Exhibit 10.2


 


CONTRIBUTION
AGREEMENT


(Pool 2)


 


THIS CONTRIBUTION AGREEMENT
(this “Agreement”) is made and entered into as
of the 23rd day of June, 2009 by and between EXTRA SPACE STORAGE LLC, a Delaware limited liability company
(“Extra Space”), and HSRE-ESP IA, LLC,  a Delaware limited liability company (“HSRE”).


 


RECITALS


 


WHEREAS, Extra Space is the owner of a ninety nine
percent (99%) ownership interest (the “ESP 51 Interest”)
in Extra Space Properties Fifty One LLC (“ESP 51”) and
one hundred percent (100%) of the ownership interest (the “ESP 57
Interest”; together with the ESP 51 Interest, the “ESP Interests”) in Extra Space Properties Fifty Seven LLC (“ESP 57”), which owns the remaining one percent (1%) interest
in ESP 51;


 


WHEREAS, ESP 51 is the direct
owner of fifteen self storage facilities more particularly described on Schedule R-1, attached hereto
(each, a “Facility” or a “Direct
Facility” and collectively, the “Direct
Facilities”);


 


WHEREAS, ESP 51 is the owner of
a ninety nine percent (99%) limited partnership interest (the “Texas LP Interest”) in Extra Space of Texas Eleven LP, a
Texas limited partnership (“ESP Texas”) and
one hundred percent (100%) of the ownership interest (the “Texas GP
Interest”; the Texas LP Interest and the Texas GP Interest are
together referred to herein as the “Texas Interests”)
in ESP Texas Eleven GP LLC, a Delaware limited liability company (“ESP Texas GP”), which is the owner of a one percent (1%)
general partnership interest in ESP Texas;


 


WHEREAS, ESP Texas is the direct
owner of four self storage facilities more particularly described on Schedule R-2, attached hereto
(each, a “Facility” or a “Texas
Facility” and collectively, the “Texas Facilities”; the Direct Facilities and the Texas
Facilities are collectively referred to herein as the “Facilities”);


 


WHEREAS, subject to the terms
and conditions of this Agreement, Extra Space and HSRE desire to engage in a
series of transactions pursuant to which:


 


(1)           Extra Space and HSRE
will form a new limited liability company to be named HSRE-ESP I, LLC (“HSRE-ESP”) to be owned by Extra Space and HSRE and, as Extra
Space’s initial capital contribution to HSRE-ESP, Extra Space will contribute
cash in the amount specified in this Agreement and all of Extra Space’s right,
title, and interest in and to the ESP Interests in exchange for membership
interests in HSRE-ESP (the “ESS HSRE-ESP Interests”),
which ESS HSRE-ESP Interests are more particularly described in the form of
limited liability company agreement for HSRE-ESP attached hereto as Exhibit A and by this
reference made a part hereof (the “HSRE-ESP Operating
Agreement”);


 


1

















 


(2)           As HSRE’s initial
capital contribution to HSRE-ESP, HSRE will contribute cash in the amount
specified in this Agreement in exchange for membership interests in HSRE-ESP
(the “HSRE HSRE-ESP Interests”), which HSRE
HSRE-ESP Interests are more particularly described in the HSRE-ESP Operating
Agreement; and


 


(3)           HSRE-ESP will
distribute cash to Extra Space in the amount specified in this Agreement;


 


WHEREAS, the Facilities are
subject to the Existing Indebtedness (defined below) in the aggregate
approximate amount of $101,000,000.00 and after contribution of the ESP
Interests to HSRE-ESP, the Facilities will continue to be subject to the
Existing Indebtedness.


 


THEREFORE, in consideration of
the terms and conditions contained in this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Extra Space and HSRE agree as follows:


 


1.             AGREEMENT TO
CONTRIBUTE.  Subject to the
conditions and on the terms contained in this Agreement, HSRE agrees to
contribute to HSRE-ESP cash in the amount specified in Section 2.2.3 below
and Extra Space agrees to (i) contribute, assign, convey and transfer to
HSRE-ESP the ESP Interests, on the terms and conditions set forth in this
Agreement and in the Assignment Agreement (as defined in Section 4.2.2.2
below) and (ii) contribute to HSRE-ESP cash in the amount specified in Section 2.2.4
below.


 


2.             TRANSFER OF ESP
INTERESTS.


 


2.1           Recitals.  The foregoing recitals are hereby
incorporated by this reference.


 


2.2           Consideration
and Closing Structure.


 


2.2.1        Contribution Value.  The parties hereby agree that the gross fair
value of the ESP Interests (which include the value of all of the Facilities),
for all purposes of this Agreement, is equal to $132,500,000 (the “Contribution Value”).


 


2.2.2        Distribution Amount.  Immediately after the Closing Extra Space and
HSRE shall cause HSRE-ESP to distribute to Extra Space cash in an amount (the “Extra Space Distribution Amount”) equal to the sum of: (i) the
“Initial HSRE Contribution
Amount” (hereinafter defined) minus (ii) any closing costs and prorations
described in Section 4.3 below (including the costs described in Section 4.3.4
below) (collectively, the “Prorations”)
and credited, as of the Proration Date (as defined below), to HSRE-ESP, plus (iii) any
Prorations credited, as of the Proration Date, to Extra Space.  As used herein, the term “Initial HSRE Contribution Amount” shall mean eighty percent
(80%) of the difference between (A) the Contribution Value, minus (B) the
sum of the aggregate unpaid principal balance of the Existing Indebtedness plus
all accrued and unpaid interest with respect to the Existing Indebtedness as of
the Proration Date.  Extra Space and HSRE
agree that for purposes of determining the balance 


 


2

















 


of Extra Space’s “Capital Account” (as defined in the
HSRE-ESP Operating Agreement) and Extra Space’s “Adjusted Capital Account” (as
defined in the HSRE-ESP Operating Agreement), the gross amount of Extra Space’s
initial “Capital Contribution” to HSRE-ESP shall be reduced by the Initial HSRE
Contribution Amount notwithstanding the fact that the amount actually
distributed to Extra Space by HSRE-ESP is adjusted (either increased or
decreased) pursuant to the provisions of this Section 2.2.2.  The parties hereby agree that the
provisions of this Section 2.2.2 are intended to cause the
Adjusted Capital Accounts of HSRE and Extra Space to be in an
80.00%/20.00% ratio, respectively, following the contribution of the ESP
Interests by Extra Space and the Initial HSRE Contribution Amount by HSRE and
the distribution of the Extra Space Distribution Amount to Extra Space and the
pro-rations and credits provided for herein.


 


2.2.3        Cash to be Contributed
by HSRE.  At Closing, HSRE shall
contribute to HSRE-ESP cash in an amount (the “Total HSRE
Contribution Amount”) equal to the sum of (i) the Initial HSRE
Contribution Amount, plus (ii) Eighty Percent (80.00%) of the total
Prorations charged to HSRE-ESP.


 


2.2.4        Cash to be Contributed
by Extra Space.  At Closing, Extra
Space shall contribute to HSRE-ESP cash in an amount (the “Total Extra Space
Contribution Amount”) equal to the sum of Twenty Percent (20.00%) of
the Prorations charged to HSRE-ESP.


 


3.             THE PROPERTY;
EXISTING INDEBTEDNESS.


 


3.1           Property.  As used herein, “Property”
shall mean and include all of the following:


 


3.1.1        Land.  Those certain tracts of real estate
underlying the Facilities, as more particularly described on Schedules 3.1(a) 1 through 19,
together with all easements, covenants, rights, privileges, tenements,
hereditaments and appurtenances thereunto now or hereafter belonging or
appertaining thereto (collectively, the “Land”);


 


3.1.2        Improvements.
All of the buildings, structures, fixtures and other improvements located on or
used in connection with the Land, including, without limitation, any and all
plumbing, air conditioning, heating, ventilating, mechanical, electrical and
other utility systems, parking lots and facilities, landscaping, roadways,
sidewalks, security devices, signs and light fixtures (the “Improvements”) (the Land and the Improvements are collectively
referred to as the “Premises”);


 


3.1.3        Tangible
Personal Property.  To the
extent owned by either ESP 51 or ESP Texas, all furniture, furnishings,
fixtures, equipment, machinery, maintenance vehicles and equipment, tools,
parts, recreational equipment, carpeting, window treatments, stationery and
other office supplies and other 


 


3

















 


tangible personal property of every kind situated in,
on, over and under the Premises or used in connection therewith, which is not
owned by tenants under the Leases (defined below), together with all
replacements and substitutions therefor between the date hereof and Closing
(the “Tangible Personal Property”), including
but not limited to those items set forth on Schedule 3.1(c) attached
hereto;


 


3.1.4        Leases
and Contracts.  All right,
title and interest of ESP 51 or ESP Texas (as applicable) in and to the
Contracts, if any, and the Leases (as such terms are defined below); and


 


3.1.5        Intangibles.  All transferable warranties or guaranties
issued in connection with the Improvements or Tangible Personal Property, and
any other intangible personal property, and used exclusively in connection with
the Premises or the business transacted thereon (collectively, the “Intangible Personal Property”), including, without
limitation, to the extent assignable, all land use entitlements, development
rights, licenses, permits, authorizations, names, and telephone exchange
numbers; provided, however, that notwithstanding anything to the contrary set
forth in this Section 3.1, the terms Property and Intangible Personal
Property shall expressly exclude any and all trade names and trademarks owned,
directly or indirectly, by Extra Space Storage Inc. regardless of whether such
trade names or trademarks are used on or with respect to the Property and
nothing in this Agreement shall be construed to either convey or to create any
obligation on the part of Extra Space to convey, to HSRE-ESP any rights in or
rights to use any such trade names or trademarks.


 


Notwithstanding anything to the contrary set forth
above or otherwise contained herein, “Property”
expressly excludes (i) all property owned by tenants or other users or
occupants of the Premises (other than ESP 51 and ESP Texas), (ii) all
property owned by the property manager of the Premises, (iii) all property
owned by any vendor under any Contract, (iv)  all rights and liabilities
of either ESP 51 or ESP Texas in, to and under those litigation matters, if
any, described in Schedule 3.1
attached hereto.


 


3.2           Existing
Indebtedness.  As used in
this Agreement, the term “Existing Indebtedness”
shall mean those certain loans evidenced by separate Promissory Notes with
respect to each of the Facilities in which either ESP 51 or ESP Texas appears
as Borrower and Wachovia Bank N.A. appears as Lender (each a “Third Party Note” and collectively the “Third Party
Notes”).  The Third Party
Notes are secured by one or more mortgages or deeds of trust against the
Property (each a the “Third Party Mortgage”
and collectively the “Third Party Mortgages”).  Extra Space and HSRE agree as follows with
respect to the Existing Indebtedness:


 


3.2.1        The obligations of Extra
Space and HSRE under this Agreement shall be subject to the following:


 


3.2.1.1                 HSRE’s approval,
prior to the expiration of the Due Diligence Period (defined below) of the
Existing Indebtedness, including, 


 


4

















 


but not limited to, HSRE’s approval of the amount,
interest rate, payment schedule, repayment term and other terms of the Existing
Indebtedness, and the form of the documents evidencing and or securing the
Existing Indebtedness, including, but not limited to, any guarantees of the
Existing Indebtedness (the “Third Party Loan Documents”),
which approvals shall be in HSRE’s sole and absolute discretion.


 


3.2.1.2                 The current
holder or holders of the Existing Indebtedness (the “Lender”)
and each servicer of the Existing Indebtedness consenting to the transaction
which is the subject of this Agreement and HSRE-ESP’s assumption of the
Existing Indebtedness, all on terms that are acceptable to HSRE and Extra
Space, in their respective sole discretions (the “Lender
Conditions”).  The parties
acknowledge that the Lender may require as a Lender Condition that the Existing
Indebtedness be guaranteed by HSRE-ESP and that Extra Space continue to provide
certain guarantees and/or indemnifications with respect to the Existing
Indebtedness.  Subject to the terms and
conditions of this Agreement, Extra Space agrees to provide such guarantees
and/or indemnifications.  The Parties
also acknowledge that (i) any required guaranties or indemnifications from
either HSRE-ESP or Extra Space that are more burdensome or onerous, in any
material respects, than the existing guarantees and indemnifications provided
by Extra Space shall not be acceptable, (ii) any Lender Conditions that
require any guaranties or indemnifications from HSRE or any Affiliate of HSRE
(other than HSRE-ESP) are not acceptable to HSRE.


 


3.2.2        Extra Space agrees to promptly
apply for and pursue with reasonable diligence Lender’s consent to the
transaction which is the subject of this Agreement.  Extra Space will advance the non-refundable
amounts charged by the Lender as a condition to processing the request that
Lender consent to the transaction which is the subject of this Agreement.  Extra Space agrees, from time to time, to
inform HSRE as to the status of the approval process and Extra Space and HSRE
each agree to use commercially reasonable efforts to cooperate with each other
and with Lender and any servicer in seeking such approval and consent and in
responding to the reasonable requests of Lender and/or such servicer.  Provided that the Closing occurs, HSRE-ESP
shall be responsible for and pay all fees, costs, expenses, and other charges
charged by Lender and/or any servicer of the Existing Indebtedness or incurred
in the satisfaction of any condition or requirement imposed by Lender or such
servicer with respect to Lender’s consenting to the transaction which is the
subject of this Agreement (“Lender Expenses”)
and any party advancing such costs prior to Closing shall be reimbursed for
such costs at Closing.  If the Closing
does not occur, neither Extra Space nor HSRE shall be reimbursed for any of the
Lender Expenses advanced by such party. 
The obligations of this Section 3.2.2 shall survive the Closing and
shall survive the termination of this Agreement.


 


5

















 


3.2.3        Notwithstanding anything
to the contrary in this Agreement, if at the Closing Date, Lender and/or any
servicer of Existing Indebtedness has not consented to the transaction which is
the subject of this Agreement and provided that HSRE has not terminated this
Agreement pursuant to Section 8.3 below, HSRE shall have the option to
either (A) extend the Closing for an additional sixty (60) days
(hereinafter the “Lender Approval Extension
Period”) to permit Extra Space to continue to pursue with reasonable
diligence Lender’s consent to the transaction which is the subject of this
Agreement or (B) terminate this Agreement. 
Such option shall be exercised by HSRE giving Extra Space written notice
of HSRE’s election to either extend the Closing or terminate this Agreement
pursuant to this Section 3.2.3 at any time on or before the date on which
the Closing Date would be scheduled to occur but for such extension.  If HSRE fails to give such written notice to
Extra Space, such failure shall be deemed to be an election to terminate this
Agreement.


 


3.2.4        During the Due Diligence
Period, Extra Space will make available to HSRE true and correct copies of all
of the material Third Party Loan Documents for inspection, copying and review.


 


4.             CLOSING.


 


4.1           Closing
Date.  The “Closing Date” or “Closing” of the transaction contemplated by
this Agreement shall be on or before the date which is fifteen (15) days from
the end of the Due Diligence Period.  The
“Closing Date” shall be the date
on which the “Closing”
occurs.  The Closing shall occur at the
office of HSRE’s Counsel, DLA Piper LLP (US), 203 North LaSalle Street, 19th
Floor, Chicago, IL, 60601.  The “Closing” shall be deemed to have occurred
when all of the conditions to Closing (as set forth in this Agreement) have
either been satisfied or waived, the Escrow Agent (defined below) holds a
settlement statement signed by Extra Space, a settlement statement signed by
HSRE, and all of the funds and all of the other documents required by this
Agreement, and Extra Space and HSRE have authorized Escrow Agent to disburse
such funds and deliver such documents in accordance with the provisions of this
Agreement.


 


4.2           Closing
Documents.


 


4.2.1        Coordination
with Closing Under Pool 1 Contribution Agreement.  Concurrently with the execution of this
Agreement, the parties to this Agreement also executed that certain
Contribution Agreement (Pool 1) (the “Pool 1 Contribution
Agreement”) relating to certain other self storage facilities, as
more particularly described in the Pool 1 Contribution Agreement.  It is the anticipation of the parties to this
Agreement that the Closing under this Agreement will occur prior to the Closing
under the Pool 1 Contribution Agreement. 
If the Closing under this Agreement does not occur either prior to or
concurrently with the Closing under the Pool 1 Contribution, the parties will,
in connection with the Closing under this Agreement, proceed with the delivery
of documents and funds in accordance with the provisions of this Agreement
except to the extent that such documents were executed and delivered in connection
with 


 


6

















 


the Closing under the Pool 1 Contribution Agreement
and, to the extent necessary, shall modify this Agreement to reflect the fact
that the Closing under the Pool 1 Contribution Agreement occurred prior to the
Closing under this Agreement.


 


4.2.2        Extra
Space.  At Closing, Extra
Space shall deliver each of the following:


 


4.2.2.1                 [RESERVED].


 


4.2.2.2                 two counterparts
of an Assignment and Assumption of the Membership Interests in ESP 51 and ESP 57
(the “Assignment Agreement”) executed by
Extra Space in the form of Exhibit B
attached hereto and by this reference made a part hereof [at Closing, one
counterpart will be delivered to Extra Space and one counterpart will be
delivered to HSRE-ESP];


 


4.2.2.3                 unless the
Closing under the Pool 1 Contribution Agreement has already occurred, three
counterparts of the HSRE-ESP Operating Agreement, executed by Extra Space [at
Closing, one counterpart will be delivered to Extra Space, one counterpart will
be delivered to HSRE and one counterpart will be delivered to HSRE-ESP];


 


4.2.2.4                 any and all
affidavits, undertakings, certificates or other documents customarily required
by Title Insurer in order to cause it to issue the Title Policy or the
Endorsements (as defined in Section 11.1.1 hereto), as applicable, to
HSRE-ESP or any applicable subsidiary of HSRE-ESP including, without
limitation, ESP 51 or ESP Texas;


 


4.2.2.5                 Extra Space’s
affidavit stating Extra Space’s U.S. taxpayer identification number and that
Extra Space is not a disregarded entity or foreign person within the meaning of
Section 1445 of the Internal Revenue Code (and any similar affidavit that
may be required under state law);


 


4.2.2.6                 to the extent not
provided to HSRE prior to Closing, copies of all Contracts, if any, and all
Leases (each of which may be delivered at the Facility which is the subject of
such Lease) [to be delivered to HSRE-ESP];


 


4.2.2.7                 evidence
reasonably satisfactory of termination of the existing property management
agreements for the Property [to be delivered to HSRE-ESP];


 


4.2.2.8                 two counterparts
of a new property management agreement with respect to each Facility executed
by Extra Space Management, Inc. (“ESMI”), in the
form of Property Management Agreement attached as Exhibit C to the
HSRE-ESP Operating Agreement and by this reference made a part hereof (each a “Property Management 


 


7

















 


Agreement” and collectively the “Property Management Agreements”) [at Closing, one counterpart
of each Property Management Agreement will be delivered to ESMI and one
counterpart of each Property Management Agreement will be delivered to
HSRE-ESP];


 


4.2.2.9                 unless the
Closing under the Pool 1 Contribution Agreement has already occurred, two counterparts
of a Non-Competition and Right of First Opportunity Agreement in the form
attached hereto as Exhibit C
and by this reference made a part hereof (the “ROFO
Agreement”) [at Closing, one counterpart of the ROFO Agreement will
be delivered to Extra Space and one counterpart of the ROFO Agreement will be
delivered to HSRE];


 


4.2.2.10               Cash in the amount
specified in Section 2.2.4 above [to be delivered to HSRE-ESP]; and


 


4.2.2.11               all other documents
reasonably and customarily required in order to complete the conveyance,
transfer and assignment of the ESP Interests to HSRE-ESP.


 


4.2.3        HSRE.  At Closing, HSRE shall deliver each of the
following:


 


4.2.3.1                 Cash in the
amount specified in Section 2.2.3 above [to be delivered to HSRE-ESP];


 


4.2.3.2                 unless the
Closing has already occurred under the Pool 1 Contribution Agreement, three
counterparts of the HSRE-ESP Operating Agreement, executed by Extra Space [at
Closing, one counterpart will be delivered to Extra Space, one counterpart will
be delivered to HSRE and one counterpart will be delivered to HSRE-ESP];


 


4.2.3.3                 unless the
Closing under the Pool 1 Contribution Agreement has already occurred, two
counterparts of the ROFO Agreement executed by Harrison Street Real Estate
Capital, LLC [at Closing, one counterpart of the ROFO Agreement will be
delivered to Extra Space and one counterpart of the ROFO Agreement will be
delivered to HSRE];


 


4.2.4        HSRE-ESP.  At Closing, Extra Space and HSRE shall cause
HSRE-ESP to deliver the following:


 


4.2.4.1                 the ESS HSRE-ESP Interests
and the HSRE HSRE-ESP Interests (the delivery of which shall be evidenced by
the execution and delivery of the HSRE-ESP Operating Agreement by HSRE and
Extra Space);


 


8

















 


4.2.4.2                 two counterparts
of the Assignment Agreement [at Closing, one counterpart will be delivered to
Extra Space and one counterpart will be delivered to HSRE-ESP];


 


4.2.4.3                 two counterparts
of a Property Management Agreement with respect to each of the Facilities
executed, as applicable, by either ESP 51 or ESP Texas [at Closing, one
counterpart of each Property Management Agreement will be delivered to ESMI and
one counterpart of each Property Management Agreement will be delivered to
HSRE-ESP];


 


4.2.4.4                 To Extra Space,
cash in the amount of the Extra Space Distribution Amount;


 


4.2.4.5                 any and all
affidavits, undertakings, certificates or other documents customarily required
by Title Insurer in order to cause it to issue the Title Policy or the
Endorsement, as applicable; and


 


4.2.4.6                 copies of
resolutions authorizing this transaction and an incumbency certificate
evidencing the authority of HSRE’s signatories.


 


4.3           Credits
and Prorations.


 


4.3.1        Prorations.  Subject to the Proration Review (as defined
in Exhibit D), the following shall
be apportioned between Extra Space and HSRE-ESP with respect to the Property,
such prorations to be computed based on the number of days Extra Space and
HSRE-ESP each own the Property in the month in which the Closing occurs, as of
12:01 a.m. on the third day prior to the Closing Date (the “Proration Date”), as if Extra Space were selling the
Property to HSRE on the Proration Date, and such prorations shall increase or
decrease the amount of cash disbursed to Extra Space at Closing:


 


4.3.1.1                 all collected
rents and other sums received under Leases (“Rents”)
(including prepaid Rents) (to the extent that collected rents or other sums are
distributed by either ESP 51 or ESP Texas to Extra Space, the applicable
prorated portion of such collected rents and other sums shall be a credit to
HSRE-ESP and to the extent that such collected rents or other sums are retained
by ESP 51 and/or ESP Texas, the applicable prorated portion of such collected
rents or other sums shall be a credit to Extra Space);


 


4.3.1.2                 taxes and
assessments (including, without limitation, personal property taxes on the
Personal Property and rent taxes) levied against the Property;


 


4.3.1.3                 pre-payments and
accrued amounts due under any contracts relating to the Property;


 


9

















 


4.3.1.4                 accrued income
and expenses (including, without limitation, gas, electricity and other utility
charges for which ESP 51 or ESP Texas is liable, if any, with such charges to
be apportioned as of the Proration Date on the basis of the most recent meter
reading occurring prior to the Proration Date or, if unmetered, on the basis of
a current bill for each such utility);


 


4.3.1.5                 all other
expenses pertaining to the Property;


 


4.3.1.6                 premiums under
insurance policies; and


 


4.3.1.7                 a credit to Extra
Space for the amount of any reserve accounts held by the Lender to the extent
retained for the benefit of HSRE-ESP after Closing.


 


4.3.2        Method of
Prorations. 
Notwithstanding anything contained in the foregoing provisions:


 


4.3.2.1                 Real estate and
personal property taxes and assessments will be prorated between Extra Space
and HSRE-ESP for the period for which such taxes are assessed, regardless of
when payable.  If the current tax bill is
not available at Closing, then the proration shall be made on the basis of 100%
of the most recent ascertainable tax bill. 
Any taxes paid at or prior to Closing shall be prorated based upon the
amounts actually paid.  If taxes and
assessments for the fiscal year in which Closing occurs or any prior years have
not been paid before Closing, HSRE-ESP shall be credited by Extra Space at the
time of Closing with an amount equal to that portion of such taxes and
assessments which are ratably attributable to the period before the Proration
Date and HSRE-ESP shall pay the taxes and assessments prior to their becoming
delinquent.  If taxes and assessments for
the fiscal year in which Closing occurs have been paid before Closing, Extra
Space shall be credited by HSRE-ESP at the time of Closing with an amount equal
to that portion of such taxes and assessments which are ratably attributable to
the period from and after the Proration Date. 
For each Facility for which a current tax bill for the year in which the
Closing occurs is not available at Closing, at such time as the current tax
bill for the year in which the Closing occurs becomes available, Extra Space
and HSRE-ESP shall re-prorate real estate taxes and each agrees to pay to the
other such amounts as are determined to be due and owing by such party pursuant
to such re-proration within twenty (20) days written notice from the other.


 


4.3.2.2                 “Delinquent Rents”
(as defined below) owed by tenants who have no Delinquent Rents which are more
than thirty (30) days delinquent as of the Proration Date shall be prorated as
of the Proration Date as if fully collected on the Proration Date.  Except as provided in the preceding sentence,
Delinquent Rents shall not be prorated


 


10
















 


and all Delinquent
Rents shall be the property of HSRE-ESP as of the Closing Date.  As used herein, “Delinquent Rents” means all rent due and payable as of the
Proration Date and applicable, on an accrual basis, to any period of time
preceding the Proration Date, including, but not limited to, checks received
after the Proration Date, but prior to the Closing Date.


 


4.3.3        Proration Review.  Within
sixty (60) days after the Closing, Extra Space and HSRE-ESP shall review the
prorations as specified in Sections 4.3.1 and 4.3.2 above in accordance with
the provisions of Exhibit D
attached hereto and by this reference made a part hereof, with any payments
that are called for by such review to be made by the applicable party in
cash.  The provisions of this Section 4.3.3
shall survive the Closing.


 


4.3.4        Closing Costs. 
At the Closing, the following costs shall be paid by HSRE-ESP and/or
reimbursed to Extra Space or HSRE, as applicable: (i) the cost of the
Survey, all recording costs and all escrow costs; (ii) all actual out of
pocket costs incurred or paid to unaffiliated third parties by HSRE in
connection with its due diligence investigation of the Property, the ESP
Interests, the Texas Interests and Extra Space; (iii) all fees, costs,
expenses, and other charges charged by Lender and/or any servicer of the
Existing Indebtedness or incurred in the satisfaction of any condition or
requirement imposed by Lender or such servicer with respect to Lender’s
consenting to the transaction which is the subject of this Agreement; (iv) all
attorney’s fees and costs incurred by either Extra Space or HSRE in connection
with the negotiation and documentation of the transaction which is the subject
of this Agreement and the performance of due diligence for the benefit of HSRE.  At Closing, the following costs shall be paid
by Extra Space and/or HSRE-ESP in accordance with local practice and custom in
the area applicable to each Property:  (A) the
cost of the base title policy, endorsements, reinsurance or coinsurance, (B) transfer,
documentary and similar taxes related to the purchase of the ESP Interests, if
any; provided, however, that in the absence of local practice and custom
relating to the payment of such costs, such costs shall be paid by HSRE-ESP.  Notwithstanding anything to the contrary in
this Section 4.3.4, if the Closing does not occur, no party to this
Agreement shall be responsible for reimbursing any other party to this
Agreement for fees, expenses costs incurred by or for the benefit of such party
except as expressly provided otherwise in Section 13.1.2 below.


 


4.3.5        Survival. 
The obligations under this Section 4.3 shall survive Closing.


 


5.             REPRESENTATIONS AND
WARRANTIES OF EXTRA SPACE.


 


5.1           Warranties and
Representations  Extra Space represents and warrants to HSRE
that, as of the date of this Agreement and at the Closing:


 


5.1.1        Authority, etc. 
Extra Space is a limited liability company, duly organized and validly
existing under the laws of the State of Delaware and is in


 


11

















 


good standing
under the laws of the State of Delaware. 
Extra Space has full power and lawful authority under its organizational
documents to enter into and carry out the terms and provisions of this
Agreement and to execute and deliver all documents which are contemplated by
this Agreement.  All actions necessary to
confer such power and authority upon the persons executing this Agreement (and
all documents which are contemplated by this Agreement to be executed on behalf
of Extra Space) have been taken.  Extra
Space’s execution, delivery and performance of this Agreement will not result
in any violation of, or default under, or require any notice or consent under
Extra Space’s
organizational documents.


 


5.1.2        No Other Agreements. 
Extra Space has not entered into any agreement to dispose of its
interest in the Property or any part thereof. 
Extra Space has not entered into any agreement to dispose of the ESP
Interests, except for this Agreement.


 


5.1.3        Title and Survey. 
At Closing, ESP 51 or ESP Texas (as applicable) shall own a fee simple
estate in and to the Property relating to the Direct Facilities and ESP Texas
shall own a fee simple estate in and to the Property relating to the Texas
Facilities, subject only to: (i) the Approved Title Matters (as defined in
Section 8.2.3 hereto), (ii) the lien of general real estate taxes
which are not yet due or payable as of Closing, (iii) the rights of
tenants, as tenants only, under the Leases (with no options to purchase or
rights of first refusal to purchase thereunder), (iv) acts of, by or
through HSRE, (v) matters disclosed by the surveys of the Premises and
more particularly described on Schedule 5.1.3 attached
hereto (collectively,
the “Surveys”), and (vi) standard
exceptions which cannot be waived or deleted from the Title Policy (defined
below) in the jurisdiction in which the Property is located (collectively, the “Permitted Exceptions”).


 


5.1.4        Leases. 
Extra Space has made available to HSRE at the Facilities true and
complete copies of all leases set forth in the rent rolls described on Schedule 5.1.4 attached hereto (the
“Leases”) and all of Extra Space’s files and correspondence relating to the
Leases.  The rent rolls described in Schedule 5.1.4 are true, correct
and complete.  As of Closing, ESP 51 or
ESP Texas (as applicable) shall be the landlord under each Lease and shall not
have assigned any interest therein to any entity or person.  The information set forth on Center Shift (as
defined in Section 8.2.1) relating to the Property and the Leases is true
and correct in all material respects.


 


5.1.5        Contracts. 
With the exception of the Permitted Exceptions, the Third Party Loan
Documents, the Leases, and the existing property management contracts between
ESMI and either ESP 51 or ESP Texas, as applicable, all of which property
management contracts will be terminated at Closing, there are no service,
maintenance, repair, parking, employment, union, construction, leasing or other
similar contracts to which either ESP 51 or ESP Texas is a party and relating
to the ownership or operation of the Property (the “Contracts”).


 


12

















 


5.1.6        Litigation. 
Except as set forth on Schedule 5.1.6
attached hereto and neither ESP 51 nor ESP Texas has been served with any
litigation (including eminent domain proceedings) which, as of the date of this
Agreement, is still pending against any of such parties with respect to the
ownership or operation of the Property. 
Neither ESP 51 nor ESP Texas has been served with any litigation which
is still pending against such party with respect to the ESP Interests, the
Texas Interests.


 


5.1.7        Violations. 
Neither Extra Space, ESP 51 nor ESP Texas has received from any governmental authority
written notice of, nor does Extra Space have any Knowledge of, any pending,
threatened or currently existing material violation of  any
zoning, building, fire, environmental or health code or any other statute,
ordinance, rule, regulation or order applicable to Extra Space, ESP 51, ESP
Texas  or the
Property or any part thereof.


 


5.1.8        Brokerage Agreements. 
There are no leasing brokerage agreements, leasing commission agreements
or other agreements providing for the payment of any amount for leasing
activities with respect to the Property or any portion thereof.


 


5.1.9        Licenses. 
Extra Space, ESP 51 or ESP Texas (as applicable) has obtained and kept
in force any necessary licenses to carry on its business now conducted in the
States in which the Property is located. To Extra Space’s Knowledge, any
necessary business certificates or fictitious name certificates, or both,
required to be filed by Extra Space, ESP 51 or ESP Texas (as applicable)  under the laws of any state have been
duly filed and are in full force and effect in accordance with the respective
terms thereof.


 


5.1.10      Other Property. 
Neither ESP 51 nor ESP Texas owns, nor has it ever owned, directly or
indirectly, any real or personal property other than the Direct Facilities (as
to ESP 51) or the Texas Facilities (as to ESP Texas).


 


5.1.11      Employees. 
Neither ESP 51 nor ESP Texas have, nor have they ever had, any
employees.  All employees working at the
Facilities are employees of the existing property manager.


 


5.1.12      Securities. 
Neither ESP 51 nor ESP Texas have sold any securities from and after the
date of its formation or have been obligated to file any reports, schedules,
forms, statements and other documents with the SEC through the date hereof.


 


5.1.13      Tax Status. 
Each of ESP 51 and ESP Texas has been at all times since
its inception a partnership or disregarded entity for federal income tax
purposes and (ii) as of the Closing, shall be treated for federal income tax
purposes as a “disregarded entity”. 
There have been properly completed and filed on a timely basis all tax
returns required to be filed (if any) by ESP 51 and ESP Texas and its
subsidiaries.  As of the time of filing,
the foregoing tax returns (if


 


13

















 


any) correctly
reflected in all material respects the facts regarding the income, business,
assets, operations, activities, status and other matters of or information
regarding the ESP 51 or ESP Texas (as applicable) required to be shown thereon
and all such tax returns have been filed on a timely basis (including extensions).


 


5.1.14      Condemnation. 
Neither Extra Space, ESP 51 nor ESP Texas has received written notice of any pending
condemnation action with respect to any Facility.


 


5.1.15      Bankruptcy. 
There are no attachments, executions, assignments for the benefit of creditors
or voluntary or involuntary proceedings in bankruptcy pending against Extra
Space, ESP 51, ESP Texas or ESP Texas GP.


 


5.1.16      Rezoning and Property
Assessments.  To Extra Space’s Knowledge and except as set
forth on Schedule 5.1.16, none of
Extra Space, ESP 51 or ESP Texas has received written notice of any pending or
proposed proceeding to change or redefine the zoning classification of all or
any part of any Facility.


 


5.1.17      Tangible Personal Property. 
As of Closing, the Tangible Personal Property will be owned by ESP 51 or
ESP Texas free and clear of any conditional bills of sale, chattel mortgages,
security agreements or financing statements or other security interests of any
kind.


 


5.1.18      ESP 51, ESP Texas and Storage Facilities In
Compliance with Laws, Regulations, Etc.  Each of ESP 51, ESP Texas and the
Facilities are in compliance in all material respects with any and all
applicable federal, state and local laws, regulations, ordinances and rules pertaining
to the operating of the Facilities.


 


5.1.19      Environmental Laws.  To the
Knowledge of Extra Space and except as disclosed in any environmental site
assessment provided by Extra Space to HSRE, none of Extra Space, ESP 51 or ESP
Texas are in violation
in any material respect, in connection with its respective ownership, use,
maintenance or operation of the Property and the conduct of the business
related thereto, of any applicable federal, state, county or municipal or local
statutes, laws, regulations, rules, ordinances, codes, standards, orders or
licenses or permits of any governmental authorities relating to environmental
matters, including, without limitation, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response Compensation and Liability Act
and the Occupational Health Act (being hereinafter collectively referred to as
the “Environmental Laws”) and all other
applicable environmental standards or requirements.  Schedule 5.1.19
is a true, correct and complete, in all material respects, list of all
environmental studies or reports prepared at the request of Extra Space and
relating to any of the Facilities, copies of which have been provided to HSRE
by Extra Space either prior to or concurrently with the execution of this
Agreement


 


14

















 


and Extra Space
has no Knowledge that such reports are not true, correct and complete in all
material respects.


 


5.1.20      Hazardous Materials.  Except as
disclosed in any environmental site assessment provided by Extra Space to HSRE,
none of Extra Space, ESP 51, ESP Texas nor their  its respective agents, employees, or independent
contracts, or to the Knowledge of Extra Space, any tenant has (a) operated
the Property for the purpose of receiving, handling, using, storing, treatment,
transporting and disposing of any hazardous materials (meaning asbestos, urea
formaldehyde, polychlorinated biphenyls, lead, nuclear fuel or materials,
chemical waste, radioactive materials, explosives, known carcinogens, petroleum
hydrocarbon, including crude oil or any fraction thereof and all petroleum
products, or other dangerous or toxic or hazardous pollutants, contaminants,
chemical materials or other substances defined in or regulated by said
Environmental Laws (all of the foregoing being hereinafter collectively
referred to as “Hazardous Materials”); and/or (b) released
(or caused to be released) Hazardous Materials into the environment from a
Facility.  Except as disclosed in any
environmental site assessment provided by Extra Space to HSRE and to the
Knowledge of Extra Space, there are no underground storage tanks on the
Premises nor have any underground storage tanks been removed from the Premises.


 


5.1.21      Operating Agreements; Partnership Agreement. 
Attached as Schedule 5.1.21A
is a true, correct and complete copy of the Operating Agreement of ESP 51.  Attached as Schedule
5.1.21B is a true, correct and complete copy of the Operating
Agreement of ESP 57.  Attached as Schedule 5.1.21C is a true, correct
and complete copy of the Operating Agreement of ESP Texas GP.  Attached as Schedule
5.1.21D is a true, correct and complete copy of the Partnership
Agreement of ESP Texas.


 


5.1.22      Title to ESP Interests.  Extra Space owns the ESP Interests and ESP 51
owns the Texas Interests free and clear of any security agreements, financing
statements, liens, encumbrances, security interests or other claims of any
kind.  The ESP Interests constitute all
of Extra Space’s interest in ESP 51 and ESP 57. 
The Texas Interests constitute all of Extra Space’s interest in ESP
Texas GP and ESP Texas.  Extra Space has
not entered into any side letters or other written instruments relating to the
ESP Interests or the Texas Interests other than the agreements described in Section 5.1.21
other than those described on Schedule 5.1.22.


 


5.1.23      No Undisclosed Liabilities.   As of the
date of this Agreement, except for trade payables incurred in the ordinary
course of business respectively of ESP 51, ESP 57, ESP Texas GP and ESP Texas
and except as shown on the balance sheet attached hereto as Schedule 5.1.23 or disclosed in the
financial statements (including the footnotes thereto) that were delivered to
HSRE prior to the date of this Agreement (the “ESP
Financials”), none of ESP 51, ESP 57, ESP Texas GP nor ESP Texas has
any indebtedness or liabilities (whether accrued, absolute, contingent or
otherwise; whether due or to become due; and including,


 


15

















 


without
limitation, with respect to taxes) that would normally be disclosed on a balance
sheet (including its footnotes) that was prepared in accordance with generally
accepted accounting principles if such indebtedness or liabilities had been
known at the time of the balance sheet’s preparation.  The ESP Financials are true, correct and complete
in all material respects.


 


5.1.24      ERISA.  Neither ESP 51, ESP 57, ESP Texas GP nor ESP
Texas sponsors, maintains, contributes to or has any obligation to sponsor,
maintain or contribute to, or has (or may have) liability under any “employee
benefit plan,” as defined in Section 3(3) of ERISA (whether or not
subject to ERISA), or any employment, consulting, or other employee benefit
plan, understanding, agreement, arrangement, policy or payroll practice,
including, without limitation, severance pay, sick leave, vacation pay, salary
continuation for disability, retirement, deferred compensation, bonus, stock
purchase, stock option, stock ownership, stock appreciation rights, phantom
stock, equity (or equity-based), layoff, dependent care, legal services,
cafeteria, health, dental, vision, accident, change of control, termination,
hospitalization, medical insurance, life insurance, tuition reimbursement and
scholarship programs.


 


5.1.25      Existing Indebtedness.  To Extra
Space’s Knowledge, Schedule 5.1.25
sets forth the outstanding principal balance owing under each of the Third
Party Notes.  None of Extra Space, ESP 51
or ESP Texas has received written notice that an event of default by either ESP
51 or ESP Texas exists under the Third Party Loan Documents and, to Extra Space’s
Knowledge, no events have occurred or conditions exist which, with the giving
of notice or lapse of time, or both, would constitute such an event of
default.  Extra Space agrees that at the
Closing, Extra Space will amend and supplement this Section 5.1.25
to provide a representation as to amount of the outstanding balance, as of the
Closing, of each reserve being held by Lender, on a Facility by Facility basis,
with respect to the Existing Indebtedness. 
Pursuant to Section 3.2.4, Extra Space will, during the Due
Diligence Period, make available to HSRE true and correct copies of the Third
Party Loan Documents for inspection and review. 
Within ten (10) business days after the full execution of this
Agreement, Extra Space shall update Schedule 5.1.25
with a list of all material Third Party Loan Documents, and such update shall
constitute Extra Space’s representation and warranty that such list is a true
and complete list of all such material Third Party Loan Documents.  Extra Space agrees that at Closing Extra
Space will amend and supplement this Section 5.1.25 to provide a
representation that the copies of the material Third Party Loan Documents
identified by HSRE during the Due Diligence Period are true and correct copies
of the originals of such documents.


 


5.2           Definition of Extra Space’s
Knowledge.  As used in this Agreement “Extra Space’s Knowledge” and similar references shall mean
only that information that is known, or with due diligence and appropriate
inquiry or investigation for an owner of self storage facilities, would be
known, by any one or more of the Senior Vice Presidents of Extra Space Storage
Inc.


 


16

















 


5.3           Remaking of Extra Space
Warranties and Representations.  The representations
and warranties made in Section 5.1 above shall be deemed remade for the
benefit of both HSRE and HSRE-ESP by Extra Space as of the Closing Date with
the same force and effect as if, in fact, specifically remade at that
time.  If prior to the Closing either
Extra Space or HSRE learns of any facts or circumstances which make any
warranty or representation contained in 5.1 above untrue, incorrect, or
misleading in any material respect, HSRE and Extra Space shall each give the
other prompt written notice of such facts or circumstances.  If either (a) matters occurring after
the date of this Agreement render Extra Space unable to remake a representation
or warranty as of the Closing Date, and HSRE learns of such matters prior to
the Closing, or (b) prior to Closing Extra Space learns of any facts or
circumstances which make any warranty or representation made in this Agreement
by Extra Space untrue, incorrect, or misleading in any material respect and, at
or prior to Closing, Extra Space has given HSRE written notice of such facts or
circumstances, and, in each instance, as of the date of this Agreement, Extra
Space did not have knowledge of such facts or circumstances, Extra Space shall
not have any liability to either HSRE or HSRE-ESP with respect to such warranty
or representation and the failure to remake such representation or warranty
shall not constitute a default hereunder by Extra Space, except in the event or
to the extent that the untruth of such representation or warranty is the result
of any willful or intentional act of Extra Space (or anyone acting at his, her
or its request) or willful or intentional failure to act on the part of Extra
Space (or anyone acting at his, her or its request) and in breach of this
Agreement.  Notwithstanding anything to
the contrary in this Section 5.3, the continuing truth and accuracy in all
material respects of all representations and warranties made by Extra Space in Section 5.1
above in this Agreement shall be a condition precedent to HSRE’s obligation to
Close.


 


5.4           Survival and
Indemnification.


 


5.4.1        Limited Survival of Extra
Space Warranties and Representations.  With the
exception of the representations and warranties in Sections 5.1.1, 5.1.10,
5.1.11, 5.1.12, 5.1.13, 5.1.22 and 5.1.23, all of which shall survive
indefinitely, the warranties and representations contained in Section 5.1
above shall survive the Closing and shall inure to the benefit of HSRE,
HSRE-ESP and their respective legal representatives, heirs, successors or
assigns for a period of one year after the Closing and shall automatically
expire on the first anniversary of the Closing unless either HSRE or HSRE-ESP
prior thereto has given Extra Space written notice of any alleged breach and
either HSRE or HSRE-ESP commences and serves an action against Extra Space
within ninety (90) days after such notice is given to Extra Space (and, in the
event any such suit is timely commenced by either HSRE or HSRE-ESP and served
against Extra Space, shall survive thereafter only insofar as the subject matter
of the alleged breach specified in such suit is concerned).  If notice is not timely given and suit is not
timely commenced and served by either HSRE or HSRE-ESP, such representations
and warranties shall thereafter be void and of no force or effect.


 


5.4.2        Indemnification. 
Subject to the provisions of Section 5.4.1 above, if any Claim
(defined below) arises because of any of the representations and 


 


17

















 


warranties of
Extra Space set forth in Section 5.1 above proves to the false or
misleading in any material respect, Extra Space shall indemnify, defend (with
counsel reasonably acceptable to HSRE), protect, and save and hold harmless
HSRE and HSRE-ESP with respect to any such Claim.  As used herein, the term “Claim” shall mean any and all liabilities, judgments,
settlement amounts, claims, causes of action, suits penalties, damages,
demands, orders, costs and expenses of any kind or nature, including, without
limitation, reasonable legal, accounting, consulting, engineering, and other
costs and expenses which may be incurred by or asserted against the indemnified
party.


 


5.4.3        Survival. 
The provisions of this Section 5.4 shall survive the Closing.  Except as may otherwise be specifically set
forth in this Agreement, the obligations of the Extra Space under this
Agreement shall not survive the Closing or any termination of this Agreement.


 


6.             WARRANTIES AND
REPRESENTATIONS OF HSRE.


 


6.1           Warranties and
Representations.  HSRE represents and warrants to Extra Space
that, as of the date of this Agreement and at the Closing:


 


6.1.1        Authority, etc. 
HSRE is a limited liability company, duly organized and validly existing
under the laws of the State of Delaware and is in good standing under the laws
of the State of Delaware, and has full power and lawful authority under HSRE’s
organizational documents to enter into and carry out the terms and provisions
of this Agreement and to execute and deliver all documents which are
contemplated by this Agreement.  All
actions necessary to confer such power and authority upon the persons executing
this Agreement on behalf of HSRE (and all documents which are contemplated by
this Agreement to be executed on behalf of HSRE) have been taken.  HSRE’s execution, delivery and performance of
this Agreement will not result in any violation of, or default under, or
require any notice or consent under, any of it’s organizational documents.


 


6.1.2        Litigation. 
HSRE has not been served with any litigation which is still pending
against HSRE with respect to the transaction which is the subject of this
Agreement or which would materially and adversely affect HSRE’s ability to
consummate the transaction which is the subject of this Agreement.


 


6.2           Definition of HSRE’S Knowledge.  As used in this Agreement, “HSRE’s Knowledge” means only that information that is
possessed by Stephen Gordon, Robert Mathias, or any officer, manager, or member
of Harrison Street Real Estate Capital, LLC, without investigation, inquiry or
review of files, and shall not include any knowledge of any other party which
might otherwise be imputed to such party.


 


6.3           Remaking of HSRE Warranties and Representations. 
The representations and warranties made in Section 6.1 above shall
be deemed remade for the benefit of both Extra Space and HSRE-ESP by HSRE as of
the Closing Date with the 


 


18

















 


same force and
effect as if, in fact, specifically remade at that time.  If prior to the Closing either HSRE or Extra
Space learns of any facts or circumstances which make any warranty or
representation contained in 6.1 above untrue, incorrect, or misleading in any
material respect, Extra Space and HSRE shall each give the other prompt written
notice of such facts or circumstances. 
If either (a) matters occurring after the date of this Agreement
render HSRE unable to remake a representation or warranty as of the Closing
Date, and Extra Space learns of such matters prior to the Closing, or (b) prior
to Closing HSRE learns of any facts or circumstances which make any warranty or
representation made in this Agreement by Extra Space untrue, incorrect, or
misleading in any material respect and, at or prior to Closing, HSRE has given
Extra Space written notice of such facts or circumstances, and, in each
instance, as of the date of this Agreement, HSRE did not have knowledge of such
facts or circumstances, HSRE shall not have any liability to either Extra Space
or HSRE-ESP with respect to such warranty or representation and the failure to
remake such representation or warranty shall not constitute a default hereunder
by HSRE, except in the event or to the extent that the untruth of such
representation or warranty is the result of any willful or intentional act of
HSRE (or anyone acting at his, her or its request) or willful or intentional
failure to act on the part of HSRE (or anyone acting at his, her or its
request) and in breach of this Agreement. 
Notwithstanding anything to the contrary in this Section 6.3, the
continuing truth and accuracy in all material respects of all representations
and warranties made by HSRE in Section 6.1 in this Agreement shall be a
condition precedent to Extra Space’s obligation to Close.


 


6.4           Survival and Indemnification.


 


6.4.1        Limited Survival of HSRE Warranties and Representations. 
With the exception of the representations and warranties in Section 6.1.1,
which shall survive indefinitely, the warranties and representations contained
in Section 6.1 above shall survive the Closing and shall inure to the
benefit of Extra Space, HSRE-ESP and their respective legal representatives,
heirs, successors or assigns for a period of one year after the Closing and
shall automatically expire on the first anniversary of the Closing unless
either Extra Space or HSRE-ESP prior thereto has given HSRE written notice of
any alleged breach and either Extra Space or HSRE-ESP commences and serves an
action against HSRE within ninety (90) days after such notice is given to HSRE
(and, in the event any such suit is timely commenced by either Extra Space or
HSRE-ESP and served against HSRE, shall survive thereafter only insofar as the
subject matter of the alleged breach specified in such suit is concerned).  If notice is not timely given and suit is not
timely commenced and served by either Extra Space or HSRE-ESP, such
representations and warranties shall thereafter be void and of no force or
effect.


 


6.4.2        Indemnification. 
Subject to the provisions of Section 6.4.1 above, if any Claim
(defined below) arises because of any of the representations and warranties of
HSRE set forth in Section 6.1 above proves to the false or misleading in
any material respect, HSRE shall indemnify, defend (with counsel reasonably
acceptable to Extra Space), protect, and save and hold harmless Extra Space and
HSRE-ESP with respect to any such Claim. 
As used herein, the term “Claim” shall
mean any and all liabilities, judgments, settlement amounts, claims, 


 


19

















 


causes of action,
suits penalties, damages, demands, orders, costs and expenses of any kind or
nature, including, without limitation, reasonable legal, accounting,
consulting, engineering, and other costs and expenses which may be incurred by
or asserted against the indemnified party.


 


6.4.3        Survival. 
The provisions of this Section 6.4 shall survive the Closing.  Except as may otherwise be specifically set
forth in this Agreement, the obligations of the HSRE under this Agreement shall
not survive the Closing or any termination of this Agreement.


 


7.             ADDITIONAL WARRANTIES AND
REPRESENTATIONS OF EXTRA SPACE AND HSRE.


 


7.1           Knowledge. 
Extra Space and HSRE (each hereinafter a “Party”
and collectively the “Parties”),
solely with respect to itself and not with respect to any other Party, each
warrants and represents to the other that such Party is aware that:


 


7.1.1        Acquisition
of an Interest in HSRE-ESP is a speculative investment which involves a substantial degree of
risk of loss by such Party of such Party’s entire investment in HSRE-ESP, that
such Party understands and takes full cognizance of the risk factors related to
acquisition of an interest in HSRE-ESP.


 


7.1.2        No federal, state or local agency has
passed upon the interests in HSRE-ESP or made any finding or determination
concerning the fairness of an investment in HSRE-ESP.


 


7.1.3        The tax consequences to such Party of
investing in HSRE-ESP will depend on such Party’s particular circumstances, and
neither HSRE-ESP, any member of HSRE-ESP, any other Party, nor any of their
respective, agents, officers, directors, employees, affiliates, or consultants
of any of them will be responsible or liable for the tax consequences of an
investment in HSRE-ESP.  Such Party will
look solely to, and rely upon, its own advisers with respect to the tax
consequences of an investment in HSRE-ESP.


 


7.1.4        There can be no assurance that the
Internal Revenue Code or the regulations thereunder will not be amended or
interpreted in the future in such a manner so as to deprive HSRE-ESP and its
members of some or all of the tax benefits they might now receive, nor that
some of the deductions claimed by HSRE-ESP or the allocations of items of
income, gain, loss, deduction, or credit among its members may not be
challenged by the Internal Revenue Service.


 


7.1.5        Any projections which may have been delivered
to such Party (including projections set forth in the “Annual Business Plan and
Operating Budget (as defined below)) are based on estimates, assumptions and
forecasts of Extra Space and others, are only estimates and opinions, and are
not guaranteed by Extra Space, HSRE-ESP any member of HSRE-ESP or any other
Person.


 


20
















 


Such Party has
undertaken its own independent review of the investment in HSRE-ESP.


 


7.1.6                        Pursuant to the HSRE-ESP Operating
Agreement, there are substantial restrictions on the transferability of the
interests in HSRE-ESP and that there is no public market for such interests and
none is expected to develop, and that, accordingly, it may not be possible for
such Party to liquidate its investment in HSRE-ESP.


 


7.1.7                        Such Party has received and reviewed all
information such Party considers necessary or appropriate for deciding whether
to acquire an interest in HSRE-ESP.  Such
Party has had an opportunity to ask questions and receive answers from the
other Party and its Affiliates and/or employees regarding the terms and
conditions of such Party’s acquisition of such interest in HSRE-ESP and
regarding the business, financial affairs, and other aspects of HSRE-ESP and
has further had the opportunity to obtain all information (to the extent the
other Party possesses or can acquire such information without unreasonable
effort or expense) which it deems necessary to evaluate the investment and to
verify the accuracy of information otherwise provided to such Party.


 


7.1.8                        Neither HSRE-ESP the other Party or any
Affiliate, agent or employee of HSRE-ESP, such other Member, or any other
person has at any time expressly or implicitly represented, guaranteed, or
warranted to such Party that such Party may freely transfer such Party’s
interest in HSRE-ESP, that a percentage return of profits and/or amount or type
of consideration will be realized as a result of an investment in HSRE-ESP,
that past performance or experience on the part of any Party or its affiliates
or any other person in any way indicates the predictable results of the
ownership of such Party’s interest in HSRE-ESP or of the overall business of HSRE-ESP,
that any cash distributions from HSRE-ESP operations or otherwise will be made
to the members by any specific date or will be made at all, or that any
specific tax benefits will accrue as a result of an investment in HSRE-ESP.


 


7.1.9                        Such Party has been advised to consult
with such Party’s own attorney regarding all legal matters concerning an
investment in HSRE-ESP and the tax consequences of participating in HSRE-ESP,
and has done so, to the extent such Party considers necessary.


 


7.1.10                  Such
Party must bear the
economic risk of investment in HSRE-ESP for an indefinite period of time, since
the interests have not been registered under the Securities Act of 1933 and,
therefore, cannot be sold unless either they are subsequently registered under
such Act or an exemption from such registration is available.


 


7.1.11                  Interests in HSRE-ESP have not been
registered under the Securities Act of 1933, as amended (“Securities Act”), or qualified under the


 


21

















 


securities laws of
any state, or any other applicable blue sky laws in reliance, in part, on the
warranties and representations of such Party herein.


 


7.2                                 Additional Warranties and
Representations.  Each Party, solely with respect to such Party
and not with respect to any other Party, warrants and represents to the other
Party that:


 


7.2.1                        Such Party and such Party’s investment
advisors, if any, have carefully reviewed and understand the risks of, and
other considerations relating to, the purchase of an interest in HSRE-ESP.


 


7.2.2                        Such Party is acquiring such Party’s
interest in HSRE-ESP for investment purposes only for its own account, and not
with a view to the resale, assignment, pledge, mortgage, hypothecation,
transfer or distribution of all or any part thereof.  No other person will have any direct or
indirect beneficial interest in or right to such Party’s interest in HSRE-ESP.


 


7.2.3                        Such Party:  (1) is authorized and otherwise duly
qualified to purchase and hold interests in HSRE-ESP;  and (2) has its principal place of
business at its address set forth above in this Agreement.


 


7.2.4                        By reason of its business or financial
experience, or by reason of the business or financial experience of such Party’s
financial advisor who is unaffiliated with and who is not compensated, directly
or indirectly, by either the other Party or HSRE-ESP or any Affiliate or
selling agent of either the other Party or HSRE-ESP, such Party is capable of
evaluating the risks and merits of this investment and of protecting such Party’s
own interests in connection with this investment.


 


7.2.5                        Such Party is an “accredited investor” as
defined in Rule 501(a) promulgated by the Securities and Exchange
Commission (“SEC”).  Notwithstanding such Party’s status as an
accredited investor, such Party is acquiring such Party’s interest in HSRE-ESP
and entering into this Agreement as a joint venture with the other Party and
does not consider the interests in HSRE-ESP to constitute a “security” under
any federal or state law.


 


7.2.6                        Such Party is financially able to bear
the economic risk of an investment in HSRE-ESP, including the total loss
thereof.


 


7.2.7                        Neither the other Party nor  HSRE-ESP is under any obligation to register
or qualify interests in the Company under the Securities Act or under any state
securities law, or to assist such Party in complying with any exemption from
registration and qualification.  Such
Party is an experienced investor in unregistered and restricted securities of
limited liability companies or limited partnerships.


 


7.3                                 Indemnification Regarding
Warranties and Representations.  Each Party
agrees to indemnify and hold harmless each other Party, HSRE-ESP, and any


 


22

















 


officers,
directors, shareholders, managers, members, employees, partners, agents,
attorneys, registered representatives, and control persons of any such entity
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, by reason of or arising from any
misrepresentation or misstatement of facts or omission to represent or state
facts made by such Party including, without limitation, the information in this
Agreement, against losses, liabilities, and expenses of HSRE-ESP, each and
every other Party, and any officers, directors, shareholders, managers,
members, employees, partners, attorneys, agents, registered representatives,
and control persons of any such person (including attorneys’ fees, judgments,
fines, and amounts paid in settlement, payable as incurred) incurred by such
person in connection with such action, suit, proceeding, or the like.


 


7.4                                 Survival. 
The provisions of this Section 7 shall survive the Closing and/or
any termination of this Agreement.


 


8.                                      INSPECTIONS.


 


8.1                                 Inspections. 
Subject to the provisions of this Section 8, during the forty-five
(45) day period following the full execution of this Agreement (the “Due Diligence Period”), HSRE shall be permitted to make a
complete review and inspection of the physical, legal, economic and
environmental condition of the Property, including, without limitation,
interviews with Extra Space’s personnel at the Facilities, if any, or the
personnel of Extra Space’s property manager, any leases and contracts affecting
the Premises, books and records maintained by Extra Space or its agents
relating to the Property, pest control matters, soil condition, asbestos, PCB,
hazardous waste, toxic substance or other environmental matters, compliance
with building, health, safety, land use and zoning laws, regulations and
orders, plans and specifications, structural, life safety, HVAC and other
building system and engineering characteristics, traffic patterns, and all
other information pertaining to the Property. 
Without representation or warranty, Extra Space shall cooperate in HSRE’s
review and provide HSRE with the opportunity to review leases, financial
reports and other third-party inspection reports and similar materials in Extra
Space’s possession relating to the Property (excluding appraisals, internal
valuations or similar proprietary materials that may be in Extra Space’s
possession).  The property management
agreement applicable to each Facility shall be terminated as of Closing.  Prior to the expiration of the inspection
period, HSRE shall notify Extra Space in writing of any repair and maintenance
items that HSRE has identified during the course of its inspections, along with
an estimate of the expense to repair such items (the “Repair
Notice”).  Within five (5) business
days after Extra Space’s receipt of the Repair Notice, Extra Space shall
provide written notice (the “Repair Response”)
to HSRE of those items which it agrees to repair (the “Repair Items”).  If Extra Space does not elect to repair all
of the items set forth in the Repair Notice, HSRE may either waive HSRE’s
requirement that Extra Space repair such Repair Items and proceed to Closing or
terminate this Agreement by providing written notice to Extra Space within
three (3) business days of HSRE’s receipt of the Repair Response.  Upon such termination, neither party shall
have any further rights or liabilities hereunder except for those provisions
which expressly survive the termination of this Agreement.  If


 


23

















 


prior to Closing Extra
Space fails to complete the repair of any Repair Items that Extra Space elected
to repair, a portion of the Extra Space Distribution Amount equal to one
hundred fifty percent (150%) of HSRE’s reasonable estimate to repair such items
(as set forth in the Repair Notice) shall be held in an escrow with the Title
Insurer pursuant to instructions that are reasonably acceptable to HSRE and Extra
Space to ensure the completion of such Repair Items.


 


8.2                                 Conduct of Inspections.


 


8.2.1                        Inspections in General. 
During the Due Diligence Period, HSRE, its agents, and employees shall
have the right to enter upon the Property for the purpose of making non-invasive
inspections at HSRE’s sole risk, cost and expense.  Before any such entry, HSRE shall provide Extra
Space with a certificate of insurance naming Extra Space as an additional
insured and with an insurer and insurance limits and coverage reasonably satisfactory
to Extra Space.  All such entries upon
the Property shall be at reasonable times during normal business hours and
after at least 24 hours prior notice to Extra Space or Extra Space’s agent, and
Extra Space or Extra Space’s agent shall have the right to accompany HSRE
during any inspection activities performed by HSRE on the Property.  HSRE shall not disturb the tenants on the
Property, and HSRE’s inspection shall be subject to the rights of tenants under
the Leases.  During the Due Diligence
Period, Extra Space shall provide to HSRE, from time to time at the request of
HSRE, copies of current reports and information with respect to the Facilities
which are available from the Center Shift property management system (“Center Shift”).  If
any inspection or test disturbs the Property, HSRE will restore the Property to
the same condition as existed before the inspection or test.  HSRE shall indemnify, defend and hold
harmless Extra Space and Extra Space’s partners and their respective
shareholders, directors, officers, affiliates, tenants, agents, contractors,
employees, successors and assigns (“Extra Space Related Parties”) and
the Property from and against any and all losses, costs, damages, claims, or
liabilities, including reasonable attorneys’ fees, arising out of or in
connection with any entry or inspections performed by HSRE, its agents or
representatives.  The provisions of this Section 8.2.1
shall survive the Closing or any termination of this Agreement.


 


8.2.2                        Environmental Inspections. 
The inspections permitted under Section 8.2,
may include a non-invasive Phase I environmental inspection of the Property,
but no Phase II environmental inspection or other invasive inspection or
sampling of soil or materials, including without limitation construction
materials, either as part of the Phase I inspection or any other inspection,
shall be performed without the prior written consent of Extra Space, which may
be withheld in Extra Space’s sole and absolute discretion, and if consented to
by Extra Space, the proposed scope of work and the party who will perform the
work shall be subject to Extra Space’s review and approval.  HSRE shall deliver to Extra Space copies of
any Phase I, Phase II or other environmental report to which Extra Space
consents as provided above.


 


24

















 


8.2.3                        Title and Survey Review. 
During the Due Diligence Period, HSRE shall review:  Extra Space’s existing title insurance
policies with respect to the Property and Extra Space’s existing surveys with
respect to the Property.  HSRE may order,
at HSRE’s expense, updates on the existing surveys.  HSRE may, at its sole expense, obtain during
the Due Diligence Period any additional title commitment(s) (the “Title Commitments”) from Chicago Title Insurance Company,
National Office, at 171 N. Clark Street, 3rd Floor, Chicago, IL 60601, Attention: Ronald K.
Szopa, as the “Escrow Agent” or “Title Insurer”, or survey updates desired by HSRE.  HSRE shall work directly with the Title
Insurer to resolve any objections to exceptions set forth on the Title
Commitments and shall provide Extra Space with copies of final, revised Title
Commitments or pro forma policies, which set forth only those title exceptions
that have been accepted by HSRE (the “Approved Title Matters”).  Extra Space shall have no obligation to
remove any exceptions to title reflected on the Title Commitments except liens
of an ascertainable amount created by Extra Space (but specifically not
including liens to secure the Existing Indebtedness), including mechanics’ and
materialmen’s liens filed against the Extra Space and judgment liens filed
against the Property with respect to judgments obtained against Extra Space,
which liens Extra Space shall cause to be removed as exceptions to the Title
Policy at Closing (and if Extra Space fails to remove such matters as
exceptions, by bonding over such matters or otherwise, HSRE may direct that a
portion of the Extra Space Distribution Amount be applied to remove same).  Extra Space further agrees to remove any
exceptions or encumbrances to title which are created by Extra Space after the
date of this Agreement without HSRE’s consent. 
HSRE may terminate this Agreement if the Title Company revises the Title
Report after the expiration of the Due Diligence Period to add exceptions if
such additions are not reasonably acceptable to HSRE and are not removed as
exceptions to the Title Policy at Closing.


 


8.3                                 Termination During Due
Diligence Period.  If HSRE determines, in its sole discretion,
before the expiration of the Due Diligence Period that the Property is
unacceptable for HSRE’s purposes, HSRE shall have the right to terminate this
Agreement by giving to Extra Space written notice of termination before the
expiration of the Due Diligence Period, and neither party shall have any
further rights or liabilities hereunder except for those provisions which
expressly survive the termination of this Agreement.


 


8.4                                 Approval of Annual
Business Plan and Annual Operating Budget.  At least ten
business days prior to the expiration of the Due Diligence Period, Extra Space
shall prepare and submit to HSRE, an Annual Business Plan and Annual Operating
Budget (as defined in the HSRE-ESP Operating Agreement) for review and approval
by HSRE.


 


9.                                      DAMAGE TO PROPERTY.


 


If before the
Closing one or more of the Facilities is materially or adversely affected in
any way as a result of any fire, flood, earthquake, similar acts of nature or
other acts of


 


25

















 


destruction which involves
damage requiring repair and restoration costs of less than or equal to Five
Hundred Thousand and No/100 Dollars ($500,000.00), the parties shall be
obligated to proceed with the Closing.  In
that event, if (A) the amount of the insurance proceeds available for such
loss have been determined prior to the Closing Date, then the difference
between (i) the cost of repairing and restoring such Facilities and (ii) the
total amount of insurance proceeds payable with respect to such material
adverse change (the “Casualty Adjustment Amount”) shall be treated as a “cost”
which is charged to Extra Space for purposes of determining the Extra Space
Distribution Amount pursuant to Section 2.2.2 above, or (B) the
amount of the insurance proceeds available for such loss have not been
determined prior to the Closing Date, then the right to receive such insurance
proceeds shall be assigned to HSRE-ESP or the title holder of the applicable
property, and Extra Space shall pay the Casualty Adjustment Amount to HSRE-ESP
within ten (10) days after such amount has been determined.  If the material or adverse change involves
damage requiring repair and restoration costs in excess of Five Hundred
Thousand and No/100 Dollars ($500,000.00) or more (a “Major Event”),
the parties shall proceed to Closing with the Facilities being transferred in
their un-restored condition together with any insurance proceeds or the right
to receive such insurance proceeds, and the rights to any other claims arising
as a result of such material or adverse change, in which event, the amount of
any “deductible” from the insurance proceeds payable with respect to such
material or adverse change shall be treated as a “cost” which is charged to
Extra Space for purposes of determining the Extra Space Distribution Amount
pursuant to Section 2.2.2 above; provided, however, that HSRE shall have
the right, exercisable within twenty (20) days of the occurrence of such Major
Event, to terminate this Agreement (and if such Major Event results in
uninsured repair and restoration costs in excess of $500,000, either Extra
Space or HSRE shall have the right to so terminate this Agreement), in which
event, except as specifically provided otherwise in this Agreement, the parties
shall have no further obligations to each other under this Agreement.


 


10.                               EMINENT DOMAIN.


 


If, before
Closing, proceedings, are commenced or threatened for the taking by exercise of
the power of eminent domain (a “Taking”) of all
or a “material” (as defined below) part of any of the Facilities, each of Extra
Space or HSRE shall have the right, by giving written notice to the other
within twenty (20) days after Extra Space gives HSRE written notice of the
commencement of such proceedings or the threat to commence such proceedings, to
terminate this Agreement, in which event, except as specifically provided
otherwise in this Agreement, the parties shall have no further obligations to
each other under this Agreement.  If,
before the Closing, proceedings are commenced or threatened for a Taking of
less than such a “material” part of a Facility, or if neither Extra Space nor
HSRE exercises the right to terminate this Agreement pursuant to the preceding
sentence, then this Agreement shall remain in full force and effect and, on the
Closing, the condemnation award (or, if not therefore received, the right to
receive such portion of the award) payable on account of the Taking shall
constitute an asset of the owner of such Facility (i.e., either ESP 51 or ESP
Texas) and, as such, shall be part of the Property.  Extra Space shall give written notice to HSRE
within ten (10) business days after Extra Space receives notice of the
commencement of any proceedings for a Taking of all or any part of a Facility.  For purposes of this Section 10 a Taking
of any portion of a Facility shall be “material” if such Taking would render
such Facility unsuitable, in the reasonable determination of Extra Space and
HSRE, for use as a self storage facility in the same manner in which such
Facility has historically been used by Extra Space.


 


26

















 


11.                               CONDITIONS PRECEDENT.


 


11.1                           HSRE’s Conditions
Precedent.  The obligations of HSRE under this Agreement
are contingent upon any one or more of the following, the failure of any of
which shall, upon written notice by HSRE to Extra Space, render this Agreement
and the HSRE Operating Agreement null and void:


 


11.1.1                  Title Policy. 
Title Insurer shall be irrevocably committed to issue for each Facility upon
Closing either (x) a Form 2006 ALTA Owner’s Policy of Title Insurance
(or an applicable local equivalent) with an endorsement deleting the exclusion
for creditors’ rights and deleting the arbitration provision (or other current
form of extended coverage owner’s policy if such form is not available), along
with such title endorsements reasonably requested by HSRE and in the form
previously approved by HSRE (collectively, the “Title Policy”),
or (y) an endorsement to Extra Space’s existing title insurance policy for
the Property (collectively, the “Endorsement”),
in either case, together with a non-imputation endorsement (if available in the
jurisdiction in which the Property is located) and insuring ESP 51 or ESP Texas (as
applicable) as the
owner of fee simple title to the applicable Facility, subject only to Permitted
Exceptions, in the amounts set forth on Schedule 9.1.1
attached hereto.


 


11.1.2                  No Default.  Extra
Space shall not be in default in any material respect under any of its
obligations hereunder.


 


11.1.3                  Representations and
Warranties.  Each of the representations and warranties of
Extra Space shall be true and correct in all material respects as of Closing.


 


11.1.4                  Annual Business Plan and
Annual Operating Budget.  HSRE and
Extra Space shall have approved the Annual Business Plan and Annual Operating
Budget.


 


11.1.5                  Existing Loan.  The
Lender and each servicer of the Existing Indebtedness shall have approved the
transaction which is the subject of this Agreement and the Lender Conditions
are acceptable to both HSRE and Extra Space.


 


11.2                           Extra Space’s Conditions
Precedent.  The obligations of Extra Space under this
Agreement are contingent upon any one or more of the following, the failure of
any of which shall, upon written notice by Extra Space to HSRE, render this
Agreement and the HSRE Operating Agreement null and void:


 


11.2.1                  No Default.  HSRE
shall not be in default in any material respect under any of its obligations
hereunder.


 


11.2.2                  Representations and
Warranties.  Each of the representations and warranties of
HSRE shall be true and correct in all material respects as of Closing.


 


27

















 


11.2.3                  Annual Business Plan and
Annual Operating Budget.  HSRE and
Extra Space shall have approved the Annual Business Plan and Annual Operating
Budget.


 


11.2.4                  Existing Loan. 
The Lender and each servicer of the Existing Indebtedness shall have
approved the transaction which is the subject of this Agreement and the Lender
Conditions are acceptable to both HSRE and Extra Space.


 


12.                               BROKERAGE.


 


Each of Extra Space and HSRE represents that it has
not engaged any broker in connection with the transactions contemplated by this
Agreement.  Each of Extra Space and HSRE
shall indemnify and hold the other party harmless from and against any and all
claims of all brokers and finders claiming by, through or under the
indemnifying party.  The provisions of
this Section 12 shall survive Closing.


 


13.                               DEFAULTS AND REMEDIES.


 


13.1                           HSRE’s Remedies.


 


13.1.1                  Pre-Closing Default. 
In the event that prior to Closing, Extra Space breaches in any material
respect any warranty or representation contained in this Agreement or fails in
any material respect to comply with or perform any of the conditions to be
complied with or any of the covenants, agreements or obligations to be performed
by Extra Space under the terms and provisions of this Agreement and such breach
or failure continues for a period of ten (10) business days after written
notice thereof from HSRE to Extra Space, HSRE, as HSRE’s exclusive remedies,
shall be entitled to (i) terminate this Agreement by giving written notice
thereof to Extra Space, whereupon, except as provided below in this Section 13.1.1
and except as expressly provided otherwise in this Agreement, neither party
shall have any further rights or obligations under this Agreement; or (ii) enforce
specific performance of Extra Space’s obligations under this Agreement;
provided, however, that notwithstanding anything to the contrary in this Section 13.1.1,
in the event of a termination by HSRE under (i) above, Extra Space shall,
upon demand from HSRE, reimburse HSRE for the actual and reasonable
out-of-pocket expenses paid or incurred by HSRE in connection with this
Agreement and/or HSRE’s investigation or inspection of the Property in an
amount not to exceed Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00).  HSRE expressly agrees that in no event shall
Extra Space be liable for any special, incidental, consequential or punitive
damages whatsoever (including, without limitation, loss of business profits or
opportunity) and by execution of this Agreement, HSRE waives any right to claim
or seek any such damages.  The provisions
of this Section 13.1.1 shall survive the Closing or any termination of
this Agreement.


 


28

















 


13.1.2                  Post Closing Default. 
In the event that the transaction which is the subject of this Agreement
closes and at or after Closing Extra Space breaches any warranty,
representation or covenant contained in this Agreement which survives Closing
or contained in any document delivered by Extra Space at Closing HSRE may,
subject to the limitations contained in this Agreement, pursue any and all
remedies available at law or in equity; provided, however, in no event shall
Extra Space be liable for any special, incidental, consequential or punitive
damages whatsoever (including, without limitation, loss of business profits or
opportunity) and by execution of this Agreement, HSRE waives any right to claim
or seek any such damages.  The provisions
of this Section 13.1.2 shall survive the Closing.


 


13.2                           Extra Space’s Remedies. 
Except as provided below in this Section 13.2, in the event HSRE
breaches any warranty or representation contained in this Agreement in any
material respect or fails to comply with or perform in any material respect any
of the covenants, agreements or obligations to be performed by HSRE under the
terms and provisions of this Agreement and such breach or failure continues for
a period of ten (10) business days after written notice thereof from Extra
Space to HSRE, as the sole and exclusive remedy of Extra Space, Extra Space may
terminate this Agreement by written notice to HSRE.  Notwithstanding anything to the contrary in
this Section 13.2, the limitations set forth above in this Section 13.2
shall not apply to a default by HSRE under (1) Section 8.2.1, (2) any
other covenant of HSRE under this Agreement which, pursuant to the express
provisions of this Agreement, survives the Closing, but only to the extent that
the transaction which is the subject of this Agreement closes and such default
occurs at or after the Closing, or (3) any document delivered by HSRE at
the Closing; provided, however, in no event shall HSRE be liable for any
special, incidental, consequential or punitive damages whatsoever (including,
without limitation, loss of business profits or opportunity) and by execution
of this Agreement, Extra Space waives any right to claim or seek any such
damages.  The provisions of this Section 13.2
shall survive the Closing or any termination of this Agreement.


 


After Closing, each of Extra Space and HSRE shall,
subject to the terms and conditions of this Agreement, have such rights and
remedies as are available at law or in equity with respect to a default (or
breach of a representation or warranty) by another party under this Agreement,
except (i) as expressly limited in this Agreement, and (ii) that none
of the parties hereto shall be entitled to recover from the other consequential
or special damages.


 


14.                               MISCELLANEOUS.


 


14.1                           Entire Agreement. 
This Agreement constitutes the entire agreement between Extra Space and HSRE
with respect to the matters discussed herein. 
This Agreement shall not be modified or amended except in a written
document signed by Extra Space and HSRE.


 


14.2                           Time. 
Time is of the essence of this Agreement.  In the computation of any period of time
provided for in this Agreement or by law, the day of the act or event from
which the period of time runs shall be excluded, and the last day of such
period


 


29

















 


shall be included,
unless it is a Saturday, Sunday, Monday, or legal holiday, in which case the
period shall be deemed to run until the end of the next day which is not a
Saturday, Sunday, Monday, or legal holiday.


 


14.3                           Notices. 
Any notices required or permitted to be given hereunder shall be in
writing and shall be (as elected by the party giving such notice):  (i) personally delivered, (ii) sent
by a nationally recognized overnight courier service, fees prepaid, or (iii) sent
by telecopier, in each instance addressed as provided below.  Either party may change its address for
purposes hereof by notice given to the other party.  Notices hereunder shall be directed:


 


	
   

  	
  If to Extra
  Space:

  
	
   

  	
   

  
	
   

  	
  Extra Space Storage LLC

  
	
   

  	
  2795 E. Cottonwood
  Parkway 

  
	
   

  	
  Suite 400

  
	
   

  	
  Salt Lake City, UT
  84121 

  
	
   

  	
  Attn: Mr. Charles
  L. Allen 

  
	
   

  	
  Fax: (801)
  365-4947

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Holland &
  Hart LLP  

  
	
   

  	
  60 East South Temple, Suite 2000  

  
	
   

  	
  Salt Lake City, Utah 84111  

  
	
   

  	
  Attn:  Mr. Steven
  E. Tyler  

  
	
   

  	
  Fax: (866)
  711-8035

  



 


30
















 


	
   

  	
  2.

  	
  If to HSRE:

  
	
   

  	
   

  
	
   

  	
  c/o Harrison Street
  Real Estate Capital, LLC

  
	
   

  	
  71 S. Wacker Drive

  
	
   

  	
  Suite 3575

  
	
   

  	
  Chicago, IL 60606

  
	
   

  	
  Attn: Stephen
  Gordon and Robert Mathias

  
	
   

  	
  Fax:  (312)
  920-1855

  
	
   

  	
   

  
	
   

  	
  With copies to:

  
	
   

  	
   

  
	
   

  	
  DLA Piper LLP
  (US)

  
	
   

  	
  203 N. LaSalle
  Street

  
	
   

  	
  Suite 1900

  
	
   

  	
  Chicago, IL
  60601-1293

  
	
   

  	
  Attention:

  	
  Michael S.
  Gershowitz

  
	
   

  	
  Fax:

  	
  (312) 630-6306

  



 


A notice sent in compliance with the provisions of this 14.3 shall be
deemed given on the date of receipt or refusal to accept delivery, provided,
however, that a notice delivered by facsimile shall only be effective
(retroactive to the time of receipt) if such notice is also delivered within
two (2) business days by hand or deposited in the United States mail,
postage prepaid, registered or certified mail.


 


14.4         No Recordation. 
Neither this Agreement nor any memorandum thereof shall be recorded
against the Property.


 


14.5         Counterparts. 
This Agreement may be executed in any number of identical counterparts
any or all of which may contain the signatures of fewer than all of the parties
but all of which shall be taken together as a single instrument.


 


14.6         Waiver. 
The failure by either party to enforce against the other any term of
this Agreement shall not be deemed a waiver of such party’s right to enforce
against the other party the same or any other term in the future.


 


14.7         Severability. 
If any one or more of the provisions hereof shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision were
not herein contained.


 


14.8         Jury.  THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
CLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER REGARDING ANY MATTERS
ARISING OUT OF THIS AGREEMENT.


 


31

















 


14.9         Further Assurances. 
Each party agrees to perform, execute and deliver, on and after the
Closing, such further actions and documents as may be reasonably necessary or
requested to more fully effectuate the purposes, terms and intent of this
Agreement and the conveyances contemplated herein.


 


14.10       Attorneys’ Fees. 
If any party hereto or their respective successors or assigns files suit
to enforce the obligations of, or remedy against, any other party to this
Agreement, the prevailing party shall be entitled to recover from the
non-prevailing party the reasonable fees and expenses of its attorneys and its
court costs.


 


14.11       Construction. 
The parties acknowledge that each party and its counsel have reviewed
and revised this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.  The captions preceding
the text of each Section are included for convenience of reference only
and shall be disregarded in the construction and interpretation of this
agreement.


 


14.12       No Third-Party
Beneficiaries.  This Agreement shall benefit only the parties
hereto, and no other person or entity shall have any rights hereunder.


 


14.13       As-Is. 
HSRE acknowledges that it has had the opportunity to inspect the Property
and that it accepts the ESP Interests, the Texas Interests and the Property in
its “as is” condition, subject, in the case of the Property, to use, ordinary
wear and tear, and natural deterioration, subject to the other terms of this
Agreement.  HSRE further acknowledges
that, except as expressly provided in this Agreement or in any document
delivered by Extra Space at Closing in accordance with this Agreement
(collectively “Extra Space’s Closing Documents”),
(i) neither Extra Space nor any agent or representative of such parties
has made, and (ii) neither Extra Space nor any such agent or
representative is liable for or bound in any manner by, any express or implied
warranties, guaranties, promises, statements, inducements, representations or
information pertaining to the ESP Interests, the Texas Interests or the
Property.


 


14.14       Reporting Person. 
Extra Space and HSRE hereby designate Title Insurer to act as and
perform the duties and obligations of the “reporting person” with respect to
the transaction contemplated by this Agreement for purposes of 26 C.F.R.
Section 1.6045-4(e)(5) relating to the requirements for information
reporting on real estate transaction closed on or after January 1,
1991.  In this regard, Extra Space and
HSRE each agree to execute at Closing, and to cause Title Insurer to execute at
Closing, a Designation Agreement, designating Title Insurer as the reporting
person with respect to the transaction contemplated by this Agreement.


 


14.15       Public Notices. 
Any press release and other public notice to be released by any party
hereto disclosing the consummation of the transactions contemplated hereby
shall first be submitted to the other parties hereto for review and comment,
and each party hereto shall reasonably cooperate in addressing the concerns of
the other with respect to the nature and content of such disclosure (except and
to the extent any such disclosure may be required by law).


 


32

















 


14.16       Governing Law. 
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Illinois.


 


14.17       Confidential Information. 
All information obtained pursuant to this Agreement by any party hereto
from the other parties hereto and the matters and provisions hereof shall be
and remain confidential (subject to the necessity of divulging to third
parties, including, without limitation, attorneys, accountants, engineers,
architects and prospective equity partners and lenders, such information as
either party may require in order to perform its obligations hereunder and
subject to disclosure of all information required by governmental authorities
(including disclosures required under state or federal securities laws or the
rules of a party’s principal securities exchange) and any actual or
prospective lender to the Company or any Subsidiary).  No party will issue or cause the issuance of,
and each will prevent its employees or agents from issuing or causing the
issuance of, any press or media release or other information in the nature of a
press release relating to either this Agreement or the transaction contemplated
hereby except upon the prior written approval of Extra Space and HSRE as to the
exact text of such press release.


 


[signature page follows next]


 


33

















 


IN WITNESS WHEREOF, this Agreement is executed on the day and year first
above written.


 


 


	
   

  	
  EXTRA
  SPACE

  
	
   

  	
   

  
	
   

  	
  EXTRA
  SPACE STORAGE LLC,
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles L.
  Allen

  
	
   

  	
   

  	
  Name: Charles L.
  Allen

  
	
   

  	
   

  	
  Title: Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSRE

  
	
   

  	
   

  
	
   

  	
  HSRE-ESP
  IA, LLC,  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  	
  By: HSREP II
  Holding LLC, a Delaware limited liability company, its sole member,

  
	
   

  	
   

  
	
   

  	
  HSRE REIT II, a Maryland real estate investment
  trust, a member

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen M.
  Gordon

  
	
   

  	
  Name:

  	
  Stephen M.
  Gordon

  
	
   

  	
  Its:

  	
  Trustee

  
				



 


34

















 


EXHIBIT D


 


ARBITRATION AND PRORATION REVIEW


 


1.             Post Closing True-Up.  Within sixty (60) calendar days after
Closing, Extra Space shall recalculate the Prorations (other than prorations of
real estate and personal property taxes that are based on a tax bill for a
period prior to the year in which the Closing occurs, which prorations shall be
recalculated upon receipt of the current tax bill for the year in which the
Closing occurs, as set forth in Section 4.3.2.1) as of the Proration Date
as set forth in Section 4.3 of the Agreement (the “Proration
Recalculation”) and shall send a copy of the Proration Recalculation to HSRE.  Extra Space and HSRE shall each have an
opportunity to provide the other with a review (a “Review”) of the Proration
Recalculation setting forth in reasonable detail any discrepancy which it has
discovered in the Prorations made at the Closing or in the Proration
Recalculation.  If either party to which
the Proration Recalculation is presented does not provide the other party with
a Review within ten (10) business days after receipt of the Proration
Recalculation, such party shall be deemed to be in agreement with the Proration
Recalculation.  If either party to which
any such Review is presented disagrees with such Review, it shall give written
notice (the “Disagreement Notice”) to the other party within ten
(10) business days after receipt of such Review (and, if no such notice is
given, the party to which such Review was presented shall be deemed to agree
with it).  Such Disagreement Notice shall
detail all points of disagreement.  If Extra
Space and HSRE do not resolve such disagreement within ten (10) business days
after delivery of the Disagreement Notice, the parties shall proceed to
arbitration.  If the parties agree or are
deemed to agree with either the Proration Recalculation or the Review or if
there is an arbitration award, then Extra Space or HSRE shall, as applicable,
pay to the other party, in cash, the amount owed within ten (10) days of
the date of such agreement or deemed agreement or such arbitration award, as
applicable.


 


2.             Dispute Resolution.  Any controversy or claim between or among the
parties hereto relating to or arising from the either the Review or the
Proration Recalculation shall be determined by binding arbitration in Cook
County, Illinois in accordance with one of the following as selected by HSRE:


 


a.               the Rules of Practice
and Procedure for the Arbitration of Commercial Disputes of Judicial
Arbitration and Mediation Services, Inc. (J.A.M.S.) or


 


b.              the Rules of  Practice and Procedure of the American
Arbitration Association (“AAA”), or


 


c.               the Special Rules of an
individual mutually agreed upon by the parties. 
The Special Rules shall be those determined by an individual
arbitrator agreed upon by the parties, and shall require that all arbitration
hearings will be commenced within ninety (90) days of the demand for
arbitration, and that the arbitrator shall only, upon a showing of cause, be
permitted to extend the commencement of such hearing for an additional sixty
(60) days.


 


Judgment upon any arbitration award may be entered in any court having
jurisdiction.  Any party hereto may bring
an action, including a summary or expedited proceeding, to compel arbitration
of any controversy or claim to which this provision applies in any court having
jurisdiction over such action in Cook County, Illinois.


 


In the event of a controversy or claim between
the parties which is subject to arbitration pursuant to this Exhibit D,
either party may give written notice (“Arbitration Notice”) to the other
requesting arbitration.  If HSRE requests
an individual arbitrator and the parties have not agreed upon an individual
within ten (10) days after delivery of the Arbitration Notice, then AAA
shall apply.


 


1

















 


The prevailing party in such arbitration or
in any proceeding to compel or enforce such arbitration shall be entitled to
collect from the non-prevailing party reasonable attorney’s fees and costs.


 


2