Document:

ex10_16.htm

 

LEASE

 

THIS LEASE, made this 16 day of November, 2009, by and between 3MO, LLC, a Nevada limited liability company, whose address is 1291 W. Galleria Drive, Suite 220, Henderson, Nevada 89014, the Lessor (hereinafter referred to as "Landlord"), and VEGAS VALLEY FOOD & BEVERAGE, LLC, a Nevada limited liability company, whose address is c/o Modern Bookkeeping, Inc., 8252 E. Lansing Road, Suite 101, Durand, Michigan 48429, the Lessee (hereinafter referred to as "Tenant").

 

W I T N E S S E T H :

 

Landlord and Tenant hereby covenant and agree as follows:

 

1. Description and Improvements.  

 

(A)Landlord, in consideration of the rents to be paid and the covenants and agreements to be performed by Tenant, does hereby lease unto Tenant the land and building(s) (which land and building(s) are hereinafter together sometimes referred to as the "Premises"), in the City of Las Vegas, County of Clark, and State of Nevada, commonly know as 4740 South Arville Street, Las Vegas, Nevada, together with all the tenements, hereditaments, improvements, appurtenances, rights, easements, and rights-of-way incident thereto (APN 162-19-801-003, 017, and 018 [Lots 1, 2, and 3 as shown by map thereof in File 35 of Parcels Maps, Page 1 in the Office of the Recorder, Clark County, Nevada]).  Landlord makes no representation or warranties except those warranties expressly stated herein, and Landlord hereby disclaims any implied warranties or any warranty of fitness for a particular purpose.

 

(B)Landlord, in consideration of the rents to be paid and the covenants and agreements to be performed by Tenant, does hereby lease to Tenant all furniture, fixtures, machinery, equipment, supplies and other personal property used in connection with the operation of the adult nightclub at the Premises ("Tangible Assets") and all intangible assets ("Intangible Assets") used in connection with the operation of the adult nightclub at the Premises, including, but not limited to, telephone numbers, licenses and permits, customer lists, business records, and contracts acceptable to Tenant.  During the Term of this Lease, Tenant shall have the license to use the marks, trademarks and logos associated with "Seamless" in connection with the business at the Premises.  During the term of this Lease: (i) Tenant shall maintain and repair the Tangible Assets; (ii) Tenant shall pay all taxes and other assessments imposed on the Tangible Assets by governmental authorities; (iii) Tenant shall pay all fees relating to the Intangible Assets; (iv) Tenant shall insure the Tangible Assets against fire and other risks; and (v) Tenant shall furnish Landlord with current certificates of insurance for the Tangible Assets.  Tenant hereby takes the Tangible Assets and Intangible Assets in their current AS-IS and WHERE-IS condition with all faults.  Landlord makes no representations or warranties except those expressly set forth herein and Landlord hereby disclaims any implied warranty or any warranty of fitness for a particular purpose.

 

(C)Landlord will furnish Tenant with all reports, evaluations, notices, surveys and/or assessments prepared for, or in the possession of, or under the control of, Landlord pertaining to the Premises within ten (10) days after the date hereof. 

 

2. Term.  The term of this Lease shall be for a period of four (4) years beginning on the Commencement Date (the "Term").  As used in this Lease, the phrase "Commencement Date" shall mean November 1, 2009; provided Tenant has all licenses and permits required to operate an adult nightclub at the Premises, including a license to sell beer, wine, and liquor for consumption on the Premises.  If Tenant does not have all licenses and permits required to operate an adult nightclub at the Premises, then the Commencement Date shall be the date on which Tenant obtains all licenses and permits required to operate an adult nightclub at the Premises.  Prior to the date on which possession is delivered to Tenant, Tenant shall have the right to enter the Premises rent free, for the purpose of preparing for its occupancy and installing fixtures and equipment, and receiving property.  If permitted under applicable laws, rules, and regulations, Tenant may operate Tenant's adult nightclub at the Premises using Landlord's or the prior occupant's licenses and permits until Tenant obtains all required licenses and permits required to operate an adult nightclub at the Premises.

 

3. Rent.  During the Term, Tenant shall pay to Landlord, as rent for the Premises and the Tangible Assets and the Intangible Assets, the sum of Forty Thousand ($40,000.00) Dollars for each calendar month, payable on the first (1st) day of each calendar month ("Base Rent") for the current calendar month.  If the Term shall commence on a date other than the first day of a calendar month, or shall end on a day other than the last day of a calendar month, the Base Rent for such first or last fractional month shall be such proportion of the monthly Base Rent as the number of days in such fractional month for which rent is payable bears to the total number of days in such calendar month, and such rent for a fractional month shall be payable on or before the first (1st) day of the calendar month following such fractional month.  Absolutely no rent or other charge shall be payable by or due from Tenant for any period prior to the Commencement Date.  

 

In addition to the Base Rent, Tenant shall pay to Landlord 30% of Tenant's "Net Profits" from Tenant's business operations at the Premises calculated on a monthly basis ("Percentage Rent").  The determination of Net Profits shall be made by Tenant's independent certified public accounting firm and shall be binding on Landlord, except for obvious errors.  Exhibit B hereto lists certain guidelines to be followed by Tenant's independent certified public accounting firm in determining Net Profits for the purposes of this Lease. Tenant shall provide Landlord with monthly sales and income statements not later than the 20th day of each calendar month for the immediately preceding calendar month.  Percentage Rent will be due on the first day of the calendar month after the statement of sales and income has been provided by Tenant to Landlord.  Tenant’s accounting firm shall provide a certified statement of the Net Profits to Landlord on an annual basis within 60 days of the close of Tenant’s fiscal year.    On November 1, 2010 (or the first anniversary of the Commencement Date if the Commencement Date is later than November 1, 2009), Tenant shall pay to Landlord the sum of One Hundred Thousand ($100,000) Dollars as additional rent ("Additional Rent," the Base Rent, Percentage Rent and Additional Rent are sometimes referred to collectively herein as "Rents").

 

If any Rents are not paid within five (5) days after the due date and Landlord notifies Tenant, in writing, that such Rents have not been paid when due, then a late fee of 5% of the Rents which have not been paid when due shall be added to the Rents if the Rents are not sent to Landlord via overnight courier within two (2) business days after receipt by Tenant of the notice from Landlord. 

 

In the event this Lease is terminated, cancelled, annulled, or voided, then all unearned rent and other charges paid in advance by Tenant shall be promptly refunded by Landlord to Tenant.

 

4. Option to Purchase. 

 

(A)Landlord grants to Tenant the option to purchase the Premises and the Tangible Assets and the Intangible Assets ("Option"), exercisable by Tenant at any time beginning on the Commencement Date and ending ninety (90) days prior to the end of the Term.  Tenant may not exercise the Option if Tenant is in material default under the Lease and Tenant has not cured such default after all required notices have been given and all grace periods have expired. 

 

(B)The Option shall be exercised by written notice to Landlord of Tenant's election to exercise the Option, signed by a duly authorized representative of Tenant and served upon Landlord as provided in Paragraph 28(D) hereof.  

 

(C)Landlord shall, within fifteen (15) days after Tenant exercises the Option, deliver to Tenant a commitment for the issuance of an A.L.T.A. policy of title insurance ("Commitment"), without standard exceptions, at standard rates without indemnification for matters not disclosed to Tenant, issued by a title company reasonably acceptable to Tenant("Title Agent"), in the amount of the  Option Price, naming Tenant as the party to be insured, and showing title to the Premises in Landlord, free and clear of all liens and encumbrances, except those liens and encumbrances to which Tenant does not object or has waived Tenant's objection as provided in Paragraph 4(F) hereof.  

 

(D)Landlord shall make all reasonable efforts to locate a survey of the Premises (and provide Tenant with an affidavit sufficient for Title Agent to delete the survey exception on the title policy insuring title to the Premises in Tenant).  If Landlord cannot locate a survey of the Premises within thirty (30) days after the Commencement Date, then Tenant shall have prepared, at Tenant's expense, an A.L.T.A. survey of the Premises sufficient for Title Agent to delete the survey exception to the title policy issued to Tenant.  If Tenant is required to obtain a survey of the Premises and Tenant exercises the Option and purchases the Premises, then Tenant shall be entitled to a credit against the Option Price equal to the lesser of (i) Tenant's cost of the survey, or (ii) the sum of $3,000.

 

(E)During the Term, Tenant may conduct, at Tenant's expense, inspections, examinations and tests of the structural components of the buildings and improvements on the Premises, the environmental and ecological condition of the Premises and other matters which Tenant desires to investigate.  All such entries, tests, inspections, surveys and other examinations shall be carried out in such manner as will least disturb the Premises.  Tenant must restore the Premises, as nearly as possible to its condition prior to such tests and examinations.

 

(F)Tenant shall have thirty (30) days after Tenant receives both the Commitment and the survey (either from Landlord or from the land surveyor or civil engineer engaged by Tenant) to notify Landlord of any defects or objections to the title to the Premises or any objections with respect to any matter reflected on the survey.  If Tenant notifies Landlord of any objection to the survey or any defect or objection to title to the Premises prior to the expiration of the 30-day period to object to title or the survey, Landlord shall use Landlord's best efforts to cure the defects or objections within thirty (30) days following Tenant's notice of such defects or objections.  If Landlord does not cure the defects or objections within 30 days following Tenant's notice of such defects or objections, Tenant may consummate the sale of the Premises, subject to the Schedule B Exceptions to which Tenant has not objected and the Schedule B Exceptions to which Tenant has objected but Landlord cannot cure ("Permitted Exceptions") if Tenant exercises the Option.

 

(G)At the closing ("Closing") of the sale of the Premises from Landlord to Tenant if Tenant exercises the Option, Landlord shall deliver or cause to be delivered to Tenant:

 

 

	
  

 

	
(i)  A Grant Deed for the Premises sufficient to pass to Tenant good, fee simple, marketable and insurable title to the Premises, free and clear of all liens and encumbrances, except the Permitted Exceptions, and shall cause to be delivered to Tenant at the Closing a revised title insurance commitment which has the effect of updating the Commitment through and including the date of closing ("Closing Date").

 

	
  

	
(ii) A Warranty Bill of Sale executed and acknowledged by Landlord sufficient to convey to Tenant title to the Tangible Assets in their AS IS and WHERE IS condition.

 

                             (iii) An Assignment of all Intangible Assets in their AS IS and WHERE IS condition.

 

	
  

	
(iv) A certification by Landlord containing the following:  (a) Landlord's U.S. Taxpayer Identification Number, (b) the business address of Landlord, and (c) a statement that Landlord is not a foreign person within the meaning of Sections 1445 and 7701 of the Internal Revenue Code of 1986, as amended ("Code") (Landlord is not a nonresident alien, foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined in the Code and the applicable regulations promulgated thereunder).

 

	
  

	
(v) An Owner's Affidavit in such form as may be required by the Title Agent to issue to Tenant a title policy without standard exceptions.

 

	
  

	
(vi) Any other documents required by the Title Agent to issue to Tenant a title policy without standard exceptions and to cause to be delivered a revised title insurance commitment which has the effect of updating the Commitment through and including the Closing Date.

 

	
  

	
(vii) All architectural plans and specifications with respect to the Premises in Landlord's possession or control.

 

	
  

	
(viii) Copies of all licenses and permits relating to the operation of the Premises; and an assignment from Landlord to Tenant assigning all assignable licenses and assignable permits relating to the operation of the Premises. 

 

	
  

	
(ix)  A Closing Statement consistent with the terms and conditions described in this Paragraph 4.

 

	
  

	
(x)  An Assignment from Landlord to Tenant of this Lease.

 

	
  

	
(xi) Any and all other documents reasonably required by Tenant, Tenant's attorneys, Tenant's lender, if any, and/or Title Agent to consummate the sale of the Premises from Landlord to Tenant.  All closing documents shall be in form and substance reasonably satisfactory to Tenant's counsel and Landlord's counsel.

 

(H)If Tenant exercises the Option, the sale of the Premises and the Tangible Assets and the Intangible Assets from Landlord to Tenant shall be consummated at the office of the Title Agent within ninety (90) days after the Option is exercised by Tenant and Tenant may continue to occupy the Premises after the term of this Lease until Closing, subject to the same terms and conditions in this Lease, if the Closing occurs after the term of this Lease.

 

(I)If Tenant exercises the Option, the purchase price ("Option Price") for the Leased Premises and the Tangible Assets and the Intangible Assets to be paid by Tenant to Landlord shall be the sum of Ten Million ($10,000,000) Dollars.

 

(J)All special assessments assessed against the Premises prior to Closing shall be paid by Landlord; and general real estate taxes relating to the Premises shall not be prorated. The cost of a title insurance policy shall be paid by Landlord.  Tenant shall pay the cost of any additional endorsements requested by Tenant.  All real estate transfer, stamp or documentary taxes, recording fees and any other costs or charges of closing the sale from Landlord to Tenant not specifically referred to herein shall be paid and adjusted in accordance with local custom in the City of Las Vegas, Clark County, Nevada.

 

(K)The Option is assignable by Tenant.

 

5. Holdover.  In the event Tenant remains in possession of the Premises after Tenant cancels or terminates this Lease, or remains in possession of the Premises after the expiration of the Term (if Tenant has not exercised the Option), the tenancy shall thereafter be from month to month at 125% of monthly Base Rent that immediately preceded such period and on the same other conditions (including the same Percentage Rent).

 

6. Alterations.  Upon prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed, Tenant shall have the right and privilege at all times during the continuance of this Lease to make, at Tenant's own expense, such alterations, changes, improvements and additions to the Premises as Tenant may desire provided such work when completed will not impair the structural integrity or soundness of the building.  If Landlord does not approve or disapprove requested alterations, changes, improvements or additions to the Premises within five (5) business days after receipt by Landlord of Tenant's request to make alterations, changes, improvements, or additions to the Premises, then Landlord will be deemed to have consented to those alterations, changes, improvements or additions to the Premises requested to be made by Tenant.  Any alterations, changes, improvements and additions made by Tenant shall immediately become the property of Landlord and shall be considered as a part of the Premises, except trade fixtures.  Tenant may convert to Tenant's own use all old materials removed by Tenant when making alterations, changes, improvements and/or additions to the Premises.  Tenant shall not be required to obtain prior approval from Landlord for alterations where the costs are less than $50,000.  Tenant shall permit no mechanics liens or materialmens liens to be filed against the Premises.

 

7. NNN Lease.  It is intended that this Lease be a true "triple net lease."  In addition to the Rents, Tenant shall be responsible for any and all costs and expenses relating to possession, operation or use of the Premises, including but not limited to the following:

 

a.Taxes and Assessments.  Tenant agrees to pay when due all property taxes and assessments for the Premises which arise or accrue during the Lease Term as provided in Section 18.

 

b.Utilities.  Tenant agrees to pay when due all charges for all utility services on the Premises or any part thereof during the Term.

 

c.Building Interior and Exterior Repair, Maintenance and Use.  Tenant agrees to maintain in good condition the Premises and any and all interior and exterior improvements and finishes, interior finishes, HVAC equipment, fixtures, equipment, structures and improvements associated with or located on the Premises, except for reasonable wear and tear and damage by the elements; provided that Tenant shall have the obligation to maintain the Premises in the same or better condition than when delivered to Tenant hereunder.

 

d.Insurance.  Tenant agrees to provide and maintain at its expense, policies of fire and casualty insurance for the Premises as more specifically set forth in Section 11 below.

 

8. [INTENTIONALLY LEFT BLANK]

 

9. Defaults by Tenant.

 

(a) If the Rents above referred to or any part thereof shall be unpaid on the date of payment as required by the terms hereof, and remains so for a period of ten (10) days after Tenant shall have received from Landlord notice in writing of such default, then and in such case it shall and may be lawful for Landlord, at Landlord's option, by summary proceedings or by any other appropriate legal action or proceedings to terminate the Term of this Lease and to enter into the Premises or any part thereof and expel Tenant or any person or persons occupying the Premises, and so to repossess and enjoy the Premises as in Landlord's former estate. Landlord agrees that in no event shall the nonpayment of Rents be the basis of a forfeiture of this Lease or otherwise result in the eviction of Tenant or the termination of the term of this Lease unless said written notice shall have been served on Tenant as hereinbefore provided and Tenant shall have failed to cure such default within said ten (10) day period after the receipt of said notice.

 

(b) It is mutually agreed that if Tenant shall be in default in performing any of the terms or provisions of this Lease other than the provision requiring the payment of Rents and Landlord shall give to Tenant notice in writing of such default, and if Tenant shall fail to cure such default within thirty (30) days after receipt of such notice, or if the default is of such character as to require more than thirty (30) days to cure and Tenant shall fail to use reasonable diligence in curing such default after receipt of such notice, then and in any such event Landlord may cure such default for the account of and at the cost and expense of Tenant, and the full amount so expended by Landlord shall immediately be owing by Tenant to Landlord. However, in the event that Tenant shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of Tenant, then performance of such act shall be excused for the period of the delay and the period for the commencement of performance of any such act shall be extended for a period equivalent to the period of such delay. Landlord agrees that in no event shall such default be the basis of a forfeiture of this Lease or otherwise result in the eviction of Tenant or the termination of the Term of this Lease.

 

10. Fixtures.

 

(a) Tenant may, at any time during the continuance of the Term of this Lease, or any extension of the Term, or within a reasonable time after the termination of the Term hereof, remove from the Premises all fixtures and other equipment which Tenant may have purchased, leased, or installed in said Premises or otherwise acquired (the "trade fixtures"). Tenant agrees to repair any damage which may be done to the Premises resulting from the removal of the trade fixtures, but such obligation shall not extend to painting or redecorating the Premises or any part thereof. Tenant shall not be required to remove the trade fixtures from the Premises at the end of the Term of this Lease, but if the trade fixtures are not removed within a reasonable time after the termination of the Term hereof, the trade fixtures then remaining in the Premises shall become the property of Landlord.

 

(b) Landlord acknowledges that Tenant may lease from a third party all or a portion of the trade fixtures to be installed in the Premises. Landlord agrees to promptly duly execute and delivery any waivers or consents which may be required by any proposed equipment lessor in connection with the leasing by Tenant of such trade fixtures, which waivers and consents may include, but shall not be limited to:

 

	
(i) 

	
an acknowledgment by Landlord that any claims that said equipment lessor may have against or with respect to such trade fixtures are superior to any lien or claim of any nature of Landlord with respect thereto;

 

	
(ii) 

	
a waiver by Landlord of all rights, which it may have to execute, attach, levy or distraint upon or against the trade fixtures;

 

	
(iii) 

	
the agreement of Landlord that all the trade fixtures shall remain personal property notwithstanding the manner or mode of the attachment thereof to the Premises, and shall not become a part of the realty;

 

	
(iv) 

	
the agreement of Landlord that, as between Landlord and any equipment lessor, the equipment lessor shall have the right to remove any or all of the trade fixtures from the Premises at any time or times;

 

	
(v) 

	
such other terms and provisions as the equipment lessor may require.

 

Landlord hereby irrevocably constitutes and appoints Tenant its attorney-in-fact to execute and deliver any such waiver or consent in the name of and on behalf of Landlord.

 

Landlord covenants and warrants that any mortgage hereafter placed upon Landlord's interest in the Premises shall require such mortgagee, upon request of Tenant, to promptly duly execute and deliver such waivers and covenants as may be required by any proposed equipment lessor in order to acknowledge that any claims which the equipment lessor may have against or with respect to the trade fixtures are superior to any lien or claim of any nature of the mortgagee with respect thereto, and in order to agree that the trade fixtures shall remain personal property notwithstanding the manner or mode of attachment thereof to the Premises, and may (as between the mortgagee and the equipment lessor) be removed from the Premises by the equipment lessor at any time or times.

 

11.   Insurance and Waivers.

 

(a) Except for Tenant's and Landlord's respective obligations under Paragraphs 11 and 12 hereof, each party hereto does hereby release and discharge the other party hereto and any officer, representative or employee of such party, of and from any liability hereafter arising from loss, damage or injury caused by fire or other casualty for which insurance (permitting waiver of liability and containing a waiver of subrogation) is carried by the injured party at the time of such loss, damage or injury to the extent of any recovery by the injured party under such insurance.

 

(b) During the Term, and all extensions of the Term, Tenant shall maintain, at its expense, the following insurance on the Premises (hereinafter called the "Required Insurance"):

 

	
(i) 

	
 Insurance against loss or damage by fire, lightning and other risks from time to time normally included under "extended coverage" policies, in amounts sufficient to prevent Landlord or Tenant from becoming a co-insurer of any loss under the applicable policies but in any event in amounts not less than the full insurable value of the building and other improvements on the Premises, provided such policies may have a deductible provision not exceeding $25,000. The term "full insurable value," as used herein, means actual replacement value as reasonably estimated by Tenant, but not less than $8,000,000.00 and excluding costs of excavation, paving, foundations and footings.

 

	
(ii) 

	
 General public liability insurance against claims for bodily injury, death or property damage occurring on, in or about the Premises, such insurance to afford protection to Landlord and Tenant of not less than $2,000,000 with respect to any one accident, and not less than $150,000 with respect to property damage, provided that the policies for such insurance may have a deductible provision in an amount not exceeding $100,000, or provide for self-insured retention in an amount not exceeding $25,000. Policies for such insurance shall be for the mutual benefit of Landlord, Tenant and such subtenants and licensees as Tenant may designate, as their respective interests may appear.

 

(c) The Required Insurance shall name Tenant as the insured party thereunder and shall bear an endorsement naming Landlord as an additional insured; and the insurance mentioned in clause (i) above shall bear a first mortgagee endorsement in favor of any first mortgagee of the Premises of which Tenant has actual notice. Tenant may, at its expense, prosecute any claim against an insurer or contest any settlement with an insurer, in the name of Landlord, Tenant, and/or the first mortgagee, if any, and Landlord will join thereon at Tenant's written request.

 

(d) Insurance claims by reason of damage to or destruction of any portion of the Premises shall be adjusted, settled, prosecuted or contested by Tenant, but Landlord and any first mortgagee shall have the right to join with Tenant in adjusting, settling, prosecuting or contesting any such insured loss in excess of $250,000, and Tenant shall promptly notify Landlord and the first mortgagee, if any, of each such adjustment, settlement, prosecution or contest involving an insured loss claim in excess of $250,000. If the entire proceeds paid pursuant to any such claim shall not exceed $250,000, then such proceeds shall be payable directly to Tenant. If such proceeds shall exceed $250,000, then the excess over $250,000 shall be paid to a commercial bank, selected by Tenant, having a banking office in the State of Nevada, having a capital of not less than $100,000,000, and supervised by the Comptroller of Currency of the United States (such bank being herein called the "Insurance Trustee"). If the first mortgagee satisfies the above requirements for qualification as the Insurance Trustee, then the first mortgagee shall automatically become the Insurance Trustee, unless it declines to serve in such capacity. Landlord and Tenant shall each be responsible for one-half (1/2) of the fees and charges of the Insurance Trustee.

 

All insurance proceeds (other than the first $250,000 which is paid directly to Tenant), less any cost of recovery, shall be held by the Insurance Trustee and shall be applied by such Insurance Trustee to pay the costs of repair and restoration in accordance with the following provisions hereof. The insurance proceeds shall be paid by the Insurance Trustee to Tenant upon the delivery of Tenant's applications for payment to the Insurance Trustee as the work required by Paragraph 12 progresses. 

 

(e) Every policy of Required Insurance shall contain, to the extent obtainable, an agreement that the insurer will not cancel such policy except after 30 days' written notice to Landlord, provided that if the cancellation is for non-payment of premiums the insurer need give only 10 days' written notice of cancellation to Landlord.

 

(f) Tenant shall deliver to Landlord promptly after the delivery of this Lease certificates of insurers evidencing all of the Required Insurance. Tenant shall, not later than 10 days prior to the expiration of any such policy, deliver other certificates evidencing the renewal of such insurance. If Tenant fails to maintain or renew any Required Insurance, or to pay the premium therefor, or to so deliver any such certificate, then Landlord, at its option, but without obligation to do so, may, upon five (5) business days' written notice to Tenant, procure such insurance. Any sums so expended by Landlord shall be an additional charge hereunder and shall be repaid by Tenant within thirty (30) days after receipt of bills therefor from Landlord accompanied by proof of payment of such premium by Landlord.

 

(g) Anything contained in this Paragraph 11 to the contrary notwithstanding, all Required Insurance may be carried under a "blanket" or "umbrella" policy or policies covering other properties or liabilities of Tenant, provided that such policies otherwise comply with the provisions of this Lease.

 

(h) Anything in this Lease to the contrary notwithstanding, Tenant alone (or a person or party designated by Tenant) shall be entitled to make claim and receive all insurance proceeds payable with respect to loss of business to Tenant, loss or reduction of profit to Tenant, depreciation of trade fixtures owned or leased by Tenant or any sublessee or licensee, damage or destruction to trade fixtures owned or leased by Tenant, cost of removal of trade fixtures and cost of reinstallation of trade fixtures.

 

12. Rebuilding.  If the Premises shall, during the Term, be damaged or destroyed or rendered untenable, in whole or part, by or as the result or consequence of fire or any other casualty or cause covered by the Required Insurance provided by Tenant pursuant to the provisions of Paragraph 11(b) hereof or by the actual insurance that Tenant provides, Tenant shall promptly repair, rebuild and restore, but only to the extent of the sum of:  (i) the insurance proceeds actually received by Tenant and the Insurance Trustee for such purpose, plus (ii) the amount of the deductible, if any, under the fire and extended coverage insurance maintained pursuant to Paragraph 11(b)(i) above (the aggregate sum of which amounts is called below the "Rebuilding Sum"), the damaged or destroyed building and other improvements to a good tenantable condition with reasonable dispatch.  In no event shall Tenant's duty to rebuild and repair require an expenditure by Tenant in excess of the Rebuilding Sum.

 

If the building on the Premises is damaged or destroyed during the last year of the Term of this Lease, to the extent of more than one-half (1⁄2) of the value thereof, then Tenant shall have the right to terminate this Lease as of the date of such damage or destruction by giving written notice to Landlord within thirty (30) days following such damage or destruction.

 

All rebuilding and repairing of the Premises required by this Paragraph 12 shall be made in accordance with drawings and specifications approved by Landlord, which drawings and specifications shall call for a building for use and of a size, quality and value at least substantially equal to the building and improvements on the Premises immediately prior to such damage or destruction, unless otherwise agreed in writing by the Landlord and Tenant.  Landlord shall approve or reject such drawings and specifications within ten (10) days after submission thereof to Landlord.  Upon resubmission by Tenant to Landlord of revised drawings and specifications, Landlord shall approve or reject same within four (4) days after receipt thereof.  If Landlord fails to reject the drawings and specifications within ten (10) days after the initial submission to it or within four (4) days after the resubmission to it, then it shall be conclusively presumed that the Landlord has duly approved.

 

The Rents herein provided shall abate entirely in case the entire Premises are untenable, or if Tenant determines it cannot economically conduct business from the undamaged portion of the Premises; and the Rents shall abate in a just and proportionate amount if only a portion of the Premises is untenable and Tenant is conducting its normal business from the undamaged portion of the Premises, until the same shall be restored to a good tenable condition.  If Tenant shall have paid Rents in advance, Landlord shall immediately repay to Tenant an amount equal to the portion of the Rents so paid in advance, payment of which is abated.  If Tenant terminates this Lease, pursuant to any of the provisions of this Paragraph 12, then Tenant shall have no obligation to perform any other duties or functions set forth hereunder.

 

Notwithstanding the foregoing provisions of this Paragraph 12, in the event the Premises shall be damaged or destroyed or rendered untenable, in whole or in part, by or as a result of the consequence of fire or other casualty or any other cause whatsoever prior to the end of the Term of this Lease, Tenant may exercise Tenant's option to purchase the Premises as provided in Paragraph 4 hereof and Tenant shall be entitled to receive all insurance proceeds as a result of such casualty or other cause.

 

13. Quiet Enjoyment.  

 

(a) Landlord covenants and warrants that it owns good fee simple title to the Premises, and that it now has the right to make this Lease for the Term. Landlord covenants that it will put the Tenant into complete and exclusive physical possession of the Premises, free from any restrictions not disclosed to Tenant.

 

(b) Landlord covenants that upon payment by the Tenant of the Rents, and upon the substantial performance of all the covenants, terms and conditions on Tenant's part to be performed, Tenant shall peaceably and quietly hold and enjoy the Premises during the Term, without hindrance or interruption by any of the following: (i) Landlord or any, direct or remote, assignee of Landlord; (ii) any person or party claiming, directly or remotely, under or through Landlord; (iii) any person or party, directly or indirectly, acting under the direction or control of Landlord or under the direction or control of any person or party claiming, directly or remotely, under or through Landlord, or under the direction or control of any, direct or remote, assignee of Landlord; or (iv) any person or party acting in concert with Landlord or in concert with any, direct or remote, assignee of Landlord, or in concert with any person or party claiming, directly or remotely, under or through Landlord.

 

14. Right to Mortgage.  Landlord reserves the right to subordinate this Lease to the lien of any first mortgage now or hereafter placed upon Landlord's interest in the Premises to secure a debt not to exceed the sum of $7,500,000; provided, however, that no default by Landlord under any mortgage, or any action of whatsoever kind or nature taken by any mortgagee, including without limitation the sale of the Premises upon foreclosure of the mortgage, shall affect Tenant's rights under this Lease or, directly or indirectly, disturb Tenant's peaceful and quiet possession and enjoyment of the Premises while Tenant is not in material default under this Lease and so long as Tenant's right to possession of the Premises has not been duly terminated pursuant to and in compliance with the provisions of Paragraph 9 of this Lease.

 

Any such first mortgage, now or hereafter encumbering the Premises, shall provide that the mortgagee or any transferee agrees to recognize this Lease and all of the Tenant's rights hereunder, including Tenant's Option to purchase the Premises, in the event of foreclosure or any other transfer of the Premises, while Tenant is not in material default under this Lease and so long as Tenant's right to possession of the Premises has not been duly terminated pursuant to and in compliance with the provisions of Paragraph 9 of this Lease; and that such agreement of the mortgagee shall also be binding upon:  (i) any party that buys the Premises at a mortgage foreclosure sale, and (ii) all persons and parties that, directly or remotely, claim under or through the mortgagee or any mortgage foreclosure sale buyer.  Tenant agrees that any mortgagee may elect to have this Lease a prior lien to its mortgage, and in the event of such election and upon written notification by such mortgagee to Tenant to that effect, this Lease shall be prior in lien to the said mortgage, whether this Lease is dated prior to or subsequent to the date of such mortgage.

 

15. Eminent Domain.  If:  (i) the whole or any part of the building on the Premises, or (ii) more than 10% of the land comprising the Premises, shall be taken by any public authority or utility under the power of eminent domain, then Tenant shall have the right either to terminate this Lease by sixty (60) days' prior written notice given to Landlord by Tenant, which notice may be given at any time after such taking and on or before four (4) months after the date possession is required pursuant to such taking, or to continue in possession of the remainder of the Premises under the terms herein provided, except that the Term shall cease on the part so taken from the day possession of that part is taken, and the rent shall from and after such day be reduced as hereinafter provided in this Paragraph 15.  If this Lease is not terminated, Landlord shall deposit with Tenant the entire proceeds of the condemnation award for the purpose of restoring the Premises to a tenable condition, and Tenant, but only to the extent of such condemnation proceeds, shall restore the Premises to a tenable condition substantially comparable to the condition thereof prior to the taking.  If after restoration of the Premises to a tenable condition, any portion of the condemnation award deposited by Landlord with Tenant remains unused ("Unused Award"), then the Tenant shall pay the Unused Award over to the Landlord, subject, however, to the rights of the mortgagee, if any.

 

Tenant shall be entitled to claim an award for loss of business, going business, going concern value of business, goodwill, depreciation of trade fixtures and trade fixture and equipment damage, cost or removal of trade fixtures, cost of reinstallation of trade fixtures, and cost of all leasehold improvements made by Tenant; and Landlord shall not be entitled to any portion of such condemnation award, or to make a claim thereof.

 

If the Tenant does not elect to terminate this Lease pursuant to the provisions of this Paragraph 15, then if Tenant exercises the Option, the Option Price ($10,000,000) shall be reduced by the amount of the Unused Award.

 

Notwithstanding the foregoing provisions of this Paragraph 15, if the whole or any part of the Premises shall be taken by any public authority or utility under the power of eminent domain prior to the expiration of the Term, Tenant may exercise Tenant's option to purchase the Premises as provided in Paragraph 4 hereof and Tenant shall be entitled to receive the proceeds of all condemnation awards.

 

16. Use and Occupancy.  The Tenant is granted the right to occupy and use the Premises to operate an adult nightclub and an after hours bar.

 

17. Subletting, Transfer and Assignment.  Tenant shall have the unrestricted right to:

 

	
(i)  

	
transfer or assign this Lease, and/or,

 

	
(ii)  

	
sublet or license the use of all or any portion of the Premises; to an affiliate of Tenant. However, no transfer or assignment of this Lease shall release Tenant from its obligations hereunder.

 

18. Real Property Taxes.

 

(a) During the Term, Tenant shall pay all real property taxes and assessments assessed or levied against the Premises. Notwithstanding the preceding sentence, upon the expiration or early termination of the Term the real property taxes and assessments for the last year of this Lease shall be prorated on a per diem basis based upon the respective due dates of such taxes and assessments, and Tenant shall not be required to pay more than Tenant's prorated portion thereof; and Landlord shall pay, or reimburse Tenant for payment of the balance thereof. If actual taxes have not yet been determined, the parties agree that the prior year's taxes shall be used to allocate the prorata share of the parties. Tenant shall have the right to elect to pay any assessments in installments, if permitted by the taxing authority, and in such event Tenant shall be responsible only for its portion of such installments falling due during such term hereof and before the expiration or early termination of this Lease. Tenant shall provide Landlord with proof of payment of all taxes prior to their due date.

 

Tenant shall have the right to put its name on the real property tax rolls so that it possesses all the rights of the taxpayer.

 

Tenant shall have the right to appear in Landlord's name and on behalf of Landlord, or in Tenant's name, to protest and contest any tax increases upon the Premises, and Landlord shall fully cooperate with Tenant. Tenant shall not be required to pay any tax so long as Tenant shall contest in good faith and at its own expense, the existence, the amount, or the validity thereof by appropriate proceedings; provided, however, that Tenant shall take no action which results in the institution of any foreclosure proceedings or similar action against the Premises. Tenant shall have the right to institute and prosecute, in its name and/or the name of the Landlord, any actions Tenant deems appropriate for refund of any taxes, but the Tenant shall hold Landlord harmless from any costs and expenses incurred in any such action. Any taxes, interest, and costs recovered in any such proceeding shall belong to and be the property of Tenant.

 

(b) Notwithstanding the foregoing provisions of this Paragraph 18(b), Tenant shall not be required to reimburse Landlord for any taxes, assessments, levies or charges, at any time, imposed, levied or assessed upon Landlord, any gross receipts or similar taxes imposed or levied upon or assessed against or measured by rent or any other sums payable by Tenant hereunder, or this Lease or the leasehold estate hereby created unless any such tax or charge is hereafter imposed upon or levied or assessed against Landlord in substitution for or in place or reduction of any other currently existing real estate tax or assessment, in which case Tenant shall reimburse Landlord therefor.

 

19. Permits and Licenses. Landlord shall fully cooperate with Tenant to apply for and secure any building permits, licenses, variances, zoning, or permission of any duly constituted authority for the purposes of doing any things which Tenant is required or permitted to do under the provisions of this Lease. If Tenant requests Landlord to apply for and secure any such permits, licenses, variances, zoning, or permissions, and Landlord fails to do so within five (5) business days, then Landlord constitutes and appoints Tenant as Landlord's attorney-in-fact to apply for and secure any such permits, licenses, variances, zoning, and permissions.

 

20. Signs. Landlord agrees not to use or permit to be used for advertising purposes any part of the Premises, but agrees that Tenant or its subsidiaries or any person or party duly authorized by Tenant has the unrestricted right to place its signs, name or advertisements in, on, and about any portion of the Premises, without limitation, except such limitations as may be imposed by Tenant. Tenant shall have the right to use or lease the billboard sign located on the Premises during the Term. Any lease by Tenant to any third party for the billboard may extend no longer than the Term without prior written consent of the Landlord, which consent may be withheld in Landlord's sole discretion. All rents payable to Tenant under any billboard lease shall revert to Landlord upon termination of this Lease unless Tenant purchases the Premises as provided herein. Notwithstanding the foregoing provisions of this Paragraph 20, during the Term, Tenant shall have the right to use the billboard or permit an affiliate of Tenant to use the billboard without any payment or other compensation to Landlord other than the payment of Rents hereunder.

 

21. Waiver of Distraint. Landlord hereby expressly waives any and all rights granted by or under any present or future laws to levy or distraint for rent or other charges, in arrears, in advance or both, upon any goods, merchandise, equipment, fixtures, furniture and other personal property of Tenant or any nominee of Tenant in the Premises, delivered or to be delivered thereto.

 

22. Bankruptcy and Insolvency.

 

(a) In the event the estate created hereby shall be taken in execution or by other process of law, or if Tenant shall be adjudicated insolvent or bankrupt pursuant to the provisions of any state or federal insolvency or bankruptcy law, or if a receiver or trustee of the property of Tenant shall be appointed, or if any assignment shall be made of Tenant's property for the benefit of creditors or if a petition shall be filed by or against Tenant seeking to have Tenant adjudicated insolvent or bankrupt pursuant to the provisions of any state or federal insolvency or bankruptcy law and such petition shall not be withdrawn and the proceedings dismissed within 90 days after the filing of the petition, then and in any of such events, Landlord may terminate this Lease by written notice to Tenant; provided, however, if the order of the court creating any of such disabilities shall not be final by reason of pendency of such proceedings, or appeal from such order, or if the petition shall have been withdrawn or the proceedings dismissed within 90 days after the filing of the petition, then Landlord shall not have the right to terminate this Lease so long as Tenant performs its obligations hereunder.

 

(b) If, as a matter of law, Landlord has no right on the bankruptcy of Tenant to terminate this Lease, then, if Tenant, as debtor, or its trustee, wishes to assume or assign this Lease, in addition to curing or adequately assuring the cure of all defaults existing under this Lease on Tenant's part on the date of filing of the proceeding (such assurances being defined below), Tenant, as debtor, or the trustee or assignee, must also furnish adequate assurances of future performance under this Lease (as defined herein). Adequate assurance of curing defaults means the posting with Landlord of a sum in cash sufficient to defray the cost of such a cure. Adequate assurance of future performance under this Lease means posting a deposit equal to three (3) months' rent, and in the case of an assignee, assuring Landlord that the assignee is financially capable of assuming this Lease.

 

23. Right of First Refusal. If Landlord desires to sell or convey the Premises, or any portion thereof, to any party other than Tenant, then Landlord shall first offer to sell the Premises (or the portion being offered) to Tenant on terms no less favorable than offered (or proposed) by the third party. Notice of such proposed transaction shall be given to Tenant in writing and shall provide all of the material details of the sale, including the same terms and conditions as proposed to the third party. Tenant shall have the option to purchase the Premises (or the portion being offered); and Tenant must exercise Tenant's election to purchase the Premises (or the portion being offered) by giving written notice thereof to Landlord within thirty (30) calendar days after receipt of the offer to sell from Landlord. Notwithstanding any other provision of this Lease, if Tenant is given the right to purchase the Premises (or a portion thereof) pursuant to this Paragraph 23 and Tenant does not exercise Tenant's option to purchase the Premises (or the portion offered), then the Premises may be conveyed to the third party upon terms no more favorable than offered to Tenant and the Premises shall continue to be subject to this Lease and Tenant's Option to purchase the Premises set forth in Paragraph 4 hereof. The sale to the third party must be consummated within ninety (90) days after Tenant's option under this Paragraph 23 expires. If Tenant does not exercise Tenant's right of first refusal in this Paragraph 23 and the Premises are sold to a third party, then Tenant's rights under this Paragraph 23 of the Lease shall continue until the end of the Term. 

 

24. Mitigation of Damages.

 

Notwithstanding any of the terms and provisions herein contained to the contrary, Landlord shall have the duty and obligation to mitigate, in every reasonable manner, any and all damages that may or shall be caused or suffered by virtue of Tenant's defaults under or violation of any of the terms and provisions of this Lease.

 

25. Consent of Landlord. 

 

Wherever the consent or approval of the Landlord is required in this Lease, such consent or approval shall not be unreasonably withheld or delayed or conditioned. If the Tenant does not receive written objections from the Landlord within ten (10) days after Tenant has given notice requesting such consent or approval of the Landlord, then it shall be conclusively presumed that the Landlord has duly consented and approved.

 

26. Encumbrances During the Term of this Lease. Landlord shall not assign or transfer Landlord's interest in the Demised Property or create any lien or encumbrance upon the Demised Property, except as specifically provided in Paragraph 14 hereof or Paragraph 23 hereof.

 

27. Indemnity. Tenant shall indemnify Landlord and save it harmless from and against any and all suits, actions, damages, claims, liability and expense in connection with loss of life, bodily or personal injury, or property damage arising from or out of any occurrence in, upon, at or from the Premises, or the occupancy or use by Tenant of Premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, invitees, licensees, or concessionaires, unless caused or contributed to by Landlord's gross negligence or intentional misconduct.

 

28. Release of Lessor. Except for Landlord's gross negligence or intentional misconduct, Landlord shall not be liable for any loss or damage to Tenant, Tenant's personal property or to Tenant's business operations. Tenant shall use and enjoy the Premises at its own risk, and hereby releases Landlord, to the full extent permitted by law, from all claims of every kind resulting in loss of life, personal or bodily injury, or property damage.

 

29. Miscellaneous Provisions. 

 

(a) Waiver. One or more waivers of any covenant or condition by Landlord or Tenant shall not be construed as a waiver of a subsequent breach of the same covenant or condition, and the consent or approval by either party to or of any act by the other party requiring consent or approval shall not be deemed to render unnecessary consent or approval to or of any subsequent similar act. No breach of a covenant or condition of this Lease shall be deemed to have been waived by either party, unless such waiver be in writing signed by the other party.

 

(b) Entire Agreement. This Lease sets forth all the covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Premises, and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them concerning the Premises other than are herein set forth. No alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by each party.

 

(c) Interpretation and Use of Pronouns. Nothing contained herein shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or of partnership or of joint venture between the parties hereto, it being understood and agreed that no provision contained herein or any acts of the parties herein, shall be deemed to create any relationship between the parties hereto other than the relationship of Landlord and Tenant. Whenever herein the singular is used, the same shall include the plural, and the neuter gender shall include the feminine and male genders, and vice-versa. The terms "hereof," "herein," "hereby," "hereto," and "hereunder" and similar terms mean this Lease, and the term "heretofore" means before, and the term "hereafter" means after, the date this Lease is signed by both Landlord and Tenant. 

 

(d) Notices. Any notice, demand, request or other instrument which may be or is required to be given under this Lease shall be sent by United States certified mail, return receipt requested, postage prepaid, and shall be addressed as follows:

 

	
If to the Landloard:

3MO, LLC

	 

1291 W. Galleria Drive

Suite 220

Henderson, Nevada 89014

 

	 	 

If to the Tenant:

Modern Bookkeeping, Inc.

8252 E. Lansing Road, Suite 101

Durand, Michigan 48429

 

 

Either party to this Lease may, by notice to the other party, change the address to which notices to it should be sent and/or the person in whose care the notices should be addressed.

 

(e) Notice by Tenant of Fire or Accident. Tenant shall give notice to Landlord in case of fire or material accidents in the Premises.

 

(f) Captions and Section Number. The captions, paragraph numbers, and index appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such paragraph or subparagraph of this Lease nor in any way affect this Lease.

 

(g) Recording. Upon the request of either party hereto, the other party shall join in the execution of a memorandum or so-called "short form" of this Lease for the purposes of recordation. Such memorandum or short form of this Lease shall describe the parties, the Premises, the term of this Lease, any special provisions (including the Option to purchase the Premises and Tenant's right of first refusal), and shall incorporate this Lease by reference.

 

(h) Laws of the State of Nevada and Severability. This Lease shall be governed by and construed in accordance with the laws of the State of Nevada. If any provision of this Lease or the application thereof to any party or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease shall not be affected thereby and each provision of the Lease shall be valid and enforceable to the fullest extent permitted by law.

 

(i) Exhibits. Any Exhibits referred to in this Lease are incorporated herein by reference.

 

(j) Successors. All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind their respective successors and assigns.

 

(k) Counterparts. This Lease, and all amendments hereto, may be executed in several counterparts. For the purposes of this Lease, facsimile signatures shall have the same force and effect as original signatures.

 

(l) Drafting of Lease. This Lease was prepared and negotiated by Landlord and Tenant, and all of the provisions contained in this Lease shall be construed without prejudice to the party that actually memorialized this Lease in final form; and this Lease shall be considered to be drafted by both Landlord and Tenant.

 

(m)   Unavoidable Delays. If either Landlord or Tenant shall be prevented or delayed from punctually performing any obligation or satisfying any condition pursuant to this Lease by any strike, lockout, labor dispute, inability to obtain labor or material, Act of God, governmental restriction, regulations or control, enemy or hostile governmental action, civil commotion, insurrection, sabotage, fire or other casualty or by any other force majeure event, the time to perform such obligation or satisfy such condition shall be postponed by the period of time equal to the delay. If either party shall, as a result of any such event, be unable to exercise any right or option within any time limit provided therefor in this Lease, the time for exercise thereof shall be postponed for the period of time equal to such delay. In no event shall Tenant's obligation to pay its rent or taxes or any other charges hereunder be delayed or extended by reason of the foregoing events.

 

30.  Liability Under Lease.  The maximum liability of the equity owners of Tenant hereunder is the lesser of (i) three months' Base Rent ($120,000), or (ii) if Tenant gives Landlord notice that Tenant will vacate the Premises, an amount equal to $120,000 times a fraction, the numerator of which is the number of days notice Tenant gives to Landlord before Tenant vacates the Premises and the denominator of which is 90.

 

IN WITNESS WHEREOF, said parties have executed this Lease as of the day and year first above written.

 

3MO, LLC, a Nevada limited liability company

By: Desert Capital TRS, Inc.,

a Delaware corporation

Its Manager

 

By: /s/Todd Parriott

Todd Parriott

Its President

"Landlord"

 

 

VEGAS VALLEY FOOD & BEVERAGE, LLC,

a Nevada limited liability company

 

By: /s/Robert Proden

Robert Proden

Its Manager

"Tenant"ex10_17.htm

 

ASSET MANAGEMENT AGREEMENT

This ASSET MANAGEMENT AGREEMENT (the “Agreement”) is executed and effective as of  February 19, 2010 (the “Effective Date”) by and between DESERT CAPITAL REIT, INC., a Maryland corporation (“Owner”) and CM CAPITAL SERVICES, LLC, a Nevada limited liability company (the “Asset Manager”).

 

RECITALS

 

A           The Owner owns a portfolio of loans (the “Loans”) secured by liens on real property.

 

B.           Certain of the Loans are nonperforming and are in default.

 

C.           Through foreclosure or otherwise,certain of the Owner’s Loans have been converted from an interest in the Loans as a lender, to a direct or indirect ownership interest in real property (collectively, the “Property”) as more particularly described in Exhibit A attached hereto and incorporated herein.

 

D.    The Owner’s ownership interest in each Property is held indirectly through limited liability companies (collectively, the “Property LLCs”).  Certain of the Property LLCs also have other members that were previously participating lenders with respect to the Loans and Property (“Participating Lenders”).  The Asset Manager is the manager of each of the Property LLCs on behalf of the Participating Lenders.

 

E.           Owner and each of the other Participating Lenders, as members of the Property LLCs have engaged the Asset Manager to collect and foreclose on its nonperforming loans and to manage and ultimately dispose of the related property on his or her behalf.

 

F.    The Owner also desires to engage the Asset Manager to collect and foreclose on certain Loans and to manage and ultimately dispose of the Property on behalf of the Owner as a member (either sole or in connection with other Participating Lenders, as members) of the Property LLCs.

 

NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions herein contained, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:

 

ARTICLE 1

 

COMMENCEMENT AND TERMINATION DATES; AUTHORITY OF ASSET MANAGER

 

1.1           Commencement and Termination. With respect to any Loan, the Asset Manager’s duties and responsibilities under this Agreement shall begin on the date the Owner informs Asset Manager that a Loan is in default and that it desires Asset Manager to begin proceedings to collect and/or foreclose the Loan.  The Asset Manager’s duties and responsibilities under this Agreement shall terminate on the earlier of (a) with respect to such Loan or any interest therein, the sale of the Property or any direct or indirect interest therein, or (b) the termination of this Agreement pursuant to Article 7.

 

1.2           Approval of the Owner. Notwithstanding anything to contrary contained in any other agreement executed by or on behalf of the Owner, the prior written approval, consent or other action by the Owner shall be required to approve: (a) with respect to any Loan, the initiation or commencement of any foreclosure proceeding or the acceptance of any deed in lieu of foreclosure; (b) all leases of the Property or any part of thereof and any and all amendments thereof; (c) all financings and refinancings of the Property or any part thereof; (d) the creation or incurrence of any lien or other encumbrance against the Property; and (e) the sale, transfer or conveyance of any part of the Property (other than a sale, transfer or conveyance otherwise approved by the Majority Members (hereinafter defined)).  The members in a subject Property LLC owning more than 50% of the undivided interests in such Property LLC are hereinafter referred to as the “Majority Members.”

 

ARTICLE 2

 

ASSET MANAGER’S RESPONSIBILITIES

 

2.1           Status of the Asset Manager.  The Owner and the Asset Manager do not intend to form a joint venture, partnership or similar relationship. Instead, the parties intend that the Asset Manager shall act solely in the capacity of an independent contractor for the Owner. Nothing in this Agreement shall be construed to mean that the Asset Manager and the Owner are joint venturers or partners of each other and neither shall have the power to bind or obligate the other party by virtue of this Agreement, except as expressly provided in this Agreement.

 

2.2           Asset Management Services.

 

(a)           Foreclosure; Deed-in-Lieu of Foreclosure.

 

        (i)           If foreclosure of a nonperforming Loan has been approved by the Owner (and the requisite Majority Members, if applicable), the Asset Manager shall initiate or cause to be initiated the foreclosure action according to such procedures as are authorized by the applicable loan documents, applicable law and the practices in the locality where the related mortgaged property (the “Mortgaged Property”) is located.  In the event that title to the Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be taken in the name of a new Property LLC for the benefit of the Owner (and Participating Lenders, if any) of the related Loan.

 

          (ii)           The Asset Manager shall determine the advisability of seeking to obtain a deficiency judgment if the state in which the Mortgaged Property is located and the terms of the Loan documents permit such an action and shall seek such deficiency judgment if Asset Manager, in its discretion, deems advisable.

 

          (iii)           After a Loan has been liquidated, the Asset Manager shall promptly prepare and forward to the Owner a liquidation report detailing the liquidation proceeds received from the liquidated Loan, expenses incurred with respect thereto and any realized profit or loss incurred in connection therewith.

 

          (iv)           If acceptance of a deed in lieu of foreclosure has been approved by the Owner (and the requisite Majority Members, if applicable), the Asset Manager may accept a deed in lieu of foreclosure, provided that the following conditions are satisfied: (A) marketable title as evidenced by a policy of title insurance can be conveyed to and acquired by the Property LLC or its designee; (B) no cash consideration is to be paid to the related borrower by the Property LLC or the Owner; and (C) the Asset Manager has obtained from the borrower a written acknowledgment that the deed is being accepted as an accommodation to the Borrower and on the condition that the Mortgaged Property will be transferred to the Property LLC or its designee free and clear of all claims, liens, encumbrances, attachments, reservations or restrictions except for those to which the Mortgaged Property was subject at the time the Mortgaged Property became subject to the Mortgage.  Title shall be conveyed directly from the borrower to a new Property LLC for the benefit of the lender(s) of the related Loan.

 

          (v)           The Asset Manager shall prepare a written estimate of the amount of attorneys’ fees, trustee’s fees and other costs in respect of any foreclosure or deed in lieu of foreclosure acquisition and shall provide copies of such estimates to the Owner.  The Asset Manager shall arrange for payment of attorneys’ fees, trustees’ fees and other foreclosure costs at the commencement of foreclosure proceedings.

 

          (vi)           The Asset Manager shall be entititled to reimbursement of all costs, fees and expenses made in connection with such Loan or such foreclosure or other action, out of amounts obtained by the Asset Manager on behalf of Owner, prior to remittance of any such amounts to the Property LLC for the benefit of the Participating Lender(s).  Any such expenses may be reimbursed only if a detailed and itemized invoice is provided to Owner.

 

	
  

	
(b)

	
Title, Management and Disposition of the Property.

 

          (i)           Upon the acquisition of a Property by foreclosure or a deed in lieu of foreclosure, the Asset Manager shall thereafter: (A) deliver the deed or certificate of sale to the Property LLC, or its nominee; (B) manage, conserve and protect the Property in the same manner and to such extent as is customary in the locality where such Property is located as the Asset Manager deems to be in the best interest of the Property LLC for the benefit of the Participating Lenders of the related Loan; (C) pay all costs such as taxes and assessments relating to the Property; (D) process any claims for redemption and otherwise comply with any redemption procedures required by applicable law; (v) sell or otherwise dispose of the Property and remit the proceeds to the Property LLC for the benefit of the lender(s); and (vi) timely file any and all federal, state and local tax or information returns or reports as are required as a result of the acquisition or disposition of the Property and perform any withholding required in connection therewith.

 

          (ii)           Within thirty days following the acquisition of a Property by a Property LLC, the Asset Manager shall prepare and submit to the Owner for approval a proposed annual budget for the Property (each, a “Budget”).  On or before November 15th of each calendar year commencing November 15, 2010, the Asset Manager shall prepare and deliver to the Owner for approval a proposed Budget for each Property for the next calendar year.  The Owner shall be deemed to have approved each Budget unless the Owner provides written notice to the Asset Manager indicating specific objection to certain Budget items within thirty days after the date on which any such Budget is given to the Owner. In the event the Owner does not approve any Budget, the Owner shall negotiate in good faith with the Asset Manager for 15 days to resolve the issue.  The Asset Manager may proceed under the terms of the proposed Budget for items that are not objected to and may take any action with respect to items not approved for Emergency Expenditures (hereinafter defined). In the event that the items to which there is an objection are operational expenditures, as opposed to capital expenditures, the Asset Manager shall be entitled to operate the related Property using the prior year’s Budget until approval is obtained. The Asset Manager shall provide the Owner such information regarding any Budget as may be, from time to time, reasonably requested by the Owner. The Asset Manager may at any time submit a revised Budget to the Owner, and the Owner shall approve or disapprove such revised Budget in accordance with the same procedure as set forth above. The Asset Manager shall charge all expenses to the proper account as specified in the related Budget, provided that the Asset Manager may reallocate savings from one line item to other line items, for the benefit of the Owner, without further approval. The Asset Manager shall submit a revised Budget to the Owner before making any expenditure not within the Budget unless the expenditure is $5,000 or less for any one item and, in the Asset Manager’s reasonable judgment, is required to avoid personal injury, significant property damage, a default under any loan encumbering the Property, a violation of applicable law or the suspension of a service (collectively, “Emergency Expenditures”). Notwithstanding any provision herein to the contrary, the Asset Manager shall not make any expenditure which the Owner has expressly prohibited pursuant to a written notification to the Asset Manager.

 

          (iii)           Together with the submission of the proposed Budget for each Property, the Asset Manager shall submit each year to the Owner: (i) a strategic marketing and disposition plan for such Property (the “Marketing Plan”), and (ii) an operating plan for the general operation and maintenance of such Property (collectively, with the Marketing Plan, the “Operating Plan”). The Asset Manager shall re-evaluate the strategy for each constituent part of the Property on a quarterly basis and may at any time submit a revised Operating Plan to the Owner with respect to any part of the Property.

 

          (iv)           The Asset Manager shall manage, conserve, protect and operate each Property for the Owner and the other members of the Property LLC, if any, in accordance with the Operating Plan established for such Property and solely for the purpose of its prudent disposition and sale.  The Asset Manager shall, either itself or through an agent selected by the Asset Manager, manage, conserve, protect and operate the Property in the same manner that it manages, conserves, protects and operates other foreclosed property for its own account and in the same manner that similar property in the same locality as the Property is managed.  The Asset Manager shall attempt to sell the same on such terms and conditions as the Asset Manager deems to be in the best interest of the Owner and the other members of the Property LLC, if any.

 

          (v)           Until the Property is disposed of, the Asset Manager shall (A) take appropriate action to secure the Property and maintain proper surveillance over it; (B) pay all fees, expenses, costs, taxes and assessments of the Property LLC relating to the Property and in accordance with the applicable Budget from amounts on deposit from time to time in the Reserve Account (hereinafter defined) or as otherwise advanced by the Property LLC; (C) maintain the Property so as to preserve its value and prevent any additional deferred maintenance; and (D) submit annual statements for services to the Owner and the other lenders of the related Loan, if any, together with additional documentation including statements of income and expenses (accompanied by copies of paid invoices for every expense item).  Each such annual statement shall include a detailed and itemized invoice of all fees, expenses and any other amounts that the Asset Manager has paid to any person (including payments of fees and reimbursements of expenses to the Asset Manager) from amounts on deposit in the Reserve Account.

 

          (vi)           The Asset Manager shall manage, operate and maintain the Property in an efficient, economic and satisfactory manner and for the protection of the interests of the Owner and the other members of the Property LLC, if any, subject to (a) all applicable laws, statutes, orders, codes, regulations and requirements of any federal, state or local governmental authority having jurisdiction as well as the orders of the fire marshal, board of fire underwriters and similar bodies, and (b) the terms and provisions of this Agreement.  The Asset Manager shall keep the Property clean and in good repair, shall order and supervise the completion of any repairs as may be required and shall generally do and perform, or cause to be done or performed, all things necessary, required or desirable for the proper and efficient management, operation and maintenance of the Property.

 

          (vii)           Until the Property is disposed of, the Asset Manager shall maintain for such Property, if appropriate, a standard hazard insurance policy providing fire and extended coverage in an amount equal to the full replacement cost of all improvements on the Property, which requirement may be satisfied by a master force placed or blanket insurance policy insuring against hazard losses.  If the Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards (and such flood insurance has been made available) if appropriate, the Asset Manager shall maintain a flood hazard insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration with an insurance carrier generally acceptable to commercial mortgage lending institutions for properties, similar to the Property in an amount representing coverage not less than the lesser of (A) the full insurable value of such Property, or (B) the maximum amount of insurance which is available under the Flood Disaster Protection Act of 1973, as amended from time to time.  The Asset Manager will also maintain comprehensive general liability insurance and business interruption insurance (to the extent applicable) in such amounts as are then customary for similarly situated properties and businesses.

 

          (viii)        The Asset Manager shall remit the proportionate part of all funds collected and received in connection with the operation or disposition of any Property to the Owner and the other members of the Property LLC, if any, no later than three (3) Business Days immediately following notice of receipt of such funds, net of any funds then due and payable to Asset Manager for the operation, management, insurance and maintenance of the Property.

 

          (ix)           If as of the date of disposition of any Property there remain unpaid any REO Processing Fees (defined below) or Asset Management Fees (defined below) with respect to the related Loan and Property, the Asset Manager shall be entitled to payment for the unpaid REO Processing Fees and/or Asset Management Fees and reimbursement for the unreimbursed related expenses from proceeds received in connection with the disposition prior to remittance of any proceeds to the Owner and the other members of the Property LLC, if any.  Any such fees and expenses may be paid or reimbursed only if a detailed and itemized invoice is provided to Owner.

 

          (x)           The Asset Manager shall identify, evaluate, review, analyze, structure and negotiate the disposition of each Property. The disposition of each Property shall be carried out by the Asset Manager at such price and upon such terms and conditions as the Asset Manager, in its reasonable judgment, believes to be in the best interests of the Owner and the other members of the Property LLC, if any, subject in all cases to the prior approval of the Owner or the Majority Lenders, as applicable.  Upon the sale of any Property, the Asset Manager shall remit the net cash proceeds remaining after payment of expenses of the sale to the Owner and the other members of the Property LLC, if any.

 

          (xi)           The Asset Manager shall perform all services in accordance with the terms of this Agreement and in accordance with customary standards and best practices for management of comparable types of Property in the Las Vegas, Nevada area.

 

2.3           Employees/Independent Contractors of the Asset Manager.  The Asset Manager shall employ, directly or through third party contractors (for example, an employee leasing company or on-site property manager), at all times, a sufficient number of capable employees and/or independent contractors to enable the Asset Manager to properly, adequately, safely and economically perform its responsibilities under this Agreement. All matters pertaining to the supervision of such employees shall be the responsibility of the Asset Manager. All salaries and benefits and positions of employees who perform work in connection with the Property shall be the responsibility of the Asset Manager.

 

2.4           Compliance with Laws, Mortgages and Other Matters.

         

          (a)           The Asset Manager shall use its commercially reasonable efforts to comply, and cause the Property to be in compliance, with any deed of trust, mortgage or other loan or security documents (collectively, the “Loan Documents”) and all applicable governmental requirements, including by way of illustration, but not limitation, Board of Fire Underwriters or other similar body, relative to the performance of its duties hereunder, ordinances, roles, regulations and requirements. The Asset Manager may implement such procedures with respect to the Property as the Asset Manager may deem advisable for the more efficient and economic management and operation thereof.

 

          (b)           The Asset Manager shall furnish to the Chief Financial Officer of the Owner, promptly after receipt, any notice of violation of any governmental requirement or order issued by any governmental entity, any Board of Fire Underwriters or other similar body against the Property, any notice of default from the holder of any Loan Document, or any notice of termination or cancellation of any insurance policy (which is not immediately replaced by the Asset Manager).

 

2.5           Taxes and Mortgages.  The Asset Manager, unless otherwise requested, shall obtain and verify bills for real estate and personal property taxes, general and special real property assessments and other like charges (collectively, “Taxes”) which are, or may become, liens against the Property or any part thereof. The Asset Manager shall appeal such Taxes as the Asset Manager may decide, in its reasonable judgment, to be prudent.  The Asset Manager shall report any such Taxes that materially exceed the amounts contemplated by the Budget to the Owner prior to the Asset Manager’s payment thereof. The Asset Manager, if requested by the Owner, will cooperate to prepare an application for correction of the assessed valuation to be filed with the appropriate governmental agency. The Asset Manager shall pay, within the time required to obtain discounts, from funds provided by the Owner and the Participating Lenders, if any, all utilities, Taxes and payments due under each lease or Loan Document, if any, affecting the related Property.

 

2.6           Miscellaneous Duties.  The Asset Manager shall:

 

(a)           maintain at the Asset Manager’s office and readily accessible to the Owner, orderly files containing rent records, insurance certificates, Leases and subleases, correspondence, receipted bills and vouchers, bank statements, canceled checks, deposit slips, debit and credit memos, and all other documents and papers pertaining to each constituent part of the Property and the operation thereof;

 

(b)           provide information about the Property necessary for the preparation and filing by the Owner of its income or other tax returns required by any governmental authority, including annual statements, identifying the Owner’s undivided percentage of all expenses paid and income received by the Owner;

 

(c)           check all bills received for the services, work and supplies ordered in connection with maintaining and operating the Property and, except as otherwise provided in this Agreement, pay such bills when due and payable; and

 

(d)           not knowingly permit the use of the Property for any purpose that might violate applicable law or that might void any policy of insurance held by the related Property LLC or the Owner, as the case may be, or which might render any material loss thereunder uncollectible.

 

All such records are the property of the related Property LLC and originals or copies thereof will be delivered to the related Property LLC upon written request (at the expense of the related Property LLC).

 

2.7           Right to Subcontract Property Management Functions.  The Asset Manager reserves the right, in its sole discretion, to subcontract some or all of the property management functions described herein to local property managers and certain other parties (which may be affiliates). The Asset Manager shall notify the Owner in the event some or all of the property management functions described herein are subcontracted to such local property managers or other parties. However, except as expressly provided herein, the fees to be paid to the Asset Manager under this Agreement are inclusive of fees payable to such third parties unless otherwise mutually agreed to by the Owner and the Asset Manager.

 

2.8           Joint Venture Agreements.  The terms of any joint venture agreement to be entered into by the Owner or any Property LLC, as the case may be, or affecting any part of the Property must be approved by the Owner.

 

ARTICLE 3

 

FINANCIAL REPORTING AND RECORD KEEPING

 

3.1           Books of Accounts.  The Asset Manager shall maintain adequate and separate books and records for the Property with the entries supported by sufficient documentation to ascertain their accuracy with respect to the Property. The Asset Manager shall maintain such books and records, including separate accounting records for the Owner’s income and expense of the Property, at the Asset Manager’s office.  The Asset Manager shall promptly supply to the Owner such information arising from the activities of the Asset Manager on behalf of the Owner as the Owner may reasonably request. The Asset Manager shall permit the Owner, its agents and representatives, the Owner’s auditors and tax preparers and their respective employees and representatives to inspect and make copies of such books and records at all reasonable times.  The Asset Manager shall ensure such control over accounting and financial transactions as is reasonably necessary to protect the Owner’s assets from theft, material error or fraudulent activity by the Asset Manager’s employees.

 

3.2           Financial Reports.  The Asset Manager shall deliver to the Owner within a reasonable time after (a) the close of a calendar quarter, and (b) the termination of this Agreement, a statement of income and expenses and a balance sheet for the each Property. The statement of income and expenses, the balance sheet, and all other financial statements and reports shall be prepared on a cash basis and in compliance with all reporting requirements relating to the operating of each Property and required under any deed of trust or mortgage affecting the Property.

 

ARTICLE 4

 

PAYMENTS OF EXPENSES

 

4.1           Costs Eligible for Payment from Operating Account.  The Asset Manager shall pay out of funds on deposit in the Reserve Account (defined term) or otherwise advanced from time to time by the Property LLC, the actual and reasonable out-of-pocket costs and expenses of the operation, maintenance and repair of the Property and to the extent any such amounts are advanced by the Asset Manager (provided, the Asset Manager shall have no obligation to advance any amount) shall be reimbursed by the applicable Property LLC, including, without limitation, the following:

 

(a)           cost to correct the violation of any governmental requirement relating to the leasing, use, repair and maintenance of such part of the Property, or relating to the rules, regulations or orders of the local Board of Fire Underwriters or other similar body, if such cost is not the result of the Asset Manager’s gross negligence or willful misconduct;

 

(b)           actual and reasonable cost of making all repairs, decorations and alterations if such cost is not the result of the Asset Manager’s gross negligence or willful misconduct;

 

(c)           cost incurred by the Asset Manager in connection with all service agreements;

 

(d)           cost of collection of delinquent rents collected by a collection agency or attorney;

 

(e)           legal fees of attorneys;

 

(f)           cost of capital expenditures;

 

(g)           cost of advertising;

 

(h)           if applicable, cost of printed forms and supplies required for use at the Property;

 

(i)           management compensation set forth in Article 6;

 

(j)           the cost of tenant improvements to the Property;

 

(k)           broker’s commissions;

 

(l)           debt service;

 

(m)           the cost of utilities, services, contractors and insurance;

 

(n)           reimbursement of the Asset Manager’s actual out-of-pocket costs and expenses to the extent not prohibited by Article 5; and

 

(o)           cost of routine travel by the Asset Manager’s employees or associates to and from the Property.

 

All other amounts not directly related to the Property or the Owner or related Property LLC, as the case may be, shall be payable solely by the Asset Manager and shall not be paid out of the related Reserve Account or reimbursed by the Owner or Property LLC, as the case may be.

 

4.2           Reserve Account; Deficiency.  The Asset Manager shall establish and maintain a bank account to be held in trust for the Property LLCs (the “Reserve Account”) by a reputable bank or other financial institution reasonably acceptable to Owner.  The Asset Manager shall be permitted to deposit and make withdrawals from the Reserve Account with respect to each applicable Property LLC.  The Asset Manager shall maintain books and records of deposits and withdrawals credited and charged to the Reserve Account on behalf of each Property LLC.  The Asset Manager shall use reasonable efforts to maintain the Reserve Account so that an amount at least as great as the budgeted operating expenses for each Property for each month is in the Reserve Account as of the first of each month.  If at any time there are not sufficient funds in the Reserve Account maintained on behalf of a Property LLC to pay any required fee or expense of the applicable Property or Property LLC, the Asset Manager shall promptly notify the Owner and the other members of the applicable Property LLC, if any, of such deficiency.  The Asset Manager shall pay from the Reserve Account for the related Property, on behalf of the applicable Property LLC, the operating expenses of the Property and any other payments relating to the Property as required by this Agreement.  All rents and other funds collected in the Reserve Account, after payment of all operating expenses, debt service and such amounts as may be determined by the Asset Manager to be retained for reasonable reserves or improvements, shall be paid to the members of the Property LLC in proportion to their respective undivided interests in the Property, before the end of the month following the month in which such rents or other funds were collected.  Upon termination of this Agreement or the termination of this Agreement with respect to any Property, upon the sale or other disposition of such Property or direct or indirect interest therein, upon the satisfaction of any outstanding indebtedness or other obligations secured by or related to such Property, any and all remaining amounts then held in the Reserve Account including, without limitation, all amounts held as prepaid but unearned fees and/or expenses shall be paid to the Owner and the other members of the Property LLC in proportion to their respective undivided interest in the Property.

 

ARTICLE 5

 

ASSET MANAGER’S COSTS NOT TO BE REIMBURSED

 

5.1           Non-reimbursable Costs.  The following expenses or costs incurred by or on behalf of the Asset Manager in connection with the management of the Property shall be at the sole cost and expense of the Asset Manager and shall not be reimbursed by the Owner and the other members of the related Property LLC, if any: (a) costs attributable to losses arising from gross negligence, willful misconduct or fraud on the part of the Asset Manager, or any of its associates, agents, employees or affiliates to the extent not otherwise covered by insurance, (b) costs in the amount of $50,000 or more causing damage to the Owner and attributable to losses arising from the negligence by the Asset Manager or any of its associates, agents, employees or affiliates; (c) cost of insurance purchased by the Asset Manager solely for its own account; (d) the Asset Manager’s corporate office general overhead, including, without limitation, the costs of forms, paper, ledgers and other supplies and equipment used in Asset Manager’s office; (e) cost of electronic data processing equipment or any pro rata charge thereon, at Asset Manager’s office; (f) salaries and wages, payroll taxes, insurance, worker’s compensation and other benefits of Asset Manager’s employees; and (g) any other items except as expressly provided in Section 5.1.

 

5.2           Litigation.  The Asset Manager will be responsible for and hold each of the Owner and Property LLC harmless from, all fees, costs, expenses and damages relating to disputes with employees for worker’s compensation (to the extent not covered by insurance), discrimination or wrongful termination, including legal fees and other expenses.

 

ARTICLE 6

 

COMPENSATION AND FEES

 

6.1           Compensation and Fees.  The Owner shall pay the fees set forth in this Article 6 based on its undivided interest in the Property or its membership interest in the Property LLC, as applicable.  Notwithstanding anything to the contrary otherwise contained in this Agreement, in no event shall the Owner be liable to the Asset Manager hereunder for any amount in excess of its pro rata part (based upon its undivided percentage ownership interest in the Property) of any fees, commissions, costs, expenses or any other amounts payable in respect of a Property.

 

6.2           Property Management Fee.  The Asset Manager, shall receive, for its services under this Agreement, a monthly management fee (the “Property Management Fee”) equal to (a) in the case of Simple Management Property (defined below), one percent (1%) per annum of the Original Loan Amount (defined below), and (b) in the case of Complex Management Property (defined below), two percent (2%) per annum of the Original Loan Amount, which Property Management Fee shall be in addition to the actual out-of-pocket and costs that are reimbursable pursuant to Article 4 and the other fees provided in this Agreement. For the purposes hereof, “Simple Management Property” means Property requiring customary management time and effort to manage and identified as Simple Management Property in the related Budget.  “Complex Management Property” means Property requiring substantial management time and effort to administer, manage and otherwise identified as Complex Management Property in the related Budget.  “Original Loan Amount” with respect to each part of the Property, has the meaning set forth on Exhibit A attached hereto under the column titled “Original Loan Amount.”

 

The Property Management Fee shall be calculated and payable monthly upon submission to the Owner of a monthly statement from the Property LLC’s funds then on deposit in the Reserve Account. Upon termination of this Agreement or the termination of this Agreement with respect to any Property, upon the sale or other disposition of such Property or direct or indirect interest therein, the parties will prorate the Property Management Fee on a daily basis to the effective date of termination.  If the Asset Manager engages local property managers or other parties to provide property management services in accordance with Section 2.7, the Asset Manager shall be obligated to pay such third parties, it being intended that the Property Management Fee shall be inclusive of such third party fees.

 

6.3           Leasing Commissions.  The Asset Manager or a duly licensed affiliate shall receive, for its services in leasing the Property in accordance with the terms of this Agreement, a leasing commission (the “Leasing Commission”) equal to 6% of the value of any lease entered into during the term of this Agreement and 3% with respect to any renewals or renegotiation entered into during the term of this Agreement.  Any leasing fees due to outside leasing agents or brokers will be paid out of the Leasing Commission and will reduce the Leasing Commission payable to the Asset Manager or its affiliate on a dollar for dollar basis. The value of the Lease shall be calculated by totaling the minimum monthly rent (or similar rent) for the term of the Lease. However, if another broker represents the tenant, then the Asset Manager will cooperate with that broker, with commissions to the other broker to be paid out of the Leasing Commission and will reduce the Leasing Commission payable to the Asset Manager on a dollar for dollar basis.  The Leasing Commission will be prorated among the Owner and the other members of the Property LLC, if any, according to their respective undivided interests in the related Property.

 

6.4           REO Processing Fee.  For services provided in connection with managing a nonperforming Loan through the foreclosure or deed-in-lieu of foreclosure stage including, but not limited to, borrower collection efforts, coordination of foreclosure proceedings and clearing title, the Asset Manager shall be entitled to receive a processing fee (“REO Processing Fee”) in an amount not to exceed five percent (5%) of the outstanding principal balance of the Loan at the time of default (the “Default Balance”).  One percent (1%) of the REO Processing Fee shall be due and payable immediately upon transfer of the title to the Property to the Property LLC.  The remaining amount of the REO Processing Fee will become due and payable upon the sale or other disposition of the Property.

 

6.5           Loan Fee.  The Asset Manager or an affiliate may receive a loan origination fee (the “Loan Fee”) in an amount not to exceed 5% of the principal amount of all loans obtained for the Property by the Asset Manager during the term of this Agreement or such other amount as may be agreed to in writing by the Property LLC and the Asset Manager.  The Asset Manager or an affiliate shall pay out of the Loan Fee any loan brokers or other parties (other than the lender) who assist in arranging such financings. The Loan Fee does not include any origination fees or points paid to the lender in connection with such loans. The Loan Fee will be prorated among the Owner and the other members of the related Property LLC, if any, according to their respective undivided interests in the related Property.

 

ARTICLE 7

 

TERMINATION

 

7.1           Term; Termination without Cause.  Unless sooner terminated, this Agreement shall terminate on the earlier of (a) with respect to any Property or any interest therein, the sale of such Property or any direct or indirect interest therein, or (b) December 31, 2011 (the “Initial Term”).  Thereafter, this Agreement shall automatically renew for successive one-year terms unless otherwise terminated in accordance with the terms and conditions of this Agreement. Notwithstanding any other provision of this Agreement to the contrary, after the Initial Term, (i) the Owner shall have the right to terminate this Agreement without cause at any time after 90 days prior written notice to the Advisor and the affirmative vote of a majority of the Unaffiliated Directors (hereinafter defined) and (ii) the Asset Manager shall have the right to terminate this Agreement without cause at any time after 90 days prior written notice to the Owner’s Board of Directors.  If the Owner terminates this Agreement without cause, the Owner shall pay to the Asset Manager within 30 days after the effective date of termination without demand, deduction, offset or delay or, at the Asset Manager’s election, the Asset Manager may deduct such amount from the Reserve Account all unpaid reimbursable costs and expenses permitted under this Agreement and all earned and unpaid Property Management Fees. If the Owner terminates this Agreement without cause pursuant to this Section 7.1, the Owner shall also pay to the Asset Manager within 60 days after the effective date of termination without demand, deduction, offset or delay, the aggregate amount of the remaining unpaid balance of all REO Processing Fees.  For the purposes hereof, “Unaffiliated Director” means a natural person serving as a director of the Owner who is not affiliated, directly or indirectly, with the Asset Manager or any of its affiliates in any material respect, whether by ownership of, ownership interest in, employment by, any material business or professional relationship with, or serving as an officer or director of the Asset Manager or any of its affiliates.

 

7.2           Termination by the Owner for Cause.  In the event that the Unaffiliated Directors shall have made a reasonable good faith determination based on findings of fact which are disclosed to the Asset Manager that cause for termination exists, then a majority of the Unaffiliated Directors shall have the right to terminate this Agreement for cause at the following time:  (i) immediately, if the Unaffiliated Directors determined in good faith that cause is based primarily on criminal activity or active fraud or (ii) after not less than 60 days after written notice to the Asset Manager, if the Unaffiliated Directors determined in good faith that cause is based other than as described in clause (i) above and the Unaffiliated Directors shall have determined that cause still exists after written notice to the Asset Manager disclosing the findings of the Unaffiliated Directors and a reasonable opportunity to cure. In the event that this Agreement is terminated for “cause” in accordance with the provisions of this Section 7.2, the Owner shall pay the Asset Manager within 30 days after the effective date of termination without demand, deduction, offset or delay, all unpaid reimbursable costs and expenses and all earned and unpaid Property Management Fees.  For the purposes hereof, “Cause” means a reasonable good faith determination of the Owner’s Board of Directors based on findings of fact which are disclosed to the Asset Manager that the Asset Manager was grossly negligent, acted with reckless disregard or engaged in willful misconduct or active fraud while discharging its material duties under this Agreement.

 

7.3           Termination On Sale.  This Agreement shall automatically terminate upon the sale or other disposition of all of the Property.  Upon such termination, the Owner shall pay the Asset Manager within 30 days after the effective date of termination without demand, deduction, offset or delay, all unpaid reimbursable costs and expenses and all earned and unpaid Property Management Fees, REO Processing Fees and any other fees and amounts due and payable hereunder.

 

7.4           Final Accounting.  Within 60 days after termination of this Agreement (including, without limitation, termination of this Agreement with respect to any Property) for any reason, the Asset Manager shall deliver to the Owner based on its undivided interest in the Property, the following: (a) a final accounting, setting forth the balance of income and expenses on the Property as of the date of termination; (b) any balance or monies of the Owner or tenant security deposits held by the Asset Manager with respect to the Property; and (c) all materials and supplies, keys, books and records, contracts, leases, receipts for deposits, unpaid bills and other papers or documents which pertain to the Property. For a period of 30 days after such expiration or cancellation for any reason other than the Owner’s default, the Asset Manager shall be available, through its senior executives familiar with the Property, to consult with and advise the Owner or any person or entity succeeding to the Owner as owner of the Property or such other person or persons selected by the Owner regarding the operation and maintenance of the Property. Such services shall be provided by the Asset Manager in exchange for a portion of its monthly Property Management Fee. Termination of this Agreement shall not release either party from liability for failure to perform any of the duties or obligations as expressed herein and required to be performed by such party for the period prior to the termination.

 

ARTICLE 8

 

NOTICES

 

All notices, requests, demands and other communications required to or permitted to be given under this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered; (b) five days after the same have been deposited in a United States post office via certified mail/return receipt requested; or (c) the next Business Day after same have been deposited with a national overnight delivery service (e.g., Federal Express) in each case addressed to the parties at the address set forth beneath their signatures hereto.

 

ARTICLE 9

 

MISCELLANEOUS

 

9.1           Assignment.  Except for any assignment to an affiliate of the Asset Manager, the Asset Manager may not assign this Agreement without the prior written consent of the Owner, which consent may be withheld in the Owner’s sole and absolute discretion.

 

9.2           Entire Agreement. Modification.  This Agreement and any agreement, document or instrument referred to herein constitute the entire agreement between the Owner and the Asset Manager pertaining to the subject matter contained in such agreement and supersede all prior and contemporaneous agreements, representations and understandings of the parties hereto. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by all of the parties hereto.

 

9.3           Governing Law; Venue.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of Nevada, without regard to the conflicts of law provisions and principles thereof.

 

9.4           Representations.  The Asset Manager represents and warrants that it is or shall be prior to entering into any transaction fully qualified and licensed, to the extent required by law, to manage and lease real estate and perform all obligations assumed by the Asset Manager hereunder. The Asset Manager shall use reasonable efforts to comply with all such laws now or hereafter in effect

 

9.5           Licensing.  To the extent that any fees or commissions otherwise payable to the Asset Manager hereunder may not be so paid because the Asset Manager does not hold the necessary licenses, the Asset Manager shall engage and appoint as agent an affiliated entity which does hold such licenses to so receive such fees or commissions on its behalf.

 

9.6           INDEMNIFICATION BY THE ASSET MANAGER.  THE ASSET MANAGER SHALL INDEMNIFY, DEFEND AND HOLD THE OWNER AND ITS STOCKHOLDERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES HARMLESS FROM ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION, LOSSES, DAMAGES, FINES, PENALTIES, LIABILITIES, COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES AND COURT COSTS, SUSTAINED OR INCURRED BY OR ASSERTED AGAINST THE OWNER BY REASON OF THE ACTS OF THE ASSET MANAGER WHICH ARISE OUT OF ITS GROSS NEGLIGENCE, WILLFUL MISCONDUCT, BAD FAITH OR FRAUD OF THE ASSET MANAGER, ITS AGENTS OR EMPLOYEES OR THE ASSET MANAGER’S WILLFUL BREACH OF THIS AGREEMENT.  IF ANY PERSON OR ENTITY MAKES A CLAIM OR INSTITUTES A SUIT AGAINST THE OWNER ON A MATTER FOR WHICH THE OWNER CLAIMS THE BENEFIT OF THE FOREGOING INDEMNIFICATION, THEN: (A) THE OWNER SHALL GIVE THE ASSET MANAGER PROMPT NOTICE THEREOF IN WRITING; (B) THE ASSET MANAGER MAY DEFEND SUCH CLAIM OR ACTION BY COUNSEL OF ITS OWN CHOOSING PROVIDED SUCH COUNSEL IS REASONABLY SATISFACTORY TO THE OWNER; (C) NEITHER THE OWNER NOR THE ASSET MANAGER SHALL SETTLE ANY CLAIM WITHOUT THE OTHER’S WRITTEN CONSENT; AND (D) THIS SUBSECTION SHALL NOT BE SO CONSTRUED AS TO RELEASE THE OWNER OR THE ASSET MANAGER FROM ANY LIABILITY TO THE OTHER FOR A WILLFUL BREACH OF ANY OF THE COVENANTS AGREED TO BE PERFORMED UNDER THE TERMS OF THIS AGREEMENT

 

9.7           Indemnification by the Owner.  THE OWNER SHALL INDEMNIFY, DEFEND AND HOLD THE ASSET MANAGER AND ITS MEMBERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES HARMLESS FROM ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION, LOSSES, DAMAGES, FINES, PENALTIES, LIABILITIES, COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES AND COURT COSTS, SUSTAINED OR INCURRED BY OR ASSERTED AGAINST THE ASSET MANAGER BY REASON OF THE OPERATION, MANAGEMENT, AND MAINTENANCE OF THE PROPERTY AND THE PERFORMANCE BY THE ASSET MANAGER OF THE ASSET MANAGER’S OBLIGATIONS UNDER THIS AGREEMENT BUT ONLY TO THE EXTENT OF THE OWNER’S INTEREST IN THE PROPERTY, OR ANY PART THEREOF, EXCEPT THOSE WHICH ARISE FROM THE ASSET MANAGER’S GROSS NEGLIGENCE, WILLFUL MISCONDUCT, BAD FAITH OR FRAUD. IF ANY PERSON OR ENTITY MAKES A CLAIM OR INSTITUTES A SUIT AGAINST THE ASSET MANAGER ON ANY MATTER FOR WHICH THE ASSET MANAGER CLAIMS THE BENEFIT OF THE FOREGOING INDEMNIFICATION, THEN: (A) THE ASSET MANAGER SHALL GIVE THE OWNER PROMPT NOTICE THEREOF IN WRITING; (B) THE OWNER MAY DEFEND SUCH CLAIM OR ACTION BY COUNSEL OF ITS OWN CHOOSING PROVIDED SUCH COUNSEL IS REASONABLY SATISFACTORY TO THE ASSET MANAGER; (C) NEITHER THE ASSET MANAGER NOR THE OWNER SHALL SETTLE ANY CLAIM WITHOUT THE OTHER’S WRITTEN CONSENT; AND (D) THIS SUBSECTION SHALL NOT BE SO CONSTRUED AS TO RELEASE THE OWNER OR THE ASSET MANAGER FROM ANY LIABILITY TO THE OTHER FOR A BREACH OF ANY OF THE COVENANTS AGREED TO BE PERFORMED UNDER THE TERMS OF THIS AGREEMENT.

 

9.8           Severability.  If any term or provision of this Agreement is determined to be illegal, unenforceable or invalid, in whole or in part for any reason, such illegal, unenforceable or invalid provision or part thereof shall be stricken from this Agreement and such provision shall not affect the legality, enforceability or validity of the remainder of this Agreement. If any provision or part thereof of this Agreement is stricken in accordance with the provisions of this Section 9.8, then such stricken provision shall be replaced, to the extent possible, with a legal, enforceable and valid provision that is as similar in tenor to the stricken provision as is legally possible.

 

9.9           No Waiver.  The failure by any party to insist upon the strict performance of, or to seek remedy of, anyone of the terms or conditions of this Agreement or to exercise any right, remedy or election set forth herein or permitted by law shall not constitute or be construed as a waiver or relinquishment for the future of such term, condition, right, remedy or election, but such item shall continue and remain in full force and effect. All rights or remedies of the parties specified in this Agreement and all other rights or remedies that they may have at law, in equity or otherwise shall be distinct, separate and cumulative rights or remedies, and no one of them, whether exercised or not, shall be deemed to be in exclusion of any other right or remedy of the parties.

 

9.10           Binding Effect.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns.

 

9.11           Enforcement of the Asset Manager’s Rights.  In the enforcement of its rights under this Agreement, the Asset Manager shall not seek or obtain a money judgment or any other right or remedy against any stockholders, partners, members or disclosed or undisclosed principals of the Owner. The Asset Manager shall enforce its rights and remedies solely against the estate of the Owner in the Property or the proceeds of any sale of all or any portion of the Owner’s interest therein.

 

9.12           Attorneys’ Fees.  In any action or proceeding between the Asset Manager and the Owner arising from or relating to this Agreement or the enforcement or interpretation hereof, the non-prevailing party shall pay to the prevailing party a reasonable sum for attorneys’ fees incurred in bringing such suit and/or enforcing any judgment granted therein, all of which shall be deemed to have accrued upon the commencement of such action and shall be paid whether or not such action is prosecuted to judgment.  Any judgment or order entered in such action shall contain a specific provision providing for the recovery of attorneys’ fees and costs incurred in enforcing such judgment.

 

9.13           Headings.  All headings are only for convenience and ease of reference and are irrelevant to the construction or interpretation of any provision of this Agreement

 

9.14           Further Assurances.  Each party hereto agrees to execute, with acknowledgment and affidavit if required, any and all documents and take all actions that may be reasonably required in furtherance of the provisions of this Agreement.

 

9.15           Counterparts: Facsimiles.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original (including copies sent to a party by facsimile transmission) as against the party signing such counterpart, but which together shall constitute one and the same instrument. Signatures transmitted via facsimile, or PDF format through electronic mail (“e-mail”), shall be considered authentic and binding.

 

IN WITNESS WHEREOF, this Agreement has been executed as of the date set forth above, but effective as of the Effective Date.

 

OWNER

 

DESERT CAPITAL REIT, INC.

 

By:  /s/Stacy M. Riffe

   Stacy M. Riffe

   Chief Financial Officer

 

Address:

1291 W. Galleria Drive, Suite 200

Henderson, NV 89014

 

ASSET MANAGER

 

CM CAPITAL SERVICES, LLC

 

By: /s/Todd B. Parriott

   Todd B. Parriott

President

 

Address:

1291 W. Galleria Drive, Suite 200

Henderson, NV 89014

 

 

 

EXHIBIT A

TO

ASSET MANAGEMENT AGREEMENT

 

The Property

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