Document:

Exhibit
10.118

 

PLEDGE OF PROCEEDS
AND SECURITY AGREEMENT

 

THIS PLEDGE OF
PROCEEDS AND SECURITY AGREEMENT, dated August 19,
2003, is made and executed by and between HORIZON GROUP PROPERTIES, L.P. , a
Delaware limited partnership 
(“Pledgor”), and BEAL BANK, S.S.B., a savings bank organized under the
laws of the State of Texas (the “Bank”).

 

W  I  T  N
E  S  S  E  T  H:

 

WHEREAS, the
Bank has made a loan (the “Loan”), in the maximum principal amount of
$7,000,000.00 to Monroe Outlet Center, L.L.C. (the “Borrower”), which is an
affiliate of Pledgor;

 

WHEREAS,
Pledgor is the record and beneficial owner of the membership interests
described in Schedule I attached hereto (the “Membership Interests”) in
Laughlin Holdings, LLC, a Delaware limited liability company (“Holdings”),
which is affiliated with the Borrower, and which is the owner of 100% of the
Membership Interests in Laughlin Outlet Center, LLC, a Delaware limited
liability company (“Laughlin”), which is also affiliated with the Borrower.

 

WHEREAS,
the Borrower has requested that the Bank release its liens and security
interests encumbering certain of the collateral for the Loan to enable the
Borrower to sell such collateral to be so released.

 

WHEREAS,
as security for all of the obligations of the Borrower in regard to the Loan
and as a condition to the Bank’s willingness to release its liens and security
interests as they encumber the portion of the collateral for the Loan to be so
sold by the Borrower, the Bank is requiring that the Pledgor executes and
delivers this Agreement to the Bank and grants to the Bank the security
interests contemplated hereby, and the Pledgor has agreed to do so.

 

NOW, THEREFORE, in
consideration of the premises and for other good and valuable consideration,
the adequacy, receipt, and sufficiency of which are hereby acknowledged, and in
order to induce the Bank to release its liens and security interests as they
encumber the portion of the collateral for the loan to be so sold by the
Borrower, the parties hereto hereby agree as follows:

 

1.             Definitions.  Unless otherwise defined herein, the
following terms shall have the following respective meanings (such meanings
being equally applicable to both the singular and plural form of the terms
defined):

 

“Account”
shall have the meaning assigned to such term in Section 6(b) hereof.

 

“Act”
shall have the meaning assigned to such term in Section 7(d) hereof.

 

“Agreement”
shall mean this Pledge of Proceeds and Security Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to this Agreement as the same may be in
effect at the time such reference becomes operative.

 

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“Bankruptcy
Code” shall mean Title 11, United States Code, as amended from time to
time, and any successor statute thereto.

 

“Closing
Date” shall mean the date hereof.

 

“Code”
shall mean the Texas Uniform Commercial Code-Secured Transactions.

 

“Event of
Default” shall have the meaning assigned to such term in those certain
Commercial Mortgages, each dated July 10, 2002, each executed by Borrower for
the benefit of the Bank, as security for the Loan and which have been recorded,
respectively, in Liber 2254, beginning at Page 83 in the Register of Deeds of Monroe
County, Michigan and in Liber 3457, beginning at Page 506 in the Register of
Deeds of Muskegan County, Michigan (the “Mortgages”), and shall also mean any
failure by the Pledgor to comply with any of the terms of this Agreement if
such failure remains uncured upon the expiration of ten (10) days following the
date written notice of such failure is provided by the Bank to the Pledgor .

 

“Membership
Interest” shall have the meaning assigned to such term in the second  “Whereas” clause.

 

“Organizational
Agreements” shall have the meaning assigned to such term in Section 4(c)
hereof.

 

“Pledged
Collateral” shall have the meaning assigned to such term in Section 2
hereof.

 

“Proceeds”
shall mean all amounts, distributions, cash, instruments, securities and other
property paid and/or distributed to or which from time to time are payable
and/or distributable to Pledgor as a result of its ownership of the Membership
Interest and which arise from the encumbrance, sale or other disposition of, or
other capital transaction (as opposed to operations) relating to,  all or any part of the property owned by
Laughlin, including, without limitation, the real property described on Exhibit
“A” attached hereto, the improvements thereon and personal property (both
tangible and intangible) relating thereto (collectively, the “Property”),
and/or the membership interests in Laughlin owned by Holdings, as well as all
amounts, distributions, cash, instruments, securities and other property from
time to time payable to Pledgor in consideration for any sale, transfer,
assignment or encumbrance by Pledgor of all or any part of the Membership
Interest (consent to any such sale, transfer, assignment or encumbrance not
granted or implied hereby).

 

“Secured
Obligations” shall have the meaning assigned to such term in Section 3
hereof.

 

2.             Pledge.  Pledgor hereby collaterally assigns, pledges
and grants to the Bank a first priority pledge of and security interest in the
Proceeds, as they exist from time to time 
(collectively, the “Pledged Collateral”).

 

3.             Security for Obligations.  This Agreement secures, and the Pledged
Collateral is security for, the prompt payment and performance in full of all
of the obligations of the Borrower and Pledgor in regard to the Loan and under
the Loan Documents, as such term is defined in the Mortgages (collectively, the
“Secured Obligations”).

 

4.             Representations and Warranties.  Pledgor represents and warrants to the Bank
that:

 

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(a)           Pledgor is the sole holder of record
and the sole beneficial owner of the Membership Interest and the Pledged
Collateral,  free and clear of any lien
or security interest thereon or affecting the title thereto except for the
security interest created by this Agreement. Holdings is the sole owner of
record and the sole beneficial owner of all membership interests in Laughlin,
free and clear of any lien or security interest thereon or affecting the title
thereto.  There are no other owners of
any ownership or membership interest in Laughlin.

 

(b)           Pledgor has the right and requisite
authority to pledge, assign, transfer, deliver, deposit, grant a security
interest in and set over the Pledged Collateral to the Bank, as provided
herein.

 

(c)           True, correct and complete copies of
(1) the Amended and Restated Limited Liability Company Agreement by which
Laughlin was formed and is governed, and (2) the Limited Liability Company
Agreement by which Holdings was formed and is governed, including all currently
existing amendments to either thereof (collectively, the “Organizational
Agreements”) are attached hereto as Exhibit “B” and the Organizational
Agreements have not been amended, modified or terminated except pursuant to the
documents so attached hereto as part of Exhibit “B”.

 

(d)           Neither the Membership Interests nor
the membership interests in Laughlin have been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.

 

(e)           No consent, approval, authorization
or other order of any person or entity (including, without limitation,  any party to any contract with Laughlin or
Holdings or which relates to any of the property owned by Laughlin or Holdings)
and no consent, authorization, approval, or other action by, and no notice to
or filing with, any governmental authority or regulatory body not already
obtained or given is required either (i) for the pledge (and grant of a
security interest) by Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by
Pledgor , or (ii) for the exercise by the Bank, for its benefit, of the rights
provided for in this Agreement or the remedies in respect of the Pledged Collateral
pursuant to this Agreement.

 

(f)            With respect to the Pledged
Collateral, the grant of the pledge and security interest provided in this
Agreement, creates a valid pledge and a valid first priority, and the only,
perfected security interest in the Pledged Collateral, and the proceeds
thereof, securing the payment of the Secured Obligations.

 

(g)           The Membership Interests are
accurately described on Schedule I attached hereto.

 

(h)           The pledging of and granting of a
security interest in the Pledged Collateral will not constitute any default
under any Organizational Agreement or any other agreement binding upon
Laughlin, Holdings or Pledgor.

 

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(i)            This Agreement has been duly
authorized, executed and delivered by Pledgor and constitutes the legal, valid
and binding obligation of Pledgor, enforceable in accordance with its terms.

 

(j)            Laughlin is the
owner of the property described on Exhibit “AB” attached hereto.  Attached hereto as Exhibit “C” are
true, correct and complete copies of the most recent financial statements of
Holdings and Laughlin and Pledgor has no actual knowledge that either such
financial statement does not accurately reflect in all material respects the
current financial condition of Laughlin.

 

The
representations and warranties set forth in this Section 4 shall survive the
execution and delivery of this Agreement.

 

5.             Covenants.  Pledgor covenants and agrees that until all
of the Secured Obligations have been satisfied in full (the “Termination
Date”):

 

(a)           Without the prior written consent of
the Bank, which may be granted or withheld at the sole discretion of the Bank,
Pledgor will not sell, assign, transfer, pledge, or otherwise encumber the
Membership Interests and/or any other part of or interest in the Pledged
Collateral or any unpaid distributions or other payments with respect thereto
or grant a lien or security interest on any thereof.

 

(b)           Pledgor will not consent to or
approve any amendment, modification or termination of any Organizational
Agreement without the prior written consent of the Bank, which may be granted
or withheld at the sole discretion of the Bank.  Without limiting the generality of the foregoing, Pledgor will
not cause or approve a change in the priority, timing, amount, allocation or
manner of distributions to the members of Laughlin or to the members in
Holdings, in any case without the prior written consent of the Bank, which may
be granted or withheld at the sole discretion of the Bank.

 

(c)           Pledgor will, at Pledgor’s expense,
promptly execute, acknowledge and deliver all such documents and instruments
(including, but not limited to, financing statements) and take all such actions
as the Bank from time to time may request in order to ensure to the Bank the
benefits of the pledge of and security interest in and to the Pledged
Collateral intended to be created by this Agreement.

 

(d)           Pledgor agrees to pay, or cause to be
paid, any and all fees, taxes and reasonable expenses applicable to the Pledged
Collateral, the Account, the collateral assignment of the Pledged Collateral to
the Bank and the application thereof to the Secured Obligations.

 

(e)           Pledgor will defend the title to the
Pledged Collateral and the Account and the pledge thereof and the security
interest of the Bank therein against the claims of all persons and entities and
will maintain and preserve such pledge and security interest until all of the
Secured Obligations have been paid and performed in full.

 

(f)            Pledgor will cause each of Holdings
and Laughlin to (i) preserve and keep in full force and effect its existence,
rights, franchises and trade names, and all licenses and permits

 

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necessary
for the operation of the business of Laughlin, (ii) fully and timely pay and
perform all obligations of Holdings and Laughlin and (iii) maintain and operate
all properties owned by Laughlin in a first class manner and condition.

 

(g)           Pledgor will cause Holdings and
Laughlin to maintain full and accurate books of account and other records
reflecting the results of their respective operations and will furnish or cause
to be furnished to the Bank, on or before 90 days following the end of each
calendar year:  (i) annual balance sheet
and profit and loss statements with respect to Holdings and Laughlin prepared
in accordance with generally accepted accounting principles consistently
applied and, if required by the Bank following the occurrence and during the
continuance of an Event of Default, certified by one or more independent
certified public accountants acceptable to the Bank,  and (ii) all other financial information and reports with respect
to Holdings and/or Laughlin which the Bank may reasonably request, including,
without limitation, copies of the most recent federal income tax returns of
Holdings, Laughlin and the Pledgor.  All
of the above-referenced financial statements shall be in such detail as
the Bank may reasonably require and shall be certified by the subjects thereof
as being true, correct and complete for the period covered thereby.  At any time, and from time to time, Pledgor
shall deliver to the Bank such other financial statements and data as the Bank
shall reasonably request with respect to Pledgor, Holdings and/or Laughlin.

 

(h)           Pledgor shall cause Holdings and
Laughlin to timely comply with, and Pledgor shall promptly furnish to the Bank
true and complete copies of, any official notice or claim by any governmental
authority against Holdings and Laughlin or any of the assets or property of
Holdings or Lauglin.  Pledgor shall
promptly notify the Bank of any fire or other casualty or any notice of taking
or eminent domain action or proceeding affecting Holdings or Laughlin or any of
the assets or property of Holdings or Laughlin.

 

(i)            Pledgor shall promptly notify the
Bank if Pledgor learns of the occurrence of (a) any event which constitutes an
Event of Default, together with a detailed statement by Pledgor of the steps
being taken to cure such Event of Default, or (b) the receipt of any notice
from, or the taking of any other action by, the holder of any promissory note,
debenture or other evidence of indebtedness of Pledgor, Holdings or Laughlin or
which is secured by a lien or security interest encumbering any of the property
of Pledgor, Holdings or Laughlin with respect to a claimed default, together
with a detailed statement by the Pledgor specifying the notice given or other
action taken by such holder and the nature of the claimed default and what
action the Pledgor, Holdings and/or Laughlin is/are taking or proposes to take
with respect thereto, or (c) any legal, judicial or regulatory proceedings
affecting Pledgor, Holdings and/or Laughlin in which the amount involved is
material and is not covered by insurance, or which, if adversely determined, would
have a material adverse effect upon Pledgor, Holdings and/or Laughlin, or (d)
any other event or condition having a material adverse effect on Pledgor,
Holdings or Laughlin.

 

(j)            Within thirty (30) days following
Pledgor’s receipt of a request from the Bank, Pledgor will furnish or cause to
be furnished to the Bank certificates of compliance signed by Pledgor (i)
stating that a review of the activities of Pledgor, Holdings and Laughlin has
been made to determine whether Pledgor, Holdings and/or Laughlin has/have
fulfilled all of their obligations under this Agreement and the documents which
evidence, secure and/or otherwise relate to any of the Secured Obligations;
(ii) stating whether Pledgor, Holdings and Laughlin have fulfilled all of their
obligations under this Agreement and any such other documents described in (i)
above and

 

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whether
all representations made herein and therein continue to be true and correct in
all material respects (or specifying the nature of any change), or if an Event
of Default shall have occurred, specifying the Event of Default and the nature
and status thereof; (iii) to the extent requested from time to time by the
Bank, specifically affirming compliance by Pledgor, Holdings and/or Laughlin
with any of their representations or obligations under this Agreement and/or
any of the documents described in (i) above; and (iv) containing or accompanied
by such financial or other details, information and material as the Bank may reasonably
request to evidence such compliance.

 

(k)           Pledgor will not (x) allow Laughlin
to (i) enter into any contract or agreement relating to any sale or other
disposition of, or encumbrance of, any portion of the Property, or (ii) effect
any sale or other disposition of or encumbrance of, any portion of the Property
or (y) enter into any contract or agreement relating to the sale or other
disposition of, or encumbrance of, any of the Membership Interest or any other
Pledged Collateral or effect any sale or other disposition of, or encumbrance
of, any of the Membership Interest or any other Pledged Collateral without in
each case the prior written consent of the Bank, which consent will not be
unreasonably withheld provided the transaction in question is to be entered
into with unrelated third parties, in good faith, and on fair market terms.

 

(l)            Pledgor will not allow Holdings to
enter into any contract or agreement relating to the sale or other disposition
of, or encumbrance of, any of the membership interest in Laughlin or effect any
sale or other disposition of, or encumbrance of, any of the membership interest
in Laughlin without in each case the prior written consent of the Bank, which
consent may be granted or withheld in the sole discretion of the Bank.

 

(m)          At such time as any
Proceeds are available to be paid and/or distributed to Pledgor, to immediately
so notify the Bank in writing and to immediately cause all such Proceeds to be
paid to and deposited in the Account. 
Pledgor will not take or fail to take any action that would hinder or
delay the payment or distribution of any Proceeds to Pledgor.

 

6.             Pledgor’s Rights.  As long as no Event of Default or event or
condition which, with the giving of notice, the passage of time, or both, could
mature into an Event of Default shall have occurred and be continuing:

 

(a)           Subject to any limitations imposed by
any document or instrument binding on Pledgor or Laughlin, Pledgor shall have
the right, from time to time, to vote and give consents with respect to the
Membership Interest or any part thereof for all purposes not inconsistent with
the provisions hereof or of any other Loan Document; provided, however, that,
except as expressly provided in this Agreement, no vote shall be cast, and no
consent shall be given or action taken, which would have the effect of
impairing the position or interest of the Bank in respect of the Pledged
Collateral or the value of the Pledged Collateral or which would authorize or
effect (i) the dissolution or liquidation, in whole or in part, of Holdings or
Laughlin, (ii) the consolidation or merger of Holdings or Laughlin with any
other entity, (iii) the sale, lease, assignment, disposition, transfer,
distribution or encumbrance of any material asset or property of Holdings or Laughlin
without the prior written consent of the Bank, which consent may be granted or
withheld at the sole discretion of the Bank, or (iv) the alteration of the
voting rights

 

6

 

with
respect to Pledged Collateral or any voting rights of Holdings in regard to
Laughlin or (v) any violation of any agreement binding on Pledgor, Holdings or
Laughlin; and

 

(b)           All Proceeds of any kind, whether in
cash or otherwise, in respect of the Membership Interest, whenever paid or
made, shall be delivered by Pledgor to the Bank to be deposited in an interest
bearing account (the “Account”) maintained by the Bank or, at the option of the
Bank, at another federally insured financial institution selected by Pledgor
and which is acceptable to the Bank (and which provides to the Bank such
agreements as the Bank may require in regard to the Account and the pledge and
granting of a security interest to the Bank of all interests of Pledgor in the
Account)  and held as Pledged Collateral
as security for the Secured Obligations and shall, if received by Pledgor, be
received in trust for the benefit of the Bank, be segregated from the other
property or funds of Pledgor , and be immediately delivered to the Bank to be
placed in the Account as Pledged Collateral in the same form as so received
(with any necessary endorsement).  All
sums on deposit in the Account shall be held as additional security for the
payment and performance of the Secured Obligations.  Upon the occurrence and during the continuance of an Event of
Default, the Bank shall have the immediate right to demand and receive, use,
apply or offset the whole or any part of such funds on deposit in the Account
in such manner as the Bank may determine, including, without limitation, to the
extent required for the payment of any sums then due and payable in connection
with the Secured Obligations or for any sum which the Bank may expend or may be
required to expend by reason of such Event of Default.  If all of the Secured Obligations shall be
paid and performed in full, then any funds then being held in the Account shall
be returned to Pledgor.  Pledgor hereby
agrees to provide written notice of the date and amount of any distributions or
other payments made in regard to the Membership Interests, with such notice to
be provided as provided in Section k above and in any event prior to Pledgor’s
receipt of any such distribution or other payment.

 

7.             Defaults and Remedies.

 

(a)           Upon the occurrence and during the
continuation of an Event of Default, the Bank (personally or through an agent)
is hereby authorized and empowered to collect and directly receive and deposit
in the Account all cash and other distributions made with respect to the
Pledged Collateral, and to sell in one or more sales after ten (10) days’
notice of the time and place of any public sale or of the time after which a
private sale is to take place (which notice Pledgor agrees is commercially
reasonable), but without any previous notice or advertisement, the whole or any
part of the Pledged Collateral and to otherwise act with respect to the Pledged
Collateral as though the Bank was the outright owner thereof, Pledgor hereby
irrevocably constituting and appointing the Bank as the attorney-in-fact of
Pledgor, with full power of substitution to do so; provided, however, the Bank
shall not have any duty to exercise any such right or to preserve the same and
shall not be liable for any failure to do so or for any delay in doing so. Any
sale shall be made at a public or private sale at the Bank’s place of business,
or at any public building in Collin County, Texas or elsewhere to be named in
the notice of sale, either for cash or upon credit or for future delivery at
such price as the Bank may deem fair, and the Bank may be the purchaser of the
whole or any part of the Pledged Collateral so sold and hold the same
thereafter in its own right free from any claim of Pledgor or any right of
redemption.  Each sale shall be made to
the highest bidder, but the Bank reserves the right to reject any and all bids
at such sale which, in its discretion, it shall deem inadequate.  Demands of performance, except as otherwise
herein specifically provided for, notices of sale, advertisements and the
presence of property at sale are

 

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hereby waived
and any sale hereunder may be conducted by an auctioneer or any officer or
agent of the Bank.

 

(b)           If, at the original time or times
appointed for the sale of the whole or any part of the Pledged Collateral, the
highest bid, if there be but one sale, shall be inadequate to discharge in full
all the Secured Obligations, or if the Pledged Collateral be offered for sale
in lots, if at any of such sales, the highest bid for the lot offered for sale
would indicate to the Bank, in its discretion, the unlikelihood of the proceeds
of the sales of the whole of the Pledged Collateral being sufficient to
discharge all the Secured Obligations, the Bank may, on one or more occasions
and in its discretion, postpone any of said sales by public announcement at the
time of sale or the time of previous postponement of sale, and no other notice
of such postponement or postponements of sale need be given, any other notice
being hereby waived; provided, however, that any sale or sales made after such
postponement shall be after ten (10) days’ notice to the Pledgor.

 

(c)           In the event of any sales of Pledged
Collateral hereunder the Bank shall, after deducting all reasonable costs or
expenses of every kind (including reasonable attorneys’ fees and disbursements)
for collection, sale, delivery or otherwise, apply the residue of the proceeds
of the sales to the payment or reduction, either in whole or in part, of the
Secured Obligations in such order and amount as the Bank may elect, returning
the surplus, if any, to Pledgor .

 

(d)           If, at any time when the Bank shall
determine to exercise its rights to sell the whole or any part of the Pledged
Collateral hereunder, such Pledged Collateral or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under the
Securities Act of 1933, as amended (the “Act”), the Bank may, in its discretion
(subject only to applicable requirements of law), sell such Pledged Collateral
or part thereof by private sale in such manner and under such circumstances as
the Bank may deem necessary or advisable, but subject to the other requirements
of this Section 7, and shall not be required to effect such registration or to
cause the same to be effected.  Without
limiting the generality of the foregoing, in any such event the Bank in its
discretion (a) may, in accordance with applicable securities laws, proceed to
make such private sale notwithstanding that a registration statement for the
purpose of registering such Pledged Collateral or part thereof could be or
shall have been filed under the Act (or similar statute), (b) may approach and
negotiate with a single possible purchaser to effect such sale, and (c) may
restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment and not with a view
to the distribution or sale of such Pledged Collateral or part thereof.  In addition to a private sale as provided
above in this Section 7, if any of the Pledged Collateral shall not be freely
distributable to the public without registration under the Act (or similar
statute) at the time of any proposed sale pursuant to this Section 7, then the
Bank shall not be required to effect such registration or cause the same to be
effected but, in its discretion (subject only to applicable requirements of
law), may require that any sale hereunder (including a sale at auction) be
conducted subject to restrictions (i) as to the financial sophistication and
ability of any Person permitted to bid or purchase at any such sale, (ii) as to
the content of legends to be placed upon any certificates representing the
Pledged Collateral sold in such sale, including restrictions on future transfer
thereof, (iii) as to the representations required to be made by each Person
bidding or purchasing at such sale relating to that Person’s access to
financial information about the issuer of the Pledged Collateral and such
Person’s intentions as to the holding of the Pledged Collateral so sold for
investment, for its own account, and not with a view to the distribution
thereof, and (iv) as to such other matters as the Bank may,

 

8

 

in
its discretion, deem necessary or appropriate in order that such sale (notwithstanding
any failure so to register) may be effected in compliance with the Code and
other laws affecting the enforcement of creditors’ rights and the Act and all
applicable state securities laws.

 

(e)           Pledgor acknowledges that
notwithstanding the legal availability of a private sale or a sale subject to
the restrictions described above in Section 7(d), the Bank may, in its
discretion, elect to register any or all the Pledged Collateral under the Act
(or any applicable state securities law). 
Pledgor, however, recognizes that the Bank may be unable to effect a
public sale of any or all the Pledged Collateral and may be compelled to resort
to one or more private sales thereof. 
Pledgor also acknowledges that any such private sale (conducted in a
commercially reasonable manner for private sales) may result in prices and
other terms less favorable to the seller than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner.  The Bank shall be under no obligation to
delay a sale of any of the Pledged Collateral for the period of time necessary
to permit the registrant to register such securities for public sale under the
Act, or under applicable state securities laws, even if Pledgor or the issuer
of the Pledged Collateral would agree to do so.

 

(f)            Pledgor agrees that following the
occurrence and during the continuance of an Event of Default, Pledgor will not
at any time plead, claim or take the benefit of any appraisal, valuation, stay,
extension, moratorium or redemption law now or hereafter in force in order to
prevent or delay the enforcement of this Agreement, or the absolute sale of the
whole or any part of the Pledged Collateral or the possession thereof by any
purchaser at any sale hereunder, and Pledgor waives the benefit of all such
laws to the extent Pledgor lawfully may do so. 
Pledgor agrees that Pledgor will not interfere with any right, power and
remedy of the Bank provided for in this Agreement or now or hereafter existing
at law or in equity or by statute or otherwise, or the exercise or beginning of
the exercise by the Bank of any one or more of such rights, powers, or
remedies.  No failure or delay on the
part of the Bank to exercise any such right, power or remedy and no notice or
demand which may be given to or made upon Pledgor by the Bank with respect to
any such remedies shall operate as a waiver thereof, or limit or impair the
Bank’s right to take any action or to exercise any power or remedy hereunder,
without notice or demand, or prejudice its rights as against Pledgor in any
respect.

 

(g)           Pledgor further agrees that a breach
of any of the covenants contained in this Section 7 will cause irreparable
injury to the Bank, that the Bank has no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and every covenant
contained in this Section 7 shall be specifically enforceable against Pledgor ,
and Pledgor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense that the
Secured Obligations are not then due and payable in accordance with the
Documents evidencing, securing or relating thereto.

 

8.             Application of Proceeds.  Any cash held by the Bank as Pledged
Collateral and all cash proceeds received by the Bank in respect of any sale
of, liquidation of, or other realization upon all or any part of the Pledged
Collateral shall be applied by the Bank as follows:

 

9

 

(a)           First, to the payment of the Bank’s
reasonable costs and expenses of such sale, including reasonable attorneys’
fees, and all expenses, liabilities and advances made or incurred by the Bank
in connection therewith;

 

(b)           Next, to the payment of the other
Secured Obligations in such order and amounts as the Bank may elect in its sole
discretion; and

 

(c)           Finally, after payment in full of all
Secured Obligations, to the payment to Pledgor, or Pledgor’s legal representatives,
successors or assigns, or to whomsoever may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.

 

9.             Waiver.  No delay on the Bank’s part in exercising
any power of sale, lien, option or other right hereunder, and no notice or
demand which may be given to or made upon Pledgor by the Bank with respect to
any power of sale, lien, option or other right hereunder, shall constitute a
waiver thereof, or limit or impair the Bank’s right to take any action or to
exercise any power of sale, lien, option, or any other right hereunder, without
notice or demand, or prejudice the Bank’s rights as against Pledgor in any
respect.

 

10.           Termination.  Immediately following the full payment and
discharge of the Loan and all obligations of Pledgor under this Agreement, the
Bank shall deliver to Pledgor (without recourse, warranty or representation of
any kind) a release of the Pledged Collateral, and, except as otherwise
provided herein, all of Pledgor’s obligations hereunder shall at such time
terminate.

 

11.           Lien Absolute.  All rights of the Bank hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:

 

(a)           any lack of validity or
enforceability of any agreement or instrument relating to, governing or
evidencing any of the Secured Obligations;

 

(b)           any change in the time, manner or
place of payment of, or in any other term of, all or any part of the Secured
Obligations, or any other amendment or waiver of or any consent to any
departure from any agreement or instrument governing or evidencing any of the
Secured Obligations;

 

(c)           any exchange, release or
non-perfection of any other collateral, or any release or amendment or waiver of
or consent to departure from any guaranty, for all or any of the Secured
Obligations; or

 

(d)           any other circumstance which might
otherwise constitute a defense available to, or a discharge of, Pledgor.

 

12.           Release.  Pledgor consents and agrees that the Bank
may at any time, and from time to time, in its discretion (a) renew, extend or
change the time of payment, and/or the manner, place or terms of payment of all
or any part of the Secured Obligations, and (b) exchange, release and/or
surrender all or any of the Pledged Collateral, or any part thereof, which is
now or may hereafter be held by the Bank in connection with all or any of the
Secured Obligations, all in such manner and upon such terms as the 

 

10

 

Bank may deem proper, and
without notice to or further assent from Pledgor, it being hereby agreed that
Pledgor shall be and remain bound under this Agreement, irrespective of the
existence, value or condition of any of the Pledged Collateral, and notwithstanding
any such change, exchange, settlement, compromise, surrender, release, renewal
or extension, and notwithstanding also that the Secured Obligations may at any
time exceed the aggregate amount thereof set forth in any agreement governing
any of the Secured Obligations.  Except
as otherwise provided herein or in the documents which evidence, secure or
otherwise relate to any of the Secured Obligations, Pledgor hereby waives
notice of acceptance of this Agreement, and also waives presentment, demand,
protest and notice of dishonor of any and all of the Secured Obligations, and
promptness in commencing suit against any party hereto or liable hereon, and in
giving any notice to or of making any claim or demand hereunder upon Pledgor.  No act or omission of any kind on the Bank’s
part shall in any event affect or impair this Agreement.

 

13.           Indemnification.  Pledgor agrees to indemnify and hold the
Bank harmless from and against any liabilities, claims and damages, including
reasonable attorney’s fees and disbursements, and other expenses incurred or
arising by reason of the taking or the failure to take action by the Bank, in
good faith, in respect of any transaction effected under this Agreement or in
connection with the security interest provided for herein, including, without
limitation, any taxes payable in connection with any of the Pledged Collateral
as provided herein (collectively “Indemnified Claims”).  Whether or not the transactions contemplated
by this Agreement shall be consummated, Pledgor agrees to pay to the Bank all
reasonable costs and expenses incurred by the Bank in connection with this
Agreement and all reasonable fees, expenses and disbursements incurred by the
Bank in connection with the execution and delivery of this Agreement and the
performance by the Bank of the provisions of this Agreement and of any
transactions effected in connection with this Agreement.  The obligations of Pledgor under this
Section 13 shall survive the termination of this Agreement.  The foregoing notwithstanding, the indemnity
provided for herein shall not apply to any Indemnified Claim of the Bank if a
court of competent jurisdiction determines that such Indemnified Claim is the
result of the gross negligence or willful misconduct of the Bank.  PLEDGOR ACKNOWLEDGES THAT THE INDEMNITY FOR
WHICH PROVISION IS MADE HEREIN APPLIES TO, WITHOUT LIMITATION, CLAIMS ARISING
IN WHOLE OR IN PART FROM THE NEGLIGENCE OF THE BANK.

 

14.           Reinstatement.  This
Agreement shall remain in full force and effect and continue to be effective
should any petition be filed by or against Pledgor for liquidation or
reorganization, should Pledgor become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or
any significant part of Pledgor’s assets, and shall continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of
the Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned, and,
in any such case, the Secured Obligations shall be reinstated and deemed
reduced only by such amount paid and not so rescinded, reduced, restored or
returned.

 

15.           Miscellaneous.

 

(a)           The Bank may execute any of its duties
hereunder by or through agents or employees and shall be entitled to advice of
counsel concerning all matters pertaining to its duties hereunder.

 

11

 

(b)           Pledgor agrees to promptly reimburse the Bank for all
expenses, including, without limitation, reasonable attorneys’ fees and
expenses, incurred by the Bank in connection with the drafting, negotiation,
administration and/or enforcement of this Agreement.

 

(c)           Neither the Bank nor any of its officers, directors,
employees, agents or counsel shall be liable for any action lawfully taken or
omitted to be taken by it or them hereunder or in connection herewith, except
for its or their own gross negligence or willful misconduct.

 

(d)           This Agreement shall be binding upon Pledgor and
Pledgor’s legal representatives, successors and assigns, and shall inure to the
benefit of, and be enforceable by, the Bank and its successors and assigns
(provided, however, Pledgor may not assign or delegate any rights or duties hereunder,
without the prior written consent of the Bank, which may be granted or withheld
at the sole discretion of the Bank). 
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas. None of the terms or
provisions of this Agreement may be waived, altered, modified or amended except
in writing duly signed for and on behalf of the Bank and Pledgor.

 

16.           Severability.  If for any
reason any provision or provisions hereof are determined by a court of
competent jurisdiction to be invalid, such invalidity shall not impair the
operation of or affect those portions of this Agreement which are valid.

 

17.           Notices.  Except as
otherwise provided herein, whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by another, or whenever any
of the parties desires to give or serve upon another any communication with
respect to this Agreement, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and shall be
addressed as follows:

 

(a)           If to the Bank, at:

 

Beal Bank,
S.S.B.

6000 Legacy
Drive, 4 East

Plano, Texas
75024

Attn:  Mr. William T. Saurenmann

 

(b)           If to Pledgor , at its address
specified in Schedule I attached hereto.

 

The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice.  Each such notice, request
or other communication shall be effective (i) if given by mail, two (2)
business days after such communication is deposited in the mail, certified mail
return receipt requested, addressed as aforesaid, or (ii) if given by any other
means, when delivered at the addresses specified in this Section 17.

 

18.           Section Titles.  The section
titles contained in this Agreement are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of the agreement between
the parties hereto.

 

12

 

19.           Counterparts.  This
Agreement may be executed in any number of counterparts, which shall,
collectively and separately, be and constitute one and the same agreement.

 

20.           Sale of Part of the
Membership Interests in Laughlin.  Provided no Event of Default and no event or condition which, with
the giving of notice, the passage of time, or both, could mature into an Event
of Default exists, and provided the Bank hereafter approves of the terms of the
sale of up to one-half (2) of the membership interests in Laughlin which you
have advised the Bank Holdings is attempting to sell and provided the proceeds
from such sale are used to pay a loan obtained by Horizon Huntley, LLC and
Horizon Huntley Finance, LLC, affiliates of Pledgor, to finance their purchase
of their partnership interests in Huntley Development Limited Partnership, an
affiliate of Pledgor, the Bank will not require that any of such proceeds from
the sale of such one-half (2) of the membership interests in Laughlin remain
subject to the Bank’s pledge and security interest hereunder.

 

13

 

IN WITNESS WHEREOF,
the parties hereto have caused this Pledge of Ownership Interests and Security
Agreement to be duly executed as of the date first written above.

 

	
   

  	
   

  	
  PLEDGOR:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  HORIZON GROUP PROPERTIES, L.P.,

  
	
   

  	
   

  	
  a Delaware limited partnership

  
	
   

  	
   

  	
  By:

  	
  Horizon Group Properties, Inc.,

  
	
   

  	
   

  	
   

  	
  General Partner

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
								

 

 

	
  ACCEPTED AND ACKNOWLEDGED BY:

  	
   

  
	
   

  	
   

  
	
  BEAL BANK, S.S.B.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name: 

  	
  William T.
  Saurenmann

  
	
   

  	
  Title:

  	
  Senior Vice
  President

  
					

 

14

 

SCHEDULE I

TO

THE PLEDGE OF
PROCEEDS AND SECURITY AGREEMENT

 

Attached to
and forming a part of that certain Pledge of Ownership Interests and Security
Agreement among HORIZON GROUP PROPERTIES, L.P. and BEAL BANK, S.S.B.

 

 

	
  Address of
  Pledgor

  	
   

  	
  Membership

  Interest in

  Holdings

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  99.9%
  Membership Interest

  
	
  77 West
  Wacker Drive

  	
   

  	
   

  
	
  Suite 4200

  	
   

  	
   

  
	
  Chicago,
  Illinois 60601

  	
   

  	
   

  

 

15

EXHIBIT “B”

 

Organizational Agreements

 

16

EXHIBIT “A”

 

Property Owned by Laughlin

 

17

 

EXHIBIT “C”

 

Current Financial Statement of Laughlin and
Holdings

 

18Exhibit 10.119

 

 

	
  FOR
  IMMEDIATE RELEASE

  	
   

  	
  CONTACT:
  Gina Slechta

  
	
   

  	
   

  	
  Director of Marketing

  
	
   

  	
   

  	
  402-332-4940

  

 

HORIZON GROUP PROPERTIES SELLS

LAKESHORE MARKETPLACE

 

(Chicago, Illinois – August 20, 2003) —
Horizon Group Properties, Inc. (HGP) (NASDAQ: HGPI),  an owner, operator and
developer of factory outlet centers and land developer, today announced that it
had sold the 361,000 square foot Lakeshore Marketplace (“Lakeshore”) in Norton
Shores, Michigan.  The shopping center
is anchored by TJ Maxx, Barnes & Noble, Old Navy, Elder Beerman, Hobby
Lobby, Toys R Us, Dunhams, Pier One Imports and Petco. The shopping center was
sold for $22.5 million to Ramco-Gershenson Properties Trust (NYSE:RPT).  HGP will recognize a gain of approximately
$6.0 million on the sale.

 

“Horizon Group Properties is pleased to have added
significant value to Lakeshore Marketplace which resulted in a favorable
sale.”  according to Gary J. Skoien,
Chairman, President and Chief Executive Officer of Horizon Group Properties. “
HGP acquired Lakeshore Marketplace in 1998 when it was 67% occupied and at the
time it was sold, the center was virtually 100% occupied. In addition, HGP sold
three out parcels during that  period it
owned the center.

 

Proceeds
from the sale of  Lakeshore were used
by  HGP to pay down $2 million of a $7
million loan secured by the Monroe Outlet Center and approximately 70 acres in
Fruitport Township, Michigan. This paydown will result in HGP saving $60,000 in
annual loan guarantee payments currently being made to Prime Retail, Inc. Three
million dollars will be reserved to pay infrastructure and interest payments of
its recently acquired Huntley  property
and the remainder utilized for corporate working capital.

 

1

 

HGP is currently developing and offering for sale
other parcels of land in the area totaling 110 acres. These parcels benefit
from the proximity to Lakeshore, The 
Lakes Mall and a significant amount of recent commercial development.

 

“The parcels include new development opportunities
which are ideal locations for retail and other ancillary uses which compliment
this emerging retail and service corridor” 
according to Thomas Rumptz, Senior Vice President of  HGP who is directing the sale of these
parcels and was also responsible for the sale to Ramco-Gershenson Properties
Trust.

 

Based in Chicago, Illinois, Horizon Group Properties,
Inc. has 9 factory outlet centers in 7 states totaling approximately 1.8
million square feet and is the developer of a master planned community in
suburban Chicago.

 

###

 

Safe Harbor Statement: The
statements contained herein, which are not historical facts, are
forward-looking statements based upon economic forecasts, budgets, and other
factors which, by their nature, involve known risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
Horizon Group Properties, Inc. to be materially different from any future
results implied by such statements.  In
particular, among the factors that could cause actual results to differ
materially are the following: business conditions and the general economy,
competitive factors, interest rates and other risks inherent in the real estate
business.   For further information on
factors which could impact the Company and the statements contained herein,
reference is made to the Company’s filings with the Securities and Exchange
Commission.

 

2

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