-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OrihPVCZAOesGuE66Ws5hZD/+3UgjYKy/VaoEoGRS/fW4uaoJbJTiFQwSDFU/COk 4oBMMvsUez4B50ioPATJLw== 0000731245-04-000024.txt : 20041112 0000731245-04-000024.hdr.sgml : 20041111 20041112145059 ACCESSION NUMBER: 0000731245-04-000024 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041112 DATE AS OF CHANGE: 20041112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRESIDENTIAL REALTY CORP/DE/ CENTRAL INDEX KEY: 0000731245 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 131954619 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-08594 FILM NUMBER: 041138551 BUSINESS ADDRESS: STREET 1: 180 S BROADWAY CITY: WHITE PLAINS STATE: NY ZIP: 10605 BUSINESS PHONE: 9149481300 MAIL ADDRESS: STREET 1: 180 SOUTH BROADWAY CITY: WHITE PLAINS STATE: NY ZIP: 10605 10QSB 1 sep0410qsb.txt PRESIDENTIAL REALTY CORPORATION 10Q-SB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8594 ------ PRESIDENTIAL REALTY CORPORATION --------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 13-1954619 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 180 South Broadway, White Plains, New York 10605 - ------------------------------------------------- (Address of principal executive offices) Issuer's telephone number, including area code 914-948-1300 ------------ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such fling requirements for the past 90 days. Yes x No -------- -------- The number of shares outstanding of each of the issuer's classes of common stock as of the close of business on November 8, 2004 was 478,840 shares of Class A common and 3,336,796 shares of Class B common. Transitional Small Business Disclosure Format (check one): Yes No x ----- ------ PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES ------------------------------------------------- Index to Form 10-QSB For the Nine Months Ended September 30, 2004 Part I Financial Information (Unaudited) Item 1. Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk Item 3. Controls and Procedures Part II Other Information Item 6. Exhibits PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 2004 2003 -------------- -------------- Assets Real estate (Note 2) $11,829,659 $11,646,869 Less: accumulated depreciation 5,871,513 5,650,595 -------------- -------------- Net real estate 5,958,146 5,996,274 -------------- -------------- Mortgage portfolio (Note 3): Sold properties and other - net 21,247,898 21,375,192 Related parties - net 249,726 316,573 -------------- -------------- Net mortgage portfolio (of which $3,130,264 in 2004 and $112,730 in 2003 are due within one year) 21,497,624 21,691,765 -------------- -------------- Assets related to discontinued operations (Note 4) 9,228,298 31,431,930 Investments in and advances to joint ventures (Note 5) 10,031,677 - Prepaid expenses and deposits in escrow 1,027,070 1,198,753 Other receivables (net of valuation allowance of $171,951 in 2004 and $180,613 in 2003) 962,205 770,360 Cash and cash equivalents 2,533,965 1,372,818 Other assets 578,890 648,868 -------------- -------------- Total Assets $51,817,875 $63,110,768 ============== ============== Liabilities and Stockholders' Equity Liabilities: Mortgage debt (of which $202,133 in 2004 and $191,250 in 2003 are due within one year) $8,918,123 $9,060,091 Liabilities related to discontinued operations (Note 4) 7,679,088 29,221,431 Contractual pension and postretirement benefits liabilities 3,372,580 3,396,393 Defined benefit plan liability 792,840 1,393,341 Accrued liabilities 1,254,893 1,129,188 Accounts payable 255,975 344,067 Distributions from partnership in excess of investment and earnings (Note 6) 2,248,009 2,411,112 Other liabilities 350,315 377,382 -------------- -------------- Total Liabilities 24,871,823 47,333,005 -------------- -------------- Minority Interest in Consolidated Partnership (Note 7) 52,742 69,346 -------------- -------------- Stockholders' Equity: Common stock; par value $.10 per share Class A, authorized 700,000 shares, issued 478,940 shares and 100 shares held in treasury 47,894 47,894 Class B September 30, 2004 December 31, 2003 333,255 330,667 ----------- -------------------- ----------------- Authorized: 10,000,000 10,000,000 Issued: 3,332,549 3,306,674 Treasury: 1,997 1,897 Additional paid-in capital 3,378,740 3,189,840 Retained earnings 25,999,713 15,374,021 Accumulated other comprehensive loss (2,844,154) (2,845,097) Treasury stock (at cost) (22,138) (21,408) Notes receivable for exercise of stock options - (367,500) -------------- -------------- Total Stockholders' Equity 26,893,310 15,708,417 -------------- -------------- Total Liabilities and Stockholders' Equity $51,817,875 $63,110,768 ============== ============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 2004 2003 ----------- ----------- Revenues: Rental $2,770,398 $3,001,252 Interest on mortgages - sold properties and other 2,193,087 1,843,616 Interest on mortgages - related parties 489,635 231,734 Other revenues 23,692 22,029 ----------- ----------- Total 5,476,812 5,098,631 ----------- ----------- Costs and Expenses: General and administrative 2,706,355 2,359,368 Depreciation on non-rental property 15,758 19,976 Rental property: Operating expenses 1,677,218 1,633,762 Interest on mortgage debt 448,682 408,221 Real estate taxes 375,672 360,074 Depreciation on real estate 231,034 232,482 Amortization of mortgage costs 16,360 8,852 ----------- ----------- Total 5,471,079 5,022,735 ----------- ----------- Other Income: Investment income 49,503 82,206 Equity in income of partnership (Note 6) 258,702 268,133 ----------- ----------- Income before minority interest and net gain from sales of properties 313,938 426,235 Minority interest (8,396) (11,420) ----------- ----------- Income before net gain from sales of properties 305,542 414,815 Net gain from sales of properties 913,945 1,028,596 ----------- ----------- Income from continuing operations 1,219,487 1,443,411 ----------- ----------- Discontinued Operations (Note 4): Loss from discontinued operations (29,271) (649,200) Impairment of real estate held for sale - (2,527,334) Net gain from sales of discontinued operations 11,257,217 - ----------- ----------- Total income (loss) from discontinued operations 11,227,946 (3,176,534) ----------- ----------- Net Income (Loss) $12,447,433 ($1,733,123) =========== =========== Earnings per Common Share (basic and diluted): Income before net gain from sales of properties $0.08 $0.11 Net gain from sales of properties 0.24 0.27 ----------- ----------- Income from continuing operations 0.32 0.38 ----------- ----------- Discontinued Operations (Note 4): Loss from discontinued operations (0.01) (0.17) Impairment of real estate held for sale - (0.67) Net gain from sales of discontinued operations 2.97 - ----------- ----------- Total income (loss) from discontinued operations 2.96 (0.84) ----------- ----------- Net Income (Loss) per Common Share - basic $3.28 ($0.46) =========== =========== - diluted $3.27 ($0.46) =========== =========== Cash Distributions Declared per Common Share (Note 13) $0.48 $0.64 =========== =========== Weighted Average Number of Shares Outstanding - basic 3,795,030 3,762,397 =========== =========== - diluted 3,806,170 3,773,648 =========== =========== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, ------------------------- 2004 2003 ----------- ----------- Revenues: Rental $924,728 $987,760 Interest on mortgages - sold properties and other 731,658 604,910 Interest on mortgages - related parties 204,703 46,998 Other revenues 7,141 5,421 ----------- ----------- Total 1,868,230 1,645,089 ----------- ----------- Costs and Expenses: General and administrative 961,987 774,385 Depreciation on non-rental property 5,253 7,214 Rental property: Operating expenses 556,361 559,021 Interest on mortgage debt 149,000 135,670 Real estate taxes 134,250 126,158 Depreciation on real estate 79,189 78,759 Amortization of mortgage costs 5,374 2,714 ----------- ----------- Total 1,891,414 1,683,921 ----------- ----------- Other Income: Investment income 27,901 24,088 Equity in income of partnership (Note 6) 100,990 70,994 ----------- ----------- Income before minority interest and net gain from sales of properties 105,707 56,250 Minority interest (2,164) (2,989) ----------- ----------- Income before net gain from sales of properties 103,543 53,261 Net gain from sales of properties - 108,703 ----------- ----------- Income from continuing operations 103,543 161,964 ----------- ----------- Discontinued Operations (Note 4): Loss from discontinued operations (28,507) (206,824) Impairment of real estate held for sale - (2,527,334) Net gain from sales of discontinued operations 20,384 - ----------- ----------- Total loss from discontinued operations (8,123) (2,734,158) ----------- ----------- Net Income (Loss) $95,420 ($2,572,194) =========== =========== Earnings per Common Share (basic and diluted): Income before net gain from sales of properties $0.03 $0.01 Net gain from sales of properties - 0.03 ----------- ----------- Income from continuing operations 0.03 0.04 ----------- ----------- Discontinued Operations (Note 4): Loss from discontinued operations (0.01) (0.05) Impairment of real estate held for sale - (0.67) Net gain from sales of discontinued operations 0.01 - ----------- ----------- Total loss from discontinued operations 0.00 (0.72) ----------- ----------- Net Income (Loss) per Common Share - basic $0.03 ($0.68) =========== =========== - diluted $0.03 ($0.68) =========== =========== Cash Distributions Declared per Common Share (Note 13) $0.16 $0.32 =========== =========== Weighted Average Number of Shares Outstanding - basic 3,803,614 3,770,277 =========== =========== - diluted 3,815,681 3,781,666 =========== =========== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------- 2004 2003 -------------- ------------- Cash Flows from Operating Activities: Cash received from rental properties $2,714,190 $2,926,301 Interest received 2,501,038 2,021,475 Distributions received from partnership 168,600 288,300 Miscellaneous income 21,820 14,398 Interest paid on rental property mortgage debt (444,403) (411,418) Cash disbursed for rental property operations (2,068,647) (2,049,302) Cash disbursed for general and administrative costs (3,126,719) (3,140,695) -------------- ------------- Net cash used in continuing operations (234,121) (350,941) Net cash provided by discontinued operations 80,403 29,978 -------------- ------------- Net cash used in operating activities (153,718) (320,963) -------------- ------------- Cash Flows from Investing Activities: Cash flows from continuing operations: Payments received on notes receivable 302,666 2,794,436 Payments disbursed for investments in notes receivable (8,600,000) (1,500,000) Payments of taxes payable on gain from sale - (498,750) Payments disbursed for additions and improvements (295,599) (177,000) Proceeds from sale of co-op apartments 1,015,828 128,292 Purchase of property (26,993,267) - Purchase of additional interest in partnership (73,000) (39,443) Other (730) (8,217) -------------- ------------- (34,644,102) 699,318 -------------- ------------- Cash flows from discontinued operations: Payments disbursed for additions and improvements (123,798) (116,935) Proceeds from sales of discontinued operations 19,639,780 - -------------- ------------- 19,515,982 (116,935) -------------- ------------- Net cash (used in) provided by investing activities (15,128,120) 582,383 -------------- ------------- Cash Flows from Financing Activities: Cash flows from continuing operations: Principal payments on mortgage debt (141,968) (118,748) Mortgage costs paid (8,346) (13,100) Mortgage proceeds 22,961,590 - Loan proceeds 2,600,000 - Distributions to minority partners (25,000) (25,112) Cash distributions on common stock (1,821,741) (1,806,299) Cash received from loan repayment by officers 367,500 - Proceeds from dividend reinvestment and share purchase plan 168,646 181,066 -------------- ------------- 24,100,681 (1,782,193) -------------- ------------- Cash flows from discontinued operations: Principal payments on mortgage debt (114,084) (213,213) Repayment of mortgage debt from sale of property (7,543,612) - -------------- ------------- (7,657,696) (213,213) -------------- ------------- Net cash provided by (used in) financing activities 16,442,985 (1,995,406) -------------- ------------- Net Increase (Decrease) in Cash and Cash Equivalents 1,161,147 (1,733,986) Cash and Cash Equivalents, Beginning of Period 1,372,818 6,738,768 -------------- ------------- Cash and Cash Equivalents, End of Period $2,533,965 $5,004,782 ============== ============= See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------- 2004 2003 ---------------- ---------------- Reconciliation of Net Income (Loss) to Net Cash Used in Operating Activities Net Income (Loss) $12,447,433 ($1,733,123) ---------------- ---------------- Adjustments to reconcile net income (loss) to net cash used in continuing operations: Net gain from sales of properties (913,945) (1,028,596) Loss from discontinued operations 29,271 649,200 Impairment of real estate held for sale - 2,527,334 Net gain from sales of discontinued operations (11,257,217) - Equity in income of partnership (258,702) (268,133) Depreciation and amortization 263,152 261,310 Issuance of stock for fees and expenses 17,132 15,691 Amortization of discounts on notes and fees (108,525) (88,644) Minority interest 8,396 11,420 Distributions received from partnership 168,600 288,300 Changes in assets and liabilities: Increase in other receivables (161,930) (155,244) Decrease in accounts payable and accrued liabilities (479,454) (850,497) Increase (decrease) in other liabilities (2,613) 21,656 Increase in prepaid expenses, deposits in escrow and deferred charges 16,153 2,024 Other (1,872) (3,639) ---------------- ---------------- Total adjustments (12,681,554) 1,382,182 ---------------- ---------------- Net cash used in continuing operations (234,121) (350,941) ---------------- ---------------- Discontinued operations: Loss from discontinued operations (29,271) (649,200) ---------------- ---------------- Adjustments to reconcile loss to net cash provided by discontinued operations: Depreciation and amortization 145,899 719,326 Net change in operating assets and liabilities (36,225) (40,148) ---------------- ---------------- Total adjustments 109,674 679,178 ---------------- ---------------- Net cash provided by discontinued operations 80,403 29,978 ---------------- ---------------- Net cash used in operating activities ($153,718) ($320,963) ================ ================ SUPPLEMENTAL NONCASH DISCLOSURES: Satisfaction of mortgage debt as a result of foreclosure sale $13,595,028 ================ Net carrying value of real estate written off as a result of foreclosure sale $13,094,950 ================ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 Presidential Realty Corporation ("Presidential" or the "Company"), a Real Estate Investment Trust ("REIT"), is engaged principally in the ownership of income producing real estate and in the holding of notes and mortgages secured by real estate. Presidential operates in a single business segment, investments in real estate related assets. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Principles of Consolidation - The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, the consolidated financial statements include 100% of the account balances of UTB Associates, a partnership in which Presidential is the general partner and owns a 75% interest. All significant intercompany balances and transactions have been eliminated. B. Net Income Per Share - Basic net income per share data is computed by dividing net income by the weighted average number of shares of Class A and Class B common stock outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of stock options outstanding. The dilutive effect of stock options is calculated using the treasury stock method. C. Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The results for such interim periods are not necessarily indicative of the results to be expected for the year. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected. These consolidated financial statements and accompanying notes should be read in conjunction with the Company's Form 10-K for the year ended December 31, 2003. D. Management Estimates - In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates. E. Discontinued Operations - The Company complies with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement requires that the results of operations, including impairment, gains and losses related to the properties that have been sold or properties that are intended to be sold be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold are to be separately classified on the balance sheet. Properties designated as held for sale are carried at the lower of cost or fair value less costs to sell and are not depreciated. F. Equity Method - The Company accounts for its investments in joint ventures and partnerships using the equity method of accounting because it exercises significant influence, but not control over these investments. G. Adoption of Recent Accounting Pronouncements - In January of 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities", which was amended by Interpretation No. 46(R) in December of 2003. This Interpretation clarifies the application of existing accounting pronouncements to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. As it applied to Presidential, Interpretation No. 46(R) was immediately effective for all variable interest entities on March 31, 2004. The adoption of Interpretation No. 46 had no impact on the Company's consolidated financial statements. 2. REAL ESTATE Real estate is comprised of the following: September 30, December 31, 2004 2003 ------------ ------------ Land $ 675,377 $ 695,475 Buildings 11,006,494 10,806,098 Furniture and equipment 147,788 145,296 ----------- ------------ Total real estate $11,829,659 $11,646,869 =========== ============ 3. MORTGAGE PORTFOLIO The components of the net mortgage portfolio at September 30, 2004 and December 31, 2003 are as follows: Sold Properties Related September 30, 2004 and Other Parties Total - ------------------ ----------- -------- ----------- Notes receivable $28,430,328 $301,740 $28,732,068 Less: Discounts 949,040 52,014 1,001,054 Deferred gains 6,233,390 6,233,390 ----------- --------- ----------- Net mortgage portfolio $21,247,898 $249,726 $21,497,624 =========== ========= =========== December 31, 2003 - ----------------- Notes receivable $28,656,210 $378,524 $29,034,734 Less: Discounts 1,047,628 61,951 1,109,579 Deferred gains 6,233,390 6,233,390 ----------- -------- ----------- Net mortgage portfolio $21,375,192 $316,573 $21,691,765 =========== ======== =========== At September 30, 2004, all of the notes in the Company's mortgage portfolio are current in accordance with their terms, as modified. On October 1, 2004, the Company received prepayment of its $6,000,000 Newcastle Apartments note receivable which was due to mature on July 31, 2006. As a result, in the fourth quarter of 2004, the Company will recognize a gain of $2,991,850 which had been previously deferred. In connection with the prepayment, the Company received a prepayment fee of $60,000. 4. DISCONTINUED OPERATIONS For the periods ended September 30, 2004 and 2003, income (loss) from discontinued operations includes income from the Continental Gardens property and losses from the Preston Lake Apartments and the Farrington Apartments properties. The Farrington Apartments property which was designated as held for sale during the quarter ended June 30, 2004, is currently under a contract for sale. As a result of the Company's decision to discontinue payments on the first mortgage note secured by the Preston Lake Apartments property and the appointment of a receiver by the mortgagee in late February, 2004, the loss from operations for the 2004 period reflects only two months of operations for the Preston Lake Apartments property. The following table summarizes income or loss for the properties sold or held for sale:
Nine Months Ended Three Months Ended September 30, September 30, -------------------------- ---------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Revenues: Rental $ 2,538,963 $ 4,258,880 $399,576 $ 1,377,405 ----------- ----------- -------- ----------- Rental property expenses: Operating expenses 1,152,083 1,969,664 227,061 645,270 Interest on mortgage debt 973,914 1,796,763 160,981 602,301 Real estate taxes 296,617 422,703 40,478 140,901 Depreciation on real estate 139,097 688,773 (246) 188,704 Amortization of mortgage costs 6,802 30,553 7,576 ----------- ----------- -------- ----------- Total 2,568,513 4,908,456 428,274 1,584,752 ----------- ----------- -------- ----------- Other income: Investment income 279 376 191 523 ----------- ----------- -------- ---------- Loss from discontinued operations (29,271) (649,200) (28,507) (206,824) Impairment of real estate held for sale (2,527,334) (2,527,334) Net gain from sales of discontinued operations 11,257,217 20,384 ----------- ----------- -------- ----------- Total income (loss) from discontinued operations $11,227,946 $(3,176,534) $ (8,123) $(2,734,158) =========== =========== ========= ===========
On June 29, 2004, the Company consummated the sale of its Continental Gardens property in Miami, Florida to MAJO 208, LLC, a Florida limited liability company, for a sales price of $21,500,000 pursuant to a contract for the sale executed in September, 2003. The net cash proceeds of sale, after repayment of the $7,543,612 first mortgage loan and prepayment penalty of $919,522, brokerage fees of $411,610 and other expenses of sale of $498,639, were $12,126,617, all of which was used to purchase an exchange property pursuant to a tax-free exchange under Section 1031 of the Internal Revenue Code (see Note 5). The gain from sale for financial reporting purposes is $11,008,520. In 2003, the Company also decided to sell Preston Lake Apartments, a 320-unit apartment property in Tucker, Georgia. Based upon offers made by prospective purchasers, the Company estimated that the fair value of the property, less costs to sell, was below the $16,204,950 net carrying value of the property. Therefore, in 2003, based on its decision to sell the property in the near term, rather than to hold it as a long-term investment, the Company recorded an impairment charge in the amount of $3,110,000 (including $2,527,334 at September 30, 2003) to reduce the carrying value of the assets related to discontinued operations to their estimated fair value less costs to sell. In February, 2004, the Company decided not to make the monthly payment due February 1, 2004 on the first mortgage note secured by Preston Lake Apartments. The outstanding principal balance of the mortgage debt on February 1, 2004 was $13,595,028. The mortgage note was nonrecourse and the Company had no personal liability for repayment of the indebtedness. The holder of the first mortgage commenced foreclosure proceedings and Presidential consented to the appointment of a receiver for the property and did not contest the foreclosure sale. On May 4, 2004, the property was sold in a foreclosure sale by the holder of the first mortgage. The Company recorded a gain on the foreclosure sale for financial reporting purposes of $248,697. In the second quarter of 2004, the Company decided to sell the Farrington Apartments property in Clearwater, Florida. In July, 2004, the Company entered into a contract for the sale of the property for a sales price equal to $1,820,000 above the outstanding principal balance on the closing date of the existing mortgage loan secured by the property. The outstanding balance of the mortgage loan at the anticipated closing date will be $7,618,219. At the end of the due diligence period in August, 2004, the purchase price was reduced by $100,000, the contract deposit was increased to $250,000 and the purchaser's obligation to close became unconditional subject only to the approval by the lender to the assumption of the mortgage by the purchaser. Based on the terms of the contract, the gain from the sale for financial reporting purposes is estimated to be approximately $36,000. Presidential intends to utilize all or a portion of the estimated net cash proceeds of $1,600,000 from the sale to purchase another property or properties and treat the sale and purchase as a tax-free exchange under Section 1031 of the Internal Revenue Code ("IRC"). There can be no assurances, however, that the sale will close or that the amount ultimately realized will not change from the amount described herein or that a satisfactory exchange property will be found. However, if a successful tax-free exchange under Section 1031 of the IRC does not occur, the Company may be subject to tax on its undistributed capital gains. The assets and liabilities of the Farrington Apartments property at September 30, 2004, and the combined assets and liabilities of the Farrington Apartments, Continental Gardens and the Preston Lake Apartments properties at December 31, 2003, are segregated in the consolidated balance sheets. The components are as follows:
September 30, December 31, 2004 2003 ------------- ------------ Assets related to discontinued operations: Land $ 1,900,000 $ 6,588,000 Buildings 8,264,790 28,557,536 Furniture and equipment 23,817 267,711 Less: accumulated depreciation (1,106,037) (4,627,994) ------------ ------------ Net real estate 9,082,570 30,785,253 Other assets 145,728 646,677 ------------ ------------ Total $ 9,228,298 $31,431,930 ============ ============ Liabilities related to discontinued operations: Mortgage debt $ 7,630,303 $28,883,027 Other liabilities 48,785 338,404 ------------ ----------- Total $ 7,679,088 $29,221,431 ============ ===========
5. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES On September 24, 2004, the Company purchased the Martinsburg Mall, an enclosed regional shopping mall containing gross leasable area of approximately 552,000 square feet, in Martinsburg, West Virginia (the "Martinsburg Property"). The purchase price for the Martinsburg Property was $27,000,000 and was paid by utilizing $12,365,000 of the net cash proceeds generated by the recent sale of the Company's Continental Gardens property in Miami, Florida and the proceeds of a first mortgage loan in the amount of $14,635,000. Subsequent to closing, the Company obtained an additional advance of $8,326,590 under the first mortgage loan and a mezzanine loan from The Lightstone Group ("Lightstone") in the amount of $2,600,000 which is secured by a pledge of the ownership interests in the entity that owns the Martinsburg Property. The loan matures on September 27, 2014, and the interest rate on the loan is 11% per annum. Lightstone will manage the Martinsburg Property and received a 71% ownership interest in the entity owning the Martinsburg Property, leaving the Company with a 29% ownership interest. On September 28, 2004, Presidential made an $8,600,000 mezzanine loan to Lightstone (the "Presidential Mezz Loan") in connection with the acquisition by Lightstone of four shopping malls, namely the Shenango Valley Mall, an enclosed regional mall located in Hermitage, Pennsylvania with 508,000 square feet of gross leasable area; the West Manchester Mall, an enclosed regional mall located in York, Pennsylvania with 615,000 square feet of gross leasable area; the Bradley Square Mall, an enclosed mall located in Cleveland, Tennessee with 417,000 square feet of gross leasable area; and the Mount Berry Square Mall, an enclosed regional mall located in Rome, Georgia with 475,000 square feet of gross leasable area (the "Other Properties"). The Presidential Mezz Loan is secured by the ownership interests in the entities owning the Other Properties and Presidential obtained a 29% ownership interest in the entities owning the Other Properties. The loan matures on September 27, 2014 and the interest rate on the loan is 11% per annum. The $22,961,590 first mortgage loan obtained by Presidential in connection with its acquisition of the Martinsburg property is part of a $105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Property and the Other Properties. The Company accounts for these investments using the equity method. At September 30, 2004, investment in and advances to joint ventures are as follows: Martinsburg Mall $ 1,453,342 Other Properties 8,578,335 ----------- $10,031,677 =========== The Lightstone Group is controlled by David Lichtenstein. In addition to Presidential's investments in these joint ventures with Mr. Lichtenstein, Presidential previously made five loans in the aggregate outstanding principal amount of $12,875,000 to entities that are controlled by Mr. Lichtenstein. Some, but not all, of these loans are guaranteed in whole or in part by Mr. Lichtenstein and all of such loans are in good standing. While the Company believes that all of these loans are adequately secured, a default by Mr. Lichtenstein on some or all of these loans could have a material adverse effect on Presidential's business and operating results. 6. DISTRIBUTIONS FROM PARTNERSHIP IN EXCESS OF INVESTMENT AND EARNINGS PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of PDL, Inc. and Associates Limited Co-Partnership ("Home Mortgage Partnership"). The Home Mortgage Partnership owns and operates an office building in Hato Rey, Puerto Rico. Presidential and PDL, Inc. had an aggregate 31% general and limited partner interest in Home Mortgage Partnership at December 31, 2003 and purchased an additional 1% interest in August, 2004 for a purchase price of $73,000. The Company accounts for its investment in this partnership under the equity method because it exercises significant influence, but not control, over the partnership's affairs. The Company's interest in the Home Mortgage Partnership has a negative basis and therefore is classified as a liability on the Company's consolidated balance sheets, under the caption "distributions from partnership in excess of investment and earnings". The negative basis is solely due to the refinancing of the mortgage on the property owned by the partnership and the distribution of the proceeds to the partners in excess of their investment in prior years, and not due to partnership operating losses. Summary financial information for Home Mortgage Partnership is as follows:
September 30, December 31, 2004 2003 ------------- ------------ Condensed Balance Sheets Net real estate $ 4,129,705 $ 4,295,672 Prepaid expenses and deposits in escrow 825,216 742,795 Cash and cash equivalents 895,805 813,306 Receivables and other assets 557,397 567,474 ------------ ------------ Total Assets $ 6,408,123 $ 6,419,247 ============ ============ Nonrecourse mortgage debt $ 16,371,401 $ 16,531,798 Other liabilities 616,595 751,666 ------------ ------------ Total Liabilities 16,987,996 17,283,464 Partners' Deficiency (10,579,873) (10,864,217) ------------ ------------ Total Liabilities and Partners' Deficiency $ 6,408,123 $ 6,419,247 ============ ============ On the Company's Consolidated Balance Sheets: Distributions from partnership in excess of investment and earnings $ 2,248,009 $ 2,411,112 ============ ============ Nine Months Ended Three Months Ended September 30, September 30, 2004 2003 2004 2003 ----------- ----------- ---------- ---------- Condensed Statements of Operations Revenues $ 3,439,540 $ 3,467,878 $1,186,567 $1,103,297 Interest on mortgage debt (923,907) (932,238) (309,194) (313,198) Other expenses (1,696,495) (1,677,537) (564,114) (562,866) Investment income 5,206 6,843 2,337 1,780 ----------- ----------- ---------- ---------- Net Income $ 824,344 $ 864,946 $ 315,596 $ 229,013 =========== =========== ========== ========== On the Company's Consolidated Statement of Operations: Equity in income of partnership $ 258,702 $ 268,133 $ 100,990 $ 70,994 =========== =========== ========== ===========
7. MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP Presidential is the general partner of UTB Associates, a partnership in which Presidential has a 75% interest at September 30, 2004. As the general partner of UTB Associates, Presidential exercises effective control over this partnership through its ability to manage the affairs of the partnership in the ordinary course of business, including the ability to approve the partnership's budgets, and through its significant equity interest. Accordingly, Presidential consolidates this partnership in the accompanying consolidated financial statements. The minority interest reflects the minority partners' equity in the partnership. 8. INCOME TAXES Presidential has elected to qualify as a Real Estate Investment Trust under the Internal Revenue Code. A REIT which distributes at least 90% of its real estate investment trust taxable income to its shareholders each year by the end of the following year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. Upon filing the Company's income tax return for the year ended December 31, 2003, Presidential applied all of its available 2003 stockholders' distributions and further elected to apply (under Section 858 of the Internal Revenue Code) approximately $798,000 of its year 2004 stockholders' distributions to reduce its taxable income for 2003 to zero. Furthermore, the Company had a tax loss (before distributions to stockholders) for the nine months ended September 30, 2004 of approximately $3,893,000 ($1.02 per share), which is comprised of an ordinary loss of approximately $3,038,000 ($.80 per share) and capital losses of approximately $855,000 ($.22 per share). For the nine months ended September 30, 2004, the Company recorded net book income of approximately $12,447,000 and had a taxable loss of approximately $3,893,000. The most significant difference relates to the deferral of the gain from the sale of Continental Gardens because of the Company's purchase of an exchange property pursuant to a tax-free exchange under Section 1031 of the Internal Revenue Code. In addition, certain items that are expenses or costs of sale and are deducted from gain from sales of properties for financial reporting purposes are treated as ordinary deductions for income tax purposes. Presidential intends to continue to maintain its REIT status. Presidential has, for tax purposes, reported the gain from the sale of certain of its properties using the installment method. 9. COMPREHENSIVE INCOME (LOSS) The Company's other comprehensive income or loss consists of the changes in the net unrealized gain on securities available for sale and the minimum pension liability adjustments, if any. Thus, comprehensive income, which consists of net income or loss plus or minus other comprehensive income, is as follows:
Nine Months Ended Three Months Ended September 30, September 30, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Net income (loss) $12,447,433 $(1,733,123) $95,420 $(2,572,194) Other comprehensive income- Net unrealized gain on securities available for sale 943 2,015 637 1,033 ----------- ----------- ------- ----------- Comprehensive income (loss) $12,448,376 $(1,731,108) $96,057 $(2,571,161) =========== =========== ======= ===========
10. COMMITMENTS AND CONTINGENCIES Presidential is not a party to any material legal proceedings. The Company may be a party to routine litigation incidental to the ordinary course of its business. In the opinion of management, all of the Company's properties are adequately covered by insurance in accordance with normal insurance practices. The Company is not aware of any environmental issues at any of its properties. The presence, with or without the Company's knowledge, of hazardous substances at any of its properties could have an adverse effect on the Company's operating results and financial condition. 11. CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS The following table sets forth the components of net periodic benefit costs for contractual pension benefits: Nine Months Ended Three Months Ended September 30, September 30, 2004 2003 2004 2003 -------- -------- -------- -------- Service cost $ 31,108 $ 28,104 $ 10,369 $ 9,368 Interest cost 113,475 115,971 37,825 38,657 Amortization of prior service cost (18,520) (18,520) (6,173) (6,173) Recognized actuarial loss 185,113 145,228 61,704 48,409 -------- -------- -------- ------- Net periodic benefit cost $311,176 $270,783 $103,725 $90,261 ======== ======== ======== ======= The following table sets forth the components of net periodic benefit costs for contractual postretirement benefits: Nine Months Ended Three Months Ended September 30, September 30, 2004 2003 2004 2003 -------- -------- ------- ------- Service cost $ 9,817 $ 13,997 $ 3,272 $ 4,665 Interest cost 28,690 30,464 9,563 10,156 Amortization of prior service cost (7,209) (7,209) (2,403) (2,403) Recognized actuarial loss 14,326 20,149 4,775 6,716 -------- -------- -------- ------- Net periodic benefit cost $ 45,624 $ 57,401 $ 15,207 $19,134 ======== ======== ======== ======= During the nine months ended September 30, 2004, the Company made contributions of $343,222 and $37,390 for contractual pension benefits and postretirement benefits, respectively. The Company anticipates additional contributions of $116,068 and $18,610 for contractual pension benefits and postretirement benefits, respectively, for the remainder of 2004. 12. DEFINED BENEFIT PLAN The following table sets forth the components of net periodic benefit costs:
Nine Months Ended Three Months Ended September 30, September 30, 2004 2003 2004 2003 --------- --------- --------- -------- Service cost $ 291,032 $ 369,183 $ 97,012 $123,059 Interest cost 257,129 211,264 85,709 70,421 Expected return on plan assets (231,392) (160,562) (77,131) (53,518) Amortization of prior service cost 9,462 9,462 3,154 3,154 Amortization of accumulated loss 47,223 49,318 15,741 16,439 ---------- ---------- --------- -------- Net periodic benefit cost $ 373,454 $ 478,665 $124,485 $159,555 ========== ========== ========= ========
During the nine months ended September 30, 2004, the Company made contributions of $973,955 to the defined benefit plan. The Company anticipates additional contributions of $1,577,491 to the plan during the remainder of 2004. 13. CASH DISTRIBUTIONS PER COMMON SHARE Distributions paid per common share for each of the three quarters ended September 30, 2004 and September 30, 2003 were $.16 per quarter. The $.16 distribution paid for the fourth quarter ending December 31, 2003, was declared in the third quarter of 2003 to enable the Company to deduct the distribution from its 2002 taxable income in accordance with the provisions of the Internal Revenue Code applicable to Real Estate Investment Trusts. The $.16 distribution for the fourth quarter of 2004 was declared in the fourth quarter of 2004. PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 Critical Accounting Policies - ---------------------------- In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"), management is required to make estimates and assumptions that affect the financial statements and disclosures. These estimates require management's most difficult, complex or subjective judgments. The Company's critical accounting policies are described in its Form 10-K for the year ended December 31, 2003. There have been no significant changes in the Company's critical accounting policies since December 31, 2003. Results of Operations Financial Information for the nine months ended September 30, 2004 and 2003: - --------------------------------------------------------------------------- Continuing Operations: Revenues increased by $378,181 primarily as a result of increases in interest income on mortgages-sold properties and other and an increase in interest income on mortgages-related parties, offset by a decrease in rental revenues. Rental revenues decreased by $230,854 primarily due to decreases in rental revenue of $150,541 at the Mapletree Industrial Center property and $74,078 at the Fairlawn Gardens property as a result of increased vacancies. The increased vacancy loss at the Mapletree Industrial Center property was the result of a major tenant going out of business and vacating its rental space upon the expiration of its lease. The increased vacancy loss at the Fairlawn Gardens property was a result of flood damage to apartments in 2003. The Company is in the process of repairing the damage and expects to rent these vacated units in the near future. Interest on mortgages-sold properties and other increased by $349,471 primarily due to interest income of $325,372 earned on the $4,500,000 loan made in October, 2003. Interest on mortgages-related parties increased by $257,901 primarily as a result of an increase of $282,500 in payments of interest income received on the Consolidated Loans (see below). This increase was partially offset by a decrease of $18,387 in interest income on the Overlook note receivable which was repaid in March, 2003. Costs and expenses increased by $448,344 primarily due to increases in general and administrative expenses, rental property operating expenses and mortgage interest expense. General and administrative expenses increased by $346,987 primarily as a result of a bad debt expense of $254,059 and a $206,948 increase in salary expense (of which $175,654 pertains to contractual executive bonuses). The bad debt expense is primarily due to the $270,908 write-off of receivables due from an unaffiliated property management company. These receivables resulted from unreimbursed shared overhead expenses and advances made from time to time by Presidential to the management company. It is unlikely that Presidential will collect these amounts, as the management company ceased operations on September 30, 2004, and, accordingly, Presidential determined that it was appropriate to write off these receivables. These increases were partially offset by a $105,211 decrease in defined benefit plan expenses. Rental property operating expenses increased by $43,456 primarily as a result of increases of $35,652 in bad debt expense and $16,451 in insurance expense. Mortgage interest expense increased by $40,461 as a result of the new $1,200,000 mortgage on the Building Industries Center property which the Company obtained in December, 2003. Other income decreased by $42,134 primarily as a result of a $32,703 decrease in investment income due to decreased interest earned on lower cash investment balances. In addition, equity in income of partnership decreased by $9,431 due to lower earnings of the Home Mortgage Partnership. Income from continuing operations before net gain from sales of properties decreased by $109,273 from $414,815 in 2003 to $305,542 in 2004. This decrease was primarily due to increases of $346,987 in general and administrative expenses, a $336,429 decrease in income from rental property operations, and a $42,134 decrease in other income. These decreases were offset by increased interest income of $607,372. Net gain from sales of properties depends on the timing of sales or the receipt of installments or prepayments on purchase money notes. In 2004, the net gain from sales of properties was $913,945 compared with $1,028,596 in 2003: Gain from sales recognized for the nine months ended September 30, 2004 2003
-------- -------- Sale of property: 330 West 72nd St. apartment unit $560,265 $ Sherwood House apartment unit 334,868 Emily Towers apartment unit 18,812 6300 Riverdale Ave. apartment units 103,017 Deferred gains recognized upon receipt of principal payments on notes: Overlook 880,927 Cooperative apartments notes 44,652 -------- ----------- Net gain $913,945 $1,028,596 ======== ==========
Discontinued Operations: The Company has three properties that are classified as discontinued operations: the Farrington Apartments property in Clearwater, Florida, which is under contract of sale; the Continental Gardens property in Miami, Florida, which was sold in June of 2004 and the Preston Lake Apartments property in Tucker, Georgia, which was sold in May of 2004. (See Liquidity and Capital Resources - Discontinued Operations below). Loss from discontinued operations before impairment of real estate held for sale and net gain from sale of such operations was $29,271 in 2004 compared to $649,200 in 2003. The 2004 period only has two months of operations for the Preston Lake Apartments property compared to nine months of operations in the 2003 period. The Preston Lake Apartments property went into receivership at the end of February, 2004, and was sold on May 4, 2004 at a foreclosure sale by the holder of the first mortgage. At September 30, 2003, the Company recorded a $2,527,334 impairment loss on the Preston Lake Apartments property. As a result, the carrying value of assets related to discontinued operations was written down by the $2,527,334 and income (loss) from discontinued operations was charged with an impairment loss on real estate held for sale. The following table compares the total income or loss from discontinued operations for the nine month periods ended September 30, for properties included in discontinued operations:
2004 2003 ----------- ---------- Income (loss) from discontinued operations: Continental Gardens, Miami, FL $ 248,362 $ 250,829 Farrington Apartments, Clearwater, FL (156,587) (251,004) Preston Lake Apartments, Tucker, GA (121,046) (649,025) ----------- ------------ Loss from discontinued operations (29,271) (649,200) ----------- ------------ Impairment of real estate held for sale: Preston Lake Apartments, Tucker, GA (2,527,334) ----------- ------------ Net gain from sales of discontinued operations: Continental Gardens 11,008,520 Preston Lake Apartments 248,697 ----------- ------------ Net gain from sales of discontinued operations 11,257,217 ----------- ------------ Total income (loss) from discontinued operations $11,227,946 $(3,176,534) ============ ============
Financial Information for the three months ended September 30, 2004 and 2003: - ---------------------------------------------------------------------------- Continuing Operations: Revenues increased by $223,141 primarily as a result of an increase in interest income on mortgages-related parties and increases in interest income on mortgages-sold properties and other, offset by a decrease in rental revenues. Rental revenues decreased by $63,032 primarily due to decreases in rental revenue of $68,210 at the Mapletree Industrial Center property as a result of increased vacancies as previously discussed. Interest on mortgages-sold properties and other increased by $126,748 primarily due to interest income of $109,249 earned on the $4,500,000 loan made in October, 2003. Interest on mortgages-related parties increased by $157,705 primarily as a result of an increase of $155,250 in payments of interest income received on the Consolidated Loans. Costs and expenses increased by $207,493 primarily due to increases in general and administrative expenses and mortgage interest expense. General and administrative expenses increased by $187,602 primarily as a result of a bad debt expense of $164,559 and a $68,747 increase in salary expense (of which $58,551 pertains to contractual executive bonuses). The bad debt expense is primarily due to the $181,408 write-off of receivables due from an unaffiliated rental property management company that managed the Company's properties. These increases were offset by a $35,070 decrease in defined benefit plan expenses. Mortgage interest expense increased by $13,330 as a result of the new $1,200,000 mortgage on the Building Industries Center property which the Company obtained in December, 2003. Other income increased by $33,809 primarily as a result of a $29,996 increase in equity in income of partnership, due to higher earnings of the Home Mortgage Partnership. Income from continuing operations before net gain from sales of properties increased by $50,282 from $53,261 in 2003 to $103,543 in 2004. This increase was primarily due to increases of $284,453 and $33,809 in interest income and other income, respectively. These increases were offset by increases of $187,602 in general and administrative expenses and an $84,884 decrease in income from rental property operations. Net gain from sales of properties depends on the timing of sales or the receipt of installments or prepayments on purchase money notes. In 2004, the net gain from sales of properties was zero compared with $108,703 in 2003:
Gain from sales recognized for the three months ended September 30, 2004 2003 -------- -------- Deferred gains recognized upon receipt of principal payments on notes: Cooperative apartments notes $ - $ 5,686 Sale of property: 6300 Riverdale Ave. apartment units - 103,017 -------- -------- Net gain $ - $108,703 ======== ======== Discontinued Operations:
Loss from discontinued operations before impairment of real estate held for sale and net gain from sales of such operations was $28,507 in 2004 compared to $206,824 in 2003. There were no operations for the Preston Lake Apartments property in the 2004 period compared to three months of operations in the 2003 period, because the Preston Lake Apartments property went into receivership at the end of February, 2004. At September 30, 2003, the Company recorded a $2,527,334 impairment loss on the Preston Lake Apartments property. As a result, the carrying value of assets related to discontinued operations was written down by the $2,527,334 and income (loss) from discontinued operations was charged with an impairment loss on real estate held for sale. The following table compares the total loss from discontinued operations for the three month periods ended September 30, for properties included in discontinued operations: 2004 2003 ----------- --------- Income (loss) from discontinued operations: Continental Gardens, Miami, FL $ (2,816) $ 135,507 Farrington Apartments, Clearwater, FL (26,263) (96,496) Preston Lake Apartments, Tucker, GA 572 (245,835) -------- ----------- Loss from discontinued operations (28,507) (206,824) -------- ----------- Impairment of real estate held for sale: Preston Lake Apartments, Tucker, GA - (2,527,334) -------- ----------- Net gain from sales of discontinued operations: Continental Gardens 924 - Preston Lake Apartments 19,460 - -------- ----------- Net gain from sales of discontinued operations 20,384 - -------- ----------- Total loss from discontinued operations $ (8,123) $(2,734,158) ======== =========== Funds from Operations Funds from operations ("FFO") represents net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of properties (including properties classified as discontinued operations), plus depreciation and amortization on real estate. FFO is calculated in accordance with the National Association of Real Estate Investment Trusts' ("NAREIT") definition. There are no material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income as an indicator of the Company's operating performance. Management considers FFO a supplemental measure of operating performance and uses FFO as a measure for reviewing the Company's operating performance between periods and for comparing performance to other REITs. FFO is summarized in the following table: Nine Months Ended Three Months Ended September 30, September 30, 2004 2003 2004 2003 ------------ ----------- -------- ----------- Net Income (Loss) $ 12,447,433 $(1,733,123) $ 95,420 $(2,572,194) Net gain from sales of properties (913,945) (1,028,596) (108,703) Net gain from sales of discontinued operations (11,257,217) (20,384) Depreciation and amortization on: Real estate 231,034 232,482 79,189 78,759 Real estate of discontinued operations 139,097 688,773 (246) 188,704 Real estate of partnership 72,354 72,069 24,867 24,356 ------------ ----------- -------- ----------- Funds From (Used In) Operations (1) $ 718,756 $(1,768,395) $178,846 $(2,389,078) ============ =========== ======== =========== Distributions paid to shareholders (2) $ 1,821,741 $ 1,806,299 $608,771 $ 603,173 ============ =========== ======== =========== FFO payout ratio (3) 253.5% - 340.4% - ============ =========== ======== =========== (1) NAREIT's revised guidance, issued in October, 2003, provides that impairment write-downs should not be added back to net income in calculating FFO. Accordingly, the Company has not added back the $2,527,334 write-down taken in the third quarter of 2003 to net income in computing FFO for the nine months and three months ended September 30, 2003. (2) In the third quarter of 2003, the Company declared the fourth quarterly distribution of $.16 per share payable on December 31, 2003; that distribution is not included in the distributions paid. (3) In the first three quarters of 2004 and 2003, the Company decided to maintain its cash dividend at the quarterly rate of $.16 per share despite the fact the dividends paid exceeded funds from operations. As a result of balloon payments received on the Company's mortgage portfolio and proceeds from sales of properties, the Company had funds available to it for distribution to shareholders in addition to funds from operations. See Liquidity and Capital Resources below. Balance Sheet Assets related to discontinued operations decreased by $22,203,632 primarily as a result of the sales of the Continental Gardens and Preston Lake Apartments properties. The net carrying value of the properties sold was $21,666,056 and other assets related to the sales were $492,483. In September, 2004, the Company invested $10,031,677 in joint ventures which own five shopping malls (see below). Prepaid expenses and deposits in escrow decreased by $171,683 primarily as a result of decreases of $245,477 in deposits in escrow, partially offset by increases of $73,794 in prepaid expenses. Other receivables increased by $191,845 primarily as a result of an increase in accrued interest receivable of $136,518 and net increases of $52,761 in damage settlement claims due from insurance carriers for fire and flood damage which occurred at three properties in 2003 and 2004. Cash and cash equivalents increased by $1,161,147 primarily as a result of the $12,126,617 cash proceeds received from the sale of the Continental Gardens property, partially offset by the $10,031,677 invested in joint ventures. Other assets decreased by $69,978 primarily as a result of the write-off of $19,613 for deferred expenses of sale relating to properties sold in 2004. In addition, $15,350 of deposits held by utility companies were refunded to the Company. Other assets also decreased by $13,298 due to a decrease in tenant security deposit cash accounts and by $15,758 due to the depreciation of home office furniture and equipment. Liabilities related to discontinued operations decreased by $21,542,343. As a result of the sale of the Continental Gardens property, the outstanding mortgage debt of $7,543,612 was repaid. In addition, as a result of the foreclosure sale of the Preston Lake Apartments property, the $13,595,028 outstanding mortgage debt was written off. Defined benefit plan liability decreased by $600,501 primarily as a result of Company contributions of $973,955, partially offset by the net periodic benefit costs of $373,454. Accrued liabilities increased by $125,705 primarily as a result of $175,654 of accrued contractual executive bonuses and $75,100 of accrued expenses of sale in connection with the sale of the Continental Gardens property. These increases were partially offset by decreases in accrued rental property expenses of $92,410 and decreases of $18,385 in accrued franchise tax expenses. Accounts payable decreased by $88,092 primarily as a result of the sale of Preston Lake Apartments. At December 31, 2003, accounts payable included $144,846 attributed to Preston Lake Apartments. This decrease was partially offset by increases in accounts payable as a result of payment scheduling and not from insufficient cash flows. In January, 2004, three directors of the Company were each given 1,000 shares of the Company's Class B common stock as partial payment for directors' fees for the 2004 year. The shares were valued at $7.614 per share, which was the market value of the Class B common stock at the grant date, and, accordingly, the Company recorded $22,842 in prepaid directors' fees (to be amortized during 2004) based on the market value of the stock. The Company recorded additions to the Company's Class B common stock of $300 at par value of $.10 per share and $22,542 to additional paid-in capital. Forward-Looking Statements Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business conditions, which will, among other things, affect the demand for apartments or commercial space, availability and credit worthiness of prospective tenants, lease rents and the terms and availability of financing; adverse changes in the real estate markets including, among other things, competition with other companies; risks of real estate development and acquisition; governmental actions and initiatives; and environment/safety requirements. Liquidity and Capital Resources Management believes that the Company has sufficient liquidity and capital resources to carry on its existing business and, barring any unforeseen circumstances, to pay the dividends required to maintain REIT status in the foreseeable future. Except as discussed herein, management is not aware of any other trends, events, commitments or uncertainties that will have a significant effect on liquidity. Presidential obtains funds for working capital and investment from its available cash and cash equivalents, from operating activities, from refinancing of mortgage loans on its real estate equities or from sales of such equities, and from repayments on its mortgage portfolio. The Company also has at its disposal a presently unused $250,000 unsecured line of credit and a $250,000 commercial loan available from a lending institution. During the first nine months of 2004 and the year of 2003, the Company paid cash distributions to shareholders which exceeded cash flows from operating activities. Periodically the Company receives balloon payments on its mortgage portfolio, net proceeds from sales of cooperative apartments and net proceeds from sales of discontinued operations. These payments are available to the Company for distribution to its shareholders or the Company may retain these payments for future investment. The Company may in the future, as it did in the first nine months of 2004 and the year of 2003, pay dividends in excess of its cash flow from operating activities if management believes that the Company's liquidity and capital resources are sufficient to pay such dividends. The Company does not have a specific policy as to the retention or distribution of capital gains. The Company's dividend policy regarding capital gains for future periods will be based upon many factors including, but not limited to, the Company's present and projected liquidity, its desire to retain funds available for additional investment, its historical dividend rate and its ability to reduce taxes by paying dividends. While the Company expects to maintain the annual $.64 dividend rate in 2004, no assurances can be given that the present dividend rate will be maintained in the future. At September 30, 2004, Presidential had $2,533,965 in available cash and cash equivalents, an increase of $1,161,147 from the $1,372,818 at December 31, 2003. This increase in cash and cash equivalents was due to cash provided by financing activities of $16,442,985, offset by cash used in operating activities of $153,718 and cash used in investing activities of $15,128,120. Operating Activities Cash from operating activities includes interest on the Company's mortgage portfolio, net cash received from rental property operations and distributions received from the Home Mortgage Partnership. In 2004, cash received from interest on the Company's mortgage portfolio was $2,501,038 and distributions received from the Home Mortgage Partnership were $168,600. Cash received from rental property operations was $176,140. Net cash received from rental property operations is net of distributions to minority partners but before additions and improvements and mortgage amortization. Investing Activities Presidential holds a portfolio of mortgage notes receivable. During 2004, the Company received principal payments of $302,666 on its mortgage portfolio of which $234,882 represented prepayments and balloon payments. Prepayments and balloon payments are sporadic and cannot be relied upon as a regular source of liquidity. On October 1, 2004, the Company received prepayment of its $6,000,000 Newcastle Apartments note receivable which was due to mature on July 31, 2006. As a result, in the fourth quarter of 2004, the Company will recognize a gain of $2,991,850 which had been previously deferred. In connection with the prepayment, the Company received a prepayment fee of $60,000. During the first nine months of 2004, the Company invested $295,599 in additions and improvements to its properties. The Company owns a small portfolio of cooperative apartments, which are located in New York and Connecticut. These apartments are held for the production of rental income and are not marketed for sale. On occasion, the Company will receive purchase offers for some of these apartments and will make sales if the purchase price is agreeable to management. In 2004, the Company sold three cooperative apartments which were located in the New York metropolitan area. The net cash proceeds from the sale of those apartments were $1,015,828. In September, 2004, the Company purchased a shopping mall in Martinsburg, West Virginia for a purchase price of $27,000,000 less purchase credits of $6,733 for a net purchase price of $26,993,267 and advanced an $8,600,000 loan to The Lightstone Group (see Investments in and Advances to Joint Ventures below). In August, 2004, the Company purchased an additional 1% interest in the Home Mortgage Partnership for a purchase price of $73,000. Financing Activities The Company's indebtedness at September 30, 2004, consisted of $8,918,123 of mortgage debt. The mortgage debt, which is collateralized by individual properties, is nonrecourse to the Company with the exception of the $1,184,692 Building Industries Center mortgage and the $173,902 Mapletree Industrial Center mortgage, which are collateralized by the properties and are recourse to Presidential. In addition, some of the Company's mortgages provide for Company liability for damages resulting from specified acts or circumstances, such as for environmental liabilities and fraud. Generally, mortgage debt repayment is serviced with cash flow from the operations of the individual properties. During the first nine months of 2004, the Company made $141,968 of principal payments on mortgage debt. The mortgages on the Company's properties are at fixed rates of interest. With the exception of three mortgages which will be fully amortized by periodic principal payments, the remaining mortgages have balloon payments due at maturity. In September, 2004, the Company received mortgage proceeds of $22,961,590 from a first mortgage loan in connection with its purchase of a shopping mall in Martinsburg, West Virginia and received a $2,600,000 loan from The Lightstone Group (see Investments in and Advances to Joint Ventures below). During the first nine months of 2004, the Company received repayments of $367,500 on notes receivable from officers for loans made in 1999 for the exercise of stock options. During the first nine months of 2004, Presidential declared and paid cash distributions of $1,821,741 to its shareholders and received proceeds from its dividend reinvestment and share purchase plan of $168,646. Discontinued Operations On June 29, 2004, the Company consummated the sale of its Continental Gardens property in Miami, Florida to MAJO 208, LLC, a Florida limited liability company, for a sales price of $21,500,000 pursuant to a contract for the sale executed in September, 2003. The net cash proceeds of sale, after repayment of the $7,543,612 first mortgage loan and prepayment penalty of $919,522, brokerage fees of $411,610 and other expenses of sale of $498,639, were $12,126,617, all of which was used to purchase an exchange property pursuant to a tax-free exchange under Section 1031 of the Internal Revenue Code (see above). The gain from sale for financial reporting purposes is $11,008,520. In the third quarter of 2003, the Company decided to sell the Preston Lake Apartments property. Based upon offers made by prospective purchasers, the Company estimated that the fair value of the property, less costs to sell, was below the $16,204,950 carrying value of the property (net of accumulated depreciation of $1,628,334). Therefore, in 2003, the Company recorded an impairment charge in the amount of $3,110,000 (including $2,527,334 at September 30, 2003) to reduce the carrying value of the assets related to discontinued operations to their estimated fair value less costs to sell. The Company decided not to make the monthly payment due February 1, 2004 on the first mortgage note secured by Preston Lake Apartments. The holder of the first mortgage commenced foreclosure proceedings and Presidential consented to the appointment of a receiver for the property and did not contest the foreclosure sale. On May 4, 2004, the property was sold in a foreclosure sale by the holder of the first mortgage. The Company recorded a gain on the foreclosure sale for financial reporting purposes of $248,697. In the second quarter of 2004, the Company decided to sell the Farrington Apartments property in Clearwater, Florida. In July, 2004, the Company entered into a contract for the sale of the property for a sales price equal to $1,820,000 above the outstanding principal balance on the closing date of the existing mortgage loan secured by the property. The outstanding balance of the mortgage loan at the anticipated closing date will be $7,618,219. At the end of the due diligence period in August, 2004, the purchase price was reduced by $100,000, the contract deposit was increased to $250,000 and the purchaser's obligation to close became unconditional subject only to the approval by the lender to the assumption of the mortgage by the purchaser. Based on the terms of the contract, the gain from the sale for financial reporting purposes is estimated to be approximately $36,000. Presidential intends to utilize all or a portion of the estimated net cash proceeds of $1,600,000 from the sale to purchase another property or properties and treat the sale and purchase as a tax-free exchange under Section 1031 of the Internal Revenue Code ("IRC"). There can be no assurances, however, that the sale will close or that the amount ultimately realized will not change from the amount described herein or that a satisfactory exchange property will be found. However, if a successful tax-free exchange under Section 1031 of the IRC does not occur, the Company may be subject to tax on its undistributed capital gains. At September 30, 2004, assets related to discontinued operations were $9,228,298 and liabilities related to discontinued operations were $7,679,088. Cash from discontinued operations for the nine months ended September 30, 2004 was as follows: cash provided by operating activities was $80,403, cash provided by investing activities was $19,515,982 and cash used in financing activities was $7,657,696. Investments in and Advances to Joint Ventures On September 24, 2004, the Company purchased the Martinsburg Mall, an enclosed regional shopping mall containing gross leasable area of approximately 552,000 square feet, in Martinsburg, West Virginia (the "Martinsburg Property"). The purchase price for the Martinsburg Property was $27,000,000 and was paid by utilizing $12,365,000 of the net cash proceeds generated by the recent sale of the Company's Continental Gardens property in Miami, Florida and the proceeds of a first mortgage loan in the amount of $14,635,000. Subsequent to closing, the Company obtained an additional advance of $8,326,590 under the first mortgage loan and a mezzanine loan from The Lightstone Group ("Lightstone") in the amount of $2,600,000 which is secured by a pledge of the ownership interests in the entity that owns the Martinsburg Property. The loan matures on September 27, 2014, and the interest rate on the loan is 11% per annum. Lightstone will manage the Martinsburg Property and received a 71% ownership interest in the entity owning the Martinsburg Property, leaving the Company with a 29% ownership interest. On September 28, 2004, Presidential made an $8,600,000 mezzanine loan to Lightstone (the "Presidential Mezz Loan") in connection with the acquisition by Lightstone of four shopping malls, namely the Shenango Valley Mall, an enclosed regional mall located in Hermitage, Pennsylvania with 508,000 square feet of gross leasable area; the West Manchester Mall, an enclosed regional mall located in York, Pennsylvania with 615,000 square feet of gross leasable area; the Bradley Square Mall, an enclosed mall located in Cleveland, Tennessee with 417,000 square feet of gross leasable area; and the Mount Berry Square Mall, an enclosed regional mall located in Rome, Georgia with 475,000 square feet of gross leasable area (the "Other Properties"). The Presidential Mezz Loan is secured by the ownership interests in the entities owning the Other Properties and Presidential obtained a 29% ownership interest in the entities owning the Other Properties. The loan matures on September 27, 2014 and the interest rate on the loan is 11% per annum. The $22,961,590 first mortgage loan obtained by Presidential in connection with its acquisition of the Martinsburg property is part of a $105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Property and the Other Properties. The Company accounts for these investments using the equity method. At September 30, 2004, investment in and advances to joint ventures are as follows: Martinsburg Mall $ 1,453,342 Other Properties 8,578,335 ----------- $10,031,677 =========== The Lightstone Group is controlled by David Lichtenstein. In addition to Presidential's investments in these joint ventures with Mr. Lichtenstein, Presidential previously made five loans in the aggregate outstanding principal amount of $12,875,000 to entities that are controlled by Mr. Lichtenstein. Some, but not all, of these loans are guaranteed in whole or in part by Mr. Lichtenstein and all of such loans are in good standing. While the Company believes that all of these loans are adequately secured, a default by Mr. Lichtenstein on some or all of these loans could have a material adverse effect on Presidential's business and operating results. Consolidated Loans Presidential holds two nonrecourse loans (the "Consolidated Loans"), which were collateralized by substantially all of the remaining assets of Ivy Properties, Ltd. and its affiliates "(Ivy"). At September 30, 2004, the Consolidated Loans have an outstanding principal balance of $4,770,050 and a net carrying value of zero. Pursuant to existing agreements, the Company is entitled to receive, as payments of principal and interest on the Consolidated Loans, 25% of the cash flow of Scorpio Entertainment, Inc. ("Scorpio"), a company owned by two of the Ivy principals who are officers of Presidential (Messrs. Baruch and Viertel) to carry on theatrical productions. Amounts received by Presidential from Scorpio will be applied to unpaid and unaccrued interest on the Consolidated Loans and recognized as income. The Company anticipates that these amounts could be significant over the next several years. However, the continued profitability of any theatrical production is by its nature uncertain and management believes that any estimate of payments from Scorpio on the Consolidated Loans for future periods is too speculative to project. During the nine months ended September 30, 2004, the Company received payments of $451,500 from Scorpio. At September 30, 2004, the unpaid and unaccrued interest was $3,229,207. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's financial instruments consist primarily of mortgage notes receivable and mortgage notes payable. Substantially all of these instruments bear interest at fixed rates, so the Company's cash flows from them are not directly impacted by changes in market rates of interest. Changes in market rates of interest impact the fair values of these fixed rate assets and liabilities. However, because the Company generally holds its notes receivable until maturity and repays its notes payable at maturity or upon sale of the related properties, any fluctuations in values do not impact the Company's earnings, balance sheet or cash flows. However, since some of the Company's mortgage notes payable are at fixed rates of interest and provide for yield maintenance payments upon prepayment prior to maturity, if market interest rates are lower than the interest rates on the mortgage notes payable, the Company's ability to sell the properties securing the notes may be adversely affected and the net proceeds of any sale may be reduced because of the yield maintenance requirements. The Company does not own any derivative financial instruments or engage in hedging activities. ITEM 3. CONTROLS AND PROCEDURES a) As of the end of the period covered by this quarterly report on Form 10-QSB, the Company carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in this report. b) There has been no change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting. PART II - OTHER INFORMATION Item 6. Exhibits 10.14 Purchase and Sale Agreement Between Preit Associates, L.P., Seller, and Lightstone Real Estate Partners, LLC, Purchaser, dated as of May 14, 2004 (incorporated herein by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q for the period ended June 30, 2004 for Pennsylvania Real Estate Investment Trust, Commission File No. 1-06300). 10.15 Amended and Restated Operating Agreement of PRC Member LLC dated September 27, 2004. 10.16 Loan Agreement dated September 27, 2004 in the amount of $2,600,000 between David Lichtenstein and PRC Member LLC. 10.17 Amended and Restated Operating Agreement of Lightstone Member LLC dated September 27, 2004. 10.18 Loan Agreement dated September 27, 2004 in the amount of $8,600,000 between Presidential Realty Corporation and Lightstone Member LLC. 31.1 Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 32.1 Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRESIDENTIAL REALTY CORPORATION (Registrant) DATE: November 11, 2004 By: /s/ Jeffrey F. Joseph --------------------- Jeffrey F. Joseph President and Chief Executive Officer DATE: November 11, 2004 By: /s/ Elizabeth Delgado --------------------- Elizabeth Delgado Treasurer EX-31 2 exhibit31-1.txt EXHIBIT 31.1 CEO CERTIFICATION Exhibit 31.1 CERTIFICATION I, Jeffrey F. Joseph, Chief Executive Officer of Presidential Realty Corporation (the "Company") certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the Audit Committee of the Company's Board of Directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. DATE: November 11, 2004 By: /s/ Jeffrey F. Joseph -------------------------- Jeffrey F. Joseph Chief Executive Officer EX-31 3 exhibit31-2.txt EXHIBIT 31.2 CFO CERTIFICATION Exhibit 31.2 CERTIFICATION I, Thomas Viertel, Chief Financial Officer of Presidential Realty Corporation (the "Company") certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the Audit Committee of the Company's Board of Directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. DATE: November 11, 2004 By: /s/ Thomas Viertel -------------------------- Thomas Viertel Chief Financial Officer EX-32 4 exhibit32-1.txt EXHIBIT 32.1 CEO CERTIFICATION Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-QSB of Presidential Realty Corporation (the "Company") for the period ending September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey F. Joseph, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934: and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company. Presidential Realty Corporation By:/s/ Jeffrey F. Joseph -------------------------- Jeffrey F. Joseph Chief Executive Officer Date: November 11, 2004 EX-32 5 exhibit32-2.txt EXHIBIT 32.2 CFO CERTIFICATION Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-QSB of Presidential Realty Corporation (the "Company") for the period ending September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas Viertel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934: and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company. Presidential Realty Corporation By:/s/ Thomas Viertel ---------------------- Thomas Viertel Chief Financial Officer Date: November 11, 2004 EX-10 6 exhibit10-15.txt Exhibit 10.15 AMENDED AND RESTATED OPERATING AGREEMENT OF PRC MEMBER LLC Dated as of September 27, 2004 AMENDED AND RESTATED OPERATING AGREEMENT OF PRC MEMBER LLC This Amended and Restated Operating Agreement is entered into this 27th day of September, 2004, by and among PRESIDENTIAL REALTY CORPORATION, a Delaware corporation, with an address at 180 South Broadway, White Plains, NY 10605 ("Managing Member") and DAVID LICHTENSTEIN, an individual ("Other Member"), with an address c/o The Lightstone Group LLC, 326 Third Street, Lakewood, New Jersey 08701 and. WHEREAS, the Managing Member, as the sole member, formed the Company by the filing of a Certificate of Formation with the Delaware Secretary of State, and entered into the Operating Agreement of the Company dated September 24, 2004 (the "Original Agreement"); and WHEREAS, on September 24, 2004, the Property Owner, which is wholly owned by the Company, acquired the Property, subject to the Mortgage Loan; and WHEREAS, the Other Member and its Affiliates have performed and will in the future perform services to the Company and the Property Owner, including but not limited to serving as managing agent for the Property, and in consideration of such services performed and to be performed Managing Member desires to admit Other Member as a member of the Company and to amend and restate the terms and conditions of the Original Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Original Agreement is hereby amended and restated in its entirety to read as follows: EXPLANATORY STATEMENT The parties have agreed to organize and operate a Delaware limited liability company, which limited liability company shall henceforth be organized and operated in accordance with the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, the parties, intending legally to be bound, hereby agree as follows: ARTICLE I Defined Terms The following capitalized terms shall have the meanings specified in this Article I. "Act" means the Delaware Limited Liability Company Act, Delaware Code, Title 6, Sections 18-101, et seq., as amended from time to time. "Additional Capital Contribution" shall have the meaning set forth in Section 3.2. "Adjusted Book Value" means, with respect to each Company asset, the carrying value of each such asset on the books of the Company for federal income tax accounting purposes, as calculated pursuant to the rules set forth in Code (as hereinafter defined) Section 704 and Regulation (as hereinafter defined ) Section 1.704. "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in the Member's Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments: (a) credit to such Capital Account the amounts which the Member is obligated to restore or is deemed obligated to restore pursuant to the penultimate sentences of Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (b) debit to such Capital Account the items described in Regulation Sections 1.704-1(b)(2)(ii)-(d)(4), (5), and (6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. "Affiliate" means, with respect to any Member, any Person which directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with a specified Person. "Agreement" means this Operating Agreement, as amended from time to time. "Approval" (and any variation thereof) of a Member shall mean the prior written approval of such Member. Use of the term "reasonable" or "reasonably" in connection with the term "Approval" or any variation thereof or with the term "satisfactory" means that such Approval shall not be withheld, conditioned or delayed unreasonably. Unless either of such terms is used in connection with the term "Approval" (or any variation thereof), such Approval may be granted or withheld in a Member's (or its authorized representative's) sole discretion. "Bankruptcy Action" means, with respect to a Person, (a) instituting proceedings to be adjudicated bankrupt or insolvent; (b) consenting to the institution of bankruptcy or insolvency proceedings against it; (c) filing a petition seeking, or consenting to, reorganization or relief under any applicable federal or state law relating to bankruptcy; (d) consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or a substantial part of its property; (e) making any assignment for the benefit of creditors; (f) admitting in writing its inability to pay its debts generally as they become due or declare or effect a moratorium on its debts; or (g) taking any action in furtherance of any such action described in (a) through (f), or (h) any other event which would cause such Person to cease to be a member of a limited liability company under Section 18-304 of the Act. "Capital Account" means an account to be maintained by the Company for each Member in accordance with the provisions of Regulation Section 1.704-1(b)(2)(iv). "Capital Contribution" means the total amount of cash contributed to the Company by a Member. "Capital Proceeds" means (A) the cash or other consideration received by the Company (including interest on installment sales when received) as a result of (i) a sale, exchange, abandonment, foreclosure, insurance award, condemnation, easement sale or other similar transaction relating to any Company Assets, (ii) any financing or refinancing relating to any Company Assets, (iii) capital contributions to the Company upon admission of new members and (iv) any other transaction which, in accordance with generally accepted accounting principles, would be treated as a capital event, in each case less (B) any such cash which is applied to (i) the payment of transaction costs and expenses, (ii) the repayment of debt of the Company which is required under the terms of any indebtedness of the Company or which has been authorized to be repaid by the Managing Member, (iii) the repair, restoration or other improvement of Company Assets which is required under any contractual obligation of the Company or which has been authorized by the Managing Member and (iv) the establishment of reserves as reasonably required by the Managing Member. "Capital Proceeds" shall also mean any of the foregoing which are received by a partnership or other vehicle in which the Company is a partner or investor or in which the Company otherwise has an interest, to the extent received by the Company as dividends or distributions. "Cash Flow" means all cash funds derived from operations (including interest received on reserves), but not including Capital Proceeds, without reduction for any noncash charges, but less cash funds used to pay current operating expenses (including, without limitation, all property management and/or asset management fees) and to pay or establish reasonable reserves for future expenses, debt payments, capital improvements, and replacements as determined by the Managing Member. "Closing Date" means the date of consummation by the Property Owner of the acquisition of the Property in accordance with the Purchase Agreement. "Code" means the Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law. "Company" means the limited liability company formed in accordance with this Agreement. "Company Assets" means all right, title and interest of the Company in and to all or any portion of the assets of the Company and any property (real or personal) or estate acquired in exchange therefor or in connection therewith. "Control" shall mean, with respect to a specified Person, (i) the ownership, control or power to vote fifty percent (50%) or more of (x) the outstanding shares of any class of voting securities or (y) beneficial interests, of any such Person, directly or indirectly, or acting through one or more Persons, (ii) the control in any manner over the managing member(s) or the election of more than one director or trustee (or persons exercising similar functions) of such Person, or (iii) the power to exercise, directly or indirectly, control over the management or policies of such Person. "Controlling" and "Controlled" have meanings correlative thereto. "Damages" shall have the meaning set forth in Section 5.4.2. "Distributions" shall mean, as to any Member, all distributions of Proceeds made to such Member pursuant to this Agreement. "Economic Interest" shall have the meaning set forth in Section 6.3. "Indemnitee" shall have the meaning set forth in Section 5.4.1. "Initial Capital Contributions" shall have the meaning set forth in Section 3.1. "Involuntary Withdrawal" means, with respect to any Member, the occurrence of any of the following events: (a) a Bankruptcy Action occurs with respect to such Member; (b) such Member files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Member in any proceeding described in the definition of Bankruptcy Action; (c) any proceeding against such Member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation, continues for one hundred twenty (120) days after the commencement thereof, or the appointment of a trustee, receiver, or liquidator for the Member or all or any substantial part of the Member's properties without the Member's agreement or acquiescence, which appointment is not vacated or stayed for one hundred twenty (120) days or, if the appointment is stayed, for one hundred twenty (120) days after the expiration of the stay during which period the appointment is not vacated; (d) if such Member is a partnership or a limited liability company, the dissolution and commencement of winding up of the partnership or limited liability company; or (e) if such Member is a corporation, the dissolution of the corporation or the revocation of its charter. "Managing Member" shall mean Presidential Realty Corporation or any successor Managing Member appointed pursuant to this Agreement. "Member" means each Person signing this Agreement as a member of the Company and any Person who subsequently is admitted as a member of the Company. "Member Nonrecourse Deduction" means "partner nonrecourse deduction" within the meaning of Regulation Section 1.704-2(i). "Membership Interest" means all of the rights of a Member in the Company, including a Member's: (a) Capital Account; (b) share of the Profits and Losses of, and the right to receive distributions from, the Company; (c) right to inspect the Company's books and records; (d) to the extent provided in this Agreement, the right to participate in the management of and vote on matters coming before the Company; and (e) to the extent provided under this Agreement, the right to act as an agent of the Company. "Mezzanine Lender" means David Lichtenstein. "Mezzanine Loan" means that certain loan in the amount of $2,600,000 made by Mezzanine Lender to the Company as evidenced by the Mezzanine Note and secured by a certain Pledge and Security Agreement each dated the date hereof. "Mezzanine Note" means that certain Promissory Note dated the date hereof by the Company to Mezzanine Lender in the amount of $2,600,000. "Minimum Gain" means "partnership minimum gain" as determined pursuant to Regulation Section 1.704-2(d). Minimum Gain shall be computed separately for each Member in a manner consistent with the Regulations under Code Section 704(b). "Mortgage Borrower" means the Property Owner. "Mortgage Loan" means that certain loan from Wachovia Bank to the Property Owner and Shenango Valley Mall LLC, West Manchester Mall LLC, Bradley Square Mall LLC and Mount Berry Square Mall LLC in the aggregate maximum principal amount of $105,000,000 made pursuant to that certain Fee and Leasehold Mortgage, Deed of Trust, Deed to Secure Debt, Assignment of Rents, Fixture Filing, and Security Agreement dated September 24, 2004. "Negative Capital Account" means a Capital Account with a balance of less than zero. "Non-Managing Member" shall mean David Lichtenstein. "Nonrecourse Deductions" shall have the meaning ascribed to such term in Regulations Section 1.704-2(b)(1). "Percentage" means, as to a Member, the percentage set forth after the Member's name on Exhibit A. "Person" means and includes an individual, corporation, limited liability company, partnership, joint venture estate, trust, unincorporated association, or other entity, 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. "Proceeds" means the collective reference to Capital Proceeds and Cash Flow. "Profit" and "Loss" means, for each taxable year of the Company (or other period for which Profit or Loss must be computed), the Company's net taxable income or loss determined in accordance with Code Section 703(a), with the following adjustments: (a) all items of income, gain, loss, deduction, or credit required to be stated separately pursuant to Code Section 703(a)(1) shall be included in computing taxable income or loss; and (b) any income of the Company that is exempt from federal income tax and is not otherwise taken into account in computing Profit or Loss shall be included in computing taxable income or loss; and (c) any expenditures of the Company described in Code Section 705(a)(2)(B) (or treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit or Loss, shall be subtracted from taxable income or loss; and (d) gain or loss resulting from any taxable disposition of Company property shall be computed by reference to the adjusted book value of the property disposed of, notwithstanding the fact that the adjusted book value differs from the adjusted basis of the property for federal income tax purposes; and (e) in lieu of the depreciation, amortization, or cost recovery deductions allowable in computing taxable income or loss, there shall be taken into account the depreciation computed based upon the adjusted book value of the asset; and (f) to the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's interest in the Company, the amount of such adjustment shall be treated as an item of gain or loss from the disposition of such asset for purposes of computing Profits or Losses; and (g) notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 4.3 hereof shall not be taken into account in computing Profit or Loss. "Property" means the property owned by the Property Owner. "Property Owner" means Martinsburg Mall LLC "Purchase Agreement" means that certain Purchase and Sale Agreement between PREIT Associates, L.P., as seller, and Lightstone Real Estate Partners LLC, as purchaser. "Regulations" means the income tax regulations, including any temporary regulations and proposed regulations to the extent that their proposed effective date would cause them to be applicable as of the date of any determination, from time to time promulgated under the Code. "Removed Member" means a member who withdraws from the Company as a result of an Involuntary Withdrawal. "Sale" means any sale or final disposition of the Property. "Transfer" means--when used as a noun--any sale, hypothecation, pledge, assignment, attachment, or other transfer--and, when used as a verb--means to sell, hypothecate, pledge, assign, or otherwise transfer, in each case whether accomplished directly or indirectly. "Treasury Regulations" means the regulations issued from time to time by the Internal Revenue Service with respect to the Code. "Unreturned Capital Contribution" means, as to each Member, such Member's Capital Contribution less the aggregate amount previously distributed to such Member under Section 4.1.2(b). "Voluntary Withdrawal" means a Member's disassociation with the Company by means other than a Transfer or an Involuntary Withdrawal. ARTICLE II Formation and Name: Office; Purpose; Term 2.1 Organization. The parties hereby organize a limited liability company pursuant to the Act and the provisions of this Agreement and, for that purpose, have caused the Certificate of Formation to be prepared, executed, and filed with the Delaware Secretary of State on September 10, 2004. The Managing Member shall take such further actions as shall be required by the Act or other laws of the jurisdiction in which the Property is located, or as may be desirable thereunder, to form the Company and to qualify the Company to do business in the State of New York. At all times during the term of this Agreement, each Member shall execute, and, on behalf of the Company, the Managing Member shall promptly cause to be filed, such other and further certificates or instruments and amendments thereto as may be necessary or desirable (i) for the perfection and continued maintenance of the Company as a limited liability company under the Act and under the laws of any state in which the Company is then doing business, (ii) to cause such certificates or other documents to reflect accurately the agreement of the Members and the amount (including reductions), if required, of their respective Capital Contributions, and (iii) to permit the Company to own the membership interest in the Property Owner and transact business lawfully. 2.2 Name of the Company. The name of the Company shall be PRC Member LLC. The Company may do business under that name and under any other name or names upon which the Members agree. If the Company does business under a name other than that set forth in its Certificate of Formation, then the Managing Member shall file a certificate as required by the Act. 2.3 Purpose. (a) Notwithstanding anything to the contrary in this Agreement or in any other document governing the formation, management or operation of the Company, the Company is organized solely for the following purposes: (i) to own the membership interest in each Property Owner and to act as the sole member of each Property Owner pursuant to the terms of the Limited Liability Company Agreement of each Property Owner dated September 20, 2004, (ii) to enter into the Mezzanine Loan Agreement and all other documents in connection with the Mezzanine Loan (the "Mezzanine Loan Documents") with Mezzanine Lender, and to perform its obligations with respect thereto, and (iii) to engage in any and all business permitted under the Act which are necessary and incidental thereto. The Company has the power and authority to do anything permitted by the Act and other applicable law, subject to the immediately preceding sentence. (b) The Company, by or through the Managing Member on behalf of the Company, may enter into and perform the Mezzanine Loan, the Mezzanine Loan Documents, and all documents, agreements, certificates, or financing statements contemplated thereby or related thereto, all without any further act, vote or approval of any other Person notwithstanding any other provision of this Agreement, the Act or applicable law, rule or regulation. The foregoing authorization shall not be deemed a restriction on the powers of the Company or the Managing Member to enter into other agreements on behalf of the Company. 2.4 Duration. The duration of the Company shall begin upon the filing of the Certificate of Formation with the Delaware Secretary of State and shall continue until its existence is terminated pursuant to Article VII of this Agreement. 2.5 Members. The name, present mailing address, taxpayer identification number, and Percentage of each Member are set forth on Exhibit A. 2.6 Principal Office. The Company shall maintain its principal place of business c/o Presidential Realty Corporation, 180 South Broadway, White Plains, NY 10605. ARTICLE III Members; Capital; Capital Accounts 3.1 Capital Contributions. The parties hereto agree that the aggregate required initial capital contributions of all Members shall be $1,438,410 ("Initial Capital Contributions"). Set forth on Exhibit A attached hereto is a description of the respective portion of the Initial Capital Contributions deemed made by each Member on the date hereof. 3.2 Additional Capital. The Managing Member shall make any additional capital contributions to the Company from time to time in amounts in excess of the Initial Capital Contributions required to carry out the purpose of the Company as set forth in Section 2.3 hereof (the "Additional Capital Contributions"). 3.3 No Interest on Capital Contributions. No interest shall be paid on the Capital Contributions of Members. 3.4 Form of Return of Capital. If a Member is entitled to receive a return of a Capital Contribution, the Company shall distribute cash to the Member in return of same. 3.5 Capital Accounts. A separate Capital Account shall be maintained for each Member. 3.6 Limited Liability of Members. No Member shall have any personal liability for any obligation of the Company except for any personal liability expressly assumed in writing by the Managing Member in connection with the incurrence of Company indebtedness. ARTICLE IV Distributions and Profit, Loss Allocations 4.1 Distributions Generally. Except as provided in Section 4.4 hereof, distributions of Proceeds shall be distributed to the Members at the reasonable discretion of the Managing Member, subject to the terms and conditions of all indebtedness of the Company; provided that Cash Flow shall be distributed not less than annually and Capital Proceeds shall be distributed not later than forty-five (45) days from the closing of the transaction giving rise to such Capital Proceeds. 4.1.1 Distributions of Cash Flow. Except as provided in Section 4.4 hereof, distributions of Cash Flow shall be made to the Members as follows: (a) First, to the Managing Member, until the Managing Member has received an aggregate amount under this Section 4.1.1(a) and under Section 4.1.2(a) below equal to an accrued return of eleven percent (11%) per annum on the Managing Member's Unreturned Capital Contribution; (b) Then, to the Members in accordance with their respective Percentages. 4.1.2 Distribution of Capital Proceeds. Except as provided in Section 4.4 hereof, Capital Proceeds shall be distributed to the Members as follows: (a) First, to the Managing Member, until the Managing Member has received an aggregate amount under this Section 4.1.2(a) and under Section 4.1.1(a) above equal to an accrued return of 11% per annum on the Managing Member's Unreturned Capital Contribution; (b) Then, to the Managing Member, until the Managing member has received an aggregate amount under this Section 4.1.2(b) equal to the Managing Member's Capital Contribution. (c) Then, to the Members in accordance with their respective Percentages. 4.2 Allocation of Profits and Losses. (a) Allocations. The items of income, expense, gain and loss of the Company comprising Profits and Losses for a taxable year shall be allocated among the persons who were Members during such taxable year in a manner that will reduce, proportionately, the differences between their respective Partially Adjusted Capital Accounts and Target Capital Accounts for such taxable year. No portion of the Losses for any taxable year shall be allocated to a Member whose Target Capital Account is greater than or equal to its Partially Adjusted Capital Account for such taxable year. No portion of the Profits for any taxable year shall be allocated to any Member whose Partially Adjusted Capital Account is greater than or equal to its Target Capital Account for such taxable year. For this purpose "Partially Adjusted Capital Account " means, with respect to any Member for any taxable year, the Capital Account of such Member at the beginning of such taxable year, adjusted for all contributions and distributions during such year and all special allocations pursuant to Section 4.3 respect to such taxable year, but before giving effect to any allocations of Profits or Losses for such taxable year pursuant to this Section 4.2. For this purpose "Target Capital Account" means the amount (which may be either a positive or a deficit balance) equal to: (i) the amount of the hypothetical distribution (if any) that such Member would receive if, on the last day of the taxable year, (x) all Company assets, including cash, were sold for cash equal to their respective Adjusted Book Values, taking into account any adjustments thereto for such taxable year, (y) all Company liabilities were satisfied in cash according to their terms (limited, with respect to each nonrecourse liability, to the respective Adjusted Book Values of the assets securing such liability), and (z) the net proceeds thereof (after satisfaction of such liabilities) were distributed in full pursuant to Section 4.1.2, over (ii) the sum of (x) the amount, if any, without duplication, that such Member would be obligated to contribute to the capital of the Company pursuant to any provision of this Agreement, (y) such Member's share of Company Minimum Gain determined pursuant to Regulations Section 1.704-2(g), and (z) such Member's share of Member Nonrecourse Debt Minimum Gain determined pursuant to Regulations Section 1.704-2(j)(5), all computed immediately prior to the hypothetical sale described in Section 4.2(a)(i) hereof. (b) Determination of Items Comprising Allocations. (i) In the event that the Company has Profits for a taxable year, (A) for any Member whose Capital Account balance needs to be reduced pursuant to Section 4.2 hereof, the allocation required by Section 4.2 shall be comprised of a proportionate share (based upon the relative amounts their Capital Accounts need to be reduced) of each of the Company's items of expense or loss entering into the computation of Profits for such taxable year to the extent necessary to eliminate to the maximum extent possible for the taxable year in question, the differential between their respective Partially Adjusted Capital Accounts and Target Capital Accounts; and (B) the allocation pursuant to Section 4.2 hereof in respect of each Member (other than a Member referred to in Section 4.2(b)(i)(A) hereof) shall be comprised of a proportionate share (based upon the relative amounts their Capital Accounts need to be adjusted) of each Company item of income, gain, expense and loss entering into the computation of Profits for such taxable year (other than the portion of each Company item of expense and loss, if any, that is allocated pursuant to Section 4.2(b)(i)(A) hereof). (ii) In the event the Company has Losses for a taxable year, (A) for any Member whose Capital Account balance needs to be increased pursuant to Section 4.2 hereof, the allocation required by Section 4.2 shall be comprised of a proportionate share (based upon the relative amounts their Capital Accounts need to be increased) of each of the Company's items of income and gain entering into the computation of Losses for such taxable year to the extent necessary to eliminate to the maximum extent possible for the taxable year in question, the differential between their respective Partially Adjusted Capital Accounts and Target Capital Accounts; and (B) the allocation pursuant to Section 4.2 hereof in respect of each Member (other than a Member referred to in Section 4.2(b)(ii)(A) hereof) shall be comprised of a proportionate share (based upon the relative amounts their Capital Accounts need to be adjusted) of each Company item of income, gain, expense and loss entering into the computation of Losses for such taxable year (other than the portion of each Company item of income and gain, if any, that is allocated pursuant to Section 4.2(b)(ii)(A) hereof). (iii) To the maximum extent possible in each taxable year, the items of taxable income and gain that are required to be specially allocated among any Members who need to be allocated items of Profit under Section 4.2(b) shall be allocated among them in the same proportion as the total of all Profit items that need to be allocated among them under Section 4.2(b). Correspondingly, to the maximum extent possible in each taxable year, the items of tax-deductible items of expense and loss that are required to be specially allocated among all Members who need to be allocated items of Loss under Section 4.2(b) shall be allocated among them in the same proportion as the total of all Loss items that need to be allocated among them under Section 4.2(b). The purpose of this subsection is to assure that such taxable and tax-deductible items are fairly allocated among the Members each taxable year. 4.3 Special Allocations. 4.3.1 Regulatory Allocations. Notwithstanding Section 4.2, allocations of net income, net gain and net loss shall be made consistent with the qualified income offset and Minimum Gain chargeback provisions of the Regulations promulgated under Section 704(b) of the Code. Member Nonrecourse Deductions of the Company for any fiscal year shall be specially allocated to the Member who bears the economic risk of loss for the liability in question. The foregoing provision relating to Member Nonrecourse Deductions is intended to satisfy the requirements of Regulation Section 1.704-2(i)(1) and shall be interpreted in accordance therewith. Nonrecourse Deductions of the Company for any fiscal year shall be specially allocated to the Members in the same proportion as their respective Percentages. 4.3.2 Residual Allocations; Code Section 704(c) Allocations. All items of income, gain, loss, deduction, and any other allocations not otherwise provided for shall be allocated among the Members for federal, state and local income tax purposes consistent with the manner that the corresponding constituent items of Profits and Losses shall be allocated among the Members pursuant to this Agreement, except as may otherwise be provided herein or by the Code. To the extent the Regulations promulgated pursuant to Subchapter K of Code (including under Sections 704(b) and (c) of the Code) require allocations for tax purposes that differ from the foregoing allocations, the Managing Member shall determine the manner in which such tax allocations shall be made so as to comply more fully with such Regulations. Allocations required under Section 704(c) (relating to items of income, gain, loss and deduction with respect to contributed property), or under Section 704(c) principles applicable under Regulations Sections 1.704-1(b)(2)(iv) (relating to Company property that has been revalued for Capital Account purposes) are solely for purposes for federal, state and local taxes, and shall not be taken into account in computing any Member's Capital Account or share of Profit or Loss or other items or distributions under any provisions of this Agreement. 4.3.3 Gross Income Allocation. In the event any Member has an Adjusted Capital Account Deficit at the end of any fiscal year of the Company, such Member shall be specially allocated items of Company income and gain in the amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 4.3.3 shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit in excess of such amount after all other allocations provided for in Section 4.2 and this Section 4.3 have been tentatively made as if the provision for the qualified income offset in Section 4.3.1 and this Section 4.3.3 were not in the Agreement. 4.3.4 Loss Limitation. No Member shall be allocated Losses or deductions if the allocation would cause the Member to have an Adjusted Capital Account Deficit or would increase the Member's Adjusted Capital Account Deficit. Any allocation of Loss or deduction that cannot be made to a Member by reason of this Section 4.3.5 shall be made to such Members that have positive Capital Account balances in accordance with their relative balances subject to the limitation set forth in the preceding sentence. If any Members are allocated an amount of Loss or deduction by reason of the previous sentence, subsequent items of income or gain in of an equal amount shall be allocated to such Members as soon as possible to reverse such prior allocation of Loss. 4.4 Liquidation and Dissolution. 4.4.1 If the Company is liquidated, in the year of such liquidation the assets of the Company shall be distributed to the Members in accordance with the positive balances in their respective Capital Accounts, after taking into account all adjustments to Capital Accounts for the Company taxable year during which the liquidation occurs. 4.4.2 No Member shall be obligated to restore a Negative Capital Account. 4.5 General. ------- 4.5.1 Except as otherwise provided in this Agreement, the timing and amount of all distributions shall be determined by the Managing Member. 4.5.2 All distributions shall be made to the Persons shown on the records of the Company to be Members as of the day on which such distribution is made. Notwithstanding the foregoing, unless the Company's taxable year is separated into segments, if there is a Transfer or an Involuntary Withdrawal during the taxable year, the Profit and Loss for such taxable year shall be allocated between the original Member and the successor generally on the basis of the number of days each was a Member during the taxable year; provided, however, the Company's taxable year shall be segregated into two or more segments in order to account for Profit, Loss or proceeds attributable to any Sales on other extraordinary, non-recurring items of the Company. 4.5.3 The Members are hereby authorized, upon the advice of the Company's tax counsel, to amend this Article IV to the extent required to comply with the Code and the Regulations promulgated under Code Sections 514(c)(9)(E) and 704(b); provided, however, that no amendment shall either (i) materially affect distributions to a Member without such Member's Approval or (ii) cause this Agreement to not comply with Code Section 514(c)(9)(E) and the Regulations promulgated thereunder. 4.6 Clawback. Notwithstanding the other provisions of this Article IV, (a) if, as a result of a mistake, any Member has received more money under Section 4.1 than the amount to which it was entitled, the recipient shall return the excess amounts distributed to it within 5 business days after written notice from the Managing Member (or any Non-Managing Member if the Managing Member fails to do so) requesting such return and (b) if for any reason after Managing Member has received money under Section 4.1.1(b) it is determined that any Non-Managing Member has not received any amount to which it is entitled under a higher distribution priority in Section 4.1.1(a) (whether on account of a subsequent contribution of Capital by any Non-Managing Member, the making of a Contribution Loan or otherwise), then until such Non-Managing Member receives such amount there shall be distributed to such Non-Managing Member all sums otherwise distributable to Managing Member under Section 4.1, but such sums shall in no event exceed the sums previously distributed to Managing Member pursuant to Section 4.1.1(b) and Managing Member agrees (A) to relinquish and waive any right it may have under Section 4.1.1(b) to receive such sums and (B) that the distribution of such sums to such Non-Managing Member shall, for purposes of determining whether Managing Member has received the sums it is entitled to receive under Section 4.1.1(b), be deemed to have satisfied such entitlement. If necessary, the Managing Member shall have the authority to treat such payments to any Non-Managing Member as guaranteed payments and to specially allocate the deduction to Managing Member to reduce any excess Capital Account of Managing Member if permitted under Code Section 514(c)(9)(E) and the Regulations thereunder. ARTICLE V Management: Rights, Powers, and Duties 5.1 Management. Except as otherwise expressly provided herein, the management and control of the Company shall be vested in the Managing Member. Except as otherwise expressly provided herein, the Managing Member shall have sole and exclusive continuing authority to manage the Company, and shall have all of the rights, powers and authority conferred upon a manager or a managing member under the Act to carry out any and all objects of the Company and to perform all acts and enter into and perform all contracts and undertakings which, in its sole discretion, it deems necessary, advisable or incidental thereto. No Member shall have authority to bind the Company through its action or inaction in connection with any matter except for the Managing Member. Notwithstanding the foregoing, Managing Member shall cause the Company, as the sole member of the Property Owner, to cause the Property Owner to distribute all Cash Flow of the Property Owner to the Company no less frequently than annually, subject to any restrictions or limitations imposed on the Property Owner pursuant to the terms of the Mortgage Loan. (a) All Member Approval. Notwithstanding any other provisions of this Agreement, including Section 5.1, the Company and/or the Managing Member may not, without the reasonable approval of Other Member, sell the Property or refinance the Mortgage Loan. 5.1.1 Affiliate Contracts Approval. The Property Owner, the Company and/or the Managing Member may not, without the Approval of Other Member, enter into any agreements relating to the Property with any Affiliate of any Member (an "Affiliate Contract"). 5.2 Personal Service. No Member shall be required to perform services for the Company solely by virtue of being a Member. 5.3 Duties of Parties. 5.3.1 The Members shall devote such time to the business and affairs of the Company as is necessary to carry out the Members' duties set forth in this Agreement. 5.3.2 Nothing in this Agreement shall be deemed to restrict in any way the rights of any Member, or of any Affiliate of any Member, to conduct any other business or activity whatsoever, and no Member shall be accountable to the Company or to any other Member with respect to that business or activity even if the business or activity competes with the Company's business. The organization of the Company shall be without prejudice to the Members' respective rights (or the rights of their respective Affiliates) to maintain, expand, or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Member waives any rights the Member might otherwise have to share or participate in such other interests or activities of any other Member or the Member's Affiliates. 5.3.3 Managing Member agrees that it will cause the Company, as the sole member of the Property Owner, to use its best efforts to operate the Property so that, the rental income derived from each ease with respect to the Property will qualify as "rents from real property" as that term is defined in the Internal Revenue Code Section 856(d)(1). 5.4 Liability and Indemnification. 5.4.1 Except as specifically set forth elsewhere in this Agreement to the contrary, or as otherwise required by law, no Member nor any of its officers, directors, advisors or agents (each of whom is an "Indemnitee") shall be liable, responsible or accountable in damages or otherwise to any of the other Members or the Company for any act performed by Indemnitee within the scope of the authority conferred upon him or it by this Agreement, or for any failure or refusal by Indemnitee to perform any act, unless such act or failure or refusal to act constitutes willful misconduct, gross negligence, or breach of fiduciary duty in the performance of Indemnitee's obligations to the Company or the Members. The doing of any act or the failure to do any act by any Indemnitee, the effect of which may cause or result in loss or damage to the Company or the other Members, shall not subject Indemnitee to any liability under this Agreement if done or omitted pursuant to a favorable opinion of law issued by counsel of recognized standing engaged by the Company and experienced in the matters at issue. 5.4.2 To the full extent permitted by the Act, the Company shall indemnify, defend and hold harmless each Indemnitee from and against any direct claim, action, suit or proceeding brought or threatened against such Indemnitee, and from and against any direct loss or damage incurred by such Indemnitee ("Damages") by reason of any act performed, or failure or refusal to act, by him or it for and on behalf of the Company within the scope of his or its authority under this Agreement, provided that such Indemnitee acted, or failed or refused to act, in good faith and reasonably believed that such act or inaction was in the best interests of the Company, and, in the case of a criminal proceeding, provided that such Indemnitee had no reasonable cause to believe its conduct was unlawful, and provided further that in each case the act or failure or refusal to act did not constitute willful misconduct, gross negligence, or breach of fiduciary duty. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, conclusively establish that the Person did not act in good faith and in a manner which he or it reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or its conduct was unlawful. Expenses (including reasonable out-of-pocket attorneys' fees and direct expenses) incurred by an Indemnitee in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking (Approved by the Members) by or on behalf of such Indemnitee to repay such amount if it shall ultimately be determined that it is not entitled to be indemnified by the Company as authorized in this section. Notwithstanding anything to the contrary in this Section 5.4.2, at any time prior to the indefeasible repayment in full of the Mezzanine Loan, the Company's indemnification obligation under this Section 5.4 shall (a) be fully subordinated to the Loan and (b) not constitute a claim against the Company or its assets until such time as the Loan has been indefeasibly paid in accordance with its terms and otherwise has been fully discharged, unless otherwise agreed to by Lender in writing. 5.5 Fees and Expenses. Neither the Members nor any of their Affiliates or the respective principals or employees of either of them shall be entitled to any reimbursement for any costs and expenses or paid any salary or other compensation incurred in furtherance of the business of the Company, except as expressly approved by all Members; provided, however, that the Managing Member shall be reimbursed for reasonable out-of-pocket costs and expenses incurred by it in the performance of its duties as Managing Member hereunder. Notwithstanding anything to the contrary provided herein, in any Affiliate Contract or in any other agreement, in no event shall the Company reimburse the Members for any overhead costs. ARTICLE VI Transfer of Interests, Withdrawal of Members 6.1 Transfers. (a) Except as set forth in Section 6.1(b) below, no Member and no direct or indirect owner of such Member, may directly or indirectly, voluntarily Transfer all, or any portion of, or any interest or rights in, the Membership Interest owned by such Member without the Approval of the other Members, which Approval may be withheld in such Member's sole and absolute discretion. Each Member hereby acknowledges the reasonableness of this prohibition in view of the purposes of the Company and the relationship of the Members. The voluntary Transfer, directly or indirectly, of any Membership Interests or interest in a Member in violation of the prohibition contained in this Section 6.1 shall be deemed invalid, null and void, and of no force or effect. Any Person to whom Membership Interests or interests in a Member are attempted to be transferred in violation of this Section 6.1 shall not be entitled to vote on matters coming before the Members, participate in the management of the Company, act as an agent of the Company, receive distributions from the Company, or have any other rights in or with respect to the Membership Interests. (b) Notwithstanding anything contained herein, each Member may Transfer its Membership Interest and/or any and all of its rights under this Agreement to an Affiliate; provided, however, that David Lichtenstein shall at all times retain control of the Managing Member. (c) If the transferring Member is a corporation whose shares are not traded on a recognized stock exchange, the provisions of this Section 6.1 shall apply to (x) a Transfer (by one or more Transfers) of a majority of the stock of such Member, or (y) the creation of new stock (by one or more transactions) resulting in the vesting of a majority of the stock of such Member in a party or parties who are nonstockholders as of the date immediately prior to such transaction, as if such Transfer or vesting of a majority of the stock of such Member were a Transfer of such Member's Membership Interest in violation of the provisions of this Section 6.1. (d) If the transferring Member is a partnership or a limited liability company, the provisions of this Section 6.1 shall apply to a Transfer (by one or more direct or indirect Transfers) of a majority interest in the partnership or limited liability company, as if such Transfer were a Transfer of such Member's Membership Interest in violation of the provisions of this Section 6.1. (e) If the proposed transferor (whether a Member or a constituent member, partner or shareholder of a Member) is a natural Person, Transfers shall be permitted (i) to a trust for the benefit of any immediate family member (father, mother, sister, brother, son, daughter, spouse, niece, nephew, grandson and/or granddaughter) with respect to the proposed Transfer, but only if the proposed transferor retains management authority and control of the interest so transferred or (ii) by succession or testamentary disposition upon death to any such immediate family members. 6.2 Voluntary Withdrawal. No Member shall have the right or power to Voluntarily Withdraw from the Company, except as otherwise provided by this Agreement. Any withdrawal in violation of this Agreement shall entitle the Company to damages for breach, which may be offset against the amounts otherwise distributable to such Member. 6.3 Involuntary Withdrawal. Immediately upon the occurrence of an Involuntary Withdrawal, the successor of the Removed Member shall not become a Member, but such successor shall be entitled to the Removed Member's share of the Profits and Losses of, and the right to receive distributions from, the Company ("Economic Interest"). If the Company is continued as provided in Section 7.1(c), the successor of the Removed Member shall have all the rights of a holder of an Economic Interest, including the right to receive the fair market value of the Removed Member's Economic Interest upon the liquidation of the Company (and as of such date and no other date), in accordance with the provisions of Article VII of this Agreement. 6.4 New Members. Additional members who are not a party to this Agreement shall not be admitted to the Company except as provided in this Article VI. ARTICLE VII Dissolution, Liquidation, and Termination of the Company 7.1 Events of Dissolution. The Company shall be dissolved upon the happening of any of the following events: (a) upon the Sale of the Property and the distribution of all Proceeds from such Sale, unless the Company provides purchase money financing in connection with such Sale or obligates itself to retain certain contingent liabilities and proceeds, in which case the Company shall be dissolved upon the repayment in full of such financing or the expiration of such contingent liability period; (b) upon the written agreement of all of the Members; (c) upon the occurrence of an Involuntary Withdrawal, unless the remaining Members, within ninety (90) days after the occurrence of the Involuntary Withdrawal, elect to continue the business of the Company pursuant to the terms of this Agreement; or (d) as may otherwise be required under the Act. 7.2 Procedure for Winding Up and Distribution. If the Company is dissolved, the remaining Members shall wind up its affairs. On winding up of the Company, the assets of the Company shall be distributed, first, to creditors of the Company, including holders of Economic Interests who are creditors, in satisfaction of the liabilities of the Company, and then to the Members and holders of Economic Interests in accordance with Section 4.4 of this Agreement. 7.3 Filing of Articles of Dissolution. If the Company is dissolved, the Members shall promptly file Articles of Dissolution with the Delaware Secretary of State. If there are no remaining Members, the Articles shall be filed by the last Person to be a Member; if there are no remaining Members, or a Person who last was a Member, the Articles shall be filed by the legal or personal representatives of the Person who last was a Member. ARTICLE VIII Books, Records, Accounting, and Tax Elections 8.1 Bank Accounts. The Managing Member shall cause all funds of the Company to be deposited in a bank account or accounts opened in the Company's name. The Managing Member shall determine the institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein. 8.2 Books and Records. The Managing Member shall keep or cause to be kept complete and accurate books and records of the Company as required under the Act as well as supporting documentation of transactions with respect to the conduct of the Company's business. The books and records shall be maintained in accordance with GAAP accounting practices and shall be available at the Company's principal office for examination by any Member or the Member's duly authorized representative at any and all reasonable times during normal business hours. 8.3 Annual Accounting Period; Accounting Methods; Tax Elections. The annual accounting period of the Company shall be its taxable year. The Company's taxable year shall be selected by the Managing Member, subject to the requirements and limitations of the Code. The Company shall use such accounting methods as the Managing Member elects in its sole discretion, subject to the requirements and limitations of the Code. The Managing Member shall cause the Company's accountants to prepare and file the Company's tax returns and, together with such accountants, will determine the positions of the Company on such tax returns subject to the requirements and limitations of the Code. The Managing Member, on behalf of the Company, shall, from time to time, make all elections for federal income tax purposes, including, without limitation, elections under Code Sections 704(c) and 754, with the reasonable Approval of the Members holding at least 51% of the Percentages. 8.4 Reports. ------- (a) Within ninety (90) days after the end of each taxable year of the Company, the Managing Member shall cause to be sent to each Person who was a Member at any time during the taxable year then ended a complete accounting of the affairs of the Company for the taxable year then ended. In addition, within ninety (90) days after the end of each taxable year of the Company, the Managing Member shall cause to be sent to each Person who was a holder of an Economic Interest at any time during the taxable year then ended, that tax information concerning the Company which is necessary for preparing the income tax returns of the holder of the Economic Interest for that year. Any Member shall have the right to cause an audit of the Company's books and records to be prepared by independent accountants for any period deemed necessary or advisable by such Member, the cost of which shall be borne by the party requesting the audit. (b) Within ninety (90) days after the end of each taxable year of the Company, the Managing Member will obtain from the Property Owner and deliver to the Members a statement itemizing the sources and types of gross revenue for the preceding fiscal year paid by tenants at the Property and any other miscellaneous income from the Property. (c) Managing Member will obtain and deliver to the Members within thirty (30) days after the end of each calendar quarter a statement reflecting any leasable space at the Property that is vacant at the end of the calendar quarter and all leases and/or renewals entered into by the Property Owner during such calendar quarter. (d) Within ninety (90) days after the end of each taxable year of the Company, the Managing Member shall prepare and deliver to the Members a certificate stating that, except as set forth in the certificate, to the best knowledge of the Managing Member, the Property has been operated during the immediately preceding fiscal year in conformity with the provisions of Section 5.3.3. 8.5 Tax Matters Member. The Members designate the Managing Member to be the "tax matters partner" ("Tax Matters Member") of the Company within the meaning of Code Section 6231. The Tax Matters Member shall have all powers and responsibilities granted to a "tax matters partner" (within the meaning of Code Section 6231) under the Code and Regulations. The Tax Matters Member shall keep all Members informed of all notices from government taxing authorities that may come to the attention of the Tax Matters Member. The Company shall pay and be responsible for all reasonable third-party costs and expenses incurred by the Tax Matters Member in performing those duties. Nothing in this Article VIII shall limit the ability of any Member to take any action in its individual capacity relating to administrative proceedings of Company matters that is left to the determination of any individual Member under the Code or under any similar provision of state or local law. A Member shall be responsible for any costs incurred by the Member with respect to any tax audit or tax-related administrative or judicial proceeding against any Member, even though it relates to the Company. The Tax Matters Member shall not compromise any dispute with the Internal Revenue Service or agree to extend the statute of limitations with respect to tax liens of the Company without the Approval of all of the Members. ARTICLE IX General Provisions 9.1 Assurances. Each Member shall execute all certificates and other documents and shall do all such filing, recording, publishing, and other acts as the Managing Member deems appropriate pursuant to Section 2.1 or otherwise to comply with the requirements of law for the formation and operation of the Company and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Company. 9.2 Notifications. Any notice, demand, consent, election, offer, approval, request, or other communication (collectively a "notice") required or permitted under this Agreement must be in writing and either delivered personally, by overnight mail using a nationally recognized overnight courier or sent by certified or registered mail, postage prepaid, return receipt requested or by facsimile transmission, provided that the sender of such transmission can produce evidence of electronic confirmation that such notice was received by the Member or Member's Agent to whom it was transmitted. A notice must be addressed to a Member at the Member's last known address on the records of the Company. A notice to the Company must be addressed to the Company's principal office. A notice delivered personally or by overnight mail using a nationally recognized overnight courier will be deemed given only when acknowledged in writing or rejected by the person to whom it is delivered. A notice that is sent by mail will be deemed given three (3) business days after it is mailed. Any party may designate, by notice to all of the others, substitute addresses or addressees for notices; and, thereafter, notices are to be directed to those substitute addresses or addressees. A notice sent by facsimile is deemed given when receipt is confirmed. 9.3 Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, any party who may be injured (in addition to any other remedies which may be available to that party) shall be entitled to seek one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach. 9.4 Complete Agreement. This Agreement constitutes the complete and exclusive statement of the agreement among the Members with respect to the subject matter thereof. It supersedes all prior written and oral statements, including any prior representation, statement, condition, or warranty. 9.5 Applicable Law. All questions concerning the construction, validity, and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the internal law, not the law of conflicts, of the State of Delaware. 9.6 Article and Section Titles. The headings herein are inserted as a matter of convenience only and do not define, limit, or describe the scope of this Agreement or the intent of the provisions hereof. 9.7 Binding Provisions. This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and permitted assigns. 9.8 Exclusive Jurisdiction and Venue. Any suit involving any dispute or matter arising under this Agreement may only be brought in the United States District Court for the Southern District of New York or any New York State Court located in New York County having jurisdiction over the subject matter of the dispute or matter. All Members hereby consent to the exercise of personal jurisdiction by any such court with respect to any such proceeding. 9.9 Terms. Common nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter, singular, and plural, as the identity of the Person may in the context require. 9.10 Separability of Provisions. Each provision of this Agreement shall be considered separable; and if, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement that are valid. 9.11 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 9.12 Amendments. Any amendment to this Agreement shall be effective only if such amendment is evidenced by a written instrument duly executed and delivered by each Member. ARTICLE X Representations and Warranties 10.1 Each Member represents, warrants and covenants to each other Member and to the Company that: (a) such Member, if not a natural person, is duly formed and validly existing under the laws of the jurisdiction of its organization with full power and authority to conduct its business to the extent contemplated in this Agreement; (b) this Agreement has been duly authorized, executed and delivered by such Member and constitutes the valid and legally binding agreement of such Member enforceable in accordance with its terms against such Member except as enforceability hereof may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors' rights generally and by general equitable principles; (c) the execution and delivery of this Agreement by such Member and the performance of its duties and obligations hereunder do not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, credit agreement, note or other evidence of indebtedness, or any lease or other agreement, or any license, permit, franchise or certificate, to which such Member is a party or by which it is bound or to which its properties are subject, or require any authorization or approval under or pursuant to any of the foregoing, or violate any statute, regulation, law, order, writ, injunction, judgment or decree to which such Member is subject; (d) such Member is not in default (nor has any event occurred which with notice, lapse of time, or both, would constitute a default) in the performance of any obligation, agreement or condition contained in any indenture, mortgage, deed of trust, credit agreement, note or other evidence of indebtedness or any lease or other agreement, or any license, permit, franchise or certificate, to which it is a party or by which it is bound or to which the properties of it are subject, nor is it in violation of any statute, regulation, law, order, writ, injunction, judgment or decree to which it is subject, which default or violation would materially adversely affect such Member's ability to carry out its obligations under this Agreement; (e) there is no litigation, investigation or other proceeding pending or, to the knowledge of such Member, threatened against such Member or any of its Affiliates which, if adversely determined, would materially adversely affect such Member's ability to carry out its obligations under this Agreement; (f) no consent, approval or authorization of, or filing, registration or qualification with, any court or governmental authority on the part of such Member is required for the execution and delivery of this Agreement by such Member and the performance of its obligations and duties hereunder. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed, or caused this Agreement to be executed, under seal, as of the date set forth hereinabove. MEMBERS: PRESIDENTIAL REALTY CORPORATION By:/s/ Jeffrey F. Joseph ------------------------- Name: Jeffrey F. Joseph Title: President By:/s/ David Lichtenstein -------------------------- David Lichtenstein PRC MEMBER LLC Operating Agreement Exhibit A List of Members, Capital, and Membership Interests Name Initial Cash Contribution Percentages Presidential Realty Corporation $1,438,410.00 29% David Lichtenstein $0.00 71% EX-10 7 exhibit10-16.txt Exhibit 10.16 LOAN AGREEMENT Between DAVID LICHTENSTEIN, Lender and PRC MEMBER LLC, Borrower Martinsburg Mall Martinsburg, West Virginia Dated as of September 27, 2004 TABLE OF CONTENT ARTICLE ONE - ----------- DEFINITIONS - ----------- 1.1 Definitions --- ----------- 1.2 Accounting Terms and Determinations --- ----------------------------------- ARTICLE TWO - ----------- THE LOAN - -------- 2.1 The Loan --- -------- 2.2 Conditions to Advances of the Loan --- ----------------------------------- ARTICLE THREE - ------------- INTEREST - -------- 3.1 Calculation --- ----------- 3.2 Payments --- -------- ARTICLE FOUR - ------------ TERM; PAYMENT; PREPAYMENT; - -------------------------- EXIT FEE; PROPERTY SALES - ------------------------ 4.1 Term --- ---- 4.2 Repayment at End of Term --- ------------------------ 4.3 Prepayment --- ---------- 4.4 Acceleration Upon Invalidity of Interest --- ---------------------------------------- ARTICLE FIVE - ------------ SECURITY - -------- 5.1 Loan Documents --- -------------- ARTICLE SIX - ----------- REPRESENTATIONS AND WARRANTIES OF BORROWER - ------------------------------------------ ARTICLE SEVEN - ------------- ADDITIONAL COVENANTS; COVENANT BY LENDER - ---------------------------------------- 7.1 Additional Covenants by Borrower --- -------------------------------- 7.2 Covenant by Lender --- ------------------ ARTICLE EIGHT - ------------- EXPENSES - -------- 8.1 Closing Costs --- ------------- ARTICLE EIGHT-A - --------------- BROKERAGE - --------- 8-A.1 Mutual Representations ----- ---------------------- 8-A.2 Indemnities ----- ----------- ARTICLE NINE - ------------ SURVIVAL OF REPRESENTATIONS AND - ------------------------------- WARRANTIES; BINDING EFFECT; INDEMNITY - ------------------------------------- 9.1 Survival of Representations and Warranties; Binding Effect; Indemnity --- --------------------------------------------------------------------- ARTICLE TEN - ----------- DEFAULTS - -------- 10.1 Event of Default ---- ---------------- 10.2 Costs; Right to Cure ----- -------------------- 10.3 Cross-Default ---- ------------- ARTICLE ELEVEN - -------------- BOOKS; RECORDS; STATEMENTS AND AUDITS - ------------------------------------- 11.1 Books and Records ----- ----------------- 11.2 Statements ---- ---------- 11.3 Lender's Right to Audit ----- ----------------------- ARTICLE TWELVE - -------------- MANAGEMENT OF THE PROPERTIES - ---------------------------- 12.1 Management ----- ---------- 12.2 Service Agreements ---- ------------------ 12.3 Occupancy Leases ---- ---------------- ARTICLE THIRTEEN - ---------------- TRANSFER OF INTERESTS; NO FURTHER FINANCING - ------------------------------------------- 13.1 Transfers ----- --------- 13.2 No Financing ----- ------------ ARTICLE FOURTEEN - ---------------- MISCELLANEOUS - ------------- 14.1 Notices ----- ------- 14.2 Entire Agreement; No Oral Changes ----- --------------------------------- 14.3 Captions ----- -------- 14.4 Governing Law ----- ------------- 14.5 Further Assurances ----- ------------------ 14.6 Interest Limitation ----- ------------------- 14.7 Estoppel Certificates ----- --------------------- 14.8 Interpretation ----- -------------- 14.9 Non-Recourse ----- ------------ 14.10 Counterparts ----- ------------ 14.11 No Partnership ----- -------------- 14.12 Resolution of Drafting Ambiguities ----- ---------------------------------- 14.13 No Waiver; Cumulative Remedies and Rights ----- ----------------------------------------- 14.14 Certain Consents ----- ---------------- 14.15 Payment Days ----- ------------ 14.16 Severability ----- ------------ 14.17 Consent to Jurisdiction ----- ----------------------- 14.18 Waiver of Jury Trial ----- -------------------- LOAN AGREEMENT THIS LOAN AGREEMENT (this "Loan Agreement" or "Agreement") dated as of the 27 day of September, 2004, by and between DAVID LICHTENSTEIN ("Lender"), having an address at 326 Third Street, Lakewood, New Jersey 08701 ("Lender's Address"), and PRC MEMBER LLC, a Delaware limited liability company having an address at 180 South Broadway, White Plains, New York 10605 ("Borrower"); W I T N E S S E T H: WHEREAS Lender and Presidential Realty Corporation ("Presidential"), a Delaware corporation, are the sole members of Borrower, and Presidential is the managing member; and WHEREAS Lightstone Real Estate Partners, LLC (hereinafter referred to as "Contract Vendee"), an Affiliate (capitalized terms not defined in these recitals are defined in Article 1) of Lender has entered into a contract dated May 14, 2004, as amended, with PREIT Associates, L.P. ("PREIT") for the purchase of certain properties including Martinsburg Mall at 800 Foxcroft Avenue, Martinsburg, West Virginia (the "Martinsburg Property"); and WHEREAS the parties contemplate that Contract Vendee shall assign and delegate to Martinsburg Mall LLC (the "Martinsburg Property Owner"), a Delaware limited liability company in which Borrower is the sole member, the right and obligation to purchase the Martinsburg Property; and WHEREAS as part of the series of transactions of which this Agreement is a part, Wachovia Bank, National Association ("Wachovia") is lending One Hundred Five Million Dollars ($105,000,000) to certain Affiliates of Lender and to the Martinsburg Property Owner secured by a first mortgage lien upon, among other properties, the Martinsburg Property; and WHEREAS Presidential is the managing member of Borrower, and Borrower is the sole member of the Martinsburg Property Owner; and WHEREAS Borrower has applied to Lender for a loan in the amount of Two Million Six Hundred Thousand Dollars ($2,600,000) to be used, along with other funds, in connection with ownership of the Martinsburg Property; and WHEREAS Lender is willing to lend Borrower Two Million Six Hundred Thousand Dollars ($2,600,000), but only upon the terms and conditions set forth in this Loan Agreement and in the other Loan Documents; NOW, THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid, the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are mutually acknowledged, and intending to be legally bound hereby, Lender and Borrower hereby agree as follows: ARTICLE ONE DEFINITIONS 1.1 Definitions. The following terms, as used in this Loan Agreement, have the following meanings: Affiliate: Any Person that controls, is controlled by, or is under common control with any other Person is an Affiliate of such Person; any Person that is a shareholder of, partner in, member of, or other beneficial owner (directly or indirectly) of an interest in any other Person is an Affiliate of such Person; any direct or collateral relative by blood or marriage of any Person is an Affiliate of such Person; any Person who is a direct or collateral relative by blood or marriage of any Person who is a shareholder of or partner in, member of, or other beneficial owner (directly or indirectly) of an interest in any entity that controls, is controlled by, or is under common control with any other entity is an Affiliate of all such Persons. For purposes of this definition "control" of an entity shall mean an ownership interest of fifty percent (50%) or more, or the right or power, by contract or otherwise, directly or indirectly, to make, or cause to be made, the decisions of such entity. Auditor: As defined in Section 11.3 hereof. Bankruptcy Event: With respect to any Person, a court having jurisdiction shall have entered a decree or order for relief in respect of such Person in an involuntary case or cases under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have appointed one or more receivers, liquidators, assignees, custodians, trustees, sequestrators or other similar officials (hereinafter collectively referred to as "receiver or trustee") of such Person, or for any substantial part of such Person's property, or shall have ordered the winding up or liquidation of such Person's affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or such Person shall have commenced a voluntary case or cases under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in any involuntary case or cases under any such law, or shall have consented to the appointment of or taking possession by one or more receivers or trustees of such Person or for any substantial part of such Person's property, or shall have made a general assignment for the benefit of its creditors, or shall have failed generally to pay its debts as they become due, or shall have taken any action in furtherance of any of the foregoing. Certificate of Occupancy: One or more certificates of use and occupancy, or similar permit or approval, required by law to be issued in connection with the use, occupancy or operation of the Martinsburg Property by its owner or by any tenant under an Occupancy Lease. Contract Vendee: As defined in the second "WHEREAS" clause hereof. Default: An event or condition which with the passage of time or upon notice, or both, will result in an Event of Default. Default Collateral: As defined in Section 14.9 hereof. Environmental Indemnity Agreement: That certain Environmental Indemnity Agreement, dated as of the date hereof, made by the Martinsburg Property Owner, as indemnitor, in favor of Lender and Borrower, as indemnitee, and all amendments thereof and supplements thereto. Environmental Laws: All federal, state and local laws, rules and regulations, whether now existing or hereafter enacted or promulgated, regulating, relating to or imposing liability or standards of conduct concerning any hazardous, toxic, petroleum or dangerous waste, substance or material or the protection of health or the environment, including, without limitation (i) Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq. (known as CERCLA or Superfund) as amended by the Superfund Amendments and Reauthorization Act of 1986 (known as SARA); (ii) Solid Waste Disposal Act, 42 U.S.C. Section 6901 et seq. (known as SWDA) as amended by Resource Conservation and Recovery Act (known as RCRA); (iii) National Environmental Policy Act, 42 U.S.C. Section 4321 et seq. (known as NEPA); (iv) Toxic Substances Control Act, 15 U.S.C., Section 2601 et seq. (known as TSCA); (v) Safe Drinking Water Act, 42 U.S.C. Section 300(f) et seq., (known as Public Health Service Act, PHSA); (vi) Refuse Act, 33 U.S.C. Section 407 et seq.; (vii) Clean Water Act, 33 U.S.C. Section 1251 et seq. (known as Federal Water Pollution Control Act FWPCA); (viii) Clean Air Act, 42 U.S.C. Section 7401 et seq. (known as CAA); (ix) The Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq. (known as EPCRTKA); and (x) the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq. (known as OSHA). Event of Default: As defined in Section 10.1 hereof. Exit Fee: As defined in Section 4.3 hereof. First Mortgage: See definition of Permitted Exceptions. Fiscal Years: The fiscal years of Borrower and the Martinsburg Property Owner, both of which shall be the calendar year. Guarantor: Presidential. Guaranty: A certain Guaranty of even date herewith made by Presidential, as Guarantor, for the benefit of Lender. Imposition: Any real estate tax, sewer rent, water charge, or other municipal or governmental assessment, rate, charge, imposition or lien upon the Martinsburg Property. Improvements: All buildings, structures and other improvements of every kind and description on the Martinsburg Property. Indebtedness: The amount of Principal, Interest and all other sums payable by Borrower to Lender under this Loan Agreement, the Note and the other Loan Documents. Interest: As defined in Section 3.1 hereof. Interest Rate: As defined in Section 3.1 hereof. Legal Requirements: All laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, variances, consents, approvals, directions and requirements of, and agreements with, all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Martinsburg Property, or to any of the adjoining vaults, sidewalks, streets or ways, or to any use or condition of the Martinsburg Property, including, without limitation, Environmental Laws. Lender's Address: As defined in the first paragraph of this Loan Agreement. Lender's Property Management Office: 326 Third Street, Lakewood, New Jersey, or such other location in New Jersey or New York as Lender shall determine, provided that Lender timely shall notify Borrower of any change in the location of Lender's Property Management Office. Loan: The loan to be made by Lender to Borrower as provided in this Loan Agreement and as evidenced by the Note. Loan Agreement: This Loan Agreement between Borrower and Lender, and all amendments and supplements hereto. Loan Closing Date: September 27, 2004. Loan Documents: Without limitation, this Loan Agreement, the Note, the Guaranty, the Environmental Indemnity Agreement, the Security Instruments and any other agreements or instruments executed or to be executed hereunder or in connection herewith or to evidence or to secure the Indebtedness and all amendments thereof and thereto. Martinsburg Property: As defined in the second "WHEREAS" clause hereof. Martinsburg Property Owner: As defined in the third "WHEREAS" clause hereof. Martinsburg Property Sale and similar phrases: Any Transfer of the Martinsburg Property or any part thereof other than a Refinancing Event, an Occupancy Lease, or a Taking. Maturity Date: The tenth (10th) anniversary of the Loan Closing Date, or any earlier date to which said date shall be accelerated pursuant to any right or option of Lender hereunder or under any of the other Loan Documents. Note: A promissory note in the amount of Two Million Six Hundred Thousand Dollars ($2,600,000), or so much thereof as may be advanced, of even date herewith made by Borrower to the order of Lender. Occupancy Lease: Any written or oral lease, sublease, license, franchise, concession or other occupancy agreement now or hereafter in effect, whether or not of record, for the use or occupancy of any portion of the Improvements on the Martinsburg Property, together with all amendments thereof and supplements thereto, including oral lettings and tenancies following attornment. Omnibus Agreement: That certain Omnibus Agreement of even date herewith executed by the Martinsburg Property Owner and all amendments thereof and supplements thereto. Permitted Exceptions: A first mortgage or deed of trust ("First Mortgage") held by Wachovia. In addition, the following shall be Permitted Encumbrances: (i) liens for unpaid real estate taxes not yet due, (ii) Occupancy Leases, and (iii) and any other condition of title subject to which Borrower shall accept title to the Martinsburg Property. Person: An individual, corporation, partnership, association, trust or other entity or organization, including a governmental or political subdivision or agency or instrumentality thereof. Pledge Agreement: That certain Security and Pledge Agreement of even date herewith, executed and delivered by Borrower to Lender and all amendments thereof and supplements thereto. Pledged Collateral: All of Borrower's right, title and interest in and to the following property, whether now owned by Borrower or hereafter acquired and whether now existing or hereafter coming into existence, and wherever located: (i) all of Borrower's membership interest in the Martinsburg Property Owner, which constitutes one hundred percent (100%) of the membership interest in the Martinsburg Property Owner, together with all of Borrower's interest as a member of the Martinsburg Property Owner; (ii) all right, title and interest of Borrower in the Martinsburg Property Owner relating to Borrower's membership interest in the Martinsburg Property Owner, including, without limitation, all of Borrower's rights, powers and remedies under the Company Agreement with respect to Borrower's membership interests; and (iii) all present and future payments, distributions, proceeds, profits, income, compensation, property, capital assets, interests and rights due or to become due and payable to Borrower in connection with Borrower's membership interest in the Martinsburg Property Owner (including, without limitation, all proceeds of dissolution or liquidation or winding up of the affairs of the Martinsburg Property Owner), all repayments of any and all loans made by Borrower to the Martinsburg Property Owner and all rights of Borrower to receive any and all of the foregoing, whether or not any or all of the foregoing shall constitute accounts or general intangibles under the Uniform Commercial Code. PREIT: As defined in the second "WHEREAS" clause hereof. Presidential: As defined in the first "WHEREAS" clause hereof. Principal: At any time of reference, the aggregate total of all money advanced by Lender to Borrower pursuant to Article 2 hereof, less any repayment or prepayment of a portion thereof in accordance with the terms hereof, except as the context otherwise shall require. Recourse Distributions: As defined in Section 14.9 hereof. Refinancing Event: The creation, financing, refinancing or restructuring of any debt (but only with Lender's prior approval) upon or related to the Martinsburg Property, including, without limitation, any lease and leaseback or other form of financing. Sale of the Martinsburg Property and similar phrases: See definition of "Martinsburg Property Sale." Security Instruments: The Pledge Agreement, the Omnibus Agreement, financing statements under the Uniform Commercial Code, and any other agreements or instruments executed or to be executed pursuant to the terms of this Loan Agreement and the other Loan Documents to secure and/or assure the repayment of the Principal and Interest and all other Indebtedness under the Note and all other Loan Documents and all amendments thereof and supplements thereto. Taking and similar words such as "Taken": A taking for any public or quasi-public purpose by any lawful power or authority by the exercise of the right of condemnation or eminent domain of all or any portion of the Martinsburg Property or the temporary use thereof. Term: The period of time beginning on the date hereof and ending on the Maturity Date. Transfer and similar words such as Transferred: A sale, assignment, gift, mortgage, pledge, hypothecation, encumbrance, lease or any other conveyance or transfer. Wachovia: As defined in the third "WHEREAS" clause hereof. 1.2 Accounting Terms and Determinations. Unless otherwise specified herein (i) all accounting terms used herein shall be interpreted, (ii) all accounting determinations hereunder shall be made and (iii) all books, records and financial statements required to be kept or delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, consistently applied, except for changes reasonably approved in writing by Lender. ARTICLE TWO THE LOAN 2.1 The Loan. Lender hereby agrees to make the Loan to Borrower, and Borrower hereby agrees to take the Loan from Lender, on the first business day after acquisition of the Martinsburg Property by the Martinsburg Property Owner and on the terms and subject to the conditions set forth herein, each of which shall be a condition precedent to Lender's obligation to make the Loan, each of which Borrower shall use its best efforts to satisfy, and each of which Lender may waive. 2.2 Conditions to Advances of the Loan. Lender's obligation to advance the Loan shall be subject to the following conditions: (i) In no event shall the Loan exceed Two Million Six Hundred Thousand Dollars ($2,600,000); and (ii) Borrower shall acquire the Martinsburg Property at or prior to the advance of the Loan; and (iii) All of Borrower's representations set forth in this Loan Agreement and the other Loan Documents shall be true, accurate and complete in all material respects, and there shall not exist any Default or Event of Default under any of the terms and provisions of this Loan Agreement or any of the other Loan Documents, and all of Borrower's representations made in this Loan Agreement and any of the other Loan Documents shall be true in all material respects; and (iv) Borrower shall have furnished to Lender copies of the First Mortgage and of all related documents, all of which must be satisfactory to Lender, acting reasonably, in all respects; and (v) Lender shall have received original or certified copies of policies of insurance satisfactory to Lender insuring the Improvements on the Martinsburg Property against loss or damage by fire and the other risks insured against by extended coverage insurance; Lender will accept as to form policies of insurance (and the companies writing them) which are acceptable to Wachovia provided that the insurance limits set forth in such insurance policies are not less than the full insurable value of the Improvements on the insured Martinsburg Property; and (vi) The Loan Documents listed in Section 5.1 and such other agreements and instruments as Lender reasonably shall require shall be executed and/or delivered to Lender; and (vii) No casualty shall have occurred or Taking have occurred or be threatened as to the Martinsburg Property; provided, however, that this condition (vii) shall be deemed satisfied in the event that despite a minor casualty partially damaging the Improvements on the Martinsburg Property, or the occurrence or threatened occurrence of a partial Taking of the Martinsburg Property, which partial Taking is or would be of little or no practical significance, Wachovia nevertheless shall fund its loan in the full originally committed amount thereof. ARTICLE THREE INTEREST 3.1 Calculation. For each Fiscal Year (or any portion thereof) during the Term, Borrower shall pay Lender interest (calculated on the basis of actual days elapsed and a year of three hundred and sixty (360) days) on the Principal of the Loan outstanding from time to time, to the extent and from the date(s) advanced, at the rate of eleven percent (11%) (the "Interest Rate"). Said interest is referred to herein as "Interest." 3.2 Payments. Borrower shall make payments of Interest with respect to the Loan as follows: (a) Interest shall be payable in monthly installments, in arrears, on the first day of the month following the month for which such Interest is due. (b) All payments of Interest and Principal pursuant to this Loan Agreement, the Note and the other Loan Documents shall be made in lawful currency of the United States of America at Lender's address set forth in the first paragraph of this Loan Agreement or at such other address as Lender shall from time to time designate. 3.3 Interest Rate after Default; Late Payment Fee. If any payment becoming due to Lender under the Note or this Loan Agreement is not paid when due and shall continue unpaid for a period of ninety (90) days, then (without prejudice to any other rights and remedies available to Lender as a result of such nonpayment) beginning on the ninety-first (91st) day after such payment first was due and continuing until the first anniversary of the date upon which the Event of Default shall have been cured, the Interest Rate shall be fourteen percent (14%) per annum. In addition, if any payment of Interest or Principal shall not be made within fifteen (15) days of the date the same becomes due, Borrower shall pay to Lender a late payment charge in an amount equal to four (4%) percent of the amount past due upon demand made by Lender at any time after such fifteen (15) day period. All such late payment charges shall be liquidated damages for Borrower's failure to make prompt payment. ARTICLE FOUR TERM; PAYMENT; PREPAYMENT; EXIT FEE; PROPERTY SALES 4.1 Term. The Term of the Loan shall continue until the Maturity Date, unless sooner terminated as provided in the Note or this Loan Agreement or any other Loan Document. 4.2 Repayment at End of Term. On the Maturity Date, or upon the earlier termination of the Term as provided in the Note or this Loan Agreement or any other Loan Document, Borrower shall pay to Lender, in respect of the Loan, the sum of: (a) any accrued but unpaid Interest; plus (b) any Indebtedness (other than Principal and Interest) due and payable from Borrower to Lender pursuant to the terms of the Loan Documents; plus (c) the Principal. 4.3 Prepayment. (a) Borrower may not prepay the Loan, in whole or in part, except as provided in Section 4.3(b) below and except that (i) upon a Martinsburg Property Sale, or (ii) the Taking of the Martinsburg Property in whole or in substantial part, Borrower shall prepay the Loan or so much thereof as has not been prepaid previously and, in the case of a Martinsburg Property Sale, simultaneously shall pay to Lender an Exit Fee computed as provided in Section 4.3(c) unless payment of said Exit Fee shall be deemed waived by Lender as provided in Section 4.3(c). The Martinsburg Property shall be deemed to have been Taken in substantial part if the portion thereof remaining after the Taking cannot practically and economically be restored so as to be suitable for the use to which the Martinsburg Property was being put at the time of the Taking. (b) Borrower may prepay the Loan, in whole but not in part, upon or at any time after the repayment of the First Mortgage on its original or any extended maturity date upon at least forty-five (45) days notice to Lender and the payment to Lender of the Exit Fee computed as provided in Section 4.3(c) simultaneously with such prepayment. (c) Whenever any Principal is repaid by Borrower, for any reason whatsoever, Borrower shall pay in addition to the Principal so paid, and any accrued and unpaid Interest thereon, an "Exit Fee" in the amount of three percent (3%) of the Principal so paid, provided, however, that if and to the extent that Principal is paid on the Maturity Date, or a prepayment is required as a result of a Martinsburg Property Sale and there have been no material Events of Default during the Term of the Loan with respect to payments of Interest, or prepayment is required as a result of the Taking of the Martinsburg Property in whole or in substantial part, then the Exit Fee shall be waived by Lender and shall not be payable by Borrower. (e) No prepayment, in whole or in part, however occurring shall affect in any way the rights or status of Lender as a member of Borrower. 4.4 Acceleration Upon Allegation of Invalidity of Interest, Etc.. In the event that Borrower, Presidential, or any of their Affiliates, or any third party claiming through or under any of them, shall at any time assert or shall take any action the effect of which is to assert that any Interest or Principal is invalid or that the payment of any of the Indebtedness in accordance herewith is unlawful or can be delayed or abridged for any reason whatsoever, Lender shall have the right and option immediately to accelerate the Maturity Date. In the event that Lender shall exercise such right and option to accelerate the Maturity Date, the Principal, all Interest, and all other Indebtedness or sums due from Borrower to Lender pursuant to the terms of the Note, this Loan Agreement and the other Loan Documents shall be due and payable in full immediately upon receipt by Borrower of the notice of acceleration from Lender. ARTICLE FIVE SECURITY 5.1 Loan Documents. To evidence and secure the payment to Lender of all sums due or to become due under this Loan Agreement and the Note and the other Loan Documents and the performance by Borrower of all of its covenants and agreements hereunder and under the Note and other Loan Documents, Borrower and Presidential (to the extent specifically provided herein) shall deliver to Lender, and Lender shall receive and have the benefit of the following: (a) the Note; (b) this Loan Agreement; (c) the Guaranty; (d) the Pledge Agreement and all financing statements under the Uniform Commercial Code required to perfect the security interests of Lender thereunder; (e) the Omnibus Agreement; (f) the Environmental Indemnity Agreement; (g) the other Security Instruments; and (h) such other agreements and instruments as Lender reasonably shall require to carry out the intention of this Loan Agreement. The Pledge Agreement shall create in favor of Lender a first priority perfected security interest in the Pledged Collateral, subject only to matters expressly permitted herein or therein. ARTICLE SIX REPRESENTATIONS AND WARRANTIES OF BORROWER 6.1 To induce Lender to make the Loan to Borrower, Borrower hereby makes the following representations and warranties to, and covenants with, Lender, it being agreed that Borrower's acceptance of the Loan shall constitute reaffirmation by Borrower to the best of its knowledge, of the truth and accuracy of all of the representations and warranties herein contained in all material respects,: (a) (i) To the best of its knowledge, (y) the execution and delivery of the Loan Documents by Borrower and the Martinsburg Property Owner have been duly authorized by all necessary action on their part, and (z) each Loan Document has been duly executed and delivered and constitutes the valid and legally binding obligation of the signatories thereto, enforceable against Presidential, Borrower and the Martinsburg Property Owner in accordance with the terms hereof and thereof. (ii) To the best of its knowledge, (w) Borrower and the Martinsburg Property Owner are duly organized, validly existing and in good standing under the laws of the state of Delaware, (x) the Martinsburg Property Owner is duly qualified and authorized to own property and do business in the state of West Virginia, (y) Lender and Presidential are the sole members of Borrower, and (z) Borrower is the sole member of the Martinsburg Property Owner. Neither Presidential, nor to the best of its knowledge, Borrower, has pledged, encumbered, hypothecated or otherwise transferred or agreed to encumber, hypothecate, pledge or otherwise transfer their foregoing respective interests, and Borrower covenants not to do so except with Lender's prior written approval which Lender agrees not to unreasonably withhold or delay. (iii) To the best of its knowledge, Borrower and the Martinsburg Property Owner have full power and authority to enter into the Loan Documents and to perform all their obligations hereunder and thereunder, and have taken all action required by law, any governing instruments or otherwise to authorize the execution, delivery and performance of the Loan Documents and consummation of the transactions contemplated thereby. (iv) To the best of its knowledge, Borrower and the Martinsburg Property Owner do not own, beneficially or of record, any shares of capital stock of, or any other equity interest in, any corporation or any other entity or any other assets, not related to or forming a part of the Martinsburg Property; (v) To the best of its knowledge, Borrower and the Martinsburg Property Owner have made all filings required to be made by them under the laws of each jurisdiction where the failure to make such filings would have a material adverse effect on the Loan; and (vi) To the best of its knowledge, (y) the Martinsburg Property Owner has full power, authority and legal right to acquire, own, and operate the Martinsburg Property, and to execute and deliver the Loan Agreement and any other documents or instruments contemplated herein or therein to be executed and delivered by them, and (z) Borrower has full power, authority and legal right to pledge ownership interests as pledged in the Security Instruments to be executed by it and to execute and deliver the Loan Documents and any other documents or instruments contemplated herein or therein to be executed and delivered by it and to observe and perform the provisions hereof and thereof. (b) Intentionally omitted. (c) To the best of its knowledge, neither it nor the Martinsburg Property Owner has received a notice to the effect that execution and delivery or performance of the Loan Documents, the consummation of the transactions contemplated hereby or thereby, or compliance with the provisions hereof and thereof, does or will conflict with or result in a breach of any of the provisions of any Legal Requirements or applicable license, permit, statute, ordinance, law, judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority, or of any determination or award of any arbitrator, or of any agreement or instrument to which Borrower or the Martinsburg Property Owner is or are a party or by which they or the Martinsburg Property is bound, or constitute a default under any thereof, or result in the creation or imposition of any lien, charge or encumbrance upon the Martinsburg Property or the ownership interest pledged to Lender by the Pledge Agreement. (d) To the best of its knowledge, (x) there are no actions, suits or proceedings pending or threatened against the Martinsburg Property, Borrower or the Martinsburg Property Owner, by or before any court, administrative agency or other governmental authority or any arbitrator that would have a material, adverse effect on the Loan, (y) neither Borrower nor the Martinsburg Property Owner is a party to, and the Martinsburg Property is not bound by, any agreement or other instrument, other than the Permitted Exceptions, or subject to any license, permit, statute, ordinance, law, judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority, or any determination or award of any arbitrator, which might materially adversely affect the Loan, and (z) Borrower and the Martinsburg Property Owner are not in default in compliance with any obligation under any Legal Requirements, or applicable license, permit, statute, ordinance, law, judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority, or any determination or award of any arbitrator, or under any agreement or instrument to which either of them is a party or by which either of them or the Martinsburg Property is bound which would materially adversely affect the Loan. (e) To the best of its knowledge, no permit of or by any court, administrative agency or other governmental authority not heretofore obtained is required in connection with the execution, delivery, performance, or consummation of the transactions contemplated by the Loan Documents. (f) To the best of its knowledge, Borrower and the Martinsburg Property Owner have filed all tax returns required to be filed by them and are not in default in the payment of any taxes levied or assessed against them, any of their assets or any of the Properties. (g) To the best of its knowledge, (y) as of the Loan Closing Date, the Martinsburg Property Owner shall have good and marketable fee title to the Martinsburg Property and the Improvements thereon, free and clear of all liens and encumbrances, except the Permitted Exceptions, and (z) the Martinsburg Property shall not be subject to any option or other right to purchase in favor of any third party. (h) Lender shall have legal and valid security interests in and to the Pledged Collateral superior in right to any pledges or liens which any third party may have or may hereafter purport to acquire against the Pledged Collateral. (i) To the best of its knowledge, neither Borrower nor the Martinsburg Property Owner has entered into any contract or agreement of any kind which would give rise to a pledge or lien upon the Pledged Collateral. (j) To the best of its knowledge, (y) the Martinsburg Property is zoned for use in the manner in which it is used and conforms in all material respects to all existing zoning, building and other Legal Requirements, and the operation of the Martinsburg Property is not in material violation of any Legal Requirements, Certificates of Occupancy or other permits, and (x) no notice has been received from any governmental authority or other Person claiming a material violation of any Legal Requirements, Certificates of Occupancy or other permits. To the best of its knowledge, neither the zoning of the Martinsburg Property nor any right to use the Martinsburg Property is to any material extent dependent upon or related to any real estate other than the Martinsburg Property. (k) To the best of its knowledge, no Bankruptcy Event has ever occurred with respect to Borrower or the Martinsburg Property Owner. (l) To the best of its knowledge, neither Borrower nor the Martinsburg Property Owner has pledged, assigned, hypothecated or otherwise encumbered any of the Occupancy Leases or any interest therein except as collateral security for theFirst Mortgage. (m) To the best of its knowledge, (x) there is access for ingress and egress to and from the Martinsburg Property to a public street or roadway, pursuant to valid easements or other valid means, (y) the Martinsburg Property Owner's rights to such access are not subject to any interference or obstruction, and (z) neither Borrower nor the Martinsburg Property Owner has any knowledge of any fact or condition which would result in the termination of such access. ARTICLE SEVEN ADDITIONAL COVENANTS; COVENANT BY LENDER 7.1 Additional Covenants by Borrower. (a) Borrower promptly shall notify Lender of any (i) occurrence, event, or condition (including, but not limited to, any pending or threatened suit or proceeding by or before any court, administrative agency or other governmental authority or any arbitrator), (ii) the enactment of any statute, ordinance or law, of which Borrower shall receive written notice and (iii) the giving of any notice or other communication by any party pursuant to any other agreement relating to the ownership, use, or operation of the Martinsburg Property which, individually or in the aggregate, would or could have a material, adverse effect on the Loan. (b) Borrower and the Martinsburg Property Owner shall allow Lender and Lender's representatives and agents access to the Martinsburg Property at all times and shall provide to Lender such documents relating to the Martinsburg Property as may be requested by Lender or Lender's representatives and agents. (c) Borrower and the Martinsburg Property Owner shall cause the Martinsburg Property at all times to be in full compliance with all Legal Requirements to the extent and in the manner of prudent owners of similar properties in the general area of the Martinsburg Property. (d) Borrower shall not suffer or permit any event or circumstance to occur or exist, or fail to take any action, which would result in the lien and security interest of Lender under the Pledge Agreement ceasing to be at all times a fully perfected lien and security interest on the Pledged Collateral. (e) Borrower will maintain such reserves for future operating expenses, capital improvements and other cash requirements as Lender reasonably shall request, which reserves may be in addition to any reserves required by the holder of the First Mortgage or any mortgage resulting from a Refinancing Event. (f) Borrower shall cause the Martinsburg Property to be managed in accordance with the standards of care for properties of like kind in their respective general areas and in accordance with Section 12.1. Borrower shall (i) cause the Martinsburg Property to be maintained in good repair, (ii) cause all principal, interest and other sums coming due under the First Mortgage and any mortgages resulting from Refinancing Events, to the extent applicable to the Martinsburg Property, to be paid promptly when due and cause all other covenants, conditions and agreements set forth in the First Mortgage and any mortgages resulting from Refinancing Events, and all related documents that appertain to the Martinsburg Property, to be fully and timely performed, and (iii) cause the Martinsburg Property to be kept insured in compliance with the requirements of the First Mortgage, or any mortgage resulting from a Refinancing Event, or if there be none, then by policies satisfactory to Lender and by insurance companies satisfactory to Lender (acting reasonably in both instances) and in amounts not less than the full insurable value of the Improvements on the Martinsburg Property, (iv) cause to be paid all insurance premiums on policies required hereunder and under the First Mortgage and any mortgages resulting from Refinancing Events, that appertain to the Martinsburg Property, and all taxes, assessments and other charges imposed upon the Martinsburg Property, as and when the same shall become due. A condition, circumstance, or management practice asserted by Lender to constitute a failure of compliance with the provisions of the first sentence of this paragraph (f) or the preceding clause (i) if the Martinsburg Property then is subject to the lien of the First Mortgage, or a mortgage resulting from a Refinancing Event, shall not be a default hereunder unless and until the same condition, circumstance or management practice has been asserted by the holder of such First Mortgage, or mortgage resulting from a Refinancing Event, to be a default thereunder. (g) Borrower shall not enter into or permit the consummation of any transaction with respect to the Martinsburg Property with an Affiliate of Borrower or of the Martinsburg Property Owner without the prior written consent of Lender which consent shall not be unreasonably withheld or delayed, but no such consent shall be needed for transactions which are commercially reasonable and at rates and terms, including, without limitation, prices that are competitive with terms offered by other providers of similar goods and services to similar properties in the County in which the Martinsburg Property is located. (h) Borrower shall not, without the prior written consent of Lender which shall not be unreasonably withheld or delayed, cause or permit the Martinsburg Property Owner to (i) sell, lease, exchange or otherwise dispose of or Transfer all or any portion of a Martinsburg Property (or any interest therein), except for Occupancy Leases and otherwise as expressly permitted herein, it being understood that Borrower shall have the right to sell or permit the sale of personal property in the ordinary course of business to the extent that such personal property is obsolete, worn out or otherwise not required for the operation or ownership of the Martinsburg Property; provided, however, that any personal property which has been disposed of shall be replaced with new personal property to the extent necessary for the maintenance and operation of the Martinsburg Property in compliance with the terms of this Loan Agreement and the other Loan Documents, (ii) consummate any Refinancing Event or otherwise encumber any part of the Martinsburg Property, except as otherwise expressly provided herein or in the Security Instruments, it being further understood that Borrower shall have the right to permit the Martinsburg Property Owner to incur unsecured trade account debts payable in the normal course of business, (iii) enter into any agreement with any power or authority having the right of condemnation or eminent domain for a Taking of the Martinsburg Property, or any portion of the Martinsburg Property, or the temporary use thereof, (iv) knowingly take or permit the Martinsburg Property Owner to take any actions or knowingly fail to take such actions so as materially and adversely to impair the economic value of the Martinsburg Property or the Security Instruments executed and delivered or to be executed and delivered pursuant to the terms hereof, (v) make or permit the Martinsburg Property Owner to make any alterations or renovations or undertake any development, redevelopment or construction of any Improvements on the Martinsburg Property, or any portion thereof, except for any alterations that will not have an adverse affect on the physical or investment characteristics of the Martinsburg Property, (vi) knowingly take or permit the Martinsburg Property Owner to take any action which would materially, adversely affect the zoning or building classification of the Martinsburg Property, (vii) permit a default or an Event of Default, or an event or condition which upon notice or the passage of time or otherwise would result in the occurrence of a default or an Event of Default under any of the Loan Documents. (i) The beneficial owner, member and manager of the Martinsburg Property Owner, and Presidential as a beneficial owner, member and manager of Borrower, shall not be changed or their ownership interests Transferred, and no new members or managers shall be admitted to or appointed therein, directly or indirectly, without the prior written consent of Lender which shall not be unreasonably withheld or delayed; Lender agrees to consent to any such Transfer of an interest that is less than a fifty percent (50%) interest in the entity in question, both alone and when added to all other prior and simultaneous Transfers of interests in the same entity, provided that any security interest held by Lender is not adversely affected thereby or that any such adverse effect is remedied to Lender's satisfaction at Presidential's or Borrower's expense. Without the prior written consent of Lender, the certificate of formation and operating agreement of Borrower and the Martinsburg Property Owner shall not be amended or supplemented, and no equity interests or voting rights in any of them shall be changed, except for such technical amendments of any thereof as shall be required for compliance with applicable law and then only after twenty (20) days prior notice to Lender. (j) Borrower and the Martinsburg Property Owner shall (i) not encumber or permit the encumbrance of the Martinsburg Property or permit any mechanics', materialmens' or laborers' liens to be filed against the Martinsburg Property or to remain filed against the Martinsburg Property for more than ninety (90) days, or after foreclosure thereof shall have begun without causing the same to be discharged by bonding or otherwise, and (ii) continue to maintain policies of insurance with respect to the Martinsburg Property conforming to the requirements of Section 2.2 hereof. The Martinsburg Property Owner shall not engage in any business or activity not related to the ownership, management, and operation of the Martinsburg Property. (k) Borrower and the Martinsburg Property Owner shall maintain or cause to be maintained in full force and effect all licenses and permits required for the operation of the Martinsburg Property in a manner at least equal to properties of like kind in the general areas in compliance with all Legal Requirements. (l) Promptly after receipt by Borrower or the Martinsburg Property Owner of a demand, a default notice, or an inquiry concerning the Martinsburg Property from the holder of the First Mortgage, or a mortgage resulting from a Refinancing Event, the recipient thereof shall forward a copy thereof to Lender. 7.2 Covenant by Lender. Lender covenants that as long as no Event of Default shall have occurred under this Agreement or under any of the other Loan Documents, and be continuing, Lender shall not assign the Note or any of Lender's rights under the Note, this Agreement, or any of the other Loan Documents to any other Person prior to the Maturity Date. ARTICLE EIGHT EXPENSES 8.1 Closing Costs. All reasonable out-of-pocket expenses incurred by Lender in connection with the transactions contemplated by this Loan Agreement, including, but not limited to, the fees, expenses and disbursements of Lender's counsel, and all other reasonable costs and expenses, including, but not limited to, the costs of surveys, title insurance premiums and fees and stamp, transfer or other taxes or fees, incurred by or on behalf of Lender in connection with the transactions contemplated hereby shall be paid out of the proceeds of the Wachovia loan. ARTICLE EIGHT-A BROKERAGE 8-A.1 Mutual Representations. Lender and Borrower each represents to the other that it has not dealt with any broker, "finder" or other intermediary in connection with this Loan Agreement or the transaction of which it is a part. 8-A.2 Indemnities. If the foregoing representation be untrue, the party that shall have made the untrue representation (the "indemnifying party") shall indemnify and hold harmless the other party (the "indemnified party") from and against any and all loss, cost and expense (including, without limitation, reasonable attorneys' fees) the indemnified party may pay, suffer or incur as the result of any claim made by any Person with whom the indemnifying party shall have dealt in connection with this Loan Agreement and/or the transaction of which it is a part. ARTICLE NINE SURVIVAL OF REPRESENTATIONS AND WARRANTIES; BINDING EFFECT; INDEMNITY 9.1 Survival of Representations and Warranties; Binding Effect; Indemnity. (a) All covenants, agreements, representations and warranties in the Loan Documents and in the certificates and other instruments delivered to Lender shall survive the execution and delivery of this Loan Agreement and except as otherwise provided therein, shall continue in effect so long as this Loan Agreement, the Loan or any of the instruments described in this Loan Agreement are outstanding. All covenants, agreements, representations and warranties in the Loan Agreement and in such certificates and other instruments shall bind the party making the same and its successors and assigns and shall inure to the benefit of and be enforceable by each party to whom made and its successors and assigns (subject to and in accordance with the non- recourse provisions set forth in Section 14.9 hereof). (b) Borrower agrees to indemnify and hold Lender harmless from and against any expenses, costs, losses and other damages (including court costs and attorneys' fees and expenses) suffered or incurred by or on behalf of Lender as a result of or arising out of (i) the breach of any representation, warranty or covenant of Borrower or any Martinsburg Property Owner hereunder or under any of the other Loan Documents or certificates and other instruments delivered to Lender, and/or (ii) any action, suit, charge, complaint, proceeding or other similar matter arising out of or in any way connected to any condition in, on, about or of the Martinsburg Property, or arising out of or in any way connected to any transaction or event relating to the acquisition or ownership of the Martinsburg Property. ARTICLE TEN DEFAULTS 10.1 Event of Default. If during the Term one or more of the following events (each an "Event of Default") shall occur and be continuing: (i) Borrower shall default in the payment of any installment of Interest or any other Indebtedness under the Loan Documents, when and as the same becomes due and payable and such nonpayment continues for a period of ten (10) business days after notice thereof from Lender; or (ii) This Agreement, or any of the other Loan Documents, or the transaction of which they are a part, or the enforcement of any right of Lender or any obligation of Borrower and/or the Martinsburg Property Owner, creates an event of default under the First Mortgage or any mortgage resulting from a Refinancing Event; or (iii) There shall occur an event of default under the First Mortgage, or any mortgage resulting from a Refinancing Event, that appertains to the Martinsburg Property, except that a default under the First Mortgage, or any mortgage resulting from a Refinancing Event, shall be an Event of Default under this Agreement only if (a) such default is a default for sixty (60) days or more in payment when due of principal and/or interest under the First Mortgage, or mortgage resulting from a Refinancing Event, or (b) the holder of the First Mortgage, or mortgage resulting from a Refinancing Event, has commenced an action to foreclose the lien thereof; or (iv) any of the representations and warranties set forth herein, in any other Loan Document or in any certificate executed and delivered by Borrower or Presidential to Lender shall not be true and correct in all material respects or shall be knowingly and materially misleading when made, or there shall be any default in the performance of or compliance with any of the terms, covenants, or conditions hereof, or in any other Loan Document, other than in the payment of Interest or any payment of the Principal of the Loan or any other Indebtedness under the Loan Documents, and such default shall continue for more than twenty (20) business days after Lender shall have given written notice thereof to Borrower, unless any such default cannot be cured by payment of a sum of money and Borrower shall within such period commence and continue to prosecute with due diligence and dispatch the curing of such default; or (v) Borrower shall (a) fail to pay or cause all Impositions and any fines, penalties, interest or costs added thereto, or (b) fails to maintain or cause to be maintained in good standing the insurance policies required pursuant to the terms hereof for a period of ten (10) days after notice thereof from Lender; or (vi) a Bankruptcy Event shall have occurred with respect to Borrower or the Martinsburg Property Owner; or (vii) a default under Section 7.1 hereof; or (viii) a judgment or judgments in excess of Two Hundred Thousand Dollars ($200,000) in the aggregate shall be entered against Borrower and/or the Martinsburg Property Owner and shall remain unpaid, unappealed, undischarged, unbonded, unstayed and undismissed for a period of sixty (60) days after the date of the entry thereof; then, and in any such Event of Default, Lender at any time thereafter may give Borrower a Notice of such Event of Default, and if such Event of Default is not cured within twenty (20) business days after receipt of such Notice, then, at any time thereafter: (a) Lender may declare the Principal, Interest and any other Indebtedness outstanding under the Note and the other Loan Documents to be immediately due and payable; provided, however that if and as long as the only uncured Event of Default shall be in the timely payment of an installment of Interest on the Loan, and if (i) no default or event of default appertaining to the Martinsburg Property shall have occurred under the First Mortgage or any other mortgage resulting from a Refinancing Event whether or not subject to a grace period and opportunity to cure and whether or not the holder of the First Mortgage or such other mortgage shall have given any notice or taken any other action with regard thereto, and (ii) there shall be no other default under this Loan Agreement or any other Loan Document which, with the passage of a period of time or the giving of a notice, or both, would become an Event of Default, then Lender shall not take action to enforce Lender's rights under the Pledge Agreement against the Pledged Collateral thereby unless and until such Event of Default has been an Event of Default for a period of one (1) year. (b) subject to the proviso in the preceding clause (ii), Lender may pursue any and all of its remedies, provided for under law and in equity and any or all of the Loan Documents 10.2 Costs; Right to Cure. All costs and expenses incurred by or on behalf of Lender (including, without limitation, reasonable attorneys' fees and expenses) resulting from any default by Borrower and/or the Martinsburg Property Owner under this Loan Agreement or any other Loan Documents shall be paid by Borrower. Upon the occurrence of an Event of Default, Lender shall have the right, but not the obligation, to cure any such default. Borrower and the Martinsburg Property Owner hereby appoint Lender as their true and lawful attorney-in-fact, to take any such action and to cure any such defaults in the name and on behalf of such Person, which power of attorney shall be coupled with an interest and be irrevocable so long as any of the Indebtedness hereunder or under the Note is outstanding. Any costs or expenses incurred by Lender in connection with any of the foregoing shall be payable, together with interest at the rate of fifteen (15%) percent per annum (or such lesser rate as shall be the maximum rate permitted by law) from the date incurred until paid. 10.3 Cross-Default. For purposes hereof and all of the Loan Documents, an Event of Default under any of the Loan Documents shall be deemed to be an Event of Default with respect to any and all of the other Loan Documents. ARTICLE ELEVEN BOOKS; RECORDS; STATEMENTS AND AUDITS 11.1 Books and Records. Borrower shall keep or shall cause the Martinsburg Property Owner to keep accurate, full and complete books, records and accounts showing the assets, liabilities, operations, transactions and financial condition of all the Martinsburg Property. All books, records, accounts and financial statements shall be accurate and complete in all material respects, shall present fairly the financial position and results of the operations of the Martinsburg Property and shall be prepared in accordance with generally accepted accounting principles (on a cash basis) consistently applied. 11.2 Statements. (a) Reports to Mortgagee. The Martinsburg Property Owner or Borrower shall furnish to Lender the financial reports appertaining to the Martinsburg Property required to be submitted to Wachovia, as holder of the First Mortgage, within the time limits set forth in the First Mortgage. This requirement shall continue whether or not the First Mortgage remains outstanding. If the First Mortgage is replaced by a new mortgage as the result of a Refinancing Event, Lender may, but shall not be required to, accept the reports to be delivered to the holder of the mortgage resulting from the Refinancing Event in place of the foregoing requirements. (b) Income Reports. In addition to the requirements of subsection (a) above, Borrower shall furnish, or cause the Martinsburg Property Owner to furnish, to Lender no later than March 31 of each year (i) a statement itemizing the sources and types of gross revenue for the preceding Fiscal Year paid by tenants at the Martinsburg Property in accordance with Occupancy Leases and reflecting other miscellaneous income, and (ii) such other year end reports and other information as Lender reasonably may request. (c) Other Reports. In addition, Borrower shall furnish or cause the Martinsburg Property Owner to furnish to Lender copies of any and all reports furnished under any management agreement or leasing agreement to the extent not otherwise provided to Lender hereunder. 11.3 Lender's Right to Audit. The books, accounts and records of Borrower and the Martinsburg Property Owner shall at all times be maintained at the office of Borrower's property managing agent. Upon reasonable notice to Borrower, Lender may at its option and expense conduct audits of the books, records and accounts of the Martinsburg Property, on either a continuing or periodic basis or both, by employees of Lender, an Affiliate of Lender, or by a national firm of independent certified public accountants selected by Lender ("Auditor"). If Lender's accountants are not the Auditor and disagree with the Auditor's decision as to any matter concerning the books, accounts and records of the Martinsburg Property, Lender may notify Borrower of such disagreement, and Borrower and Lender shall cause the Auditor and Lender's accountants, respectively, to hold such meetings and discussions as they shall deem necessary concerning the disagreement and to use all reasonable efforts to reach a mutually acceptable resolution of the matter in question. If the Auditor and the Lender's accountants are unable to reach a mutually acceptable resolution of the matter in question, they shall select a national firm of certified public accountants to act as a third auditor to review and make a determination as to the matter in question. Such third auditor's determination shall be final and binding upon the parties, the Auditor and Lender's accountants. Such third auditor shall have full access to the books, records and accounts of the Martinsburg Property. The charges and expenses of such third auditor shall be paid by Borrower. ARTICLE TWELVE MANAGEMENT OF THE PROPERTIES 12.1 Management. Borrower shall be responsible for providing or causing to be provided all services necessary, proper, desirable or appropriate for the successful leasing, operating, repair and management of the Martinsburg Property in the manner of similar properties in the general area of the Martinsburg Property and shall cause such management services to be performed as hereinafter set forth; provided, however, that Lender shall designate a managing agent for the Martinsburg Property, subject to Borrower's approval which shall not be unreasonably withheld. A proposed management agreement with such managing agent, under which the aggregate amount of fees and other compensation to be paid to such managing agent shall not exceed three and one-half percent (3.5%) of the rent and other direct income from the operation of the Martinsburg Property, shall be provided to Borrower by Lender and shall be in form and substance satisfactory to Borrower (acting reasonably). Any management agreement shall also provide that all amounts coming due to the manager thereunder shall be earned, due and payable only if, as, and when, and to the extent that, all Indebtedness amounts then due and payable have been paid. Any replacement managing agent or management agreement shall be subject to Borrower's written approval. 12.2 Service Agreements. Copies of all service agreements shall be delivered to Lender, if Lender so requests, and shall be maintained at the office of Borrower's managing agent available for inspection by Lender at all reasonable times. 12.3 Occupancy Leases. All Occupancy Leases with respect to the Martinsburg Properties will be bona fide, good faith, arm's length leases in writing with third parties that are not Affiliates of Borrower or of the Martinsburg Property Owner (and Borrower will promptly furnish copies thereof to Lender, if Lender so requests, and will maintain copies thereof at the office of Borrower's managing agent available for Lender's inspection at all reasonable times). ARTICLE THIRTEEN TRANSFER OF INTERESTS; NO FURTHER FINANCING 13.1 Transfers. (a) Except as otherwise expressly set forth herein, neither the Martinsburg Property, nor any part thereof, nor the Pledged Collateral, nor any direct or indirect interest in the Martinsburg Property Owner or in Borrower, or in any entity that has any direct or indirect interest in the Martinsburg Property Owner or in Borrower, shall be Transferred without the prior written consent of Lender which shall not be unreasonably withheld. Any Transfer or attempted Transfer not permitted under the terms hereof shall be void ab initio and of no force or effect. 13.2 No Financing. Neither Borrower, nor the Martinsburg Property Owner, nor any of their Affiliates, shall have the right to enter into a Refinancing Event without the prior written consent of Lender which shall not be unreasonably withheld. ARTICLE FOURTEEN MISCELLANEOUS 14.1 Notices. All notices, demands, consents, requests, instructions and approvals ("Notice") herein required or permitted shall be in writing and shall be either telecopied (except that default Notices shall not be effective if only telecopied), delivered by a reputable overnight courier that provides a receipt to sender, or mailed by certified mail, return receipt requested, postage pre-paid, to the recipient at such recipient's address set forth below (or at such other address for a party as shall be specified by Notice given pursuant hereto): If to Borrower or the Martinsburg Property Owner to: [Name of Addressee ] ----------------------------- Presidential Realty Corporation 180 South Broadway White Plains, New York 10605 Attention: Mr. Jeffrey Joseph, President Telecopy: (914) 948-1327 in either of the foregoing cases with a copy to: Cuddy & Feder LLP 90 Maple Avenue White Plains, New York 10601 Attention: Kenneth F. Jurist, Esq. and Chauncey L. Walker, Esq. Telecopy: (914) 761-5372 and if to Lender to: David Lichtenstein 326 Third Street Lakewood, New Jersey 08701 Telecopy: (732) 363-7183 with a copy to: Sheldon Chanales, Esq. Herrick, Feinstein LLP 2 Park Avenue New York, New York 10016 Telecopy: (212) 592-1472 And a copy to: Corporate Counsel The Lightstone Group 326 Third Street Lakewood, NJ 08701 Telecopy: (732) 363-7183 All Notices shall be effective and deemed received three days after deposit in the mail, postage prepaid, if mailed, and upon receipt in the case of telecopy or if sent by overnight courier. Each Notice shall bear the date on which it is delivered or mailed. In the event Notice is sent by telecopy, the notifying party shall endeavor also to mail a copy of such Notice, but failure to do so shall not affect the validity of such Notice as so telecopied, except with respect to default Notices. 14.2 Entire Agreement; No Oral Changes. This Loan Agreement, the other Loan Documents, the other documents and instruments referred to herein, a certain loan agreement of even date herewith between Presidential and Lightstone Member LLC, a Delaware limited liability company, and the loan documents and other documents and instruments (if any) referred to therein, and any other documents executed and delivered contemporaneously herewith, embody the entire agreement and understanding between Lender and Borrower and their Affiliates relating to the subject matter hereof and supersede all prior agreements and understandings relating thereto. This Loan Agreement may not be changed orally, but only by an instrument in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. 14.3 Captions. The headings to the Articles and Sections of this Loan Agreement have been inserted solely for convenience of reference and shall not modify, define or limit the provisions of this Loan Agreement. 14.4 Governing Law. This Loan Agreement and the other Loan Documents have been prepared, negotiated, executed and delivered wholly in the State of New York and shall be governed by, construed, and enforced in accordance with the laws of the state of New York applicable to agreements to be performed entirely within New York. 14.5 Further Assurances. Borrower agrees to execute and deliver such other instruments as may be reasonably requested from time to time by Lender to effect and confirm the transactions described and contemplated hereby. 14.6 Interest Limitation. Notwithstanding anything contained to the contrary in this Loan Agreement, or the Note or any other Loan Document, the obligation of Borrower to pay Interest to Lender shall be subject to the limitation that such payment of Interest shall not be required to the extent that receipt thereof by Lender would be contrary to the provisions of law applicable to Lender limiting the maximum rate of interest which may be charged or collected by Lender. 14.7 Estoppel Certificates. Promptly upon the written request of Lender and Borrower shall execute and deliver to Lender, in such form as Lender shall reasonably request, a certificate confirming (i) that as of the date of such certificate the Loan Documents are in full force and effect (ii) the amount of Principal and Interest outstanding as of the date of such certificate, (iii) that as of the date of such certificate there is no Default or Event of Default under the Loan Documents, or if there is any such Default or Event of Default describing the same in reasonable detail, and (iv) such other matters as Lender may reasonably request. 14.8 Interpretation. In this Agreement, unless otherwise specified, (i) singular words include the plural, and plural words include the singular; (ii) words that include a number of constituent parts, things or elements shall be construed as referring separately to each constituent part, thing or element thereof, as well as to such constituent parts, things or elements as a whole; (iii) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural forms thereof, as the context shall require; (iv) references to any Person include its successors and assigns and, in the case of an individual, the word "successors" includes such individual's heirs, devisees, legatees, executors, administrators, and personal representatives; (v) references to any statute or other law include all rules, regulations and orders adopted or made thereunder and all statutes or other laws amending, consolidating or replacing the statute or law referred to; (vi) references to any agreement or other document include all subsequent amendments or other modifications thereof; (vii) the words "include" and "including", and words of similar import, shall be deemed to be followed by the words "without limitation"; (viii) the words "hereto", "herein", "hereof" and "hereunder", and words of similar import, refer to this Loan Agreement in its entirety; (ix) references to Articles, Sections or paragraphs are to the Articles, Sections or paragraphs of this Loan Agreement; (x) no reference to a financing, Refinancing Event, refinancing, or mortgage on the Martinsburg Property (other than the First Mortgage) shall be construed as permitting any such financing, Refinancing Event, refinancing, or mortgage event to occur without Lender's prior consent, all of which (except as otherwise in this Loan Agreement expressly provided to the contrary) shall require Lender's prior consent (which Lender covenants not unreasonably to withhold) (reference is made to Article 13 hereof); and (xi) references to mortgages shall include deeds of trust, and references to foreclosure of a mortgage shall include the acts of a trustee under a deed of trust to realize upon the security for the benefit of the beneficiary by exercising a power of sale, taking possession of the mortgaged property, or otherwise. 14.9 Non-Recourse. Notwithstanding anything herein or in any other Loan Document to the contrary, except as otherwise set forth in this Section 14.9 to the contrary, Lender shall not enforce the liability and obligation of Borrower or any of its members to perform and observe the obligations contained in this Agreement or any of the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower or its members, except that Lender may bring a foreclosure action, action for specific performance, or other appropriate action or proceeding (including, without limitation, an action to obtain a deficiency judgment) solely for the purpose of enabling Lender to realize upon (i) Borrower's interest in the Pledged Collateral, (ii) rents to the extent received by Borrower (or received by its members) after the occurrence of an Event of Default (the "Recourse Distributions") and (iii) any other collateral given to Lender under the Loan Documents (the collateral described in the foregoing clauses (i) - (iii) is hereinafter referred to as the "Default Collateral"); provided, however, that any judgment in any such action or proceeding shall be enforceable against Borrower or its members, as the case may be, only to the extent of any such Default Collateral. The provisions of this Section shall not, however, (a) impair the validity of the debt evidenced by the Note or in any way affect or impair this Agreement or any of the other Loan Documents or the right of Lender to foreclose upon the Pledged Collateral following the occurrence of an Event of Default; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under this Agreement; (c) affect the validity or enforceability of the Note, this Agreement, or any of the other Loan Documents, or impair the right of Lender to seek a personal judgment against Guarantor; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of the Pledge Agreement; (f) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to any losses resulting from fraud or intentional misrepresentation by Borrower, Guarantor or any of their Affiliates in connection with this Agreement, the Note or the other Loan Documents, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower, Guarantor or any of their Affiliates with respect to same; (g) impair the right of Lender to bring suit for a monetary judgment against Borrower to obtain the Recourse Distributions received by Borrower including, without limitation, the right to bring suit for a monetary judgment to proceed against Guarantor to the extent of Guarantor's liability under the Guaranty, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower or Guarantor with respect to same; (h) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to any losses resulting from Borrower's misappropriation of tenant security deposits or other payments, including, without limitation, rent collected more than one (1) month in advance, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower with respect to same; (i) impair the right of Lender to enforce the provisions of Articles Six and Seven of this Agreement, even after repayment in full by Borrower of Principal, Interest and any other amount due to Lender or to bring suit for a monetary judgment against Borrower with respect to any losses resulting from any obligation set forth in said Articles; (j) prevent or in any way hinder Lender from exercising, or constitute a defense, or counterclaim, or other basis for relief in respect of the exercise of, any other remedy against any or all of the collateral securing the Note as provided in the Loan Documents; (k) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to any losses resulting from any misappropriation or conversion of insurance proceeds and condemnation awards, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower with respect to same; (l) impair the right of Lender to sue for, seek or demand a deficiency judgment against Borrower solely for the purpose of foreclosing the Pledged Collateral or any part thereof; provided, however, that any such deficiency judgment referred to in this clause (l) shall be enforceable against Borrower and Guarantor only to the extent of any of the Pledged Collateral; (m) impair the ability of Lender to bring suit for a monetary judgment against Borrower with respect to any losses resulting from arson or physical waste to or of the Martinsburg Property or damage to the Martinsburg Property in each case resulting from the intentional acts or intentional omissions of Borrower, Guarantor or any of their Affiliates; (n) impair the right of Lender to bring a suit for a monetary judgment against Borrower in the event of the exercise of any right or remedy under any federal, state or local forfeiture laws resulting in the loss of the security interest in the Pledged Collateral, or the priority thereof; (o) be deemed a waiver of any right which Lender may have under any provision of the Bankruptcy Code to file a claim for the full amount of the debt or to require that all the Pledged Collateral shall continue to secure all of the debt; (p) impair the right of Lender to bring suit for monetary judgment against Borrower with respect to any losses resulting from any claims, actions or proceedings initiated by Borrower (or any Affiliate of Borrower) alleging that the relationship of Borrower and Lender is that of joint venturers, partners, tenants in common, joint tenants or any relationship other than that of debtor and creditor; or (q) impair the right of Lender to bring suit for a monetary judgment with respect to any losses resulting from a Transfer in violation of the provisions hereof. The provisions of this Section shall be inapplicable to Borrower if (a) any proceeding, action, petition or filing under the Bankruptcy Code, or any similar state or federal law now or hereafter in effect relating to bankruptcy, reorganization or insolvency, or the arrangement or adjustment of debts, shall be filed by, consented to or acquiesced in by or with respect to Borrower, or if Borrower shall institute any proceeding for its dissolution or liquidation, or shall make an assignment for the benefit of creditors or (b) Borrower or any Affiliate contests or interferes with Lender's enforcement of its rights and remedies hereunder or under the Loan Documents by asserting any defense (x) as to the validity of the obligations under the Loan Documents or in any way relating to the structure of the Borrower or the enforceability of Lender's rights and remedies under the Loan Documents, or (y) for the purpose of delaying, hindering or impairing Lender's rights and remedies under the Loan Documents (collectively, a "contest") (provided that if any such Person obtains a non-appealable order successfully asserting a contest, Borrower shall have no liability under this clause (b)), in which event Lender shall have recourse against all of the assets of Borrower including, without limitation, any right, title and interest of Borrower in and to the Pledged Collateral. 14.10 Counterparts. This Agreement may be executed in counterparts, and all counterparts so executed shall for all purposes constitute but one Agreement, binding on all the parties hereto, notwithstanding that all parties shall not have executed the same counterpart. 14.11 No Partnership. Nothing contained in this Agreement shall be deemed to constitute the parties hereto as partners or joint venturers in any manner or matter whatsoever. 14.12 Resolution of Drafting Ambiguities. Lender, Borrower and the Martinsburg Property Owner acknowledge that they were represented by experienced counsel in connection with the preparation, execution and delivery of the Loan Documents and that their counsel negotiated all of the Loan Documents on their behalf and that any rule of construction under any applicable law to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of any of the Loan Documents. 14.13 No Waiver; Cumulative Remedies and Rights Lender shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Lender, and then only to the extent therein set forth. A waiver by Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Lender would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently and shall be construed as affording Lender rights additional to and not exclusive of any rights and remedies conferred under the laws of the state of New York, any other laws or any other Security Instrument or Loan Document. 14.14 Certain Consents. If Borrower or the Martinsburg Property Owner (the "requesting party") shall seek the approval by or consent of Lender under this Loan Agreement or any of the other Loan Documents, and Lender shall fail or refuse to give such consent or approval, then the requesting party shall not be entitled to any damages for any withholding or delay of such approval or consent by Lender, it being intended that the requesting party's sole remedy shall be an action for injunction or specific performance, which remedy of an injunction or specific performance shall be available only in those cases in which Lender has expressly agreed under the applicable instrument or agreement not unreasonably to withhold or delay its consent or approval. 14.15 Payment Days. In the event that any payment of Interest, Principal, or any other payment to be made by Borrower to Lender hereunder or under any of the other Loan Documents shall fall on a day which is a Saturday, Sunday or any other day on which commercial banks in New York City are closed for business, any such payment shall be made on the next succeeding business day. 14.16 Severability. In the event that any provision of this Loan Agreement or the application thereof to Borrower or the Martinsburg Property Owner, in any circumstance, shall, to any extent, be invalid or unenforceable under any applicable statute, regulation or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith, and shall be deemed modified to conform to such statute, regulation or rule of law, and the remainder of this Loan Agreement and the application of any such invalid or unenforceable provision to parties, jurisdictions, or circumstances other than to whom or which it is held invalid or enforceable, shall not be affected thereby nor shall same affect the validity or enforceability of any other provision of this Loan Agreement. 14.17 Consent to Jurisdiction. Any court action brought to interpret or enforce any provision of this Loan Agreement or any other Loan Document or to prosecute any claim arising hereunder or thereunder must be commenced and maintained in the state or federal courts in the State of New York. Borrower, the Martinsburg Property Owner, and their Affiliates hereby irrevocably submit to the exclusive jurisdiction and venue of the state and federal courts in the State of New York for such purposes. Borrower hereby appoints Kenneth F. Jurist, Esq. and Chauncey L. Walker, Esq., severally, of Cuddy & Feder LLP, 90 Maple Avenue, White Plains, New York 10601, and any member of Cuddy & Feder LLP or any successor firm, as agent for Borrower, the Martinsburg Property Owner and their Affiliates for receipt of service of process on their behalf in connection with any suit, writ, restraint, execution or discovery or supplementary procedures in connection with the interpretation and/or enforcement of any provision of this Loan Agreement and the other Loan Documents and any claims arising hereunder or thereunder. Service shall be effected by any means permitted by the court in which any action is filed, shall be deemed received as therein provided. 14.18 Waiver of Jury Trial. Borrower and the Martinsburg Property Owner hereby irrevocably waive all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Loan Agreement or any of the other Loan Documents. /s/ David Lichtenstein ---------------------------------- David Lichtenstein PRC MEMBER LLC By Presidential Realty Corporation Managing Member By: /s/ Jeffrey F. Joseph --------------------------------- Jeffrey F. Joseph, President The undersigned Martinsburg Property Owner has executed, acknowledged and delivered this Loan Agreement for the purpose of evidencing its consent and agreement to this Loan Agreement to the extent applicable to it: MARTINSBURG MALL LLC By: /s/ Jeffrey F. Joseph -------------------------------- Jeffrey F. Joseph, President State of New York ) )ss.: County of Westchester ) On the 22 day of September in the year 2004 before me, the undersigned, personally appeared Jeffrey F. Joseph, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ Debra Liebler-Jones -------------------------- Notary Public Debra Liebler-Jones Notary Public, ST.of NY Putnam Cty CLK #01J06005994 Commission Expires 4/20/06 State of New Jersy ) )ss.: County of Ocean ) On the 23 day of September in the year 2004 before me, the undersigned, personally appeared David Lichtenstein, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ Theresa McCormick -------------------------- Notary Public Theresa A. McCormick Notary Public of New Jersy My Commission Expires Feb. 14, 2008 EX-10 8 exhibit10-17.txt Exhibit 10.17 AMENDED AND RESTATED OPERATING AGREEMENT OF LIGHTSTONE MEMBER LLC Dated as of September 27, 2004 AMENDED AND RESTATED OPERATING AGREEMENT OF LIGHTSTONE MEMBER LLC This Amended and Restated Operating Agreement is entered into this 27 th day of September, 2004, by and among DAVID LICHTENSTEIN, an individual ("Managing Member"), with an address c/o The Lightstone Group LLC, 326 Third Street, Lakewood, New Jersey 08701 and PRESIDENTIAL REALTY CORPORATION, a Delaware corporation, with an address at 180 South Broadway, White Plains, New York 10605 ("PRC"). WHEREAS, David Lichtenstein, as the sole member, formed the Company by the filing of a Certificate of Formation with the Delaware Secretary of State, and entered into the Operating Agreement of the Company dated September 24, 2004 (the "Original Agreement"); and WHEREAS, on September 24, 2004, the Property Owners, each of which is wholly owned by the Company, acquired the Properties, subject to the Mortgage Loan; and WHEREAS, on the date hereof, the Mezzanine Lender is making the Mezzanine Loan to the Company; and WHEREAS, David Lichtenstein desires to admit PRC as a member of the Company and to amend and restate the terms and conditions of the Original Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Original Agreement is hereby amended and restated in its entirety to read as follows: EXPLANATORY STATEMENT The parties have agreed to organize and operate a Delaware limited liability company, which limited liability company shall henceforth be organized and operated in accordance with the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, the parties, intending legally to be bound, hereby agree as follows: ARTICLE I Defined Terms The following capitalized terms shall have the meanings specified in this Article I. "Act" means the Delaware Limited Liability Company Act, Delaware Code, Title 6, Sections 18-101, et seq., as amended from time to time. "Additional Capital Contribution" shall have the meaning set forth in Section 3.2. "Adjusted Book Value" means, with respect to each Company asset, the carrying value of each such asset on the books of the Company for federal income tax accounting purposes, as calculated pursuant to the rules set forth in Code (as hereinafter defined) Section 704 and Regulation (as hereinafter defined) Section 1.704. "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in the Member's Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments: (a) credit to such Capital Account the amounts which the Member is obligated to restore or is deemed obligated to restore pursuant to the penultimate sentences of Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (b) debit to such Capital Account the items described in Regulation Sections 1.704-1 (b)(2)(ii)-(d)(4), (5), and (6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. "Affiliate" means, with respect to any Member, any Person which directly or indirectly through one or more intermediaries Controls, is Controlled by or is under common Control with a specified Person. "Agreement" means this Operating Agreement, as amended from time to time. "Approval" (and any variation thereof) of a Member shall mean the prior written approval of such Member. Use of the term "reasonable" or "reasonably" in connection with the term "Approval" or any variation thereof or with the term "satisfactory" means that such Approval shall not be withheld, conditioned or delayed unreasonably. Unless either of such terms is used in connection with the term "Approval" (or any variation thereof), such Approval may be granted or withheld in a Member's (or its authorized representative's) sole discretion. "Bankruptcy Action" means, with respect to a Person, (a) instituting proceedings to be adjudicated bankrupt or insolvent; (b) consenting to the institution of bankruptcy or insolvency proceedings against it; (c) filing a petition seeking, or consenting to, reorganization or relief under any applicable federal or state law relating to bankruptcy; (d) consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or a substantial part of its property; (e) making any assignment for the benefit of creditors; (f) admitting in writing its inability to pay its debts generally as they become due or declare or effect a moratorium on its debts; or (g) taking any action in furtherance of any such action described in (a) through (f), or (h) any other event which would cause such Person to cease to be a member of a limited liability company under Section 18-304 of the Act. "Capital Account" means an account to be maintained by the Company for each Member in accordance with the provisions of Regulation Section 1.704-1 (b)(2)(iv). "Capital Contribution" means the total amount of cash contributed to the Company by a Member. "Capital Proceeds" means (A) the cash or other consideration received by the Company (including interest on installment sales when received) as a result of (i) a sale, exchange, abandonment, foreclosure, insurance award, condemnation, easement sale or other similar transaction relating to any Company Assets, (ii) any financing or refinancing relating to any Company Assets, (iii) capital contributions to the Company upon admission of new members and (iv) any other transaction which, in accordance with generally accepted accounting principles, would be treated as a capital event, in each case less (B) any such cash which is applied to (i) the payment of transaction costs and expenses, (ii) the repayment of debt of the Company which is required under the terms of any indebtedness of the Company or which has been authorized to be repaid by the Managing Member, (iii) the repair, restoration or other improvement of Company Assets which is required under any contractual obligation of the Company or which has been authorized by the Managing Member and (iv) the establishment of reserves as reasonably required by the Managing Member. "Capital Proceeds" shall also mean any of the foregoing which are received by a partnership or other vehicle in which the Company is a partner or investor or in which the Company otherwise has an interest, to the extent received by the Company as dividends or distributions. "Cash Flow" means all cash funds derived from operations (including interest received on reserves), but not including Capital Proceeds, without reduction for any noncash charges, but less cash funds used to pay current operating expenses (including, without limitation, all property management and/or asset management fees) and to pay or establish reasonable reserves for future expenses, debt payments, capital improvements, and replacements as determined by the Managing Member. "Closing Date" means the date of consummation by the Property Owners of the acquisition of the Properties in accordance with the Purchase Agreement. "Code" means the Internal Revenue Code of 1986, as amended, or any corresponding provision of any succeeding law. "Company" means the limited liability company formed in accordance with this Agreement. "Company Assets" means all right, title and interest of the Company in and to all or any portion of the assets of the Company and any property (real or personal) or estate acquired in exchange therefor or in connection therewith. "Control" shall mean, with respect to a specified Person, (i) the ownership, control or power to vote fifty percent (50%) or more of (x) the outstanding shares of any class of voting securities or (y) beneficial interests, of any such Person, directly or indirectly, or acting through one or more Persons, (ii) the control in any manner over the managing member(s) or the election of more than one director or trustee (or persons exercising similar functions) of such Person, or (iii) the power to exercise, directly or indirectly, control over the management or policies of such Person. "Controlling" and "Controlled" have meanings correlative thereto. "Damages" shall have the meaning set forth in Section 5.4.2. "Distributions" shall mean, as to any Member, all distributions of Proceeds made to such Member pursuant to this Agreement. "Economic Interest" shall have the meaning set forth in Section 6.3. "Indemnitee" shall have the meaning set forth in Section 5.4. 1. "Initial Capital Contributions" shall have the meaning set forth in Section 3. 1. "Involuntary Withdrawal" means, with respect to any Member, the occurrence of any of the following events: (a) a Bankruptcy Action occurs with respect to such Member; (b) such Member files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Member in any proceeding described in the definition of Bankruptcy Action; (c) any proceeding against such Member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation, continues for one hundred twenty (120) days after the commencement thereof, or the appointment of a trustee, receiver, or liquidator for the Member or all or any substantial part of the Member's properties without the Member's agreement or acquiescence, which appointment is not vacated or stayed for one hundred twenty (120) days or, if the appointment is stayed, for one hundred twenty (120) days after the expiration of the stay during which period the appointment is not vacated; (d) if such Member is a partnership or a limited liability company, the dissolution and commencement of winding up of the partnership or limited liability company; or (e) if such Member is a corporation, the dissolution of the corporation or the revocation of its charter. "Managing Member" shall mean David Lichtenstein or any successor Managing Member appointed pursuant to this Agreement. "Member" means each Person signing this Agreement as a member of the Company and any Person who subsequently is admitted as a member of the Company. "Member Nonrecourse Deduction" means "partner nonrecourse deduction" within the meaning of Regulation Section 1.704-2(i). "Membership Interest" means all of the rights of a Member in the Company, including a Member's: (a) Capital Account; (b) share of the Profits and Losses of, and the right to receive distributions from, the Company; (c) right to inspect the Company's books and records; (d) to the extent provided in this Agreement, the right to participate in the management of and vote on matters coming before the Company; and (e) to the extent provided under this Agreement, the right to act as an agent of the Company. "Mezzanine Lender" means PRC. "Mezzanine Loan" means that certain loan in the amount of $8,600,000 made by Mezzanine Lender to the Company as evidenced by the Mezzanine Note and secured by a certain Pledge and Security Agreement each dated the date hereof. "Mezzanine Note" means that certain Promissory Note dated the date hereof by the Company to Mezzanine Lender in the amount of $8,600,000. "Minimum Gain" means "partnership minimum gain" as determined pursuant to Regulation Section 1.704-2(d). Minimum Gain shall be computed separately for each Member in a manner consistent with the Regulations under Code Section 704(b). "Mortgage Borrower" means the Property Owners. "Mortgage Loan" means that certain loan from Wachovia Bank to Property Owners and Martinsburg Mall LLC in the aggregate maximum principal amount of $105,000,000 made pursuant to that certain Fee and Leasehold Mortgage, Deed of Trust, Deed to Secure Debt, Assignment of Rents, Fixture Filing, and Security Agreement dated September 24, 2004. "Negative Capital Account" means a Capital Account with a balance of less than zero. "Non-Managing Member" shall mean PRC. "Nonrecourse Deductions" shall have the meaning ascribed to such term in Regulations Section 1.704-2(b)(1). "Percentage" means, as to a Member, the percentage set forth after the Member's name on Exhibit A. "Person" means and includes an individual, corporation, limited liability company, partnership, joint venture estate, trust, unincorporated association, or other entity, 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. "Proceeds" means the collective reference to Capital Proceeds and Cash Flow. "Profit" and "Loss" means, for each taxable year of the Company (or other period for which Profit or Loss must be computed), the Company's net taxable income or loss determined in accordance with Code Section 703(a), with the following adjustments: (a) all items of income, gain, loss, deduction, or credit required to be stated separately pursuant to Code Section 703(a)(1) shall be included in computing taxable income or loss; and (b) any income of the Company that is exempt from federal income tax and is not otherwise taken into account in computing Profit or Loss shall be included in computing taxable income or loss; and (c) any expenditures of the Company described in Code Section 705(a)(2)(B) (or treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profit or Loss, shall be subtracted from taxable income or loss; and (d) gain or loss resulting from any taxable disposition of Company property shall be computed by reference to the adjusted book value of the property disposed of, notwithstanding the fact that the adjusted book value differs from the adjusted basis of the property for federal income tax purposes; and (e) in lieu of the depreciation, amortization, or cost recovery deductions allowable in computing taxable income or loss, there shall be taken into account the depreciation computed based upon the adjusted book value of the asset; and (f) to the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is required, pursuant to Regulations Section 1.7041(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's interest in the Company, the amount of such adjustment shall be treated as an item of gain or loss from the disposition of such asset for purposes of computing Profits or Losses; and (g) notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 4.3 hereof shall not be taken into account in computing Profit or Loss. "Properties" means the properties owned by the Property Owners. "Property Owners" means Shenango Valley Mall LLC, West Manchester Mall LLC, Bradley Square Mall LLC and Mount Berry Square Mall LLC "Purchase Agreement" means that certain Purchase and Sale Agreement between PREIT Associates, L.P., as seller, and Lightstone Real Estate Partners LLC, as purchaser. "Regulations" means the income tax regulations, including any temporary regulations and proposed regulations to the extent that their proposed effective date would cause them to be applicable as of the date of any determination, from time to time promulgated under the Code. "Removed Member" means a member who withdraws from the Company as a result of an Involuntary Withdrawal. "Sale" means any sale or final disposition of the Property. "Transfer" means-when used as a noun-any sale, hypothecation, pledge, assignment, attachment, or other transfer-and, when used as a verb-means to sell, hypothecate, pledge, assign, or otherwise transfer, in each case whether accomplished directly or indirectly. "Treasury Regulations" means the regulations issued from time to time by the Internal Revenue Service with respect to the Code. "Unreturned Capital Contribution" means, as to each Member, such Member's Capital Contribution less the aggregate amount previously distributed to such Member under Section 4.1.2(b). "Voluntary Withdrawal" means a Member's disassociation with the Company by means other than a Transfer or an Involuntary Withdrawal. ARTICLE 11 Formation and Name: Office; Purpose; Term 2.1 Organization. The parties hereby organize a limited liability company pursuant to the Act and the provisions of this Agreement and, for that purpose, have caused the Certificate of Formation to be prepared, executed, and filed with the Delaware Secretary of State on September 10, 2004. The Managing Member shall take such further actions as shall be required by the Act or other laws of the jurisdiction in which the Property is located, or as may be desirable thereunder, to form the Company and to qualify the Company to do business in the State of New York. At all times during the term of this Agreement, each Member shall execute, and, on behalf of the Company, the Managing Member shall promptly cause to be filed, such other and further certificates or instruments and amendments thereto as may be necessary or desirable (i) for the perfection and continued maintenance of the Company as a limited liability company under the Act and under the laws of any state in which the Company is then doing business, (ii) to cause such certificates or other documents to reflect accurately the agreement of the Members and the amount (including reductions), if required, of their respective Capital Contributions, and (iii) to permit the Company to own the membership interest in the Property Owner and transact business lawfully. 2.2 Name of the Company. The name of the Company shall be Lightstone Member LLC. The Company may do business under that name and under any other name or names upon which the Members agree. If the Company does business under a name other than that set forth in its Certificate of Formation, then the Managing Member shall file a certificate as required by the Act. 2.3 Purpose. (a) Notwithstanding anything to the contrary in this Agreement or in any other document governing the formation, management or operation of the Company, the Company is organized solely for the following purposes: (i) to own the membership interest in each Property Owner and to act as the sole member of each Property Owner pursuant to the terms of the Limited Liability Company Agreement of each Property Owner dated September 20, 2004, (ii) to enter into the Mezzanine Loan Agreement and all other documents in connection with the Mezzanine Loan (the "Mezzanine Loan Documents") with Mezzanine Lender, and to perform its obligations with respect thereto, and (iii) to engage in any and all business permitted under the Act which are necessary and incidental thereto. The Company has the power and authority to do anything permitted by the Act and other applicable law, subject to the immediately preceding sentence. (b) The Company, by or through the Managing Member on behalf of the Company, may enter into and perform the Mezzanine Loan, the Mezzanine Loan Documents, and all documents, agreements, certificates, or financing statements contemplated thereby or related thereto, all without any further act, vote or approval of any other Person notwithstanding any other provision of this Agreement, the Act or applicable law, rule or regulation. The foregoing authorization shall not be deemed a restriction on the powers of the Company or the Managing Member to enter into other agreements on behalf of the Company. 2.4 Duration. The duration of the Company shall begin upon the filing of the Certificate of Formation with the Delaware Secretary of State and shall continue until its existence is terminated pursuant to Article VII of this Agreement. 2.5 Members. The name, present mailing address, taxpayer identification number, and Percentage of each Member are set forth on Exhibit A. 2.6 Principal Office. The Company shall maintain its principal place of business c/o The Lightstone Group LLC, 326 Third Street, Lakewood, NJ 08701. ARTICLE III Members; Capital; Capital Accounts 3.1 Capital Contributions. The parties hereto agree that the aggregate required initial capital contributions of all Members shall be $3,400,000 ("Initial Capital Contributions"). Set forth on Exhibit A attached hereto is a description of the respective portion of the Initial Capital Contributions deemed made by each Member on the date hereof. 3.2 Additional Capital. The Managing Member shall make any additional capital contributions to the Company from time to time in amounts in excess of the Initial Capital Contributions required to carry out the purpose of the Company as set forth in Section 2.3 hereof (the "Additional Capital Contributions"). 3.3 No Interest on Capital Contributions. No interest shall be paid on the Capital Contributions of Members. 3.4 Form of Return of Capital. If a Member is entitled to receive a return of a Capital Contribution, the Company shall distribute cash to the Member in return of same. 3.5 Capital Accounts. A separate Capital Account shall be maintained for each Member. 3.6 Limited Liability of Members. No Member shall have any personal liability for any obligation of the Company except for any personal liability expressly assumed in writing by the Managing Member in connection with the incurrence of Company indebtedness. ARTICLE IV Distributions and Profit, Loss Allocations 4.1 Distributions Generally. Except as provided in Section 4.4 hereof, distributions of Proceeds shall be distributed to the Members at the reasonable discretion of the Managing Member, subject to the terms and conditions of all indebtedness of the Company; provided that Cash Flow shall be distributed not less than annually and Capital Proceeds shall be distributed not later than forty-five (45) days from the closing of the transaction giving rise to such Capital Proceeds. 4. 1.1 Distributions of Cash Flow. Except as provided in Section 4.4 hereof, distributions of Cash Flow shall be made to the Members as follows: (a) First, to the Managing Member, until the Managing Member has received an aggregate amount under this Section 4.1.1(a) and under Section 4.1.2(a) below equal to an accrued return of eleven percent (11%) per annum on the Managing Member's Unreturned Capital Contribution; (b) Then, to the Members in accordance with their respective Percentages. 4.1.2 Distribution of Capital Proceeds. Except as provided in Section 4.4 hereof, Capital Proceeds shall be distributed to the Members as follows: (a) First, to the Managing Member, until the Managing Member has received an aggregate amount under this Section 4.1.2(a) and under Section 4.1.1(a) above equal to an accrued return of 11 % per annum on the Managing Member's Unreturned Capital Contribution; (b) Then, to the Managing Member, until the Managing member has received an aggregate amount under this Section 4.1.2(b) equal to the Managing Member's Capital Contribution. (c) Then, to the Members in accordance with their respective Percentages. 4.2 Allocation of Profits and Losses. (a) Allocations. The items of income, expense, gain and loss of the Company comprising Profits and Losses for a taxable year shall be allocated among the persons who were Members during such taxable year in a manner that will reduce, proportionately, the differences between their respective Partially Adjusted Capital Accounts and Target Capital Accounts for such taxable year. No portion of the Losses for any taxable year shall be allocated to a Member whose Target Capital Account is greater than or equal to its Partially Adjusted Capital Account for such taxable year. No portion of the Profits for any taxable year shall be allocated to any Member whose Partially Adjusted Capital Account is greater than or equal to its Target Capital Account for such taxable year. For this purpose "Partially Adjusted Capital Account " means, with respect to any Member for any taxable year, the Capital Account of such Member at the beginning of such taxable year, adjusted for all contributions and distributions during such year and all special allocations pursuant to Section 4.3 respect to such taxable year, but before giving effect to any allocations of Profits or Losses for such taxable year pursuant to this Section 4.2. For this purpose "Target Capital Account" means the amount (which may be either a positive or a deficit balance) equal to: (i) the amount of the hypothetical distribution (if any) that such Member would receive if, on the last day of the taxable year, (x) all Company assets, including cash, were sold for cash equal to their respective Adjusted Book Values, taking into account any adjustments thereto for such taxable year, (y) all Company liabilities were satisfied in cash according to their terms (limited, with respect to each nonrecourse liability, to the respective Adjusted Book Values of the assets securing such liability), and (z) the net proceeds thereof (after satisfaction of such liabilities) were distributed in full pursuant to Section 4.1.2, over (ii) the sum of (x) the amount, if any, without duplication, that such Member would be obligated to contribute to the capital of the Company pursuant to any provision of this Agreement, (y) such Member's share of Company Minimum Gain determined pursuant to Regulations Section 1.704-2(g), and (z) such Member's share of Member Nonrecourse Debt Minimum Gain determined pursuant to Regulations Section 1.704-2(j)(5), all computed immediately prior to the hypothetical sale described in Section 4.2(a)(i) hereof. (b) Determination of Items Comprising Allocations. (i) In the event that the Company has Profits for a taxable year, (A) for any Member whose Capital Account balance needs to be reduced pursuant to Section 4.2 hereof, the allocation required by Section 4.2 shall be comprised of a proportionate share (based upon the relative amounts their Capital Accounts need to be reduced) of each of the Company's items of expense or loss entering into the computation of Profits for such taxable year to the extent necessary to eliminate to the maximum extent possible for the taxable year in question, the differential between their respective Partially Adjusted Capital Accounts and Target Capital Accounts; and (B) the allocation pursuant to Section 4.2 hereof in respect of each Member (other than a Member referred to in Section 4.2(b)(i)(A) hereof) shall be comprised of a proportionate share (based upon the relative amounts their Capital Accounts need to be adjusted) of each Company item of income, gain, expense and loss entering into the computation of Profits for such taxable year (other than the portion of each Company item of expense and loss, if any, that is allocated pursuant to Section 4.2(b)(i)(A) hereof). (ii) In the event the Company has Losses for a taxable year, (A) for any Member whose Capital Account balance needs to be increased pursuant to Section 4.2 hereof, the allocation required by Section 4.2 shall be comprised of a proportionate share (based upon the relative amounts their Capital Accounts need to be increased) of each of the Company's items of income and gain entering into the computation of Losses for such taxable year to the extent necessary to eliminate to the maximum extent possible for the taxable year in question, the differential between their respective Partially Adjusted Capital Accounts and Target Capital Accounts; and (B) the allocation pursuant to Section 4.2 hereof in respect of each Member (other than a Member referred to in Section 4.2(b)(ii)(A) hereof) shall be comprised of a proportionate share (based upon the relative amounts their Capital Accounts need to be adjusted) of each Company item of income, gain, expense and loss entering into the computation of Losses for such taxable year (other than the portion of each Company item of income and gain, if any, that is allocated pursuant to Section 4.2(b)(ii)(A) hereof). (iii) To the maximum extent possible in each taxable year, the items of taxable income and gain that are required to be specially allocated among any Members who need to be allocated items of Profit under Section 4.2(b) shall be allocated among them in the same proportion as the total of all Profit items that need to be allocated among them under Section 4.2(b). Correspondingly, to the maximum extent possible in each taxable year, the items of tax-deductible items of expense and loss that are required to be specially allocated among all Members who need to be allocated items of Loss under Section 4.2(b) shall be allocated among them in the same proportion as the total of all Loss items that need to be allocated among them under Section 4.2(b). The purpose of this subsection is to assure that such taxable and tax-deductible items are fairly allocated among the Members each taxable year. 4.3 Special Allocations. 4.3.1 Regulatory Allocations. Notwithstanding Section 4.2, allocations of net income, net gain and net loss shall be made consistent with the qualified income offset and Minimum Gain chargeback provisions of the Regulations promulgated under Section 704(b) of the Code. Member Nonrecourse Deductions of the Company for any fiscal year shall be specially allocated to the Member who bears the economic risk of loss for the liability in question. The foregoing provision relating to Member Nonrecourse Deductions is intended to satisfy the requirements of Regulation Section 1.704-2(i)(1) and shall be interpreted in accordance therewith. Nonrecourse Deductions of the Company for any fiscal year shall be specially allocated to the Members in the same proportion as their respective Percentages. 4.3.2 Residual Allocations; Code Section 704(c) Allocations. All items of income, gain, loss, deduction, and any other allocations not otherwise provided for shall be allocated among the Members for federal, state and local income tax purposes consistent with the manner that the corresponding constituent items of Profits and Losses shall be allocated among the Members pursuant to this Agreement, except as may otherwise be provided herein or by the Code. To the extent the Regulations promulgated pursuant to Subchapter K of Code (including under Sections 704(b) and (c) of the Code) require allocations for tax purposes that differ from the foregoing allocations, the Managing Member shall determine the manner in which such tax allocations shall be made so as to comply more fully with such Regulations. Allocations required under Section 704(c) (relating to items of income, gain, loss and deduction with respect to contributed property), or under Section 704(c) principles applicable under Regulations Sections 1.704-1(b)(2)(iv) (relating to Company property that has been revalued for Capital Account purposes) are solely for purposes for federal, state and local taxes, and shall not be taken into account in computing any Member's Capital Account or share of Profit or Loss or other items or distributions under any provisions of this Agreement. 4.3.3 Gross Income Allocation. In the event any Member has an Adjusted Capital Account Deficit at the end of any fiscal year of the Company, such Member shall be specially allocated items of Company income and gain in the amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 4.3.3 shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit in excess of such amount after all other allocations provided for in Section 4.2 and this Section 4.3 have been tentatively made as if the provision for the qualified income offset in Section 4.3.1 and this Section 4.3.3 were not in the Agreement. 4.3.4 Loss Limitation. No Member shall be allocated Losses or deductions if the allocation would cause the Member to have an Adjusted Capital Account Deficit or would increase the Member's Adjusted Capital Account Deficit. Any allocation of Loss or deduction that cannot be made to a Member by reason of this Section 4.3.5 shall be made to such Members that have positive Capital Account balances in accordance with their relative balances subject to the limitation set forth in the preceding sentence. If any Members are allocated an amount of Loss or deduction by reason of the previous sentence, subsequent items of income or gain in of an equal amount shall be allocated to such Members as soon as possible to reverse such prior allocation of Loss. 4.4 Liquidation and Dissolution. 4.4.1 If the Company is liquidated, in the year of such liquidation the assets of the Company shall be distributed to the Members in accordance with the positive balances in their respective Capital Accounts, after taking into account all adjustments to Capital Accounts for the Company taxable year during which the liquidation occurs. 4.4.2 No Member shall be obligated to restore a Negative Capital Account. 4.5 General. 4.5.1 Except as otherwise provided in this Agreement, the timing and amount of all distributions shall be determined by the Managing Member. 4.5.2 All distributions shall be made to the Persons shown on the records of the Company to be Members as of the day on which such distribution is made. Notwithstanding the foregoing, unless the Company's taxable year is separated into segments, if there is a Transfer or an Involuntary Withdrawal during the taxable year, the Profit and Loss for such taxable year shall be allocated between the original Member and the successor generally on the basis of the number of days each was a Member during the taxable year; provided, however, the Company's taxable year shall be segregated into two or more segments in order to account for Profit, Loss or proceeds attributable to any Sales on other extraordinary, non-recurring items of the Company. 4.5.3 The Members are hereby authorized, upon the advice of the Company's tax counsel, to amend this Article IV to the extent required to comply with the Code and the Regulations promulgated under Code Sections 514(c)(9)(E) and 704(b); provided, however, that no amendment shall either (i) materially affect distributions to a Member without such Member's Approval or (ii) cause this Agreement to not comply with Code Section 514(c)(9)(E) and the Regulations promulgated thereunder. 4.6 Clawback. Notwithstanding the other provisions of this Article IV, (a) if, as a result of a mistake, any Member has received more money under Section 4.1 than the amount to which it was entitled, the recipient shall return the excess amounts distributed to it within 5 business days after written notice from the Managing Member (or any Non-Managing Member if the Managing Member fails to do so) requesting such return and (b) if for any reason after Managing Member has received money under Section 4.1.1(b) it is determined that any Non-Managing Member has not received any amount to which it is entitled under a higher distribution priority in Section 4. 1.1 (a) (whether on account of a subsequent contribution of Capital by any Non-Managing Member, the making of a Contribution Loan or otherwise), then until such Non-Managing Member receives such amount there shall be distributed to such Non-Managing Member all sums otherwise distributable to Managing Member under Section 4.1, but such sums shall in no event exceed the sums previously distributed to Managing Member pursuant to Section 4. 1. 1 (b) and Managing Member agrees (A) to relinquish and waive any right it may have under Section 4.1.1(b) to receive such sums and (B) that the distribution of such sums to such Non-Managing Member shall, for purposes of determining whether Managing Member has received the sums it is entitled to receive under Section 4. 1. 1 (b), be deemed to have satisfied such entitlement. If necessary, the Managing Member shall have the authority to treat such payments to any Non-Managing Member as guaranteed payments and to specially allocate the deduction to Managing Member to reduce any excess Capital Account of Managing Member if permitted under Code Section 514(c)(9)(E) and the Regulations thereunder. ARTICLE V Management: Rights, Powers, and Duties 5.1 Management. Except as otherwise expressly provided herein, the management and control of the Company shall be vested in the Managing Member. Except as otherwise expressly provided herein, the Managing Member shall have sole and exclusive continuing authority to manage the Company, and shall have all of the rights, powers and authority conferred upon a manager or a managing member under the Act to carry out any and all objects of the Company and to perform all acts and enter into and perform all contracts and undertakings which, in its sole discretion, it deems necessary, advisable or incidental thereto. No Member shall have authority to bind the Company through its action or inaction in connection with any matter except for the Managing Member. Notwithstanding the foregoing, Managing Member shall cause the Company, as the sole member of the Property Owners, to cause each of the Property Owners to distribute all Cash Flow of the Property Owners to the Company no less frequently than annually, subject to any restrictions or limitations imposed on the Property Owners pursuant to the terms of the Mortgage Loan. (a) All Member Approval. Notwithstanding any other provisions of this Agreement, including Section 5.1, the Company and/or the Managing Member may not, without the reasonable approval of PRC, sell any of the Properties or refinance the Mortgage Loan. 5.1.1 Affiliate Contracts Approval. The Property Owners, the Company and/or the Managing Member may not, without the Approval of PRC, enter into any agreements relating to the Property with any Affiliate of any Member (an "Affiliate Contract"). 5.2 Personal Service. No Member shall be required to perform services for the Company solely by virtue of being a Member. 5.3 Duties of Parties. 5.3.1 The Members shall devote such time to the business and affairs of the Company as is necessary to carry out the Members' duties set forth in this Agreement. 5.3.2 Nothing in this Agreement shall be deemed to restrict in any way the rights of any Member, or of any Affiliate of any Member, to conduct any other business or activity whatsoever, and no Member shall be accountable to the Company or to any other Member with respect to that business or activity even if the business or activity competes with the Company's business. The organization of the Company shall be without prejudice to the Members' respective rights (or the rights of their respective Affiliates) to maintain, expand, or diversify such other interests and activities and to receive and enjoy profits or compensation therefrom. Each Member waives any rights the Member might otherwise have to share or participate in such other interests or activities of any other Member or the Member's Affiliates. 5.3.3 Managing Member shall cause the Company as the sole member of the Property Owners, to use its best efforts to operate the Properties so that, the rental income derived from each lease with respect to the Properties will qualify as "rents from real property" as that term is defined in the Internal Revenue Code Section 856(d)(1). 5.4 Liability and Indemnification. 5.4.1 Except as specifically set forth elsewhere in this Agreement to the contrary, or as otherwise required by law, no Member nor any of its officers, directors, advisors or agents (each of whom is an "Indemnitee") shall be liable, responsible or accountable in damages or otherwise to any of the other Members or the Company for any act performed by Indemnitee within the scope of the authority conferred upon him or it by this Agreement, or for any failure or refusal by Indemnitee to perform any act, unless such act or failure or refusal to act constitutes willful misconduct, gross negligence, or breach of fiduciary duty in the performance of Indenmitee's obligations to the Company or the Members. The doing of any act or the failure to do any act by any Indemnitee, the effect of which may cause or result in loss or damage to the Company or the other Members, shall not subject Indemnitee to any liability under this Agreement if done or omitted pursuant to a favorable opinion of law issued by counsel of recognized standing engaged by the Company and experienced in the matters at issue. 5.4.2 To the fall extent permitted by the Act, the Company shall indemnify, defend and hold harmless each Indemnitee from and against any direct claim, action, suit or proceeding brought or threatened against such Indemnitee, and from and against any direct loss or damage incurred by such Indemnitee ("Damages") by reason of any act performed, or failure or refusal to act, by him or it for and on behalf of the Company within the scope of his or its authority under this Agreement, provided that such Indemnitee acted, or failed or refused to act, in good faith and reasonably believed that such act or inaction was in the best interests of the Company, and, in the case of a criminal proceeding, provided that such Indemnitee had no reasonable cause to believe its conduct was unlawful, and provided further that in each case the act or failure or refusal to act did not constitute willful misconduct, gross negligence, or breach of fiduciary duty. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, conclusively establish that the Person did not act in good faith and in a manner which he or it reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or its conduct was unlawful. Expenses (including reasonable out-of-pocket attorneys' fees and direct expenses) incurred by an Indemnitee in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking (Approved by the Members) by or on behalf of such Indemnitee to repay such amount if it shall ultimately be determined that it is not entitled to be indemnified by the Company as authorized in this section. Notwithstanding anything to the contrary in this Section 5.4.2, at any time prior to the indefeasible repayment in full of the Mezzanine Loan, the Company's indemnification obligation under this Section 5.4 shall (a) be fully subordinated to the Loan and (b) not constitute a claim against the Company or its assets until such time as the Loan has been indefeasibly paid in accordance with its terms and otherwise has been fully discharged, unless otherwise agreed to by Lender in writing. 5.5 Fees and Expenses. Neither the Members nor any of their Affiliates or the respective principals or employees of either of them shall be entitled to any reimbursement for any costs and expenses or paid any salary or other compensation incurred in furtherance of the business of the Company, except as expressly approved by all Members; provided, however, that the Managing Member shall be reimbursed for reasonable out-of-pocket costs and expenses incurred by it in the performance of its duties as Managing Member hereunder. Notwithstanding anything to the contrary provided herein, in any Affiliate Contract or in any other agreement, in no event shall the Company reimburse the Members for any overhead costs. ARTICLE VI Transfer of Interests, Withdrawal of Members 6.1 Transfers. --------- (a) Except as set forth in Section 6.1(b) below, no Member and no direct or indirect owner of such Member, may directly or indirectly, voluntarily Transfer all, or any portion of, or any interest or rights in, the Membership Interest owned by such Member without the Approval of the other Members, which Approval may be withheld in such Member's sole and absolute discretion. Each Member hereby acknowledges the reasonableness of this prohibition in view of the purposes of the Company and the relationship of the Members. The voluntary Transfer, directly or indirectly, of any Membership Interests or interest in a Member in violation of the prohibition contained in this Section 6.1 shall be deemed invalid, null and void, and of no force or effect. Any Person to whom Membership Interests or interests in a Member are attempted to be transferred in violation of this Section 6.1 shall not be entitled to vote on matters coming before the Members, participate in the management of the Company, act as an agent of the Company, receive distributions from the Company, or have any other rights in or with respect to the Membership Interests. (b) Notwithstanding anything contained herein, each Member may Transfer its Membership Interest and/or any and all of its rights under this Agreement to an Affiliate; provided, however, that David Lichtenstein shall at all times retain control of the Managing Member. (c) If the transferring Member is a corporation whose shares are not traded on a recognized stock exchange, the provisions of this Section 6.1 shall apply to (x) a Transfer (by one or more Transfers) of a majority of the stock of such Member, or (y) the creation of new stock (by one or more transactions) resulting in the vesting of a majority of the stock of such Member in a party or parties who are nonstockholders as of the date immediately prior to such transaction, as if such Transfer or vesting of a majority of the stock of such Member were a Transfer of such Member's Membership Interest in violation of the provisions of this Section 6.1. (d) If the transferring Member is a partnership or a limited liability company, the provisions of this Section 6.1 shall apply to a Transfer (by one or more direct or indirect Transfers) of a majority interest in the partnership or limited liability company, as if such Transfer were a Transfer of such Member's Membership Interest in violation of the provisions of this Section 6.1. (e) If the proposed transferor (whether a Member or a constituent member, partner or shareholder of a Member) is a natural Person, Transfers shall be permitted (i) to a trust for the benefit of any immediate family member (father, mother, sister, brother, son, daughter, spouse, niece, nephew, grandson and/or granddaughter) with respect to the proposed Transfer, but only if the proposed transferor retains management authority and control of the interest so transferred or (ii) by succession or testamentary disposition upon death to any such immediate family members. 6.2 Voluntary Withdrawal. No Member shall have the right or power to Voluntarily Withdraw from the Company, except as otherwise provided by this Agreement. Any withdrawal in violation of this Agreement shall entitle the Company to damages for breach, which may be offset against the amounts otherwise distributable to such Member. 6.3 Involuntary Withdrawal. Immediately upon the occurrence of an Involuntary Withdrawal, the successor of the Removed Member shall not become a Member, but such successor shall be entitled to the Removed Member's share of the Profits and Losses of, and the right to receive distributions from, the Company ("Economic Interest"). If the Company is continued as provided in Section 7. 1 (c), the successor of the Removed Member shall have all the rights of a holder of an Economic Interest, including the right to receive the fair market value of the Removed Member's Economic Interest upon the liquidation of the Company (and as of such date and no other date), in accordance with the provisions of Article VII of this Agreement. 6.4 New Members. Additional members who are not a party to this Agreement shall not be admitted to the Company except as provided in this Article VI. ARTICLE VII Dissolution, Liquidation, and Termination of the Company 7.1 Events of Dissolution. The Company shall be dissolved upon the happening of any of the following events: (a) upon the Sale of the Property and the distribution of all Proceeds from such Sale, unless the Company provides purchase money financing in connection with such Sale or obligates itself to retain certain contingent liabilities and proceeds, in which case the Company shall be dissolved upon the repayment in full of such financing or the expiration of such contingent liability period; (b) upon the written agreement of all of the Members; (c) upon the occurrence of an Involuntary Withdrawal, unless the remaining Members, within ninety (90) days after the occurrence of the Involuntary Withdrawal, elect to continue the business of the Company pursuant to the terms of this Agreement; or (d) as may otherwise be required under the Act. 7.2 Procedure for Winding Up and Distribution. If the Company is dissolved, the remaining Members shall wind up its affairs. On winding up of the Company, the assets of the Company shall be distributed, first, to creditors of the Company, including holders of Economic Interests who are creditors, in satisfaction of the liabilities of the Company, and then to the Members and holders of Economic Interests in accordance with Section 4.4 of this Agreement. 7.3 Filing of Articles of Dissolution. If the Company is dissolved, the Members shall promptly file Articles of Dissolution with the Delaware Secretary of State. If there are no remaining Members, the Articles shall be filed by the last Person to be a Member; if there are no remaining Members, or a Person who last was a Member, the Articles shall be filed by the legal or personal representatives of the Person who last was a Member. ARTICLE VIII Books, Records, Accounting, and Tax Elections 8.1 Bank Accounts. The Managing Member shall cause all funds of the Company to be deposited in a bank account or accounts opened in the Company's name. The Managing Member shall determine the institution or institutions at which the accounts will be opened and maintained, the types of accounts, and the Persons who will have authority with respect to the accounts and the funds therein. 8.2 Books and Records. The Managing Member shall keep or cause to be kept complete and accurate books and records of the Company as required under the Act as well as supporting documentation of transactions with respect to the conduct of the Company's business. The books and records shall be maintained in accordance with GAAP accounting practices and shall be available at the Company's principal office for examination by any Member or the Member's duly authorized representative at any and all reasonable times during normal business hours. 8.3 Annual Accounting Period; Accounting Methods; Tax Elections. The annual accounting period of the Company shall be its taxable year. The Company's taxable year shall be selected by the Managing Member, subject to the requirements and limitations of the Code. The Company shall use such accounting methods as the Managing Member elects in its sole discretion, subject to the requirements and limitations of the Code. The Managing Member shall cause the Company's accountants to prepare and file the Company's tax returns and, together with such accountants, will determine the positions of the Company on such tax returns subject to the requirements and limitations of the Code. The Managing Member, on behalf of the Company, shall, from time to time, make all elections for federal income tax purposes, including, without limitation, elections under Code Sections 704(c) and 754, with the reasonable Approval of the Members holding at least 51 % of the Percentages. 8.4 Reports. (a) Within ninety (90) days after the end of each taxable year of the Company, the Managing Member shall cause to be sent to each Person who was a Member at any time during the taxable year then ended a complete accounting of the affairs of the Company for the taxable year then ended. In addition, within ninety (90) days after the end of each taxable year of the Company, the Managing Member shall cause to be sent to each Person who was a holder of an Economic Interest at any time during the taxable year then ended, that tax information concerning the Company which is necessary for preparing the income tax returns of the holder of the Economic Interest for that year. Any Member shall have the right to cause an audit of the Company's books and records to be prepared by independent accountants for any period deemed necessary or advisable by such Member, the cost of which shall be borne by the party requesting the audit. (b) Within ninety (90) days after the end of each taxable year of the Company, the Managing Member will obtain from the Property Owners and deliver to the Members a statement itemizing the sources and types of gross revenue for the preceding fiscal year paid by tenants at the Properties and any other miscellaneous income from the Properties. (c) Managing Member will obtain and deliver to the Members within thirty (30) days after the end of each calendar quarter a statement reflecting any leasable space at the Properties that is vacant at the end of the calendar quarter and all leases and/or renewals entered into by the Property Owners during such calendar quarter. (d) Within ninety (90) days after the end of each taxable year of the Company, the Managing Member shall prepare and deliver to the Members a certificate stating that, except as set forth in the certificate, to the best knowledge of the Managing Member, the Properties have been operated during the immediately preceding fiscal year in conformity with the provisions of Section 5.3.3. 8.5 Tax Matters Member. The Members designate the Managing Member to be the "tax matters partner" ("Tax Matters Member") of the Company within the meaning of Code Section 6231. The Tax Matters Member shall have all powers and responsibilities granted to a "tax matters partner" (within the meaning of Code Section 6231) under the Code and Regulations. The Tax Matters Member shall keep all Members informed of all notices from government taxing authorities that may come to the attention of the Tax Matters Member. The Company shall pay and be responsible for all reasonable third-party costs and expenses incurred by the Tax Matters Member in performing those duties. Nothing in this Article VIII shall limit the ability of any Member to take any action in its individual capacity relating to administrative proceedings of Company matters that is left to the determination of any individual Member under the Code or under any similar provision of state or local law. A Member shall be responsible for any costs incurred by the Member with respect to any tax audit or tax-related administrative or judicial proceeding against any Member, even though it relates to the Company. The Tax Matters Member shall not compromise any dispute with the Internal Revenue Service or agree to extend the statute of limitations with respect to tax liens of the Company without the Approval of all of the Members. ARTICLE IX General Provisions 9.1 Assurances. Each Member shall execute all certificates and other documents and shall do all such filing, recording, publishing, and other acts as the Managing Member deems appropriate pursuant to Section 2.1 or otherwise to comply with the requirements of law for the formation and operation of the Company and to comply with any laws, rules, and regulations relating to the acquisition, operation, or holding of the property of the Company. 9.2 Notifications. Any notice, demand, consent, election, offer, approval, request, or other communication (collectively a "notice") required or permitted under this Agreement must be in writing and either delivered personally, by overnight mail using a nationally recognized overnight courier or sent by certified or registered mail, postage prepaid, return receipt requested or by facsimile transmission, provided that the sender of such transmission can produce evidence of electronic confirmation that such notice was received by the Member or Member's Agent to whom it was transmitted. A notice must be addressed to a Member at the Member's last known address on the records of the Company. A notice to the Company must be addressed to the Company's principal office. A notice delivered personally or by overnight mail using a nationally recognized overnight courier will be deemed given only when acknowledged in writing or rejected by the person to whom it is delivered. A notice that is sent by mail will be deemed given three (3) business days after it is mailed. Any party may designate, by notice to all of the others, substitute addresses or addressees for notices; and, thereafter, notices are to be directed to those substitute addresses or addressees. A notice sent by facsimile is deemed given when receipt is confirmed. 9.3 Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, any party who may be injured (in addition to any other remedies which may be available to that party) shall be entitled to seek one or more preliminary or permanent orders (i) restraining and enjoining any act which would constitute a breach or (ii) compelling the performance of any obligation which, if not performed, would constitute a breach. 9.4 Complete Agreement. This Agreement constitutes the complete and exclusive statement of the agreement among the Members with respect to the subject matter thereof. It supersedes all prior written and oral statements, including any prior representation, statement, condition, or warranty. 9.5 Applicable Law. All questions concerning the construction, validity, and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the internal law, not the law of conflicts, of the State of Delaware. 9.6 Article and Section Titles. The headings herein are inserted as a matter of convenience only and do not define, limit, or describe the scope of this Agreement or the intent of the provisions hereof. 9.7 Binding Provisions. This Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors, and permitted assigns. 9.8 Exclusive Jurisdiction and Venue. Any suit involving any dispute or matter arising under this Agreement may only be brought in the United States District Court for the Southern District of New York or any New York State Court located in New York County having jurisdiction over the subject matter of the dispute or matter. All Members hereby consent to the exercise of personal jurisdiction by any such court with respect to any such proceeding. 9.9 Terms. Common nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter, singular, and plural, as the identity of the Person may in the context require. 9.10 Separability of Provisions. Each provision of this Agreement shall be considered separable; and if, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement that are valid. 9.11 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which, when taken together, constitute one and the same document. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 9.12 Amendments. Any amendment to this Agreement shall be effective only if such amendment is evidenced by a written instrument duly executed and delivered by each Member. ARTICLE X Representations and Warranties 10.1 Each Member represents, warrants and covenants to each other Member and to the Company that: (a) such Member, if not a natural person, is duly formed and validly existing under the laws of the jurisdiction of its organization with full power and authority to conduct its business to the extent contemplated in this Agreement; (b) this Agreement has been duly authorized, executed and delivered by such Member and constitutes the valid and legally binding agreement of such Member enforceable in accordance with its terms against such Member except as enforceability hereof may be limited by bankruptcy, insolvency, moratorium and other similar laws relating to creditors' rights generally and by general equitable principles; (c) the execution and delivery of this Agreement by such Member and the performance of its duties and obligations hereunder do not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, credit agreement, note or other evidence of indebtedness, or any lease or other agreement, or any license, permit, franchise or certificate, to which such Member is a party or by which it is bound or to which its properties are subject, or require any authorization or approval under or pursuant to any of the foregoing, or violate any statute, regulation, law, order, writ, injunction, judgment or decree to which such Member is subject; (d) such Member is not in default (nor has any event occurred which with notice, lapse of time, or both, would constitute a default) in the performance of any obligation, agreement or condition contained in any indenture, mortgage, deed of trust, credit agreement, note or other evidence of indebtedness or any lease or other agreement, or any license, permit, franchise or certificate, to which it is a party or by which it is bound or to which the properties of it are subject, nor is it in violation of any statute, regulation, law, order, writ, injunction, judgment or decree to which it is subject, which default or violation would materially adversely affect such Member's ability to carry out its obligations under this Agreement; (e) there is no litigation, investigation or other proceeding pending or, to the knowledge of such Member, threatened against such Member or any of its Affiliates which, if adversely determined, would materially adversely affect such Member's ability to carry out its obligations under this Agreement; (f) no consent, approval or authorization of, or filing, registration or qualification with, any court or governmental authority on the part of such Member is required for the execution and delivery of this Agreement by such Member and the performance of its obligations and duties hereunder. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed, or caused this Agreement to be executed, under seal, as of the date set forth hereinabove. MEMBERS: /s/ David Lichtenstein ---------------------------- David Lichtenstein PRESIDENTIAL REALTY CORPORATION By: /s/ Jeffrey F. Joseph -------------------------- Name: Jeffrey F. Joseph Title: President LIGHTSTONE MEMBER LLC Operating Agreement Exhibit A List of Members, Capital, and Membership Interests Name Initial Cash Contribution Percentages David Lichtenstein $3,400,000.00 71% Presidential Realty Corporation $0.00 29% EX-10 9 exhibit10-18.txt Exhibit 10.18 LOAN AGREEMENT Between PRESIDENTIAL REALTY CORPORATION, Lender and LIGHTSTONE MEMBER LLC, Borrower West Manchester Mall York, Pennsylvania Mount Berry Square Mall Rome, Georgia Bradley Square Mall Cleveland, Tennessee Shenango Valley Mall Hermitage, Pennsylvania Dated as of September 27, 2004 TABLE OF CONTENT ARTICLE ONE - ----------- DEFINITIONS - ----------- 1.1 Definitions --- ----------- 1.2 Accounting Terms and Determinations --- ----------------------------------- ARTICLE TWO - ----------- THE LOAN - -------- 2.1 The Loan --- -------- 2.2 Conditions to Advances of the Loan --- ----------------------------------- ARTICLE THREE - ------------- INTEREST - -------- 3.1 Calculation --- ----------- 3.2 Payments --- -------- ARTICLE FOUR - ------------ TERM; PAYMENT; PREPAYMENT; - -------------------------- EXIT FEE; PROPERTY SALES - ------------------------ 4.1 Term --- ---- 4.2 Repayment at End of Term --- ------------------------ 4.3 Prepayment --- ---------- 4.4 Acceleration Upon Invalidity of Interest --- ---------------------------------------- ARTICLE FIVE - ------------ SECURITY - -------- 5.1 Loan Documents --- -------------- ARTICLE SIX - ----------- REPRESENTATIONS AND WARRANTIES OF BORROWER - ------------------------------------------ ARTICLE SEVEN - ------------- ADDITIONAL COVENANTS; COVENANT BY LENDER - ---------------------------------------- 7.1 Additional Covenants by Borrower --- -------------------------------- 7.2 Covenant by Lender --- ------------------ 7.3 Certain Sources and Uses of Funds --- --------------------------------- ARTICLE EIGHT - ------------- EXPENSES - -------- 8.1 Closing Costs --- ------------- ARTICLE EIGHT-A - --------------- BROKERAGE - --------- 8-A.1 Mutual Representations ----- ---------------------- 8-A.2 Indemnities ----- ----------- ARTICLE NINE - ------------ SURVIVAL OF REPRESENTATIONS AND - ------------------------------- WARRANTIES; BINDING EFFECT; INDEMNITY - ------------------------------------- 9.1 Survival of Representations and Warranties; Binding Effect; Indemnity --- --------------------------------------------------------------------- ARTICLE TEN - ----------- DEFAULTS - -------- 10.1 Event of Default ---- ---------------- 10.2 Costs; Right to Cure ----- -------------------- 10.3 Cross-Default ---- ------------- ARTICLE ELEVEN - -------------- BOOKS; RECORDS; STATEMENTS AND AUDITS - ------------------------------------- 11.1 Books and Records ----- ----------------- 11.2 Statements ---- ---------- 11.3 Lender's Right to Audit ----- ----------------------- ARTICLE TWELVE - -------------- MANAGEMENT OF THE PROPERTIES - ---------------------------- 12.1 Management ----- ---------- 12.2 Service Agreements ---- ------------------ 12.3 Occupancy Leases ---- ---------------- ARTICLE THIRTEEN - ---------------- TRANSFER OF INTERESTS; NO FURTHER FINANCING - ------------------------------------------- 13.1 Transfers ----- --------- 13.2 No Financing ----- ------------ ARTICLE FOURTEEN - ---------------- MISCELLANEOUS - ------------- 14.1 Notices ----- ------- 14.2 Entire Agreement; No Oral Changes ----- --------------------------------- 14.3 Captions ----- -------- 14.4 Governing Law ----- ------------- 14.5 Further Assurances ----- ------------------ 14.6 Interest Limitation ----- ------------------- 14.7 Estoppel Certificates ----- --------------------- 14.8 Interpretation ----- -------------- 14.9 Non-Recourse ----- ------------ 14.10 Counterparts ----- ------------ 14.11 No Partnership ----- -------------- 14.12 Resolution of Drafting Ambiguities ----- ---------------------------------- 14.13 No Waiver; Cumulative Remedies and Rights ----- ----------------------------------------- 14.14 Certain Consents ----- ---------------- 14.15 Payment Days ----- ------------ 14.16 Severability ----- ------------ 14.17 Consent to Jurisdiction ----- ----------------------- 14.18 Waiver of Jury Trial ----- -------------------- Exhibit A-1: Lightstone Properties Exhibit A-2: Martinsburg Property Exhibit B: Lightstone Property Owners Exhibit C: Allocation of the Loan to the Lightstone Properties LOAN AGREEMENT THIS LOAN AGREEMENT (this "Loan Agreement" or "Agreement") dated as of the 27 day of September, 2004, by and between PRESIDENTIAL REALTY CORPORATION, a Delaware corporation having an address at 180 South Broadway, White Plains, New York 10605 ("Lender"), and LIGHTSTONE MEMBER LLC, a Delaware limited liability company, having an address at 326 Third Street, Lakewood, New Jersey 08701 ("Borrower's Address") ("Borrower"); W I T N E S S E T H: WHEREAS Lightstone Real Estate Partners, LLC (hereinafter referred to as "Contract Vendee"), an Affiliate (capitalized terms not defined in these recitals are defined in Article 1) of David Lichtenstein has entered into a contract dated May 14, 2004, as amended, with PREIT Associates, L.P. ("PREIT") for the purchase of the four properties described in Exhibit A-1 annexed hereto (the "Lightstone Properties") and the property described in Exhibit A-2 annexed hereto (the "Martinsburg Property"); and WHEREAS the parties contemplate that Contract Vendee shall assign and delegate to Martinsburg Mall LLC, a Delaware limited liability company and an Affiliate of Lender, the right and obligation to purchase the Martinsburg Property; and WHEREAS as part of the series of transactions of which this Agreement is a part, Wachovia Bank, National Association ("Wachovia") is lending One Hundred Five Million Dollars ($105,000,000) to the four Delaware limited liability companies (the "Lightstone Property Owners") listed at Nos. 1 through 4 on Exhibit B annexed hereto and to Martinsburg Mall LLC, a Delaware limited liability company, secured by a first mortgage lien upon the Lightstone Properties and the Martinsburg Property; and WHEREAS the parties contemplate that each of the Lightstone Property Owners shall take title to the Lightstone Property referred to after its name in Exhibit B and that Martinsburg Mall LLC shall take title to the Martinsburg Property; and WHEREAS David Lichtenstein ("Lichtenstein") having an address at Borrower's Address, is the managing member of Borrower, and Borrower is the sole member of the Lightstone Property Owners; and WHEREAS Borrower has applied to Lender for a loan in the amount of Eight Million Six Hundred Thousand Dollars ($8,600,000) to be used, along with other funds, to purchase the Lightstone Properties; and WHEREAS Lender is willing to lend Borrower up to Eight Million Six Hundred Thousand Dollars ($8,600,000) to be used, along with other funds, to purchase the Lightstone Properties, but only upon the terms and conditions set forth in this Loan Agreement and in the other Loan Documents; NOW, THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid, the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are mutually acknowledged, and intending to be legally bound hereby, Lender and Borrower hereby agree as follows: ARTICLE ONE DEFINITIONS 1.1 Definitions. The following terms, as used in this Loan ----------- Agreement, have the following meanings: Affiliate: Any Person that controls, is controlled by, or is under common control with any other Person is an Affiliate of such Person; any Person that is a shareholder of, partner in, member of, or other beneficial owner (directly or indirectly) of an interest in any other Person is an Affiliate of such Person; any direct or collateral relative by blood or marriage of any Person is an Affiliate of such Person; any Person who is a direct or collateral relative by blood or marriage of any Person who is a shareholder of or partner in, member of, or other beneficial owner (directly or indirectly) of an interest in any entity that controls, is controlled by, or is under common control with any other entity is an Affiliate of all such Persons. For purposes of this definition "control" of an entity shall mean an ownership interest of fifty percent (50%) or more, or the right or power, by contract or otherwise, directly or indirectly, to make, or cause to be made, the decisions of such entity. Auditor: As defined in Section 11.3 hereof. Bankruptcy Event: With respect to any Person, a court having jurisdiction shall have entered a decree or order for relief in respect of such Person in an involuntary case or cases under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have appointed one or more receivers, liquidators, assignees, custodians, trustees, sequestrators or other similar officials (hereinafter collectively referred to as "receiver or trustee") of such Person, or for any substantial part of such Person's property, or shall have ordered the winding up or liquidation of such Person's affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or such Person shall have commenced a voluntary case or cases under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in any involuntary case or cases under any such law, or shall have consented to the appointment of or taking possession by one or more receivers or trustees of such Person or for any substantial part of such Person's property, or shall have made a general assignment for the benefit of its creditors, or shall have failed generally to pay its debts as they become due, or shall have taken any action in furtherance of any of the foregoing. Borrower's Address: As defined in the first paragraph of this Loan Agreement. Borrower's Initial Equity Investment in the Lightstone Properties: The amount of money, in addition to the Loan and the proceeds of the First Mortgage, required to pay the purchase prices for the Lightstone Properties and all Transaction Costs incurred or to be incurred in causing title thereto to be acquired by the Lightstone Property Owners. Borrower's Property Management Office: 326 Third Street, Lakewood, New Jersey, or such other location in New Jersey or New York as Borrower shall determine, provided that Borrower timely shall notify Lender of any change in the location of Borrower's Property Management Office. Certificate of Occupancy: One or more certificates of use and occupancy, or similar permit or approval, required by law to be issued in connection with the use, occupancy or operation of a Lightstone Property by its owner or by any tenant under an Occupancy Lease. Contract Vendee: As defined in the first "WHEREAS" clause hereof. Default: An event or condition which with the passage of time or upon notice, or both, will result in an Event of Default. Default Collateral: As defined in Section 14.9 hereof. Environmental Indemnity Agreement: That certain Environmental Indemnity Agreement, dated as of the date hereof, made by Borrower, Lichtenstein and the Lightstone Property Owners, as indemnitors, in favor of Lender, as indemnitee, and all amendments thereof and supplements thereto. Environmental Laws: All federal, state and local laws, rules and regulations, whether now existing or hereafter enacted or promulgated, regulating, relating to or imposing liability or standards of conduct concerning any hazardous, toxic, petroleum or dangerous waste, substance or material or the protection of health or the environment, including, without limitation (i) Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq. (known as CERCLA or Superfund) as amended by the Superfund Amendments and Reauthorization Act of 1986 (known as SARA); (ii) Solid Waste Disposal Act, 42 U.S.C. Section 6901 et seq. (known as SWDA) as amended by Resource Conservation and Recovery Act (known as RCRA); (iii) National Environmental Policy Act, 42 U.S.C. Section 4321 et seq. (known as NEPA); (iv) Toxic Substances Control Act, 15 U.S.C., Section 2601 et seq. (known as TSCA); (v) Safe Drinking Water Act, 42 U.S.C. Section 300(f) et seq., (known as Public Health Service Act, PHSA); (vi) Refuse Act, 33 U.S.C. Section 407 et seq.; (vii) Clean Water Act, 33 U.S.C. Section 1251 et seq. (known as Federal Water Pollution Control Act FWPCA); (viii) Clean Air Act, 42 U.S.C. Section 7401 et seq. (known as CAA); (ix) The Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq. (known as EPCRTKA); and (x) the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq. (known as OSHA). Event of Default: As defined in Section 10.1 hereof. Exit Fee: As defined in Section 4.3 hereof. Financial Information: As defined in Section 6.1 hereof. First Mortgage: See definition of Permitted Exceptions. Fiscal Years: The fiscal years of Borrower and the Lightstone Property Owners, all of which shall be the calendar year. Guarantor: Lichtenstein. Guaranty: A certain Guaranty of even date herewith made by Lichtenstein, as Guarantor, for the benefit of Lender. Imposition: Any real estate tax, sewer rent, water charge, or other municipal or governmental assessment, rate, charge, imposition or lien upon any of the Lightstone Properties. Improvements: All buildings, structures and other improvements of every kind and description on any of the Lightstone Properties. Indebtedness: The amount of Principal, Interest and all other sums payable by Borrower to Lender under this Loan Agreement, the Note and the other Loan Documents. Interest: As defined in Section 3.1 hereof. Interest Rate: As defined in Section 3.1 hereof. Legal Requirements: All laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, variances, consents, approvals, directions and requirements of, and agreements with, all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to any of the Lightstone Properties, or to any of the adjoining vaults, sidewalks, streets or ways, or to any use or condition of any of the Lightstone Properties, including, without limitation, Environmental Laws. Lichtenstein: As defined in the fifth "WHEREAS" clause hereof. Lightstone Properties: As defined in the first "WHEREAS" clause hereof. Lightstone Property Owners: As defined in the third "WHEREAS" clause hereof. Lightstone Property Sale and similar phrases such as Lightstone Property Sales: Any Transfer of a Lightstone Property or any part thereof other than a Refinancing Event, an Occupancy Lease, or a Taking. Loan: The loan to be made by Lender to Borrower as provided in this Loan Agreement and as evidenced by the Note. Loan Agreement: This Loan Agreement between Borrower and Lender, and all amendments and supplements hereto. Loan Closing Date: September 27, 2004. Loan Documents: Without limitation, this Loan Agreement, the Note, the Guaranty, the Environmental Indemnity Agreement, the Security Instruments and any other agreements or instruments executed or to be executed hereunder or in connection herewith or to evidence or to secure the Indebtedness and all amendments thereof and thereto. Martinsburg Property: As defined in the first "WHEREAS" clause hereof. Maturity Date: The tenth (10th) anniversary of the Loan Closing Date, or any earlier date to which said date shall be accelerated pursuant to any right or option of Lender hereunder or under any of the other Loan Documents. Note: A promissory note in the amount of Eight Million Six Hundred Thousand Dollars ($8,600,000), or so much thereof as may be advanced, of even date herewith made by Borrower to the order of Lender. Occupancy Lease: Any written or oral lease, sublease, license, franchise, concession or other occupancy agreement now or hereafter in effect, whether or not of record, for the use or occupancy of any portion of the Improvements on any of the Lightstone Properties, together with all amendments thereof and supplements thereto, including oral lettings and tenancies following attornment. Omnibus Agreements: Those certain Omnibus Agreements of even date herewith executed by the Lightstone Property Owners and all amendments thereof and supplements thereto. Permitted Exceptions: A first mortgage or deed of trust ("First Mortgage") held by Wachovia. In addition, the following shall be Permitted Encumbrances: (i) liens for unpaid real estate taxes not yet due, (ii) Occupancy Leases, and (iii) provided that Borrower shall have furnished title reports (and related documents) upon, and surveys (complying with paragraph (vi) of Section 2.2) of, the Lightstone Properties, to Lender prior to the Loan Closing Date, then any additional condition of title disclosed by any of such title reports and surveys as shall be taken as an exception to title (without affirmative insurance or any other special assurances of any kind) in the title report upon the Lightstone Property in question (or the title policy to be issued in connection therewith) issued to Wachovia with its informed consent. Person: An individual, corporation, partnership, association, trust or other entity or organization, including a governmental or political subdivision or agency or instrumentality thereof. Pledge Agreement: That certain Security and Pledge Agreement of even date herewith, executed and delivered by Borrower to Lender and all amendments thereof and supplements thereto. Pledged Collateral: All of Borrower's right, title and interest in and to the following property, whether now owned by Borrower or hereafter acquired and whether now existing or hereafter coming into existence, and wherever located: (i) all of Borrower's membership interests in the Lightstone Property Owners, which constitutes one hundred percent (100%) of the membership interests in the Lightstone Property Owners, together with all of Borrower's interest as a member of the Lightstone Property Owners; (ii) all right, title and interest of Borrower in the Lightstone Property Owners relating to Borrower's membership interests in the Lightstone Property Owners, including, without limitation, all of Borrower's rights, powers and remedies under the Company Agreement with respect to Borrower's membership interests; and (iii) all present and future payments, distributions, proceeds, profits, income, compensation, property, capital assets, interests and rights due or to become due and payable to Borrower in connection with Borrower's membership interests in the Lightstone Property Owners (including, without limitation, all proceeds of dissolution or liquidation or winding up of the affairs of the Lightstone Property Owners), all repayments of any and all loans made by Borrower to the Lightstone Property Owners and all rights of Borrower to receive any and all of the foregoing, whether or not any or all of the foregoing shall constitute accounts or general intangibles under the Uniform Commercial Code. PREIT: As defined in the first "WHEREAS" clause hereof. Principal: At any time of reference, the aggregate total of all money advanced by Lender to Borrower pursuant to Article 2 hereof, less any repayment or prepayment of a portion thereof in accordance with the terms hereof, except as the context otherwise shall require. Recourse Distributions: As defined in Section 14.9 hereof. Refinancing Event: The creation, financing, refinancing or restructuring of any debt (but only with Lender's prior approval) upon or related to any of the Lightstone Properties, including, without limitation, any lease and leaseback or other form of financing. Sale of a Lightstone Property and similar phrases such as Sales of Lightstone Properties: See definition of "Lightstone Property Sale." Security Instruments: The Pledge Agreement, the Omnibus Agreements, financing statements under the Uniform Commercial Code, and any other agreements or instruments executed or to be executed pursuant to the terms of this Loan Agreement and the other Loan Documents to secure and/or assure the repayment of the Principal and Interest and all other Indebtedness under the Note and all other Loan Documents and all amendments thereof and supplements thereto. Taking and similar words such as "Taken": A taking for any public or quasi-public purpose by any lawful power or authority by the exercise of the right of condemnation or eminent domain of all or any portion of any of the Lightstone Properties or the temporary use thereof. Term: The period of time beginning on the date hereof and ending on the Maturity Date. Transaction Costs: Actual, necessary and reasonable out-of-pocket costs and expenses incurred by Borrower, any Lightstone Property Owner, Martinsburg Mall LLC and any of their Affiliates, in connection with the purchase of a Lightstone Property or the Martinsburg Property, a Lightstone Property Sale or Taking as to any of the Lightstone Properties, including, without limitation, title insurance and survey costs, brokerage commissions, legal expenses, transfer taxes, closing adjustments, and other customary closing costs without duplication as Operating Expenses or otherwise, costs to comply with Legal Requirements or requirements of lenders, mortgage points and fees, and property expenses required in connection with a Lightstone Property Sale or Taking to be paid or incurred by a Lightstone Property Owner or Borrower (excluding, however, the purchase prices for the Lightstone Properties or the Martinsburg Property, and any commissions or fees paid to Borrower or any Lightstone Property Owner, or any of their Affiliates). Transfer and similar words such as Transferred: A sale, assignment, gift, mortgage, pledge, hypothecation, encumbrance, lease or any other conveyance or transfer. Wachovia: As defined in the third "WHEREAS" clause hereof. 1.2 Accounting Terms and Determinations. Unless otherwise specified herein (i) all accounting terms used herein shall be interpreted, (ii) all accounting determinations hereunder shall be made and (iii) all books, records and financial statements required to be kept or delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, consistently applied, except for changes reasonably approved in writing by Lender. ARTICLE TWO THE LOAN 2.1 The Loan. Lender hereby agrees to make the Loan to Borrower, and Borrower hereby agrees to take the Loan from Lender, on the first business day after acquisition of the Lightstone Properties by the Lightstone Property Owners and on the terms and subject to the conditions set forth herein, each of which shall be a condition precedent to Lender's obligation to make the Loan, each of which Borrower shall use its best efforts to satisfy, and each of which Lender may waive. 2.2 Conditions to Advances of the Loan. Lender's obligation to advance the Loan shall be subject to the following conditions: (i) In no event shall the Loan exceed Eight Million Six Hundred Thousand Dollars ($8,600,000); and (ii) Lender shall have acquired the Martinsburg Property, Borrower shall have paid all Transaction Costs in connection with PRC's acquisition of the Martinsburg Property, and Wachovia shall have advanced not less than Twenty-two Million Nine Hundred Sixty-one Thousand Five Hundred Ninety Dollars ($22,961,590) to PRC in connection therewith; and (iii) Intentionally omitted; (iv) The Lightstone Property Owners shall have acquired title to the Lightstone Properties; and (v) All of Borrower's representations set forth in this Loan Agreement and the other Loan Documents shall be true, accurate and complete in all material respects, and there shall not exist any Default or Event of Default under any of the terms and provisions of this Loan Agreement or any of the other Loan Documents, and all of Borrower's representations made in this Loan Agreement and any of the other Loan Documents shall be true in all material respects; and (vi) Borrower shall have furnished to Lender a survey of each of the Lightstone Properties, respectively, in form and substance satisfactory to Lender, acting reasonably, revised and redated to within ten (10) days of the date of the Loan Closing Date and certified by a registered surveyor or engineer acceptable to Lender, acting reasonably, showing no state of facts objectionable to Lender; all surveys shall show (a) the exact location and dimensions by courses and distances of the surveyed property and the improvements thereon, (b) the exact location of all parcel, lot and street lines, all means of access to the surveyed property, all utility wires, pipes and other conduits(whether above ground or underground), and all easements and rights of way affecting the surveyed property, and (c) no encroachment or potential encroachments of the improvements on the surveyed property upon any street or adjoining property or any encroachment of any adjoining structure upon the surveyed property; and (vii) Borrower shall have furnished to Lender title reports (and related documents) and surveys of the Lightstone Properties provided for in the definition of "Permitted Encumbrances" in Section 1.1 hereof and paragraph (vi) above, and the Lightstone Properties shall not be subject to any conditions of title that are not Permitted Encumbrances unless approved by Lender; and (viii) Borrower shall have furnished to Lender a certificate stating that the Lightstone Properties (and the Improvements thereon), are in good condition and repair and comply with all Legal Requirements and that unconditional Certificates of Occupancy have been issued therefor and are in full force and effect subject to such qualifications, exceptions and conditions, if any, as shall have been approved by Wachovia; and (ix) Borrower shall have furnished to Lender evidence in form satisfactory to Lender that all of the funds constituting Borrower's Initial Equity Investment in the Lightstone Properties have been invested; and (x) Borrower shall have furnished to Lender copies of the First Mortgage and of all related documents, all of which must be satisfactory to Lender, acting reasonably, in all respects; and (xi) Borrower shall have furnished to Lender original or certified copies of policies of insurance satisfactory to Lender insuring the Improvements on the Lightstone Properties against loss or damage by fire and the other risks insured against by extended coverage insurance; Lender will accept as to form policies of insurance (and the companies writing them) which are acceptable to Wachovia provided that the insurance limits set forth in such insurance policies are not less than the full insurable value of the Improvements on the insured Lightstone Property or Lightstone Properties in each case; and (xii) The Loan Documents listed in Section 5.1 and such other agreements and instruments as Lender reasonably shall require shall be executed and/or delivered to Lender; and (xiii) No casualty shall have occurred or Taking have occurred or be threatened as to any of the Lightstone Properties; provided, however, that this condition (xiii) shall be deemed satisfied in the event that despite a minor casualty partially damaging the Improvements on a Lightstone Property, or the occurrence or threatened occurrence of a partial Taking of a Lightstone Property, which partial Taking is or would be of little or no practical significance, Wachovia nevertheless shall fund its loan in the full originally committed amount thereof. ARTICLE THREE INTEREST 3.1 Calculation. For each Fiscal Year (or any portion thereof) during the Term, Borrower shall pay Lender interest (calculated on the basis of actual days elapsed and a year of three hundred and sixty (360) days) on the Principal of the Loan outstanding from time to time, to the extent and from the date(s) advanced, at the rate of eleven percent (11%) (the "Interest Rate"). Said interest is referred to herein as "Interest." 3.2 Payments. Borrower shall make payments of Interest with respect to the Loan as follows: (a) Interest shall be payable in monthly installments, in arrears, on the first day of the month following the month for which such Interest is due. (b) All payments of Interest and Principal pursuant to this Loan Agreement, the Note and the other Loan Documents shall be made in lawful currency of the United States of America at Lender's address set forth in the first paragraph of this Loan Agreement or at such other address as Lender shall from time to time designate. 3.3 Interest Rate after Default; Late Payment Fee. If any payment becoming due to Lender under the Note or this Loan Agreement is not paid when due and shall continue unpaid for a period of ninety (90) days, then (without prejudice to any other rights and remedies available to Lender as a result of such nonpayment) beginning on the ninety-first (91st) day after such payment first was due and continuing until the first anniversary of the date upon which the Event of Default shall have been cured, the Interest Rate shall be fourteen percent (14%) per annum. In addition, if any payment of Interest or Principal shall not be made within fifteen (15) days of the date the same becomes due, Borrower shall pay to Lender a late payment charge in an amount equal to four (4%) percent of the amount past due upon demand made by Lender at any time after such fifteen (15) day period. All such late payment charges shall be liquidated damages for Borrower's failure to make prompt payment. ARTICLE FOUR TERM; PAYMENT; PREPAYMENT; EXIT FEE; PROPERTY SALES 4.1 Term. The Term of the Loan shall continue until the Maturity Date, unless sooner terminated as provided in the Note or this Loan Agreement or any other Loan Document. 4.2 Repayment at End of Term. On the Maturity Date, or upon the earlier termination of the Term as provided in the Note or this Loan Agreement or any other Loan Document, Borrower shall pay to Lender, in respect of the Loan, the sum of: (a) any accrued but unpaid Interest; plus (b) any Indebtedness (other than Principal and Interest) due and payable from Borrower to Lender pursuant to the terms of the Loan Documents; plus (c) the Principal. 4.3 Prepayment. (a) Borrower may not prepay the Loan, in whole or in part, except as provided in Section 4.3(b) and 4.3(c) below and except that (i) upon a Lightstone Property Sale, or (ii) the Taking of a Lightstone Property in whole or in substantial part, Borrower shall prepay the portion of the Loan set forth in Exhibit C annexed hereto opposite the name of each of the Lightstone Properties or so much of such portion as has not been prepaid previously and, in the case of a Lightstone Property Sale, simultaneously shall pay to Lender an Exit Fee computed as provided in Section 4.3(d) unless payment of said Exit Fee shall be deemed waived by Lender as provided in Section 4.3(d). A Lightstone Property shall be deemed to have been Taken in substantial part if the portion thereof remaining after the Taking cannot practically and economically be restored so as to be suitable for the use to which the Lightstone Property in question was being put at the time of the Taking. (b) Borrower may prepay the Loan, in whole but not in part, upon or at any time after the repayment of the First Mortgage on its original or any extended maturity date upon at least forty-five (45) days notice to Lender and the payment to Lender of the Exit Fee computed as provided in Section 4.3(d) simultaneously with such prepayment. (c) Borrower may prepay the Loan, in whole but not in part, upon at least forty-five (45) days prior notice to Lender if (i) none of Steven Baruch, Jeffrey Joseph and Thomas Viertel are then executive officers of Lender, and (ii) Borrower shall make payment to Lender, simultaneously with prepayment of the Loan, of all accrued and unpaid Interest and the Exit Fee computed as provided in Section 4.3(d). (d) Whenever any Principal is repaid by Borrower, for any reason whatsoever, Borrower shall pay in addition to the Principal so paid, and any accrued and unpaid Interest thereon, an "Exit Fee" in the amount of three percent (3%) of the Principal so paid, provided, however, that if and to the extent that Principal is paid on the Maturity Date, or a prepayment is required as a result of a Lightstone Property Sale and there have been no material Events of Default during the Term of the Loan with respect to payments of Interest, or prepayment is required as a result of the Taking of a Lightstone Property in whole or in substantial part, then the Exit Fee shall be waived by Lender and shall not be payable by Borrower. (e) No prepayment, in whole or in part, however occurring, shall affect in any way the rights or status of Lender's Affiliate as a member of Borrower. 4.4 Acceleration Upon Allegation of Invalidity of Interest, Etc.. In the event that Borrower, any Lightstone Property Owner, or any of their Affiliates, or any third party claiming through or under any of them, shall at any time assert or shall take any action the effect of which is to assert that any Interest or Principal is invalid or that the payment of any of the Indebtedness in accordance herewith is unlawful or can be delayed or abridged for any reason whatsoever, Lender shall have the right and option immediately to accelerate the Maturity Date. In the event that Lender shall exercise such right and option to accelerate the Maturity Date, the Principal, all Interest, and all other Indebtedness or sums due from Borrower to Lender pursuant to the terms of the Note, this Loan Agreement and the other Loan Documents shall be due and payable in full immediately upon receipt by Borrower of the notice of acceleration from Lender. ARTICLE FIVE SECURITY 5.1 Loan Documents. To evidence and secure the payment to Lender of all sums due or to become due under this Loan Agreement and the Note and the other Loan Documents and the performance by Borrower of all of its covenants and agreements hereunder and under the Note and other Loan Documents, Borrower and Lichtenstein (to the extent specifically provided herein) shall deliver to Lender, and Lender shall receive and have the benefit of the following: (a) the Note; (b) this Loan Agreement; (c) the Guaranty; (d) the Pledge Agreement and all financing statements under the Uniform Commercial Code required to perfect the security interests of Lender thereunder; (e) the Omnibus Agreements; (f) the Environmental Indemnity Agreement; (g) the other Security Instruments; and (h) such other agreements and instruments as Lender reasonably shall require to carry out the intention of this Loan Agreement. The Pledge Agreement shall create in favor of Lender first priority perfected security interests in the Pledged Collateral, subject only to matters expressly permitted herein or therein. ARTICLE SIX REPRESENTATIONS AND WARRANTIES OF BORROWER 6.1 To induce Lender to make the Loan to Borrower, Borrower hereby makes the following representations and warranties to, and covenants with, Lender, it being agreed that Borrower's acceptance of the Loan shall constitute reaffirmation by Borrower to the best of its knowledge, of the truth and accuracy of all of the representations and warranties herein contained in all material respects,: (a) (i) Borrower's Initial Equity Investment in the Lightstone Properties shall be at least Three Million Four Hundred Thousand Dollars ($3,400,000). (ii) The execution and delivery of the Loan Documents by Borrower and the Lightstone Property Owners have been duly authorized by all necessary action on their part, and each Loan Document has been duly executed and delivered and constitutes the valid and legally binding obligation of the signatories thereto, enforceable against Lichtenstein, Borrower and the Lightstone Property Owners in accordance with the terms hereof and thereof. (iii) Borrower and the Lightstone Property Owners are duly organized, validly existing and in good standing under the laws of the state of Delaware and each Lightstone Property Owner is duly qualified and authorized to own property and do business in the state (Georgia, Pennsylvania or Tennessee) in which the Lightstone Property to be owned by it is located. Lichtenstein and an Affiliate of Lender are the sole members of Borrower, and Borrower is the sole member of the Lightstone Property Owners. Neither Lichtenstein nor Borrower has pledged, encumbered, hypothecated or otherwise transferred or agreed to encumber, hypothecate, pledge or otherwise transfer their foregoing respective interests, and Borrower covenants not to do so except with Lender's prior written approval which Lender agrees not to unreasonably withhold or delay. (iv) Borrower and the Lightstone Property Owners have full power and authority to enter into the Loan Documents and to perform all their obligations hereunder and thereunder, and have taken all action required by law, any governing instruments or otherwise to authorize the execution, delivery and performance of the Loan Documents and consummation of the transactions contemplated thereby. (v) Borrower and the Lightstone Property Owners do not own, beneficially or of record, any shares of capital stock of, or any other equity interest in, any corporation or any other entity or any other assets, not related to or forming a part of the Lightstone Properties; (vi) Borrower and the Lightstone Property Owners have made all filings required to be made by them under the laws of each jurisdiction where the failure to make such filings would have a material adverse effect on the Loan; and (vii) The Lightstone Property Owners have full power, authority and legal right to acquire, own, and operate the Lightstone Properties, and to execute and deliver the Loan Agreement and any other documents or instruments contemplated herein or therein to be executed and delivered by them, and Borrower has full power, authority and legal right to pledge ownership interests as pledged in the Security Instruments to be executed by it and to execute and deliver the Loan Documents and any other documents or instruments contemplated herein or therein to be executed and delivered by it and to observe and perform the provisions hereof and thereof. (b) Intentionally omitted. (c) It has not, and no Lightstone Property Owner has, received a notice to the effect that execution and delivery or performance of the Loan Documents, the consummation of the transactions contemplated hereby or thereby, or compliance with the provisions hereof and thereof, does or will conflict with or result in a breach of any of the provisions of any Legal Requirements or applicable license, permit, statute, ordinance, law, judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority, or of any determination or award of any arbitrator, or of any agreement or instrument to which Borrower or the Lightstone Property Owners is or are a party or by which they or any of the Lightstone Properties is bound, or constitute a default under any thereof, or result in the creation or imposition of any lien, charge or encumbrance upon any of the Lightstone Properties or any of the ownership interests pledged to Lender by the Pledge Agreements. (d) There are no actions, suits or proceedings pending or, to the best of its knowledge, threatened against any of the Lightstone Properties, Borrower or any Lightstone Property Owner, by or before any court, administrative agency or other governmental authority or any arbitrator that would have a material, adverse effect on the Loan. Neither Borrower nor any Lightstone Property Owner is a party to, and none of the Lightstone Properties are bound by, any agreement or other instrument, other than the Permitted Exceptions, or, to the best of its knowledge, subject to any license, permit, statute, ordinance, law, judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority, or any determination or award of any arbitrator, which might materially adversely affect the Loan. To the best of its knowledge, Borrower and the Lightstone Property Owners are not in default in compliance with any obligation under any Legal Requirements, or applicable license, permit, statute, ordinance, law, judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority, or any determination or award of any arbitrator, or under any agreement or instrument to which any of them is a party or by which any of them or any of the Lightstone Properties is bound which would materially adversely affect the Loan. (e) To the best of its knowledge, no permit of or by any court, administrative agency or other governmental authority not heretofore obtained is required in connection with the execution, delivery, performance, or consummation of the transactions contemplated by the Loan Documents. (f) Borrower and the Lightstone Property Owners have filed all tax returns required to be filed by them and are not in default in the payment of any taxes levied or assessed against them, any of their assets or any of the Properties. (g) As of the Loan Closing Date, the Lightstone Property Owners shall have good and marketable fee title to the Lightstone Properties and the Improvements thereon, free and clear of all liens and encumbrances, except the Permitted Exceptions, and none of the Lightstone Properties or any part thereof shall be subject to any option or other right to purchase in favor of any third party. (h) Lender shall have legal and valid security interests in and to the Pledged Collateral superior in right to any pledges or liens which any third party may have or may hereafter purport to acquire against the Pledged Collateral. (i) Neither Borrower nor the Lightstone Property Owners have entered into any contract or agreement of any kind which would give rise to a pledge or lien upon the Pledged Collateral. (j) To the best of its knowledge, the Lightstone Properties are zoned for use in the manner in which they are used and conform in all material respects to all existing zoning, building and other Legal Requirements, and the operation of the Lightstone Properties is not as to any of them in material violation of any Legal Requirements, Certificates of Occupancy or other permits, and no notice has been received from any governmental authority or other Person claiming a material violation of any Legal Requirements, Certificates of Occupancy or other permits. To the best of its knowledge, neither the zoning of any Lightstone Property nor any right to use any such Property is to any material extent dependent upon or related to any real estate other than any such Property. (k) No Bankruptcy Event has ever occurred with respect to Borrower or any of the Lightstone Property Owners. (l) Borrower has or may have heretofore provided to Lender:\ certain financial statements; copies of appraisals of all the Lightstone Properties; copies of so-called Phase I environmental reports on all the Lightstone Properties; property condition reports for all the Lightstone Properties; certain service agreements applicable to the Lightstone Properties; copies of loan commitments and loan documents for the First Mortgage and certain other documents and statements pertaining to the Lightstone Properties (the materials above referred to in this subparagraph (l) along with rent rolls and other tenant information provided to Wachovia and/or attached to or otherwise made part of the Wachovia loan documentation herein being referred to as the "Financial Information)." The information set forth in the Financial Information is, to the best knowledge of Borrower, true, correct and complete in all material respects. To the best of Borrower's knowledge, there are no arrangements for the use or occupancy of any space in any of the Lightstone Properties other than pursuant to good faith, arm's length Occupancy Leases. To the best of Borrower's knowledge, all of the Occupancy Leases listed in said rent rolls are binding upon the Lightstone Property Owners and the tenants thereunder and are in full force and effect. Neither Borrower nor any Property Owner has pledged, assigned, hypothecated or otherwise encumbered any of the Occupancy Leases or any interest therein except as collateral security for the First Mortgage. Based upon appropriate certifications and estoppel certificates, with exceptions which in the aggregate would not have a material adverse effect on the Loan, except as otherwise disclosed to Lender in writing or reflected in the Financial Information, (i) the rent under and as set forth in each of the Occupancy Leases is being collected on a current basis and in accordance with the terms of such Occupancy Leases, and there is no default or event of default which exists or is alleged to exist under any of the Occupancy Leases, (ii) no default or event of default by any tenant thereunder exists, and there has been no occurrence which upon notice and/or the passage of time or otherwise would result in the occurrence of an event of default thereunder, (iii) no tenant under any of the Occupancy Leases is entitled to rental concessions or abatements with respect to rental or additional rental payable for any period, (iv) no brokerage or other commission is due with respect to any of the Occupancy Leases which has not been paid, and no brokerage or other commissions shall become due or payable by Borrower or any Lightstone Property Owner with the passage of time or the exercise by any tenant under any Occupancy Lease of any renewal or expansion option thereunder, and (v) there are no currently existing disputes between Borrower or any Lightstone Property Owner (or, to the best of its knowledge, any predecessor landlord under any Occupancy Lease) and any tenant under any of the Occupancy Leases with respect to the computation of any rent, additional rent, incentive rent, tenant reimbursements or any other amounts payable by any such tenant under any of the Occupancy Leases. (m) There is access for ingress and egress to and from the Lightstone Properties to public streets or roadways, pursuant to valid easements or other valid means, the Lightstone Property Owners' rights to such access are not subject to any interference or obstruction, and neither Borrower nor any Lightstone Property Owner has any knowledge of any fact or condition which would result in the termination of such access as to any of the Lightstone Properties. None of the Permitted Exceptions materially interferes with or has materially interfered with the maintenance, use, operation or enjoyment of any of the Lightstone Properties. ARTICLE SEVEN ADDITIONAL COVENANTS; COVENANT BY LENDER 7.1 Additional Covenants by Borrower. (a) Borrower promptly shall notify Lender of any (i) occurrence, event, or condition (including, but not limited to, any pending or threatened suit or proceeding by or before any court, administrative agency or other governmental authority or any arbitrator), (ii) the enactment of any statute, ordinance or law, of which Borrower shall receive written notice and (iii) the giving of any notice or other communication by any party pursuant to any other agreement relating to the ownership, use, or operation of any of the Lightstone Properties which, individually or in the aggregate, would or could have a material, adverse effect on the Loan. (b) Borrower and the Lightstone Property Owners shall allow Lender and Lender's representatives and agents access to the Lightstone Properties at all times and shall provide to Lender such documents relating to the Lightstone Properties as may be requested by Lender or Lender's representatives and agents. (c) Borrower and the Lightstone Property Owners shall cause the Lightstone Properties at all times to be in full compliance with all Legal Requirements to the extent and in the manner of prudent owners of similar properties in the general areas, respectively, of the Lightstone Properties. (d) Borrower shall not suffer or permit any event or circumstance to occur or exist, or fail to take any action, which would result in the lien and security interests of Lender under the Pledge Agreement ceasing to be at all times fully perfected liens and security interests on the Pledged Collateral. (e) Borrower will maintain such reserves for future operating expenses, capital improvements and other cash requirements as Lender reasonably shall request, which reserves may be in addition to any reserves required by the holder of the First Mortgage or any mortgage resulting from a Refinancing Event. (f) Borrower shall cause the Lightstone Properties to be managed in accordance with the standards of care for properties of like kind in their respective general areas and in accordance with Section 12.1. Borrower shall (i) cause the Lightstone Properties to be maintained in good repair, (ii) cause all principal, interest and other sums coming due under the First Mortgage and any mortgages resulting from Refinancing Events to be paid promptly when due and cause all other covenants, conditions and agreements set forth in the First Mortgage and any mortgages resulting from Refinancing Events, and all related documents, to be fully and timely performed, and (iii) cause each Lightstone Property to be kept insured in compliance with the requirements of the First Mortgage, or any mortgage resulting from a Refinancing Event, or if there be none, then by policies satisfactory to Lender and by insurance companies satisfactory to Lender (acting reasonably in both instances) and in amounts not less than the full insurable value of the Improvements on the insured Lightstone Property, (iv) cause to be paid all insurance premiums on policies required hereunder and under the First Mortgage and any mortgages resulting from Refinancing Events and all taxes, assessments and other charges imposed upon the Lightstone Properties, as and when the same shall become due. A condition, circumstance, or management practice asserted by Lender to constitute a failure of compliance with the provisions of the first sentence of this paragraph (f) or the preceding clause (i) as to a Property subject to the lien of the First Mortgage, or a mortgage resulting from a Refinancing Event, shall not be a default hereunder unless and until the same condition, circumstance or management practice has been asserted by the holder of such First Mortgage, or mortgage resulting from a Refinancing Event, to be a default thereunder. (g) Borrower shall not enter into or permit the consummation of any transaction with respect to any Lightstone Property with an Affiliate of Borrower, of Lichtenstein or of any Lightstone Property Owner without the prior written consent of Lender which consent shall not be unreasonably withheld or delayed, but no such consent shall be needed for transactions which are commercially reasonable and at rates and terms, including, without limitation, prices that are competitive with terms offered by other providers of similar goods and services to similar properties in the County in which the Lightstone Property or Lightstone Properties in question are located. (h) Borrower shall not, without the prior written consent of Lender which shall not be unreasonably withheld or delayed, cause or permit any Lightstone Property Owner to (i) sell, lease, exchange or otherwise dispose of or Transfer all or any portion of a Lightstone Property (or any interest therein), except for Occupancy Leases and otherwise as expressly permitted herein, it being understood that Borrower shall have the right to sell or permit the sale of personal property in the ordinary course of business to the extent that such personal property is obsolete, worn out or otherwise not required for the operation or ownership of the Lightstone Property to which it appertains; provided, however, that any personal property which has been disposed of shall be replaced with new personal property to the extent necessary for the maintenance and operation of such Lightstone Property in compliance with the terms of this Loan Agreement and the other Loan Documents, (ii) consummate any Refinancing Event or otherwise encumber any part of any Lightstone Property, except as otherwise expressly provided herein or in the Security Instruments, it being further understood that Borrower shall have the right to permit the Lightstone Property Owners to incur unsecured trade account debts payable in the normal course of business, (iii) enter into any agreement with any power or authority having the right of condemnation or eminent domain for a Taking of any Lightstone Property, or any portion of any Lightstone Property, or the temporary use thereof, (iv) knowingly take or permit any Lightstone Property Owner to take any actions or knowingly fail to take such actions so as materially and adversely to impair the economic value of any Lightstone Property or the Security Instruments executed and delivered or to be executed and delivered pursuant to the terms hereof, (v) make or permit any of the Lightstone Property Owners to make any alterations or renovations or undertake any development, redevelopment or construction of any Improvements on any Lightstone Property, or any portion thereof, except for any alterations that will not have an adverse affect on the physical or investment characteristics of the Lightstone Property, (vi) knowingly take or permit any Lightstone Property Owner to take any action which would materially, adversely affect the zoning or building classification of any Lightstone Property, (vii) permit a default or an Event of Default, or an event or condition which upon notice or the passage of time or otherwise would result in the occurrence of a default or an Event of Default under any of the Loan Documents. (i) The beneficial owner, member and manager of the Lightstone Property Owners, and Lichtenstein as a beneficial owner, member and manager of Borrower, shall not be changed or their ownership interests Transferred, and no new members or managers shall be admitted to or appointed therein, directly or indirectly, without the prior written consent of Lender which shall not be unreasonably withheld or delayed; Lender agrees to consent to any such Transfer of an interest that is less than a fifty percent (50%) interest in the entity in question, both alone and when added to all other prior and simultaneous Transfers of interests in the same entity, provided that any such Transfer is to Lichtenstein's spouse or children or a trust created for any of them, and provided further, however, that any security interest held by Lender is not adversely affected thereby or that any such adverse effect is remedied to Lender's satisfaction at Lichtenstein's or Borrower's expense. Without the prior written consent of Lender, the certificate of formation and operating agreement of Borrower and the Lightstone Property Owners shall not be amended or supplemented, and no equity interests or voting rights in any of them shall be changed, except for such technical amendments of any thereof as shall be required for compliance with applicable law and then only after twenty (20) days prior notice to Lender. (j) Borrower and the Lightstone Property Owners shall (i) not encumber or permit the encumbrance of any of the Lightstone Properties or permit any mechanics', materialmens' or laborers' liens to be filed against any Lightstone Property or to remain filed against any Lightstone Property for more than ninety (90) days, or after foreclosure thereof shall have begun without causing the same to be discharged by bonding or otherwise, and (ii) continue to maintain policies of insurance with respect to the Lightstone Properties conforming to the requirements of Section 2.2 hereof. The Lightstone Property Owners shall not engage in any business or activity not related to the ownership, management, and operation of the Properties. (k) Borrower and the Lightstone Property Owners shall maintain or cause to be maintained in full force and effect all licenses and permits required for the operation of the Lightstone Properties in a manner at least equal to properties of like kind in their respective general areas in compliance with all Legal Requirements. (l) As soon as possible after the closing of the Loan, Borrower shall furnish to Lender full and complete copies of all documents, surveys and maps, pertaining in any way to acquisition and financing of the Lightstone Properties and not previously provided to Lender. (m) Promptly after receipt by Borrower or a Lightstone Property Owner of a demand, a default notice, or an inquiry concerning a Lightstone Property from the holder of the First Mortgage, or a mortgage resulting from a Refinancing Event, the recipient thereof shall forward a copy thereof to Lender. 7.2 Covenant by Lender. Lender covenants that as long as no Event of Default shall have occurred under this Agreement or under any of the other Loan Documents, and be continuing, Lender shall not assign the Note or any of Lender's rights under the Note, this Agreement, or any of the other Loan Documents to any other Person prior to the Maturity Date. 7.3 Certain Sources and Uses of Funds. Lender, Borrower and the Lightstone Property Owners acknowledge their collective intention that (except to the extent, if at all, prohibited by the First Mortgage, or mortgages resulting from Refinancing Events) cash flow from each of the Lightstone Properties shall be considered fungible for all purposes of this Loan Agreement and the other Loan Documents so that, for example, if at any time there shall not be cash flow available from one such Property ("Property A") to pay Impositions with regard thereto, or to keep the required insurance in effect with regard thereto, or to maintain Property A in good repair, and if at such time, there shall be a surplus of cash flow from another such Property ("Property B"), it is intended that such surplus shall be used to meet the requirements of Property A, provided that so doing shall not be a default under the First Mortgage, or a mortgage on Property B resulting from a Refinancing Event. ARTICLE EIGHT EXPENSES 8.1 Closing Costs. Borrower shall reimburse Lender for all reasonable out-of-pocket expenses incurred by Lender in connection with the transactions contemplated by this Loan Agreement (including the companion transactions pertaining to the Martinsburg Property), including, but not limited to, the fees, expenses and disbursements of Lender's counsel, and a loan commitment fee of Fifty Thousand Dollars ($50,000) and all other reasonable costs and expenses, including but not limited to, the costs of surveys, title insurance premiums and fees and stamp, transfer or other taxes or fees, incurred by or on behalf of Lender in connection with the transactions contemplated hereby. Borrower shall pay or cause to be paid and save Lender harmless from the non-payment or delayed payment of any and all stamp, transfer and other taxes, fees and excises, if any, including any interest and penalties which may be determined to be payable in connection with the Loan, and the enforcement of any of Lender's rights or remedies hereunder and the advance of the Loan, including, without limitation, the fees, expenses and disbursements of Lender's counsel, architects, engineers and other consultants. ARTICLE EIGHT-A BROKERAGE 8-A.1 Mutual Representations. Lender and Borrower each represents to the other that it has not dealt with any broker, "finder" or other intermediary in connection with this Loan Agreement or the transaction of which it is a part. 8-A.2 Indemnities. If the foregoing representation be untrue, the party that shall have made the untrue representation (the "indemnifying party") shall indemnify and hold harmless the other party (the "indemnified party") from and against any and all loss, cost and expense (including, without limitation, reasonable attorneys' fees) the indemnified party may pay, suffer or incur as the result of any claim made by any Person with whom the indemnifying party shall have dealt in connection with this Loan Agreement and/or the transaction of which it is a part. ARTICLE NINE SURVIVAL OF REPRESENTATIONS AND WARRANTIES; BINDING EFFECT; INDEMNITY 9.1 Survival of Representations and Warranties; Binding Effect; Indemnity. (a) All covenants, agreements, representations and warranties in the Loan Documents and in the certificates and other instruments delivered to Lender shall survive the execution and delivery of this Loan Agreement and except as otherwise provided therein, shall continue in effect so long as this Loan Agreement, the Loan or any of the instruments described in this Loan Agreement are outstanding. All covenants, agreements, representations and warranties in the Loan Agreement and in such certificates and other instruments shall bind the party making the same and its successors and assigns and shall inure to the benefit of and be enforceable by each party to whom made and its successors and assigns (subject to and in accordance with the non- recourse provisions set forth in Section 14.9 hereof). (b) Borrower agrees to indemnify and hold Lender harmless from and against any expenses, costs, losses and other damages (including court costs and attorneys' fees and expenses) suffered or incurred by or on behalf of Lender as a result of or arising out of (i) the breach of any representation, warranty or covenant of Borrower or any Lightstone Property Owner hereunder or under any of the other Loan Documents or certificates and other instruments delivered to Lender, and/or (ii) any action, suit, charge, complaint, proceeding or other similar matter arising out of or in any way connected to any condition in, on, about or of any of the Lightstone Properties, or arising out of or in any way connected to any transaction or event relating to the acquisition or ownership of the Lightstone Properties. ARTICLE TEN DEFAULTS 10.1 Event of Default. If during the Term one or more of the following events (each an "Event of Default") shall occur and be continuing: (i) Borrower shall default in the payment of any installment of Interest or any other Indebtedness under the Loan Documents, when and as the same becomes due and payable and such nonpayment continues for a period of ten (10) business days after notice thereof from Lender; or (ii) This Agreement, or any of the other Loan Documents, or the transaction of which they are a part, or the enforcement of any right of Lender or any obligation of Borrower and/or any of the Lightstone Property Owners, creates an event of default under the First Mortgage or any mortgage resulting from a Refinancing Event; or (iii) There shall occur an event of default under the First Mortgage, or any mortgage resulting from a Refinancing Event, except that a default under the First Mortgage, or any mortgage resulting from a Refinancing Event, shall be an Event of Default under this Agreement only if (a) such default is a default for sixty (60) days or more in payment when due of principal and/or interest under the First Mortgage, or mortgage resulting from a Refinancing Event, or (b) the holder of the First Mortgage, or mortgage resulting from a Refinancing Event, has commenced an action to foreclose the lien thereof; or (iv) any of the representations and warranties set forth herein, in any other Loan Document or in any certificate executed and delivered by Borrower or Lichtenstein to Lender shall not be true and correct in all material respects or shall be knowingly and materially misleading when made, or there shall be any default in the performance of or compliance with any of the terms, covenants, or conditions hereof, or in any other Loan Document, other than in the payment of Interest or any payment of the Principal of the Loan or any other Indebtedness under the Loan Documents, and such default shall continue for more than twenty (20) business days after Lender shall have given written notice thereof to Borrower, unless any such default cannot be cured by payment of a sum of money and Borrower shall within such period commence and continue to prosecute with due diligence and dispatch the curing of such default; or (v) Borrower shall (a) fail to pay or cause all Impositions and any fines, penalties, interest or costs added thereto, or (b) fails to maintain or cause to be maintained in good standing the insurance policies required pursuant to the terms hereof for a period of ten (10) days after notice thereof from Lender; or (vi) a Bankruptcy Event shall have occurred with respect to Borrower or any Property Owner; or (vii) a default under Section 7.1 hereof; or (viii) a judgment or judgments in excess of Two Hundred Thousand Dollars ($200,000) in the aggregate shall be entered against Borrower and/or any Lightstone Property Owner and shall remain unpaid, unappealed, undischarged, unbonded, unstayed and undismissed for a period of sixty (60) days after the date of the entry thereof; then, and in any such Event of Default, Lender at any time thereafter may give Borrower a Notice of such Event of Default, and if such Event of Default is not cured within twenty (20) business days after receipt of such Notice, then, at any time thereafter: (a) Lender may declare the Principal, Interest and any other Indebtedness outstanding under the Note and the other Loan Documents to be immediately due and payable; provided, however that if and as long as the only uncured Event of Default shall be in the timely payment of an installment of Interest on the Loan, and if (i) no default or event of default shall have occurred under the First Mortgage or any other mortgage resulting from a Refinancing Event whether or not subject to a grace period and opportunity to cure and whether or not the holder of the First Mortgage or such other mortgage shall have given any notice or taken any other action with regard thereto, and (ii) there shall be no other default under this Loan Agreement or any other Loan Document which, with the passage of a period of time or the giving of a notice, or both, would become an Event of Default, then Lender shall not take action to enforce Lender's rights under the Pledge Agreement against the Pledged Collateral thereby unless and until such Event of Default has been an Event of Default for a period of one (1) year. (b) subject to the proviso in the preceding clause(ii), Lender may pursue any and all of its remedies, provided for under law and in equity and any or all of the Loan Documents 10.2 Costs; Right to Cure. All costs and expenses incurred by or on behalf of Lender (including, without limitation, reasonable attorneys' fees and expenses) resulting from any default by Borrower and/or any Property Owner under this Loan Agreement or any other Loan Documents shall be paid by Borrower. Upon the occurrence of an Event of Default, Lender shall have the right, but not the obligation, to cure any such default. Borrower and the Lightstone Property Owners hereby appoint Lender as their true and lawful attorney-in-fact, to take any such action and to cure any such defaults in the name and on behalf of such Person, which power of attorney shall be coupled with an interest and be irrevocable so long as any of the Indebtedness hereunder or under the Note is outstanding. Any costs or expenses incurred by Lender in connection with any of the foregoing shall be payable, together with interest at the rate of fifteen (15%) percent per annum (or such lesser rate as shall be the maximum rate permitted by law) from the date incurred until paid. 10.3 Cross-Default. For purposes hereof and all of the Loan Documents, an Event of Default under any of the Loan Documents shall be deemed to be an Event of Default with respect to any and all of the other Loan Documents. ARTICLE ELEVEN BOOKS; RECORDS; STATEMENTS AND AUDITS 11.1 Books and Records. Borrower shall keep or shall cause the Lightstone Property Owners to keep accurate, full and complete books, records and accounts showing the assets, liabilities, operations, transactions and financial condition of all the Lightstone Properties. All books, records, accounts and financial statements shall be accurate and complete in all material respects, shall present fairly the financial position and results of the operations of the Lightstone Properties and shall be prepared in accordance with generally accepted accounting principles (on a cash basis) consistently applied. 11.2 Statements. (a) Reports to Mortgagee. The Lightstone Property Owners or Borrower shall furnish to Lender the financial reports required to be submitted to Wachovia, as holder of the First Mortgage on the Lightstone Properties and the Martinsburg Property, within the time limits set forth in the First Mortgage. This requirement shall continue whether or not the First Mortgage remains outstanding. If the First Mortgage is replaced by a new mortgage as the result of a Refinancing Event, Lender may, but shall not be required to, accept the reports to be delivered to the holder of the mortgage resulting from the Refinancing Event in place of the foregoing requirements. (b) Income Reports. In addition to the requirements of subsection (a) above, Borrower shall furnish, or cause the Lightstone Property Owners to furnish, to Lender no later than March 31 of each year (i) a statement itemizing the sources and types of gross revenue for the preceding Fiscal Year paid by tenants to each Lightstone Property Owner and to Martinsburg Mall LLC in accordance with Occupancy Leases and reflecting other miscellaneous income, and (ii) such other year end reports and other information as Lender reasonably may request. (c) Other Reports. In addition, Borrower shall furnish or cause the Lightstone Property Owners to furnish to Lender copies of any and all reports furnished under any management agreement or leasing agreement to the extent not otherwise provided to Lender hereunder. 11.3 Lender's Right to Audit. The books, accounts and records of Borrower and the Lightstone Property Owners shall at all times be maintained at Borrower's Property Management Office. Upon reasonable notice to Borrower, Lender may at its option and expense conduct audits of the books, records and accounts of the Lightstone Properties, on either a continuing or periodic basis or both, by employees of Lender, an Affiliate of Lender, or by a national firm of independent certified public accountants selected by Lender ("Auditor"). If Lender's accountants are not the Auditor and disagree with the Auditor's decision as to any matter concerning the books, accounts and records of any Lightstone Property, Lender may notify Borrower of such disagreement, and Borrower and Lender shall cause the Auditor and Lender's accountants, respectively, to hold such meetings and discussions as they shall deem necessary concerning the disagreement and to use all reasonable efforts to reach a mutually acceptable resolution of the matter in question. If the Auditor and the Lender's accountants are unable to reach a mutually acceptable resolution of the matter in question, they shall select a national firm of certified public accountants to act as a third auditor to review and make a determination as to the matter in question. Such third auditor's determination shall be final and binding upon the parties, the Auditor and Lender's accountants. Such third auditor shall have full access to the books, records and accounts of the Lightstone Properties. The charges and expenses of such third auditor shall be paid by Borrower as an Operating Expense. ARTICLE TWELVE MANAGEMENT OF THE PROPERTIES 12.1 Management. Borrower shall be responsible for providing or causing to be provided all services necessary, proper, desirable or appropriate for the successful leasing, operating, repair and management of the Lightstone Properties in the manner of similar properties in their respective general areas, and shall cause such management services to be performed as hereinafter set forth. Any management agreement shall be in form and substance satisfactory to Lender and shall be terminable upon thirty (30) days' prior notice. Any management agreement shall also provide that all amounts coming due to the managing agent thereunder shall be earned, due and payable only if, as, and when, and to the extent that, all Indebtedness amounts then due and payable have been paid. Any managing agent must be approved by Lender before retained to serve as such. Subject to the preceding provisions of this Section, Lender agrees not to unreasonably withhold Lender's approval of a manager selected by Borrower, so long as the aggregate amount of fees and other compensation to be paid to said managing agent, pursuant to a management agreement between Borrower and said managing agent that is acceptable to Lender, shall not exceed three and one-half percent (3.5%) of the rent and other direct income from the operation of the Lightstone Property or Lightstone Properties in question. Any replacement managing agent or management agreement shall be subject to Lender's prior written approval. The managing agent or managing agents of the Lightstone Properties always shall use their best efforts (and their respective management agreements expressly shall so require) to manage the Lightstone Properties in such a manner that the rental income derived therefrom would qualify as "rents from real property" as that term is defined in Section 856(d)(1) of the Internal Revenue Code if the owner were a real estate investment trust. 12.2 Service Agreements. Copies of all service agreements shall be delivered to Lender, if Lender so requests, and shall be maintained at Borrower's Property Management Office available for inspection by Lender at all reasonable times. 12.3 Occupancy Leases. All Occupancy Leases with respect to any of the Lightstone Properties will be bona fide, good faith, arm's length leases in writing with third parties that are not Affiliates of Borrower or any of the Lightstone Property Owners (and Borrower will promptly furnish copies thereof to Lender, if Lender so requests, and will maintain copies thereof at Borrower's Property Management Office available for Lender's inspection at all reasonable times). ARTICLE THIRTEEN TRANSFER OF INTERESTS; NO FURTHER FINANCING 13.1 Transfers. (a) Except as otherwise expressly set forth herein, no Lightstone Property, or any part thereof, no Pledged Collateral, and no direct or indirect interest in any Lightstone Property Owner or in Borrower, or in any entity that has any direct or indirect interest in any Lightstone Property Owner or in Borrower, shall be Transferred without the prior written consent of Lender which shall not be unreasonably withheld. Any Transfer or attempted Transfer not permitted under the terms hereof shall be void ab initio and of no force or effect. 13.2 No Financing. Neither Borrower, nor any Lightstone Property Owner, nor any of their Affiliates, shall have the right to enter into a Refinancing Event without the prior written consent of Lender which shall not be unreasonably withheld. ARTICLE FOURTEEN MISCELLANEOUS 14.1 Notices. All notices, demands, consents, requests, instructions and approvals ("Notice") herein required or permitted shall be in writing and shall be either telecopied (except that default Notices shall not be effective if only telecopied), delivered by a reputable overnight courier that provides a receipt to sender, or mailed by certified mail, return receipt requested, postage pre-paid, to the recipient at such recipient's address set forth below (or at such other address for a party as shall be specified by Notice given pursuant hereto): If to Borrower or any Lightstone Property Owner to: [Name of Addressee ] ----------------------------- The Lightstone Group 326 Third Street Lakewood, New Jersey 08701 Attention: David Lichtenstein Telecopy: (732) 363 7183 and in any of the foregoing cases with a copy to: Sheldon Chanales, Esq. Herrick, Feinstein LLP 2 Park Avenue New York, New York 10016 Telecopy: (212) 592-1472 And a copy to: Corporate Counsel The Lightstone Group 326 Third Street Lakewood, NJ 08701 Telecopy: (732) 363-7183 and if to Lender to: Presidential Realty Corporation 180 South Broadway White Plains, New York 10605 Attention: Mr. Jeffrey F. Joseph, President Telecopy: (914) 948-1327 with a copy to: Cuddy & Feder LLP 90 Maple Avenue White Plains, New York 10601 Attention: Kenneth F. Jurist, Esq. and Chauncey L. Walker, Esq. Telecopy: (914) 761-5372 All Notices shall be effective and deemed received three days after deposit in the mail, postage prepaid, if mailed, and upon receipt in the case of telecopy or if sent by overnight courier. Each Notice shall bear the date on which it is delivered or mailed. In the event Notice is sent by telecopy, the notifying party shall endeavor also to mail a copy of such Notice, but failure to do so shall not affect the validity of such Notice as so telecopied, except with respect to default Notices. 14.2 Entire Agreement; No Oral Changes. This Loan Agreement, the other Loan Documents, the other documents and instruments referred to herein, a certain loan agreement of even date herewith between David Lichtenstein and PRC Member LLC, a Delaware limited liability company, and the loan documents and other documents and instruments (if any) referred to therein, and any other documents executed and delivered contemporaneously herewith, embody the entire agreement and understanding between Lender and Borrower and their Affiliates relating to the subject matter hereof and supersede all prior agreements and understandings relating thereto. This Loan Agreement may not be changed orally, but only by an instrument in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. 14.3 Captions. The headings to the Articles and Sections of this Loan Agreement have been inserted solely for convenience of reference and shall not modify, define or limit the provisions of this Loan Agreement. 14.4 Governing Law. This Loan Agreement and the other Loan Documents have been prepared, negotiated, executed and delivered wholly in the State of New York and shall be governed by, construed, and enforced in accordance with the laws of the state of New York applicable to agreements to be performed entirely within New York. 14.5 Further Assurances. Borrower agrees to execute and deliver such other instruments as may be reasonably requested from time to time by Lender to effect and confirm the transactions described and contemplated hereby. 14.6 Interest Limitation. Notwithstanding anything contained to the contrary in this Loan Agreement, or the Note or any other Loan Document, the obligation of Borrower to pay Interest to Lender shall be subject to the limitation that such payment of Interest shall not be required to the extent that receipt thereof by Lender would be contrary to the provisions of law applicable to Lender limiting the maximum rate of interest which may be charged or collected by Lender. 14.7 Estoppel Certificates. Promptly upon the written request of Lender and Borrower shall execute and deliver to Lender, in such form as Lender shall reasonably request, a certificate confirming (i) that as of the date of such certificate the Loan Documents are in full force and effect (ii) the amount of Principal and Interest outstanding as of the date of such certificate, (iii) that as of the date of such certificate there is no Default or Event of Default under the Loan Documents, or if there is any such Default or Event of Default describing the same in reasonable detail, and (iv) such other matters as Lender may reasonably request. 14.8 Interpretation. In this Agreement, unless otherwise specified, (i) singular words include the plural, and plural words include the singular; (ii) words that include a number of constituent parts, things or elements shall be construed as referring separately to each constituent part, thing or element thereof, as well as to such constituent parts, things or elements as a whole; (iii) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural forms thereof, as the context shall require; (iv) references to any Person include its successors and assigns and, in the case of an individual, the word "successors" includes such individual's heirs, devisees, legatees, executors, administrators, and personal representatives; (v) references to any statute or other law include all rules, regulations and orders adopted or made thereunder and all statutes or other laws amending, consolidating or replacing the statute or law referred to; (vi) references to any agreement or other document include all subsequent amendments or other modifications thereof; (vii) the words "include" and "including", and words of similar import, shall be deemed to be followed by the words "without limitation"; (viii) the words "hereto", "herein", "hereof" and "hereunder", and words of similar import, refer to this Loan Agreement in its entirety; (ix) references to Articles, Sections or paragraphs are to the Articles, Sections or paragraphs of this Loan Agreement; (x) no reference to a financing, Refinancing Event, refinancing, or mortgage on any Lightstone Property or Lightstone Properties (other than the First Mortgage) shall be construed as permitting any such financing, Refinancing Event, refinancing, or mortgage event to occur without Lender's prior consent, all of which (except as otherwise in this Loan Agreement expressly provided to the contrary) shall require Lender's prior consent (which Lender covenants not unreasonably to withhold) (reference is made to Article 13 hereof); and (xi) references to mortgages shall include deeds of trust, and references to foreclosure of a mortgage shall include the acts of a trustee under a deed of trust to realize upon the security for the benefit of the beneficiary by exercising a power of sale, taking possession of the mortgaged property, or otherwise. 14.9 Non-Recourse. Notwithstanding anything herein or in any other Loan Document to the contrary, except as otherwise set forth in this Section 14.9 to the contrary, Lender shall not enforce the liability and obligation of Borrower or any of its members to perform and observe the obligations contained in this Agreement or any of the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower or its members, except that Lender may bring a foreclosure action, action for specific performance, or other appropriate action or proceeding (including, without limitation, an action to obtain a deficiency judgment) solely for the purpose of enabling Lender to realize upon (i) Borrower's interest in the Pledged Collateral, (ii) rents to the extent received by Borrower (or received by its members) after the occurrence of an Event of Default (the "Recourse Distributions") and (iii) any other collateral given to Lender under the Loan Documents (the collateral described in the foregoing clauses (i) - (iii) is hereinafter referred to as the "Default Collateral"); provided, however, that any judgment in any such action or proceeding shall be enforceable against Borrower or its members, as the case may be, only to the extent of any such Default Collateral. The provisions of this Section shall not, however, (a) impair the validity of the debt evidenced by the Note or in any way affect or impair this Agreement or any of the other Loan Documents or the right of Lender to foreclose upon the Pledged Collateral following the occurrence of an Event of Default; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under this Agreement; (c) affect the validity or enforceability of the Note, this Agreement, or any of the other Loan Documents, or impair the right of Lender to seek a personal judgment against Guarantor; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of the Pledge Agreement; (f) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to any losses resulting from fraud or intentional misrepresentation by Borrower, Guarantor or any of their Affiliates in connection with this Agreement, the Note or the other Loan Documents, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower, Guarantor or any of their Affiliates with respect to same; (g) impair the right of Lender to bring suit for a monetary judgment against Borrower to obtain the Recourse Distributions received by Borrower including, without limitation, the right to bring suit for a monetary judgment to proceed against Guarantor to the extent of Guarantor's liability under the Guaranty, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower or Guarantor with respect to same; (h) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to any losses resulting from Borrower's misappropriation of tenant security deposits or other payments, including, without limitation, rent collected more than one (1) month in advance, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower with respect to same; (i) impair the right of Lender to enforce the provisions of Articles Six and Seven of this Agreement, even after repayment in full by Borrower of Principal, Interest and any other amount due to Lender or to bring suit for a monetary judgment against Borrower with respect to any losses resulting from any obligation set forth in said Articles; (j) prevent or in any way hinder Lender from exercising, or constitute a defense, or counterclaim, or other basis for relief in respect of the exercise of, any other remedy against any or all of the collateral securing the Note as provided in the Loan Documents; (k) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to any losses resulting from any misappropriation or conversion of insurance proceeds and condemnation awards, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower with respect to same; (l) impair the right of Lender to sue for, seek or demand a deficiency judgment against Borrower solely for the purpose of foreclosing the Pledged Collateral or any part thereof; provided, however, that any such deficiency judgment referred to in this clause (l) shall be enforceable against Borrower and Guarantor only to the extent of any of the Pledged Collateral; (m) impair the ability of Lender to bring suit for a monetary judgment against Borrower with respect to any losses resulting from arson or physical waste to or of any Lightstone Property or damage to any Lightstone Property in each case resulting from the intentional acts or intentional omissions of Borrower, Guarantor or any of their Affiliates; (n) impair the right of Lender to bring a suit for a monetary judgment against Borrower in the event of the exercise of any right or remedy under any federal, state or local forfeiture laws resulting in the loss of the security interest in the Pledged Collateral, or the priority thereof; (o) be deemed a waiver of any right which Lender may have under any provision of the Bankruptcy Code to file a claim for the full amount of the debt or to require that all the Pledged Collateral shall continue to secure all of the debt; (p) impair the right of Lender to bring suit for monetary judgment against Borrower with respect to any losses resulting from any claims, actions or proceedings initiated by Borrower (or any Affiliate of Borrower) alleging that the relationship of Borrower and Lender is that of joint venturers, partners, tenants in common, joint tenants or any relationship other than that of debtor and creditor; or (q) impair the right of Lender to bring suit for a monetary judgment with respect to any losses resulting from a Transfer in violation of the provisions hereof. The provisions of this Section shall be inapplicable to Borrower if (a) any proceeding, action, petition or filing under the Bankruptcy Code, or any similar state or federal law now or hereafter in effect relating to bankruptcy, reorganization or insolvency, or the arrangement or adjustment of debts, shall be filed by, consented to or acquiesced in by or with respect to Borrower, or if Borrower shall institute any proceeding for its dissolution or liquidation, or shall make an assignment for the benefit of creditors or (b) Borrower or any Affiliate contests or interferes with Lender's enforcement of its rights and remedies hereunder or under the Loan Documents by asserting any defense (x) as to the validity of the obligations under the Loan Documents or in any way relating to the structure of the Borrower or the enforceability of Lender's rights and remedies under the Loan Documents, or (y) for the purpose of delaying, hindering or impairing Lender's rights and remedies under the Loan Documents (collectively, a "contest") (provided that if any such Person obtains a non-appealable order successfully asserting a contest, Borrower shall have no liability under this clause (b)), in which event Lender shall have recourse against all of the assets of Borrower including, without limitation, any right, title and interest of Borrower in and to the Pledged Collateral. 14.10 Counterparts. This Agreement may be executed in counterparts, and all counterparts so executed shall for all purposes constitute but one Agreement, binding on all the parties hereto, notwithstanding that all parties shall not have executed the same counterpart. 14.11 No Partnership. Nothing contained in this Agreement shall be deemed to constitute the parties hereto as partners or joint venturers in any manner or matter whatsoever. 14.12 Resolution of Drafting Ambiguities. Lender, Borrower and the Lightstone Property Owners acknowledge that they were represented by experienced counsel in connection with the preparation, execution and delivery of the Loan Documents and that their counsel negotiated all of the Loan Documents on their behalf and that any rule of construction under any applicable law to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of any of the Loan Documents. 14.13 No Waiver; Cumulative Remedies and Rights Lender shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Lender, and then only to the extent therein set forth. A waiver by Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Lender would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently and shall be construed as affording Lender rights additional to and not exclusive of any rights and remedies conferred under the laws of the state of New York, any other laws or any other Security Instrument or Loan Document. 14.14 Certain Consents. If Borrower or any Lightstone Property Owner (the "requesting party") shall seek the approval by or consent of Lender under this Loan Agreement or any of the other Loan Documents, and Lender shall fail or refuse to give such consent or approval, then the requesting party shall not be entitled to any damages for any withholding or delay of such approval or consent by Lender, it being intended that the requesting party's sole remedy shall be an action for injunction or specific performance, which remedy of an injunction or specific performance shall be available only in those cases in which Lender has expressly agreed under the applicable instrument or agreement not unreasonably to withhold or delay its consent or approval. 14.15 Payment Days. In the event that any payment of Interest, Principal, or any other payment to be made by Borrower to Lender hereunder or under any of the other Loan Documents shall fall on a day which is a Saturday, Sunday or any other day on which commercial banks in New York City are closed for business, any such payment shall be made on the next succeeding business day. 14.16 Severability. In the event that any provision of this Loan Agreement or the application thereof to Borrower or the Lightstone Property Owners, in any circumstance, shall, to any extent, be invalid or unenforceable under any applicable statute, regulation or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith, and shall be deemed modified to conform to such statute, regulation or rule of law, and the remainder of this Loan Agreement and the application of any such invalid or unenforceable provision to parties, jurisdictions, or circumstances other than to whom or which it is held invalid or enforceable, shall not be affected thereby nor shall same affect the validity or enforceability of any other provision of this Loan Agreement. 14.17 Consent to Jurisdiction. Any court action brought to interpret or enforce any provision of this Loan Agreement or any other Loan Document or to prosecute any claim arising hereunder or thereunder must be commenced and maintained in the state or federal courts in the State of New York. Borrower, the Lightstone Property Owners, and their Affiliates hereby irrevocably submit to the exclusive jurisdiction and venue of the state and federal courts in the State of New York for such purposes. Borrower hereby appoints Sheldon Chanales, Esq. of Herrick, Feinstein LLP, 2 Park Avenue, New York, New York 10016, and any member of Herrick, Feinstein LLP or any successor firm, as agent for Borrower, the Lightstone Property Owners and their Affiliates for receipt of service of process on their behalf in connection with any suit, writ, restraint, execution or discovery or supplementary procedures in connection with the interpretation and/or enforcement of any provision of this Loan Agreement and the other Loan Documents and any claims arising hereunder or thereunder. Service shall be effected by any means permitted by the court in which any action is filed, shall be deemed received as therein provided. 14.18 Waiver of Jury Trial. Borrower and the Lightstone Property Owners hereby irrevocably waive all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Loan Agreement or any of the other Loan Documents. LIGHTSTONE MEMBER LLC By: /s/ David Lichtenstein ---------------------------------------- David Lichtenstein, Managing Member PRESIDENTIAL REALTY CORPORATION By: /s/ Jeffery F. Joseph ---------------------------------------- Jeffrey F. Joseph, President The undersigned Lightstone Property Owners have executed, acknowledged and delivered this Loan Agreement for the purpose of evidencing their consent and agreement to this Loan Agreement to the extent applicable to them: WEST MANCHESTER MALL LLC BRADLEY SQUARE MALL LLC MOUNT BERRY SQUARE MALL LLC and SHENANGO VALLEY MALL LLC All By:/s/ David Lichtenstein ------------------------------------- David Lichtenstein, President State of New York ) )ss.: County of Westchester ) On the 22 day of September in the year 2004 before me, the undersigned, personally appeared Jeffrey F. Joseph, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ Debra Liebler-Jones -------------------------- Notary Public Debra Liebler-Jones Notary Public, ST.of NY Putnam Cty CLK #01J06005994 Commission Expires 4/20/06 State of New Jersy ) )ss.: County of Ocean ) On the 22 day of September in the year 2004 before me, the undersigned, personally appeared David Lichtenstein, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ Theresa McCormick -------------------------- Notary Public Theresa A. McCormick Notary Public of New Jersy My Commission Expires Feb. 14, 2008 EXHIBIT A-1 LIGHTSTONE PROPERTIES West Manchester Mall 1800 Loucks Road York, Pennsylvania 17404 Mount Berry Square Mall 993 Mount Berry Square Rome, Georgia 30165 Bradley Square Mall 200 Paul Huff Parkway Cleveland, Tennessee 37312 Shenango Valley Mall 3303 East State Street Hermitage, Pennsylvania 16148 EXHIBIT A-2 MARTINSBURG PROPERTY Martinsburg Mall 800 Foxcroft Avenue Martinsburg, West Virginia 25401 EXHIBIT B LIGHTSTONE PROPERTY OWNERS The following Delaware limited liability companies, all having an address at 326 Third Street, Lakewood, New Jersey 08701: West Manchester Mall LLC West Manchester Mall York, Pennsylvania Bradley Square Mall LLC Bradley Square Mall Cleveland, Tennessee Mount Berry Square Mall LLC Mount Berry Square Mall Rome, Georgia Shenango Valley Mall LLC Shenango Valley Mall Hermitage, Pennsylvania EXHIBIT C ALLOCATION OF THE LOAN TO THE LIGHTSTONE PROPERTIES West Manchester Mall LLC $3,268,000 Bradley Square Mall LLC $1,290,000 Mount Berry Square Mall LLC $2,580,000 Shenango Valley Mall LLC $1,462,000 ---------- $8,600,000 ========== -----END PRIVACY-ENHANCED MESSAGE-----