transaction with an unrelated third party; (xxxi) has and will have no obligation to indemnify its partners, officers, directors, members or Special Members, as the case may be, or has such an obligation that is fully subordinated to the Debt and will not constitute a claim against it if cash flow in excess of the amount required to pay the Debt is insufficient to pay such obligation; and (xxxii) will consider the interests of its creditors in connection with all corporate, partnership or limited liability actions, as applicable.

Independent Director” means (x) in the case of a Single Member Bankruptcy Remote LLC: a natural person selected by Borrower and reasonably satisfactory to Lender who shall not have been at the time of such individual’s appointment as an Independent Director of the Single Member Bankruptcy Remote LLC, does not thereafter become while serving as an Independent Director (except pursuant to an express provision in the Single Member Bankruptcy Remote LLC’s limited liability company agreement providing for the Independent Director to become a

Schedule 4

 

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Special Member (defined below) upon the sole member of such Single Member Bankruptcy Remote LLC ceasing to be a member in such Single Member Bankruptcy Remote LLC) and shall not have been at any time during the preceding five (5) years (i) a shareholder/partner/member of, or an officer or employee of, Borrower or any of its shareholders, subsidiaries or Affiliates, (ii) a director (other than as an Independent Director) of any shareholder, subsidiary or Affiliate of Borrower, (iii) a customer of, or supplier to, Borrower or any of its shareholders, subsidiaries or Affiliates, (iv) a Person who Controls any such shareholder, supplier or customer, or (v) a member of the immediate family of any such shareholder/ director/partner/member, officer, employee, supplier or customer or of any director of Borrower (other than as an Independent Director); and (y) in the case of a corporation, an individual selected by Borrower and reasonably satisfactory to Lender who shall not have been at the time of such individual’s appointment as a director, does not thereafter become while serving as an Independent Director and shall not have been at any time during the preceding five (5) years (i) a shareholder/partner/member of, or an officer, employee, consultant, agent or advisor of, Borrower or any of its shareholders, subsidiaries, members or Affiliates, (ii) a director of any shareholder, subsidiary, member, or Affiliate of Borrower other than Borrower’s general partner or managing member, (iii) a customer of, or supplier to, Borrower or any of its shareholders, subsidiaries or Affiliates that derives more than 10% of its purchases or income from its activities with Borrower or any Affiliate of Borrower, (iv) a Person who Controls any such shareholder, supplier or customer, or (v) a member of the immediate family (including a grandchild or sibling) of any such shareholder/director/partner/member, officer, employee, supplier or customer or of any other director of Borrower’s general partner or managing member.

Single Member Bankruptcy Remote LLC” means a limited liability company organized under the laws of the State of Delaware which at all times since its formation and at all times thereafter (i) complies with the following clauses of the definition of Special Purpose Bankruptcy Remote Entity above: (i) (a) , (ii) (a) , (iii) , (iv) , (ix), (x), (xi) and (xiii) through (xxxii); (ii) has maintained and will maintain its accounts, books and records separate from any other person; (iii) has and will have an operating agreement which provides that the business and affairs of Borrower shall be managed by or under the direction of a board of one or more directors designated by Sole Member, and at all times there shall be at least one (1) duly appointed Independent Director on the board of directors, and the board of directors will not take any action requiring the unanimous affirmative vote of 100% of the members of its board of directors unless, at the time of such action there is at least one (1) member of the board of directors who is an Independent Director, and all of the directors and all Independent Directors shall have participated in such vote; (iv) has and will have an operating agreement which provides that, as long as any portion of the Debt remains outstanding, (a) upon the occurrence of any event that causes Sole Member to cease to be a member of Borrower (other than (x) upon an assignment by Sole Member of all of its limited liability company interest in Borrower and the admission of the transferee, if permitted pursuant to the organizational documents of Borrower and the Loan Documents, or (y) the resignation of Sole Member and the admission of an additional member of Borrower, if permitted pursuant to the organizational documents of Borrower and the Loan Documents), the person acting as an Independent Director of Borrower shall, without any action of any Person and simultaneously with Sole Member ceasing to be a member of Borrower, automatically be admitted as the sole member of Borrower (the “Special Member”) and shall preserve and continue the existence of Borrower without dissolution, (b) no Special Member

Schedule 4

 

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may resign or transfer its rights as Special Member unless (x) a successor Special Member has been admitted to Borrower as a Special Member, and (y) such successor Special Member has also accepted its appointment as an Independent Director and (c) except as expressly permitted pursuant to the terms of this Agreement, Sole Member may not resign and no additional member shall be admitted to Borrower; (v) has and will have an operating agreement which provides that, as long as any portion of the Debt remains outstanding, (a) Borrower shall be dissolved, and its affairs shall be would up only upon the first to occur of the following: (x) the termination of the legal existence of the last remaining member of Borrower or the occurrence of any other event which terminates the continued membership of the last remaining member of Borrower in Borrower unless the business of Borrower is continued in a manner permitted by its operating agreement or the Delaware Limited Liability Company Act (the “Act”) or (y) the entry of a decree of judicial dissolution under Section 18-802 of the Act; (b) upon the occurrence of any event that causes the last remaining member of Borrower to cease to be a member of Borrower or that causes Sole Member to cease to be a member of Borrower (other than (x) upon an assignment by Sole Member of all of its limited liability company interest in Borrower and the admission of the transferee, if permitted pursuant to the organizational documents of Borrower and the Loan Documents, or (y) the resignation of Sole Member and the admission of an additional member of Borrower, if permitted pursuant to the organizational documents of Borrower and the Loan Documents), to the fullest extent permitted by law, the personal representative of such member shall be authorized to, and shall, within 90 days after the occurrence of the event that terminated the continued membership of such member in Borrower, agree in writing to continue the existence of Borrower and to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of Borrower, effective as of the occurrence of the event that terminated the continued membership of such member in Borrower; (c) the bankruptcy of Sole Member or a Special Member shall not cause such member or Special Member, respectively, to cease to be a member of Borrower and upon the occurrence of such an event, the business of Borrower shall continue without dissolution; (d) in the event of dissolution of Borrower, Borrower shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of Borrower in an orderly manner), and the assets of Borrower shall be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act; and (e) to the fullest extent permitted by law, each of Sole Member and the Special Members shall irrevocably waive any right or power that they might have to cause Borrower or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of Borrower, to compel any sale of all or any portion of the assets of Borrower pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of Borrower.

Schedule 4

 

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