Document:

Exhibit 10.13

	
 
    

 

LIMITED PARTNERSHIP AGREEMENT

 

OF

 

PRIMESTAR FUND I, L.P.

 

A DELAWARE LIMITED PARTNERSHIP 

 

DATED AS OF NOVEMBER 8, 2012

	
 
    

 

 

TABLE OF CONTENTS

 

	
Section 1.
    	
 
    	
Definitions   
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
Section 2.
    	
 
    	
Organization   of the Partnership 
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
2.1.
    	
 
    	
Name   
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
2.2.
    	
 
    	
Place   of Registered Office; Registered Agent 
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
2.3.
    	
 
    	
Principal   Office 
    	
2
    
	
 
    	
 
    	
 
    	
 
    
	
2.4.
    	
 
    	
Filings
    	
2
    
	
 
    	
 
    	
 
    	
 
    
	
2.5.
    	
 
    	
Term
    	
2
    
	
 
    	
 
    	
 
    	
 
    
	
2.6.
    	
 
    	
Expenses   of the Partners 
    	
2
    
	
 
    	
 
    	
 
    	
 
    
	
Section 3.
    	
 
    	
Purpose   
    	
2
    
	
 
    	
 
    	
 
    	
 
    
	
3.1.
    	
 
    	
Partnership   Purpose
    	
2
    
	
 
    	
 
    	
 
    	
 
    
	
3.2.
    	
 
    	
Subsidiaries   
    	
3
    
	
 
    	
 
    	
 
    	
 
    
	
Section 4.
    	
 
    	
Intentionally   Omitted
    	
3
    
	
 
    	
 
    	
 
    	
 
    
	
Section 5.
    	
 
    	
Capital   Contributions, Percentage Interests and Capital Accounts 
    	
3
    
	
 
    	
 
    	
 
    	
 
    
	
5.1.
    	
 
    	
Initial   Capital Contributions
    	
3
    
	
 
    	
 
    	
 
    	
 
    
	
5.2.
    	
 
    	
Additional   Capital Contributions 
    	
3
    
	
 
    	
 
    	
 
    	
 
    
	
5.3.
    	
 
    	
Percentage   Ownership Interest
    	
6
    
	
 
    	
 
    	
 
    	
 
    
	
5.4.
    	
 
    	
Return   of Capital Contribution 
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
5.5.
    	
 
    	
No   Interest on Capital
    	
 7
    
	
 
    	
 
    	
 
    	
 
    
	
5.6.
    	
 
    	
Capital   Accounts 
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
5.7.
    	
 
    	
New   Partners
    	
 8
    
	
 
    	
 
    	
 
    	
 
    
	
5.8.
    	
 
    	
Equity   Commitment 
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
Section 6.
    	
 
    	
Distributions   
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
6.1.
    	
 
    	
Distribution   of Distributable Funds
    	
 8
    
	
 
    	
 
    	
 
    	
 
    
	
6.2.
    	
 
    	
Certain   Distribution Exceptions 
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
6.3.
    	
 
    	
Tax   Distribution 
    	
10
    
	
 
    	
 
    	
 
    	
 
    
	
6.4.
    	
 
    	
Adjustments   to Management Incentive Distributions 
    	
10
    
	
 
    	
 
    	
 
    	
 
    
	
6.5.
    	
 
    	
Distributions   Related to Rental Pool 
    	
11
    
	
 
    	
 
    	
 
    	
 
    
	
6.6.
    	
 
    	
Distributions   in Kind of Non-Rental Pool Property 
    	
11
    
	
 
    	
 
    	
 
    	
 
    
	
Section 7.
    	
 
    	
Allocations   
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
7.1.
    	
 
    	
Allocation   of Net Income and Net Losses 
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
7.2.
    	
 
    	
Special   Allocations 
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
7.3.
    	
 
    	
Changes   in Proportionate Interests 
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
7.4.
    	
 
    	
U.S. Tax Allocations 
    	
14
    

 

i

 

TABLE OF CONTENTS

 

	
Section 8.
    	
 
    	
Books,   Records, Tax Matters and Bank Accounts 
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
8.1.
    	
 
    	
Books   and Records 
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
8.2.
    	
 
    	
Reports   and Financial Statements 
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
8.3.
    	
 
    	
Tax   Matters Partner 
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
8.4.
    	
 
    	
Bank   Accounts 
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
8.5.
    	
 
    	
Tax   Returns 
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
8.6.
    	
 
    	
Background   Checks 
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
Section 9.
    	
 
    	
Management   and Operations 
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
9.1.
    	
 
    	
Management   
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
9.2.
    	
 
    	
Rental   Pool 
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
9.3.
    	
 
    	
Annual   Business Plan 
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
9.4.
    	
 
    	
Implementation   of Plan 
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
9.5.
    	
 
    	
Affiliate   Transactions 
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
9.6.
    	
 
    	
Assets   Held by Subsidiaries 
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
9.7.
    	
 
    	
Investment   
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
9.8.
    	
 
    	
Limitation   on Actions of Partners; Binding Authority 
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
9.9.
    	
 
    	
Organization   of JVP 
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
9.10.
    	
 
    	
Asset   Management 
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
9.11.
    	
 
    	
Operation   in Accordance with REIT Requirements 
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
9.12.
    	
 
    	
FCPA/OFAC   
    	
22
    
	
 
    	
 
    	
 
    	
 
    
	
9.13.
    	
 
    	
Crime   Policy; Errors and Omissions Policy 
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
9.14.
    	
 
    	
Guaranties   
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
Section 10.
    	
 
    	
Confidentiality   
    	
24
    
	
 
    	
 
    	
 
    	
 
    
	
Section 11.
    	
 
    	
Representations   and Warranties 
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
11.1.
    	
 
    	
In   General 
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
11.2.
    	
 
    	
Representations   and Warranties 
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
Section 12.
    	
 
    	
Sale,   Assignment, Transfer or other Disposition 
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
12.1.
    	
 
    	
Prohibited   Transfers 
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
12.2.
    	
 
    	
Affiliate   Transfers 
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
12.3.
    	
 
    	
Admission   of Transferee 
    	
29
    
	
 
    	
 
    	
 
    	
 
    
	
12.4.
    	
 
    	
Withdrawals   
    	
30
    
	
 
    	
 
    	
 
    	
 
    
	
Section 13.
    	
 
    	
Dissolution   
    	
30
    
	
 
    	
 
    	
 
    	
 
    
	
13.1.
    	
 
    	
Limitations   
    	
30
    
	
 
    	
 
    	
 
    	
 
    
	
13.2.
    	
 
    	
Exclusive Events Requiring   Dissolution 
    	
30
    

 

ii

 

TABLE OF CONTENTS

 

	
13.3.
    	
 
    	
Liquidation   
    	
30
    
	
 
    	
 
    	
 
    	
 
    
	
13.4.
    	
 
    	
Continuation   of the Partnership 
    	
31
    
	
 
    	
 
    	
 
    	
 
    
	
Section 14.
    	
 
    	
Indemnification   
    	
31
    
	
 
    	
 
    	
 
    	
 
    
	
14.1.
    	
 
    	
Exculpation   of Partners 
    	
31
    
	
 
    	
 
    	
 
    	
 
    
	
14.2.
    	
 
    	
Indemnification   by Partnership 
    	
31
    
	
 
    	
 
    	
 
    	
 
    
	
14.3.
    	
 
    	
Indemnification   by Partners for Misconduct 
    	
32
    
	
 
    	
 
    	
 
    	
 
    
	
14.4.
    	
 
    	
General   Indemnification by the Partners 
    	
33
    
	
 
    	
 
    	
 
    	
 
    
	
14.5.
    	
 
    	
Rental   Pool Indemnification 
    	
33
    
	
 
    	
 
    	
 
    	
 
    
	
14.6.
    	
 
    	
Pledge   of JVP Interest 
    	
34
    
	
 
    	
 
    	
 
    	
 
    
	
Section 15.
    	
 
    	
Miscellaneous   
    	
34
    
	
 
    	
 
    	
 
    	
 
    
	
15.1.
    	
 
    	
Notices   
    	
34
    
	
 
    	
 
    	
 
    	
 
    
	
15.2.
    	
 
    	
Governing   Law 
    	
36
    
	
 
    	
 
    	
 
    	
 
    
	
15.3.
    	
 
    	
Successors   
    	
37
    
	
 
    	
 
    	
 
    	
 
    
	
15.4.
    	
 
    	
Pronouns   
    	
37
    
	
 
    	
 
    	
 
    	
 
    
	
15.5.
    	
 
    	
Table   of Contents and Captions Not Part of Agreement 
    	
37
    
	
 
    	
 
    	
 
    	
 
    
	
15.6.
    	
 
    	
Severability   
    	
37
    
	
 
    	
 
    	
 
    	
 
    
	
15.7.
    	
 
    	
Counterparts   
    	
37
    
	
 
    	
 
    	
 
    	
 
    
	
15.8.
    	
 
    	
Entire   Agreement and Amendment 
    	
37
    
	
 
    	
 
    	
 
    	
 
    
	
15.9.
    	
 
    	
Further   Assurances 
    	
37
    
	
 
    	
 
    	
 
    	
 
    
	
15.10.
    	
 
    	
No   Third Party Rights
    	
38
    
	
 
    	
 
    	
 
    	
 
    
	
15.11.
    	
 
    	
Incorporation   by Reference
    	
38
    
	
 
    	
 
    	
 
    	
 
    
	
15.12.
    	
 
    	
Limitation   on Liability
    	
38
    
	
 
    	
 
    	
 
    	
 
    
	
15.13.
    	
 
    	
Remedies   Cumulative
    	
38
    
	
 
    	
 
    	
 
    	
 
    
	
15.14.
    	
 
    	
No   Waiver
    	
38
    
	
 
    	
 
    	
 
    	
 
    
	
15.15.
    	
 
    	
Limitation   On Use of Names
    	
39
    
	
 
    	
 
    	
 
    	
 
    
	
15.16.
    	
 
    	
Publicly   Traded Partnership Provision
    	
39
    
	
 
    	
 
    	
 
    	
 
    
	
15.17.
    	
 
    	
Uniform   Commercial Code
    	
39
    
	
 
    	
 
    	
 
    	
 
    
	
15.18.
    	
 
    	
Public   Announcements
    	
39
    
	
 
    	
 
    	
 
    	
 
    
	
15.19.
    	
 
    	
No   Construction Against Drafter
    	
40
    
	
 
    	
 
    	
 
    	
 
    
	
15.20.
    	
 
    	
Insurance   
    	
40
    
	
 
    	
 
    	
 
    	
 
    
	
15.21.
    	
 
    	
Conflict   Matters
    	
40
    
	
 
    	
 
    	
 
    	
 
    
	
15.22.
    	
 
    	
Arbitration 
    	
40
    

 

 

iii

 

LIMITED PARTNERSHIP AGREEMENT
 OF

PRIMESTAR FUND I, L.P.

 

THIS LIMITED PARTNERSHIP AGREEMENT of PrimeStar Fund I, L.P. (this “Agreement”) is made and is effective as of November 8, 2012 (the “Effective Date”), by and between SRP PrimeStar, L.L.C., a Delaware limited liability company, as a limited partner (“Starwood”), Prime Asset Fund VI, LLC, a Delaware limited liability company, as a limited partner (“JVP”), and PrimeStar Fund I GP, L.L.C., a Delaware limited liability company, as a general partner (“PSF I GP”). Capitalized terms used herein shall have the meanings ascribed to such terms in this Agreement.

 

W I T N E S S E T H:

 

WHEREAS, the Partners have formed the Partnership pursuant to the Act;

 

WHEREAS, the Partners desire to participate in the Partnership for the purposes described herein; and

 

WHEREAS, the Partners deem a limited partnership agreement to be necessary and advisable to set out their agreement as to the conduct of business and the affairs of the Partnership, and desire to enter into this Agreement.

 

NOW, THEREFORE, in consideration of the agreements and covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

Section 1.                                                   Definitions. Capitalized terms used herein shall have the meanings ascribed to such terms in this Agreement (including, without limitation, Exhibit B).

 

Section 2.                                                   Organization of the Partnership.

 

2.1.                            Name.  The name of the Partnership is “PrimeStar Fund I, L.P.”.  The business and affairs of the Partnership shall be conducted under such name or such other name as the Partners deem necessary or appropriate to comply with the requirements of law in any jurisdiction in which the Partnership may elect to do business, subject in all events to approval by the General Partner.

 

2.2.                            Place of Registered Office; Registered Agent.  The address of the registered office of the Partnership in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The name and address of the registered agent for service of process on the Partnership in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.  The General Partner may at any time on five (5) days’ prior notice to all Partners change the location of the Partnership’s registered office or change the registered agent. The registered agent will be instructed to notify the General Partner (which as of the date hereof is PSF I GP, whose address for notice purposes is set forth in Section 15.1) upon receipt of any legal process of notice. The General Partner shall keep the other Partners

 

 

informed of legal notices and other material notices received by the General Partner on behalf of the Partnership outside the ordinary course of business, and shall deliver to any Partner upon request copies of notices of legal process and other material notices.

 

2.3.                            Principal Office.  The principal address of the Partnership shall be c/o Starwood Property Trust, Inc., 591 W. Putnam Avenue, Greenwich, Connecticut 06830 and the principal office of the Partnership shall be the principal office of the General Partner (which as of the date hereof is PSF I GP, whose address for notice purposes is set forth in Section 15.1), or, in each such case, at such other place or places as may be determined by the General Partner from time to time.

 

2.4.                            Filings. On or before execution of this Agreement, an authorized person within the meaning of the Act shall have duly filed or caused to be filed the Certificate of Limited Partnership of the Partnership with the office of the Secretary of State of Delaware, as provided in Section 17-201 of the Act, and the Partners hereby ratify such filing. The General Partner shall use all reasonable efforts to cause to be filed such filings, and to take such other actions as may be necessary, to maintain the status of the Partnership as a limited partnership under the laws of State of Delaware and as otherwise required under the Act and applicable law to register or qualify the Partnership and the Subsidiaries to conduct the business contemplated by this Agreement (including any required publication). Notwithstanding anything contained herein to the contrary, the Partnership shall not do business in any jurisdiction that would jeopardize the limitation on liability afforded to the Partners under the Act or this Agreement.

 

2.5.                            Term. The Partnership shall continue in existence from the date hereof in perpetuity, or until the Partnership is dissolved as provided in Section 13 or sooner terminated by the General Partner, whichever shall occur earlier.

 

2.6.                            Expenses of the Partners.  Except as hereinafter provided in this Agreement, all third party expenses incurred by a Partner or its Affiliates on behalf of or relating to the Partnership, any Subsidiary or any Property (including legal fees incurred in preparing and negotiating this Agreement and the Letter of Intent) shall be borne solely by such Partner or such Affiliates. Notwithstanding the foregoing, the Partnership shall reimburse the General Partner, or Starwood directly, if so requested by Starwood, for on-going Investment Maintenance Costs incurred by Starwood or its Affiliates, as provided in the annual Budget, in an amount not to exceed $25,000 per annum, provided such third party expenses are without duplication of any other amounts paid as reimbursements by the Partnership (or any Subsidiary). In addition to, but without overlap or double counting of, the foregoing, the Partnership shall reimburse General Partner for any actual third-party out-of-pocket costs incurred by General Partner in connection with maintaining its existence and otherwise exercising its duties as general partner in the Partnership, such as legal fees and expenses (including, without limitation, fees and expenses of Rinaldi, Finkelstein & Franklin, LLC and Sidley Austin LLP), accounting fees and expenses and delivery/mailing/notice costs.

 

Section 3.                                                   Purpose.

 

3.1.                                    Partnership Purpose. The purpose of the Partnership, subject in each case to the terms hereof, shall be, directly or indirectly, through Subsidiaries or otherwise, to pursue,

 

2

 

acquire and hold (a) pools or groups of mortgage loans (individually and collectively, the “Loans”) secured by residential real property (collectively, the “Collateral”), (b) residential real property which has been purchased by the Partnership (or a Subsidiary) or acquired through foreclosure, deed-in-lieu of foreclosure or other similar process or exercise of rights (the “REO”), and (c) to engage in all business activities of any nature relating to, or involving any or all of the foregoing, including without limitation, engaging in the business of acquiring, owning, operating, developing, renovating, repositioning, managing, leasing, selling, financing and refinancing all or any portion of the foregoing loans and other assets, and all other activities reasonably necessary to carry out such purpose.

 

3.2.                            Subsidiaries.  The Partnership intends to form one (1) or more wholly owned Subsidiaries for the purpose of acquiring and holding the Property. Each applicable Subsidiary that owns Property shall conduct the Partnership business with respect to such Property under the direction of the Partnership. Each Subsidiary shall be a Delaware limited partnership, Delaware limited liability company, a Delaware trust or a Delaware corporation, as directed by the General Partner, unless the General Partner shall determine otherwise.

 

Notwithstanding anything to the contrary contained in the organizational documents of any Subsidiary, no action shall be taken, sum expended, decision made or obligation incurred by any Subsidiary, except as directed, controlled, determined and approved by the General Partner on behalf of the Partnership.

 

Section 4.                                                   Intentionally Omitted.

 

Section 5.                                                   Capital Contributions, Percentage Interests and Capital Accounts.

 

5.1.                            Initial Capital Contributions.  Starwood has made an initial Capital Contribution to the Partnership in the amount of $90.00 and JVP has made an initial capital Contribution to the Partnership in the amount of $10.00. In addition to the foregoing, the Initial Acquisition has been approved by the Partners and the Capital Contributions required to consummate the Initial Acquisition shall be contributed no later than one business day before the closing of such acquisition. The aggregate amount of the initial Capital Contributions in the first sentence of this Section 5.1 plus the total Capital Contributions required of the Limited Partners to close the Initial Acquisition and fund working capital for the Partnership with respect to the Property acquired in the Initial Acquisition is set forth on Exhibit A attached hereto. The initial Percentage Interest of each Limited Partner as of the closing of the Initial Acquisition is also set forth on Exhibit A attached hereto.

 

5.2.                            Additional Capital Contributions.

 

(a)                                 Additional Capital Contributions may be called for from the Limited Partners by the General Partner by written notice to the Limited Partners from time to time as and to the extent capital is necessary (i) to effect investments in Investment Opportunities subsequent to the Initial Acquisition that have been approved by JVP and Starwood or (ii) to pay expenditures for the reasonable needs of the business (including the operating and administrative expenses of General Partner) which have been approved or directed by the General Partner in accordance with the provisions of this Agreement and the GP Agreement. It is anticipated that

 

3

 

all Capital Contributions required in connection with any Investment Opportunity will be made at the closing of the acquisition of such investment in accordance with the business plan and budget contained in the applicable Investment Memorandum. Notwithstanding the needs of the Partnership and with respect to the assets constituting the Initial Acquisition only, in no event (other than as set forth in Section 9.14) shall JVP be required to make Capital Contributions in excess of an aggregate of One Million Dollars ($1,000,000) (such maximum aggregate Capital Contributions amount by JVP, the “JVP Cap”) and the provisions of Section 5.2(b) shall not apply to contributions made by Starwood after JVP has reached the JVP Cap; provided, however, that the foregoing JVP Cap and suspension of Section 5.2(b) shall not apply with respect to investments in Investment Opportunities subsequent to the Initial Acquisition that have been approved by JVP and Starwood, in their respective sole discretion. Except as otherwise agreed in writing by the Partners, additional Capital Contributions shall be in an amount for each Limited Partner equal to the product of the amount of the aggregate Capital Contribution called for (such aggregate amount, the “Required Capital”) multiplied by such Limited Partner’s respective Percentage Interest, provided that if JVP’s share of the Required Capital amount shall cause the JVP Cap to be exceeded, JVP’s additional Capital Contribution requirement shall be limited by such JVP Cap and the deficit amount needed to satisfy the Required Capital shall be contributed by Starwood as part of its required Capital Contribution to satisfy the Required Capital. The Capital Contributions required to be made by JVP shall be contributed or advanced, as the case may be, in cash by JVP from its own sources (and shall not be borrowed or constitute proceeds from a Transfer of a direct interest in JVP or the Interest of JVP, but may be funded through the Transfer of indirect interests in JVP subject to continued compliance with the JVP Ownership/Control Requirement). Such additional Capital Contributions shall be payable by the Limited Partners to the Partnership on the date when the Capital Contribution is required, as set forth in a written request from the General Partner which, in the absence of a circumstance reasonably requiring the funds sooner, shall not be earlier than twenty (20) days from the date of such written request, and which shall be reasonably based upon the timeline for the use of such Additional Capital Contribution as determined in good faith by the General Partner. Notwithstanding anything herein to the contrary, if additional cash is needed by the Partnership to acquire Property which has been designated by Starwood as a Rental Pool Asset or to avoid or satisfy a Rental Pool Deficit or to support the (A) ownership, operation or management of any Rental Pool Asset prior to the date the such Rental Pool Asset is the subject of a foreclosure sale or otherwise assigned, sold, transferred, or distributed by the Partnership or (B) the costs of causing the foreclosure sale, assignment, sale, transfer or Distribution of the applicable Rental Pool Asset, any additional Capital Contributions made to satisfy such need shall be both determined in size (except for Rental Pool Deficits which must be fully funded) and made exclusively by Starwood, and Starwood shall provide written notice to each other Partner each time it makes an additional Capital Contribution in respect of the Rental Pool (each such Capital Contribution, a “Rental Pool Additional Contribution”).

 

(b)                                 If a Limited Partner (a “Noncontributing Partner”) fails to make a Capital Contribution equal to its required share of the Required Capital as provided in Section 5.2(a) within the time frame required therein (the amount of the failed contribution shall be the “Default Amount”), the other Limited Partner, provided that it has made (or is ready, willing and able to make) a Capital Contribution equal to its required share of the Required Capital (such amount, the “Contribution Amount”), in addition to any other remedies it may have

 

4

 

hereunder or at law (such Partner, a “Contributing Partner”), shall have one or more of the following remedies:

 

(i)                                     to advance (with written notice to General Partner of Contributing Partner’s election under this subparagraph (b)(i)) both the Contribution Amount and the Default Amount directly to the Partnership with such amounts accounted for in the following manner:  (A) the Contribution Amount shall be a Capital Contribution by the Contributing Partner to the Partnership and (B) the Default Amount shall be deemed a loan to the Noncontributing Partner and therefore constitute a debt owed by the Noncontributing Partner to the Contributing Partner (a “Default Loan”), provided that Noncontributing Partner shall be deemed to have contributed the proceeds of such Default Loan to the Partnership as a Capital Contribution.  Any Default Loan shall be evidenced by a promissory note in form reasonably satisfactory to the Contributing Partner and shall bear interest at the rate (the “Default Loan Rate”) equal to sixteen percent (16%) per annum, subject to adjustment as hereinafter provided in this Section 5.2(b)(i) and provided that if compliance with applicable law requires a lesser interest rate, the Default Loan Rate shall be the maximum rate permitted by law. Notwithstanding the foregoing sentence, in the event that on each date of a Distribution hereunder the Partnership IRR plus three percent (3%) (the “Partnership IRR Rate”) exceeds 16%, the Default Loan Rate shall be deemed to have been an amount equal to the Partnership IRR Rate, and, except with respect to interest payments that have theretofore already been made, interest payments shall be adjusted accordingly to reflect such higher interest rate for the entire remaining term of the applicable Default Loan. The Partnership IRR Rate shall be recalculated on the date of each Distribution under this Agreement, and if the Partnership IRR Rate is higher than the Default Loan Rate then in effect, the interest payment next due, and all accrued but unpaid interest, shall be recalculated using the most current Partnership IRR Rate as the Default Loan Rate. A Default Loan shall be prepayable, in whole or in part, at any time or from time to time without penalty. Any such Default Loans shall be with full recourse to the Noncontributing Partner and shall be secured by the Noncontributing Partner’s Interest including, without limitation, such Noncontributing Partner’s right to Distributions.  In furtherance thereof, upon the making of such Default Loan, the Noncontributing Partner hereby pledges, assigns and grants a security interest in its Interest to the Contributing Partner and agrees to execute such documents and statements reasonably requested by the Contributing Partner to further evidence and secure such security interest.  All Distributions to the Noncontributing Partner hereunder shall be applied first to payment of any interest due under any Default Loan and then to principal until all amounts due thereunder are paid in full. While any Default Loan is outstanding, the Partnership shall be obligated to pay directly to the Contributing Partner, for application to and until all Default Loans have been paid in full, the amount of (x) any Distributions payable to the Noncontributing Partner, and (y) any proceeds of the sale of the Noncontributing Partner’s Interest in the Partnership, but all such amounts paid to the Contributing Partner shall be deemed distributed to the Noncontributing Partner for all purposes of this Agreement;

 

(ii)                                  subject to any applicable thin capitalization limitations on indebtedness of the Partnership, to advance (with written notice to General Partner of Contributing Partner’s election under this subparagraph (b)(ii)) both the Contribution Amount and the Default Amount as a single loan to the Partnership (rather than a Capital Contribution) (a “Partnership Loan”), which Partnership Loan shall be evidenced by a promissory note in form reasonably satisfactory to the Contributing Partner and which Partnership Loan shall bear interest

 

5

 

at the Default Loan Rate, and be payable on a first priority basis by the Partnership from available Non-Rental Cash Flow and prior to any Distributions made to the Partners. If each Limited Partner has Partnership Loans outstanding, such Partnership Loans shall be payable to each Limited Partner in proportion to the outstanding balances of such Partnership Loans to each Limited Partner at the time of payment.  Any Partnership Loan proceeds advanced to the Partnership pursuant to this Section 5.2(b)(ii) shall not be treated as a Capital Contribution; or

 

(iii)                               in lieu of the remedies set forth in subparagraphs (i) or (ii), revoke (with written notice to General Partner of Contributing Partner’s election under this subparagraph (b)(iii)) its portion of the Required Capital, whereupon (A) the portion of the Required Capital actually delivered to the Partnership as an additional Capital Contribution shall be returned to Contributing Partner within ten (10) days with interest computed at the Default Loan Rate by the Partnership and deemed never made as a Capital Contribution and (B) the portion of the Required Capital actually delivered to the Partnership as an additional Capital Contribution made by the Noncontributing Partner, if any, shall be deemed revoked and returned within ten (10) days to the Noncontributing Partner and therefore deemed never made as a Capital Contribution.

 

(c)                                  Notwithstanding the foregoing provisions of this Section 5.2, no additional Capital Contributions shall be required from Starwood if (i) the Partnership or any other Person shall be in default (or with notice or the passage of time or both, would be in default) in any material respect under any loan, indenture, mortgage, lease, agreement or instrument to which the Partnership or any of its Subsidiaries is a party or by which the Partnership (or any of its Subsidiaries) or any of its properties or assets is or may be bound, (ii) the Partnership or any of its Subsidiaries (or General Partner (by or through the action of JVP), JVP or JVP Management) shall be insolvent or bankrupt or in the process of liquidation, termination or dissolution, (iii) the Partnership or any of its Subsidiaries (or General Partner (by or through the action of JVP), JVP or JVP Management) shall be subjected to any pending litigation (x) in which the amount in controversy exceeds $100,000, (y) which litigation is not being defended by an insurance company who would be responsible for the payment of any judgment in such litigation, and (z) which litigation if adversely determined could have a material adverse effect on JVP and/or the General Partner and/or could interfere with their ability to perform their obligations hereunder or under any Management Agreement, (iv) there has been a material adverse change in (including, but not limited to, the financial condition of) JVP, JVP Management and/or the General Partner (by or through the action of JVP) which, in Starwood’s reasonable judgment, prevents JVP, JVP Management and/or the General Partner from performing, or substantially interferes with their ability to perform, their obligations hereunder or under any Management Agreement, or (v) a JVP Change Event has occurred.  If any of the foregoing events shall have occurred and Starwood elects not to make a Capital Contribution on account thereof, then any other Partner which has made its pro rata share of such Capital Contribution shall be entitled to a return of such Capital Contribution from the Partnership.

 

5.3.                            Percentage Ownership Interest.

 

(a)                                 The Partners shall have initial percentage ownership interests (as the same are adjusted as provided in this Agreement, a “Percentage Interest”) in the Partnership of 99.326% to Starwood and 0.674% to JVP immediately following the Capital Contributions

 

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referenced in Section 5.1 and as shown on Exhibit A contributed in connection with closing the Initial Acquisition. From and after the date such initial Capital Contributions referenced in the immediately preceding sentence are made, each Partner’s respective Percentage Interest shall be adjusted from time to time on each date when additional Capital Contributions (other than Rental Pool Additional Contributions) are made. On any given date, (i)  JVP’s Percentage Interest shall equal a fraction (represented as a percentage) whereby the numerator of such fraction shall equal JVP’s aggregate Capital Contributions as of such date, and the denominator shall equal the aggregate Capital Contributions of all Partners less the aggregate Rental Pool Contributions of Starwood as of such date and (ii) Starwood’s Percentage Interest shall equal a fraction (represented as a percentage) whereby the numerator of such fraction shall equal Starwood’s aggregate Capital Contributions less the aggregate Rental Pool Contributions of Starwood as of such date, and the denominator shall equal the aggregate Capital Contributions of all Partners less the aggregate Rental Pool Contributions of Starwood as of such date. Percentage Interests shall not be adjusted by distributions made (or deemed made) to a Partner.

 

(b)                                 Within one (1) business day following the closing of the Initial Acquisition and consistent with Section 9.2, Starwood shall make its initial designation of Loans and REO acquired in the Initial Acquisition that are to be included in the Rental Pool (such initially designated assets, the “Initial Rental Pool”). Each Partner’s respective Percentage Interest shall be adjusted concurrently with Starwood’s designation of the Initial Rental Pool, and the amount of the Rental Pool Contributions associated with such Initial Rental Pool shall be determined in accordance with Section 9.2.

 

5.4.                            Return of Capital Contribution. Except as approved by the Partners, no Partner shall have any right to withdraw or make a demand for withdrawal of the balance reflected in such Partner’s Capital Account (as determined under Section 5.6) until the full and complete winding up and liquidation of the business of the Partnership.

 

5.5.                            No Interest on Capital. Interest earned on Partnership funds shall inure solely to the benefit of the Partnership, and no interest shall be paid upon any Capital Contributions or upon any undistributed or reinvested income or profits of the Partnership.

 

5.6.                            Capital Accounts. A separate capital account (the “Capital Account”) shall be maintained for each Partner in accordance with Section 704(b) of the Code and Section 1.704-1(b)(2)(iv) of the Regulations. Without limiting the foregoing, the Capital Account of each Partner shall be increased by (i) the amount of any Capital Contributions made by such Partner, (ii) the amount of Net Income allocated to such Partner and (iii) the amount of any items of income or profits, if any, which are specially allocated to such Partner pursuant to Section 7.2 and not otherwise taken into account in this Section 5.6.  The Capital Account of each Partner shall be reduced by (i) the amount of any cash or Gross Asset Value of any property distributed to the Partner by the Partnership (net of liabilities secured by such distributed property that the Partner is considered to assume or take subject to), (ii) the amount of Net Loss allocated to the Partner, and (iii) the amount of any items of expenses or losses, if any, specially allocated to such Partner pursuant to Section 7.2 and not otherwise taken into account in this Section 5.6. The Capital Accounts of the Partners shall not be increased or decreased pursuant to Regulations Section 1.704-1(b)(2)(iv)(f) to reflect a revaluation of the Partnership’s assets on the Partnership’s books in connection with any contribution of money or other property to the

 

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Partnership pursuant to Section 5.2 by existing Partners.  If any Non-Rental Pool Property is distributed to a Partner in lieu of cash, the Capital Accounts of the Partners shall be adjusted as if such property had instead been sold by the Partnership for a price equal to its Net Market Value, the gain or loss allocated pursuant to Section 7, and the proceeds distributed. If any Rental Pool Asset is distributed to Starwood in accordance with Section 6.5, then Starwood’s Capital Account shall be reduced, as a result of such Distribution, by an amount equal to the Rental Pool Value of such Rental Pool Asset. No Partner shall be obligated to restore any negative balance in its Capital Account. No Partner shall be compensated for any positive balance in its Capital Account except as otherwise expressly provided herein. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with the provisions of Regulations Section 1.704-1(b)(2) and shall be interpreted and applied in a manner consistent with such Regulations.

 

5.7.                            New Partners. Subject to the terms of Section 12, the Partnership, with the consent of the General Partner and JVP, may issue additional Interests and thereby admit a new Limited Partner or Limited Partners, as the case may be, to the Partnership only if such new Partner (i) has delivered to the Partnership its Capital Contribution, has agreed in writing to be bound by the terms of this Agreement by becoming a party hereto, and (ii) has delivered such additional documentation as the General Partner and JVP shall reasonably require to so admit such new Partner to the Partnership.  Notwithstanding anything in this Section 5.7 to the contrary, if any additional Interest is to be issued or a new Limited Partner is to be admitted pursuant to a Transfer of Interests, the terms of Section 12 shall supersede the provisions of this Section 5.7.

 

5.8.                            Equity Commitment. Notwithstanding anything to the contrary in this Agreement, under no circumstances shall any Partner be obligated to make any Capital Contribution if such Capital Contribution would cause the Partners’ aggregate total Capital Contributions, without regard to Distributions, to exceed the Equity Commitment.

 

Section 6.                                                   Distributions.

 

6.1.                            Distribution of Distributable Funds.  Except as provided in Sections 5.2(b), 6.2, 6.3, 6.4 or 13.3 or otherwise provided hereunder, Distributable Funds, if any, shall be distributed to the Partners quarterly or from time to time as determined by the General Partner.  Such Distributable Funds shall be distributed in the following order and priority (in each case commencing with clause (a) followed in order by clauses (b) and (c) below, to the extent applicable at the time of such distribution, after taking into account all prior Capital Contributions and distributions, including without limitation, any Capital Contributions made since the date of the immediately preceding distribution):

 

(a)                                 First, to the Partners in proportion to their respective Percentage Interests until both of Starwood and JVP shall realize through Distributions actually received an 10% Internal Rate of Return (the amount necessary at any time to be distributed to Starwood and JVP to result in such realization by Starwood and JVP of an 10% Internal Rate of Return is herein referred to as the “First Priority Amount”); provided, that if either Partner receives its First Priority Amount before the other Partner, then 100% of Distributions shall be made to such other Partner until it has also received its First Priority Amount;

 

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(b)                                 Second, the balance, if any, of such Distributable Funds remaining after the distributions pursuant to Section 6.1(a) shall be distributed to the Partners in proportion to their respective Second Tier Percentage Interests until, and to the extent necessary such that, Starwood and JVP shall realize through all Distributions theretofore received under this subsection (b) and subsection (a) above a 20% Internal Rate of Return (the amount, in excess of the First Priority Amount, necessary at any time to be distributed to Starwood and JVP to result in such realization by Starwood and JVP of a 20% Internal Rate of Return in the aggregate (i.e., an aggregate return including, and not in addition to, the First Priority Amount) is herein referred to as the “Second Priority Amount”); provided, that if either Partner receives its Second Priority Amount before the other Partner, then 100% of Distributions shall be made to such other Partner until it has also received its Second Priority Amount; and

 

(c)                                  Third, the balance, if any, of such Distributable Funds remaining after the distributions pursuant to Sections 6.1(a) and (b) shall be distributed to the Partners in proportion to their respective Third Tier Percentage Interests.

 

For purposes of determining the Internal Rates of Return hereunder and a Partner’s right to receive Distributable Funds, if a Loan, any Collateral or any REO is sold by a TRS Subsidiary of the Partnership, then the federal and state income tax liability (the “TRS Tax Liability”) paid by such TRS with respect to any such asset (as reasonably determined by Starwood), excluding income tax liabilities paid with respect to any Rental Pool Asset, shall be treated as an amount distributed to Starwood pursuant to Section 6.1 for purposes of determining the distribution priorities and the Internal Rates of Return hereunder (i.e., for purposes of computing the amount distributable to JVP, the Distributable Funds will be deemed to be increased by an amount equal to the TRS Tax Liability). Upon request by JVP, Starwood shall reasonably cooperate with JVP to substantiate Starwood’s determination of the TRS Tax Liability amount.

 

6.2.                            Certain Distribution Exceptions.

 

(a)                                 Any Distributions otherwise payable to a Partner under this Agreement shall be applied first to satisfy amounts due and payable on account of the indemnity and/or contribution obligations and/or any other obligations, including, without limitation, any Default Loan or other similar obligations, of such Partner under this Agreement and/or any other Collateral Agreement delivered by such Partner (or its Affiliate) to the Partnership or any other Partner (or its Affiliate) but shall be deemed distributed to such Partner for purposes of this Agreement.

 

(b)                                 Notwithstanding Section 6.1, any Rental Pool Deficits and any Excess Compliance Costs paid by the Partnership will be deemed to be in satisfaction of amounts otherwise distributable to Starwood pursuant to Section 6.1 and will reduce the amounts that would subsequently otherwise have been distributed to Starwood pursuant to Section 6.1. For avoidance of doubt, the Partners intend that JVP shall receive the same amount of Distributions pursuant to Section 6.1 that it would have received had the Partnership not paid or incurred any Rental Pool Deficits or any Excess Compliance Costs.

 

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6.3.                            Tax Distribution. To the extent Distributable Funds are available (taking into account any debt agreements to which the Partnership is subject), the Partnership shall distribute to JVP and Starwood, after the end of each Fiscal Year and prior to April 15 of the subsequent Fiscal Year, an amount (“Tax Distribution”) equal to the product of (x) the excess of (i) the net taxable income allocated by the Partnership to such Partner for such Fiscal Year over (ii) the net taxable loss allocated by the Partnership to such Partner in all prior Fiscal Years to the extent such net taxable losses have not already been taken into account under this Section 6.3 in calculating Tax Distributions in prior Fiscal Years, multiplied by (y) the maximum combined federal and state income and capital gains tax rate applicable to individuals resident in California, taking into account the deduction from federal taxable income for state taxes and the availability of reduced income tax rates applicable to net capital gain allocable by the Partnership to such Partner for such Fiscal Year, as determined by the General Partner; provided, however, that for purposes of calculating any Tax Distribution to Starwood, allocations attributable to Rental Pool Assets pursuant to Section 7.2(g) shall be disregarded. To the extent that such Tax Distributions increase the total amount of distributions beyond the amount to which a Partner would be entitled under this Section 6 in the absence of this Section 6.3, the excess amount of such distributions shall be considered a prepayment of future distributions (e.g., Management Incentive Distributions) allocable and made to such Partner for all purposes of this Agreement. Tax Distributions, if made, shall be made prior to a distribution of Distributable Funds pursuant to Section 6.1; provided, however, that for purposes of determining the Tax Distributions for a Fiscal Year, the excess of (i) the amount of aggregate distributions pursuant to Section 6.1 for all prior Fiscal Years over (ii) the aggregate Tax Distributions for all prior Fiscal Years of the Partnership shall be treated as a distribution in such Fiscal Year. If the amount of available funds is insufficient to make the full amount of the Tax Distribution pursuant to this Section 6.3, such distributions shall be made to JVP and Starwood pro rata in proportion to the amounts otherwise available to be distributed to such Partners pursuant to this Section 6.3.

 

6.4.                    Adjustments to Management Incentive Distributions.

 

(a)                                 Notwithstanding the provisions of Sections 6.1 and 6.3 hereof, if Starwood determines in its reasonable discretion that Starwood may not achieve at any time any of its 10% Internal Rate of Return, the Management Incentive Distributions and Tax Distributions that would be distributed to JVP pursuant to Section 6.1 or 6.3 hereof, but for the provisions of this Section 6.4(a), shall be retained by the Partnership. Amounts retained by the Partnership pursuant to this Section 6.4(a) shall be included in Distributable Funds for purposes of determining future distributions pursuant to Section 6.1 and 6.3 hereof (and shall also be subject to the terms of this Section 6.4(a)).

 

(b)                                 Notwithstanding the provisions of Section 6.1 hereof, if a JVP Change Event shall have occurred that the General Partner determines in good faith adversely affects the Partnership, other than a Non-Promote Loss JV Agreement Default, the Management Incentive Distributions that would be distributed to JVP pursuant to Section 6.1 hereof but for the provisions of this Section 6.4(b), shall not be distributed to JVP, but shall be distributed to all of the Partners in proportion to their Percentage Interests (and JVP shall not be entitled to any further Tax Distributions). In addition, if a JVP Change Event shall have occurred, other than a Non-Promote Loss JV Agreement Default, and JVP is relieved of any of JVP’s duties under the GP Agreement, or the General Partner elects to relieve JVP Management as regards the asset

 

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management services it provides to the Partnership, and an independent manager is engaged to replace JVP and/or JVP Management, as applicable, with respect thereto, and such independent manager requires the payment of a carried interest in consideration of the performance of its duties, the General Partner may (i) allocate the Management Incentive Distributions (or pay an equivalent amount as a fee and eliminating Management Incentive Distributions altogether) to such independent manager to the extent necessary to compensate such independent manager, and/or (ii) with respect to the replacement of JVP Management’s asset management services, admit such independent manager as a Limited Partner.

 

(c)                                  In the event that distributions are made to JVP as Management Incentive Distributions and/or as Tax Distributions, the Partners shall make appropriate adjustments (and JVP shall be obligated to promptly return amounts previously distributed to JVP hereunder up to an amount equal to its aggregate Management Incentive Distributions (including Tax Distributions which are, for all purposes of this Agreement, treated as distributions made to JVP pursuant to Section 6.1)) to the extent required to cause Starwood to receive its 10% Internal Rate of Return, taking into account the amount and timing of prior Distributions and all Capital Contributions (excluding Rental Pool Contributions). Notwithstanding anything to the contrary in this Agreement, from and after the date on which JVP returns any amounts previously distributed pursuant to this Section 6.4(c), each subsequent distribution pursuant to Section 6.1 shall be provisional and subject to recalculation of the appropriate amount of distributions to be made to the Partners taking into account the aggregate distributions to the Partners from the inception of the Partnership and the aggregate refunded payments by JVP from the inception of the Partnership (i.e., so that JVP shall have received, net of any refunded payments, the Management Incentive Distributions it would have received if all prior distributions pursuant to Section 6.1 and the current distribution had been made on the date of the recalculation).

 

(d)                                 If JVP does not receive or is not entitled to retain all or any part of any prior Distributions by reason of the application of this Section 6.4, then, to the extent permissible under Sections 704(b) of the Code and the Regulations promulgated thereunder, appropriate adjustments shall be made in the allocations of Net Income and Net Loss pursuant to Section 7 hereof.  Any Net Income attributable to any portion of the Management Incentive Distributions retained by the Partnership pursuant to the provisions of Section 6.4 shall be allocated to JVP, unless and until said portion of the Management Incentive Distributions shall be distributed to Starwood, in which event said Net Income shall be reallocated to Starwood.

 

6.5.                            Distributions Related to Rental Pool.

 

(a)                                 Rental Pool Cash Flow, if any, shall be distributed to Starwood from time to time as determined solely by Starwood.

 

(b)                                 In the discretion of Starwood, any Rental Pool Asset may be distributed in kind to Starwood, in which case Starwood’s Capital Account shall be charged with an amount equal to the Rental Pool Value of such Rental Pool Asset.

 

6.6.                            Distributions in Kind of Non-Rental Pool Property.  In the discretion of the General Partner, Distributable Funds may be distributed to the Partners in cash or in Non-

 

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Rental Pool Property and Partners may be compelled to accept a distribution of any Non-Rental Pool Property even if the percentage of that asset distributed to it exceeds a percentage of that asset that is equal to the percentage in which such Partner shares in distributions from the Partnership. In the case of all Non-Rental Pool Property to be distributed in kind, (i) the amount of the Distribution shall equal the Net Market Value of the Non-Rental Pool Property distributed, and (ii) to the extent deemed in good faith to be reasonably practicable by the General Partner, each Partner shall receive the same proportion of Loans, REO and other Non-Rental Pool Property located in each state.

 

Section 7.                                           Allocations.

 

7.1.                            Allocation of Net Income and Net Losses. Except as otherwise provided in Section 7.2 or otherwise in this Agreement, Net Income and Net Losses and, to the extent necessary, individual items of income, gain, loss or deduction of the Partnership for each Allocation Period shall be allocated among the Partners in a manner such that, after giving effect to the special allocations set forth in Section 7.2, the Capital Account of each Partner, immediately after making such allocation, is, as nearly as possible, equal (proportionately) to (i) the distributions that would be made to such Partner pursuant to Section 6.1 (and to Starwood pursuant to Section 6.5) if the Partnership were dissolved, its affairs wound up and its assets sold for cash equal to their Gross Asset Value, all Partnership liabilities were satisfied (limited with respect to each nonrecourse liability to the Gross Asset Value of the assets securing such liability), and the net assets of the Partnership were distributed in accordance with Section 6.1 (and to Starwood pursuant to Section 6.5) (taking into account any adjustments to amounts distributed or distributable to the Partners in accordance with Section 6.4) to the Partners immediately after making such allocation, minus (ii) such Partner’s share of Minimum Gain (including Minimum Gain attributable to Partner Nonrecourse Debt), computed immediately prior to the hypothetical sale of assets. Notwithstanding the foregoing, the General Partner may make such allocations as it deems reasonably necessary to give economic effect to the provisions of this Agreement taking into account such facts and circumstances as the General Partner deems reasonably necessary or appropriate for this purpose.

 

7.2.                            Special Allocations.

 

(a)                                 Notwithstanding any other provision of this Section 7, Net Losses, deductions and other expenses attributable to a Partner Nonrecourse Debt shall be allocated to the Partner that bears the economic risk of loss for such debt. If more than one Partner bears the economic risk of loss for a Partner Nonrecourse Debt, any Partner Nonrecourse Deduction attributable to such debt shall be allocated among such Partners in accordance with the ratios in which the Partners share the economic risk of loss for such Partner Nonrecourse Debt. If there is a net decrease during an Allocation Period of Minimum Gain attributable to a Partner Nonrecourse Debt, then Partnership income and gain for such Allocation Period (and, if necessary, for subsequent Allocation Periods) shall be allocated in accordance with the Regulations under Code Section 704(b).

 

(b)                                 Notwithstanding any other provision of this Section 7, if there is a net decrease in Minimum Gain during any Allocation Period, each Partner shall be allocated income and gain for such Allocation Period (and, if necessary, for subsequent Allocation

 

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Periods) in the amounts and of such character in order to provide for the allocation of such decrease in Minimum Gain as determined according to the Treasury Regulations under Code Section 704(b). This Section 7.2(b) is intended to be a minimum gain chargeback provision that complies with the requirements of Regulations Section 1.704-2(f) and shall be interpreted in a manner consistent therewith.

 

(c)                                  If, despite the limitations set forth in subsections (a) and (b) above, any Partner has an Adjusted Capital Account Deficit as of the end of any Allocation Period, computed after the application of subsections (a) and (b) above but before the application of any other provisions of this Section 7, and determined as set forth in Regulations Section 1.704-1(b)(2)(d)(4)-(6), then income and gains for such Allocation Period shall be allocated to all such Partners in proportion to, and to the extent of, such Adjusted Capital Account Deficits. This Section 7.2(c) is intended to be a qualified income offset provision that complies with the requirements of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent therewith.

 

(d)                                 Any special allocations pursuant to Sections 7.2(a), 7.2(b) or 7.2(c) shall be taken into account in computing subsequent allocations pursuant to this Section 7, so that the net amount of any items so allocated and all other items allocated pursuant to this Section 7 shall, to the extent possible, be equal to the net amount that would have been allocated to each such Partner pursuant to this Section 7 if such special allocations had not been made.

 

(e)                                  In no event shall any Net Losses be allocated to a Partner, to the extent that it would result in such Partner having an Adjusted Capital Account Deficit at the end of any Allocation Period, if any other Partner has a positive adjusted Capital Account balance. Instead, such Net Losses shall be reallocated to the Partners, pro rata, in accordance with their positive adjusted Capital Account balances. The foregoing reallocation of Losses to a Partner with a positive Capital Account balance shall remain in effect only until no Partner has a positive adjusted Capital Account balance. With respect to each Allocation Period thereafter, 100% of Net Income shall be allocated to such other Partners up to the aggregate of, and in proportion to, any Net Losses previously allocated to such Partners in accordance with this Section 7.2(e) in the reverse order in which such Net Losses were allocated.

 

(f)                                   If, in spite of the General Partner’s good faith efforts to the contrary, prior allocations of Net Income do not correspond to subsequent distributions made under Section 6.1 (due, for example, to a delay in the time at which such distributions are made), then the General Partner shall allocate Net Income or Net Losses (or items of income, gain, loss or deduction) recognized in subsequent years among the Limited Partners in such manner as shall, in the General Partner’s reasonable discretion, eliminate as rapidly as possible the disparity between the prior allocations of Net Income and the subsequent distributions.

 

(g)                                  Notwithstanding anything to the contrary in this Agreement, the Partners agree that Starwood shall receive all Distributions (other than Excluded Rental Pool Cash) in connection with Rental Pool Assets. Accordingly, all Net Income, Net Loss (including Depreciation), and corresponding items of income, gain, loss or deduction for federal income tax purposes, incurred by the Partnership solely as a result of the purchase, ownership, enforcement, leasing, financing, sale, assignment, transfer or in kind distribution of Rental Pool Assets, shall

 

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be allocable solely to Starwood; provided, however, that such Net Income and corresponding items of income and gain shall not include Net Income and corresponding items of income and gain incurred with respect to Excluded Rental Pool Cash.

 

7.3.                            Changes in Proportionate Interests. If during any Allocation Period there is a relative change among the relative Capital Contributions of the Partners, then Net Income, Net Losses and other Partnership items for such Allocation Period shall be allocated according to the varying interests of the Partners pursuant to an “interim closing of the books” method as described in Regulations Section 1.706-1(c)(2)(ii).

 

7.4.                            U.S. Tax Allocations.

 

(a)                                 Subject to Section 704(c) of the Code, for U.S. federal, state and local income tax purposes, all items of Partnership taxable income, gain, loss, deduction and credit shall be determined in accordance with Code Section 703, and the Partners’ distributive shares of such items for purposes of Code Section 702 shall be determined according to their respective shares of Net Income or Net Losses (or items of income, gain, loss and deduction specially allocated pursuant to Section 7.2) to which such items relate.

 

(b)                                 Code Section 704(c). In accordance with Code Section 704(c) and the regulations promulgated thereunder, income and loss with respect to any property contributed to the capital of the Partnership (including, if the property so contributed constitutes a partnership interest, the applicable distributive share of each item of income, gain, loss, expense and other items attributable to such partnership interest whether expressly so allocated or reflected in partnership allocations) shall, solely for U.S. federal income tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for U.S. federal income tax purposes and its Agreed Upon Value at the time of contribution. Such allocation shall be made in accordance with any method set forth in Regulations Section 1.704-3 as determined by the General Partner.

 

Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement.  Allocations pursuant to this Section 7.4.  are solely for purposes of U.S. federal, state and local income taxes and shall not affect, or in any way be taken into account in computing, any Partner’s share of Net Income, Net Loss, other items or distributions pursuant to any provisions of this Agreement.

 

Section 8.                                           Books, Records, Tax Matters and Bank Accounts.

 

8.1.                            Books and Records. The books and records of account of the Partnership shall be maintained in accordance with generally accepted accounting principles in the United States, consistently applied and shall be reconciled to comply with the methods followed by the Partnership for U.S. Federal income tax purposes, consistently applied. The books and records shall be maintained at the Partnership’s principal office or at a location designated by the General Partner, and all such books and records (and the dealings and other affairs of the Partnership and its Subsidiaries) shall be available to any Partner at such location for review, investigation, audit and copying, at such Partner’s sole cost and expense, during normal business

 

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hours on at least twenty-four (24) hours prior notice.  In connection with such review, investigation or audit, such Partner (and its representatives and agents) shall have the unfettered right to meet and consult with the any and all employees of JVP and JVP Management (or any of its Affiliates, representatives, agents, officers or members) and to attend meetings and independently meet and consult with any and all third parties (including, without limitation, governmental agencies and/or lenders) having dealings or any other relationship with the Partnership or any of its subsidiaries or with JVP or JVP Management in respect of the Partnership or any of its Subsidiaries at such Partner’s sole cost and expense.

 

8.2.                            Reports and Financial Statements.

 

(a)                                 The General Partner shall cause each Partner to be furnished with the reports and financial statements deemed appropriate by the General Partner.

 

(b)                                 The actual and reasonable expenses incurred in connection with the preparation of such reports and statements shall be reimbursed by the Partnership to the General Partner only as and to the extent specifically provided for under the annual Budget prepared and approved by the General Partner.

 

8.3.                            Tax Matters Partner. The General Partner is hereby designated as the “tax matters partner” of the Partnership and the Subsidiaries, as defined in Section 6231(a)(7) of the Code (the “Tax Matters Partner”) and shall prepare or cause to be prepared all income and other tax returns of the Partnership and the Subsidiaries pursuant to the terms and conditions of Section 8.5. Except as otherwise provided in this Agreement, all elections required or permitted to be made by the Partnership and the Subsidiaries under the Code or state tax law shall be timely determined and made by the General Partner. The Partners intend that the Partnership be treated as a partnership for U.S. federal, state and local tax purposes, and the Partners will not elect or authorize any person to elect to change the status of the Partnership from that of a partnership for U.S. federal, state and local income tax purposes.  Upon the request of any Partner, the Partnership and each Subsidiary shall make an election pursuant to Code Section 754 to adjust the basis of the Partnership’s property in the manner provided in Code Sections 734(b) and 743(b). The Partnership hereby indemnifies and holds harmless the General Partner from and against any claim, loss, expense, liability, action or damage resulting from its acting or its failure to take any action as the “tax matters partner” of the Partnership and the Subsidiaries, provided that any such action or failure to act does not constitute gross negligence or willful misconduct.

 

8.4.                            Bank Accounts. All funds of the Partnership are to be deposited in the Partnership’s name in such bank account or accounts as may be designated by the General Partner and shall be withdrawn on the signature of such Person or Persons as the General Partner may authorize.

 

8.5.                            Tax Returns. The General Partner shall prepare or cause to be prepared all income and other tax returns of the Partnership and the Subsidiaries required by applicable law and shall cause the same to be filed in a timely manner (including extensions).  All elections under such returns shall be made by the General Partner. To the extent set forth in the Annual Business Plan, all third-party, out-of-pocket costs and expenses incurred by the General Partner

 

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under this Section 8.5 shall be borne by the Partnership. The General Partner shall provide a draft of such tax returns to JVP for review and comment by JVP (but JVP’s approval of such tax returns shall not be required) at least fifteen (15) days prior to filing.

 

8.6.                            Background Checks. Without limiting the foregoing provisions of this Section 8, the General Partner shall cause to be delivered to Starwood all information requested by Starwood to satisfy its reporting and audit obligations to its investors. All costs and expenses incurred by the General Partner under this Section 8.6 shall be borne by the Partnership.

 

Section 9.                                           Management and Operations.

 

9.1.                            Management.

 

(a)                                 Except as expressly otherwise provided herein, the management, control and operation of the Partnership, all matters with respect to the Annual Business Plan and all matters with respect to the annual Budget shall be vested exclusively in the General Partner, and the General Partner shall exercise all powers necessary and convenient for the purposes of the Partnership on behalf and in the name of the Partnership and the Property, subject to and in accordance with this Agreement.

 

(b)                                 Except as otherwise provided herein, no Limited Partner shall have the right to, and no Limited Partner shall, take part in the management or affairs of the Partnership, nor in any event shall any Limited Partner have the power to act for, or bind, the Partnership or in any way unless delegated such power by the General Partner.

 

(c)                                  The exercise by any Limited Partner of any right or power conferred herein shall not be construed to constitute participation by such Limited Partner in the control of the business of the Partnership so as to make such Limited Partner liable as a general partner for the debts and obligations of the Partnership for purposes of the Act. Upon the request of the General Partner, the Limited Partners shall confirm in writing the authorization of the General Partner to take any action on behalf of and in the name of the Partnership.

 

(d)                                 Each Partner agrees that, to the fullest extent permitted by applicable law and except as otherwise permitted herein, the approval of any proposed action of or relating to the Partnership by the General Partner as provided herein shall bind each Partner and shall have the same legal effect as the approval of each Partner of such action.

 

9.2.                            Rental Pool.  Starwood desires to acquire the benefits and burdens of certain Property that Starwood desires and intends to convert to or hold for rental property purposes. Notwithstanding anything herein to the contrary, Starwood shall have the exclusive right, exercisable in its sole and absolute discretion at or before the closing of the Partnership’s purchase of a pool of Loans and REO, to designate any of the REO and Loans being purchased by the Partnership as property that shall be converted to or held for rental property purposes (all such designated Loans and REO, collectively, the “Rental Pool”, and individually, a “Rental Pool Asset”), provided Starwood delivers written notice to the other Partners of each such designation at or before such closing. In connection with the closing of the Initial Acquisition, the initial Rental Pool and list of designated Rental Pool Assets (with the BPO for each such asset) is set forth on Exhibit E attached hereto and made a part hereof. Each designation of a

 

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Loan or REO as a Rental Pool Asset shall be irrevocable and may not thereafter be changed by Starwood. Except with respect to Excluded Rental Pool Cash, the Partners agree that with respect to any Rental Pool Asset: JVP and the General Partner will not participate in the profits or losses of such Rental Pool Asset; all of the profits or losses from such Rental Pool Asset will be allocated to Starwood only; all of the economic benefits and all direct and or allocable share of all indirect costs attributable to such Rental Pool Asset will be for Starwood’s account (including all Rental Pool Expenditures); and all capital requirements for such Rental Pool Asset must be provided by Starwood. Except with respect to Excluded Rental Pool Cash, the Partners further agree that: the capital requirements and profits and losses attributable to the Rental Pool will not be taken into account in determining the profits or losses and Distributions to be allocated or paid to JVP; and Starwood will be solely responsible for the management of the Rental Pool.  To carry out the Partners’ intent with respect to this subject, the following provisions apply with respect to the Rental Pool:

 

(a)                                 At Starwood’s option only, any Rental Pool Asset may (i) continue to be owned by the Partnership in accordance with the provisions hereof, or (ii) be distributed to Starwood in accordance with Section 6.5(b), or (iii) be sold by the Partnership, as directed by Starwood, to Starwood, an Affiliate of Starwood or any other Person.

 

(b)                                 The management, control and operation of the Partnership with respect to each Rental Pool Asset shall be vested exclusively in Starwood, and Starwood releases JVP and its Affiliates from any responsibilities or obligations with respect to such Property.

 

(c)                                          Starwood must make Rental Pool Additional Contributions within 15 days after the end of each month in which the Partnership incurs a Rental Pool Deficit in an amount sufficient to satisfy such Rental Pool Deficit.  As provided in Section 5.2, no Partner may demand that any additional Capital Contributions be made by JVP with respect to investments in or expenditures for a Rental Pool Asset, and Starwood shall contribute all Rental Pool Additional Contributions.

 

(d)                                 The Partnership and each of the other Partners, to the fullest extent permitted under Delaware law, hereby waives its right to demand and hereby releases Starwood from any and all fiduciary duties Starwood might otherwise owe such other Partner or the Partnership in connection with (i) Starwood’s right to designate any Property as part of the Rental Pool and (ii) Starwood’s right to control the management and operation of the Partnership with respect to all decisions made with respect to the Rental Pool through (and after) the actual date of foreclosure sale, assignment, sale, transfer, or Distribution in kind of such assets by the Partnership, as provided in subsection (a) above.

 

(e)                                  In consideration of Starwood’s rights hereunder with respect to the right to designate the Rental Pool and thereafter control such Rental Pool, Starwood has agreed to pay JVP a fee with respect to each Property designated part of the Rental Pool. The complete terms regarding the payment of such fee are further set forth in that certain Rental Pool Agreement dated as of the date hereof and made between Starwood, JVP and SRP Sub, LLC (a Starwood Affiliate) (the “Rental Pool Agreement”).

 

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9.3.                            Annual Business Plan. The General Partner shall endeavor to operate the Partnership in reasonable conformance with the Annual Business Plan. No material changes or departures from any item in an Annual Business Plan shall be made by the Partnership, except at the direction, and with the prior approval, of the General Partner.

 

9.4.                            Implementation of Plan.  The General Partner shall, subject to the limitations contained herein, and the availability of operating revenues, implement the then applicable Annual Business Plan. Nothing contained herein shall in any way diminish the obligations or duties of the General Partner hereunder.

 

9.5.                            Affiliate Transactions.  No agreement, transaction or arrangement (including, but not limited to, payments of compensation and purchases and sales of property) shall be entered into by the Partnership or any Subsidiary with a Partner or any Affiliate of a Partner and no decision shall be made in respect of any such agreement, transaction or arrangement (including, without limitation, the enforcement or termination thereof) or any other matter relating to any dealings between the Partnership and such Partner or Affiliate unless such agreement, transaction or decision shall have been approved in writing by the General Partner and the non-Affiliated Partners; provided, however, that none of the following types of agreements, transactions or arrangements between the Partnership or any Subsidiary and a Partner or any Affiliate of a Partner shall require such consent of the General Partner and the non-Affiliated Partners: (a) any agreement, transaction or arrangement involving the Rental Pool Assets, and (b) any agreement, transaction or arrangement involving a Starwood Affiliate which agreement, transaction or arrangement is entered into by Starwood in connection with its REIT and TRS organizational, reporting or operational requirements, as generally described in Section 9.11 below.  Without limiting the foregoing, any such agreement, transaction or other matter shall be on terms and conditions at least as favorable to the Partnership as the terms and conditions which would be available in an arm’s length transaction with a Person which is not an Affiliate, be terminable on fifteen (15) days’ notice without penalty, and the terms and conditions of such agreement, transaction or other matter shall be fully disclosed to all Partners prior to the execution, delivery and/or consummation thereof and approval by the General Partner and non-Affiliated Partners thereon. Further, the written approval of Starwood shall be required prior to the use of the name “Starwood” in connection with any matter or transaction.

 

9.6.                            Assets Held by Subsidiaries. Any references to assets or Property held by the Partnership or any TRS or TRS Subsidiary of the Partnership shall include assets or Property held by any Subsidiary of the Partnership or such TRS, including assets held by a trustee on behalf of PrimeStar-H Fund I Trust or PrimeStar-F Fund I LLC, and assets held by PrimeStar-H Fund I LLC and PrimeStar-F Fund I LLC. All provisions in this Agreement shall be interpreted in a manner to reflect the foregoing.

 

9.7.                            Investment.

 

(a)                                 The General Partner shall be vested with the sole right to seek, identify, diligence and evaluate Investment Opportunities for the Partnership. Once the General Partner has determined to pursue an Investment Opportunity it shall deliver an Investment Memorandum to the Partners.

 

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(b)                                 Notwithstanding anything to the contrary in this Agreement, under no circumstances shall any Partner be obligated to make any Capital Contribution in respect of any Investment Opportunity (i.e., as opposed to Non-Rental Pool Property owned by the Partnership) after the expiration of the Investment Period, other than with respect to any Investment Opportunity acquired pursuant to an Investment Memorandum delivered by the General Partner to the Partners during the Investment Period.

 

(c)                                  Except as expressly provided in the GP Agreement, JVP agrees that all Investment Opportunities for which the Partnership’s (or any Subsidiary’s) Projected Basis in the applicable Non-Rental Pool Property would be at least Twenty Million Dollars ($20,000,000) (an “Exclusive Opportunity”) shall be exclusive to the Partnership, and that none of JVP, any member of the JVP Group, any of the Key Individuals or their respective Affiliates shall pursue, acquire or invest in an Exclusive Opportunity.

 

(d)                                 With respect to costs and expenses incurred by the General Partner in the pursuit of an Investment Opportunity, the Partnership will reimburse the General Partner for such costs and expenses to the extent incurred in accordance with the budget included in the applicable Investment Memorandum or otherwise approved by the General Partner.  The Partnership will not reimburse the Limited Partners with respect to any cost or expense such Limited Partner incurs in the pursuit of an Investment Opportunity.

 

9.8.                            Limitation on Actions of Partners; Binding Authority. No Limited Partner shall, without the prior written consent of the General Partner, take any action on behalf of, or in the name of, the Partnership, or enter into any contract, agreement, commitment or obligation binding upon the Partnership, or, in its capacity as a Partner of the Partnership, perform any act in any way relating to the Partnership or the Partnership’s assets, except in a manner and to the extent permitted under and consistent with the provisions of this Agreement.

 

9.9.                            Organization of JVP.

 

(a)                                 JVP hereby represents, warrants and covenants that (i) JVP shall at all times be owned at least fifty-one percent (51%), and controlled, directly or indirectly, by the Key Individuals; (ii) the Key Individuals shall be the only Persons having the right (as and to the extent set forth herein) on behalf of JVP to make decisions affecting the Partnership or its Subsidiaries or its Properties; (iii) the Key Individuals shall remain actively involved in the day to day management of JVP and engaged in the decision making process of JVP; (iv) the Shareholders of JVP as of the date hereof are as set forth in Exhibit C attached hereto and made a part hereof; and (v) it will not permit any Transfer, whether legal or beneficial, of any interest in or ownership of JVP, except as expressly provided in Section 5.2(a).

 

(b)                                 JVP agrees that in the event of the criminal indictment or conviction of any member of the JVP Group (or principal thereof), or the occurrence of any JVP Change Event, JVP shall take such steps as may be necessary to ensure that the individual or entity who or which is the subject of such indictment or conviction, or act or event giving rise to a JVP Change Event, has no direct or indirect involvement in the business or affairs of the Partnership or with any assets of the Partnership.

 

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9.10.                     Asset Management.

 

(a)                                 JVP Management will provide the Partnership with the asset management services described on Exhibit D. If JVP causes or engages an Affiliate of JVP to provide asset management services to the Partnership, then at General Partner’s election, JVP will cause its Affiliate to enter into a Management Agreement, reasonably acceptable to General Partner, with the Partnership for such services. All decisions on behalf of the Partnership under the Management Agreement or with respect to the asset management services provided by JVP Management shall be made by General Partner.

 

(b)                                 JVP Management shall employ all of the personnel necessary for performing the asset management services for the Partnership required under this Agreement and shall employ all of the personnel responsible for implementing the purposes of the Partnership described in Section 3 hereof. Any delegation of the responsibilities of JVP Management or the subcontracting for such services will be subject to the prior written consent of the General Partner. Separate agreements may also be entered into with JVP, Starwood, their respective Affiliates, or with third parties for certain services to be provided to the Partnership, including leasing, construction management and property management.  Such arrangements shall be entered into only with the prior written approval of the General Partner, consistent with an approved Budget. Unless otherwise agreed, all such contracts will be payable on a monthly basis and will be terminable upon thirty (30) day’s notice for any reason or no reason.

 

(c)                                  At the direction or approval of the General Partner, the Partnership may enter into an agreement or agreements with one or more service providers to provide loan servicing for the Loans, which agreement shall provide for the payment to such loan servicer(s) (and be updated and supplemented from time to time), in consideration of performing the loan servicing described in the agreement, a fee at market rate(s).

 

(d)                                 In consideration of the asset management services that JVP Management is providing to the Partnership pursuant to this Agreement or the Management Agreement, if applicable, if and for so long as the General Partner has not terminated the Management Agreement, if applicable, or terminated JVP Management’s asset management services “for cause” (i.e., the General Partner shall have determined in its sole but good faith discretion that JVP Management shall have defaulted in its performance of the asset management services described in Exhibit D or shall have defaulted under the Management Agreement, if applicable, or if a JVP Change Event shall have occurred; provided, however, JVP Management shall have the right to challenge the General Partner’s “for cause” termination by submitting the matter to binding arbitration as provided in Section 15.22 within thirty (30) days of such termination), the Partnership shall pay to JVP Management, on a monthly basis in arrears on the Fee Payment Date (as defined below) an asset management fee (the “JVP Asset Management Fee”) equal to 0.167% of the Aggregate Net Asset Cost, as determined by the General Partner as of the fifteenth (15th) day (the “Beginning Determination Date”) of each calendar month (the “Determination Month”), commencing November 15, 2012; provided, however, that the monthly JVP Asset Management Fee due in any month shall be reduced by the aggregate Fee Reduction Amounts for such month; provided, further, that the Fee Reduction Amount for the period from the Effective Date through November 14, 2012 shall be determined in accordance with this Section 9.10(d) on a mutatis mutandis basis.  “Fee Reduction Amount” shall mean for each

 

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Rental Pool Asset that (i) is a Loan that is sold or repaid in full after a Beginning Determination Date or (ii) is or becomes REO after a Beginning Determination Date and which Rental Pool Asset/REO asset is then no longer managed by JVP Management after such Beginning Determination Date (in each case, the date of such sale of Loan, repayment of Loan, or change of management, for each such asset, the “Change of Control Date”) an amount equal to the product of (A) 0.167% of the Acquisition Cost of each Rental Pool Asset and (B) a fraction, (I) the numerator of which is the number of days beginning from and including the Change of Control Date through and including the fourteenth (14th) day of the month (the “Ending Determination Date”) following the Determination Month and (II) the denominator of which is the number of days beginning from and including the Beginning Determination Date through and including the Ending Determination Date. JVP’s monthly report (the “JVP Asset Management Fee Report”) setting forth its determination of the JVP Asset Management Fee with respect to each Beginning Determination Date shall be provided to Starwood no later than the 20th day of the month following the Determination Month (i.e., six (6) days following the Ending Determination Date). Starwood shall review the JVP Asset Management Fee Report, and Starwood and JVP shall reasonably cooperate to resolve any disputes with respect to each JVP Asset Management Fee Report prior to the last day of the month following the Determination Month (the “Fee Payment Date”). The Partnership shall pay to JVP Management, on or before the Fee Payment Date (i.e., the last day of the month in which the Ending Determination Date occurs), the agreed upon JVP Asset Management Fee with respect to the applicable Determination Month. The Partners acknowledge that the JVP Asset Management Fee does not include the cost of the Asset Managers (referenced in Exhibit D), which shall be an expense of the Partnership.

 

(e)                                          The Partners acknowledge that all decisions to be made by the General Partner under this Section 9.10 will be made by Starwood.

 

9.11.                     Operation in Accordance with REIT Requirements.  The Partners acknowledge that a direct or indirect member of Starwood (a “Starwood Affiliate”) has elected to qualify as a “real estate investment trust” within the meaning of Code Sections 856-860 (a “REIT”). In furtherance of the foregoing, the Partnership shall be operated at the direction of Starwood in a manner that will enable such Starwood Affiliate to comply with the income and asset requirements of Code Sections 856(c)(2), (c)(3) and (c)(4) and to avoid the imposition of tax on prohibited transactions under Code Section 857(b)(6) (as if the Partnership were a REIT). JVP shall, promptly upon Starwood’s request, make available to Starwood all data and information in the possession of JVP, the Partnership or any of its subsidiaries, which is determined by Starwood to be necessary or helpful to monitor compliance of the Partnership with the requirements for qualification and taxation as a REIT (as if the Partnership were a REIT). The General Partner is authorized and directed to cause the Partnership and any of its subsidiaries to take any actions (and JVP agrees to cooperate with any such actions) as it shall deem necessary in its reasonable judgment to comply with and effectuate the foregoing, including, without limitation, in Starwood’s discretion, to (a) hold investments or conduct activities, including marketing, listing and sale activities, through an entity classified as a corporation for U.S. federal income tax purposes and to cause such corporation to make an election to be treated as a “taxable REIT subsidiary” (a “TRS”) within the meaning of Code Section 856(l) and (b) capitalize such TRS with debt and equity and to cause such debt to be collateralized in such manner as will enable such debt to be a qualifying “real estate asset” for REIT purposes.  Notwithstanding anything herein to the contrary, JVP shall not cause the

 

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Partnership to take, or refrain from taking, any action that Starwood determines could result in such Starwood Affiliate failing to qualify as a REIT or could result in the imposition of prohibited transaction taxes to such REIT and, in the event of any such determination by Starwood, Starwood shall notify JVP thereof and JVP shall cooperate with Starwood, at Starwood’s sole cost without reimbursement from the Partnership, to take such action, or refrain from taking action, in order to effectuate the intent of this Section 9.11 and Section 8.5 of the GP Agreement.  The Partners acknowledge and agree that Starwood may assign any or all of its rights or powers under this Agreement (including its right to designate committee representatives and to provide consents and approvals) to one or more of its Starwood Affiliates as it deems appropriate, and the exercise of any such rights or powers by a Starwood Affiliate shall have full force and effect under this Agreement and under the GP Agreement without the need for any further consent or approval. Starwood agrees to pay all Excess Compliance Costs without reimbursement from the Company or the Partnership and such payment shall not constitute a loan to the Partnership or a Capital Contribution or increase Starwood’s Capital Account; but if the Partnership incurs any Excess Compliance Costs, the provisions of Section 6.2(b) shall apply.

 

9.12.                     FCPA/OFAC.

 

(a)                                 In compliance with the Foreign Corrupt Practices Act, each Partner will not, and will ensure that its officers, directors, employees, shareholders, members, agents and Affiliates, acting on its behalf or on the behalf of the Partnership or any of its Subsidiaries or Affiliates do not, for a corrupt purpose, offer, directly or indirectly, promise to pay, pay, promise to give, give or authorize the paying or giving of anything of value to any official representative or employee of any government agency or instrumentality, any political party or officer thereof or any candidate for office in any jurisdiction, except for any facilitating or expediting payments to government officials, political parties or political party officials the purpose of which is to expedite or secure the performance of a routine governmental action by such government officials or political parties or party officials. The term “routine governmental action” for purposes of this provision shall mean an action which is ordinarily and commonly performed by the applicable government official in (i) obtaining permits, licenses, or other such official documents which such Person is otherwise legally entitled to; (ii) processing governmental papers; (iii) providing police protection, mail pick-up and delivery or scheduling inspections associated with contract performance or inspections related to transit of goods across country; (iv) providing phone service, power and water supply, loading and unloading of cargo, or protecting perishable products or commodities from deterioration; or (v) actions of a similar nature.

 

The term routine governmental action does not include any decision by a government official whether, or on what terms, to award new business to or to continue business with a particular party, or any action taken by an official involved in the decision making process to encourage a decision to award new business to or continue business with a particular party.

 

(b)                                 Each Partner agrees to notify immediately the other Partner of any request that such Partner or any of its officers, directors, employees, shareholders, members, agents or Affiliates, acting on its behalf, receives to take any action that may constitute a violation of the Foreign Corrupt Practices Act.

 

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(c)                                  None of the Partners or any of their Affiliates, nor any of their respective members, and none of their respective officers or directors is, nor during the term of this Agreement while such Partner is a Partner, will they become, a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated Blocked Persons List) or under any U.S. statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism) or other governmental action and is not engaged and, during the Term will not, engage in any dealings or transactions with or be otherwise associated with such persons or entities.

 

9.13.                     Crime Policy; Errors and Omissions Policy. The Partnership shall obtain and maintain, at all times and to cover all periods during the term of this Agreement, a crime policy and an errors and omissions policy with responsible companies with broad coverage of all of the General Partner’s, Starwood’s and JVP’s, as applicable, officers, employees or other persons acting in any capacity on behalf of the General Partner, Starwood, JVP or JVP Management, as applicable, with respect to the Property, the General Partner, the Partnership or any Subsidiary or handling funds, money, documents and papers on behalf of the General Partner, Starwood, JVP or JVP Management, as applicable, relating to the Property, the General Partner, the Partnership or any Subsidiary. Any such crime policy shall insure and protect the Partnership, Starwood and JVP, at a minimum, against losses, including, without limitation, those arising from theft, embezzlement, fraud, or misplacement of funds, money or documents by the General Partner, Starwood, JVP or JVP Management, but in all events with coverage of not less than $3,000,000 per incident.  Any such errors and omissions policy shall insure and protect the Partnership, the General Partner, Starwood and JVP against any actual or alleged breach of duty, neglect, error, misstatement, misleading statement or omission committed in the conduct of the General Partner’s, Starwood’s and JVP’s duties hereunder. Both policies shall be in such form as is reasonably acceptable to Starwood and the General Partner.

 

9.14.                     Guaranties. If in connection with any financing or refinancing relating solely to any Non-Rental Pool Property or the acquisition thereof that is obtained by the Partnership or any Subsidiary, any Lender requires any guaranty of non-recourse carve-outs (a “Non-Recourse Guaranty”) and/or environmental indemnity (an “Environmental Indemnity”), JVP (or a credit-worthy Affiliate acceptable to the Lender) shall provide any such guaranty and/or indemnity, provided the form of such guaranty and/or indemnity is reasonably acceptable to JVP. Except as provided in the preceding sentence, none of the Partnership, the General Partner, JVP or Starwood shall be obligated to issue any guaranties or indemnities in connection with any financing or refinancing relating to the Property or the acquisition thereof, including without limitation, any completion guaranty or payment guaranty.  Either a Partner or an Affiliate of such Partner may, on a case by case basis and in its sole judgment, but subject to obtaining the written approval of the General Partner, Starwood and JVP, elect to provide credit enhancement for any financing or refinancing obtained by, or other obligation of, the Partnership or any Subsidiary in the form of guaranties, indemnifications, pledges of collateral or letters of credit to the provider of such loan or financing or the Person to whom such obligation is owed (a “Lender”), in each case to secure certain obligations of the Partnership or any Subsidiary (any such approved credit enhancement, shall be collectively to as “Credit Enhancement”). Credit Enhancement shall not include a Non-Recourse Guaranty or Environmental Indemnity required

 

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pursuant to the first sentence of this Section 9.14.  To the extent Starwood or an Affiliate of Starwood elects to provide Credit Enhancement, JVP shall have the right but not the obligation to provide such Credit Enhancement with Starwood on a pro rata basis (based on the respective Percentage Interests of Starwood and JVP). If at any time, (a) JVP or an Affiliate of JVP has provided a Non-Recourse Guaranty or an Environmental Indemnity or (b) a Partner or an Affiliate of a Partner has provided Credit Enhancement (i) in the form of a guaranty or indemnification (that is not a Non-Recourse Guaranty or Environmental Indemnity) where funds are paid to the Lender thereunder or costs are incurred in connection with the enforcement thereof, (ii) in the form of a pledge of collateral where such collateral is applied by the Lender or costs are incurred in connection with the enforcement thereof, or (iii) in the form of a letter of credit where such letter of credit is drawn upon or costs are incurred in connection with the enforcement thereof, provided, in each case above, such payment, application or draw is not incurred in connection with the fraud, gross negligence or intentional misconduct of such Partner or an Affiliate of such Partner, then such Partner shall be deemed to have made a loan to the Partnership in the amount of such payment, application or draw (any such loan, a “Credit Enhancement Loan”), which shall bear interest at the Default Loan Rate from the date advanced until repaid and shall be repaid on a priority basis from 100% of Distributions and shall have priority over all other payments or distributions payable to the Partners hereunder. If any Credit Enhancement Loan is made under this Section, the Partner who has made such loan shall have the unilateral right to issue a funding notice to the Partners to repay such loan and, within twenty (20) days after receipt of such notice, each Partner shall make a Capital Contribution equal to the Credit Enhancement Loan multiplied by its Percentage Interest (subject in JVP’s case to the JVP Cap). If any Partner fails to make a Capital Contribution required under this Section, then the non-failing Partner shall have the remedies set forth in Section 5.2(b).  To the extent any payment is required under either a Non-Recourse Guaranty or Environmental Indemnity and such payment is incurred in connection with the fraud, gross negligence or intentional misconduct of JVP or an Affiliate of JVP, the JVP Cap shall not be applicable.

 

Section 10.                                    Confidentiality.

 

(a)                                 Any information relating to the business, operation or finances of a Partner or the Partnership which are proprietary to, or considered proprietary by, such Partner or the Partnership is hereinafter referred to as “Confidential Information”; provided, however, general business plans, strategies, operating procedures, manuals, software programs and other information currently used by JVP and its Affiliates that do not specifically reference Starwood or the terms of the transactions contemplated under this Agreement shall not constitute Confidential Information. All of the above described confidential information in tangible form (plans, writings (including, without limitation, customer lists and marketing materials), drawings, computer software and programs, etc.) or provided to or conveyed orally or visually to a receiving Partner (including, without limitation, any marketing techniques), shall be presumed to be Confidential Information at the time of delivery to the receiving Partner. Each receiving Partner and the Partnership agrees: (i) not to disclose such Confidential Information to any Person except to those of its employees or representatives who need to know such Confidential Information in connection with the conduct of the business of the Partnership and who have agreed to maintain the confidentiality of such Confidential Information and (ii) neither it nor any of its employees or representatives will use the Confidential Information for any purpose other than in connection with the conduct of the business of the Partnership; provided that nothing

 

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herein shall prevent any Partner from disclosing any portion of such Confidential Information (1) to the Partnership and allowing the Partnership to use such Confidential Information in connection with the Partnership’s business, (2) pursuant to judicial order or in response to a governmental inquiry, by subpoena or other legal process, but only to the extent required by such order, inquiry, subpoena or process, and only after reasonable notice to the original divulging Partner, (3) as necessary or appropriate in connection with, or to prevent the audit by, a governmental agency of the accounts of any of the Partners, (4) in order to initiate, defend or otherwise pursue legal proceedings between the parties regarding this Agreement, (5) as necessary in connection with a Transfer of an Interest permitted hereunder or (6) to a Partner’s respective attorneys or accountants or other representatives, (7) as, and solely to the extent, required by Applicable Laws or applicable rules and regulations of a stock exchange, provided notice of such disclosure is first given to the General Partner and the other Partners prior to such disclosure, (8) which is or hereafter becomes public, other than by breach of this Agreement, (9) which was already in the receiving Partner’s possession prior to any disclosure of the Confidential Information to the receiving Partner by the divulging Partner, (10) which has been or is hereafter obtained by the receiving Partner from a third party not bound by any confidentiality obligation with respect to the Confidential Information, or (11) to any existing and prospective, direct or indirect, investors, lenders and other capital sources.

 

(b)                                 All Confidential Information shall be protected by the receiving Partner and the Partnership from disclosure with the same degree of care with which the receiving Partner protects its own Confidential Information from disclosure.  The Partnership, the Partners and their Affiliates shall each act to safeguard the secrecy and confidentiality of, and any proprietary rights to, the Confidential Information of the Partnership and the other Partner, except to the extent such information may be disclosed pursuant to Section 10(a) above or such disclosure is reasonably necessary in order to carry out the business of the Partnership.  Each Partner and the Partnership may, from time to time, provide the other Partners written notice of any Confidential Information which is subject to this Section 10.

 

(c)                                  In the event of any conflict between this Section 10 and Section 15.15, Section 15.15 shall control.

 

Section 11.                                    Representations and Warranties.

 

11.1.                     In General. As of the date hereof, each of the Limited Partners hereby makes each of the representations and warranties applicable to such Partner as set forth in Section 11.2. Such representations and warranties shall survive the execution of this Agreement.

 

11.2.                     Representations and Warranties. Each Limited Partner hereby represents and warrants that:

 

(a)                                 Due Incorporation or Formation; Authorization of Agreement. Such Partner is a corporation duly organized or a partnership or limited liability company duly formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation and has the corporate, partnership or company power and authority to own its property and carry on its business as owned and carried on at the date hereof and as contemplated hereby.  Such Partner is duly licensed or qualified to do business and in good

 

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standing in each of the jurisdictions in which the failure to be so licensed or qualified would have a material adverse effect on its financial condition or its ability to perform its obligations hereunder. Such Partner has the corporate, partnership or company power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate, partnership or company action.  This Agreement constitutes the legal, valid and binding obligation of such Partner.

 

(b)                                 No Conflict with Restrictions; No Default. Neither the execution, delivery or performance of this Agreement nor the consummation by such Partner of the transactions contemplated hereby (i) conflicts or will conflict with, violate or result in a breach of (or has conflicted with, violated or resulted in a breach of) any of the terms, conditions or provisions of any law, regulation, order, writ, injunction, decree, determination or award of any court, any governmental department, board, agency or instrumentality, domestic or foreign, or any arbitrator, applicable to such Partner or any of its Affiliates, (ii) conflicts or will conflict with, violate, result in a breach of or constitute a default under (or has conflicted with, violated, resulted in a breach of or constituted a default under) any of the terms, conditions or provisions of the articles of incorporation, bylaws, partnership agreement or operating agreement of such Partner or any of its Affiliates or of any material agreement or instrument to which such Partner or any of its Affiliates is a party or by which such Partner or any of its Affiliates is or may be bound or to which any of its properties or assets is subject, (iii) conflicts or will conflict with, violate, result in (or has conflicted with, violated or resulted in) a breach of, constitute (or has constituted) a default under (whether with notice or lapse of time or both), accelerate or permit the acceleration of (or has accelerated) the performance required by, give (or has given) to others any material interests or rights or, subject to Section 9.5, require any consent, authorization or approval under any indenture, mortgage, lease, agreement or instrument to which such Partner or any of its Affiliates is a party or by which such Partner or any of its Affiliates or any of their properties or assets is or may be bound or (iv) results or will result (or has resulted) in the creation or imposition of any lien upon any of the properties or assets of such Partner or any of its Affiliates (other than upon the Property in the ordinary course of business of the Partnership consistent with the Annual Business Plan).

 

(c)                                  Governmental Authorizations. Any registration, declaration or filing with, or consent, approval, license, permit or other authorization or order by, or exemption or other action of, any governmental, administrative or regulatory authority, domestic or foreign, that was or is required in connection with the valid execution, delivery, acceptance and performance by such Partner under this Agreement or consummation by such Partner of any transaction contemplated hereby (a “Governmental Authorization”) has been completed, made or obtained on or before the date hereof, except for any Governmental Authorization relating to the collection of debts or the ownership of real property that JVP is not required to have completed, made or obtained until the Partnership collects the Loans or operates the Property, as applicable, in which case JVP shall complete, make or obtain such Governmental Authorization on or before the date required thereby.

 

(d)                                 Litigation. There are no actions,  suits,  proceedings or investigations pending, or, to the knowledge of such Partner, threatened against or affecting such Partner or any of its Affiliates or any of their properties, assets or businesses in any court or

 

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before or by any governmental department, board, agency or instrumentality, domestic or foreign, or any arbitrator which could, if adversely determined (or, in the case of an investigation could lead to any action, suit or proceeding which if adversely determined could) reasonably be expected to materially impair such Partner’s ability to perform its obligations under this Agreement or to have a material adverse effect on the consolidated financial condition of such Partner; such Partner or any of its Affiliates has not received any currently effective notice of any default, and such Partner or any of its Affiliates is not in default, under any applicable order, writ, injunction, decree, permit, determination or award of any court, any governmental department, board, agency or instrumentality, domestic or foreign, or any arbitrator which could reasonably be expected to materially impair such Partner’s (or any of its Affiliate’s) ability to perform its obligations under this Agreement or to have a material adverse effect on the consolidated financial condition of such Partner.

 

(e)                                  Investigation.  Such Partner is acquiring its Interest based upon its own investigation, and the exercise by such Partner of its rights and the performance of its obligations under this Agreement will be based upon its own investigation, analysis and expertise.  Such Partner is a sophisticated investor possessing an expertise in analyzing the benefits and risks associated with acquiring investments that are similar to the acquisition of its Interest.

 

(f)                                   Broker.  No broker, agent or other person acting as such on behalf of such Partner was instrumental in consummating this transaction and that no conversations or prior negotiations were had by such party with any broker, agent or other such person concerning the transaction that is the subject of this Agreement.

 

(g)                                  Investment Company Act.  Such Partner will not be required to register as an “investment company” under the Investment Company Act of 1940, as amended, nor will the Partnership be required to so register as a result of such Partner holding an interest therein.

 

(h)                                 Securities Matters.

 

(i)                                     None of the Interests are registered under the Securities Act or any state securities laws.  Such Partner understands that the offering, issuance and sale of the Interests are intended to be exempt from registration under the Securities Act, based, in part, upon the representations, warranties and agreements contained in this Agreement.  Such Partner is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act.

 

(ii)                                  Neither the Securities and Exchange Commission nor any state securities commission has approved the Interests or passed upon or endorsed the merits of the offer or sale of the Interests.  Such Partner is acquiring the Interests solely for such Partner’s own account for investment and not with a view to resale or distribution thereof in violation of the Securities Act.

 

(iii)                               Such Partner is unaware of, and in no way relying on, any form of general solicitation or general advertising in connection with the offer and sale of the

 

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Interests, and no Partner has taken any action which could give rise to any claim by any person for brokerage commissions, finders’ fees (without regard to any finders’ fees payable by the Partnership directly) or the like relating to the transactions contemplated hereby.

 

(iv)                              Such Partner is not relying on the Partnership or any of its officers, directors, employees, advisors or representatives with regard to the tax and other economic considerations of an investment in the Interests, and such Partner has relied on the advice of only such Partner’s Advisors.

 

(v)                                 Such Partner understands that the Interests may not be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws, or an exemption from registration is available.  Such Partner agrees that it will not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Interests in violation of this Agreement.

 

(vi)                              Such Partner has adequate means for providing for its current financial needs and anticipated future needs and possible contingencies and emergencies and has no need for liquidity in the investment in the Interests.

 

(vii)                           Such Partner has significant prior investment experience, including investment in non-listed and non-registered securities.  Such Partner is knowledgeable about investment considerations and has a sufficient net worth to sustain a loss of such Partner’s entire investment in the Partnership in the event such a loss should occur.  Such Partner’s overall commitment to investments which are not readily marketable is not excessive in view of such Partner’s net worth and financial circumstances and the purchase of the Interests will not cause such commitment to become excessive.  The investment in the Interests is suitable for such Partner.

 

(viii)                        Such Partner represents to the Partnership that the information contained in this subparagraph (h) and in all other writings, if any, furnished to the Partnership with regard to such Partner (to the extent such writings relate to its exemption from registration under the Securities Act) is complete and accurate and may be relied upon by the Partnership in determining the availability of an exemption from registration under federal and state securities laws in connection with the sale of the Interests.

 

Section 12.                                    Sale, Assignment, Transfer or other Disposition.

 

12.1.                     Prohibited Transfers.  Except as otherwise provided in this Section 12, Section 5.2(a), Section 5.2(b) or Section 14.6, no Partner shall Transfer all or any part of its Interest, whether legal or beneficial, in the Partnership, and any attempt to so Transfer such Interest (and such Transfer) shall be null and void and of no effect.  Notwithstanding the foregoing, Starwood shall have the right at any time to pledge to a lender or creditor, directly or indirectly, all or any part of its Interest in the Partnership for such purposes as it deems necessary in the ordinary cause of its business and operations.

 

12.2.                     Affiliate Transfers.  Subject in each case to the prior written approval of the General Partner and Starwood of any proposed transferee (and any Affiliate of such transferee), any Partner may Transfer all or any portion of its Interest in the Partnership at any

 

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time to an Affiliate of such Partner, provided that such Affiliate shall remain an Affiliate of such Partner at all times that such Affiliate holds such Interest.  If such Affiliate shall thereafter cease being an Affiliate of such Partner while such Affiliate holds such Interest, such cessation shall be a non-permitted Transfer.  Notwithstanding anything herein to the contrary, JVP shall have the right to issue profits interests in JVP (but not in the Partnership) to its employees (or to employees of its affiliates) under the terms of its governance documents so long as (a) the Key Individuals continue to have direct or indirect control over JVP and (b) such issuance of profits interests shall not create any additional costs for the General Partner, the Partnership or Starwood (e.g., financial or tax reporting supplements), or in the event of any such additional costs, such additional costs are borne solely by JVP.

 

12.3.                     Admission of Transferee.  Notwithstanding anything in this Section 12 to the contrary and except as provided in Sections 5.2(a), 5.2(b), 12.1 and 14.6, no Transfer of Interests in the Partnership shall be permitted unless the potential transferee is admitted as a Partner under this Section 12.3.  If a Partner Transfers all or any portion of its Interest in the Partnership, such transferee may become a Partner if (i) such transferee executes and agrees to be bound by this Agreement, (ii) the transferor and/or transferee pays all reasonable legal and other fees and expenses incurred by the Partnership in connection with such assignment and substitution and (iii) the transferor and transferee execute such documents and deliver such certificates to the Partnership and the remaining Partners as may be required by applicable law or otherwise advisable.  Notwithstanding the foregoing, any Transfer or purported Transfer of any Interest, whether to another Partner or to a third party, shall be of no effect, and such transferee shall not become a Partner, if the General Partner or Starwood determines in its sole discretion that:

 

(a)                                 the Transfer would require registration of any Interest under, or result in a violation of, any federal or state securities laws;

 

(b)                                 as a result of such Transfer the Partnership would be required to register as an investment company under the Investment Company Act of 1940, as amended, or any rules or regulations promulgated thereunder; or

 

(c)                                  as a result of such Transfer, the Partnership would or may have in the aggregate more than one hundred (100) members and material adverse federal income tax consequences would result to a Partner or cause the Partnership to be taxable as a corporation for federal income tax purposes.  For purposes of determining the number of members under this Section 12.3(c), a “beneficial owner” indirectly owning an interest in the Partnership through a “flow-through entity” shall be considered a member, but only if (i) substantially all of the value of the beneficial owner’s interest in the flow-through entity is attributable to the flow-through entity’s interest (direct or indirect) in the Partnership and (ii) in the sole discretion of the General Partner, a principal purpose of the use of the flow-through entity is to permit the Partnership to satisfy the 100-member limitation.

 

The General Partner may require the provision of a certificate as to the legal nature and composition of a proposed transferee of an Interest of a Partner and from any Partner as to its legal nature and composition and shall be entitled to rely on any such certificate in making such determinations under this Section 12.3.

 

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12.4.                     Withdrawals.  Each of the Partners does hereby covenant and agree that it will not withdraw, resign, retire or disassociate from the Partnership, except as a result of a Transfer of its entire Interest in the Partnership permitted under the terms of this Agreement and that it will carry out its duties and responsibilities hereunder until the Partnership is terminated, liquidated and dissolved under Section 13.  No Partner shall be entitled to receive any distribution or otherwise receive the fair market value of its Interest in compensation for any purported resignation or withdrawal not in accordance with the terms of this Agreement.

 

Section 13.                                    Dissolution.

 

13.1.                     Limitations.  The Partnership may be dissolved, liquidated and terminated only pursuant to the provisions of this Section 13, and, to the fullest extent permitted by law but subject to the terms of this Agreement, the parties hereto do hereby irrevocably waive any and all other rights they may have to cause a dissolution of the Partnership or a sale or partition of any or all of the Partnership’s assets.

 

13.2.                     Exclusive Events Requiring Dissolution.  The Partnership shall be dissolved only upon the earliest to occur of the following events (a “Dissolution Event”):

 

(a)                                 the expiration of the specific term, if any, set forth in Section 2.5;

 

(b)                                 at any time at the election of the General Partner and/or Starwood in writing;

 

(c)                                  at any time there are no Partners (unless otherwise continued in accordance with the Act); or

 

(d)                                 the entry of a decree of judicial dissolution pursuant to Section 18-802 of the Act.

 

13.3.                     Liquidation.  Upon the occurrence of a Dissolution Event, the business of the Partnership shall be continued to the extent necessary to allow an orderly winding up of its affairs, including the liquidation of the assets of the Partnership pursuant to the provisions of this Section 13.3, as promptly as practicable thereafter, and each of the following shall be accomplished:

 

(a)                                 The General Partner shall cause to be prepared a statement setting forth the assets and liabilities of the Partnership as of the date of dissolution, a copy of which statement shall be furnished to all of the Partners.

 

(b)                                 The property and assets of the Partnership shall be liquidated by sale, or, if elected by the General Partner, distributed in kind pursuant to Section 6.6, in either case, under the direction and supervision of the General Partner as promptly as possible, but in an orderly, businesslike and commercially reasonable manner.

 

(c)                                  Any gain or loss realized by the Partnership upon the sale of its Non-Rental Pool Property shall be deemed recognized and allocated to the Partners in the manner set forth in Section 7.1.  To the extent that an asset is to be distributed in kind pursuant to

 

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Section 6.6, such asset shall be deemed to have been sold at its Net Market Value on the date of distribution, the gain or loss deemed realized upon such deemed sale shall be allocated in accordance with Section 7.1 and the amount of the distribution shall be considered to be such Net Market Value of the asset.

 

(d)                                 The proceeds of sale and all other assets of the Partnership shall be applied and distributed as follows and in the following order of priority:

 

(i)                                     to the satisfaction of the debts and liabilities of the Partnership (contingent or otherwise) and the expenses of liquidation or distribution (whether by payment or reasonable provision for payment), other than liabilities to Partners or former Partners for distributions;

 

(ii)                                  to the satisfaction of loans made pursuant to Section 5.2(b)  and Section 9.14 in proportion to the outstanding balances of such loans at the time of payment;

 

(iii)                               to Starwood, in accordance with Section 6.5 to the extent such proceeds of sale or other assets constitute Rental Pool Proceeds, and

 

(iv)                              the balance, if any, to the Partners in accordance with (and subject to the limitations set forth in) Section 6.1.

 

13.4.                     Continuation of the Partnership.  Notwithstanding anything to the contrary contained herein, the death, retirement, resignation, expulsion, bankruptcy, dissolution or removal of a Partner shall not in and of itself cause the dissolution of the Partnership, and the Partners are expressly authorized to continue the business of the Partnership in such event, without any further action on the part of the Partners.

 

Section 14.                                    Indemnification.

 

14.1.                     Exculpation of Partners.  No Limited Partner, General Partner or officer of the Partnership (or their respective agents, officers, directors, members, managers, partners, shareholders or employees) shall be liable to the Partnership or to the other Partners for damages or otherwise with respect to any actions or failures to act taken or not taken relating to the Partnership, except to the extent any related loss results from fraud, gross negligence or willful or wanton misconduct on the part of such Limited Partner, General Partner or officer (or their respective agents, officers, directors, members, managers, partners, shareholders or employees) or the willful breach of any obligation under this Agreement.  No Limited Partner, General Partner or officer of the Partnership (or their respective agents, officers, directors, members, managers, partners, shareholders or employees) shall have any liability for failing to take any action requiring the consent of a Partner if such Partner fails to grant such consent.

 

14.2.                     Indemnification by Partnership.  The Partnership hereby indemnifies, holds harmless and defends the Limited Partners, the General Partner, the Representatives, the officers of the Partnership and each of their respective agents, officers, directors, members, partners, shareholders and employees from and against any loss, expense, damage or injury suffered or sustained by them (including but not limited to any judgment, award, settlement, reasonable attorneys’ fees and other costs or expenses incurred in connection with the defense of

 

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any actual or threatened action, proceeding or claim) by reason of or arising out of (i) their activities on behalf of the Partnership or in furtherance of the interests of the Partnership, including, without limitation, the provision of Credit Enhancement (but specifically excluding from such indemnity by the Partnership any such loss, expense, damage or injury incurred by such party under so called “bad boy” guaranties or similar agreements which provide for recourse to such Partner or its Affiliate as a result of its willful failure to comply with covenants, willful misconduct or gross negligence), (ii) their status as Limited Partners, General Partners, representatives, employees or officers of the Partnership (or their respective agents, officers, directors, members, managers, partners, shareholders or employees), or (iii) the Partnership’s assets, property, business or affairs (including, without limitation, the actions of any officer, director, member or employee of the Partnership or any of its Subsidiaries), if the acts or omissions were not performed or omitted fraudulently or as a result of gross negligence or willful or wanton misconduct by the indemnified party or as a result of the willful breach of any obligation under this Agreement by the indemnified party.  For the purposes of this Section 14.2, officers, directors, members, employees and other representatives of Affiliates of a Partner who are functioning as representatives of such Partner in connection with this Agreement shall be considered representatives of such Partner for the purposes of this Section 14.  Reasonable expenses incurred by the indemnified party in connection with any such proceeding relating to the foregoing matters shall be paid or reimbursed by the Partnership in advance of the final disposition of such proceeding upon receipt by the Partnership of (x) written affirmation by the Person requesting indemnification of its good faith belief that it has met the standard of conduct necessary for indemnification by the Partnership and (y) a written undertaking by or on behalf of such Person to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that such Person has not met such standard of conduct, which undertaking shall be an unlimited general obligation of the indemnified party but need not be secured.

 

14.3.                     Indemnification by Partners for Misconduct.

 

(a)                                 JVP hereby indemnifies, defends and holds harmless the Partnership, the General Partner, Starwood and each of their subsidiaries and their affiliates, agents, officers, directors, members, partners, shareholders and employees from and against all losses, costs, expenses, damages, claims and liabilities as a result of or arising out of any fraud, gross negligence, or willful or wanton misconduct on the part of, or by, JVP, JVP Management, any representative or officer appointed by JVP or any officer, director, member, partner, shareholder or employee of JVP or JVP Management, and to the extent proceeds from any insurance policy that the Partnership is required to maintain under Section 9.13 are payable to JVP in connection with any of the conduct described in this Section 14.3(a), JVP hereby assigns its interest, if any, in such proceeds to the indemnitees, as their interests may appear, up to the amount of the loss, damage or liability suffered by each.

 

(b)                                 Starwood hereby indemnifies, defends and holds harmless the Partnership, the General Partner, JVP and each of their subsidiaries and their agents, officers, directors, members, partners, shareholders and employees from and against all losses, costs, expenses, damages, claims and liabilities (including reasonable attorneys’ fees) as a result of or arising out of any fraud or willful or wanton misconduct on the part of, or by, Starwood, any representative appointed by Starwood or any officer, director, member, shareholder or employee of Starwood, and to the extent proceeds from any insurance policy that the Partnership is

 

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required to maintain under Section 9.13 are payable to Starwood in connection with any of the conduct described in this Section 14.3(b), Starwood hereby assigns its interest, if any, in such proceeds to the indemnitees, as their interests may appear, up to the amount of the loss, damage or liability suffered by each.

 

14.4.                     General Indemnification by the Partners.

 

(a)                                 Notwithstanding any other provision contained herein but subject to Section 14.4(b), each Limited Partner (the “Indemnifying Party”) hereby indemnifies and holds harmless the other Partners, the Partnership and each of their subsidiaries and their agents, officers, directors, members, managers, partners, shareholders, representatives and employees (each, an “Indemnified Party”) from and against all losses, costs, expenses, damages, claims and liabilities (including reasonable attorneys’ fees) as a result of or arising out of (i) any breach of any obligation of the Indemnifying Party under this Agreement, or (ii) any breach of any obligation by or any inaccuracy in or breach of any representation or warranty made by the Indemnifying Party (or any Affiliate of the Indemnifying Party), whether in this Agreement or in any Collateral Agreement (collectively, the “Inducement Agreements”).

 

(b)                                 Except as otherwise provided herein or in any other agreement, recourse for the indemnity obligation of the Partners under this Section 14.4 shall be limited to such Indemnifying Party’s Interest in the Partnership; provided, however, that recourse against Starwood under its indemnity obligations under this Agreement or otherwise shall be further limited to an aggregate amount equal to the value of JVP’s Interest as determined by and being limited to the then current liquidation value of JVP’s Interest (without giving effect to any impairment of such value resulting from the action giving rise to the indemnification) assuming the Partnership were liquidated for Fair Market Value in an orderly fashion, and all net proceeds thereof were distributed, in accordance with Section 13.

 

(c)                                  The indemnities, contributions and other obligations under this Agreement shall be in addition to any rights that any Indemnified Party may have at law, in equity or otherwise.  The terms of this Section 14 shall survive termination of this Agreement.

 

14.5.                     Rental Pool Indemnification.  Starwood hereby indemnifies, defends and holds harmless the Partnership, the General Partner, JVP and each of their subsidiaries and their agents, officers, directors, members, partners, shareholders and employees (collectively, the “Indemnitees”) from and against any loss, expense, damage or injury suffered or sustained by any Indemnitee (including but not limited to any judgment, award, settlement, reasonable attorneys’ fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim) as a result of or arising out the acquisition, ownership, operation, management, leasing, financing and sale or other disposition of any Rental Pool Asset, and to the extent proceeds from any insurance policy that the Partnership is required to maintain under Section 9.13 are payable to Starwood in connection with any of the conduct described in this Section 14.5, Starwood hereby assigns its interest, if any, in such proceeds to the Indemnitees, as their interests may appear, up to the amount of the loss, damage or liability suffered by each.  Reasonable expenses incurred by an Indemnitee in connection with any such proceeding relating to the foregoing matters shall be paid or reimbursed to the Indemnitee by Starwood in advance of the final disposition of such proceeding upon receipt by Starwood of

 

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(a) written affirmation by the Indemnitee requesting indemnification of its good faith belief that it is entitled to indemnification by Starwood and (b) a written undertaking by or on behalf of such Indemnitee to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that such Indemnitee is not entitled to indemnification, which undertaking shall be an unlimited general obligation of such Indemnitee but need not be secured. Notwithstanding anything herein to the contrary, Starwood’s indemnification of the Indemnitees shall not extend to or cover losses, claims, damages or expenses proximately caused by an Indemnitee’s negligence, gross negligence or willful misconduct.

 

14.6.                     Pledge of JVP Interest.

 

(a)                                 As security for the indemnity obligations of JVP under Sections 14.3(a) and 14.4 (collectively, the “Inducement Obligation”), JVP shall execute and deliver to Starwood a certain Pledge Agreement (the “Pledge Agreement”) and related documents pursuant to which JVP grants to Starwood a lien upon and a continuing interest in JVP’s Interest in the Partnership including all payments due or to become due to JVP hereunder from and after the entry of a judgment described in Section 14.6(c) and such other rights pledged under the Pledge Agreement (collectively, the “Indemnity Collateral”).  Any Transfer by JVP of its Interest shall be subject to the lien and security interest granted hereby until and unless such lien and security interest are released by Starwood.

 

(b)                                 JVP hereby authorizes Starwood to prepare and file UCC financing statements and such other documents and take such other action necessary to grant to Starwood a fully perfected first priority security interest in all of JVP’s Interest in the Partnership.  Each Starwood Indemnified Party shall have all of the rights now or hereafter existing under applicable law, and all rights as a secured creditor under the Uniform Commercial Code in all relevant jurisdictions, with respect to the Indemnity Collateral, and JVP agrees to take all such actions at the expense of the requesting Starwood Indemnified Party as may be reasonably requested of it by a Starwood Indemnified Party to ensure that the Starwood Indemnified Parties can realize on such security interest.

 

(c)                                  In the event a Starwood Indemnified Party obtains a judgment on account of an Inducement Obligation that is not satisfied within thirty (30) days, then Starwood shall, to the fullest extent permitted by law, be deemed, without payment of further consideration or the taking of further action by JVP or any of its Subsidiaries, to have acquired from JVP such portion of the Indemnity Collateral as shall be equal in value (as reasonably determined by Starwood) to the amount of the judgment; provided, at the request of Starwood, JVP shall execute and deliver to Starwood an amendment to this Agreement to reflect the change in the Interests and Percentage Interests of the Partners.

 

Section 15.                                    Miscellaneous.

 

15.1.                     Notices.

 

(a)                                 All notices, requests, approvals, authorizations, consents and other communications required or permitted under this Agreement shall be in writing (whether or not expressly stated as to be in writing hereunder) and shall be (as elected by the Person giving such

 

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notice) hand delivered by messenger or overnight courier service, mailed (airmail, if international) by registered or certified mail (postage prepaid), return receipt requested, or sent via facsimile (provided such facsimile is immediately followed by the delivery of an original copy of same via one of the other foregoing delivery methods) addressed to:

 

If to Starwood:

 

c/o Starwood Property Trust, Inc.

591 West Putnam Avenue

Greenwich, Connecticut 06830

Attention: Nick Haechler

Telecopier: (203) 422-8192

 

with a copy to (which shall not constitute notice):

 

c/o Starwood Property Trust, Inc.

591 West Putnam Avenue

Greenwich, Connecticut 06830

Attention: Andrew Sossen

Telecopier: (203) 422-8192

 

If to JVP:

 

Prime Asset Fund

PO BOX 447

Odessa, FL  33556

Attn:  Bruce Korman

Facsimile:  (213) 477-2225

 

with a copy to (which shall not constitute notice):

 

Brian D. Walters, Esq.

24152 Lyons Avenue #102

Newhall, CA  91321

Facsimile:  (213) 402-5010

 

and a copy to (which shall not constitute notice):

 

Greenberg Traurig, LLP

1840 Century Park East, Suite 1900

Los Angeles, CA  90067

Attn:  Sandy Presant, Esq.

Facsimile:  (310) 586-0255

 

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If to the General Partner:

 

Prime Asset Fund

PO BOX 447

Odessa, FL  33556

Attn:  Bruce Korman

Facsimile:  (213) 477-2225

 

and:

 

c/o Starwood Property Trust, Inc.

591 West Putnam Avenue

Greenwich, Connecticut 06830

Attention: Nick Haechler

Telecopier: (203) 422-8192

 

with a copy to (which shall not constitute notice): 

 

Brian D. Walters, Esq.

24152 Lyons Avenue #102

Newhall, CA  91321

Facsimile:  (213) 402-5010

 

with a copy to (which shall not constitute notice):

 

c/o Starwood Property Trust, Inc.

591 West Putnam Avenue

Greenwich, Connecticut 06830

Attention: Andrew Sossen

Telecopier: (203) 422-8192

 

(b)                                 Each such notice shall be deemed delivered (a) on the date delivered if by hand delivery or overnight courier service or facsimile, and (b) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed (provided, however, if such actual delivery occurs after 5:00 p.m. (local time where received), then such notice or demand shall be deemed delivered on the immediately following business day after the actual day of delivery).

 

(c)                                  By giving to the other parties at least fifteen (15) days written notice thereof, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses.

 

15.2.                     Governing Law.  This Agreement and the rights of the Partners hereunder shall be governed by, and interpreted in accordance with, the laws of the State of Delaware. Each of the parties hereto irrevocably submits to the jurisdiction of the New York State courts and the Federal courts sitting in the State of New York and agrees that all matters involving this Agreement shall be heard and determined in such courts.  Each of the parties hereto waives

 

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irrevocably the defense of inconvenient forum to the maintenance of such action or proceeding. Each of the parties hereto designates CT Corporation System, 1633 Broadway, New York, New York 10019, as its agent for service of process in the State of New York, which designation may only be changed on not less than ten (10) days’ prior notice to all of the other parties.

 

15.3.                     Successors.  This Agreement shall be binding upon, and inure to the benefit of, the parties and their successors and permitted assigns.  Except as otherwise provided herein, any Partner who Transfers its Interest as permitted by the terms of this Agreement shall have no further liability or obligation hereunder, except with respect to claims arising prior to such Transfer.

 

15.4.                     Pronouns.  Whenever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter.

 

15.5.                     Table of Contents and Captions Not Part of Agreement.  The table of contents and captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions hereof.

 

15.6.                     Severability.  If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction or in any respect, then the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired, and the Partners shall use their best efforts to amend or substitute such invalid, illegal or unenforceable provision with enforceable and valid provisions which would produce as nearly as possible the rights and obligations previously intended by the Partners without renegotiation of any material terms and conditions stipulated herein.

 

15.7.                     Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.

 

15.8.                     Entire Agreement and Amendment.  This Agreement and the other written agreements described herein between the parties hereto entered into as of the date hereof, constitute the entire agreement between the Partners relating to the subject matter hereof.  In the event of any conflict between this Agreement and such other written agreements, the terms and provisions of this Agreement shall govern and control.  Starwood may amend this Agreement at any time provided that no amendment (other than an amendment necessary to implement the rights of the parties and/or any decisions made hereunder) which would have a material adverse effect on JVP shall be effective without the prior written consent of JVP.  No amendment or waiver by the General Partner or Starwood shall be enforceable against the General Partner or Starwood unless it is in writing and duly executed by the General Partner and Starwood.

 

15.9.                     Further Assurances.  Each Partner agrees to execute and deliver any and all additional instruments and documents and do any and all acts and things as may be necessary

 

37

 

or expedient to effectuate more fully this Agreement or any provisions hereof or to carry on the business contemplated hereunder.

 

15.10.              No Third Party Rights.  The provisions of this Agreement are for the exclusive benefit of the Partners and the Partnership, and no other party (including, without limitation, any creditor of the Partnership) shall have any right or claim against any Partner by reason of those provisions or be entitled to enforce any of those provisions against any Partner, except that (a) those provisions of this Agreement which expressly confer a right or benefit upon Starwood are expressly hereby for the benefit of and enforceable by Starwood as an express third party beneficiary hereof, and (b) those provisions of this Agreement conferring a benefit on an Indemnitee or an Indemnified Party are expressly hereby for the benefit of and enforceable by such Indemnitee or Indemnified Party as an express third party beneficiary hereof.

 

15.11.              Incorporation by Reference.  Every Exhibit and Annex attached to this Agreement is incorporated in this Agreement by reference.

 

15.12.              Limitation on Liability.  Except as set forth in Section 14 and with respect to a Default Loan as set forth in Section 5.2(b) and as set forth in Section 6.4(c), the Limited Partners shall not be bound by, or be personally liable for, by reason of being a Partner, a judgment, decree or order of a court or in any other manner, for the expenses, liabilities or obligations of the Partnership, and the liability of each Limited Partner shall be limited solely to the amount of its Capital Contributions as provided under Section 5.  Except for the obligations under Sections 14.3(a) and 6.4(c), any claim against any Limited Partner (the “Partner in Question”) which may arise under this Agreement shall be made only against, and shall be limited to, the Interest of such Partner in Question, the proceeds of the sale by the Partner in Question of such Interest or the undivided interest in the assets of the Partnership distributed to the Partner in Question pursuant to Section 13.3(d) hereof.  Except for the obligations under Sections 14.3(a) and 6.4(c), any right to proceed against (i) any other assets of the Partner in Question or (ii) or any agent, officer, director, member, manager, partner, shareholder or employee of the Partner in Question or the assets of any such Person, as a result of such a claim against the Partner in Question arising under this Agreement or otherwise, is hereby irrevocably and unconditionally waived.

 

15.13.              Remedies Cumulative.  The rights and remedies given in this Agreement and by law to a Partner shall be deemed cumulative, and the exercise of one of such remedies shall not operate to bar the exercise of any other rights and remedies reserved to a Partner under the provisions of this Agreement or given to a Partner by law.  In the event of any dispute between the parties hereto, the prevailing party shall be entitled to recover from the other party reasonable attorney’s fees and costs incurred in connection therewith.

 

15.14.              No Waiver.  One or more waivers of the breach of any provision of this Agreement by any Partner shall not be construed as a waiver of a subsequent breach of the same or any other provision, nor shall any delay or omission by a Partner to seek a remedy for any breach of this Agreement or to exercise the rights accruing to a Partner by reason of such breach be deemed a waiver by a Partner of its remedies and rights with respect to such breach.

 

38

 

15.15.              Limitation On Use of Names.  Notwithstanding anything contained in this Agreement or otherwise to the contrary, each of Starwood and JVP as to itself agrees that neither it nor any of its Affiliates, agents, officers or representatives is granted a license to use or shall use the name of the other under any circumstances whatsoever, except such name may be used in furtherance of the business of the Partnership but only as and to the extent unanimously approved by the Partners.  Without limiting the foregoing, without the prior written consent of Starwood, the name “Starwood” may not be used or appear in any press release or any sale, marketing or investment materials of JVP or its Affiliates, agents, officers or representatives, except for that certain private placement memorandum that is in final form as of the date hereof. For the sake of clarity, no new private placement memorandums nor any updates or supplements to any existing private placement memorandums may be issued or otherwise disbursed by JVP or its Affiliates after the date hereof that include the name “Starwood” without the prior written consent of Starwood.

 

15.16.              Publicly Traded Partnership Provision.  Each Partner hereby severally covenants and agrees with the other Partners for the benefit of such Partners, that (i) it is not currently making a market in Interests in the Partnership and will not in the future make such a market and (ii) it will not Transfer its Interest on an established securities market, a secondary market or an over-the-counter market or the substantial equivalent thereof within the meaning of Code Section 7704 and the Regulations, rulings and other pronouncements of the U.S. Internal Revenue Service or the Department of the Treasury thereunder.  Each Partner further agrees that it will not assign any Interest in the Partnership to any assignee unless such assignee agrees to be bound by this Section and to assign such Interest only to such Persons who agree to be similarly bound.

 

15.17.              Uniform Commercial Code.  The interest of each Partner in the Partnership shall be an “uncertificated security” governed by Article 8 of the Delaware UCC and the UCC as enacted in the State of New York (the “New York UCC”), including, without limitation, (i) for purposes of the definition of a “security” thereunder, the interest of each Partner in the Partnership shall be a security governed by Article 8 of the Delaware UCC and the New York UCC and (ii) for purposes of the definition of an “uncertificated security” thereunder.

 

15.18.              Public Announcements.  Neither JVP nor any of its Affiliates shall, without the prior approval of Starwood, issue any press releases or otherwise make any public statements or other disclosure with respect to the Partnership or the transactions contemplated by this Agreement or its affiliation with Starwood, Starwood Property Trust or Starwood Capital Group, except as may be required by applicable law or regulation or by obligations pursuant to any listing agreement with any national securities exchange; provided that JVP or such Affiliate has used reasonable efforts to obtain the approval of Starwood prior to issuing such required press release or making such required public disclosure.  Notwithstanding the foregoing, JVP may verbally (or in email communications) disclose, without more, the Partnership’s affiliation with Starwood Property Trust to potential or existing trading partners (e.g., sellers, buyers and vendors) of the Partnership, provided, however, that Starwood may rescind this right at any time in its sole discretion, and further provided that JVP shall not claim or make any statement to potential or existing trading partners (or anyone else) to the effect that Starwood is in any way exclusive to the Partnership or to JVP or any Affiliate.

 

39

 

15.19.              No Construction Against Drafter.  This Agreement has been negotiated and prepared by Starwood and JVP and their respective attorneys and, should any provision of this Agreement require judicial interpretation, the court interpreting or construing such provision shall not apply the rule of construction that a document is to be construed more strictly against one party.

 

15.20.              Insurance.  During the term of this Agreement after the acquisition of the Property, the General Partner, on behalf of the Partnership, shall procure and maintain insurance as is determined to be appropriate by the General Partner (in form and with endorsements, waivers and deductibles and with insurance companies, designated or approved by the General Partner) naming the Partnership, the General Partner, Starwood and JVP as insureds thereunder.

 

15.21.              Conflict Matters.  Each Partner acknowledges and agrees that (a) the law firm that is representing Starwood in connection with the negotiation of this Agreement (Sidley Austin LLP) may represent the Partnership and any Partner in future matters, whether related or unrelated to this Agreement and (b) the law firm that is representing JVP in connection with the negotiation of this Agreement (Greenberg Traurig, LLP) may represent the Partnership and any Partner in future matters, whether related or unrelated to this Agreement, provided that such law firm will not represent JVP in a litigation matter against Starwood.

 

15.22.              Arbitration.  In the event of any controversy, dispute or claim arising out of or related to the termination of JVP Management “for cause” as referenced in Section 9.10(d), the parties shall negotiate in good faith in an attempt to reach a mutually acceptable settlement of such dispute.  If negotiations in good faith do not result in a settlement of any such controversy, dispute or claim within (30) days after the commencement of such negotiations, it shall, except as otherwise provided for herein be finally settled by expedited arbitration conducted by a single neutral arbitrator selected as hereinafter provided (the “Arbitrator”) in accordance with the JAMS Streamlined Arbitration Rules and Procedures (the “Procedures”), subject to the following (the parties hereby agree that, notwithstanding anything to the contrary in the Procedures, in the event that there is a conflict between the provisions of the Procedures and the provisions of this Agreement, the provisions of this Agreement shall control):

 

(a)                                 The Arbitrator shall be determined from a list of names of three impartial arbitrators, each of whom shall be experienced in arbitration matters concerning loan portfolio and/or residential property management portfolio and/or mortgage loan special servicing disputes, supplied by the JAMS and chosen by Starwood and JVP each in turn striking a name from the list until one name remains (with JVP being the first to strike a name).

 

(b)                                 The Arbitrator shall determine whether a “for cause” termination of the applicable JVP Management entity was valid.  If the Arbitrator determines in favor of JVP, the Arbitrator may award in favor of JVP, as damages, an amount up to all of (i) the JVP Asset Management Fees and (ii) the Transfer Fees (as defined in the Rental Pool Agreement), that, in each case, JVP Management would have received subsequent to such improper termination up through the date JVP Management is reinstated in full with a going forward right to earn JVP Management Fees and Transfer Fees.  Further the Arbitrator shall award to the prevailing party, as determined by the Arbitrator, 100% of the prevailing party’s attorneys’ fees and related costs and expenses incurred by the prevailing party in pursuing or defending any such claim or arbitration, and such amounts will be paid by the non-prevailing party.

 

40

 

Additionally and notwithstanding the foregoing, to the extent required by law, the Partnership will pay the fees of the Arbitrator.

 

(c)                                  The Arbitrator shall not have the power to award damages for diminution of value, consequential damages, special damages, incidental damages, punitive damages, exemplary damages or other unforeseen damages.

 

(d)                                 The Arbitrator shall not have the power to add to nor modify any of the terms or conditions of this Agreement.  The Arbitrator’s decision shall not go beyond what is necessary for the interpretation and application of the provision(s) of this Section 15.22 in respect of the issue before the Arbitrator.  The Arbitrator shall not substitute his or her judgment for that of the parties in the exercise of rights granted or retained by this Agreement.  The Arbitrator’s award or other permitted remedy, if any, and the decision shall be based upon the issue as drafted and submitted by the respective parties and the relevant and competent evidence adduced at the hearing.

 

(e)                                  The Arbitrator’s written decision shall be in writing stating the basis for the decision and shall be rendered within thirty (30) days of the closing of the hearing. The decision reached by the Arbitrator shall be final and binding upon the parties as to the matter in dispute.  To the extent that the relief or remedy granted by the Arbitrator is relief or remedy on which a court could enter judgment, a judgment upon the award rendered by the Arbitrator shall be entered in any court having jurisdiction thereof (unless in the case of an award of damages, the full amount of the award is paid within ten (10) days of its determination by the Arbitrator). The award shall be binding on the parties in connection with their continuing performance of this Agreement and in any subsequent arbitral or judicial proceedings between the parties.

 

(f)                                   Unless the parties otherwise agree in writing, the arbitration shall take place in New York, New York.

 

(g)                                  The arbitration proceeding and all filing, testimony, documents and information relating to or presented during the arbitration proceeding shall be disclosed exclusively for the purpose of facilitating the arbitration process and in any court proceeding relating to the arbitration, and for no other purpose, and shall be deemed to be information subject to the confidentiality provisions of this Agreement.

 

(h)                                 The parties shall continue performing their respective obligations under this Agreement notwithstanding the existence of a dispute while the dispute is being resolved unless and until such obligations are terminated or expire in accordance with the provisions hereof.

 

(i)                                     The parties may obtain a pre-hearing exchange of information including depositions, interrogatories, production of documents, exchange of summaries of testimony or exchange of statements of position, and the Arbitrator shall limit such disclosure consistent with applicable law to avoid unnecessary burden to the parties and shall schedule promptly all discovery and other procedural steps and otherwise assume case management initiative and control to effect an efficient and expeditious resolution of the dispute.  At any oral hearing of evidence in connection with arbitration proceeding, each party and its counsel shall

 

41

 

have the right to examine its witnesses and to cross-examine the witnesses of the other party.  No testimony of any witness, or any evidence, shall be introduced by affidavit, except as the parties otherwise agree in writing.

 

(j)                                    Notwithstanding the dispute resolution procedures contained in this Section 15.22, either party may apply to any court sitting in New York, New York (i) to enforce this agreement to arbitrate, (ii) to seek provisional injunctive relief so as to maintain the status quo until the arbitration award is rendered or the dispute is otherwise resolved, (iii) to confirm any arbitration award, or (iv) to challenge or vacate any final judgment, award or decision of the Arbitrator that does not comport with the express provisions of this Section 15.22.

 

(k)                                 All decisions on behalf of the Partnership or General Partner required or appropriate under or pursuant to the provisions of this Section 15.22, including, without limitation, all decisions with respect to the manner in which any arbitration pursuant hereto shall be conducted, shall be made by Starwood or its designee, acting on behalf of the Partnership or General Partner.

 

[Signatures on Next Page]

 

42

 

IN WITNESS WHEREOF, this Agreement is executed by the Partners effective as of the date first set forth above.

 

	
 
    	
SRP   PRIMESTAR, L.L.C., a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Andrew J. Sossen
    
	
 
    	
 
    	
Name:
    	
Andrew   J. Sossen
    
	
 
    	
 
    	
Title:
    	
Authorized   Signature
    

 

 

	
 
    	
PRIME   ASSET FUND VI, LLC, a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Bruce Korman
    
	
 
    	
 
    	
Name:
    	
Bruce   Korman
    
	
 
    	
 
    	
Title:
    	
Managing   Director
    

 

 

	
 
    	
PRIMESTAR   FUND I GP, L.L.C., a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Andrew J. Sossen
    
	
 
    	
 
    	
Name:
    	
Andrew   J. Sossen
    
	
 
    	
 
    	
Title:
    	
Authorized   Signature
    

 

	
 
    	
Signature Page
    	
Limited Partnership Agreement
    
	
 
    	
 
    	
(PrimeStar Fund I, L.P.)
    

 

 

JOINDER

 

In consideration of the execution by SRP PrimeStar, L.L.C., a Delaware limited liability company (“Starwood”) of that certain limited partnership agreement of which this Joinder forms a part (the “Agreement”), the undersigned, BRUCE KORMAN and JAMIE RAND (who are each hereinafter referred to as a “Guarantor” and together as “Guarantors”), jointly and severally do hereby absolutely, unconditionally and irrevocably guarantee to Starwood and the Partnership (the “Guaranteed Parties”), and each of them, that all obligations (the “Obligations”) of JVP under Sections 6.4(c) and 14.3(a) of the Agreement will be fully and timely satisfied; provided, however, that a Guarantor’s guarantee under this Joinder shall not apply to JVP’s obligations under Section 14.3(a) so long as (a) the losses, costs, expenses, damages, claims and liabilities required to be indemnified by JVP under Section 14.3(a) do not arise out the fraud, gross negligence, or willful or wanton misconduct on the part of such Guarantor and (b) the insurance required to be obtained and maintained under Section 9.13 is in place.  In addition, Guarantors shall fully and promptly pay upon written demand, all costs and expenses, including reasonable fees and out-of-pocket expenses of attorneys and expert witnesses, incurred by any Guaranteed Party as the prevailing party in enforcing its rights under this Joinder.  Capitalized terms used in this Joinder and not otherwise defined herein shall have the same meanings as set forth in the Agreement.  Guarantors represent and acknowledge that Guarantors own substantial interests in and have control over JVP, that Guarantors will derive substantial benefits from the entry by JVP and the Partnership into the Agreement and the transactions contemplated thereby, that Guarantors’ execution of this Joinder is a material inducement and condition to the Partnership’s execution of the Agreement and that Starwood is, for all purposes, a third-party beneficiary of this Joinder.

 

Each Guarantor unconditionally waives any guarantor or suretyship defenses that might otherwise be available to such Guarantor.  The obligations of Guarantors under this Joinder are independent of the obligations of JVP under the Agreement and, in the event of any default hereunder, a separate action or actions may be brought and prosecuted against Guarantors whether or not either Guarantor or both Guarantors together is the alter ego of JVP and whether or not JVP is joined therein or a separate action or actions are brought against JVP.  The obligations of Guarantors hereunder shall remain in full force and effect without regard to, and shall not be affected or impaired by, the following, any of which may be taken without the consent of, or notice to, Guarantors, nor shall any of the following give Guarantors any recourse or right of action against any Guaranteed Party: (a) any express or implied amendment, modification, renewal, addition, supplement, extension of the Obligations or the Agreement; (b) any exercise or non-exercise by any Guaranteed Party of any right or remedy under the Agreement or this Joinder or available at law or in equity; (c) any Bankruptcy/Dissolution Event relating to either Guarantor, JVP or any Affiliate of JVP, or any action taken with respect to Partnership or this Joinder by any trustee or receiver, or by any court, in any such proceeding, whether or not either Guarantor shall have had notice or knowledge of any of the foregoing; (d) any release or discharge of JVP from its liability under the Obligations or any release or discharge of any other party at any time directly or contingently liable for the Obligations; (e) any subordination, compromise, release (by operation of law or otherwise), discharge, compound, collection, or liquidation of any or all of the Property, or any substitution with respect thereto; (f) any assignment or other transfer of any interest in Partnership, in whole or in part; and (g) any acceptance of partial performance of the Obligations.

 

44

 

Guarantors agree to pay all costs and expenses, including reasonable attorneys’ fees, which may be incurred by any Guaranteed Party in any effort to collect or enforce any of the Obligations, whether or not any lawsuit is filed, including all costs and attorneys’ fees incurred by any Guaranteed Party as the prevailing party in any bankruptcy proceeding (including any action for relief from the automatic stay of any bankruptcy proceeding).  Such amounts shall bear interest until paid at 10% per annum compounded monthly.  Guarantors shall not have the right to assign any of its rights or obligations under this Joinder.

 

The following Sections of the Agreement shall apply to this Joinder as though herein set forth in full, mutatis mutandis (and, without limitation on the foregoing, references to “the Partners”, “JVP” and “this Agreement” therein shall be deemed changed for this purpose to “the parties”, “Guarantor” and “this Joinder”, respectively):  15.1, 15.2 through 15.17, inclusive.

 

[Signatures on Next Page]

 

45

 

IN WITNESS WHEREOF, the undersigned has executed this Joinder as of the date of the Agreement.

 

	
 
    	
/s/   Bruce Korman
    
	
 
    	
Bruce   Korman
    
	
 
    	
 
    
	
 
    	
/s/   Jamie Rand
    
	
 
    	
Jamie   Rand
    

 

	
 
    	
Signature Page
    	
Limited Partnership Agreement Joinder
    
	
 
    	
 
    	
(PrimeStar Fund I, L.P.)
    

 

 

AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT

 

OF

 

PRIMESTAR FUND I, L.P.

 

This Amendment to Limited Partnership Agreement (this “Amendment”) of Primestar Fund I, L.P. (the “JV”), is made as of February 7, 2013, by and among SRP PrimeStar, L.L.C., a Delaware limited liability company, as a limited partner (“Starwood”), Prime Asset Fund VI, LLC, a Delaware limited liability company, as a limited partner (“JVP”), and PrimeStar Fund I GP, L.L.C., a Delaware limited liability company, as the general partner of the JV (“GP”).

 

WHEREAS, Starwood, JVP and GP executed and delivered that certain Limited Partnership Agreement of the JV, dated as of November 8, 2012 (the “LP Agreement) (and each initially capitalized term used but not defined in this Amendment shall have the meaning given such term in the LP Agreement);

 

WHEREAS, Starwood, SRP Sub, LLC, a Delaware limited liability company (“SW Rental Holder”), and JVP entered into that certain Rental Pool Agreement, dated as of November 8, 2012 (the “Rental Pool Agreement”);

 

WHEREAS, the LP Agreement provides that, except with respect to any Excluded Rental Pool Cash, Starwood is intended to receive all the benefits of, and bear all the burdens of ownership of the Rental Pool;

 

WHEREAS, the Rental Pool Agreement provides that each Rental Pool Asset excluding any Excluded Rental Pool Cash, is intended to be treated, for federal income tax purposes, as beneficially owned solely by Starwood:

 

WHEREAS, Section 6.5(b) of the LP Agreement provides that, in Starwood’s discretion, it has the right to direct that a Rental Pool Asset be distributed in kind to Starwood;

 

WHEREAS, SW Rental Holder is the sole member of Starwood;

 

WHEREAS, Starwood has determined that, upon distribution of each Rental Pool Asset from the JV, title to such Rental Pool Asset shall be held by SW Rental Holder, rather than by Starwood;

 

WHEREAS, Starwood desires to amend the LP Agreement to expressly provide that the JV, at Starwood’s direction, shall direct deed any Rental Pool Asset to SW Rental Holder:

 

WHEREAS, JVP and GP agree that such amendment is consistent with the general intent and terms of the LP Agreement and with the express terms of the Rental Pool Agreement:

 

WHEREAS, the parties hereto desire to expressly amend the LP Agreement as further set forth herein.

 

1

 

NOW, THEREFORE, in consideration of the foregoing, Starwood, JVP and GP agree as follows:

 

1.    Section 6.5(b) of the LP Agreement is hereby deleted and replaced in its entirety with the following:

 

“(b)        In the discretion of Starwood, any Rental Pool Asset may be (i) distributed in kind to Starwood or (ii) deemed distributed in kind to Starwood but direct deeded to Starwood’s sole member, SRP Sub, LLC, in each case (A) at Starwood’s  election and (B) Starwood’s Capital Account shall be charged with an amount equal to the Rental Pool Value of such Rental Pool Asset.”

 

2.    Both instances of the following parenthetical “(and to Starwood pursuant to Section 6.5)” in Section 7.1 are hereby deleted and each is replaced in its entirety with the following:

 

“(and to Starwood (or directly to SRP Sub, LLC if so directed by Starwood) pursuant to Section 6.5)”

 

3.    Section 9.2(a)(ii) of the LP Agreement is hereby deleted and replaced in its entirety with the following:

 

“(ii) be distributed to Starwood (or directly to SRP Sub, LLC if so directed by Starwood) in accordance with Section 6.5(b), or”

 

4.    Other than as set forth in this Amendment, the terms and provisions of the I P Agreement shall remain unmodified and in full force and effect.

 

5.    This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each such counterpart may be delivered in PDF format.

 

6.    This Amendment and the rights and obligations of the  parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the  internal laws  of the State  of Delaware.

 

[NO FURTHER TEXT ON THIS PAGE: SIGNATURE PAGE FOLLOWS]

 

2

 

IN  WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written.

 

	
 
    	
PARTNERS:
    
	
 
    	
 
    
	
 
    	
SRP PRIMESTAR, L.L.C., a Delaware limited   liability company
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Andrew J. Sossen
    
	
 
    	
 
    	
Name:
    	
Andrew J. Sossen
    
	
 
    	
 
    	
Title:
    	
Authorized Signature
    
	
 
    	
 
    
	
 
    	
PRIME ASSET FUND VI, LLC, a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Bruce Korman
    
	
 
    	
 
    	
Bruce Korman, Managing Director
    
	
 
    	
 
    	
 
    
	
 
    	
PRIMESTAR FUND I GP. L.L.C., a Delaware limited liability company
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Andrew J. Sossen
    
	
 
    	
 
    	
Name:
    	
Andrew J. Sossen
    
	
 
    	
 
    	
Title:
    	
Authorized Signature
    
						

 

Signature Page to Amendment to Limited Partnership Agreement of PrimeStar Fund I, LP

 

 

SECOND AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT

OF

PRIMESTAR FUND I, L.P.

 

THIS SECOND AMENDMENT TO LIMITED PARTNERSHIP AGREEMENT of PrimeStar Fund I, L.P. (this “Amendment”) is made and is effective as of March 27, 2013, by and between SRP PrimeStar, L.L.C., a Delaware limited liability company, as a limited partner (“Starwood”), Prime Asset Fund VI, LLC, a Delaware limited liability company, as a limited partner (“JVP”), and PrimeStar Fund I GP, L.L.C., a Delaware limited liability company, as a general partner (“PSF I GP”, and with Starwood and JVP individually, each, a “Partner”, and collectively, the “Partners”).

 

W I T N E S S E T H:

 

WHEREAS, the Partners entered into that certain Limited Partnership Agreement of PrimeStar Fund I, L.P. effective as of November 8, 2012, and amended same pursuant to that certain Amendment to Limited Partnership Agreement of PrimeStar Fund I, L.P. dated February 7, 2013 (together, the “Original Agreement”) regarding the governance PrimeStar Fund I, L.P., a Delaware limited partnership (the “Partnership”). Capitalized terms used herein shall have the meanings ascribed to such terms in the Original Agreement;

 

WHEREAS, the Partners desire cause the Partnership to invest in two (2) separate Investment Opportunities described as follows: “Second Acquisition” shall mean the acquisition from NNPL TRUST SERIES 2012-I of a pool of Loans and REO (if any) for a purchase price of approximately $104,141,797; and “Third Acquisition” shall mean the acquisition from J.P. Morgan Mortgage Acceptance Corp. of a pool of Loans and REO (if any) for a purchase price of approximately $31,186,507. The Initial Acquisition, Second Acquisition and Third Acquisition shall be collectively referred to herein as the “First Year Acquisitions”;

 

WHEREAS, for the benefit of JVP, Section 5.2 of the Original Agreement imposes a limit on mandatory Capital Contributions by JVP in the amount of $1,000,000 with respect to the Initial Acquisition only;

 

WHEREAS, Section 5.2 of the Original Agreement does not impose, for the benefit of JVP, any maximum additional Capital Contribution amount on any investments in Investment Opportunities subsequent to the Initial Acquisition;

 

WHEREAS, JVP desires to limit its mandatory Capital Contributions applicable to the First Year Acquisitions in the aggregate; and

 

WHEREAS, Starwood and PSF I GP are willing, on the terms provided herein, to agree to establish a maximum aggregate Capital Contribution limit for JVP with respect to assets constituting the First Year Acquisitions.

 

NOW, THEREFORE, in consideration of the foregoing, Starwood, JVP and PSF I GP agree as follows:

 

1.                                      Exhibit B of the Original Agreement is hereby amended to include the defined

 

1

 

terms “Second Acquisition”, “Third Acquisition” and “First Year Acquisitions” as such terms are defined in the recitals of this Amendment.

 

2.                                      The third sentence in Section 5.2(a) of the Original Agreement is hereby deleted and replaced in its entirety with the following:

 

“Notwithstanding the needs of the Partnership and with respect to the aggregate assets constituting the First Year Acquisitions only, in no event (other than as set forth in Section 9.14) shall JVP be required to make aggregate Capital Contributions in excess of an aggregate of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) (such maximum aggregate Capital Contributions amount by JVP, the “JVP Cap”) and the provisions of Section 5.2(b) shall not apply to contributions made by Starwood after JVP has reached the JVP Cap; provided, however, that the foregoing JVP Cap and suspension of Section 5.2(b) shall not apply with respect to investments in Investment Opportunities subsequent to the First Year Acquisitions and the that have been approved by JVP and Starwood, in their respective sole discretion.”

 

3.              Other than as set forth in this Amendment, the terms and provisions of the Original Agreement shall remain unmodified and in full force and effect.

 

4.              This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each such counterpart may be delivered in PDF format.

 

5.              This Amendment and the rights and obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the internal laws of the State of Delaware.

 

[NO FURTHER TEXT ON THIS PAGE; SIGNATURE PAGE FOLLOWS]

 

2

 

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written.

 

	
 
    	
PARTNERS:
    
	
 
    	
 
    
	
 
    	
SRP   PRIMESTAR, L.L.C., a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Andrew J. Sossen
    
	
 
    	
 
    	
Name:
    	
Andrew   J. Sossen
    
	
 
    	
 
    	
Title:
    	
Authorized   Signature
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PRIME   ASSET FUND VI, LLC, a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Bruce Korman
    
	
 
    	
 
    	
Bruce   Korman
    
	
 
    	
 
    	
Managing   Director
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PRIMESTAR   FUND I GP, L.L.C., a Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Andrew J. Sossen
    
	
 
    	
 
    	
Name:
    	
Andrew   J. Sossen
    
	
 
    	
 
    	
Title:
    	
Authorized   Signature
    

 

Signature Page to Second Amendment to Limited Partnership Agreement of PrimeStar Fund I, L.P.Exhibit 10.3

 

CAREY FINANCIAL, LLC

 

FORM OF DEALER MANAGER AGREEMENT

 

________________, 2013

 

 

 

Carey Financial, LLC

50 Rockefeller Plaza

New York, New York 10020

 

RE:                           CAREY WATERMARK INVESTORS INCORPORATED

 

Ladies and Gentlemen:

 

Carey Watermark Investors Incorporated (the “Company”) is a Maryland corporation that is taxed as a real estate investment trust (a “REIT”) for federal income tax purposes.  The Company proposes to offer in a follow on offering (a) up to 350,000,000 shares of common stock, $.001 par value per share (the “Shares”), for a purchase price of $10.00 per Share (subject in certain circumstances to discounts based upon the volume of shares purchased and for certain categories of purchasers), in the primary offering (the “Primary Offering”), and (b) up to 31,578,947.3684 Shares for a purchase price of $9.50 per Share for issuance through the Company’s distribution reinvestment program (the “DRIP” and together with the Primary Offering, the “Offering”), all upon the other terms and subject to the conditions set forth in the Prospectus (as defined in Section 1(a)).  The Company has reserved the right to reallocate the Shares offered in the Offering between the DRIP and the Primary Offering.

 

Upon the terms and subject to the conditions contained in this Dealer Manager Agreement (this “Agreement”), the Company hereby appoints Carey Financial, LLC, a Delaware limited liability company (the “Dealer Manager”), to act as the exclusive dealer manager for the Offering, and the Dealer Manager desires to accept such engagement.

 

1.                                      Representations And Warranties Of The Company.  The Company hereby represents, warrants and agrees during the term of this Agreement as follows:

 

(a)                                 Registration Statement and Prospectus.  In connection with the Offering, the Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) a registration statement (File No. 333-191913) on Form S-11 for the registration of the Shares under the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations of the Commission promulgated thereunder (the “Securities Act Rules and Regulations”); one or more amendments to such registration statement have been or may be so prepared and filed.  The registration statement on Form S-11 and the prospectus contained therein, as finally amended at the date the registration statement is declared effective by the Commission (the “Effective Date”) are respectively hereinafter referred to as the “Registration Statement” and the “Prospectus”, except that:

 

(i)                                     if the Company files a post-effective amendment to such registration statement, then the term “Registration Statement” shall, from and after the declaration of the effectiveness of such post-effective amendment by the Commission, refer to such registration statement as amended by such post-effective amendment, and the term “Prospectus” shall refer to the amended prospectus then on file with the Commission; and

 

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(ii)                                  if the prospectus filed by the Company pursuant to either Rule 424(b) or 424(c) of the Securities Act Rules and Regulations shall differ from the prospectus on file at the time the Registration Statement or the most recent post-effective amendment thereto, if any, shall have become effective, then the term “Prospectus” shall refer to such prospectus filed pursuant to either Rule 424(b) or 424(c), as the case may be, from and after the date on which it shall have been filed.  As used herein, the terms “Registration Statement”, “preliminary Prospectus” and “Prospectus” shall include the documents, if any, incorporated by reference therein.

 

As used herein, the term “Effective Date” also shall refer to the effective date of each post-effective amendment to the Registration Statement, unless the context otherwise requires.

 

Further, if a separate prospectus is filed and becomes effective with respect solely to the DRIP (a “DRIP Prospectus”), the term “Prospectus” shall refer to such DRIP Prospectus from and after the declaration of effectiveness of such DRIP Prospectus.

 

(b)                                 Compliance With the Securities Act.  During the term of this Agreement:

 

(i)                                     the Registration Statement, the Prospectus and any amendments or supplements thereto have complied, and will comply, in all material respects with the Securities Act, the Securities Act Rules and Regulations, the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder (the “Exchange Act Rules and Regulations”);

 

(ii)                                  the Registration Statement does not, and any amendment thereto will not, in each case as of the applicable Effective Date, include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Prospectus does not, and any amendment or supplement thereto will not, as of the applicable filing date, include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that the foregoing provisions of this Section 1(b) will not extend to any statements contained in or omitted from the Registration Statement or the Prospectus that are based upon written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or Prospectus; and

 

(iii)                               the documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they are hereafter filed with the Commission, will comply in all material respects with the requirements of the Exchange Act and Exchange Act Rules and Regulations, and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective and as of the applicable Effective Date of each post-effective amendment to the Registration Statement, did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(c)                                  Securities Matters.  There has not been:

 

(i)                                     any request by the Commission for any further amendment to the Registration Statement or the Prospectus or for any additional information;

 

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(ii)                                  any issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or, to the Company’s knowledge, threat of any proceeding for that purpose; or

 

(iii)                               any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or any initiation or, to the Company’s knowledge, threat of any proceeding for such purpose.

 

The Company is in compliance in all material respects with all federal and state securities laws, rules and regulations applicable to it and its activities, including, without limitation, with respect to the Offering and the sale of the Shares.

 

(d)                                 Corporate Status and Good Standing.  The Company is a corporation duly organized and validly existing under the laws of the State of Maryland and is in good standing with the State Department of Assessments and Taxation of Maryland, with all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.

 

(e)                                  Authorization of Agreement.  This Agreement is duly and validly authorized, executed and delivered by or on behalf of the Company and constitutes a valid and binding agreement of the Company enforceable in accordance with its terms,  except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of the United States, any state or any political subdivision thereof which affect creditors’ rights generally or by equitable principles relating to the availability of remedies or except to the extent that the enforceability of the indemnity and contribution provisions contained in this Agreement may be limited under applicable securities laws.

 

The execution and delivery of this Agreement and the performance of this Agreement, the consummation of the transactions contemplated herein and the fulfillment of the terms hereof, do not and will not conflict with, or result in a breach of any of the terms and provisions of, or constitute a default under:

 

(i)                                     the Company’s or any of its subsidiaries’ charter, bylaws, or other organizational documents, as the case may be;

 

(ii)                                  any indenture, mortgage, deed of trust, voting trust agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their properties is bound except, for purposes of this clause (ii) only, for such conflicts, breaches or defaults that do not result in and could not reasonably be expected to result in, individually or in the aggregate, a Company MAE (as defined below in this Section 1(e)); or

 

(iii)                               any statute, rule or regulation or order of any court or other governmental agency or body having jurisdiction over the Company, any of its subsidiaries or any of their properties.

 

No consent, approval, authorization or order of any court or other governmental agency or body has been or is required for the performance of this Agreement or for the consummation by the Company of any of the transactions contemplated hereby (except as have been obtained under the Securities Act, the Exchange Act, from the Financial Industry Regulatory Authority (“FINRA”) or as may be required under state securities or applicable blue sky laws in connection with the offer and sale of the Shares or under the laws of states in which the Company may own real properties in connection with its qualification to transact business in such states or as may be required by

 

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subsequent events which may occur).  Neither the Company nor any of its subsidiaries is in violation of its charter, bylaws or other organizational documents, as the case may be.

 

As used in this Agreement, “Company MAE” means any event, circumstance, occurrence, fact, condition, change or effect, individually or in the aggregate, that is, or could reasonably be expected to be, materially adverse to (A) the condition, financial or otherwise, earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, or (B) the ability of the Company to perform its obligations under this Agreement or the validity or enforceability of this Agreement or the Shares.

 

(f)                                   Actions or Proceedings.  As of the initial Effective Date, there are no actions, suits or proceedings against, or investigations of, the Company or its subsidiaries pending or, to the knowledge of the Company, threatened, before any court, arbitrator, administrative agency or other tribunal:

 

(i)                                     asserting the invalidity of this Agreement;

 

(ii)                                  seeking to prevent the issuance of the Shares or the consummation of any of the transactions contemplated by this Agreement;

 

(iii)                               that might materially and adversely affect the performance by the Company of its obligations under or the validity or enforceability of, this Agreement or the Shares;

 

(iv)                              that might result in a Company MAE, or

 

(v)                                 seeking to affect adversely the federal income tax attributes of the Shares except as described in the Prospectus.

 

The Company promptly will give notice to the Dealer Manager of the occurrence of any action, suit, proceeding or investigation of the type referred to above arising or occurring on or after the initial Effective Date.

 

(g)                                  Hazardous Materials.  The Company does not have any knowledge of:

 

(i)                                     the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, “Hazardous Materials”) on any of the properties owned by it or its subsidiaries or subject to mortgage loans owned by the Company or any of its subsidiaries; or

 

(ii)                                  any unlawful spills, releases, discharges or disposal of Hazardous Materials that have occurred or are presently occurring off such properties as a result of any construction on or operation and use of such properties, which presence or occurrence in the case of clauses (i) and (ii) would result in, individually or in the aggregate, a Company MAE.

 

In connection with the properties owned by the Company and its subsidiaries or subject to mortgage loans owned by the Company or any of its subsidiaries, the Company has no knowledge of any material failure to comply with all applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport and disposal of any Hazardous Materials.

 

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(h)                                 Sales Literature.  Any supplemental sales literature or advertisement (including, without limitation any “broker-dealer use only” material), regardless of how labeled or described, used in addition to the Prospectus in connection with the Offering which previously has been, or hereafter is, furnished or approved by the Company (collectively, “Approved Sales Literature”), shall, to the extent required, be filed with and approved by the appropriate securities agencies and bodies, provided that the Dealer Manager will make all FINRA filings, to the extent required.  Any and all Approved Sales Literature, when used in connection with the Prospectus, did not or will not at the time provided for use include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

(i)                                     Authorization of Shares.  The Shares have been duly authorized and, upon payment therefor as provided in this Agreement and the Prospectus, will be validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus.

 

(j)                                    Taxes.  Any taxes, fees and other governmental charges in connection with the execution and delivery of this Agreement or the execution, delivery and sale of the Shares have been or will be paid when due.

 

(k)                                 Investment Company.  The Company is not, and neither the offer or sale of the Shares nor any of the activities of the Company will cause the Company to be, an “investment company” or under the control of an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

 

(l)                                     Tax Returns.  The Company has filed or will file all material federal, state and foreign income tax returns required to be filed by or on behalf of the Company on or before the due dates therefor (taking into account all extensions of time to file) and has paid or provided for the payment of all such material taxes, except those being contested in good faith, indicated by such tax returns and all assessments received by the Company to the extent that such taxes or assessments have become due.

 

(m)                             REIT Qualifications.  The Company has made a timely election to be subject to tax as a REIT pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”) for its taxable year ended December 31, 2011 and has not revoked such election.  The Company has been organized and operated in conformity with the requirements for qualification and taxation as a REIT.  The Company’s current and proposed method of operation as described in the Registration Statement and the Prospectus will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code.

 

(n)                                 Independent Registered Public Accounting Firm.  The accountants who have certified certain financial statements appearing in the Prospectus are an independent registered public accounting firm within the meaning of the Securities Act and the Securities Act Rules and Regulations.  Such accountants have not been engaged by the Company to perform any “prohibited activities” (as defined in Section 10A of the Exchange Act).

 

(o)                                 Preparation of the Financial Statements.  The financial statements filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the consolidated financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified.  Such financial statements have been prepared in conformity with generally accepted accounting principles as applied in the United States applied on a consistent basis throughout the periods involved, except as may be

 

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expressly stated in the related notes thereto.  No other financial statements or supporting schedules are required to be included in the Registration Statement or any applicable Prospectus.

 

(p)                                 Material Adverse Change.  Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated therein or contemplated thereby, there has not occurred a Company MAE, whether or not arising in the ordinary course of business.

 

(q)                                 Government Permits.  The Company and its subsidiaries possess such certificates, authorities or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, other than those the failure to possess or own would not have, individually or in the aggregate, a Company MAE.  Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Company MAE.

 

(r)                                    Properties.  Except as otherwise disclosed in the Prospectus and except as would not result in, individually or in the aggregate, a Company MAE:

 

(i)                                     all properties and assets described in the Prospectus are owned with good and marketable title by the Company and its subsidiaries; and

 

(ii)                                  all liens, charges, encumbrances, claims or restrictions on or affecting any of the properties and assets of any of the Company or its subsidiaries which are required to be disclosed in the Prospectus are disclosed therein.

 

2.                                      Representations and Warranties of the Dealer Manager.  The Dealer Manager represents and warrants to the Company during the term of this Agreement that:

 

(a)                                 Organization Status.  The Dealer Manager is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.

 

(b)                                 Authorization of Agreement.  This Agreement has been duly authorized, executed and delivered by the Dealer Manager, and assuming due authorization, execution and delivery of this Agreement by the Company, will constitute a valid and legally binding agreement of the Dealer Manager enforceable against the Dealer Manager in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability and except that rights to indemnity and contribution hereunder may be limited by applicable law and public policy.

 

(c)                                  Absence of Conflict or Default.  The execution and delivery of this Agreement, the consummation of the transactions herein contemplated and compliance with the terms of this Agreement by the Dealer Manager will not conflict with or constitute a default under:

 

(i)                                     its organizational documents;

 

(ii)                                  any indenture, mortgage, deed of trust or lease to which the Dealer Manager is a party or by which it may be bound, or to which any of the property or assets of the Dealer Manager is subject; or

 

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(iii)                               any rule, regulation, writ, injunction or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Dealer Manager or its assets, properties or operations, except in the case of clause (ii) or (iii) for such conflicts or defaults that would not individually or in the aggregate have a material adverse effect on the condition (financial or otherwise), business, properties or results of operations of the Dealer Manager.

 

(d)                                 Broker-Dealer Registration; FINRA Membership.  The Dealer Manager is, and during the term of this Agreement will be, duly registered as a broker-dealer pursuant to the provisions of the Exchange Act, a member in good standing of FINRA, and a broker or dealer duly registered as such in those states where the Dealer Manager is required to be registered in order to carry out the Offering as contemplated by this Agreement.  Moreover, the Dealer Manager’s employees and representatives have all required licenses and registrations to act under this Agreement.  There is no provision in the Dealer Manager’s FINRA membership agreement that would restrict the ability of the Dealer Manager to carry out the Offering as contemplated by this Agreement.

 

3.                                      Offering and Sale of the Shares.  Upon the terms and subject to the conditions set forth in this Agreement, the Company hereby appoints the Dealer Manager as its agent and distributor to solicit and to retain the Selected Dealers (as defined in Section 3(a)) to solicit subscriptions for the Shares at the subscription price to be paid in cash.  The Dealer Manager hereby accepts such agency and exclusive distributorship and agrees to use its reasonable best efforts to sell or cause to be sold the Shares in such quantities and to such persons in accordance with such terms as are set forth in this Agreement, the Prospectus and the Registration Statement.

 

The Dealer Manager shall do so during the period commencing on the initial Effective Date and ending on the earliest to occur of the following:  (1) the later of (x) two years after the initial Effective Date of the Registration Statement and (y) at the Company’s election, the date on which the Company is permitted to extend the Offering in accordance with the rules of the Commission; (2) the acceptance by the Company of subscriptions for 66,578,947.3684 Shares; (3) the termination of the Offering by the Company, which the Company shall have the right to terminate in its sole and absolute discretion at any time; (4) the termination of the effectiveness of the Registration Statement; and (5) the liquidation or dissolution of the Company (such period being the “Offering Period”).

 

The number of Shares, if any, to be reserved for sale by each Selected Dealer may be determined by mutual agreement, from time to time, by the Dealer Manager and the Company.  In the absence of such determination, the Company shall, subject to the provisions of Section 3(b), accept Subscription Agreements based upon a first-come, first accepted reservation or other similar method.  Under no circumstances will the Dealer Manager be obligated to underwrite or purchase any Shares for its own account and, in soliciting purchases of Shares, the Dealer Manager shall act solely as the Company’s agent and not as an underwriter or principal.

 

(a)                                 Selected Dealers. The Shares offered and sold through the Dealer Manager under this Agreement shall be offered and sold only by the Dealer Manager and other securities dealers the Dealer Manager may retain (collectively the “Selected Dealers”); provided, however, that:

 

(i)                                     the Dealer Manager reasonably believes that all Selected Dealers are registered with the Commission, members of FINRA and are duly licensed or registered by the regulatory authorities in the jurisdictions in which they will offer and sell Shares; and

 

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(ii)                                  all such engagements are evidenced by written agreements, the terms and conditions of which substantially conform to the form of Selected Dealer Agreement substantially in the form of Exhibit A hereto (the “Selected Dealer Agreement”).

 

(b)                                 Subscription Documents.  Each person desiring to purchase Shares through the Dealer Manager, or any other Selected Dealer, will be required to complete and execute the subscription documents described in the Prospectus.

 

Payments for Shares shall be made payable to “Carey Watermark Investors Incorporated,” and the Selected Dealer shall forward original checks together with an original Subscription Agreement, executed and initialed by the subscriber as provided for in the Subscription Agreement, to Carey Watermark Investors Incorporated, c/o DST Systems, Inc., at the address provided in the Subscription Agreement.

 

(c)                                  Completed Sale.  A sale of a Share shall be deemed by the Company to be completed for purposes of Section 3(d) if and only if:

 

(i)                                     the Company or an agent of the Company has received a properly completed and executed subscription agreement, together with payment of the full purchase price of each purchased Share, from an investor who satisfies the applicable suitability standards and minimum purchase requirements set forth in the Registration Statement as determined by the Selected Dealer or the Dealer Manager, as applicable, in accordance with the provisions of this Agreement;

 

(ii)                                  the Company has accepted such subscription; and

 

(iii)                               such investor has been admitted as a shareholder of the Company.

 

In addition, no sale of Shares shall be completed until at least five (5) business days after the date on which the subscriber receives a copy of the Prospectus.  The Dealer Manager hereby acknowledges and agrees that the Company, in its sole and absolute discretion, may accept or reject any subscription, in whole or in part, for any reason whatsoever or no reason, and no commission or dealer manager fee will be paid to the Dealer Manager with respect to that portion of any subscription which is rejected.

 

(d)                                 Dealer-Manager Compensation.

 

(i)                                     Subject to the volume discounts and other special circumstances described in or otherwise provided in the “Plan of Distribution” section of the Prospectus or this Section 3(d), the Company agrees to pay the Dealer Manager selling commissions in the amount of seven percent (7.0%) of the selling price of each Share for which a sale is completed from the Shares offered in the Primary Offering.  The Company will not pay selling commissions for sales of Shares pursuant to the DRIP, and the Company will pay reduced selling commissions or may eliminate commissions on certain sales of Shares, including the reduction or elimination of selling commissions in accordance with, and on the terms set forth in, the Prospectus.  The Dealer Manager will re-allow all or a portion of the selling commissions, subject to federal and state securities laws, to the Selected Dealer who sold the Shares, as described more fully in the Selected Dealer Agreement.

 

(ii)                                  Subject to the special circumstances described in or otherwise provided in the “Plan of Distribution” section of the Prospectus or this Section 3(d), as compensation for acting as

 

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the dealer manager, the Company will pay the Dealer Manager, a dealer manager fee in the amount of three percent (3.0%) of the selling price of each Share for which a sale is completed from the Shares offered in the Primary Offering (the “Dealer Manager Fee”).  No Dealer Manager Fee will be paid in connection with Shares sold pursuant to the DRIP.

 

The Dealer Manager may retain or re-allow a portion of the Dealer Manager Fee, subject to federal and state securities laws, to the Selected Dealer who sold the Shares, as described more fully in the Selected Dealer Agreement.

 

(iii)                               All sales commissions and Dealer Manager fees payable to the Dealer Manager will be paid at least within ten (10) business days after the investor subscribing for the Share is admitted as a shareholder of the Company, in an amount equal to the sales commissions payable with respect to such Shares.

 

(iv)                              In no event shall the total aggregate underwriting compensation payable to the Dealer Manager and any Selected Dealers participating in the Offering, including, but not limited to, selling commissions and the Dealer Manager Fee exceed ten percent (10.0%) of gross offering proceeds from the Primary Offering in the aggregate.

 

(v)                                 Notwithstanding anything to the contrary contained herein, if the Company pays any selling commission to the Dealer Manager for sale by a Selected Dealer of one or more Shares and the subscription is rescinded as to one or more of the Shares covered by such subscription, then the Company shall decrease the next payment of selling commissions or other compensation otherwise payable to the Dealer Manager by the Company under this Agreement by an amount equal to the commission rate established in this Section 3(d), multiplied by the number of Shares as to which the subscription is rescinded.  If no payment of selling commissions or other compensation is due to the Dealer Manager after such withdrawal occurs, then the Dealer Manager shall pay the amount specified in the preceding sentence to the Company within a reasonable period of time not to exceed thirty (30) days following receipt of notice by the Dealer Manager from the Company stating the amount owed as a result of rescinded subscriptions.

 

(e)                                  Reasonable Bona Fide Due Diligence Expenses.  In addition to any payments to the Dealer Manager pursuant to Section 3(d), the Company shall reimburse the Dealer Manager or any Selected Dealer for reasonable bona fide due diligence expenses incurred by the Dealer Manager or any Selected Dealer to the extent permitted pursuant to the rules and regulations of FINRA, provided, however, that no due diligence expenses shall be reimbursed by the Company pursuant to this Section 3(e) which would cause the aggregate of all of the Company’s expenses described in Section 3(f) and compensation paid to the Dealer Manager and any Selected Dealer pursuant to Section 3(d) to exceed 15% of the gross proceeds from the sale of Shares offered in the Primary Offering.  Also, the Company shall only reimburse the Dealer Manager or any Selected Dealer for such approved bona fide due diligence expenses to the extent such expenses have actually been incurred and are supported by detailed and itemized invoice(s) provided to the Company.

 

(f)                                   Company Expenses.  Subject to the limitations described above, the Company agrees to pay all costs and expenses incident to the Offering, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, including expenses, fees and taxes in connection with:

 

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(i)                                     the registration fee, the preparation and filing of the Registration Statement (including without limitation financial statements, exhibits, schedules and consents), the Prospectus, and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Dealer Manager and to Selected Dealers (including costs of mailing and shipment);

 

(ii)                                  the preparation, issuance and delivery of certificates, if any, for the Shares, including any stock or other transfer taxes or duties payable upon the sale of the Shares;

 

(iii)                               all fees and expenses of the Company’s legal counsel, independent public or certified public accountants and other advisors;

 

(iv)                              the qualification of the Shares for offering and sale under state laws in the states that the Company shall designate as appropriate and the determination of their eligibility for sale under state law as aforesaid and the printing and furnishing of copies of blue sky surveys;

 

(v)                                 the filing fees in connection with filing for review by FINRA of all necessary documents and information relating to the Offering and the Shares;

 

(vi)                              the fees and expenses of any transfer agent or registrar for the Offered Shares and miscellaneous expenses referred to in the Registration Statement;

 

(vii)                           all costs and expenses incident to the travel and accommodation of the personnel of Carey Lodging Advisors, LLC, advisor to the Company (the “Advisor”), and the personnel of any sub-advisor designated by the Advisor and acting on behalf of the Company, in making road show presentations and presentations to Selected Dealers and other broker-dealers and financial advisors with respect to the offering of the Shares; and

 

(viii)                        the performance of the Company’s other obligations hereunder.

 

Notwithstanding the foregoing, the Company shall not directly pay, or reimburse the Advisor for, the costs and expenses described in this Section 3(f) if the payment or reimbursement of such expenses would cause the aggregate of the Company’s “organization and offering expenses” as defined by FINRA Rule 2310 (including the Company expenses paid or reimbursed pursuant to this Section 3(f), all items of underwriting compensation including Dealer Manager expenses described in Section 3(d) and due diligence expenses described in Section 3(e)) to exceed 15.0% of the gross proceeds from the sale of Shares offered in the Primary Offering.

 

4.                                      Conditions to the Dealer Manager’s Obligations.  The Dealer Manager’s obligations hereunder shall be subject to the following terms and conditions:

 

(a)                                 The representations and warranties on the part of the Company contained in this Agreement hereof shall be true and correct in all material respects and the Company shall have complied with its covenants, agreements and obligations contained in this Agreement in all material respects.

 

(b)                                 The Registration Statement shall have become effective and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the Commission and, to the best knowledge of the Company, no proceedings for that purpose shall have been instituted, threatened or contemplated by the Commission; and any request by the Commission for additional information (to be included in the Registration Statement or Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of the Dealer Manager.

 

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5.                                      Covenants of the Company.  The Company covenants and agrees with the Dealer Manager as follows:

 

(a)                                 Registration Statement.  The Company will use its best efforts to cause the Registration Statement and any subsequent amendments thereto to become effective as promptly as possible and will furnish a copy of any proposed amendment or supplement of the Registration Statement or the Prospectus to the Dealer Manager.

 

(b)                                 Commission Orders.  If the Commission shall issue any stop order or any other order preventing or suspending the use of the Prospectus, or shall institute any proceedings for that purpose, then the Company will promptly notify the Dealer Manager and use its best efforts to prevent the issuance of any such order and, if any such order is issued, to use its best efforts to obtain the removal thereof as promptly as possible.

 

(c)                                  Blue Sky Qualifications.  The Company will use its best efforts to qualify the Shares for offering and sale under the securities or blue sky laws of such jurisdictions as the Dealer Manager and the Company shall mutually agree upon and to make such applications, file such documents and furnish such information as may be reasonably required for that purpose. The Company will, at the Dealer Manager’s request, furnish the Dealer Manager with a copy of such papers filed by the Company in connection with any such qualification.  The Company will promptly advise the Dealer Manager of the issuance by such securities administrators of any stop order preventing or suspending the use of the Prospectus or of the institution of any proceedings for that purpose, and will use its best efforts to prevent the issuance of any such order and if any such order is issued, to use its best efforts to obtain the removal thereof as promptly as possible. The Company will furnish the Dealer Manager with a Blue Sky Survey dated as of the initial Effective Date, which will be supplemented to reflect changes or additions to the information disclosed in such survey.

 

(d)                                 Amendments and Supplements.  If, at any time when a Prospectus relating to the Shares is required to be delivered under the Securities Act, any event shall have occurred to the knowledge of the Company, or the Company receives notice from the Dealer Manager that it believes such an event has occurred, as a result of which the Prospectus or any Approved Sales Literature as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Registration Statement or supplement the Prospectus relating to the Shares to comply with the Securities Act, then the Company will promptly notify the Dealer Manager thereof (unless the information shall have been received from the Dealer Manager) and will prepare and file with the Commission an amendment or supplement which will correct such statement or effect such compliance to the extent required, and shall make available to the Dealer Manager thereof sufficient copies for its own use and/or distribution to the Selected Dealers.

 

(e)                                  Requests from Commission.  The Company will promptly advise the Dealer Manager of any request made by the Commission or a state securities administrator for amending the Registration Statement, supplementing the Prospectus or for additional information.

 

(f)                                   Copies of Registration Statement. The Company will furnish the Dealer Manager with one signed copy of the Registration Statement, including its exhibits, and such additional copies of the Registration Statement, without exhibits, and the Prospectus and all amendments and supplements thereto, which are finally approved by the Commission, as the Dealer Manager may reasonably request for sale of the Shares.

 

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(g)                                  Qualification to Transact Business.  The Company will take all steps necessary to ensure that at all times the Company will validly exist as a Maryland corporation and will be qualified to do business in all jurisdictions in which the conduct of its business requires such qualification and where such qualification is required under local law.

 

(h)                                 Authority to Perform Agreements. The Company undertakes to obtain all consents, approvals, authorizations or orders of any court or governmental agency or body which are required for the Company’s performance of this Agreement and under the Bylaws and the Articles of Amendment and Restatement in the form included as exhibits to the Registration Statement for the consummation of the transactions contemplated hereby and thereby, respectively, or the conducting by the Company of the business described in the Prospectus.

 

(i)                                     Sales Literature.  The Company will furnish to the Dealer Manager as promptly as shall be practicable upon request any Approved Sales Literature (provided that the use of said material has been first approved for use to the extent required by all appropriate regulatory agencies).  Any supplemental sales literature or advertisement, regardless of how labeled or described, used in addition to the Prospectus in connection with the Offering which is furnished or approved by the Company (including, without limitation, Approved Sales Literature) shall, to the extent required, be filed with and, to the extent required, approved by the appropriate securities agencies and bodies, provided that the Dealer Manager will make all FINRA filings, to the extent required.

 

(j)                                    Use of Proceeds.  The Company will apply the proceeds from the sale of the Shares as set forth in the Prospectus.

 

(k)                                 Customer Information.  The Dealer Manager and the Company shall, when applicable:

 

(i)                                     abide by and comply with (A) the privacy standards and requirements of the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) and applicable regulations promulgated thereunder, (B) the privacy standards and requirements of any other applicable federal or state law, including but not limited to, the Fair Credit Reporting Act (“FCRA”), and (C) its own internal privacy policies and procedures, each as may be amended from time to time;

 

(ii)                                  refrain from the use or disclosure of nonpublic personal information (as defined under the GLB Act) of all customers who have opted out of such disclosures except as necessary to service the customers or as otherwise necessary or required by applicable law;

 

(iii)                               except as expressly permitted under the FCRA, the Dealer Manager and the Company shall not disclose any information that would be considered a “consumer report” under the FCRA; and

 

(iv)                              determine which customers have opted out of the disclosure of nonpublic personal information by periodically reviewing and, if necessary, retrieving an aggregated list of such customers from the Selected Dealers (the “List”) to identify customers that have exercised their opt-out rights.  If either party uses or discloses nonpublic personal information of any customer for purposes other than servicing the customer, or as otherwise required by applicable law, that party will consult the List to determine whether the affected customer has exercised his or her opt-out rights.  Each party understands that it is prohibited from using or disclosing any nonpublic personal information of any customer that is identified on the List as having opted out of such disclosures.

 

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(l)                                     Dealer Manager’s Review of Proposed Amendments and Supplements.  Prior to amending or supplementing the Registration Statement, any preliminary prospectus or the Prospectus (including any amendment or supplement through incorporation of any report filed under the Exchange Act), the Company shall furnish to the Dealer Manager for review, a reasonable amount of time prior to the proposed time of filing or use thereof, a copy of each such proposed amendment or supplement, and the Company shall not file or use any such proposed amendment or supplement without the Dealer Manager’s consent, which consent shall not be unreasonably withheld or delayed.

 

6.                                      Covenants of the Dealer Manager. The Dealer Manager covenants and agrees with the Company as follows:

 

(a)                                 Compliance With Laws. With respect to the Dealer Manager’s participation and the participation by each Selected Dealer in the offer and sale of the Shares (including, without limitation, any resales and transfers of Shares), the Dealer Manager agrees, and each Selected Dealer in its Selected Dealer Agreement will agree, to comply in all material respects with all applicable requirements of the Securities Act, the Securities Act Rules and Regulations, the Exchange Act, the Exchange Act Rules and Regulations and all other federal regulations applicable to the Offering, the sale of Shares and with all applicable state securities or blue sky laws, and the Rules of FINRA applicable to the Offering, from time to time in effect, specifically including, but not in any way limited to, NASD Conduct Rule 2340 (Customer Account Statements), and 2420 (Dealing with Non-Members), and FINRA Rules 2111 (Suitability), 2310 (Direct Participation Programs), 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings), and 5141 (Sale of Securities in a Fixed Price Offering) therein.  The Dealer Manager will not offer the Shares for sale in any jurisdiction unless and until it has been advised that the Shares are either registered in accordance with, or exempt from, the securities and other laws applicable thereto.

 

In addition, the Dealer Manager shall, in accordance with applicable law or as prescribed by any state securities administrator, provide, or require in the Selected Dealer Agreement that the Selected Dealer shall provide, to any prospective investor copies of any prescribed document which is part of the Registration Statement and any supplements thereto during the course of the Offering and prior to the sale.  The Company may provide the Dealer Manager with certain Approved Sales Literature to be used by the Dealer Manager and the Selected Dealers in connection with the solicitation of purchasers of the Shares.  The Dealer Manager agrees not to deliver the Approved Sales Literature to any person prior to the initial Effective Date.  If the Dealer Manager elects to use such Approved Sales Literature after the initial Effective Date, then the Dealer Manager agrees that such material shall not be used by it in connection with the solicitation of purchasers of the Shares and that it will direct Selected Dealers not to make such use unless accompanied or preceded by the Prospectus, as then currently in effect, and as it may be amended or supplemented in the future.

 

The Dealer Manager agrees that it will not use any Approved Sales Literature other than those provided to the Dealer Manager by the Company for use in the Offering.  The use of any other sales material is expressly prohibited.

 

(b)                                 No Additional Information. In offering the Shares for sale, the Dealer Manager shall not, and each Selected Dealer shall agree not to, give or provide any information or make any representation other than those contained in the Prospectus or the Approved Sales Literature.

 

(c)                                  Sales of Shares. The Dealer Manager shall, and each Selected Dealer shall agree to, solicit purchases of the Shares only in the jurisdictions in which the Dealer Manager and such Selected

 

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Dealer are legally qualified to so act and in which the Dealer Manager and each Selected Dealer have been advised by the Company or counsel to the Company that such solicitations can be made.

 

(d)                                 Subscription Agreement. The Dealer Manager will comply in all material respects with the subscription procedures and “The Offering/Plan of Distribution” set forth in the Prospectus.  Subscriptions will be submitted by the Dealer Manager and each Selected Dealer to the Company only on the form which is included as Annex A to the Prospectus.  The Dealer Manager understands and acknowledges, and each Selected Dealer shall acknowledge, that the Subscription Agreement must be executed and initialed by the subscriber as provided for by the Subscription Agreement.

 

(e)                                  Suitability. The Dealer Manager will offer Shares, and in its agreement with each Selected Dealer will require that the Selected Dealer offer Shares, only to persons that it has reasonable grounds to believe meet the financial qualifications set forth in the Prospectus or in any suitability letter or memorandum sent to it by the Company and will only make offers to persons in the states in which it is advised in writing by the Company that the Shares are qualified for sale or that such qualification is not required.  In offering Shares, the Dealer Manager will comply, and in its agreements with the Selected Dealers, the Dealer Manager will require that the Selected Dealers comply, with the provisions of all applicable rules and regulations relating to suitability of investors, including without limitation the FINRA Rules and the provisions of Article III.C. of the Statement of Policy Regarding Real Estate Investment Trusts of the North American Securities Administrators Association, Inc., as revised and amended on May 7, 2007 and as may be further revised and amended (the “NASAA Guidelines”).

 

The Dealer Manager agrees that in recommending the purchase of the Shares in the Primary Offering to an investor, the Dealer Manager and each person associated with the Dealer Manager that make such recommendation shall have, and each Selected Dealer in its Selected Dealer Agreement shall agree with respect to investors to which it makes a recommendation shall agree that it shall have, reasonable grounds to believe, on the basis of information obtained from the investor concerning the investor’s investment objectives, other investments, financial situation and needs, and any other information known by the Dealer Manager, the person associated with the Dealer Manager or the Selected Dealer that:

 

(i)                                     the investor is or will be in a financial position appropriate to enable the investor to realize to a significant extent the benefits described in the Prospectus, including the tax benefits where they are a significant aspect of the Company;

 

(ii)                                  the investor has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and

 

(iii)                               an investment in the Shares offered in the Primary Offering is otherwise suitable for the investor.

 

The Dealer Manager agrees as to investors to whom it makes a recommendation with respect to the purchase of the Shares in the Primary Offering (and each Selected Dealer in its Selected Dealer Agreement shall agree, with respect to Investors to whom it makes such recommendations) to maintain in the files of the Dealer Manager (or the Selected Dealer, as applicable) documents disclosing the basis upon which the determination of suitability was reached as to each investor.

 

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In making the determinations as to financial qualifications and as to suitability required by the NASAA Guidelines, the Dealer Manager and Selected Dealers may rely on (A) representations from investment advisers who are not affiliated with a Selected Dealer, banks acting as trustees or fiduciaries, and (B) information it has obtained from a prospective investor, including such information as the investment objectives, other investments, financial situation and needs of the person or any other information known by the Dealer Manager (or Selected Dealer, as applicable), after due inquiry. Notwithstanding the foregoing, the Dealer Manager shall not, and each Selected Dealer shall agree not to, execute any transaction in the Company in a discretionary account without prior written approval of the transaction by the customer.

 

(f)                                   Selected Dealer Agreements.  All engagements of the Selected Dealers will be evidenced by a Selected Dealer Agreement.

 

(g)                                  Electronic Delivery.  If it intends to use electronic delivery to distribute the Prospectus to any person, that it will comply with all applicable requirements of the Commission, the Blue Sky laws and/or FINRA and any other laws or regulations related to the electronic delivery of documents.

 

(h)                                 AML Compliance.  The Dealer Manager represents to the Company that it has established and implemented an anti-money laundering compliance program (“AML Program”) in accordance with Section 352 of the USA PATRIOT Act of 2001 (the “PATRIOT Act”) and FINRA Rule 3310, that complies with applicable anti-money laundering laws and regulations, including, but not limited to, the customer identification program requirements of Section 326 of the PATRIOT Act, and the suspicious activity reporting requirements of Section 356 of the PATRIOT Act, and the laws, regulations and Executive Orders administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury (collectively, “AML/OFAC Laws”).  The Dealer Manager hereby covenants to remain in compliance with the AML/OFAC Laws and shall, upon request by the Company, provide a certification to the Company that, as of the date of such certification, its AML Program is compliant with the AML/OFAC Laws.

 

(i)                                     Customer Information.  The Dealer Manager will use its best efforts to provide the Company with any and all subscriber information that the Company requests in order for the Company to satisfy its obligations under the AML/OFAC Laws and comply with the requirements under Section 5(k) above.

 

(j)                                    Recordkeeping.  The Dealer Manager will comply, and will require each Selected Dealer to agree to comply, with the record keeping requirements of the Exchange Act, including, but not limited to, Rules 17a-3 and 17a-4 promulgated under the Exchange Act, and shall maintain, for at least six years or for a period of time not less than that required in order to comply with all applicable federal, state and other regulatory requirements, whichever is later, such records with respect to each investor who purchases Shares, information used to determine that the investor meets the suitability standards imposed on the offer and sale of the Shares, the amount of Shares sold, and a representation of the investor that the investor is investing for the investor’s own account or, in lieu of such representation, information indicating that the investor for whose account the investment was made met the suitability standards.

 

(k)                                 Suspension or Termination of Offering.  The Dealer Manager agrees, and will require that each of the Selected Dealers agree, to suspend or terminate the offering and sale of the Shares upon request of the Company at any time and to resume the offering and sale of the Shares upon subsequent request of the Company.

 

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7.                                      Indemnification.

 

(a)                                 Indemnified Parties Defined.  For the purposes of this Agreement, an “Indemnified Party” shall mean a person or entity entitled to indemnification under Section 7, as well as such person’s or entity’s officers, directors, employees, members, partners, affiliates, agents and representatives, and each person, if any, who controls such person or entity within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.

 

(b)                                 Indemnification of the Dealer Manager and Selected Dealers.  The Company will indemnify, defend and hold harmless the Dealer Manager and the Selected Dealers, and their respective Indemnified Parties, from and against any losses, claims, expenses (including reasonable legal and other expenses incurred in investigating and defending such claims or liabilities), damages or liabilities, joint or several, to which any such Selected Dealers or the Dealer Manager, or their respective Indemnified Parties, may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) arise out of or are based upon:

 

(i)                                     in whole or in part, any material inaccuracy in a representation or warranty contained herein by the Company, any material breach of a covenant contained herein by the Company, or any material failure by the Company to perform its obligations hereunder or to comply with state or federal securities laws applicable to the Offering;

 

(ii)                                  any untrue statement or alleged untrue statement of a material fact contained (A) in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus, (B) in any Approved Sales Literature or (C) in any blue sky application or other document executed by the Company or on its behalf specifically for the purpose of qualifying any or all of the Offered Shares for sale under the securities laws of any jurisdiction or based upon written information furnished by the Company under the securities laws thereof (any such application, document or information being hereinafter called a “Blue Sky Application”); or

 

(iii)                               the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements therein not misleading or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

The Company will reimburse each Selected Dealer or the Dealer Manager, and their respective Indemnified Parties, for any reasonable legal or other expenses incurred by such Selected Dealer or the Dealer Manager, and their respective Indemnified Parties, in connection with investigating or defending such loss, claim, expense, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, expense, damage or liability arises out of, or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or any post-effective amendment thereof or the Prospectus or any such amendment thereof or supplement thereto.  This indemnity agreement will be in addition to any liability which the Company may otherwise have.

 

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Notwithstanding the foregoing, as required by Section II.G. of the NASAA Guidelines, the indemnification and agreement to hold harmless provided in this Section 7(b) is further limited to the extent that no such indemnification by the Company of a Selected Dealer or the Dealer Manager, or their respective Indemnified Parties, shall be permitted under this Agreement for, or arising out of, an alleged violation of federal or state securities laws, unless one or more of the following conditions are met:  (a) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular Indemnified Party; (b) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular Indemnified Party; or (c) a court of competent jurisdiction approves a settlement of the claims against the particular Indemnified Party and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Commission and of the published position of any state securities regulatory authority in which the securities were offered or sold as to indemnification for violations of securities laws.

 

(c)                                  Dealer Manager Indemnification of the Company.  The Dealer Manager will indemnify, defend and hold harmless the Company and each of its Indemnified Parties and each person who has signed the Registration Statement, from and against any losses, claims, expenses (including the reasonable legal and other expenses incurred in  investigating and defending any such claims or liabilities), damages or liabilities to which any of the aforesaid parties may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, expenses, damages (or actions in respect thereof) arise out of or are based upon:

 

(i)                                     in whole or in part, any material inaccuracy in a representation or warranty contained herein by the Dealer Manager or any material breach of a covenant contained herein by the Dealer Manager;

 

(ii)                                  any untrue statement or any alleged untrue statement of a material fact contained (A) in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus, (B) in any Approved Sales Literature, or (C) any Blue Sky Application; or

 

(iii)                               the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements therein not misleading, or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the Prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that in each case described in clauses (ii) and (iii) to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or any such post-effective amendments thereof or the Prospectus or any such amendment thereof or supplement thereto;

 

(iv)                              any use of sales literature, including “broker-dealer use only” materials, by the Dealer Manager that is not Approved Sales Literature; or

 

(v)                                 any untrue statement made by the Dealer Manager or omission by the Dealer Manager to state a fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading in connection with the Offering, in each case, other than statements or omissions made in conformity with the Registration

 

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Statement, the Prospectus, any Approved Sales Literature or any other materials or information furnished by or on behalf on the Company.

 

The Dealer Manager will reimburse the aforesaid parties for any reasonable legal or other expenses incurred in connection with investigation or defense of such loss, claim, expense, damage, liability or action.  This indemnity agreement will be in addition to any liability which the Dealer Manager may otherwise have.

 

(d)                                 Selected Dealer Indemnification of the Company.  By virtue of entering into the Selected Dealer Agreement, each Selected Dealer severally will agree to indemnify, defend and hold harmless the Company, the Dealer Manager, each of their respective Indemnified Parties, and each person who signs the Registration Statement, from and against any losses, claims, expenses, damages or liabilities to which the Company, the Dealer Manager, or any of their respective Indemnified Parties, or any person who signed the Registration Statement, may become subject, under the Securities Act or otherwise, as more fully described in the Selected Dealer Agreement.

 

(e)                                  Action Against Parties; Notification.  Promptly after receipt by any Indemnified Party under this Section 7 of notice of the commencement of any action, such Indemnified Party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, promptly notify the indemnifying party of the commencement thereof; provided, however, that the failure to give such notice shall not relieve the indemnifying party of its obligations hereunder except to the extent it shall have been actually prejudiced by such failure.  In case any such action is brought against any Indemnified Party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled, to the extent it may wish, jointly with any other indemnifying party similarly notified, to participate in the defense thereof, with separate counsel.

 

Such participation shall not relieve such indemnifying party of the obligation to reimburse the Indemnified Party for reasonable legal and other expenses incurred by such Indemnified Party in defending itself, except for such expenses incurred after the indemnifying party has deposited funds sufficient to effect the settlement, with prejudice, of, and unconditional release of all liabilities from, the claim in respect of which indemnity is sought.  Any such indemnifying party shall not be liable to any such Indemnified Party on account of any settlement of any claim or action effected without the consent of such indemnifying party, such consent not to be unreasonably withheld or delayed.

 

(f)                                   Reimbursement of Fees and Expenses.  An indemnifying party under Section 7 of this Agreement shall be obligated to reimburse an Indemnified Party for reasonable legal and other expenses as follows:

 

(i)                                     In the case of the Company indemnifying the Dealer Manager, the advancement of funds to the Dealer Manager for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought shall be permissible (in accordance with Section II.G. of the NASAA Guidelines) only if all of the following conditions are satisfied:  (A) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (B) the legal action is initiated by a third party who is not a shareholder of the Company or the legal action is initiated by a shareholder of the Company acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and (C) the Dealer Manager undertakes to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which the Dealer Manager is found not to be entitled to indemnification.

 

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(ii)                                  In any case of indemnification other than that described in Section 7(f)(i) above, the indemnifying party shall pay all legal fees and expenses reasonably incurred by the Indemnified Party in the defense of such claims or actions; provided, however, that the indemnifying party shall not be obligated to pay legal expenses and fees to more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions giving rise to such claims notwithstanding that such actions or claims are alleged or brought by one or more parties against more than one Indemnified Party.  If such claims or actions are alleged or brought against more than one Indemnified Party, then the indemnifying party shall only be obliged to reimburse the expenses and fees of the one law firm (in addition to local counsel) that has been participating by a majority of the indemnified parties against which such action is finally brought; and if a majority of such indemnified parties is unable to agree on which law firm for which expenses or fees will be reimbursable by the indemnifying party, then payment shall be made to the first law firm of record representing an Indemnified Party against the action or claim.  Such law firm shall be paid only to the extent of services performed by such law firm and no reimbursement shall be payable to such law firm on account of legal services performed by another law firm.

 

8.                                      Contribution.

 

(a)                                 If Indemnification is Unavailable.  If the indemnification provided for in Section 7 is for any reason unavailable to or insufficient to hold harmless an Indemnified Party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such Indemnified Party, as incurred:

 

(i)                                     in such proportion as is appropriate to reflect the relative benefits received by the Company, the Dealer Manager and the Selected Dealer, respectively, from the proceeds received in Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement; or

 

(ii)                                  if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Dealer Manager and the Selected Dealer, respectively, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.

 

(b)                                 Relative Benefits.  The relative benefits received by the Company, the Dealer Manager and the Selected Dealer, respectively, in connection with the proceeds received in the Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement shall be deemed to be in the same respective proportion as the total net proceeds from the Primary Offering pursuant to this Agreement and the relevant Selected Dealer Agreement (before deducting expenses), received by the Company, and the total selling commissions and dealer manager fees received by the Dealer Manager and the Selected Dealer, respectively, in each case as set forth on the cover of the Prospectus bear to the aggregate offering price of the Shares sold in the Primary Offering as set forth on such cover.

 

(c)                                  Relative Fault.  The relative fault of the Company, the Dealer Manager and the Selected Dealer, respectively, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact

 

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related to information supplied by the Company, by the Dealer Manager or by the Selected Dealer, respectively, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(d)                                 Pro Rata is Unreasonable.  The Company, the Dealer Manager and the Selected Dealer (by virtue of entering into the Selected Dealer Agreement) agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable contributions referred to above in this Section 8.  The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an Indemnified Party and referred to above in this Section 8 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission or alleged omission.

 

(e)                                  Limits.  Notwithstanding the provisions of this Section 8, the Dealer Manager and the Selected Dealer shall not be required to contribute any amount by which the total price at which the Shares sold in the Primary Offering to the public by them exceeds the amount of any damages which the Dealer Manager and the Selected Dealer have otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission.

 

(f)                                   Fraudulent Misrepresentation.  No party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any party who was not guilty of such fraudulent misrepresentation.

 

(g)                                  Benefits of Contribution.  For the purposes of this Section 8, the Dealer Manager’s officers, directors, employees, members, partners, agents and representatives, and each person, if any, who controls the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution of the Dealer Manager, and each officers, directors, employees, members, partners, agents and representatives of the Company, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company, within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution of the Company.  The Selected Dealers’ respective obligations to contribute pursuant to this Section 8 are several in proportion to the number of Shares sold by each Selected Dealer in the Primary Offering and not joint.

 

9.                                      Termination of this Agreement.

 

(a)                                 Term; Expiration.  This Agreement shall become effective on the initial Effective Date and the obligations of the parties hereunder shall not commence until the initial Effective Date. This Agreement may be terminated by either party upon 60 calendar days’ written notice to the other party.  This Agreement shall automatically expire on the termination date of the Offering as described in the Prospectus.

 

(b)                                 Delivery of Records Upon Expiration or Early Termination.  Upon the expiration or early termination of this Agreement for any reason, the Dealer Manager shall:

 

(i)                                     promptly forward any and all funds, if any, in its possession which were received from investors for the sale of Shares for deposit;

 

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(ii)                                  to the extent not previously provided to the Company a list of all investors who have subscribed for or purchased shares and all broker-dealers with whom the Dealer Manager has entered into a Selected Dealer Agreement;

 

(iii)                               notify Selected Dealers of such termination; and

 

(iv)                              promptly deliver to the Company copies of any sales literature designed for use specifically for the Offering that it is then in the process of preparing. Upon expiration or earlier termination of this Agreement, the Company shall pay to the Dealer Manager all compensation to which the Dealer Manager is or becomes entitled under Section 3(d) at such time as such compensation becomes payable.

 

10.                               Miscellaneous

 

(a)                                 Survival.  The following provisions of the Agreement shall survive the expiration or earlier termination of this Agreement:  Section 3(d) (Dealer-Manager Compensation); Section 5(l) (Dealer-Manager’s Review of Proposed Amendments and Supplements); Section 6(i) (AML Compliance); Section 7 (Indemnification); Section 8 (Contribution); Section 9 (Termination of This Agreement) and this Section 10 (Miscellaneous).  Notwithstanding anything else that may be to the contrary herein, the expiration or earlier termination of this Agreement shall not relieve a party for liability for any breach occurring prior to such expiration or earlier termination.  In no event shall the Dealer Manager be entitled to payment of any compensation in connection with the Offering that is not completed according to this Agreement; provided, however, that the reimbursement of out-of-pocket accountable expenses actually incurred by the Dealer Manager or person associated with the Dealer Manager shall not be presumed to be unfair or unreasonable and shall be payable under normal circumstances.

 

(b)                                 Notices.  All notices or other communications required or permitted hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed given or delivered:  (i) when delivered personally or by commercial messenger; (ii) one business day following deposit with a recognized overnight courier service, provided such deposit occurs prior to the deadline imposed by such service for overnight delivery; (iii) when transmitted, if sent by facsimile copy, provided confirmation of receipt is received by sender and such notice is sent by an additional method provided hereunder; in each case above provided such communication is addressed to the intended recipient thereof as set forth below:

 

If to the Company:

 

Carey Watermark Investors Incorporated

50 Rockefeller Plaza

New York, New York 10020

Facsimile No.: (212) 492-8922

Attention:  Mr. Thomas Zacharias

 

with a copy to:

 

Clifford Chance US LLP

31 West 52nd Street

New York, New York 10019

Facsimile No.:  (212) 878-8375

Attention:  Kathleen L. Werner, Esq.

 

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If to the Dealer Manager:

 

Carey Financial, LLC

50 Rockefeller Plaza

New York, New York 10020

Facsimile No.: (212) 492-8922

Attention:  Mr. Richard J. Paley

 

with a copy to:

 

Kunzman & Bollinger, Inc.

5100 N. Brookline Avenue, Suite 600

Oklahoma City, Oklahoma 73112

Facsimile No: (405) 942-3501

Attention:  Wallace W. Kunzman, Jr.

 

Any party may change its address specified above by giving each party notice of such change in accordance with this Section 10(b).

 

(c)                                  Successors and Assigns. No party shall assign (voluntarily, by operation of law or otherwise) this Agreement or any right, interest or benefit under this Agreement without the prior written consent of each other party. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns.

 

(d)                                 Invalid Provision.  The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.

 

(e)                                  Applicable Law. This Agreement and any disputes relative to the interpretation or enforcement hereto shall be governed by and construed under the internal laws, as opposed to the conflicts of laws provisions, of the State of New York.

 

(f)                                   Waiver.  EACH OF THE PARTIES HERETO WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT.  The parties hereto each hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the Borough of Manhattan, New York City, in respect of the interpretation and enforcement of the terms of this Agreement, and in respect of the transactions contemplated hereby, and each hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties hereto each hereby irrevocably agrees that all claims with respect to such action or proceeding shall be heard and determined in such a New York State or Federal court.

 

(g)                                  Attorneys’ Fees.  If a dispute arises concerning the performance, meaning or interpretation of any provision of this Agreement or any document executed in connection with this Agreement, then the prevailing party in such dispute shall be awarded any and all costs and expenses incurred by the prevailing party in enforcing, defending or establishing its rights hereunder or thereunder,

 

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including, without limitation, court costs and attorneys and expert witness fees.  In addition to the foregoing award of costs and fees, the prevailing also shall be entitled to recover its attorneys’ fees incurred in any post-judgment proceedings to collect or enforce any judgment.

 

(h)                                 No Partnership. Nothing in this Agreement shall be construed or interpreted to constitute the Dealer Manager or the Selected Dealer as being in association with or in partnership with the Company or one another, and instead, this Agreement only shall constitute the Selected Dealer as a broker authorized by the Company to sell and to manage the sale by others of the Shares according to the terms set forth in the Registration Statement, the Prospectus or this Agreement. Nothing herein contained shall render the Dealer Manager or the Company liable for the obligations of any of the Selected Dealers or one another.

 

(i)                                     Third Party Beneficiaries.  Except for the persons and entities referred to in Section 7 (Indemnification) and Section 8 (Contribution), there shall be no third party beneficiaries of this Agreement, and no provision of this Agreement is intended to be for the benefit of any person or entity not a party to this Agreement, and no third party shall be deemed to be a beneficiary of any provision of this Agreement.  Except for the persons and entities referred to in Section 7 and Section 8, no third party shall by virtue of any provision of this Agreement have a right of action or an enforceable remedy against any party to this Agreement.  Each of the persons and entities referred to in Section 7 and Section 8 shall be a third party beneficiary of this Agreement.

 

(j)                                    Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

 

(k)                                 Nonwaiver.  The failure of any party to insist upon or enforce strict performance by any other party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such party’s right to assert or rely upon any such provision or right in that or any other instance; rather, such provision or right shall be and remain in full force and effect.

 

(l)                                     Access to Information. The Company may authorize the Company’s transfer agent to provide information to the Dealer Manager and each Selected Dealer regarding recordholder information about the clients of such Selected Dealer who have invested with the Company on an on-going basis for so long as such Selected Dealer has a relationship with such clients. The Dealer Manager shall require in the Selected Dealer Agreement that Selected Dealers not disclose any password for a restricted website or portion of website provided to such Selected Dealer in connection with the Offering and not disclose to any person, other than an officer, director, employee or agent of such Selected Dealers, any material downloaded from such a restricted website or portion of a restricted website.

 

(m)                             Counterparts. This Agreement may be executed (including by facsimile transmission) with counterpart signature pages or in counterpart copies, each of which shall be deemed an original but all of which together shall constitute one and the same instrument comprising this Agreement.

 

(n)                                 Absence of Fiduciary Relationships.  The parties acknowledge and agree that:

 

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(i)                                     the Dealer Manager’s responsibility to the Company is solely contractual in nature; and

 

(ii)                                  the Dealer Manager does not owe the Company, any of its affiliates or any other person or entity any fiduciary (or other similar) duty as a result of this Agreement or any of the transactions contemplated hereby.

 

If the foregoing is in accordance with your understanding of our agreement, kindly sign and return it to us, whereupon this instrument will become a binding agreement between you and the Company in accordance with its terms.

 

[Signatures on following page]

 

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IN WITNESS WHEREOF, the parties hereto have each duly executed this Dealer Manager Agreement as of the day and year set forth above.

 

	
 
    	
THE   COMPANY:
    
	
 
    	
 
    
	
 
    	
CAREY   WATERMARK INVESTORS INCORPORATED
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
Thomas   E. Zacharias
    
	
 
    	
 
    	
Title:
    	
Chief   Operating Officer
    

 

Accepted as of the date first above written:

 

	
 
    	
THE   DEALER MANAGER:
    
	
 
    	
 
    
	
 
    	
CAREY   FINANCIAL, LLC
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
Mark   Goldberg
    
	
 
    	
 
    	
Title:
    	
President
    

 

 

[Signature Page to Dealer Manager Agreement]

 

 

EXHIBIT A

 

FORM OF SELECTED DEALER AGREEMENT

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