exv10w20wb






Exhibit 10.20(b)




Pages where confidential treatment has been requested are stamped:

“Confidential treatment has been requested.

Redacted material has been separately filed with the Commission.”

All redacted material has been marked by the symbol: [***].




Exhibit 10.20(b) —

Exhibits and Schedules to Loan Agreement between Bonstores Realty One, LLP and Bank

of America, N.A.



 









 





EXHIBIT A




Form of Tenant Estoppel Certificate



Exhibit A-1



 









 





Date: As of March 6, 2006




ESTOPPEL CERTIFICATE




     This Certificate is given to BANK OF AMERICA, N.A. (together with successors and assigns,
collectively, the “Lender”) and BONSTORES REALTY ONE, LLC, a Delaware limited liability
company (“Landlord”), by HERBERGER’S DEPARTMENT STORES, LLC, a Minnesota limited liability
company (“Tenant”), with the understanding that the Lender and Landlord and their
respective counsel will rely on this Certificate in connection with a proposed mortgage loan (the
“Loan”) on West Acres Mall, Fargo, North Dakota 58103 (the “Property”).


Tenant hereby certifies as follows:



1. The undersigned is the Tenant under that certain Lease dated as of March 6, 2006 (the
“Lease”) executed by Landlord, as landlord and Tenant, as tenant. A true, correct and
complete copy of the Lease, together with any amendments, modifications and supplements thereto, is
attached hereto. The Lease is the entire agreement between Landlord (or any affiliated party) and
Tenant (or any affiliated party) pertaining to the leased premises. There are no amendments,
modifications, supplements, arrangements, side letters or understandings, oral or written, of any
sort, of the Lease.



2. Tenant’s Lease terms: the expiration date of the term of the Lease is April 30, 2021; the
current fixed annual minimum rent is $740,588.00, payable monthly in arrears on the last Business
Day of each calendar month; the first payment of $51,841.16 is due on March 6, 2006; the next rent
payment of $61,715.67 is due on April 30, 2006; no rent has been prepaid except for the current
month; Tenant agrees not to pay rent more than one month in advance; rent payments begin on March
6, 2006; the fixed annual minimum rent is subject to rental increases as set forth in the Lease;
and Tenant has paid a security deposit of $-0-.



3. Tenant does not have any right or option to renew or extend the term of the Lease, or to expand
into any additional space, or to terminate the Lease in whole or in part prior to the expiration of
the term, or to purchase all or any part of the Property.



4. The Lease has been duly executed and delivered by, and is a binding obligation of, Tenant, and
the Lease is in full force and effect.



5. Tenant has unconditionally accepted the Property and is satisfied with all the work done by and
required of Landlord; Tenant has taken possession and is in occupancy of the Property and is open
for business; rent payments have commenced, all tenant improvements in the Property have been
completed by Landlord; and as of the date hereof Tenant is not aware of any defect in the Property
which Landlord is obligated to repair.



6. All obligations of Landlord under the Lease have been performed, and Landlord is not in default
under the Lease. There are no offsets or defenses that Tenant has against the full enforcement of
the Lease by Landlord.







 









 







7. Tenant is not in default under the Lease. The Tenant has not assigned, transferred or
encumbered its interest in the Lease and Tenant has not entered into any sublease or other
occupancy agreement with respect to the Property except as permitted under the Lease and any such
subleases comply with the provisions of the Landlord’s loan agreement with Lender. Tenant is not
insolvent and is able to pay its debts as they mature. Tenant has not declared bankruptcy or
similar insolvency proceeding, and has no present intentions of doing so, no such proceeding has
been commenced against Tenant seeking such relief, and Tenant has no knowledge that any such
proceeding is threatened. There are no proceedings, pending or threatened, against Tenant before
or by any court or administrative agency which if adversely decided would materially and adversely
affect the financial condition and operations of Tenant or if any such proceedings are pending or
threatened to said signer’s knowledge, specifying and describing the same.



8. Tenant is authorized and registered to do business in the state where the Leased Property is
located.



9. Tenant hereby represents and warrants that it and every Person affiliated with Tenant or that to
Tenant’s knowledge has an economic interest in Tenant is (i) not a “blocked” person listed in the
Annex to Executive Order Nos. 12947, 13099 and 13224 and all modifications thereto or thereof (the
“Annex”); (ii) in full compliance with the requirements of the Patriot Act and all other
requirements contained in the rules and regulations of the Office of Foreign Assets Control,
Department of the Treasury (the “OFAC”); (iii) operated under policies, procedures and
practices, if any, that are in compliance with the Patriot Act and available to Landlord or Lender
for Lender’s review and inspection during normal business hours and upon reasonable prior notice;
(iv) not in receipt of any notice from the Secretary of State or the Attorney General of the United
States or any other department, agency or office of the United States claiming a violation or
possible violation of the Patriot Act; (v) not listed as a Specially Designated Terrorist or as a
“blocked” person on any lists maintained by the OFAC pursuant to the Patriot Act or any other list
of terrorist organizations maintained pursuant to any of the rules and regulations of the OFAC
issued pursuant to the Patriot Act or on any other list of terrorists or terrorist organizations
maintained pursuant to the Patriot Act; (vi) not a person who has been determined by competent
authority to be subject to any of the prohibitions contained in the Patriot Act; and (vii) not
owned or controlled by or now acting and or will in the future act for or on behalf of any person
named in the Annex or any other list promulgated under the Patriot Act or any other person who has
been determined to be subject to the prohibitions contained in the Patriot Act. Tenant covenants
and agrees that in the event Tenant receives any notice that Tenant (or any of its beneficial
owners or affiliates or participants) become listed on the Annex or any other list promulgated
under the Patriot Act or is indicted, arraigned, or custodially detained on charges involving money
laundering or predicate crimes to money laundering, Tenant shall immediately notify Landlord and
Lender. All capitalized words and phrases and all defined terms used in the USA Patriot Act of
2001, 107 Public Law 56 (October 26, 2001) and in other statutes and all orders, rules and
regulations of the United States government and its various executive departments, agencies and
offices related to the subject matter of the Patriot Act, including Executive Order 13224 effective
September 24, 2001 (collectively, the “Patriot Act”) and are incorporated into this
paragraph 9.




-2-









 








     The term “Lender” as used herein includes any successor or assign of the named Lender and the
term “Landlord” as used herein includes any successor or assign of the named Landlord.
The person executing this Estoppel Certificate is authorized by Tenant to do so and execution
hereof is the binding act of Tenant enforceable against Tenant.



[SIGNATURES APPEAR IMMEDIATELY ON FOLLOWING PAGE]









-3-









 








(signature page to Estoppel Certificate)




     Executed as of the date first set forth hereinabove.



	 	 	 	 	 
	 	TENANT:



a                         
                 corporation [or limited

liability company]

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



 









 






EXHIBIT B




Borrower Equity Ownership Structure










Exhibit B-1









 








Mortgage Loan Facility




Special Purpose Entity Structure Chart








 









 








EXHIBIT C




Nonconsolidation Opinion










Exhibit C-1









 








March 6, 2006



To The Parties Identified on Schedule A





	 	Re: 	 	 Loan Identified in Schedule A Made by the

Lender Identified in Schedule A to the

Borrower Identified in Schedule A and

Secured by the Properties Identified in Schedule B




Gentlepersons:




     We have acted as counsel to the Borrower in connection with the Loan. The Loan is to be
evidenced by a Promissory Note and secured by mortgages on the real property identified in Schedule
B.



     The Bon-Ton Department Stores, Inc., a Pennsylvania corporation (“Department Stores”), is,
concurrently with closing of the Loan, acquiring all of the equity interests of Herberger’s
Department Stores, LLC, a Minnesota limited liability company (“Herberger’s”), and Parisian Inc.,
an Alabama corporation (“Parisian”). Parisian owns all the equity interests of McRae’s, Inc.
(“McRae’s”), McRIL, LLC (“McRIL”), and Saks Distribution Centers, Inc. (“Distribution Center”).
Herberger’s, Parisian, McRae’s and McRIL each own one or more parcels of real property on which
they operate a department store. Distribution Center owns a parcel of real estate on which it
operates a distribution center. The Elder-Beerman Stores Corp (“Elder-Beerman”) owns two parcels
of real property on which it operates department stores. The real estate that is being transferred
to the Borrower is collectively referred to as the “Properties.” Immediately prior to the closing
date, each of the Properties were owned by Herberger’s, Parisian, McRae, or McRIL, Distribution
Center or Elder-Beerman (collectively, the “Former Owners”).



     We have been advised that on the closing date each Former Owner contributed its respective
Properties to the Borrower in return for a membership interest in the Borrower (the “Membership
Interest”) that is proportionate to the fair market value of such Properties. Thereafter: (a)
each of McRae’s and McRIL and the Distribution Center dividended to Parisian the Membership
Interest it owns; (b) Parisian and Herberger’s dividended the Membership Interest each owns and the
Membership Interest referred to in the immediately preceding clause to Department Stores; (c)
Elder-Beerman dividended the Membership Interest it owns to Department Stores; (d) Department
Stores contributed all of the Membership Interest referred to above in this paragraph to Bonstores
Holdings One, LLC (“Holdings”); and (e) Borrower has entered into leases (“Leases”) with each
entity which originally owned that Property (collectively, “Tenants”) pursuant to triple net
leases. As a result of the foregoing, each Former Owner has deeded its Properties to the Borrower.
Both Borrower and the Tenants are indirect, wholly-owned subsidiaries of The Bon-Ton Stores, Inc.,
a Pennsylvania corporation (“Bon-Ton Stores”).


     Bonstores Holdings One, LLC, a Delaware limited liability company (“Holdings”), will be the
Borrower’s sole member. Department Stores is Holdings’ sole member. The Bon-Ton Corp., a Delaware
corporation (the “Bon-Ton Corp.”), is the sole shareholder of Department





 









 








To The Parties Identified on Schedule A

March 6, 2006

Page 2



Stores. Bon-Ton Stores is the sole shareholder of Bon-Ton Corp. Holdings, Department Stores, Bon-Ton
Corp., Bon-Ton Stores and Tenants are jointly referred to as the “Opinion Parties”.




     You have requested our opinion as to whether in a competently presented and argued case under
Title 11 of the United States Code, as amended (the “Bankruptcy Code”), in which any one or more of
the Opinion Parties was the debtor, a bankruptcy court would disregard the separate existence of
the Borrower so as to order the substantive consolidation of the assets and liabilities of the
Borrower with those of any one or more of the Opinion Parties.



     We have reviewed such documents as we deem necessary to render this opinion, including the
organization documents listed on Exhibit “A” attached hereto and the loan documents listed on
Exhibit “B” attached hereto.



ASSUMPTIONS OF FACT




     In rendering this opinion, all assumptions have been made without investigation or
confirmation of the facts referred to herein, other than as set forth in the preceding paragraph.
We assume that the facts set forth herein which have been certified by an authorized representative
of the Borrower in the Certificate attached hereto as Exhibit “C” are, and will continue to be,
true at all relevant times in all respects material to this opinion.



     In rendering this opinion, we have assumed the following in all respects material to this
opinion: (1) the due authorization, execution and delivery of the organization documents listed on
Exhibit “A,” the loan documents listed on Exhibit “B” and any other instruments or documents
executed for purposes of consummating the transaction evidenced by the loan documents; (2) the
authenticity of all documents submitted to us as originals; (3) the conformity to the original
documents of all documents submitted to us as copies; (4) the genuineness of all signatures on all
documents submitted to us; (5) that, at the time of execution and delivery of the organization
documents listed on Exhibit “C” and the loan documents listed on Exhibit “B” and consummation of
the transactions evidenced thereby, the Borrower is solvent, is able to pay its debts as they
become due, has capital sufficient to carry on its business, and will not be rendered insolvent by
the execution and delivery of the loan documents, or by the consummation of the transactions
evidenced thereby; and (6) that on or prior to the date hereof, no petition in bankruptcy has been
filed (or similar insolvency proceeding commenced) by or against the Borrower.



     For purposes of this opinion, we have relied on the accuracy of, and compliance by the
Borrower in all respects material to its separateness with all of the Borrower’s representations
and warranties and covenants to perform its obligations in the future in accordance with (a) the
terms of the organization documents listed on Exhibit “A,” the loan documents listed on Exhibit “B”
and any other instruments executed in connection therewith, and (b) the Certificate attached hereto
as Exhibit “C.” We have also relied on the accuracy of the assumptions set forth herein. All of
the facts that are set forth herein with respect to the Borrower are qualified in their entirety by
our acknowledgement that we are assuming such facts only to the extent that they are material to
the separateness of the Borrower.



 









 





To The Parties Identified on Schedule A

March 6, 2006

Page 3




     We understand such facts to be as follows:



     Organization. The Borrower is a newly formed, special purpose, limited liability
company duly organized and validly existing under the laws of the State of Delaware.



     Existence. The Borrower maintains, at all times has maintained, and will maintain,
its existence and its good standing under the laws of the State of Delaware. The Borrower has not
engaged in any fraudulent activity. The Borrower was not established for the purpose of
perpetrating a fraud.



     Ownership. After closing of the Loan, Holdings will hold the 100% equity interest in
the Borrower. Department Stores holds, and at all times has held, the 100% equity interest in
Holdings and is the direct or indirect parent of each Tenant. Department Stores holds significant
assets other than its indirect equity interest in Borrower.



     Limited Activities. The Borrower’s sole business is to engage in the following
activities:




	 	(i)	 	to acquire, own, hold, lease, operate, manage, maintain, develop and improve,
certain of the real property described in the Loan Documents (the “Property”);
	 
	 	(ii)	 	to enter into and perform its obligations under the Loan Documents;
	 
	 	(iii)	 	to sell, transfer, service, convey, dispose of, pledge, assign, borrow money
against, finance, refinance or otherwise deal with the Property to the extent permitted
under the Loan Documents; and
	 
	 	(iv)	 	to engage in any lawful act or activity and to exercise any powers permitted to
limited liability companies organized under the laws of the State of Delaware that are
related or incidental to and necessary, convenient or advisable for the accomplishment
of the above-mentioned purposes.





     Procedures Observed. The Borrower observes, at all times has observed, and will
observe, all procedures required by its Limited Liability Company Agreement dated March 6, 2006,
and the laws of the State of Delaware, in each case insofar as they pertain to separateness.



     Management of the Borrower. The business and affairs of the Borrower are, at all
times have been, and will be, managed solely by its Board of Directors. The Borrower ensures, at
all times has ensured, and will ensure, that its Board of Directors duly authorizes all of the
Borrower’s actions to the extent required by the LLC Agreement. The Borrower may not commence a
voluntary bankruptcy case without the prior unanimous written consent of Holdings
and the Borrower’s Board of Directors, including the Independent Directors (as discussed in
the Independent Director section below).



     Management of the Property. The Properties are leased under “triple net leases” to
Tenants which are related parties which leases have terms and conditions similar to those by



 









 





To The Parties Identified on Schedule A

March 6, 2006

Page 4



which Department Stores leases properties from unrelated third parties. Cushman & Wakefield of Illinois,
Inc. (“Appraiser”) has opined as to these matters.




     Independent Director. The LLC Agreement provides that so long as any obligation of
the Borrower to the Lender is outstanding, the Borrower shall not take any material action without
the affirmative vote of two “Independent Directors,” as defined in the LLC Agreement.



     Records. The Borrower maintains, at all times has maintained, and will maintain, its
financial statements, books and records, and bank accounts separate and apart from those of the
Opinion Parties. If its financial statements are consolidated, the Borrower will cause the
financial statements to contain footnotes disclosing that the Properties are actually owned by the
Borrower.



     Identifiable Assets. The Borrower’s funds and other assets are, at all times have
been, and will be, identifiable, and are not, have never been, and will not be, commingled with
those of the Opinion Parties. The Borrower maintains, at all times has maintained, and will
maintain, bank accounts separate and apart from those of the Opinion Parties.



     Capitalization. The Borrower is, at all times has been, and intends to remain,
solvent, and maintains, at all times has maintained, and intends to continue to maintain, adequate
capital for the normal obligations reasonably foreseeable in a business of its size and character
and in light of its contemplated operations. Notwithstanding anything herein to the contrary, we
do not assume that the Borrower will remain solvent in the future, remain adequately capitalized,
will be able to pay its obligations as they become due, or will not become a debtor under the
Bankruptcy Code.



     Expenses. The Borrower pays, at all times has paid, and will pay, from its own funds
and assets (to the extent such assets are available) all obligations and indebtedness incurred by
it. The Borrower allocates, at all times has allocated, and will allocate, fairly and reasonably
any overhead for shared office space and services performed by any employee of an affiliate.



     Conduct. The Borrower conducts, at all times has conducted, and will conduct, its
business solely in its own name so as not to mislead others as to its individual identity. Without
limiting the generality of the foregoing, all stationery, invoices and checks of the Borrower are,
at all times have been, and will continue to be, solely in the name of the Borrower. The Borrower
will file its own tax returns, if any, as may be required under applicable law. None of the
Borrower’s assets are, at any time have been, or will be, held out to be available to satisfy
obligations of any of the Opinion Parties. The Borrower does not identify, has never identified,
and will not identify, itself or refer to itself as a division or department of any of the Opinion
Parties. None of the Opinion Parties has engaged, or will engage, in any type of fraudulent
activity with respect to the Borrower. The Borrower does not engage, has never engaged, and will
not engage, in any type of fraudulent activity.



     Guarantees. There are no, have never been any, and will be no, guarantees made by the
Borrower with respect to obligations of any of the Opinion Parties. There are no, have never



 









 





To The Parties Identified on Schedule A

March 6, 2006

Page 5



been any, and will be no, guarantees made by any of the Opinion Parties with respect to obligations
of the Borrower, except that Holdings provides an Exceptions to Non-Recourse Guaranty (the
“Non-Recourse Guarantee”). Bon-Ton Stores guarantees the Tenants’ obligations to the Borrower
under the Leases (the “Lease Guaranty” and collectively with the Non-Recourse Guaranty, the
“Guarantees”).




     Reliance by Others. The Borrower acts, at all times has acted, and will act, solely
in its own name, and through its duly authorized member, officers or agents in the conduct of its
business. The Borrower does not, has never, and will not: (a) hold itself out as having agreed to
pay or become liable for the debts of any of the Opinion Parties, or knowingly permit any of the
Opinion Parties to hold itself out as having agreed to pay or become liable for its debts except
for the Guarantees; (b) fail to correct any known misrepresentation with respect to the foregoing;
(c) operate or purport to operate as an integrated, single, economic unit with any of the Opinion
Parties; (d) with the possible exception of the Guarantees, which we analyze below in the
Discussion Section, seek or obtain credit or incur any obligation to any third party based upon the
assets of any of the Opinion Parties; or (e) with the possible exception of the Guarantees, which
we analyze below in the Discussion Section, induce any third party to rely on the creditworthiness
of any of the Opinion Parties. None of the Opinion Parties do or will: (a) hold itself out as
having agreed to pay or become liable for the debts of the Borrower except with respect to the
Non-Recourse Guaranty; (b) operate as an integrated, single, economic unit with the Borrower; or
(c) seek to obtain or incur any obligation to any third party based upon the assets of the
Borrower.



     Arm’s Length. The Borrower maintains, at all times has maintained, and will maintain,
a commercially reasonable and, except for capital contributions and distributions, arm’s length
relationship with the Opinion Parties.



     Disclosure of the Transactions. The accounting records of the Borrower disclose, at
all times have disclosed, and will disclose, the effects of transactions in accordance with
generally accepted accounting principles. In particular, the books, records, financial statements
and bank accounts of the Borrower reflect, at all times have reflected, and will reflect, its
separate assets and liabilities. None of the accounting records for the Borrower state, have ever
stated, or will
state, that the assets of any of the Opinion Parties are available to pay the claims of
creditors of the Borrower except with respect to the Guarantees.



     Reliance. The Lender reasonably relied on the separateness of the Borrower in making
the Loan. The Lender would be prejudiced by the substantive consolidation of the Borrower with any
one or more of the Opinion Parties. A party in interest (which might be the Lender) will object to
any action to consolidate the Borrower with any one or more of the Opinion Parties.



DISCUSSION




     A. General Principles



 









 





To The Parties Identified on Schedule A

March 6, 2006

Page 6




     Substantive consolidation sounds exclusively in equity.

In re Owens Corning, 419 F.3d
195, 205 (3d Cir. 2005), amended, 2005 U.S. App. LEXIS 18043 (3d Cir., August 23, 2005). Its sole
purpose is to ensure the equitable treatment of all creditors, not a particular plaintiff.
Federal Deposit Insurance Corp. v. Colonial Realty Co., 966 F.2d 57, 61 (2d Cir. 1992);
In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515, 518 (2d Cir. 1988); In re
Cooper. 147 B.R. 678, 683-84 (Bankr. D.N.J. 1992). As a result, substantive consolidation does
not require a finding of fraud or an intent to hinder or delay creditors, but merely that
consolidation would be more equitable to all parties under the circumstances. See, In
re Munford, Inc., 115 B.R. 390 (Bankr. N.D. Ga. 1990); In re Tureaud, 45 B.R. 658
(Bankr. N.D. Okla. 1985), aff’d, 59 B.R. 973 (N.D. Okla. 1986).



     Substantive consolidation is a judicially created doctrine arising
from the general equitable
powers granted to the bankruptcy court. In re Reider, 31 F.3d 1102, 1105 (11th Cir. 1994);
Federal Deposit Insurance Corp. v. Colonial Realty Co., 966 F.2d 57, 59 (2d Cir. 1992);
In re Augie/Restivo Baking Co., 860 F.2d 515, 518 (2d Cir. 1988); In re Auto-Train
Corp., 810 F.2d 270, 276 (D.C. Cir. 1987); but see, Bankruptcy Code § 1123(a)(5) (permits
consolidation to implement a plan of reorganization). Under the doctrine of substantive
consolidation, a bankruptcy court may, if appropriate circumstances are determined to exist,
consolidate the assets and liabilities of different entities by merging the assets and liabilities
of an entity affiliated with the debtor into the debtor’s estate and treating the related entities
as a single consolidated entity for the purpose of the bankruptcy case.




	 	 	 	It involves pooling of the assets and liabilities of two or more
related entities; the liabilities of the entities involved are then
satisfied from the common pool of assets created by consolidation....
In addition, substantive consolidation eliminates the
inter-corporate liabilities of the consolidated entities.




Eastgroup Properties v. Southern Motel Assoc., Ltd., 935 F.2d 245, 248 (11th Cir. 1991).
See also, Federal Deposit Insurance Corp. v. Colonial Realty Co., 966 F.2d 57, 58-59 (2d
Cir. 1992).




     Substantive consolidation of a debtor and a non-debtor may be possible, but should occur only
in unusual circumstances. In re Julien Co., 120 B.R. 930 (Bankr. W.D. Tenn. 1990); 2
Collier on Bankruptcy ¶105.09[1][d] at 105-88 (15th ed. rev’d. 1998).



     Consolidation is to be invoked sparingly because of the possibility of unfair treatment of
creditors. In re Owens Corning, 419 F.3d 195, 211 (3d Cir. 2005), amended, 2005 U.S. App.
LEXIS 18043 (3d Cir., August 23, 2005); Federal Deposit Insurance Corp. v. Colonial Realty
Co., 966 F.2d 57, 61 (2d Cir. 1992):




	 	 	 	Only through a searching review of the records on a case-by-case
basis, can a court insure that substantive consolidation effects its
sole aim: fairness to all creditors.




 









 











To The Parties Identified on Schedule A

March 6, 2006

Page 7




     While most courts adhere to this principle, some courts note a liberal trend toward allowing
substantive consolidation which has its genesis in the increased judicial recognition of the
widespread use of interrelated corporate structures by subsidiary corporations operating under a
parent entity’s corporate umbrella for tax and business purposes. See e.g., Eastgroup
Properties v. Southern Motel Assoc., Ltd., 935 F.2d 245, 248-49 (11th Cir. 1991).
Contra, In re Owens Corning, 419 F.3d 195, 209 n.15 (3d Cir. 2005), as amended 2005
U.S. App. LEXIS 18043 (3d Cir., August 23, 2005).



     Given that the power to order substantive consolidation derives from the equitable
jurisdiction of the bankruptcy court, there is no one set of elements which establish or mandate
consolidation in every instance. Case law is only a general guide to the potential applicability
of this doctrine in any particular instance since decisions are made on a case-by-case basis which
reflect the court’s analysis of the particular factual circumstances. Cases which authorize
substantive consolidation generally contain one or more of the following elements: creditors dealt
with related entities as a single economic unit, external confusion, internal ignoring or blurring
of entity separation, or necessity for reorganization.



     Three differing rationales have been adopted by the circuit courts:



     (1) Eastgroup/Auto -Train



     In Eastgroup Properties v. Southern Motel Assoc., Ltd., 935 F.2d 245 (11th Cir. 1991),
the Eleventh Circuit affirmed an order of the bankruptcy court consolidating two debtors’ cases.
The debtors were commonly owned, had the same employees which were paid by one of the debtors to
perform services for both, operated out of the same office, funds were transferred between the
entities, one entity paid at least one debt of another, written agreements between the parties were
not followed and at least one creditor was confused as to which company it did business with.



     The Eleventh Circuit and the District of Columbia Circuit have adopted a three part test, each
part of which must be met, to determine whether to grant a motion for substantive consolidation.
The proponent of substantive consolidation must show (i) there is substantial identity between the
entities to be consolidated, (ii) consolidation is necessary to avoid some harm or to realize some
benefit, and (iii) if a creditor objects and demonstrates that it relied on the separate credit of
one of the entities and that it will be prejudiced by the consolidation, then the court may order
consolidation only if it determines that the demonstrated benefits of consolidation “heavily”
outweigh the harm. The factors which would be considered are:




	 	(a)	 	the presence or absence of consolidated financial statements;
	 
	 	(b)	 	the unity of interests and ownership in various corporate
entities;
	 
	 	(c)	 	the existence of parent and intercorporate guarantees on loans;
	 
	 	(d)	 	the degree of difficulty in segregating and ascertaining
individual assets and liabilities;




 









 











To The Parties Identified on Schedule A

March 6, 2006

Page 8





	 	(e)	 	the existence of transfers of assets without formal
observance of corporate formalities;
	 
	 	(f)	 	the commingling of assets and business functions; and
	 
	 	(g)	 	the profitability of consolidation at a single physical
location.




Eastgroup Properties v. Southern Motel Assoc., Ltd., 935 F.2d 245, 249 (11th Cir. 1991).





	(2)	 	Augie/Restivo





     In In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515, 518-19 (2d Cir. 1988), the
court said:




	 		 	... creditors who make loans on the basis of the financial status of
a separate entity expect to be able to look to the assets of their
particular borrower for satisfaction of that loan. Such lenders
structure their loans according to their expectations regarding that
borrower and do not anticipate either having the assets of a more
sound company available in the case of insolvency or having the
creditors of a less sound debtor compete for the borrower’s assets.
Such expectations create significant equities. Moreover, lenders’
expectations are central to the calculation of interest rates and
other terms of loans, and fulfilling those expectations is therefore
important to the efficiency of credit markets. Such efficiency will
be undermined by imposing substantive consolidation in circumstances
in which creditors believe they were dealing with separate entities.





     The Second Circuit adopted a test for substantive consolidation which requires one of two
alternate grounds be present. In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515 (2d Cir.
1988); Federal Deposit Insurance Corp. v. Colonial Realty Co., 966 F.2d 57 (2d Cir. 1992).
This test requires that either (i) creditors dealt with the entities as a single unit and did not
rely on their separate identity in extending credit, or (ii) the affairs of a debtor are so
entangled that consolidation will benefit all creditors because untangling is either impossible or
so costly as to consume the assets. In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515,
518-19 (2d Cir. 1988).



     The Ninth Circuit adopted the Second Circuit’s approach. In re Bonham, 229 F.3d 750
(9th Cir. 2000). The court affirmed the bankruptcy court order substantively consolidating two
non-debtor corporations with the bankruptcy estate of an individual chapter 7 debtor nunc pro tunc
to the filing date of the involuntary chapter 7 petition. The individual debtor had constructed a
Ponzi scheme. The chapter 7 trustee filed adversary proceedings against investors in the
non-debtor corporations to avoid fraudulent transfers. Substantive consolidation assured that
overcompensated initial investors shared in the losses suffered by subsequent investors.



 









 





To The Parties Identified on Schedule A

March 6, 2006

Page 9




     This case illustrates another use of substantive consolidation: to revive otherwise time barred
causes of action held by a non-debtor entity where prosecution of such actions would tend to
enhance the overall value of the consolidated estate. In Bonham, objectors argued against
consolidation because the Bankruptcy Rules of Procedure would have preserved, for the benefit of
the consolidated estate, an otherwise time barred fraudulent transfer action against the objectors.
The Bonham court, in ordering consolidation, noted that one consideration must be
“the harm to the entity which is being substantively consolidated” if consolidation is not
ordered. 229 F.3d at 767. If the estates would not have been consolidated, the non-debtor would
have lost fraudulent transfer causes of action against those objecting to consolidation, which
would have prejudiced the rights of other general creditors who were not alleged recipients of
fraudulent transfers.



     The Bonham case is illustrative of a trend to order consolidation when failure to do
so would reward insiders, former insiders, or holders of equity interests in one or more of the
debtor entities to the detriment of creditors. See also In re Permian Producers
Drilling, Inc., 263 B.R. 510, 519 (W.D. Tex. 2000) (ordering substantive consolidation where
the only person harmed would be an equity holder who, in the absence of consolidation “would
receive a substantial distribution on his claim, which is based on his equity investment,” while
unsecured creditors would receive less); In re Affiliated Foods, Inc., 249 B.R. 770, 776
(W.D. Mo. 2000) (substantive consolidation proper when “it will benefit the debtors’ estates
without betraying legitimate expectations of the debtors and their respective creditors” (emphasis
added)). However, these
cases do not appear to stand for the broader proposition that substantive consolidation is
proper solely to prevent an apparently “unfair” return to an insider of the debtor or an affiliate.
Instead, substantive consolidation was approved where the courts also found evidence of excessive
entanglement among the entities to be consolidated and, finding a benefit to general unsecured
creditors, ordered substantive consolidation. These cases demonstrate application of the
Augie/Restivo and Auto-Train analysis and a weighing of the applicable factors, but
refine the analysis by distinguishing between true unsecured creditors and those who are really
just equity holders



     (3)   Owens Corning



     In the most recent Circuit Court decision to consider the issue, the Third Circuit set forth
the following requirements for substantive consolidation:




	 	 	 	In our Court what must be proven (absent consent) concerning the
entities for whom substantive consolidation is sought is that (i)
prepetition they disregarded separateness so significantly their
creditors relied on the breakdown of entity borders and treated them
as one legal entity, or (ii) postpetition their assets and
liabilities are so scrambled that separating them is prohibitive and
hurts all creditors.
	 
	 	 	 	Proponents of substantive consolidation have the burden of showing
one or the other rationale for consolidation. . . . A prima




 









 











To The Parties Identified on Schedule A

March 6, 2006

Page 10





	 	 	 	facie case for it typically exists when, based on the
parties’ prepetition dealings, a proponent proves corporate
disregard creating contractual expectations of creditors that they
were dealing with debtors as one indistinguishable entity. . . .
Proponents who are creditors must also show that, in their
prepetition course of dealing, they actually and reasonably relied
on debtors’ supposed unity. . . . Creditor opponents of
consolidation can nonetheless defeat a prima facie
showing under the first rationale if they can prove they are
adversely affected and actually relied on debtors’ separate
existence.




419 F.3d at 211-12.




     The Court explained further:




	 		 	. . . commingling justifies consolidation only when separately
accounting for the assets and liabilities of the distinct entities
will reduce the recovery of every creditor — that is, when every
creditor will benefit from the consolidation. Moreover, the benefit
to creditors should be from cost savings that make assets available
rather than from the shifting of assets to benefit one group of
creditors at the expense of another. Mere benefit to some creditors,
or administrative benefit to the Court, falls far short.




419 F.3d at 214.





	 	 	 	Neither the impossibility of perfection in untangling the affairs of
the entities nor the likelihood of some inaccuracies in efforts to
do so is sufficient to justify consolidation.




Id.





	 	(4)	 	Illustrative Cases





     In In re Giller, 962 F.2d 796 (8th Cir. 1992), the court affirmed an order
substantively consolidating the bankruptcy cases of six corporations. The court stated that the
factors to consider when deciding whether substantive consolidation is appropriate include: (1)
the necessity of consolidation due to the interrelationship among the debtors; (2) whether the
benefits of consolidation outweigh the harm to creditors; and (3) prejudice resulting from not
consolidating the debtor.



     In that case one of the debtors financed the other debtors, but no regular repayment schedule had been established.
All the debtors had headquarters in a building owned by one of the debtors, but none paid rent. At least one of the debtors used its
assets to secure loans of another debtor. Employees hired by two of the debtors performed uncompensated services for all of the debtors.




 











 





To The Parties Identified on Schedule A

March 6, 2006

Page 11




     In In re Drexel Burnham Lambert Group, Inc., 138 B.R. 723 (Bankr. S.D.N.Y. 1992), the
court consolidated some of the Drexel subsidiaries. The court found that Drexel Burnham Lambert
was a single enterprise operating through its many corporate subsidiaries. It applied the
Augie/Restivo tests and evaluated them within the larger context of balancing the prejudice
resulting from the proposed consolidation against the effect of preserving separate debtor
entities. Since there was no reliance on the credit of any of the subsidiaries and no prejudice
arising from substantive consolidation, the court granted it.



     In In re Standard Brands Paint Co., 154 B.R. 563 (Bankr. C.D. Calif. 1993), the
bankruptcy court discussed the D.C. Circuit test and the Second Circuit test. According to the
court both the D.C. Circuit and Second Circuit tests require comparing benefits of consolidation
with any harm to be caused by consolidation. 154 B.R. at 571. In Standard Brands, the
debtor’s plan of reorganization required substantive consolidation of five debtors’ estates.
Without substantive consolidation a single plan for the five debtors would probably not be
possible. Granting the motion for substantive consolidation removed the last impediment to
confirming a consensual plan. The court inferred a lack of harm from the fact that no party in
interest objected to substantive consolidation in the form moved for by the debtors.



     Although the five debtors held themselves out as a single consolidated unit and did their
financial reporting on a consolidated basis, the debtors’ records were not entangled. The debtors
had audited financial accounting records from which the transactions of parent and subsidiaries
could be sorted out. However, the debtors functioned as a consolidated entity and there were
multiple interdebtor guarantees and interdebtor debts. Creditors could not have relied on the
separate identity of the subsidiaries or parent in extending credit to them. The court said that
in a functional sense the affairs of all five debtors were so entangled that consolidation would
benefit all creditors, because the effect/validity of all of these intercompany debts and
guarantees would not have to be sorted out by the parties or court.



     In In re Eagle-Picher Industries, Inc., 192 B.R. 903 (Bankr. S.D. Oh. 1996), the court
held that substantive consolidation of two chapter 11 cases was warranted given the substantial
identity existing between the chapter 11 debtor and its incorporated divisions, the need to
consolidate in order to avoid upsetting a carefully negotiated plan and the lack of prejudice to
objecting creditors because they had purchased their claims and had not relied on the separate
credit of one of the divisions. The court said that prejudice alone is insufficient to defeat
substantive consolidation. 192 B.R. at 908.



     The court described the tests for substantive consolidation as follows:




From these precepts, two similar but not identical tests have
evolved for assessing the propriety of substantive consolidation in
the corporate context. See In re Augie/Restivo Baking
Co., Ltd., 860 F.2d 515 (2d Cir. 1988); Drabkin v.
Midland-Ross Corp. (In re Auto-Train Corp.), 810 F.2d
270 (D.C. Cir. 1987). This Circuit adopted the D.C. Circuit’s approach in Eastgroup Properties v.
Southern Motel Assoc., Ltd., 935 F.2d 245 (11th Cir. 1991). In



 









 





 To The Parties Identified on Schedule A

March 6, 2006

Page 12





Eastgroup Properties, this Circuit set forth the following
analysis for governing substantive consolidation of corporate
entities. Pursuant to the general equitable power conferred by
section 105 [footnote omitted] of the Bankruptcy Code, a court may
order substantive consolidation of corporate entities upon an
evaluation of “whether ‘the economic prejudice of continued debtor
separateness’ outweighs the economic prejudice of consolidation.’”
935 F.2d at 249 (quoting In re Snider Bros., Inc., 18 B.R.
230, 234 (Bankr. D. Mass. 1982). A court accordingly must analyze
“whether ‘consolidation yields benefits offsetting the harm it
inflicts on objecting parties,’” Id. (quoting Drabkin v.
Midland-Ross Corp. (In re Auto-Train Corp.). 810 F.2d
270, 276 (D.C. Cir. 1987)). Under this analysis, the proponent of a
motion for substantive consolidation must demonstrate: (1) there is
substantial identity between the entities to be consolidated; and
(2) consolidation is necessary to avoid some harm or to realize some
benefit. 935 F.2d at 249. Upon this demonstration, a presumption
arises “ ‘that creditors have not relied solely on the credit of one
of the entities involved.’” Id. (quoting Matter of
Llewellyn, 26 B.R. 246, 251-52 (Bankr. S.D. Iowa 1982)). Once
the prima facie showing of substantial identity and harm or benefit
is made, the burden shifts to an objecting creditor to show: (1) it
has relied on the separate credit of one of the entities to be
consolidated; and (2) it will be prejudiced by substantive
consolidation. 935 F.2d at 249. [footnote omitted.]




The Second Circuit has adopted an alternative test in In re
Augie/Restivo Co., Ltd., 860 F.2d 515 (2d Cir 1988). The
inquiry focuses on two factors: (1) whether creditors dealt with
the entities as a single economic unit and did not rely on their
separate identity in extending credit; or (2) whether the affairs of
the debtors are so entangled that consolidation will benefit all
creditors. 860 F.2d at 518. The presence of either factor justifies
substantive consolidation. The Second Circuit recently reaffirmed
this test in the 1992 case of FDIC v. Colonial Realty Co.,
966 F.2d 57, 61 (2d Cir. 1992).


192 B.R. at 905.




     In the case of In re American Homepatient, Inc., 298 B.R. 152 (Bankr. M.D. Tenn.
2003), the court stated as follows:




The remedy of substantive consolidation was recognized by the
Supreme Court as early as 1941. See Sampsell v. Imperial Paper &
Color Corp., 313 U.S. 215, 61 S.Ct. 904, 85 L.Ed. 1293 (1941)



 









 





 To The Parties Identified on Schedule A

March 6, 2006

Page 13





(in upholding consolidation, noting that “power of the bankruptcy court
to subordinate claims or to adjudicate equities arising out of the
relationship between the several creditors is complete”). Moreover,
its roots extend to at least as far back as the Bankruptcy Act of
1898, and nothing in the Bankruptcy Code or case law suggests that
the remedy is not available today. In re Bonham, 229 F.3d 750, 765
(9th Cir. 2000) (“[E]ven though substantive consolidation was not
codified in the statutory overhaul of bankruptcy law in 1978, the
equitable power undoubtedly survived enactment of the Bankruptcy
Code. No case has held to the contrary.”).




Substantive consolidation is employed in cases where the
interrelationships of the debtors are hopelessly obscured and the
time and expense necessary to attempt to unscramble them is so
substantial as to threaten the realization of any net assets for all
of the creditors.” Implicit in this decision is the conclusion that
the benefit — protection of the possible realization of any recovery
for the majority of unsecured creditors — outweighs the potential
harm to any particular creditor. Id. Thus, when substantive
consolidation is ordered, there is, in effect, a determination that
the circumstances of the cases warrant consolidation and that the
best interests of the unsecured creditors are served by joining the
assets and liabilities of two or more debtors.




Those reasons included: (1) all of the company’s cash is
concentrated on the parent level which in turn pays all amounts due
to the company’s creditors; (2) the officers and directors of the
subsidiaries are the same; (3) all subsidiaries are fully owned; (4)
all contracts are entered into at the parent level; (5) all
employees are hired and paid at the parent level; (6) financial tax
statements and tax returns are done on a consolidated basis; (7) the
senior secured debt holders named only the parent company as obligor
on the credit facility (with subsidiaries as guarantors); (8) the
senior secured debt holders required only consolidated reporting in
the past; and (9) substantive consolidation is consistent with the
overall business operations of the debtor.


298 B.R. at 165.




     The United States Supreme Court reiterated that a parent corporation is not liable for the
acts of its subsidiaries and refused to impose CERCLA liability on a parent for the acts of its
subsidiary because it exercised the control which stock ownership gives to stockholders.
United States v. Bestfoods, 524 U.S. 51 (1998).



 









 




 To The Parties Identified on Schedule A

March 6, 2006

Page 14




     B. Application of Principles



     Under the Eastgroup/Auto-Train analysis discussed above, three of the factors to be
considered in determining whether to grant a motion for substantive consolidation do not support
consolidation. These are the ease in segregating and ascertaining individual assets and
liabilities, the observance of corporate formalities in connection with any transfers of assets,
and the lack of commingling of assets and business functions. Because the Non-Recourse Guaranty by
Holdings is limited to typical non-recourse carve-outs, and is not intended to supply additional
general credit for the Loan, the making of the Non-Recourse Guaranty in consideration of the Loan
to the Borrower would not provide support for a proponent of substantive consolidation to make a
showing that: (i) there is substantial identity between the Borrower and any of the Opinion
Parties to be consolidated; (ii) that consolidation is necessary to avoid some harm or to realize
some benefit; or (iii) if a creditor objects and demonstrates that it relied on the separate credit
of the Borrower or of any of the Opinion Parties, and that it will be prejudiced by the
consolidation, that consolidation would “heavily” outweigh the harm. The Lease Guaranty is in
favor of the Borrower and is a guarantee of the obligations of the Tenants, not of the Borrower,
and would not provide support for a proponent of substantive consolidation to make the showings set
forth in the preceding sentence.



     To the extent that the Borrower’s financial statements are consolidated with another entity,
such consolidated financial statement will contain a note indicating or otherwise making clear that
the Borrower’s separate assets and liabilities are neither available to pay the debts of the
consolidated entity nor constitute obligations of the consolidated entity. There is related
ownership between the Borrower and the Opinion Parties. Consolidation at a single physical
location is irrelevant in the case of a mortgage. Based upon these factors, and because the
Borrower is, and at all times has been, observing all of its separateness covenants, there is not
substantial identity between the entities to be consolidated nor is consolidation necessary to
avoid harm or realize a benefit. Furthermore, the Lender relied on the separate credit of the
Borrower and would be prejudiced by consolidation. If a creditor objects and demonstrates that it
relied on the separate credit of the Borrower or any of the Opinion Parties, and that it will be
prejudiced by the consolidation, a proponent of substantive consolidation will not be able to show
that consolidation “heavily” outweighs the harm. Therefore, the benefits, if any, of consolidation
in this case would not outweigh the harm to be caused.



     Under the Augie/Restivo analysis discussed above, the Lender dealt with the Borrower
as a separate entity and relied on its separate identity in extending credit. Third party
creditors of any of the Opinion Parties should not be able to argue successfully that they
reasonably relied on the assets of the Borrower to satisfy obligations of any of the Opinion
Parties. The financial and business affairs of the Borrower are, at all times have been, and will
continue to be, segregated and readily distinguishable from those of any of the Opinion Parties.
Thus, the assets and liabilities of any of the Opinion Parties, on the one hand, and of the
Borrower, on the other hand, will be ascertainable in bankruptcy so as to preclude a valid
assertion of financial entanglement as support for substantive consolidation.



 









 






To The Parties Identified on Schedule A

March 6, 2006

Page 15




     Under the Owens Corning analysis discussed above, proponents of substantive
consolidation who are creditors of the Borrower will be unable to show that in their prepetition
dealings with the Borrower they actually and reasonably relied on the Borrower’s supposed unity
with any of the Opinion Parties as the financial and business affairs of the Borrower are, at all
times have been, and will continue to be, segregated and readily distinguishable from those of any
of the Opinion Parties. To the contrary, the Borrower observes, at all times has observed, and
will observe, all corporate formalities as they pertain to separateness, and the Lender
specifically dealt with the Borrower as a separate entity from any of the Opinion Parties and
relied on its separate identity in extending credit. Because the Borrower observes, at all times
has observed, and will observe, all of its separateness covenants, creditors will be unable to
prove that the Borrower disregarded separateness so significantly that the creditors relied on the
breakdown of entity borders and treated the Borrower and any of the Opinion Parties as one legal
entity. Also, because the Borrower’s assets and liabilities are, at all times have been, and will
continue to be, segregated from the assets and liabilities of any of the Opinion Parties,
proponents of substantive consolidation will be unable to prove that the Borrower’s postpetition
assets and liabilities are so scrambled with those of any of the Opinion Parties that separating
them would be prohibitive and hurt all creditors, including the Lender.



     Whether the analysis is done under the standards set out by Eastgroup/Auto-Train,
Augie/Restivo, or Owens Corning, the separate existence of the Borrower from any of
the Opinion Parties should not cause a court to order a substantive consolidation of the Borrower
with any of the Opinion Parties.



     C. Opinion



     Based on the facts set forth above, and subject to the discussion contained herein and the
reasoned analysis of analogous case law (although there is no precedent directly on point),
notwithstanding that certain aspects of the law in this area remain unsettled as discussed above,
in the event that any one or more of the Opinion Parties were to become a debtor in a case under
the Bankruptcy Code, for the reasons set forth above, it is our opinion that regardless of which of
the approaches or standards a court elected to follow, a court exercising reasonable judgment in
applying the law to the assumed facts set forth herein in a competently presented and argued case
under the Bankruptcy Code would not disregard the separate existence of the Borrower so as to order
the substantive consolidation under the Bankruptcy Code and the decisional authority thereunder of
the assets and liabilities of the Borrower with those of any one or more of the Opinion Parties.



     Our opinion is limited to the matters expressly set forth herein and to facts existing on the
date hereof, or assumed to exist herein, and no opinion is to be implied or inferred beyond the
matters expressly so stated. The opinion expressed herein is being delivered to you on the date
hereof and based on the current published law. We assume no obligation to advise you of any
changes of law or fact that may occur after this date notwithstanding that such changes may affect
the legal analysis or conclusions contained herein.



 









 






To The Parties Identified on Schedule A

March 6, 2006

Page 16





     We note that a court’s decision regarding matters upon which we render an opinion herein is
based on the court’s own analysis and interpretation of the factual evidence before the
court and of applicable legal principles. Consequently, this opinion is not a guaranty of
what a particular court (including any appellate court) would hold, but instead is our opinion as
to the decision a court exercising reasonable judgment would reach in applying existing legal rules
to the facts after proper briefing and competent argument.



     Also, we note that legal opinions on bankruptcy law matters unavoidably have inherent
limitations that generally do not exist in respect of other legal issues on which opinions to third
parties are typically given. These inherent limitations exist primarily because of the pervasive
equity powers of bankruptcy courts, the overriding goal of reorganization to which a bankruptcy
court, purporting to exercise its equity powers, may subordinate other legal rights and policies
(even though such a subordination would appear to be inconsistent with established legal claims and
rights under applicable non-bankruptcy law and even though such equity powers arguably do not
permit such a subordination), the potential relevance to the exercise of judicial discretion of
future-arising facts and circumstances, and the nature of the bankruptcy process. The recipients
of this opinion should take these limitations into account in analyzing the bankruptcy risks
associated with the subject transaction.



     Our examination of law relevant to the matters covered by this opinion is limited to the
bankruptcy law of the United States and the judicial decisions thereunder as such laws are
presently interpreted by reported decisions and we express no opinion herein concerning any other
law.



     This letter is limited to the matters expressly set forth herein, and no opinion is implied or
may be inferred beyond the matters expressly so stated. It may not be quoted or relied upon, in
whole or in part, by, nor may copies be delivered to, any person other than the parties identified
on Schedule A, the Lender’s successors and assigns as holder of interest in the Loan, a participant
of the Loan and any nationally recognized statistical rating agency rating the securities backed by
the Loan. It may not be used for any other purpose without our prior written consent.


Sincerely,



WOLF, BLOCK, SCHORR and SOLIS-COHEN LLP




Schedule A —  Definitions




Schedule B —  Properties




Exhibit “A” —  List of Organization Documents




Exhibit “B” —  List of Loan Documents




Exhibit “C” —  Certificate for the Borrower




 









 





Schedule A




Definitions



	 	 	 	 	 

	1.

	 	“Borrower”:
	 	Bonstores Realty One, LLC, a

Delaware limited liability company
	 
	 	 	 	 
	2.

	 	“Lender”:
	 	Bank of America, N.A.
	 
	 	 	 	 
	3.

	 	“Loan”:
	 	That certain loan in the original
principal amount of $130,000,000
from Lender to Borrower
	 
	 	 	 	 
	4.

	 	“Parties” to whom this
opinion letter is addressed:
	 	Bank of America, N.A.

214 North Tryon Street

Charlotte, North Carolina 28255


Cadwalader, Wickersham & Taft LLP

227 W. Trade Street, Suite 2400

Charlotte, North Carolina 28202


The statistical rating agency or
agencies, if any, rating
certificates representing the
interests in the Note and related
documents and the Lender(s) and
servicer(s) in connection with such
certificates, together with their
respective successors and assigns.






 









 






Schedules B




Properties



3575 Maple Avenue, Zanesville, OH 43701



601 Promenade, Richmond, IN 47374



West Acres Mall, Fargo, ND 58103



1400 University Avenue, St. Paul, MN 55101



4800 Golf Road, Eau Claire, WI 54701



5580 Harvey Street, Muskegan, MI 49444



101 Bay Park Square, Ashwaubenon, WI 54034



3340 Mall Loop Road, Joliet, IL 60435



15875 West Bluemount, Brookfield, WI 53005



2400 North Mayfair Road, Wauwatosa, WI 53226



3 Fox Valley Center Drive, Aurora, IL 60505



4650 Shepard Trail, Rockford, IL 61103



 









 





Exhibit “A”




Organization Documents




	1.	 	Limited Liability Company Agreement of Borrower dated as of March 6, 2006.






	2.	 	Consent to Action in Lieu of Special Meeting of the Sole Member of Borrower dated as of March
6, 2006.






	3.	 	First Amendment to Limited Liability Company Agreement of Borrower dated March 6, 2006.






	4.	 	Contribution Agreement dated March 6, 2006 between The Bon-Ton Department Stores, Inc. and
the Holdings.






	5.	 	Certificate of Formation of the Borrower filed February 2, 2006.




 









 











Exhibit “B”




Loan Documents




	1.	 	Promissory Note (the “Promissory Note”) made by Borrower to Lender in the principal amount of
$130,000,000;
	 
	2.	 	Loan Agreement by and between Borrower and Lender and acknowledged by Holdings (the “Loan”);
	 
	3.	 	The following mortgages each given by Borrower in favor of Mortgage Electronic Recording
Systems, Inc., as nominee for Lender for each Property:






	 	(a)	 	Open-Ended Mortgage, Assignment of Leases and Rents and
Security Agreement for the Property located at 3575 Maple Avenue, Zanesville,
OH 43701;
	 
	 	(b)	 	Mortgage, Assignment of Leases and Rents and Security Agreement
for Property located at 601 Promenade, Richmond, IN 47374;
	 
	 	(c)	 	Mortgage — Short Term Mortgage Redemption — Collateral Real
Estate Mortgage — Assignment of Leases and Rents and Security Agreement for
Property located at West Acres Mall, Fargo, ND 58103;
	 
	 	(d)	 	Mortgage, Assignment of Leases and Rents, Security Agreement,
and Fixture Financing Statement for the Property located at 1400 University
Avenue, St. Paul, MN 55101;
	 
	 	(e)	 	Mortgage and Security Agreement for the Property located at
4800 Golf Road, Eau Claire, WI 54701;
	 
	 	(f)	 	Mortgage and Security Agreement for the Property located at
5580 Harvey Street, Muskegan, MI 49444;
	 
	 	(g)	 	Mortgage and Security Agreement for the Property located at 101
Bay Park Square, Ashwaubenon, WI 54034;
	 
	 	(h)	 	Mortgage, Assignment of Leases and Rents and Security Agreement
for Property located at 3340 Mall Loop Road, Joliet, IL 60435;
	 
	 	(i)	 	Mortgage and Security Agreement for the Property located at
15875 West Bluemont, Brookfield, WI 53005;
	 
	 	(j)	 	Mortgage and Security Agreement for the Property located at
2400 North Mayfair Road, Wauwatosa, WI 53226;
	 
	 	(k)	 	Mortgage, Assignment of Leases and Rents and Security Agreement
for Property located at 3 Fox Valley Center Drive, Aurora, IL 60505; and




 









 






	 	(l)	 	Mortgage, Assignment of Leases and Rents and Security Agreement
for Property located at 4650 Shepard Trail, Rockford, IL 61103.






	4.	 	Assignment of Agreements, Permits and Contracts given by Borrower to Lender as security for
the Note and covering the Properties (collectively, the “Assignment Agreement”);






	5.	 	Certificate and Agreement Regarding Property Management by Borrower;






	6.	 	Environmental Indemnity Agreement by and between the Borrower and the Lender;






	7.	 	Post-Closing Agreement by and between the Borrower and Lender;






	8.	 	UCC Financing Statements naming Borrower, as debtor, and Lender, as secured party;






	9.	 	The following Master Lease Agreements:






	 	(a)	 	Master Lease dated as of March 6, 2006 between Bonstores Realty
One, LLC, a Delaware limited liability company, as landlord, and Herberger’s
Department Stores, LLC, a Minnesota limited liability company, as tenant;
	 
	 	(b)	 	Master Lease dated as of March 6, 2006 between Bonstores Realty
One, LLC, a Delaware limited liability company, as landlord, and McRae’s, Inc.,
a Mississippi corporation, as tenant;
	 
	 	(c)	 	Master Lease dated as of March 6, 2006 between Bonstores Realty
One, LLC, a Delaware limited liability company, as landlord, and McRIL, LLC, a
Virginia limited liability company, as tenant;
	 
	 	(d)	 	Master Lease dated as of March 6, 2006 between Bonstores Realty
One, LLC, a Delaware limited liability company, as landlord, and Parisian,
Inc., an Alabama corporation, as tenant;
	 
	 	(e)	 	Master Lease dated as of March 6, 2006 between Bonstores Realty
One, LLC, a Delaware limited liability company, as landlord, and Saks
Distribution Centers, Inc., an Illinois corporation, as tenant; and
	 
	 	(f)	 	Master Lease dated as of March 6, 2006 between Bonstores Realty
One, LLC, a Delaware limited liability company, as landlord, and The
Elder-Beerman Stores, Corp., an Ohio corporation, as tenant.






	10.	 	Lease Guaranties between Borrower and The Bon-Ton Department Store, Inc. with respect to each
Master Lease; and






	11.	 	Exceptions to Non-Recourse Guaranty by Holdings in favor of Lender.




 









 











Exhibit “C”




CERTIFICATE FOR BONSTORES [      ], LLC



     The undersigned, by and for himself as a duly authorized representative of BONSTORES REALTY
[____________], LLC, a Delaware limited liability company (the “Borrower”), hereby makes and
delivers this Certificate in connection with the substantive non-consolidation opinion letter of
Wolf, Block, Schorr and Solis-Cohen LLP dated ___, 2006 (the “Opinion), and certifies, to
the best of his knowledge formed after due inquiry and review of the Opinion, that:



     I understand that Wolf, Block, Schorr and Solis-Cohen LLP is relying on this Certificate in
connection with the making and delivery of the Opinion.



     1. The facts and assumptions regarding the Borrower contained in the section of the Opinion
captioned “ASSUMPTIONS OF FACT” are true and correct in all material respects as of the date
hereof.



     2. I have no reason to believe that any fact or assumption regarding the Borrower contained in
the Opinion is untrue, inaccurate, incomplete or misleading in any material respect.



     3. The Borrower has executed no other organization documents other than those listed on
Exhibit “A” attached to the Opinion.



     4. I am duly authorized to execute this Certificate on behalf of the Borrower.



Dated: ________, 2006




	 	 	 	 	 
	 	BONSTORES [______], LLC

 	 
	 	By:  	
 	 
	 	 	 	 
	 	 	 	 



 









 






	 	 	 	 	 



EXHIBIT D




Form of Assignment of Management Agreement




Exhibit D-1











 





EXHIBIT D




FORM OF

ASSIGNMENT OF MANAGEMENT AGREEMENT AND CONSENT OF MANAGER



          THIS ASSIGNMENT OF MANAGEMENT AGREEMENT AND CONSENT OF MANAGER (this “Agreement”) is
made as of the       day of                     , by [BONSTORES REALTY ONE, LLC] [BONSTORES REALTY TWO, LLC],
a Delaware limited liability company (“Assignor), the borrower under the Loan (as defined
herein), having an address at 2801 East Market Street, York, Pennsylvania 17402 to
                                                             (together with its successors and/or assigns, the “Lender”), and is
consented and agreed to by [                                        ], a [                         
                                   ] (“Manager”).
All capitalized terms not defined herein shall have the respective meanings set forth in the Loan
Agreement (defined below).




RECITALS:




          I. WHEREAS, Borrower, by that certain promissory note, dated as of March 6, 2006 and given to
Lender in the principal amount of $130,000,000 (together with all extensions, renewals,
modifications, substitutions and amendments thereof, the “Note”), is indebted to Lender for
a loan advanced pursuant to the Loan Agreement of even date with the Note between Borrower and
Lender (together with all extensions, renewals, modifications, substitutions and amendments
thereof, the “Loan Agreement”) (the indebtedness evidenced by the Note, together with such
interest accrued thereon, shall collectively be referred to as the “Loan”);




          II. WHEREAS, the Loan is secured by, among other things, each Mortgage, Assignment of Leases
and Rents and Security Agreement and each Deed of Trust, Assignment of Leases and Rents and
Security Agreement executed by Borrower, dated as of the date of the Note (together with any and
all extensions, renewals, substitutions, replacements, amendments, modifications and/or
restatements thereof, collectively, the “Security Instrument”), which in each case granted
Lender a first lien on the property encumbered thereby including the Property (hereinafter
defined);




          III. WHEREAS, Assignor and Manager entered into that certain Management Agreement dated as of
[                    ] (as so amended and assigned, or further amended, modified, renewed, extended or
substituted from time to time, the “Management Agreement”), a true and correct copy of
which Management Agreement is attached hereto as Exhibit A. Pursuant to the terms of the
Management Agreement, Assignor has employed Manager exclusively to supervise, direct and control
the management and operation of the Property, and Manager is entitled to certain base and incentive
management fees (the “Management Fees”) thereunder; and




          IV. WHEREAS, Lender requires as a condition to the Loan that Assignor assign all of its,
right, title and interest in and to the Management Agreement to Lender and that Manager agree with
Lender and Assignor as to certain matters more particularly described herein.







 -1- 









 








AGREEMENT




          NOW, THEREFORE, for good and valuable consideration, the parties hereto agree as follows:




          1. Assignment of Management Agreement. As additional collateral security for the
Loan, Assignor hereby conditionally transfers, sets over and assigns to Lender all of Assignor’s
right, title and interest in and to the Management Agreement, said transfer and assignment to
automatically become a present, unconditional assignment, at Lender’s option, upon the occurrence
and during the continuance of an Event of Default. At all times during the term of the Loan, all
portions of the Rents shall be handled and applied in accordance with the Loan Agreement.




          2. Manager’s Consent to Assignment.




               (a) Manager hereby acknowledges and agrees that (a) Manager hereby consents to the assignment
of Assignor’s interest in the Management Agreement by Assignor to Lender as additional security for
the Loan, and (b) notwithstanding anything to the contrary contained in the Management Agreement,
(i) no such consent shall be required for the assignment and transfer of the Management Agreement
to Lender or its nominee in connection with a Foreclosure (hereinafter defined) and (ii) Manager
will not unreasonably withhold, condition or delay its consent to the purchase by an entity other
than Lender at a sale by Lender or its nominee subsequent to such Foreclosure (such purchaser, a
“Successor Borrower”), provided that in all events the termination right granted in Section
2(b) hereof shall be available to Manager and Successor Borrower. As used in this Agreement, the
term “Foreclosure” shall mean any exercise of the remedies available to the Lender or other
holder of the Security Instrument(s), upon the occurrence and during the continuance of an Event of
Default, which results in a transfer of title to or possession of the Property. The term
“Foreclosure” shall include, without limitation: (A) a transfer by judicial or non-judicial
foreclosure; (B) a transfer by deed in lieu of foreclosure; (C) the appointment by a court of a
receiver to assume possession of the Property; (D) a transfer of either ownership or control of the
Assignor, by exercise of a stock pledge or otherwise; (E) a transfer resulting from an order given
in a bankruptcy, reorganization, insolvency or similar proceeding; (F) if Assignor holds title to
one or more of the Properties under a lease or ground lease, an assignment of the tenant’s interest
in such lease or ground lease; or (G) any similar judicial or non-judicial exercise of the remedies
held by the Lender or other holder of the Security Instrument.



               (b) In the event Lender shall succeed to the interests of Assignor (in which event Lender
shall be deemed a Successor Borrower) or upon the purchase by a Successor Borrower at a sale by
Lender or its nominee subsequent to such Foreclosure, then within sixty (60) days following
acquisition of title to the Property by Successor Borrower, either Manager or Successor Borrower
may terminate the Management Agreement by giving the other party not less than twenty (20) days’
prior written notice of termination. No termination fees or any other fees
or penalties shall be payable in connection with any such termination by Successor Borrower or
Manager, and, until such termination, the Management Agreement shall be binding on Successor
Borrower and Manager.



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          3. Subordination of Management Agreement. The Management Agreement, as the same may
hereafter be modified, amended or extended, and all of Manager’s right, title and interest in and
to the Property, are and all rights and privileges of Manager to the Management Fee paid thereunder
are hereby and shall at all times be subject and subordinate to the Security Instrument and the
lien thereof, to all the terms, conditions and provisions of the Security Instrument and to each
and every advance made or hereafter made under the Security Instrument, and to all renewals,
modifications, consolidations, replacements, substitutions and extensions of the Security
Instrument, the Loan Agreement, the Note and the other Loan Documents and the rights, privileges,
and powers of Lender thereunder, so that at all times the Security Instrument shall be and remain a
lien on the Property prior and superior to the Management Agreement for all purposes.




          4. Termination. At such time as the Loan is paid in full and the Security Instrument
is released or assigned of record, this Agreement and all of Lender’s right, title and interest
hereunder with respect to the Management Agreement shall terminate.




          5. Manager Estoppel. Manager represents and warrants that as of the date hereof (a)
the Management Agreement is in full force and effect and has not been modified, amended or assigned
by Manager other than pursuant to this Agreement, (b) to Manager’s knowledge, Assignor is not in
default under any of the terms, covenants or provisions of the Management Agreement and Manager
does not know of any event which, but for the passage of time or the giving of notice or both,
would constitute an event of default by Assignor under the Management Agreement, (c) Manager has
not commenced any action or given or received any written notice for the purpose of terminating the
Management Agreement prior to its expiration according to the terms of the Management Agreement,
and (d) the Management Fees and all other sums due and payable to the Manager under the Management
Agreement have been paid in full. Manager also hereby agrees that upon Lender’s written request
and at reasonable intervals, Manager shall execute an estoppel letter stating whether the foregoing
statements are correct.




          6. Assignor’s Covenants. Assignor hereby covenants with Lender that during the term
of this Agreement: (a) Assignor shall not transfer the responsibility for the management of the
Property from Manager to any other person or entity in violation of the terms of the Loan Agreement
without prior written notification to Lender and the prior written consent of Lender, which consent
shall not be unreasonably withheld, delayed or conditioned and (b) Assignor shall not terminate or
amend any of the terms or provisions of the Management Agreement in violation of the terms of
the Loan Agreement without the prior written consent of Lender, which consent shall not be
unreasonably withheld, delayed or conditioned.




          7. Release from Liability. In the event Lender exercises any rights pursuant to this
Agreement, Assignor hereby releases Lender and Manager from any liability, costs, damages or other
obligations of Lender or Manager to Assignor as a result of such exercise of rights except, with
respect to the Lender, to the extent that the same shall arise as the result of the gross
negligence or willful misconduct of Lender.




          8. Liability Continued. If a Successor Borrower shall succeed to the interest of
“owner” under the Management Agreement, in no event shall Successor Borrower have any liability
under the Management Agreement prior to the date Successor Borrower shall succeed to





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the interest
of “owner” under the Management Agreement, nor any liability for claims, offsets or defenses which
Manager might have had against Successor Borrower as “owner” under the Management Agreement prior
to the date Successor Borrower shall succeed to the interest of “owner” under the Management
Agreement.




          9. Attornment by Manager. Assignor and Manager hereby agree that upon conveyance of
title to the Property, to the Successor Borrower but subject to the terms and conditions of Section
2(b) of this Agreement, Manager shall attorn to the Successor Borrower and shall continue to
perform all of Manager’s obligations under the terms of the Management Agreement with respect to
the Property in accordance with the terms of the Management Agreement. Notwithstanding the
foregoing, the Manager shall be under no obligation to so attorn unless the Successor Borrower,
within twenty (20) days after the effective date of Foreclosure, assumes all of the obligations of
the “owner” under the Management Agreement which arise from and after the date of Foreclosure,
pursuant to a written assumption agreement which shall be delivered to Manager; provided,
however, pursuant to Section 11 hereof and at Lender’s option, Manager and Successor
Borrower, as applicable, shall terminate the then-existing Management Agreement and enter into a
new management agreement on the same terms and conditions as the then-existing Management
Agreement, which shall be effective as of the date that Successor Borrower obtains title to the
Property.




          10. Notice and Opportunity to Cure.




               (a) In the event of a default by “owner” in the performance or observance of any of the terms
and conditions of the Management Agreement, Manager shall give a duplicate copy (herein referred to
as the “First Notice”) of any notice to be delivered to such owner pursuant to the terms of
the Management Agreement to Lender in accordance with Section 17 of this Agreement. In addition,
in the event that such default is not cured within the
applicable cure period under the terms of the Management Agreement, and Manager intends to
exercise its remedy of terminating the Management Agreement, Manager shall send a second notice
(the “Second Notice”) to Lender, in accordance with Section 17 hereof, stating Manager’s
intention to terminate the Management Agreement.



               (b) So long as Assignor is the “owner” under the Management Agreement, unless otherwise
required by applicable law, Manager shall forebear from taking any action to terminate the
Management Agreement for a period of thirty (30) days after the service of the Second Notice for
any monetary event of default, and for an additional period of sixty (60) days after the service of
the Second Notice for any non-monetary default which is susceptible to being cured by the Lender
and for an additional period of two hundred seventy (270) days after the service of the Second
Notice for an event of default of a non-monetary nature which is not susceptible to being cured by
the Lender without taking possession of the Property; provided, however, that during such
forbearance period, the Lender must be diligently pursuing such cure and its remedies against the
Assignor under the Loan Documents.



               (c) if the Successor Borrower has succeeded to the interests of Assignor pursuant to the terms
of this Agreement, unless otherwise required by applicable law, Manager shall forebear from taking
any action to terminate the Management Agreement for a period often (10) business days after the
service of the Second Notice for any monetary event of



 -4- 









 







default or for a period of thirty (30)
business days after the service of the Second Notice for any non-monetary default which is
susceptible to being cured by the Lender in order to give Lender an opportunity to cure such
default; provided, however, that during such forbearance period, the Lender must be
diligently acting to cure such default.



               (d) No notice given by Manager to any “owner” under the Management Agreement shall be
effective as a notice under the terms of the Management Agreement unless the applicable duplicate
notice to Lender which is required under subsection (a) of this Section 10 (either the First Notice
or the Second Notice, as the case may be) is given to Lender in accordance with this Agreement. It
is understood that any failure by Manager to give such a duplicate notice (either the First Notice
or the Second Notice, as the case may be) to Lender shall not be a default by Manager either under
this Agreement or under the Management Agreement, but rather shall operate only to void the
effectiveness of any such notice by Manager to “owner” under the terms of the Management Agreement.



               (e) In the event of a default by “owner” beyond any notice and cure periods under the
Management Agreement, Manager agrees to accept performance by Lender with the same force and effect
as if performed by “owner” thereunder, in accordance with the provisions and within the cure
periods prescribed in the Management Agreement (except that Lender shall have such additional cure
periods, not available to “owner”, as are set forth in subsections (b) and (c) hereof, as
applicable).



          11. Lender’s Right to Terminate. Notwithstanding anything contained in the Management
Agreement to the contrary, Lender, or Assignor at Lender’s direction pursuant to the Loan
Documents, shall have
the right to terminate the Management Agreement upon, or at any time after, (a) Manager shall
become insolvent or a debtor in a bankruptcy proceeding which results in the entry of a final order
for relief or remains undismissed or undischarged for a period of ninety (90) days, (b) an Event of
Default has occurred and is continuing, or (d) a material default by Manager has occurred and is
continuing under the Management Agreement, by giving Manager thirty (30) days’ prior written notice
of such termination, in which event Manager shall resign as manager of the Property effective upon
the end of such thirty (30)-day period. Manager agrees not to look to Lender for payment of any
fees under the Management Agreement accruing from and after the effective date of such termination.
In addition to the foregoing in the event that Lender, in Lender’s reasonable discretion, at any
time prior to the termination of this Agreement, determines that the Property is not being managed
in accordance with generally accepted management practices for projects similarly situated, Lender
may deliver written notice thereof to Assignor and Manager, which notice shall specify with
particularity the grounds for Lender’s determination. If Lender reasonably determines that the
conditions specified in Lender’s notice are not remedied to Lender’s reasonable satisfaction by
Assignor or Manager within thirty (30) days from the date of such notice or that Assignor or
Manager have failed to diligently undertake correcting such conditions within such thirty (30) day
period, Lender may direct Assignor to terminate the Management Agreement and to replace Manager in
accordance with the requirements of the Loan Agreement.




          12. New Management Agreement. Subject to Manager’s right to terminate the Management
Agreement pursuant to Section 2(b) hereof, Manager agrees that in the event of




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a Foreclosure on the
Property pursuant to Lender’s rights and remedies under the Loan Documents, upon completion of the
Foreclosure, Manager shall, if requested by Lender, Lender’s nominee, or any Successor Borrower,
enter into a new management agreement with the Lender, Lender’s nominee or any such Successor
Borrower, as applicable, on the same terms and conditions of the then-existing Management
Agreement.




          13. Payment of Fees. As further security for the Note, Borrower has executed and
delivered the Security Instrument pursuant to which Borrower has assigned to Lender an assignment
of leases and rents, assigning to Lender, among other things, all of Assignor’s right, title and
interest in and to the Rents. Manager acknowledges disclosure of the aforesaid assignment.




          14. Further Assurances. Manager further agrees to (a) execute such affidavits and
certificates as Lender shall reasonably require to further evidence the agreements contained
herein, (b) on reasonable written request from Lender and to the extent required by the Loan
Agreement, furnish Lender with copies of such information as Assignor is entitled to under the
Management Agreement, and (c) cooperate with Lender’s representative in any inspection of all or
any portion of the Property in accordance with the Loan Agreement. Manager hereby acknowledges
that some, or all, permits, licenses and authorizations necessary for the use, operation and
maintenance of the
Property (the “Permits”) may be held by, or on behalf of, the Manager. By executing
this Agreement, Manager (x) agrees that it is, or will be, holding or providing all such Permits
for the benefit of Assignor and (y) hereby agrees that as security for repayment of the Debt by
Borrower in accordance with the Loan Agreement, to the extent permitted by applicable law, Manager
hereby grants to Lender a security interest in and to the Permits subject to the terms and
conditions of the Loan Documents. Moreover, Manager hereby agrees that, upon the occurrence and
during the continuance of an Event of Default, it will continue to hold such Permits for the
benefit of Lender. Manager agrees that upon termination of the Management Agreement, Manager shall
(to the extent assignable and to the extent permitted by applicable law) assign to Assignor or to
the new manager all of Manager’s interest in such Permits at Assignor’s or such new manager’s
expense.




          15. Manager Not Entitled to Gross Revenues. Manager acknowledges and agrees that the
Rents are encumbered by the lien of the Security Instrument and other Loan Documents in favor of
Lender and Manager has no right to, or title in, such monies except as provided in the Management
Agreement, or at law or equity. In any bankruptcy, insolvency or similar proceeding the Manager,
or any trustee acting on behalf of the Manager, waives any claim to the Rents other than pursuant
to the terms and conditions of the Management Agreement or at law or equity.




          16. Governing Law. THE PARTIES AGREE THE STATE OF NEW YORK HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS,
INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO





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CONTRACTS MADE AND
PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF
THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION,
AND ENFORCEMENT OF THE LIEN AND SECURITY INTEREST CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE
APPLICABLE FACILITY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE
LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND
ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER.
TO THE FULLEST EXTENT PERMITTED BY LAW, ASSIGNOR AND LENDER EACH HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS
AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE
LIEN AND SECURITY INTEREST CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL
BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE FACILITY IS
LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE
LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN
DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER.




          17. Notices. All notices, consents, approvals and requests required or permitted
hereunder or under any other Loan Document shall be given in writing and shall be effective for all
purposes if hand delivered or sent by (a) certified or registered United States mail, postage
prepaid, return receipt requested, (b) expedited prepaid overnight delivery service, either
commercial or United States Postal Service, with proof of attempted delivery, or by (c) telecopier
(with answer back acknowledged provided an additional notice is given pursuant to subsection (b)
above), addressed as set forth below (or at such other address and Person as shall be designated
from time to time by any party hereto, as the case may be, in a written notice to the other parties
hereto in the manner provided for in this Section). This Section 17 shall not be construed in any
way to affect or impair any waiver of notice or demand provided in any Loan Document or to require
giving of notice or demand to or upon any Person in any situation or for any reason. In addition
to the foregoing, the Manager, Lender and Assignor may, from time to time, specify to the other
party additional notice parties by providing to the other party written notice of the name,
address, telephone number and telecopy number of any such additional notice party. Each such
additional notice party shall be entitled to receive and/or give any notice required or permitted
to be given under this Agreement:




 -7- 









 








	 	 	 

	If to Lender:

	 	Bank of America, N.A.
	 

	 	Capital Markets Servicing Group
	 

	 	900 West Trade Street, Suite 650
	 

	 	NCI-026-06-01
	 

	 	Charlotte, North Carolina 28255
	 

	 	Attn: Servicing Manager
	 

	 	Facsimile No.: (704) 317-4501
	 
	 	 
	With a copy to:

	 	Cadwalader, Wickersham & Taft LLP
	 

	 	227 West Trade Street, Suite 2400
	 

	 	Charlotte, North Carolina 28202
	 

	 	Attention: James P. Carroll, Esq.
	 

	 	Facsimile No.: (704) 348-5200
	 
	 	 
	If to Borrower:

	 	Bonstores Realty [One][Two], LLC
	 

	 	P.O. Box 2821
	 

	 	York, Pennsylvania 17402
	 

	 	Attention: General Counsel
	 

	 	Facsimile No.: (717) 751-3008
	 
	 	 
	With a copy to:

	 	Wolf, Block, Schorr & Solis-Cohen LLP
	 

	 	1650 Arch Street, 22nd Floor
	 

	 	Philadelphia, Pennsylvania 19103
	 

	 	Attention: Henry F. Miller, Esq.
	 

	 	Facsimile No.: (215) 977-2740
	 
	 	 
	If to Manager:

	 	[                                        ]
	 

	 	[                                        ]
	 

	 	[                                        ]
	 

	 	Attention:
	 

	 	Facsimile No.:
	 
	 	 
	With a copy to:

	 	[                                        ]
	 

	 	[                                        ]
	 

	 	[                                        ]
	 

	 	Attention:
	 

	 	Facsimile No.:






          18. No Oral Change. This Agreement, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or by any act or
failure to act on the part of Assignor, Lender or Manager, but only by an agreement in writing
signed by the party against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.




          19. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of Manager, Assignor and Lender and their respective successors and assigns forever.
Moreover, the term “Lender”, for the purposes of this Agreement, shall be deemed to include any
nominee or designee appointed by Lender in connection with any Foreclosure and any Successor
Borrower to whom Manager is required to attorn pursuant to Section 9 hereof.




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




          21. Headings, etc. The headings and captions of various paragraphs of this Agreement are for convenience of
reference only and are not to be construed as defining or limiting, in any way, the scope or intent
of the provisions hereof.




          22. Duplicate Originals, Counterparts. This Agreement may be executed in any number of
duplicate originals and each duplicate original shall be deemed to be an original. This Agreement
may be executed in several counterparts, each of which counterparts shall be deemed an original
instrument and all of which together shall constitute a single Agreement. The failure of any party
hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other
signatories from their obligations hereunder.




          23. Number and Gender. Whenever the context may require, any pronouns used herein
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural and vice versa.




          24. No Transfer. Without the consent of Lender, Manager shall not, except as
expressly permitted in the Management Agreement or the Loan Agreement, sell, transfer, or assign
any of Manager’s interest in the Management Agreement.




          25. Miscellaneous. Wherever pursuant to this Agreement it is provided that Assignor
shall pay any costs and expenses, such costs and expenses shall include, but not be limited to,
actual reasonable legal fees and disbursements of Lender.




          26. Survival of Agreement. At such time as the Loan is paid in full, this Agreement
and all of Lender’s right, title and interest hereunder with respect to the Management Agreement
shall terminate. Notwithstanding the foregoing, all provisions contained in this Agreement that
pertain to the relationship of the Manager to the Lender or the Lender’s nominee in the event that
the Lender or its nominee have succeeded to the interests of the Assignor as “owner” under the
Management Agreement, the terms of this Agreement shall survive until such time as the Lender or
its nominee is no longer the “owner” under the Management Agreement.




[SIGNATURE PAGE IMMEDIATELY FOLLOWS]






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          IN WITNESS WHEREOF the undersigned have executed this Agreement and Consent as of the date and
year first written above.




	 	 	 	 	 
	BORROWER:


BONSTORES REALTY [ONE][TWO], LLC

a Delaware limited liability company

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 
	LENDER:





[                                                            ]

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 
	MANAGER:





[                                                            ],

a [                                                            ]

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



 









 






	 	 	 	 	 



EXHIBIT A




MANAGEMENT AGREEMENT






A-1









 








Confidential treatment has been requested.

Redacted material has been separately filed with the Commission.




EXHIBIT E



FORM OF FINANCIAL STATEMENTS FOR EBITDA DEFINITION



[***]



Exhibit E-1









 





Confidential treatment has been requested.

Redacted material has been separately filed with the Commission.




SCHEDULE I



REQUIRED REPAIRS



Schedule Begins on Immediately Following Page



[***]









Sch. I-1









 








SCHEDULE II




Intentionally Deleted 






Sch. II-1









 








SCHEDULE III




INDIVIDUAL PROPERTIES AND ALLOCATED LOAN AMOUNTS



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Store	 	 	 	 	 	Allocated Loan	 	 
	Division	 	#	 	City	 	State	 	Amount	 	Use
	Boston

	 	 	522	 	 	Brookfield
	 	WI
	 	$	26,349,000.00	 	 	Retail
	Boston

	 	 	527	 	 	Wauwatosa
	 	WI
	 	$	25,952,000.00	 	 	Retail
	Elder Beerman

	 	 	128	 	 	Zanesville
	 	OH
	 	$	4,683,000.00	 	 	Retail
	Elder Beerman

	 	 	132	 	 	Richmond
	 	IN
	 	$	4,841,000.00	 	 	Retail
	Herberger’s

	 	 	352	 	 	Fargo
	 	ND
	 	$	6,984,000.00	 	 	Retail
	Herberger’s

	 	 	354	 	 	St. Paul
	 	MN
	 	$	7,540,000.00	 	 	Retail
	Younker’s

	 	 	432	 	 	Eau Claire
	 	WI
	 	$	6,190,000.00	 	 	Retail
	Younker’s

	 	 	438	 	 	Muskegon
	 	MI
	 	$	7,143,000.00	 	 	Retail
	Younker’s

	 	 	457	 	 	Green Bay
	 	WI
	 	$	11,905,000.00	 	 	Retail
	Carson Pirie Scott

	 	 	515	 	 	Joliet
	 	IL
	 	$	9,127,000.00	 	 	Retail
	Carson Pirie Scott

	 	 	556	 	 	Aurora
	 	IL
	 	$	11,032,000.00	 	 	Retail
	Carson Pirie Scott

	 	 	590	 	 	Rockford
	 	IL
	 	$	8,254,000.00	 	 	Distribution Center






Sch. III-1









 






SCHEDULE 1.01




OPERATING LEASES AND OPERATING LESSEES





	1.	 	Lease Agreement by and between Bonstores Realty One, LLC, as landlord, and Herberger’s
Department Stores, LLC, as Operating Lessee, dated as of March 6, 2006.
	 
	2.	 	Master Lease Agreement by and between Bonstores Realty One, LLC, as landlord, and McRae’s,
Inc., as Operating Lessee, dated as of March 6, 2006.
	 
	3.	 	Lease Agreement by and between Bonstores Realty One, LLC, as landlord, and McRIL, LLC, as
Operating Lessee, dated as of March 6, 2006.
	 
	4.	 	Master Lease Agreement by and between Bonstores Realty One, LLC, as landlord, and Parisian,
Inc., as Operating Lessee, dated as of March 6, 2006.
	 
	5.	 	Lease Agreement by and between Bonstores Realty One, LLC, as landlord, and Saks Distribution
Centers, Inc., as Operating Lessee, dated as of March 6, 2006.
	 
	6.	 	Master Lease Agreement by and between Bonstores Realty One, LLC, as landlord, and The Elder
Beerman Stores Corp., as Operating Lessee, dated as of March 6, 2006.