Document:

Exhibit 10.38

 

 

LOAN AGREEMENT

 

 

between

 

 

ESP SEVEN SUBSIDIARY LLC

as Borrower

 

 

and

 

 

GENERAL ELECTRIC CAPITAL CORPORATION

as Lender

 

 

October 16, 2007

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE
  1 CERTAIN DEFINITIONS

  	
   

  	
  1

  
	
  Section 1.1

  	
   

  	
  Certain Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  2 LOAN TERMS

  	
   

  	
  9

  
	
  Section 2.1

  	
   

  	
  The Loan

  	
   

  	
  9

  
	
  Section 2.2

  	
   

  	
  Interest Rate; Late
  Charge

  	
   

  	
  9

  
	
  Section 2.3

  	
   

  	
  Terms of Payment

  	
   

  	
  11

  
	
  Section 2.4

  	
   

  	
  Security

  	
   

  	
  13

  
	
  Section 2.5

  	
   

  	
  Origination Fee

  	
   

  	
  13

  
	
  Section 2.6

  	
   

  	
  Unused Fee

  	
   

  	
  13

  
	
  Section 2.7

  	
   

  	
  Debt Service Coverage

  	
   

  	
  13

  
	
  Section 2.8

  	
   

  	
  Partial Release of
  Collateral

  	
   

  	
  14

  
	
  Section 2.9

  	
   

  	
  Additional Projects

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  3 INSURANCE, CONDEMNATION, AND IMPOUNDS

  	
   

  	
  18

  
	
  Section 3.1

  	
   

  	
  Insurance

  	
   

  	
  18

  
	
  Section 3.2

  	
   

  	
  Use and Application of Insurance
  Proceeds

  	
   

  	
  20

  
	
  Section 3.3

  	
   

  	
  Condemnation Awards

  	
   

  	
  21

  
	
  Section 3.4

  	
   

  	
  Impounds

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  4 REPRESENTATIONS AND WARRANTIES

  	
   

  	
  22

  
	
  Section 4.1

  	
   

  	
  Organization and Power

  	
   

  	
  22

  
	
  Section 4.2

  	
   

  	
  Validity of Loan
  Documents

  	
   

  	
  22

  
	
  Section 4.3

  	
   

  	
  Liabilities;
  Litigation; Other Secured Transactions

  	
   

  	
  23

  
	
  Section 4.4

  	
   

  	
  Taxes and Assessments

  	
   

  	
  23

  
	
  Section 4.5

  	
   

  	
  Other Agreements;
  Defaults

  	
   

  	
  23

  
	
  Section 4.6

  	
   

  	
  Compliance with Law

  	
   

  	
  23

  
	
  Section 4.7

  	
   

  	
  Location of Borrower

  	
   

  	
  24

  
	
  Section 4.8

  	
   

  	
  ERISA

  	
   

  	
  24

  
	
  Section 4.9

  	
   

  	
  Margin Stock

  	
   

  	
  24

  
	
  Section 4.10

  	
   

  	
  Tax Filings

  	
   

  	
  24

  
	
  Section 4.11

  	
   

  	
  Solvency

  	
   

  	
  24

  
	
  Section 4.12

  	
   

  	
  Full and Accurate
  Disclosure

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  5 ENVIRONMENTAL MATTERS

  	
   

  	
  26

  
	
  Section 5.1

  	
   

  	
  Representations and
  Warranties on Environmental Matters

  	
   

  	
  26

  
	
  Section 5.2

  	
   

  	
  Covenants on
  Environmental Matters

  	
   

  	
  26

  
	
  Section 5.3

  	
   

  	
  Allocation of Risks and
  Indemnity

  	
   

  	
  27

  
	
  Section 5.4

  	
   

  	
  Lender’s Right to
  Protect Collateral

  	
   

  	
  29

  
	
  Section 5.5

  	
   

  	
  No Waiver

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  6  LEASING MATTERS

  	
   

  	
  29

  
	
  Section 6.1

  	
   

  	
  Representations and
  Warranties on Leases

  	
   

  	
  29

  
						

 

i

 

	
  Section 6.2

  	
   

  	
  Standard Lease Form;
  Approval Rights

  	
   

  	
  30

  
	
  Section 6.3

  	
   

  	
  Covenants

  	
   

  	
  30

  
	
  Section 6.4

  	
   

  	
  Tenant Estoppels

  	
   

  	
  31

  
	
  Section 6.5

  	
   

  	
  Project Information

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  7 FINANCIAL REPORTING

  	
   

  	
  31

  
	
  Section 7.1

  	
   

  	
  Financial Statements

  	
   

  	
  31

  
	
  Section 7.2

  	
   

  	
  Accounting Principles

  	
   

  	
  32

  
	
  Section 7.3

  	
   

  	
  Other Information

  	
   

  	
  32

  
	
  Section 7.4

  	
   

  	
  Annual Budget

  	
   

  	
  32

  
	
  Section 7.5

  	
   

  	
  Audits

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  8 COVENANTS

  	
   

  	
  33

  
	
  Section 8.1

  	
   

  	
  Due on Sale and
  Encumbrance; Transfers of Interests

  	
   

  	
  33

  
	
  Section 8.2

  	
   

  	
  Taxes; Charges

  	
   

  	
  34

  
	
  Section 8.3

  	
   

  	
  Control; Management

  	
   

  	
  35

  
	
  Section 8.4

  	
   

  	
  Operation; Maintenance;
  Inspection

  	
   

  	
  35

  
	
  Section 8.5

  	
   

  	
  Taxes on Security

  	
   

  	
  35

  
	
  Section 8.6

  	
   

  	
  Legal Existence; Name,
  Etc.

  	
   

  	
  36

  
	
  Section 8.7

  	
   

  	
  Affiliate Transactions

  	
   

  	
  36

  
	
  Section 8.8

  	
   

  	
  Limitation on Other Debt

  	
   

  	
  36

  
	
  Section 8.9

  	
   

  	
  Further Assurances

  	
   

  	
  37

  
	
  Section 8.10

  	
   

  	
  Estoppel Certificates

  	
   

  	
  37

  
	
  Section 8.11

  	
   

  	
  Notice of Certain
  Events

  	
   

  	
  37

  
	
  Section 8.12

  	
   

  	
  Indemnification

  	
   

  	
  37

  
	
  Section 8.13

  	
   

  	
  Application of
  Operating Revenues

  	
   

  	
  38

  
	
  Section 8.14

  	
   

  	
  Representations and Warranties

  	
   

  	
  38

  
	
  Section 8.15

  	
   

  	
  Immediate Repairs

  	
   

  	
  38

  
	
  Section 8.16

  	
   

  	
  1206 Waltham, MA Lease

  	
   

  	
  38

  
	
  Section 8.17

  	
   

  	
  Contribution Agreement

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  9 ANTI-MONEY LAUNDERING AND INTERNATIONAL TRADE  CONTROLS

  	
   

  	
  39

  
	
  Section 9.1

  	
   

  	
  Compliance with
  International Trade Control Laws and OFAC Regulations

  	
   

  	
  39

  
	
  Section 9.2

  	
   

  	
  Borrower’s Funds

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  10 EVENTS OF DEFAULT

  	
   

  	
  40

  
	
  Section 10.1

  	
   

  	
  Payments

  	
   

  	
  40

  
	
  Section 10.2

  	
   

  	
  Insurance

  	
   

  	
  40

  
	
  Section 10.3

  	
   

  	
  Transfer

  	
   

  	
  40

  
	
  Section 10.4

  	
   

  	
  Covenants

  	
   

  	
  40

  
	
  Section 10.5

  	
   

  	
  Representations and
  Warranties

  	
   

  	
  41

  
	
  Section 10.6

  	
   

  	
  Other Encumbrances

  	
   

  	
  41

  
	
  Section 10.7

  	
   

  	
  Involuntary Bankruptcy
  or Other Proceeding

  	
   

  	
  41

  
	
  Section 10.8

  	
   

  	
  Voluntary Petitions,
  Etc.

  	
   

  	
  41

  

 

ii

 

	
  ARTICLE
  11 REMEDIES

  	
   

  	
  41

  
	
  Section 11.1

  	
   

  	
  Remedies - Insolvency
  Events

  	
   

  	
  41

  
	
  Section 11.2

  	
   

  	
  Remedies - Other Events

  	
   

  	
  42

  
	
  Section 11.3

  	
   

  	
  Lender’s Right to
  Perform the Obligations

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  12 MISCELLANEOUS

  	
   

  	
  43

  
	
  Section 12.1

  	
   

  	
  Notices

  	
   

  	
  43

  
	
  Section 12.2

  	
   

  	
  Amendments and Waivers;
  References

  	
   

  	
  44

  
	
  Section 12 3

  	
   

  	
  Limitation on Interest

  	
   

  	
  44

  
	
  Section 12.4

  	
   

  	
  Invalid Provisions

  	
   

  	
  44

  
	
  Section 12.5

  	
   

  	
  Reimbursement of
  Expenses

  	
   

  	
  45

  
	
  Section 12.6

  	
   

  	
  Approvals; Third
  Parties; Conditions

  	
   

  	
  45

  
	
  Section 12.7

  	
   

  	
  Lender Not in Control;
  No Partnership

  	
   

  	
  45

  
	
  Section 12.8

  	
   

  	
  Time of the Essence

  	
   

  	
  46

  
	
  Section 12.9

  	
   

  	
  Successors and Assigns

  	
   

  	
  46

  
	
  Section 12.10

  	
   

  	
  Renewal, Extension or
  Rearrangement

  	
   

  	
  46

  
	
  Section 12.11

  	
   

  	
  Sale of Loan,
  Participation

  	
   

  	
  46

  
	
  Section 12.12

  	
   

  	
  Waivers

  	
   

  	
  47

  
	
  Section 12.13

  	
   

  	
  Cumulative Rights

  	
   

  	
  47

  
	
  Section 12.14

  	
   

  	
  Singular and Plural

  	
   

  	
  47

  
	
  Section 12.15

  	
   

  	
  Phrases

  	
   

  	
  47

  
	
  Section 12.16

  	
   

  	
  Exhibits and Schedules

  	
   

  	
  47

  
	
  Section 12.17

  	
   

  	
  Titles of Articles,
  Sections and Subsections

  	
   

  	
  47

  
	
  Section 12.18

  	
   

  	
  Promotional Material

  	
   

  	
  47

  
	
  Section 12.19

  	
   

  	
  Survival

  	
   

  	
  47

  
	
  Section 12.20

  	
   

  	
  WAIVER OF JURY TRIAL

  	
   

  	
  48

  
	
  Section 12.21

  	
   

  	
  Punitive or
  Consequential Damages; Waiver

  	
   

  	
  48

  
	
  Section 12.22

  	
   

  	
  Governing Law

  	
   

  	
  48

  
	
  Section 12.23

  	
   

  	
  Entire Agreement

  	
   

  	
  48

  
	
  Section 12.24

  	
   

  	
  Counterparts

  	
   

  	
  49

  
	
  Section 12.25

  	
   

  	
  Agreements Regarding
  Borrower and Subsidiaries

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  13 LIMITATIONS ON LIABILITY

  	
   

  	
  50

  
	
  Section 13.1

  	
   

  	
  Limitation on Liability

  	
   

  	
  50

  
	
  Section 13.2

  	
   

  	
  Limitation on Liability
  of Lender’s Officers, Employees, Etc.

  	
   

  	
  52

  
						

 

	
  LIST OF EXHIBITS AND SCHEDULES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  —

  	
   

  	
  LEGAL DESCRIPTION OF PROJECT

  
	
  SCHEDULE 1.1(A)

  	
   

  	
  —

  	
   

  	
  VALUATION AMOUNTS

  
	
  SCHEDULE 1.1(B)

  	
   

  	
  —

  	
   

  	
  PROJECT INFORMATION

  
	
  SCHEDULE 1.1(C)

  	
   

  	
  —

  	
   

  	
  LIST OF SITE ASSESSMENTS

  
	
  SCHEDULE 2.1

  	
   

  	
  —

  	
   

  	
  ADVANCE CONDITIONS

  
	
  SCHEDULE 4.1

  	
   

  	
  —

  	
   

  	
  ORGANIZATIONAL MATTERS

  

 

iii

 

	
  SCHEDULE 4.1(A)

  	
   

  	
  —

  	
   

  	
  BORROWER’S ORGANIZATIONAL STRUCTURE

  
	
  SCHEDULE 4.6

  	
   

  	
  —

  	
   

  	
  ZONING REPORTS AND PROPERTY CONDITION REPORTS

  
	
  SCHEDULE 8.15

  	
   

  	
  —

  	
   

  	
  IMMEDIATE REPAIRS

  

 

iv

 

LIST OF DEFINED TERMS

 

	
  Affiliate

  	
   

  	
  1

  
	
  Agreement

  	
   

  	
  1

  
	
  Anti-Money Laundering Laws

  	
   

  	
  1

  
	
  Assignment of Rents and Leases

  	
   

  	
  1

  
	
  Bank Secrecy Act

  	
   

  	
  2

  
	
  Bankruptcy Party

  	
   

  	
  30

  
	
  Borrower

  	
   

  	
  1

  
	
  Borrower Party

  	
   

  	
  2

  
	
  Budget

  	
   

  	
  2

  
	
  Business Day

  	
   

  	
  2

  
	
  Cash on Cash Return

  	
   

  	
  2

  
	
  Closing Date

  	
   

  	
  2

  
	
  Collateral

  	
   

  	
  2

  
	
  Contract Rate

  	
   

  	
  2, 8

  
	
  Debt

  	
   

  	
  2

  
	
  Debt Service

  	
   

  	
  2

  
	
  Debt Service Coverage

  	
   

  	
  3

  
	
  Default Rate

  	
   

  	
  3

  
	
  Environmental Laws

  	
   

  	
  3

  
	
  ERISA

  	
   

  	
  16

  
	
  Eurodollar Business Day

  	
   

  	
  4

  
	
  Event of Default

  	
   

  	
  3

  
	
  Financial Institution

  	
   

  	
  3

  
	
  Guarantors

  	
   

  	
  3

  
	
  Guaranty

  	
   

  	
  3

  
	
  Hazardous Materials

  	
   

  	
  3

  
	
  IEEPA

  	
   

  	
  29

  
	
  Interest Holder

  	
   

  	
  3, 24

  
	
  Joinder Party

  	
   

  	
  3

  
	
  Lender

  	
   

  	
  1

  
	
  Libor Rate

  	
   

  	
  3

  
	
  Lien

  	
   

  	
  4

  
	
  Loan

  	
   

  	
  4

  
	
  Loan Documents

  	
   

  	
  4

  
	
  Loan Year

  	
   

  	
  4

  
	
  Lockout Period

  	
   

  	
  9

  
	
  Maturity Date

  	
   

  	
  4

  
	
  Mortgage

  	
   

  	
  4

  
	
  Net Cash Flow

  	
   

  	
  4

  
	
  Note

  	
   

  	
  5

  
	
  OFAC

  	
   

  	
  5

  
	
  Operating Expenses

  	
   

  	
  5

  
	
  Operating Revenues

  	
   

  	
  5

  

 

v

 

	
  Patriot Act

  	
   

  	
  5

  
	
  Person

  	
   

  	
  5

  
	
  Potential Default

  	
   

  	
  5

  
	
  Prepayment Premium Period

  	
   

  	
  9

  
	
  Project

  	
   

  	
  5

  
	
  Restoration Threshold

  	
   

  	
  6

  
	
  Single Purpose Entity

  	
   

  	
  6

  
	
  Site Assessment

  	
   

  	
  6

  
	
  Specially Designated National and Blocked Persons

  	
   

  	
  6

  
	
  Standard Adjustments

  	
   

  	
  6

  
	
  Transfer

  	
   

  	
  6, 23

  
	
  TWEA

  	
   

  	
  29

  
	
  U.S. Person

  	
   

  	
  7

  
	
  UCC

  	
   

  	
  7

  
	
  Underwritten NOI

  	
   

  	
  7

  
	
  Underwritten Operating Expenses

  	
   

  	
  7

  
	
  Underwritten Operating Revenues

  	
   

  	
  7

  

 

vi

 

LOAN
AGREEMENT

 

This Loan Agreement (this
“Agreement”) is entered
into as of October 16, 2007 between GENERAL
ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“Lender”), and ESP SEVEN SUBSIDIARY LLC, a Delaware
limited liability company (“Borrower”).

 

ARTICLE 1

 

CERTAIN DEFINITIONS

 

Section 1.1    Certain Definitions. As used
herein, the following terms have the meanings indicated:

 

“Additional Project” has the meaning
assigned in Section 2.9.

 

“Affiliate” means, as to any Person,
(a) any corporation in which such Person or any partner, shareholder,
director, officer, member, or manager of such Person, at any level, directly or
indirectly owns or controls more than ten percent (10%) of the beneficial
interest, (b) any partnership, joint venture or limited liability company
in which such Person or any partner, shareholder, director, officer, member, or
manager of such Person, at any level, is a partner, joint venturer or member,
(c) any trust in which such Person or any partner, shareholder, director,
officer, member or manager of such Person, at any level, or any individual
related by birth, adoption or marriage to such Person, is a trustee or
beneficiary, (d) any entity of any type which is directly or indirectly
owned or controlled by (or is under common control with) such Person or any
partner, shareholder, director, officer, member or manager of such Person, at
any level, (e) any partner, shareholder, director, officer, member,
manager or employee of such Person, or (f) any individual related by
birth, adoption or marriage to any partner, shareholder, director, officer,
member, manager, or employee of such Person. Each Borrower Party shall be
deemed to be an Affiliate of Borrower.

 

“Agreement” means this Loan Agreement.

 

“Anti-Money Laundering Laws” means those
laws, regulations and sanctions, state and federal, criminal and civil, that
(a) limit the use of and/or seek the forfeiture of proceeds from illegal
transactions; (b) limit commercial transactions with designated countries
or individuals believed to be terrorists, narcotics dealers or otherwise
engaged in activities contrary to the interests of the United States;
(c) require identification and documentation of the parties with whom a
Financial Institution conducts business; or (d) are designed to disrupt
the flow of funds to terrorist organizations. Such laws, regulations and
sanctions shall be deemed to include the Patriot Act, the Bank Secrecy Act, the
Trading with the Enemy Act, 50 U.S.C. App. Section 1 et  seq.,
the International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et
seq., and the sanction regulations promulgated pursuant thereto by the
OFAC, as well as laws relating to prevention and detection of money laundering
in 18 U.S.C. Sections 1956 and 1957.

 

1

 

“Applicable Margin” means, for each
calendar quarter, the applicable amount for such quarter, as determined in
accordance with Section 2.2(1).

 

“Assignment of Rents and Leases” means
each Assignment of Rents and Leases, executed by Borrower or a Subsidiary for
the benefit of Lender, and pertaining to leases of space in a Project.

 

“Average Daily Balance” means, for any
calendar quarter, the mean average daily closing balance of the Loan during
such calendar quarter.

 

“Bank Secrecy Act” means the Bank
Secrecy Act, 31 U.S.C. Sections 5311 et  seq.

 

“Borrower Party” means any Joinder
Party, each Subsidiary, Extra Space of Pennsylvania LLC, a Utah limited
liability company, Extra Space Management, Inc., a Utah corporation, ESP
7, and Extra Space of Pennsylvania Two LLC, a Utah limited liability company,
and any general partner or managing member in Borrower, at any level.

 

“Borrowing Base” means, as of any date
of determination, an amount equal to the least of (a) the Maximum
Commitment, (b) eighty-five percent (85%) of the sum of the Valuation
Amounts of all Projects then serving as Collateral and (c) the principal
amount that would result in a Debt Service Coverage of 1.15:1.00; provided,
however, the Valuation Amount and Underwritten NOI of the “1195 Lanham, MD”
Project shall be excluded from Borrowing Base calculations until such time as
Lender has received evidence reasonably acceptable to Lender that (i) the
Mortgage covering such Project has been recorded in the appropriate real property
records and (ii) all state and county taxes for such Mortgage have been
paid in full; provided further, that if the preceding clauses (i) and
(ii) have not been satisfied on or before the date which is ninety (90)
days after the Closing Date, the Valuation Amount and Underwritten NOI of the
“1195 Lanham, MD” Project shall be permanently excluded from Borrowing Base
calculations and the Mortgage executed by Extra Space of Lanham LLC shall be
retuned to Borrower.

 

“Business Day” means a day other than a
Saturday, a Sunday, or a legal holiday on which national banks located in the
State of New York are not open for general banking business.

 

“Closing Date” means the date of the
“gap” closing (i.e., upon the Title Company’s irrevocable written commitment to
issue to Lender the Title Insurance Policies and Lender’s acknowledgment of the
satisfaction of the other conditions set forth in Part A of Schedule
2.1).

 

“Collateral” means the Projects and all
other “Mortgaged Property” described in the Mortgages, and any other property
that at any time secures the Loan or any portion thereof.

 

“Contract Rate” has the meaning assigned
in Article 2.

 

2

 

“Contribution Agreement” means that
certain Contribution and Indemnity Agreement of even date herewith executed by
Borrower and the Subsidiaries in favor of each other.

 

“Debt” means, for any Person, without
duplication: (a) all indebtedness of such Person for borrowed money, for
amounts drawn under a letter of credit, or for the deferred purchase price of
property for which such Person or any of its assets is liable, (b) all
unfunded amounts under a loan agreement, letter of credit, or other credit
facility for which such Person or any of its assets would be liable or subject,
if such amounts were advanced under the credit facility, (c) all amounts
required to be paid by such Person as a guaranteed payment to partners or a
preferred or special dividend, including any mandatory redemption of shares or
interests, but not including any REIT Distributions, (d) all indebtedness
guaranteed by such Person, directly or indirectly, (e) all obligations
under leases that constitute capital leases for which such Person or any of its
assets is liable or subject, and (f) all obligations of such Person under
interest rate swaps, caps, floors, collars and other interest hedge agreements,
in each case whether such Person or any of its assets is liable or subject,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations such Person otherwise assures a creditor against loss.

 

“Debt Service” means the aggregate
interest, fixed principal, and other payments due under the Loan (and under any
other permitted Debt relating to the Projects expressly approved by Lender),
but not including Excess, for the period of time for which calculated (unless
otherwise noted). The foregoing calculation shall exclude payments applied to
escrows or reserves required by Lender.

 

“Debt Service Coverage” means, as of any
date, the ratio of annualized Underwritten NOI for the immediately preceding
twelve (12) calendar months to annualized Debt Service.

 

“Default Rate” means the lesser of
(a) the maximum per annum rate of interest allowed by applicable law, and
(b) the Contract Rate plus five percent (5%) per annum.

 

“Environmental Laws” means any federal,
state or local law (whether imposed by statute, ordinance, rule, regulation,
administrative or judicial order, or common law), now or hereafter enacted,
governing health, safety, industrial hygiene, the environment or natural
resources, or Hazardous Materials, including, without limitation, such laws
governing or regulating (a) the use, generation, storage, removal,
recovery, treatment, handling, transport, disposal, control, release, discharge
of, or exposure to, Hazardous Materials, (b) the transfer of property upon
a negative declaration or other approval of a governmental authority of the
environmental condition of such property, or (c) requiring notification or
disclosure of releases of Hazardous Materials or other environmental conditions
whether or not in connection with a transfer of title to or interest in
property.

 

“ESP 7” means Extra Space Properties
Seven LP, a Utah limited partnership.

 

“Event of Default” has the meaning assigned
in Article 10.

 

“Excess” has the meaning assigned in
Section 2.7.

 

3

 

“Financial Institution” means a United
States Financial Institution as defined in 31 U.S.C. Section 5312, as
periodically amended.

 

Foster-Miller”
means Foster-Miller, Inc., a Massachusetts limited liability company.

 

“Foster-Miller Lease” means that certain
Lease dated April 14, 1990 as amended, by and between Extra Space of
Waltham LLC, as successor in interest to J. Gershon Bloch and Peter L. Godecke,
as Trustees of Waltham Storage Depot Trust, as landlord, and Foster-Miller, as
tenant, covering a portion of the Project known as “1206 Waltham, MA”.

 

“Guaranty” means that certain Guaranty
of even date herewith executed by Extra Space of Lanham LLC, a Maryland limited
liability company, for the benefit of Lender.

 

“Hazardous Materials” means
(a) petroleum or chemical products, whether in liquid, solid, or gaseous
form, or any fraction or by-product thereof, (b) asbestos or
asbestos-containing materials, (c) polychlorinated biphenyls (pcbs),
(d) radon gas, (e) underground storage tanks, (f) any explosive
or radioactive substances, (g) lead or lead-based paint, or (h) any
other substance, material, waste or mixture which is or shall be listed,
defined, or otherwise determined by any governmental authority to be hazardous,
toxic, dangerous or otherwise regulated, controlled or giving rise to liability
under any Environmental Laws.

 

“Interest Holder” has the meaning
assigned in Section 8.1.

 

“Joinder Party” means the Persons, if
any, executing the Joinder hereto, including Extra Space Storage LLC, a
Delaware limited liability company, and ESP 7.

 

“Libor Rate” shall mean the British
Bankers Association LIBOR Rate (rounded upward to the nearest one sixteenth of
one percent) listed on Reuters Screen LIBOR01 Page for U.S. Dollar
deposits with a designated maturity of one (1) month determined as of
11:00 a.m. London Time on the second (2nd) full Eurodollar Business Day
next preceding the first day of each month with respect to which interest is
payable under the Loan (unless such date is not a Business Day in which event
the next succeeding Eurodollar Business Day which is also a Business Day will
be used). If Reuters (i) publishes more than one (1) such Libor Rate,
the average of such rates shall apply, or (ii) ceases to publish the Libor
Rate, then the Libor Rate shall be determined from such substitute financial
reporting service as Lender in its discretion shall determine. The term “Eurodollar Business Day”, shall mean
any day on which banks in the City of London are generally open for interbank
or foreign exchange transactions.

 

“Lien” means, as to any Project, any
interest, or claim thereof, in the Collateral securing an obligation owed to,
or a claim by, any Person other than the owner of the Collateral, whether such
interest is based on common law, statute or contract, including the lien or
security interest arising from a deed of trust, mortgage, assignment,
encumbrance, pledge, security agreement, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes. The term “Lien” shall
include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting the Collateral.

 

4

 

“Loan” means the revolving line of
credit to be made by Lender to Borrower under this Agreement and all other
amounts secured by the Loan Documents.

 

“Loan Documents” means: (a) this
Agreement, (b) the Note, (c) the Mortgages, (d) the Assignments
of Rents and Leases, (e) UCC financing statements, (f) the Pledge
Agreement, (g) the Guaranty, (h) such assignments of management agreements,
contracts and other rights as may be required by Lender, (i) any letter of
credit provided to Lender in connection with the Loan, (j) all other
documents evidencing, securing, governing or otherwise pertaining to the Loan,
and (k) all amendments, modifications, renewals, substitutions and
replacements of any of the foregoing.

 

“Loan Year” means the period between the
Closing Date and October 31, 2008 for the first Loan Year and the period
between each succeeding November 1 and October 31 until the Maturity
Date.

 

“Lockout Period” has the meaning
assigned in Section 2.3(4).

 

“LTV Ratio” shall mean, as of the date
of determination, the ratio, expressed as a percentage, of (a) the Maximum
Commitment to (b) the aggregate value of the Projects as of such date, as
determined by Lender in accordance with its then-current underwriting policies
and procedures for properties similar to the Projects.

 

“Maturity Rate” means the earlier of
(a) October 31, 2010, as such date may possibly be extended as
provided in Section 2.3(3), or (b) any earlier date on which the
entire Loan is required to be paid in full, by acceleration or otherwise, under
this Agreement or any of the other Loan Documents.

 

“Maximum Commitment” means
$100,000,000.00, subject to reduction as provided in this Agreement.

 

“Mortgage” means each Mortgage, Security
Agreement and Fixture Filing and each Deed of Trust, Security Agreement and
Fixture Filing, executed by Borrower or a Subsidiary in favor of Lender,
covering a Project.

 

“Net Cash Flow” means, for any period,
the amount by which Operating Revenues exceed the sum of
(a) Operating Expenses, (b) Debt Service paid during such period,
(c) capital expenditures, tenant improvement costs and leasing
commissions, each approved by Lender and paid by Borrower during such period, and
(d) any actual payment into impounds, escrows, or reserves required by
Lender, except to the extent that any such payment is already included within
the definition of Operating Expenses. In addition, Net Cash Flow shall be
increased by any proceeds withdrawn from reserves and impounds funded out of
Operating Revenues to the extent such proceeds are not applied to Operating
Expenses.

 

“New Jersey Projects” means,
collectively, the “1054 Metuchen, NJ” Project and the “1331 Union, NJ Project”.

 

5

 

“New Jersey Subsidiaries” means,
collectively, Extra Space of Metuchen LLC, a New Jersey limited liability
company, and Extra Space of Union LLC, a New Jersey limited liability company.

 

“Non-Borrower Subsidiaries” means,
collectively, the Subsidiaries in which Borrower does not have a direct or
indirect ownership interest.

 

“Non-New Jersey Projects” means,
collectively, the Projects other than the New Jersey Projects.

 

“Non-New Jersey Subsidiaries” means,
collectively, the Subsidiaries other than the New Jersey Subsidiaries.

 

“Note” means the Promissory Note of even
date, in the stated principal amount of $100,000,000.00, executed by Borrower,
and payable to the order of Lender in evidence of the Loan.

 

“OFAC” means the Office of Foreign
Assets Control, Department of the Treasury.

 

“Operating Expenses” means, for any
period, all reasonable and necessary expenses of operating the Projects in the
ordinary course of business which are paid in cash by Borrower or the Subsidiaries
during such period and which are directly associated with and fairly allocable
to the Projects for the applicable period, including ad valorem real estate
taxes and assessments, insurance premiums, regularly scheduled tax impounds
paid to Lender, maintenance costs, management fees and costs, wages, salaries,
personnel expenses, accounting, legal and other professional fees, fees and
other expenses incurred by Lender and reimbursed by Borrower under the Loan
Documents and deposits to any capital replacement, leasing or other reserves
required by Lender. Operating Expenses shall exclude Debt Service, capital
expenditures, tenant improvement costs, leasing commissions, any of the
foregoing operating expenses which are paid from deposits to cash reserves and
such deposits were previously included as Operating Expenses, any payment or
expense for which Borrower was or is to be reimbursed from proceeds of the Loan
or insurance or by any third party, and any non-cash charges such as
depreciation and amortization. Any management fee or other expense payable to
Borrower or to an Affiliate of Borrower shall be included as an Operating
Expense only with Lender’s prior approval. Operating Expenses shall not include
federal, state or local income taxes.

 

“Operating Revenues” means, for any
period, all cash receipts of the Subsidiaries or Borrower during such period
from operation of the Projects or otherwise arising in respect of the Projects
after the date hereof which are properly allocable to the Projects for the
applicable period, including receipts from leases and parking agreements,
concession fees and charges, other miscellaneous operating revenues and
proceeds from rental or business interruption insurance, but excluding security
deposits and earnest money deposits until they are forfeited by the depositor,
advance rentals until they are earned, and proceeds from a sale or other
disposition.

 

“Patriot Act” means the USA PATRIOT Act
of 2001, Pub. L. No. 107-56.

 

6

 

“Person” means any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, trustee, estate, limited liability company, unincorporated organization,
real estate investment trust, government or any agency or political subdivision
thereof, or any other form of entity.

 

“Pledge Agreement” means each Pledge and
Security Agreement executed by Borrower or ESP 7 in favor of the Lender.

 

“Potential Default” means the occurrence
of any event or condition which, with the giving of notice, the passage of
time, or both, would constitute an Event of Default.

 

“Projects” means, collectively,
(a) the properties described in Schedule 1.1(B) (as such
schedule may from time to time be supplemented or updated in accordance with
the terms hereof) and each Additional Project added to the Collateral in
accordance with Section 2.9, and (b) as to each property described in
clause (a) above, all other “Mortgaged Property” described in the Mortgage
encumbering such property.

 

“REIT Distributions” means distributions
made or reasonably required to be made by Borrower so that it contributes its
proportionate share of any distributions made or scheduled to be made by any
Joinder Party to its publicly traded parent companies for the purpose of funding
distributions to REIT shareholders and REIT OP unit holders which are
reasonably required to be made either (i) for the REIT to maintain its tax
status as a Real Estate Investment Trust, or (ii) to comply with
resolutions adopted by the Board of Directors of the publicly traded REIT.

 

“Restoration Threshold” means, as of any
date, the lesser of (a) two and one-half percent (2.5%) of the
replacement value of the improvements at the damaged Project as of such date,
and (b) $500,000.

 

“Single Purpose Entity” shall mean a
Person (other than an individual, a government, or any agency or political
subdivision thereof), which (a) exists solely for the purpose of
(i) as to each Subsidiary, owning its Project, and (ii) as to
Borrower, owning the Subsidiaries and its Projects, (b) conducts business
only in its own name, (c) does not engage in any business or have any
assets (i) as to each Subsidiary, unrelated to the Project owned thereby,
and (ii) as to Borrower, other than its ownership of the Subsidiaries and
assets related to its Projects, (d) does not have any indebtedness other
than as permitted by this Agreement, (e) has its own separate books,
records, and accounts (with no commingling of assets), (f) holds itself
out as being a Person separate and apart from any other Person,
(g) observes corporate and partnership formalities independent of any
other entity, and (h) otherwise constitutes a single purpose, bankruptcy
remote entity as determined by Lender.

 

“Site Assessment” means an environmental
engineering report for each Project prepared by an engineer engaged by Lender
at Borrower’s expense, and in a manner satisfactory to Lender, based upon an
investigation relating to and making appropriate inquiries concerning the
existence of Hazardous Materials on or about such Project, and the past or
present discharge, disposal, release or escape of any such substances, all
consistent with ASTM Standard E 1527-05 (or any successor thereto published by
ASTM) and other good customary and commercial

 

7

 

practice; provided, however, the term Site Assessment shall include the
reports listed in Schedule 1.1(C). Borrower represents and warrants to
Lender that true, correct and complete copies of all items in Schedule 1.1
(C) were delivered to Lender prior to the Closing Date.

 

“Specially Designated National and Blocked Persons”
means those Persons that have been designated by executive order or by the
sanction regulations of OFAC as Persons with whom U.S. Persons may not transact
business or must limit their interactions to types approved by OFAC.

 

“Standard Adjustments” means the
following assumptions to be made with respect to each Project when calculating
Underwritten NOI: (a) an occupancy rate equal to the lesser of market
occupancy or the Project’s actual occupancy rate (but in no event more than a
ninety percent (90%) occupancy rate); (b) capital reserves of $0.15 per
gross square foot; and (c) a management fee equal to the greater of the
Project’s actual management fee or six percent (6%) of Operating Revenues. As
used above, “market occupancy” means, as to each Project, the average occupancy
rate of self-storage projects that are similar in size and quality to such
Project and that are located in such Project’s geographic market or sub-market
area, all as determined by Lender.

 

“Subsidiary” means each of the entities
identified as subsidiaries in Schedule 4.1.

 

“Title Insurance Policies” means,
collectively, the ALTA (or equivalent) mortgagee policies of title insurance in
the maximum amount of the Loan, with reinsurance and endorsements as Lender may
require, containing no exceptions to title (printed or otherwise) which are
unacceptable to Lender, and insuring that each Mortgage is a first-priority
Lien on the Project encumbered thereby and related collateral.

 

“Transfer” has the meaning assigned in
Section 8.1.

 

“UCC” means, as to each Project, the
Uniform Commercial Code as enacted and in effect in the state where such
Project is located (and as it may from time to time be amended), and, as to the
Pledge Agreement, the Uniform Commercial Code as enacted and in effect in the
State of Utah (and as it may from time to time be amended); provided that, to
the extent that the UCC is used to define any term in this Agreement or in any
other Loan Document and such term is defined differently in different Articles
or Divisions of the UCC, the definition of such term contained in
Article or Division 9 shall govern; provided further, however, that if, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Lender’s Liens on any Collateral
is governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the state where a Project is located, the term “UCC”
shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for the purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions related
to such provisions.

 

“Underwritten NOI” means the amount by
which Underwritten Operating Revenues on an aggregate basis for all Projects
exceed Underwritten Operating Expenses on an aggregate basis for all Projects
for the 12-month period immediately preceding the date of calculation.

 

8

 

“Underwritten Operating Expenses” means
Operating Expenses as determined and adjusted by Lender to reflect the Standard
Adjustments and otherwise in accordance with its then current audit policies
and procedures for properties similar to the Project.

 

“Underwritten Operating Revenues” means
Operating Revenues as determined and adjusted by Lender to reflect the Standard
Adjustments and otherwise in accordance with its then current audit policies
and procedures for properties similar to the Project.

 

“U.S. Person” means any United States
citizen, any entity organized under the laws of the United States or its
constituent states or territories, or any entity, regardless of where
organized, having its principal place of business within the United States or
any of its territories.

 

“Valuation Amount” means, with respect
to each Project, the amount set forth opposite the reference to such Project in
Schedule 1.1 (A) under the caption “Valuation Amount”, as such
Valuation Amount for the “1206 Waltham, MA” Project may be decreased pursuant
to the terms of Section 8.16.

 

ARTICLE
2

 

LOAN
TERMS

 

Section 2.1           The Loan. The Loan in the maximum
amount outstanding at any time of up to ONE HUNDRED MILLION AND NO/100 DOLLARS
($100,000,000.00) shall be funded in one or more advances and repaid in
accordance with this Agreement. Subject to the foregoing limitation and the
other terms and conditions of this Agreement, Borrower may borrow, repay without
penalty or premium, and reborrow hereunder. All Loan advances shall be made
upon Borrower’s satisfaction of the conditions for advances described in Schedule
2.1.

 

Section 2.2           Interest Rate; Late Charge.

 

(1)       The outstanding principal
balance of the Loan (including any amounts added to principal under the Loan
Documents) shall bear interest at a variable rate of interest, adjusted
monthly, equal to the Libor Rate plus the Applicable Margin (the “Contract Rate”).

 

From the Closing Date
through the end of the calendar quarter in which the first advance is made, the
Applicable Margin is 1.0%.

 

The Applicable Margin
shall be adjusted by reference to the following grid:

 

	
  Test No.:

  	
   

  	
  If Debt
  Service Coverage is:

  
	
  1.

  	
   

  	
  3 2.00:1.00
  assuming an Applicable Margin of 1.00, the Applicable Margin shall be 1.00%.

  
	
  2.

  	
   

  	
  3 1.75:1.00
  assuming an Applicable Margin of 1.25, but Test No. 1 above is not met,
  the Applicable Margin shall be 1.25%.

  

 

9

 

	
  Test No.:

  	
   

  	
  If Debt
  Service Coverage is:

  
	
  3.

  	
   

  	
  3 1.50:1.00
  assuming an Applicable Margin of 1.65, but neither Test No. 1 nor Test
  No. 2 above is met, the Applicable Margin shall be 1.65%.

  
	
  4.

  	
   

  	
  If none of Test No. 1, Test No. 2 or Test
  No. 3 is met, the Applicable Margin shall be 2.05%.

  

 

(2)       Lender shall test the Debt
Service Coverage at the end of the calendar quarter in which the first advance
is made, and at the end of each calendar quarter thereafter, based on
(i) an assumed Loan balance equal to the Average Daily Balance for such quarter
and (ii) the then-current Libor Rate. If, based on such test, Lender
determines that a different Applicable Margin applies to the Loan, Lender shall
notify Borrower of the new Applicable Margin (and, upon Borrower’s request,
provide supporting calculations of Debt Service Coverage, Underwritten NOI and
Standard Adjustments to Borrower, which shall be provided to Borrower
substantially in the form of Schedule 2.2(2) attached hereto),
which shall apply to the outstanding balance of the Loan effective as of the
first day of the next calendar quarter until again changed in accordance with
the results of a subsequent Debt Service Coverage test.

 

(3)       If, as a result of any
restatement of or other adjustment to the financial statements of Borrower or
for any other reason, the Lender determines that (a) the Debt Service
Coverage as calculated based on financial information provided by Borrower as
of any applicable date was inaccurate and (b) a proper calculation of the
Debt Service Coverage would have resulted in different pricing for any period,
then (i) if the proper calculation of the Debt Service Coverage would have
resulted in a higher Contract Rate for such period, Borrower shall
automatically and retroactively be obligated to pay to the Lender, promptly on
demand by the Lender, an amount equal to the excess of the amount of interest
that should have been paid for such period over the amount of interest actually
paid for such period; and (ii) if the proper calculation of the Debt
Service Coverage would have resulted in a lower Contract Rate for such period,
Lender shall have no obligation to repay any interest to Borrower; provided
that if, as a result of any restatement or other event a proper calculation of
the Debt Service Coverage would have resulted in a higher Contract Rate for one
or more periods and a lower Contract Rate for one or more other periods (due to
the shifting of income or expenses from one period to another period or any
similar reason), then the amount payable by Borrower pursuant to clause
(i) above shall be based upon the excess, if any, of the amount of
interest and fees that should have been paid for all applicable periods over
the amount of interest and fees paid for all such periods.

 

(4)       Interest owing for each
month shall be computed on the basis of a fraction, the denominator of which is
three hundred sixty (360) and the numerator of which is the actual number of
days elapsed from the first day of such month (or, for the initial advance,
from the date of such advance). Principal and other amortization payments shall
be applied to the Loan balance as and when actually received.

 

(5)       If Borrower fails to pay
any installment of interest within five (5) days after the date on which
the same is due, Borrower shall pay to Lender a late charge

 

10

 

on such past-due amount, as liquidated damages and not as a penalty,
equal to five percent (5%) of such amount, but not in excess of the maximum
amount of interest allowed by applicable law. The foregoing late charge is
intended to compensate Lender for the expenses incident to handling any such
delinquent payment and for the losses incurred by Lender as a result of such
delinquent payment. Borrower agrees that, considering all of the circumstances existing
on the date this Agreement is executed, the late charge represents a reasonable
estimate of the costs and losses Lender will incur by reason of late payment.
Borrower and Lender further agree that proof of actual losses would be costly,
inconvenient, impracticable and extremely difficult to fix. Acceptance of the
late charge shall not constitute a waiver of the default arising from the
overdue installment, and shall not prevent Lender from exercising any other
rights or remedies available to Lender. While any Event of Default exists, the
Loan shall bear interest at the Default Rate.

 

Section 2.3    Terms of Payment. The Loan shall be payable as follows:

 

(1)       Interest. Commencing on
December 1, 2007, Borrower shall pay interest in arrears on the first day
of each month until all amounts due under the Loan Documents are paid in full.

 

(2)       Principal Amortization/Mandatory Prepayments.
 The Loan shall be an interest-only loan
and Borrower shall not be required to make any regularly scheduled principal
amortization payments; provided, however, if on any day the outstanding
principal amount of the Loan exceeds the lesser of (i) eighty-five percent
(85%) of the sum of the Valuation Amounts or (ii) the Maximum Commitment,
Borrower shall pay such excess to Lender, in immediately available funds,
within thirty (30) days of demand by Lender (or on such earlier date as is
required by any other applicable provision of this Agreement).

 

(3)       Maturity.  On the Maturity Date, Borrower shall pay to
Lender all outstanding principal, accrued and unpaid interest, and any other
amounts due under the Loan Documents. Subject to the provisions of this
Section 2.3(3), Borrower, at its option, may extend the term of the Loan
for two (2) additional 12-month periods. Borrower’s right to extend the
term of the Loan is subject to the satisfaction of each of the following
conditions as to each extension:

 

(a)        Borrower shall deliver to
Lender a written request to extend the term of the Loan (the “Extension Request”) at least ninety
(90) days before the then existing Maturity Date.

 

(b)       No Event of Default or
Potential Default has occurred and is continuing on the date on which Borrower
delivers the Extension Request to Lender, or on the date the extension period
commences.

 

(c)        Borrower shall have paid
to Lender, in immediately available funds, an extension fee equal to one
quarter percent (0.25%) of the Maximum Commitment.

 

11

 

(d)       During the extended term of the Loan, all
terms and conditions of the Loan Documents (other than the original Maturity
Date) shall continue to apply except that Borrower shall have no further right
to extend the term of the Loan after the second extension.

 

(e)        The Debt Service Coverage (based an
Applicable Margin of 2.05% and assuming the outstanding Loan balance equals the
Maximum Commitment) equals or exceeds 1.15 to 1 and the LTV Ratio does
not exceed eighty-five percent (85%).

 

(f)        If required by Lender, Borrower shall
cause to be delivered to Lender at Borrower’s expense an updated Site
Assessment for each Property reasonably satisfactory to Lender, which shall
show no adverse matters or items.

 

(g)       If required by Lender, Borrower shall
cause to be delivered to Lender at Borrower’s expense an updated engineering
and an updated seismic report for each Property, each report reasonably
satisfactory to Lender, which shall show no adverse matters or items.

 

(h)       Borrower shall execute and deliver such
other instruments, certificates, opinions of counsel and documentation as
Lender shall reasonably request in order to preserve, confirm or secure the
Liens and security granted to Lender by the Loan Documents, including any
amendments, modifications or supplements to any of the Loan Documents,
endorsements to the Title Insurance Policies and, if required by Lender,
estoppels and other certificates.

 

(i)         Borrower shall pay all costs and
expenses incurred by Lender in connection with such extension of the Loan,
including Lender’s attorneys’ fees and disbursements.

 

(4)       Lockout/Prepayment.
The Loan may not be canceled or otherwise terminated by Borrower through April 30,
2009 (the “Lockout Period”).
Thereafter, upon not less than thirty (30) days’ prior written notice to
Lender, Borrower may, upon repayment of the Loan and satisfaction of any other
obligations owing under the Loan Documents in full (including without
limitation the payment of the Unused Fee prorated from the first day of the
then current calendar quarter through the end of the Lockout Period), Borrower
may cancel the Loan, from and after which Borrower shall have no further right
to request or receive Loan advances and Lender shall have no further
obligations under the Loan Documents. If the Loan is accelerated during the
Lockout Period for any reason other than casualty or condemnation, Borrower
shall pay, in addition to all other amounts outstanding under the Loan
Documents (including without limitation the payment of the Unused Fee prorated
from the first day of the then current calendar quarter through the date of
cancellation), a prepayment premium equal to $250,000.00.

 

(5)       Application
of Payments. All payments received by Lender under the Loan
Documents shall be applied to the following, in such order as Lender may

 

12

 

elect in its sole
discretion: (a) to any fees and expenses due to Lender under the Loan
Documents; (b) to any Default Rate interest or late charges; (c) to
accrued and unpaid interest; (d) to amounts owed under any reserves or
escrows required by Lender; and (e) to the principal sum and other amounts
due under the Loan Documents. Prepayments of principal shall be applied against
amounts owing in inverse order of maturity.

 

Section 2.4    Security. The Loan shall be secured by
the Mortgages creating a first lien on the Projects, the Assignments of Rents
and Leases and the other Loan Documents.

 

Section 2.5    Origination
Fee. As partial consideration for Lender’s agreement to make the
Loan, Borrower shall pay to Lender a loan origination fee of $500,000.00 (the “Origination Fee”). The Origination Fee
shall be payable in full on or before the Closing Date.

 

Section 2.6    Unused
Fee. In addition to the payment of the Origination Fee provided
for in Section 2.5 above, Borrower shall pay to Lender (commencing on January 1,
2008 and by the first day of each April, July, October and January thereafter),
an unused fee (the “Unused Fee”)  on the average daily amount of the
Maximum Commitment which was unused during the immediately preceding calendar
quarter calculated on the basis of actual days elapsed in a year consisting of
360 days, at the rate of one eighth percent (0.125%) per annum, calculated
through the last calendar day of each such calendar quarter, and payable in
arrears. For purposes of this Section 2.6: (a) the average daily
amount of the Maximum Commitment which was unused shall equal: (i) the
average daily Maximum Commitment during a calendar quarter; less (ii) the
average daily utilization of the Maximum Commitment during such calendar
quarter; (b) the average daily Maximum Commitment during a calendar
quarter shall equal the quotient of: (i) the aggregate of the Maximum
Commitment on each day during such calendar quarter; divided by (ii) the
number of days in such calendar quarter; and (c) the average daily
utilization of the Maximum Commitment during a calendar quarter shall equal the
mean average daily closing balance of the Loan during such calendar quarter;
provide, however, that the Unused Fee due January 1, 2008 shall be
calculated for the period commencing on the Closing Date and ending on December 31,
2007.

 

Section 2.7    Debt
Service Coverage. At the end of each Loan Year, Lender shall
test the Debt Service Coverage based on an Applicable Margin of 2.05% and
assuming the outstanding Loan balance equals the Maximum Commitment. If, as of
any such determination date, the Debt Service Coverage is less than 1.15:1, (i) Lender
shall have the right, in its sole and absolute discretion, to permanently
reduce the Maximum Commitment to an amount which would increase the Debt
Service Coverage to 1.15:1, and (ii) Borrower shall, within thirty (30)
days after Lender’s demand, which demand shall be accompanied by Lender’s
supporting calculations, pay to Lender, in immediately available funds, the
amount, if any, by which the outstanding principal amount of the Loan exceeds
the Borrowing Base (the “Excess”)
due to the reduction in the Maximum Commitment in accordance with clause (i).
Any reduction in the Maximum Commitment pursuant to this Section 2.7 shall
be effective as of the date of Lender’s notice of such reduction to Borrower,
and shall remain effective for the balance of the Loan term unless superseded
by a subsequent reduction notice by Lender in accordance with this Section 2.7.

 

13

 

Section 2.8    Partial
Release of Collateral. Except as expressly set forth below in
this Section, Lender shall have no obligation to release any of the Collateral until
all of Borrower’s indebtedness and obligations under the Loan Documents have
been paid and performed in full, and all obligations of Lender under this
Agreement and the other Loan Documents have terminated. Borrower shall be
entitled to obtain releases of Projects from the Lien of the Loan Documents,
provided that all of the following conditions are satisfied as to each proposed
release of a Project (the “Release Project”):

 

(1)       Borrower
has provided Lender with at least thirty (30) (or five (5) days for the
release of the “ 1195 Lanham, MD” Project completed within ninety (90) days
after the Closing Date) but not more than ninety (90) days prior written notice
(the “Partial Release Notice”)
of the proposed release together with copies of any documents which Borrower
requests that Lender execute in connection with such proposed release.

 

(2)       Except for the release of the “1195
Lanham, MD” Project completed within ninety (90) days after the Closing Date,
for any proposed release occurring during the Lockout Period, the proposed
release shall be requested in connection with a bona fide sale of the Release
Project to a third party purchaser (not an Affiliate of Borrower or any
Borrower Party). During the Lockout Period, no partial release shall be permitted
if requested in connection with a refinance or other recapitalization of a
Project or any other transaction other than a bona fide sale to a third party
purchaser except for the release of the “1195 Lanham, MD” Project completed
within ninety (90) days after the Closing Date.

 

(3)       For any proposed release occurring after
the Lockout Period, concurrently with the requested release, fee title to the
Release Project, or the ownership interests in the current owners thereof,
shall be transferred to a Person other than Borrower, any Subsidiary or any
entity in which Borrower or any Subsidiary holds a direct or indirect ownership
interest.

 

(4)       No Event of Default or Potential Default
has occurred and is continuing on the date on which Borrower delivers the Partial
Release Notice to Lender, or on the date of the requested release.

 

(5) If,
after giving effect to the requested release (and the resulting decrease in the
Borrowing Base), the outstanding balance of the Loan exceeds the Borrowing
Base, Borrower shall have paid to Lender the Excess.

 

(6)       The remaining Projects shall be
acceptable to Lender in its sole and absolute discretion. Without limiting the
foregoing, the Valuation Amount for any remaining Project shall not exceed
twenty-five percent (25%) of the sum of the Valuation Amounts for all remaining
Projects, and the Valuation Amounts for all remaining Projects located in the
same “Metropolitan Statistical Area” (as defined by the United States Office of
Management and Budget) shall not exceed thirty-five percent (35%) of the sum of
the Valuation Amounts for all remaining Projects.

 

14

 

(7)       Lender shall have prepared, and Borrower
shall have acknowledged, revised Schedules 1.1(A), l.(B) and
4.1, in each case revised to exclude the Release Project and, if
applicable, its Subsidiary owner. As of the date of the release of Release
Project from the Lien of the Loan Documents, such revised schedules shall be
deemed to supersede and replace the prior versions thereof.

 

(8)       Borrower shall have executed and
delivered to Lender such other instruments, certificates and documentation as
Lender shall reasonably request in order to preserve, confirm or secure the
validity and priority of the remaining Liens and security granted to Lender
under the Loan Documents, including any amendments, modifications or
supplements to any of the Loan Documents and endorsements to the Title
Insurance Policies insuring the Liens of the Mortgages encumbering the
remaining Projects.

 

(9)       Borrower shall have delivered to Lender a
copy of any purchase and sale agreement and all other related documentation
with respect to the sale of the Release Project.

 

(10)     Borrower shall have paid all costs and
expenses incurred by Lender in connection with the proposed release, including
attorneys’ fees and costs and all title insurance premiums for title
endorsements required by Lender in connection with the proposed release.

 

Section 2.9    Additional
Projects. During the term of the Loan, Borrower shall have the
option of adding additional self-storage projects (each an “Additional Project”) to the Collateral,
upon the satisfaction of all of the following conditions precedent with respect
to each such Additional Project (and delivery below shall be subject to Lender’s
receipt, review, approval and/or confirmation, at Borrower’s cost and expense,
each in form and substance satisfactory to Lender):

 

(1)       Borrower has provided Lender with at
least thirty (30) but not more than ninety (90) days prior written notice (the “Additional Project Notice”) of the
proposed addition of the Additional Project to the Collateral.

 

(2)       No Event of Default or Potential Default
has occurred and is continuing on the date on which Borrower delivers the
Additional Project Notice to Lender, or on the date of the requested addition.

 

(3)       The Additional Project shall be acquired
by Borrower.

 

(4)       The Additional Project shall be
acceptable to Lender in its sole and absolute discretion.

 

(5)       Concurrently with the addition of the
Additional Project, Borrower shall pay to Lender a fee (the “Additional Project Fee”) equal to one
quarter percent (0.25%) of eighty-five percent (85%) of the Valuation Amount
determined by Lender for such Additional Project; provided, however, the
Additional Project Fee shall be waived for each of the first two (2) Additional
Projects added to the Collateral in any Loan Year.

 

15

 

(6)       Lender shall have received a Mortgage
(the “Additional Mortgage”)
covering the Additional Project and all personal property related thereto (and
such Additional Mortgage shall have been properly recorded in the official
records of the county or counties in which the Additional Project is located).

 

(7)       Lender shall have received an Assignment of
Rents and Leases (the “Additional
Assignment  of Rents and
Leases”) covering the Additional Project and all leases related
thereto (and such Additional Assignment of Rents and Leases shall have been
properly recorded in the official records of the county or counties in which
the Additional Project is located).

 

(8)       Lender shall have prepared, and Borrower
shall have acknowledged, revised Schedules 1.1(A) (which shall
reflect Lender’s determination of the Valuation Amount for the Additional
Project) and l.1(B), revised to include the applicable information for
the Additional Project. As of the date of the recordation of the Mortgage
encumbering the Additional Project, such revised schedules shall be deemed to
supersede and replace the prior versions thereof.

 

(9)       Lender shall have received an ALTA (or
equivalent) mortgagee policy of title insurance, with reinsurance and
endorsements as Lender may reasonably require, containing no exceptions to
title (printed or otherwise) which are unacceptable to Lender, and insuring
that the Additional Mortgage is a first-priority Lien on the Additional Project
and related collateral. Borrower shall also obtain, at its sole cost and
expense, any endorsements, continuations or modifications to any existing title
policies as Lender may reasonably request, including without limitation
aggregation or tie-in endorsements, but not including any overall increase in
the insured amount above the Maximum Commitment Amount.

 

(10)     Lender shall have received legal opinions
issued by counsel for the entity acquiring the Additional Project (and, where
required by Lender, by Lender’s local counsel), opining as to the due
organization, valid existence and good standing of such Person, and the due
authorization, execution, delivery, enforceability and validity of the
Additional Mortgage and the Additional Assignment of Rents and Leases with
respect to, such Person; that the Loan, as reflected in the Loan Documents, is
not usurious; to the extent that Lender is not otherwise satisfied, that the Additional
Project and its use is in full compliance with all legal requirements; and as
to such other matters as Lender and Lender’s counsel reasonably may specify.

 

(11)     Lender shall have received such information
regarding the Additional Project as Lender shall request, including without
limitation financial information, historic rent rolls and operating statements,
to enable Lender to establish a Valuation Amount for the Additional Project.

 

(12)     Lender shall have received UCC searches for
the seller of the Additional Project.

 

16

 

(13)     Lender shall have received evidence of
insurance as required by this Agreement with respect to the Additional Project.

 

(14)     Lender shall have received a current
ALTA/ACSM land title survey of the Additional Project, dated or updated to a
date not earlier than thirty (30) days prior to the date hereof, certified to
Lender and the issuer of Lender’s title insurance, prepared by a licensed
surveyor acceptable to Lender and such title insurer, and conforming to Lender’s
current standard survey requirements.

 

(15)     Lender shall have a current engineering
report or architect’s certificate with respect to the Additional Project,
covering, among other matters, inspection of heating and cooling systems, roof
and structural details and showing no failure of compliance with building plans
and specifications, applicable legal requirements (including requirements of
the Americans with Disabilities Act) and fire, safety and health standards. As
requested by Lender, such report shall also include an assessment of the
Additional Project’s tolerance for earthquake and seismic activity.

 

(16)     Lender shall have received a current Site
Assessment for the Additional Project.

 

(17)     Lender shall have received a current rent
roll of the Additional Project, which Borrower shall represent and warrant is
true and correct. Such rent roll shall include the following information: (a) tenant
names; (b) unit/suite numbers; (c) area of each demised premises and total
area of the Additional Project (stated in net rentable square feet); (d) rental
rate (including escalations) (stated in gross amount and in amount per net
rentable square foot per year); and (e) security deposit, if any.

 

(18)     Lender shall have received evidence that
the Additional Project and the operation thereof comply with all legal
requirements, including that all requisite certificates of occupancy, building
permits, and other licenses, certificates, approvals or consents required of
any governmental authority have been issued without variance or condition and
that there is no litigation, action, citation, injunctive proceedings, or like
matter pending or threatened with respect to the validity of such matters. At
Lender’s request, Borrower shall furnish Lender with a zoning endorsement to
Lender’s title insurance policy (if available), zoning letters from applicable
municipal agencies, and utility letters from applicable service providers or
other reasonable proof that required utilities are available to the Additional
Project.

 

(19)     No condemnation or adverse zoning or usage
change proceeding shall have occurred or shall have been threatened against the
Additional Project; the Additional Project shall not have suffered any
significant damage by fire or other casualty which has not been repaired; no
law, regulation, ordinance, moratorium, injunctive proceeding, restriction,
litigation, action, citation or similar proceeding or matter shall have been
enacted, adopted, or threatened by any governmental authority, which would
have, in Lender’s judgment, a material adverse effect on the Additional Project
or the acquirer of the Additional Project.

 

17

 

(20)     All fees and commissions payable to real
estate brokers, mortgage brokers, or any other brokers or agents in connection
with the Loan or the acquisition of the Additional Project shall have been
paid, such evidence to be accompanied by any waivers or indemnifications deemed
necessary by Lender.

 

(21)     Lender shall have received payment of
Lender’s costs and expenses in underwriting, documenting, and closing the
transaction, including fees and expenses of Lender’s inspecting engineers,
consultants, and outside counsel.

 

(22)     Lender shall have received such other
authorizations, documents, certificates, updates, reports, searches or items as
Lender reasonably may require with respect to the Additional Project.

 

ARTICLE 3

 

INSURANCE, CONDEMNATION, AND IMPOUNDS

 

Section 3.1    Insurance.
Borrower shall, and shall cause the Subsidiaries to, maintain insurance as
follows:

 

(1)       Casualty;
Business Interruption. Borrower shall, and shall cause the
Subsidiaries, to keep the Projects insured against damage by fire and the other
hazards covered by a standard extended coverage and all-risk insurance policy
for the full insurable value thereof on a replacement cost claim recovery basis
(without reduction for depreciation or co-insurance and without any exclusions
or reduction of policy limits for acts of domestic and foreign terrorism or any
similar acts no matter how labeled), and shall maintain boiler and machinery
insurance, acts of domestic and foreign terrorism endorsement coverage and such
other casualty insurance as reasonably required by Lender. Lender reserves the
right to require from time to time the following additional insurance: flood,
earthquake/sinkhole, windstorm and/or building law or ordinance. Borrower
shall, and shall cause each Subsidiary, to keep each of its Projects insured
against loss by flood if such Project is located currently or at any time in
the future in an area identified by the Federal Emergency Management Agency as
an area having special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968, the Flood Disaster
Protection Act of 1973 or the National Flood Insurance Reform Act of 1994 (as
such acts may from time to time be amended) in an amount at least equal to the
lesser of (a) the maximum value of the Project (as determined by Lender)
or (b) the maximum limit of coverage available under said acts. Any such
flood insurance policy shall be issued in accordance with the requirements and
current guidelines of the Federal Insurance Administration. Borrower shall, and
shall cause each Subsidiary, to maintain business interruption insurance,
including rental income loss and extra expense, against all periods covered by
Borrower and such Subsidiary’s property insurance for a limit equal to
twelve(12) calendar months’ exposure, all without any exclusions or reduction
of policy limits for acts of domestic and foreign terrorism or any similar acts
no matter how labeled. Borrower shall not, and shall not permit the
Subsidiaries, to maintain any separate or additional insurance which is

 

18

 

contributing in the event
of loss unless it is properly endorsed and otherwise satisfactory to Lender in
all respects. The proceeds of insurance paid on account of any damage or
destruction to any Project shall be paid to Lender to be applied as provided in
Section 3.2.

 

(2)       Liability.
Borrower shall, and shall cause the Subsidiaries, to maintain (a) commercial
general liability insurance with respect to each Project providing for limits
of liability of not less than $5,000,000 for both injury to or death of a
person and for property damage per occurrence with a deductible not greater
than $250,000.00, and (b) other liability insurance as reasonably required
by Lender.

 

(3)       Form and
Quality. All insurance policies shall be endorsed in form and
substance acceptable to Lender to name Lender as an additional insured, loss
payee or mortgagee thereunder, as its interest may appear, with loss payable to
Lender, without contribution, under a standard New York (or local equivalent)
mortgagee clause. All such insurance policies and endorsements shall be fully
paid for, shall be issued by appropriately licensed insurance companies
acceptable to Lender with a rating of “A-:IX” or better as established by A.M.
Best’s Rating Guide, and shall be in such form, and shall contain such
provisions, deductibles (with no increased deductible for acts of domestic and
foreign terrorism or any similar acts no matter how labeled) and expiration
dates, as are acceptable to Lender. Each policy shall provide that such policy
may not be canceled or materially changed except upon thirty (30) days’ prior
written notice of intention of non-renewal, cancellation or material change to
Lender and that no act or thing done by Borrower or any Subsidiary shall
invalidate any policy as against Lender. Blanket policies shall be permitted
only if Lender receives appropriate endorsements and/or duplicate policies
containing Lender’s right to continue coverage on a pro rata pass-through
basis. Without limiting the foregoing, Lender shall have the right to conduct
an annual review of Borrower’s insurance coverage, which is provided pursuant
to a blanket policy covering the Projects and other properties owned by
affiliates of Extra Space Storage LLC, a Delaware limited liability company.
Borrower agrees that Lender shall have the right to reasonably increase the
amount of coverage required to be maintained under such blanket policy based on
additional properties added to such blanket policy subsequent to the Closing Date
(or subsequent to the most recent annual review, as the case may be), as
determined by Lender’s insurance consultants as part of such annual review. If
Borrower or any Subsidiary fails to maintain insurance in compliance with this Section 3.1,
Lender may obtain such insurance and pay the premium therefor and Borrower
shall, on demand, reimburse Lender for all expenses incurred in connection
therewith.

 

(4)       Assignment.
Borrower shall, and shall cause the Subsidiaries, to assign the policies or
proofs of insurance to Lender, in such manner and form that Lender and its
successors and assigns shall at all times have and hold the same as security
for the payment of the Loan. If requested by Lender, Borrower shall deliver
copies of all original policies certified to Lender by the insurance company or
authorized agent as being true copies, together with the endorsements required
hereunder. If Borrower or any Subsidiary elects to obtain any insurance which
is not required under this Agreement (including earthquake insurance), all
related insurance policies shall be endorsed in compliance with Section 3.1(3),
and such additional insurance shall not be canceled

 

19

 

without prior notice to
Lender. From time to time upon Lender’s request, Borrower shall identify to
Lender all insurance maintained by Borrower or the Subsidiaries with respect to
each Project. The proceeds of insurance policies coming into the possession of
Lender shall not be deemed trust funds, and Lender shall be entitled to apply
such proceeds as herein provided.

 

(5)       Adjustments.
Borrower shall give immediate written notice of any loss to the insurance
carrier, and shall give immediate notice to Lender of any loss which exceeds
$25,000. Borrower, on its own behalf and on behalf of the Subsidiaries, hereby
irrevocably authorizes and empowers Lender, as attorney-in-fact for Borrower
and the Subsidiaries coupled with an interest, to notify any insurance carriers
of Borrower and the Subsidiaries to add Lender as a loss payee, mortgagee
insured or additional insured, as the case may be, to any policy maintained by
Borrower or the Subsidiaries (regardless of whether such policy is required
under this Agreement), to make proof of loss, to adjust and compromise any
claim under insurance policies, to appear in and prosecute any action arising
from such insurance policies, to collect and receive insurance proceeds, and to
deduct therefrom Lender’s expenses incurred in the collection of such proceeds.
Nothing contained in this Section 3.1(5), however, shall require Lender to
incur any expense or take any action hereunder.

 

Section 3.2    Use and
Application of Insurance Proceeds. Lender shall apply insurance
proceeds to costs of restoring a damaged Project or the Loan as follows:

 

(1)       if the loss is less than or equal to the
Restoration Threshold, Lender shall apply the insurance proceeds to restoration
provided (a) no Event of Default or Potential Default exists, and (b) Borrower
or the applicable Subsidiary promptly commences and is diligently pursuing
restoration of the Project;

 

(2)       if the loss exceeds the Restoration
Threshold, but is not more than ten percent (10%) of the replacement value of
the improvements (for projects containing multiple phases or stand alone structures,
such calculation to be based on the damaged phase or structure, not the project
as a whole), Lender shall apply the insurance proceeds to restoration provided
that at all times during such restoration (a) no Event of Default or
Potential Default exists; (b) Lender determines that there are sufficient
funds available to restore and repair the Project to a condition approved by
Lender; (c) Lender determines that the Underwritten NOI during restoration
will be sufficient to pay Debt Service during restoration; (d) Lender
determines (based on leases which will remain in effect after restoration is
complete) that after restoration the Debt Service Coverage will be at least
equal to 1.15:1 based on an Applicable Margin of 2.05% and assuming the
outstanding Loan balance equals the Maximum Commitment; (e) Lender
determines that the LTV Ratio after restoration will not exceed eighty-five
percent (85%); (f) Lender determines that restoration and repair of the
Project to a condition approved by Lender will be completed within six months
after the date of loss or casualty and in any event ninety (90) days prior to
the Maturity Date; (g) Borrower or the applicable Subsidiary promptly
commences and is diligently pursuing restoration of the Project; and (h) the
Project after the restoration will be in compliance with and permitted under
all applicable zoning, building and land use laws, rules, regulations and
ordinances;

 

20

 

(3)       if the conditions set forth above are not
satisfied or the loss exceeds the maximum amount specified in Section 3.2(2) above,
in Lender’s sole discretion, Lender may apply any insurance proceeds it may
receive to amounts owing under the Loan Documents in such order and manner as
Lender in its sole discretion determines, or allow all or a portion of such
proceeds to be used for the restoration of the Project; and

 

(4)       insurance proceeds applied to restoration
will be disbursed on receipt of satisfactory plans and specifications,
contracts and subcontracts, schedules, budgets, lien waivers and architects’
certificates, and otherwise in accordance with prudent commercial construction
lending practices for construction loan advances, including, as applicable, the
advance conditions under Schedule 2.1. Any insurance proceeds remaining
after payment of all restoration costs shall be applied by Lender to the Loan
balance or, at Lender’s sole option, remitted to Borrower or the applicable
Subsidiary.

 

Section 3.3    Condemnation
Awards. Borrower shall immediately notify Lender of the
institution of any proceeding for the condemnation or other taking of any
Project or any portion thereof. Lender may participate in any such proceeding
and Borrower will deliver to Lender all instruments necessary or required by Lender
to permit such participation. Without Lender’s prior consent, which shall not
be unreasonably withheld, Borrower shall not, and shall not permit any
Subsidiary to (1) agree to any compensation or award, and (2) take
any action or fail to take any action which would cause the compensation to be
determined. Borrower, on its own behalf and on behalf of the Subsidiaries,
hereby assigns to Lender all awards and compensation to which Borrower or any
Subsidiary is entitled for the taking or purchase in lieu of condemnation of
any Project or any part thereof, and agrees that all such awards and
compensation shall be paid to Lender. Borrower, on its own behalf and on behalf
of the Subsidiaries, authorizes Lender to collect and receive such awards and
compensation, to give proper receipts and acquittances therefor, and in Lender’s
sole discretion to apply the same toward the payment of the Loan,
notwithstanding that the Loan may not then be due and payable, or to the
restoration of the affected Project; however, if the award is less than or
equal to $50,000 and Borrower requests that such proceeds be used for
non-structural site improvements (such as landscape, driveway, walkway and
parking area repairs) required to be made as a result of such condemnation,
Lender will apply the award to such restoration in accordance with disbursement
procedures applicable to insurance proceeds provided there exists no Potential
Default or Event of Default. Borrower, upon request by Lender, shall execute or
cause the Subsidiaries to execute all instruments requested to confirm the
assignment of the awards and compensation to Lender, free and clear of all
liens, charges or encumbrances.

 

Section 3.4    Impounds.
Borrower shall deposit into a reserve with Lender, monthly on the first day of
each month, one-twelfth (l/12th) of the annual charges for ground or other
rent, if any (but only if such rent is due less often than monthly or,
regardless of payment frequency, if Borrower has failed to make one or more of
such payments), insurance premiums and real estate taxes, assessments and
similar charges relating to each Project. On or before Closing Date, Borrower
shall deposit with Lender a sum of money which together with the monthly
installments will be sufficient to make each of such payments thirty (30) days
prior to the date any delinquency or penalty becomes due with respect to such
payments. Deposits shall

 

21

 

be made on the basis of
Lender’s estimate from time to time of the charges for the current year (after
giving effect to any reassessment or, at Lender’s election, on the basis of the
charges for the prior year, with adjustments when the charges are fixed for the
then current year). All funds so deposited shall be held by Lender, without
interest, and may be commingled with Lender’s general funds. Borrower hereby
grants to Lender a security interest in all funds so deposited with Lender for
the purpose of securing the Loan. While an Event of Default exists, the funds
deposited may be applied in payment of the charges for which such funds have
been deposited, or to the payment of the Loan or any other charges affecting
the security of Lender, as Lender may elect, but no such application shall be
deemed to have been made by operation of law or otherwise until actually made
by Lender. Borrower shall furnish Lender with bills for the charges for which
such deposits are required at least thirty (30) days prior to the date on which
the charges first become payable. If at any time the amount on deposit with
Lender, together with amounts to be deposited by Borrower before such charges
are payable, is insufficient to pay such charges, Borrower shall deposit any
deficiency with Lender immediately upon demand. Lender shall pay such charges
when the amount on deposit with Lender is sufficient to pay such charges and
Lender has received a bill for such charges.

 

ARTICLE 4

 

REPRESENTATIONS AND WARRANTIES

 

Borrower
represents and warrants to Lender that:

 

Section 4.1    Organization
and Power. Borrower and each Borrower Party is duly organized,
validly existing and in good standing under the laws of the state of its
formation or existence. Borrower is in compliance with all legal requirements
applicable to doing business in the state in which Borrower’s Projects are
located. Each Subsidiary is in compliance with all legal requirements
applicable to doing business in the state in which such Subsidiary’s Project is
located. Borrower is not a “foreign person” within the meaning of Section 1445(f)(3) of
the Internal Revenue Code. Borrower and each Borrower Party has only one state
of incorporation or organization, which is set forth in Schedule 4.1.
All other information regarding Borrower and each Borrower Party contained in Schedule
4.1, including the ownership structure of Borrower and its constituent
entities, is true and correct as of the Closing Date.

 

Section 4.2    Validity
of Loan Documents. The execution, delivery and performance by
Borrower and each Borrower Party of the Loan Documents: (1) are duly
authorized and do not require the consent or approval of any other party or
governmental authority which has not been obtained; and (2) will not
violate any law or result in the imposition of any lien, charge or encumbrance
upon the assets of any such party, except as contemplated by the Loan
Documents. The Loan Documents constitute the legal, valid and binding
obligations of Borrower and each Borrower Party, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency, or similar
laws generally affecting the enforcement of creditors’ rights.

 

22

 

Section 4.3      Liabilities;
Litigation; Other Secured Transactions.

 

(1)         The financial statements delivered by
Borrower and each Borrower Party are true and correct with no significant
change since the date of preparation. Except as disclosed in such financial
statements, there are no liabilities (fixed or contingent) affecting any
Project, Borrower or any Borrower Party. Except as disclosed in such financial
statements, there is no litigation, administrative proceeding, investigation or
other legal action (including any proceeding under any state or federal
bankruptcy or insolvency law) pending or, to the knowledge of Borrower,
threatened, against any Project, Borrower or any Borrower Party which if
adversely determined could have a material adverse effect on such party, such
Project or the Loan.

 

(2)         Neither Borrower nor any Subsidiary is,
or has been, bound (whether as a result of a merger or otherwise) as a debtor
under a pledge or security agreement entered into by another Person, which has
not heretofore been terminated.

 

Section 4.4      Taxes
and Assessments. Each Project is comprised of one or more
parcels, each of which constitutes a separate tax lot and none of which
constitutes a portion of any other tax lot. Except as otherwise shown on the
Title Insurance Policies, there are no pending or, to Borrower’s best
knowledge, proposed, special or other assessments for public improvements or
otherwise affecting any Project, nor are there any contemplated improvements to
any Project that may result in such special or other assessments.

 

Section 4.5      Other
Agreements; Defaults. Neither Borrower nor any Borrower Party is
a party to any agreement or instrument or subject to any court order,
injunction, permit, or restriction which might adversely affect in any material
respect any Project or the business, operations, or condition (financial or
otherwise) of Borrower or any Borrower Party. Neither Borrower nor any Borrower
Party is in violation of any agreement which violation would have an adverse
effect in any material respect on any Project, Borrower, or any Borrower Party
or Borrower’s or any Borrower Party’s business, properties, or assets,
operations or condition, financial or otherwise.

 

Section 4.6      Compliance
with Law.

 

(1)         To the best of Borrower’s knowledge, Borrower
and each Borrower Party have all requisite licenses, permits, franchises,
qualifications, certificates of occupancy or other governmental authorizations
to own, lease and operate the Projects and carry on its business. Except as set
forth in the zoning reports and the property condition reports obtained by
Lender in connection with the Loan and listed in Schedule 4.6 attached
hereto, each Project is in compliance with all applicable zoning, subdivision,
building and other legal requirements and is free of structural defects. Except
as set forth in the property condition reports obtained by Lender in connection
with the Loan, each Project’s building systems are in good working order,
subject to ordinary wear and tear. Except as set forth in the zoning reports
obtained by Lender in connection with the Loan and listed in Schedule 4.6
attached hereto, no Project constitutes, in whole or in part, a legally
non-conforming use under applicable legal requirements.

 

23

 

(2)         No condemnation has been commenced or,
to Borrower’s knowledge, is contemplated with respect to all or any portion of
any Project or for the relocation of roadways providing access to any Project.

 

(3)         Each Project has adequate rights of access
to public ways and is served by adequate water, sewer, sanitary sewer and storm
drain facilities. All public utilities necessary or convenient to the full use
and enjoyment of each Project are located in the public right-of-way abutting
such Project, and all such utilities are connected so as to serve such Project
without passing over other property, except to the extent such other property
is subject to a perpetual easement for such utility benefiting such Project.
All roads necessary for the full utilization of each Project for its current
purpose have been completed and dedicated to public use and accepted by all
governmental authorities.

 

Section 4.7      Location
of Borrower. Borrower’s and each Subsidiary’s principal place of
business and chief executive offices are located at the address stated in
Section 12.1 and, except as otherwise set forth in Schedule 4.1,
Borrower and each Subsidiary at all times has maintained its principal place of
business and chief executive office at such location or at other locations
within the same state.

 

Section 4.8      ERISA.

 

(1)          As
of the Closing Date and throughout the term of the Loan, (a) neither
Borrower nor any Subsidiary is nor will be an “employee benefit plan” as
defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”),
which is subject to Title I of ERISA, and (b) the assets of Borrower and
each Subsidiary do not and will not constitute “plan assets” of one or more
such plans for purposes of Title I of ERISA; and

 

(2)          As of
the Closing Date and throughout the term of the Loan (a) neither Borrower
nor any Subsidiary is nor will not be a “governmental plan” within the meaning
of Section 3(3) of ERISA and (b) transactions by or with
Borrower and each Subsidiary are not and will not be subject to state statutes
applicable to Borrower or any Subsidiary regulating investments of and
fiduciary obligations with respect to governmental plans.

 

(3)          Neither
Borrower nor any Subsidiary has any employees.

 

Section 4.9      Margin
Stock. No part of proceeds of the Loan will be used for
purchasing or acquiring any “margin stock” within the meaning of Regulations T,
U or X of the Board of Governors of the Federal Reserve System.

 

Section 4.10    Tax
Filings. Borrower and each Borrower Party have filed (or have
obtained effective extensions for filing) all federal, state and local tax
returns required to be filed and have paid or made adequate provision for the
payment of all federal, state and local taxes, charges and assessments payable
by Borrower and each Borrower Party, respectively.

 

Section 4.11    Solvency.
Giving effect to the Loan, the fair saleable value of Borrower’s assets exceeds
and will, immediately following the making of the Loan, exceed

 

24

 

Borrower’s total
liabilities, including, without limitation, subordinated, unliquidated,
disputed and contingent liabilities. The fair saleable value of Borrower’s
assets is and will, immediately following the making of the Loan, be greater
than Borrower’s probable liabilities, including the maximum amount of its
contingent liabilities on its Debts as such Debts become absolute and matured.
Borrower’s assets do not and, immediately following the making of the Loan will
not, constitute unreasonably small capital to carry out its business as
conducted or as proposed to be conducted. Borrower does not intend to, and does
not believe that it will, incur Debts and liabilities (including contingent
liabilities and other commitments) beyond its ability to pay such Debts as they
mature (taking into account the timing and amounts of cash to be received by
Borrower and the amounts to be payable on or in respect of obligations of
Borrower). Giving effect to the Contribution Agreement, the fair saleable value
of each Subsidiary’s assets exceeds and will, immediately following the making
of the Loan, exceed each Subsidiary’s total liabilities, including
subordinated, unliquidated, disputed and contingent liabilities. The fair
saleable value of each Subsidiary’s assets is and will, immediately following
the making of the Loan and the encumbrance of the Projects by the Mortgages, be
greater than each Subsidiary’s probable liabilities, including the maximum
amount of its contingent liabilities on its Debts as such Debts become absolute
and matured. No Subsidiary’s assets constitute and, immediately following the
making of the Loan and the encumbrance of the Projects by the Mortgages will
not constitute, unreasonably small capital to carry out its business as
conducted or as proposed to be conducted. No Subsidiary intends to, nor does
any Subsidiary believe that it will, incur Debts and liabilities (including
contingent liabilities and other commitments) beyond its ability to pay such
Debts as they mature (taking into account the timing and amounts of cash to be
received by such Subsidiary and the amounts to be payable on or in respect of
obligations of such Subsidiary). Except as expressly disclosed to Lender in
writing, no petition in bankruptcy has been filed by or against Borrower or any
Borrower Party in the last seven (7) years, and neither Borrower nor any
Borrower Party in the last seven (7) years has ever made an assignment for
the benefit of creditors or taken advantage of any insolvency act for the
benefit of debtors. Neither Borrower nor any Borrower Party is contemplating
either the filing of a petition by it under state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of its assets or
property, and neither Borrower nor any Borrower Party has knowledge of any
Person contemplating the filing of any such petition against it.

 

Section 4.12    Full
and Accurate Disclosure. No statement of fact made by or on
behalf of Borrower or any Borrower Party in this Agreement or in any of the
other Loan Documents contains any untrue statement of a material fact or omits
to state any material fact necessary to make statements contained herein or
therein not misleading. There is no fact presently known to Borrower which has
not been disclosed to Lender which adversely affects in any material respect,
nor as far as Borrower can foresee, might adversely affect in any material
respect, any Project or the business, operations or condition (financial or
otherwise) of Borrower or any Borrower Party. All information supplied by
Borrower regarding any other Collateral is accurate and complete in all
material respects. All evidence of Borrower’s and each Borrower Party’s
identity provided to Lender is genuine, and all related information is
accurate.

 

25

 

ARTICLE 5

 

ENVIRONMENTAL MATTERS

 

Section 5.1      Representations
and Warranties on Environmental Matters. To Borrower’s
knowledge, except as set forth in the Site Assessments, (1) no Hazardous
Material is now or was formerly used, stored, generated, manufactured,
installed, disposed of or otherwise present at or about any Project or any
property adjacent to any Project (except for cleaning and other products
currently used in connection with the routine maintenance or repair of the
Projects in full compliance with Environmental Laws), (2) all permits,
licenses, approvals and filings required by Environmental Laws have been
obtained, and the use, operation and condition of the Projects do not, and did
not previously, violate any Environmental Laws, and (3) no civil, criminal
or administrative action, suit, claim, hearing, investigation or proceeding has
been brought or been threatened, nor have any settlements been reached by or
with any parties or any liens imposed in connection with any Project concerning
Hazardous Materials or Environmental Laws.

 

Section 5.2      Covenants
on Environmental Matters.

 

(1)         Borrower shall, and shall cause each
Subsidiary to, (a) comply strictly and in all respects with applicable
Environmental Laws; (b) notify Lender immediately upon Borrower’s or any
Subsidiary’s discovery of any spill, discharge, release or presence of any
Hazardous Material (except for cleaning and other products used in connection
with routine maintenance or repair of the Projects in full compliance with
Environmental Laws) at, upon, under, within, contiguous to or otherwise
affecting any Project which may constitute a violation of Environmental Law;
(c) promptly remove such Hazardous Materials and remediate the affected
Project in full compliance with Environmental Laws and in accordance with the
reasonable recommendations and specifications of an independent environmental
consultant approved by Lender; and (d) promptly forward to Lender copies
of all orders, notices, permits, applications or other communications and
reports in connection with any spill, discharge, release or the presence of any
Hazardous Material or any other matters relating to the Environmental Laws or
any similar laws or regulations, as they may affect any Project, any Subsidiary
or Borrower.

 

(2)         Borrower shall not cause, shall
prohibit any other Person within the control of Borrower (including the
Subsidiaries) from causing, and shall use prudent, commercially reasonable
efforts to prohibit other Persons (including tenants) from causing (a) any
spill, discharge or release, or the use, storage, generation, manufacture,
installation, or disposal, of any Hazardous Materials (except for cleaning and
other products used in connection with routine maintenance or repair of the
Projects in full compliance with Environmental Laws) at, upon, under, within or
about any Project or the transportation of any Hazardous Materials to or from
any Project, (b) any underground storage tanks to be installed at any
Project, or (c) any activity that requires a permit or other authorization
under Environmental Laws to be conducted at any Project.

 

26

 

(3)         Borrower shall provide to Lender, at
Borrower’s expense promptly upon the written request of Lender from time to
time, a Site Assessment for any Project or; if required by Lender, an update to
any existing Site Assessment for any Project, to assess the presence or absence
of any Hazardous Materials and the potential costs in connection with
abatement, cleanup or removal of any Hazardous Materials found on, under, at or
within such Project. Borrower shall pay the cost of no more than one such Site
Assessment or update for each Project in any twelve (12)-month period, unless
Lender’s request for a Site Assessment is based on either information provided
under Section 5.2(1), a reasonable suspicion of Hazardous Materials at or
near a Project, a breach of representations under Section 5.1, or an Event
of Default, in which case any such Site Assessment or update shall be at
Borrower’s expense.

 

(4)         Within 120 days after the Closing Date,
Borrower shall cause to be prepared by environmental engineers approved by
Lender, and shall deliver to Lender, Operations and Maintenance Programs
(collectively, the “O&M Programs”)
for the removal or encapsulation of, or other action for handling,
asbestos-containing materials at the Projects referenced on Schedule 1.1(B) known
as “1019 Norwood, MA,” “1206 Waltham, MA,” 1073 Arvada, CO,” “1075 Thornton,
CO”, “1076 Westminster, CO,” “1195 Lanham, MD,” “1197 Morrisville, PA” and
“1198 Philadelphia, PA” (collectively, the “O&M Projects”‘). Borrower shall immediately implement
the O&M Programs. Prior to the commencement of any construction,
rehabilitation, modification or renovation at any O&M Project, including
any such work which requires the removal of any materials or improvements of
any kind in connection with the ceiling, subflooring, floor tiles, baseboard,
wall texture, pipe insulation and other portions of such Project containing
asbestos-containing materials (the “ACM-Related
Work”), all ACM-Related Work shall be implemented in accordance
with the procedures and programs in the O&M Program for such Project and
all applicable governmental requirements. Each O&M Program and work
resulting therefrom shall be conducted by an accredited, licensed, abatement
contractor using state-of-the-art work practices and procedures and shall
include all monitoring and project management performed by an accredited asbestos
consultant. Borrower shall deliver to Lender promptly when available, copies of
all reports, notices, submittals, permits, licenses, and certificates relating
to any O&M Program. For each O&M Program, until all matters in such
O&M Program have been satisfied, Borrower shall deliver to Lender, on or
before the first day of each Loan Year, evidence of an annual inspection by the
environmental engineers for the O&M Project covered thereby, addressing the
status of affected space requiring ACM-Related Work or other action with
respect to Hazardous Materials. Borrower shall follow the procedures of the
O&M Programs with respect to any additional Hazardous Materials revealed by
any annual inspection. All fees and expenses incurred for all such inspections
and review and approval of any O&M Program shall be paid by Borrower.

 

Section 5.3   Allocation of Risks and Indemnity. As
between Borrower and Lender, and except as expressly set forth below in this
Section 5.3, all risk of loss associated with non-compliance with
Environmental Laws, or with the presence of any Hazardous Material at, upon,
within, contiguous to or otherwise affecting the Projects, shall lie solely
with Borrower. Accordingly, except as expressly set forth below in this
Section 5.3, Borrower shall bear all risks and costs associated with any
loss (including any loss in value attributable to Hazardous

 

27

 

Materials), damage or
liability therefrom, including all costs of removal of Hazardous Materials or other
remediation required under this Agreement. Borrower shall at all times
indemnify, defend and hold Lender harmless from and against any and all claims,
suits, actions, debts, damages, losses, liabilities, litigations, judgments,
charges, costs and expenses (including reasonable costs of defense), of any
nature whatsoever proffered or incurred by Lender, whether as mortgagee or
beneficiary under the Mortgages, as mortgagee in possession, or as
successor-in-interest to Borrower or the Subsidiaries by foreclosure deed or
deed in lieu of foreclosure, and whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law,
including those arising from the joint, concurrent or comparative negligence of
Lender, under or on account of the Environmental Laws, including the assertion
of any lien thereunder, with respect to: (1) a breach of any
representation, warranty or covenant of Borrower contained in this
Article 5; (2) any acts performed by Lender pursuant to the
provisions of this Article 5; (3) any discharge of Hazardous
Materials, the threat of discharge of any Hazardous Materials or the storage or
presence of any Hazardous Materials affecting any Project whether or not the
same originates or emanates from a Project or any contiguous real estate,
including any loss of value of any Project as a result of the foregoing;
(4) any costs of removal or remedial action incurred by the United States
Government or any costs incurred by any other Person or damages from injury to,
destruction of, or loss of natural resources including reasonable costs of
assessing such injury, destruction or loss incurred pursuant to any
Environmental Laws; (5) liability for personal injury or property damage
arising under any statutory or common law tort theory, including without
limitation damages assessed for the maintenance of a public or private nuisance
or for the carrying on of an abnormally dangerous activity at, upon, under or
within any Project; and/or (6) any other environmental matter affecting
any Project within the jurisdiction of the Environmental Protection Agency, any
other federal agency or any state or local environmental agency. The foregoing
notwithstanding, Borrower shall not be liable under the foregoing indemnification
to the extent any such loss, liability, damage, claim, cost or expense results
solely from Lender’s gross negligence or willful misconduct. Borrower’s
obligations under this Article 5 shall arise upon the discovery of the
presence of any Hazardous Material, whether or not the Environmental Protection
Agency, any other federal agency or any state or local environmental agency has
taken or threatened any action in connection with the presence of any Hazardous
Materials and whether or not the existence of any such Hazardous Material or
potential liability on account thereof is disclosed in any Site Assessment, and
shall continue notwithstanding the repayment of the Loan or any transfer or
sale of any right, title and interest in the Projects (by foreclosure, deed in
lieu of foreclosure or otherwise). Notwithstanding the foregoing, subject to
the conditions specified below in this Section 5.3, Borrower shall not be
liable under this Section 5.3 for such indemnified matters directly
created or arising from events or conditions caused or created by Lender with
respect to any Project and first existing after Lender acquires title to such
Project by foreclosure or acceptance of a deed in lieu thereof, but only if
(a) Borrower delivers to Lender a current site assessment evidencing the
presence of no Hazardous Materials on such Project and no violation of any
Environmental Laws with respect to such Project not more than ninety (90) days
and not less than thirty (30) days prior thereto, and (b) such loss, liability,
damage, claim, cost or expense does not directly or indirectly arise from or
relate to any release of or exposure to any Hazardous Material (including
personal injury or damage to property), non-compliance with any Environmental
Laws, or remediation existing or occurring prior to the date Lender acquires
title to such Project.

 

28

 

Section
5.4    Lender’s Right
to Protect Collateral.   If (1) any
discharge of Hazardous Materials or the threat of a discharge of Hazardous
Material affecting any Project occurs, whether originating or emanating from
such Project or any contiguous real estate, and/or (2) Borrower or any
Subsidiary fails to comply with any Environmental Laws or related regulations,
Lender may at its election, but without the obligation so to do, give such
notices and/or cause such work to be performed at the affected Project and/or
take any and all other actions as Lender shall deem necessary or advisable in
order to abate the discharge of any Hazardous Material, remove the Hazardous
Material or cure Borrower’s or such Subsidiary’s noncompliance.

 

Section 5.5    No Waiver. Notwithstanding any
provision in this Article 5 or elsewhere in the Loan Documents, or any
rights or remedies granted by the Loan Documents, Lender does not waive and
expressly reserves all rights and benefits now or hereafter accruing to Lender
under any “security interest” or “secured creditor” exception under applicable
Environmental Laws, as the same may be amended. No action taken by Lender
pursuant to the Loan Documents shall be deemed or construed to be a waiver or
relinquishment of any such rights or benefits under any “security interest
exception.”

 

ARTICLE 6

 

LEASING MATTERS

 

Section 6.1    Representations and Warranties on Leases.
Borrower represents and warrants to Lender with respect to leases of each
Project that: (1) the rent roll delivered to Lender is true and correct,
and the leases are valid and in full force and effect; (2) the leases
(including amendments) are in writing, and there are no oral agreements with
respect thereto; (3) the copies of the leases delivered to Lender are true
and complete; (4) neither the landlord nor more than (i) five percent
(5 %) of the self-storage tenants at any one Project and (ii) five percent
(5%) of all self-storage tenants at all Projects are in default under any of
the leases; (5) no retail or office tenant is in default under any of the
leases which would represent more than five percent (5%) of the Operating
Revenues of any one Project or the Projects in aggregate; (6) Borrower has
no knowledge of any notice of termination or default with respect to any retail
or office lease which would represent more than five percent (5%) of the
Operating Revenues of any one Project or the Projects in aggregate (except that
Foster-Miller has given notice that it is terminating the Foster-Miller Lease);
(7) Borrower has not assigned or pledged any of the leases, the rents or
any interests therein except to Lender; (8) no tenant or other party has
an option to purchase all or any portion of any Project; (9) no retail or
office tenant has the right to terminate its lease prior to expiration of the
stated term of such lease; (10) not more than five percent (5%) of the
self-storage tenants at any Project has prepaid more than one month’s rent in
advance (except for bona fide security deposits not in excess of an amount
equal to two month’s rent), and no self-storage tenants have prepaid more than
twelve month’s rent in advance; (11) no retail or office tenant has prepaid
more than one month’s rent in advance (except for bona fide security deposits
not in excess of an amount equal to two month’s rent); and (12) all existing
retail and office leases are subordinate to the applicable Mortgages either pursuant
to their terms or a recorded subordination agreement, or are month-to-month
leases.

 

29

 

Section 6.2    Standard Lease Form; Approval Rights. Except as provided
below, all future leases and other rental arrangements shall in all respects be
approved by Lender and shall be on a standard lease form provided to Lender
with no material modifications (except as approved by Lender). Except as
provided below, all retail and office leases and other rental arrangements
shall in all respects be approved by Lender and shall be on a standard lease
form approved by Lender with no material modifications (except as approved by
Lender). Lender hereby approves of the Borrower’s current standard forms for
self-storage leases and office/retail leases which have been provided to
Lender. Retail and office lease forms shall provide that the tenant shall
attorn to Lender, and that any cancellation, surrender, or amendment of such
lease without the prior written consent of Lender shall be voidable by Lender.
Borrower shall, and shall cause each Subsidiary to, hold, in trust, all tenant
security deposits related to Borrower’s and such Subsidiary’s
Project(s) in the manner required by the applicable leases and applicable
law. Within ten (10) days after Lender’s request, Borrower shall furnish
to Lender a statement of all tenant security deposits, copies of all retail and
office leases not previously delivered to Lender and a current rent roll for
each Project, each certified by Borrower as being true and correct.
Notwithstanding anything contained in the Loan Documents, Lender’s approval
shall not be required for future self-storage leases or self-storage lease
extensions at a Project if there exists no Event of Default. Notwithstanding
anything contained in the Loan Documents, Lender’s approval shall not be
required for future retail or office leases or retail or office lease
extensions at a Project if the following conditions are satisfied:
(1) there exists no Potential Default or Event of Default; (2) the
lease is on the standard lease form approved by Lender with no material
modifications (except as approved by Lender, such approval not to be
unreasonably withheld or delayed); (3) the lease does not conflict with
any restrictive covenant affecting the Project or any other lease for space in
the Project; and (4) the leased premises, when combined with all other
space in the Project leased to the same tenant or any Affiliate thereof, are
not greater than 5,000 rentable square feet, and the lease term is at least 36
months (but not more than 60 months).

 

Section 6.3    Covenants. Borrower shall, and shall
cause each Subsidiary to, (1) perform the obligations which Borrower or
such Subsidiary is required to perform under the leases; (2) enforce the
obligations to be performed by the tenants under (i) self-storage leases
to the extent customary in the ordinary course of Borrower’s business
consistent with prudent property management practices and (ii) retail and
office leases; (3) promptly furnish to Lender any notice of default or
termination received by Borrower or any Subsidiary from, or given by Borrower
or any Subsidiary to, any retail or office tenant unless such lease is for less
than 1,000 rentable square feet; (4) not collect any rents from the
self-storage tenants at any Project for more than thirty (30) days in advance
of the time when the same shall become due, except for bona fide security
deposits not in excess of an amount equal to two months rent, and provided that
the aggregate prepaid rents collected for more than one month in advance for
any Project shall not exceed five percent (5%) of the annualized gross revenues
from such Project; (5) not collect any rents from retail or office tenants
for more than thirty (30) days in advance of the time when the same shall
become due, except for bona fide security deposits not in excess of an amount
equal to two months rent; (6) not enter into any ground lease or master
lease of any part of any Project; (7) not further assign or encumber any
lease; (8) not, except with Lender’s prior written consent, cancel or
accept surrender or termination of any retail or office lease of not less than
1,000 rentable square feet at any Project except in the ordinary course of
business, consistent with prudent property management practices; and
(9) not, except with Lender’s prior written consent,

 

30

 

modify or amend any
retail or office lease (except for non-material modifications and amendments
entered into in the ordinary course of business, consistent with prudent
property management practices for the particular property type, not affecting
the economic terms of the lease) of not less than 1,000 rentable square feet at
any Project, and any action in violation of clauses (6), (7), (8), and
(9) of this Section 6.3 shall be void at the election of Lender.

 

Section 6.4      Tenant
Estoppels. At Lender’s request, Borrower shall use commercially
reasonable efforts to obtain and furnish to Lender, written estoppels in form
and substance reasonably satisfactory to Lender, executed by self-storage
tenants under any “corporate” or master leases of any part of any Project and
by retail and office tenants under any leases of any part of any Project
accounting for more than ten percent (10%) of the net rentable square footage
of such Project and by retail and office tenants under any leases of any part
of any Project in excess of 5,000 square feet, and confirming the term, rent,
and other provisions and matters relating to the leases.

 

Section 6.5      Project
Information. The information in Schedule 1.1(B) hereof
with respect to each Project is correct.

 

ARTICLE 7

 

FINANCIAL REPORTING

 

Section 7.1      Financial
Statements.

 

(1)         Monthly
Reports. Within thirty (30) days after the end of each calendar
month, Borrower shall furnish to Lender, on a Project-by-Project basis, a
current (as of the calendar month just ended) balance sheet, a detailed
operating statement (showing monthly activity and year-to-date) stating
Operating Revenues, Operating Expenses and Net Cash Flow for the calendar month
just ended, an updated rent roll for each Project, and, as requested by Lender,
a written statement setting forth any variance from the annual budget, a
general ledger, copies of bank statements and bank reconciliations and other
documentation supporting the information disclosed in the most recent financial
statements.

 

(2)         Annual
Reports. Within ninety (90) days after the end of Borrower’s
fiscal years, Borrower shall furnish to Lender, on a Project-by-Project basis,
a current (as of the end of such fiscal year) balance sheet, a detailed
operating statement stating Operating Revenues, Operating Expenses and Net Cash
Flow for each of Borrower and each Project, and, if required by Lender at any
time after an Event of Default has occurred (even if such Event of Default is
subsequently waived by Lender in its sole discretion), prepared on a review
basis and certified by an independent public accountant satisfactory to Lender,
provided that in such event Borrower shall have an additional sixty (60) days
to deliver such certified financial statements.

 

(3)         Certification:
Supporting Documentation. Each such financial statement shall be
in scope and detail satisfactory to Lender and certified by the chief financial
representative of Borrower.

 

31

 

(4)         Tax
Returns. Borrower shall furnish to Lender copies of Borrower’s
and each Subsidiary’s filed federal, state and (if applicable) local income tax
returns for each taxable year (with all forms and supporting schedules
attached) within thirty (30) days after filing. Alternatively, if Borrower and
each Subsidiary are included in a consolidated tax return pursuant to
applicable tax law, delivery of such consolidated tax statements (with all
forms and supporting schedules attached) within thirty (30) days after filing
shall satisfy this requirement.

 

Section 7.2    Accounting Principles. All financial
statements shall be prepared in accordance with generally accepted accounting
principles, consistently applied from year to year. If the financial statements
are prepared on an accrual basis, such statements shall be accompanied by a
reconciliation to cash basis accounting principles.

 

Section 7.3   Other Information. Borrower shall
deliver to Lender such additional information regarding Borrower, the
Subsidiaries, its business, any Borrower Party, and the Projects within thirty
(30) days after Lender’s request therefor.

 

Section 7.4    Annual Budget. Borrower shall provide
to Lender its proposed annual capital improvements budget for each Project for
each fiscal year for Lender’s review and approval, which approval shall not be
unreasonably withheld, and Borrower shall provide to Lender its proposed annual
operating budget for each Project for such fiscal year for Lender’s review.
Both such budgets shall be provided within ninety (90) days after the
commencement of each fiscal year.

 

Section 7.5    Audits. Lender’s employees and third
party consultants shall be entitled to perform such financial investigations
and audits of Borrower’s and each Subsidiary’s books and records as Lender
shall deem necessary. Borrower shall reimburse Lender for the costs of
(i) one financial audit of Borrower, the Subsidiaries and all Projects per
Loan Year, (ii) any financial audits required in connection with
determining the Debt Service Coverage in accordance with this Agreement, and
(iii) any additional financial audits performed while any Event of Default
exists. Borrower shall permit Lender and Lender’s agents and consultants to
examine such records, books and papers of Borrower and each Subsidiary which
reflect upon its financial condition, the income and expenses relative to the
Projects and the representations set forth in Article 9. Borrower authorizes
Lender to communicate directly with Borrower’s and each Subsidiary’s
independent certified public accountants; provided that Borrower shall have the
right to participate in all communications with such accountants, and Borrower
agrees to not impair, impede or delay such communications. Borrower authorizes
such accountants to disclose to Lender any and all financial statements and
other supporting financial documents and schedules, including copies of any
management letter, with respect to the business, financial condition and other
affairs of Borrower and each Subsidiary.

 

32

 

ARTICLE 8

 

COVENANTS

 

Borrower covenants
and agrees with Lender as follows:

 

Section 8.1      Due on Sale and Encumbrance; Transfers of Interests.
Without the prior written consent of Lender,

 

(1)         Except as
permitted under Section 2.8, no Transfer shall occur or be permitted, nor
shall Borrower enter into any easement or other agreement granting rights in or
restricting the use or development of any Project; and

 

(2)         no Transfer
shall occur or be permitted alone or in the aggregate which would (a) cause
Borrower to cease to own one hundred percent (100%) of the beneficial interests
in the Non-New Jersey Subsidiaries and the Non-New Jersey Projects, (b) cause
either Borrower or ESP 7 to cease to own one hundred percent (100%) of the
beneficial interests in the New Jersey Subsidiaries and the New Jersey
Projects, (c) cause either (i) ESP 7 to cease to own one hundred
percent of the ownership interests in Borrower, or (ii) Extra Space
Storage LLC, a Delaware limited liability company (“ESS”) to cease to own one hundred
percent of the ownership interests in Borrower, (d) cause ESS to own less
than (i) fifty-one percent (51%) of the ownership interests in ESP 7 or (ii) one
hundred percent (100%) of the ownership interests in the general partner of ESP
7 (unless (A) ESS directly owns 100% of the ownership interests in
Borrower under subsection (c)(ii) above and (B) ESP 7 no longer
directly owns any membership interest in any New Jersey Subsidiary that owns
any Project serving as Collateral), (e) cause ESS to cease to be wholly-owned
and controlled by a limited partnership (the “REIT OP”) functioning as the REIT’s (as defined below)
operating partnership, (f) cause either Extra Space Management, Inc.
(so long as Extra Space Management, Inc. remains a Qualified Manager), or
a Qualified Manager (defined below), to cease to be associated with and
directly involved with day to day operational and management responsibilities
for the business of the REIT OP, ESS and Borrower or (g) result in a new
general partner, member or limited partner having the ability to control the
affairs of Borrower or ESP 7 being admitted to or created in Borrower or ESP 7
(or result in any existing general partner or member or controlling limited
partner withdrawing from Borrower or ESP 7).

 

As used in this
Agreement, “Transfer” shall
mean any direct or indirect sale, transfer, conveyance, installment sale,
master lease, mortgage, pledge, encumbrance, grant of Lien or other interest,
license, lease, alienation or assignment, whether voluntary or involuntary, of
all or any portion of the direct or indirect legal or beneficial ownership of,
or any interest in (a) any Project or any part thereof or (b) Borrower
or ESP 7, including any agreement to transfer or cede to another Person any
voting, management or approval rights, or any other rights, appurtenant to any
such legal or beneficial ownership or other interest. “Transfer” is
specifically intended to include any pledge or assignment, directly or
indirectly, of a controlling interest in Borrower or ESP 7 or any of either’s
general partner, controlling limited partner or controlling member for purposes
of securing so-called “mezzanine” indebtedness. “Transfer” shall not

 

33

 

include (i) the
leasing of individual units within any Project so long as Borrower complies
with the provisions of the Loan Documents relating to such leasing activity; or
(ii) the transfer of limited partner or non-managing member interests in
ESS so long as the transfer does not violate the provisions of Sections 8.1(2),
and does not violate the provisions of Article 9. As used in this Section 3.9,
“control”, and the
correlative terms “controlled by”
and “controlling”, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of the business and affairs of the
entity in question by reason of ownership of beneficial interests, by contract
or otherwise. As used herein, “Qualified
Manager” shall mean a reputable and experienced owner, operator
developer or manager of Class “A” or “B” self-storage facilities that (1) has
at least ten (10) years experience in the ownership, operation,
development or management of Class “A” or “B” self-storage facilities, (2) is
the owner, operator, developer or manager of self-storage facilities
containing, in the aggregate, not less than 2,000,000 rentable square feet, and
(3) is not, and within the last seven (7) years has not, been the
subject of a bankruptcy proceeding. As used herein, “REIT” shall mean Extra Space Storage
Inc., or any successor corporation which has one or more classes of shares or
other ownership interests that are registered with the Securities Exchange
Commission and are publicly traded on a national securities exchange or in the
over-the-counter securities market.

 

Without limiting
the foregoing, Borrower further agrees that it will require each Person that
proposes to become a partner, member or shareholder (each such Person, an “Interest Holder”) in Borrower after the
Closing Date to sign and deliver to Borrower, within thirty (30) days after
such transfer (and Borrower shall deliver to Lender promptly after receipt), a
certificate executed by a duly authorized officer of the new Interest Holder
containing representations, warranties and covenants substantially the same as
the representations, warranties and covenants provided by Borrower in Article 9
hereof.

 

Section 8.2      Taxes; Charges. Borrower shall pay (or
cause the Subsidiaries to pay) before any fine, penalty, interest or cost may
be added thereto, and shall not enter into (or permit any Subsidiary to enter
into) any agreement to defer, any real estate taxes and assessments, franchise
taxes and charges, and other governmental charges that may become a Lien upon any
Project or become payable during the term of the Loan, and will promptly
furnish Lender with evidence of such payment; however, Borrower’s compliance
with Section 3.4 of this Agreement relating to impounds for taxes and
assessments shall, with respect to payment of such taxes and assessments, be
deemed compliance with this Section 8.2. Borrower shall not, and shall not
permit any Subsidiary to, suffer or permit the joint assessment of any Project
with any other real property constituting a separate tax lot or with any other
real or personal property. Borrower shall, or shall cause each Subsidiary to,
pay when due all claims and demands of mechanics, materialmen, laborers and
others which, if unpaid, might result in a Lien on Borrower’s or such
Subsidiary’s Project; however, Borrower or any Subsidiary, as applicable, may
contest the validity of such claims and demands so long as (1) Borrower
notifies Lender that Borrower or such Subsidiary intends to contest such claim
or demand, (2) Borrower or such Subsidiary provides Lender with an
indemnity, bond or other security satisfactory to Lender (including an
endorsement to the Title Insurance Policies insuring against such claim or
demand) assuring the discharge of Borrower or such Subsidiary’s obligations for
such claims and demands, including interest and penalties, and (3) Borrower
or such Subsidiary is diligently contesting the same by appropriate legal
proceedings in good faith and at its own expense and

 

34

 

concludes such contest
prior to the tenth (10th) day preceding the earlier to occur of the Maturity
Date or the date on which the applicable Project is scheduled to be sold for
non-payment.

 

Section 8.3      Control; Management. Without the prior
written consent of Lender, there shall be no change in the day-to-day control
and management of Borrower or Borrower’s general partner or managing member,
and no change in their respective organizational documents relating to control
over Borrower, Borrower’s general partner or managing member and/or any
Project. Borrower shall not, nor shall Borrower permit any Subsidiary to, enter
into, terminate, replace or appoint any property manager or terminate or amend
the property management agreement in any material respect for any Project
without Lender’s prior written approval. Any change in ownership or control of
a property manager shall be cause for Lender to re-approve such property
manager and its property management agreement. Each property manager shall hold
and maintain all necessary licenses, certifications and permits required by
law. Borrower shall fully perform all of its covenants, agreements and
obligations under any property management agreement to which it is a party.
Borrower shall cause each Subsidiary to fully perform all of its covenants,
agreements and obligations under any property management agreement to which
Subsidiary is a party. Notwithstanding anything to the contrary in this Section 8.3,
changes in the individual officers and directors and managers of the REIT and
its subsidiaries shall be permitted without the consent of Lender so long as
such entities maintain their status as Qualified Managers.

 

Section 8.4      Operation; Maintenance; Inspection.
Borrower shall, and shall cause each Subsidiary to, observe and comply with all
legal requirements applicable to its existence and to the ownership, use and
operation of the Projects. Borrower shall, and shall cause the Subsidiaries to,
maintain the Projects in good condition and promptly repair any damage or casualty.
Borrower shall not, and shall not permit any Subsidiary to, without the prior
written consent of Lender, undertake any material alteration of any Project or
permit any of the fixtures or personalty owned by Borrower or any Subsidiary to
be removed at any time from any Project, unless the removed item is removed
temporarily for maintenance and repair or, if removed permanently, is obsolete
and is replaced by an article of equal or better suitability and value, owned
by Borrower or such Subsidiary and free and clear of any Liens except those in
favor of Lender. Borrower shall, and shall cause the Subsidiaries to, permit
Lender and its agents, representatives and employees, upon reasonable prior
notice to Borrower, to inspect the Projects and conduct such environmental and
engineering studies as Lender may require, provided such inspections and
studies do not materially interfere with the use and operation of the Projects.
Notwithstanding the foregoing, Borrower and its Subsidiaries shall be permitted
to convert any or all of the existing office, retail or industrial space at the
“1073 Arvada, CO” Project or the “1206 Waltham, MA” Project to self storage
uses, or to otherwise build out such existing spaces for future tenants;
provided that such activities do not violate other provisions of this
Agreement, including without limitation prohibitions against Liens and other
Debt.

 

Section 8.5      Taxes on Security. Borrower shall pay
all taxes, charges, filing, registration and recording fees, excises and levies
payable with respect to the Note or the Liens created or secured by the Loan
Documents, other than income, franchise and doing business taxes imposed on
Lender. If there shall be enacted any law (1) deducting all or a portion
of the Loan from the value of any Project for the purpose of taxation, (2) affecting
any Lien on any Project, or (3) changing existing laws of taxation of
mortgages, deeds of trust, security deeds, or

 

35

 

debts secured by real
property, or changing the manner of collecting any such taxes, Borrower shall
promptly pay to Lender, on demand, all taxes, costs and charges for which
Lender is or may be liable as a result thereof; however, if such payment would
be prohibited by law or would render the Loan usurious, then instead of
collecting such payment, Lender may declare all amounts owing under the Loan
Documents to be immediately due and payable.

 

Section 8.6      Legal Existence; Name, Etc. Borrower shall, and shall cause each
Subsidiary to, preserve and keep in full force and effect its existence as, and
at all times operate as, a Single Purpose Entity. Borrower and each general
partner or managing member in Borrower shall, and shall cause each Subsidiary
to, preserve and keep in full force and effect its entity status, franchises,
rights and privileges under the laws of the state of its formation, and all
qualifications, licenses and permits applicable to the ownership, use and
operation of the Projects. Neither Borrower, ESP 7 nor any general partner or
managing member of Borrower or ESP 7 shall wind up, liquidate, dissolve,
reorganize, merge, or consolidate with or into any Person, or permit any
Subsidiary or Affiliate of Borrower or ESP 7 to do so. Without limiting the
foregoing, neither Borrower nor ESP 7 shall, nor shall either permit any
Subsidiary to, reincorporate or reorganize itself under the laws of any
jurisdiction other than the jurisdiction in which it is incorporated or
organized as of the Closing Date. Borrower, ESP 7 and each general partner or
managing member in Borrower and ESP 7 shall, and shall cause each Subsidiary
to, conduct business only in its own name and shall not change its name,
identity, organizational structure, state of formation or the location of its
chief executive office or principal place of business unless Borrower (1) shall
have obtained the prior written consent of Lender to such change, and (2) shall
have taken all actions necessary or requested by Lender to file or amend any
financing statement or continuation statement to assure perfection and
continuation of perfection of security interests under the Loan Documents.
Borrower and ESP 7 (and each general partner or managing member in Borrower and
ESP 7, if any) shall, and shall cause each Subsidiary to, maintain its
separateness as an entity, including maintaining separate books, records, and
accounts and observing corporate and partnership formalities independent of any
other entity, shall pay its obligations with its own funds and shall not
commingle funds or assets with those of any other entity. If Borrower or any
Subsidiary does not have an organizational identification number and later
obtains one, Borrower shall promptly notify Lender of such organizational
identification number.

 

Section 8.7      Affiliate Transactions. Without the
prior written consent of Lender, Borrower, ESP 7 and the Subsidiaries shall not
engage in any transaction affecting any Project with an Affiliate of Borrower
or of any Borrower Party except for transactions for which (i) the terms are
commercially reasonable and competitive with amounts that would be paid to or
received from third parties on an “arm’s length” basis, (ii) the terms are
reduced to a writing covering all material aspects of such arrangement, and (iii) the
agreement is terminable without cause by Borrower, ESP 7, Subsidiary or, after
the occurrence of an Event of Default, Lender, without penalty or fee, upon no
more than thirty (30) days’ prior written notice.

 

Section 8.8      Limitation on Other Debt. Borrower (and
each general partner or managing member in Borrower, if any) shall not, without
the prior written consent of Lender, (1) incur any Debt other than the
Loan and (2) permit the Subsidiaries to incur any Debt other than their
obligations under the Mortgages and customary trade payables which are payable,
and shall be paid, within sixty (60) days of when incurred.

 

36

 

Section 8.9            Further Assurances. Borrower shall
promptly (1) cure, or cause the appropriate Borrower Party to cure, any
defects in the execution and delivery of the Loan Documents, (2) provide,
and to cause each Borrower Party to provide, Lender such additional information
and documentation on Borrower’s and each Borrower Party’s legal or beneficial
ownership, policies, procedures and sources of funds as Lender deems necessary
or prudent to enable Lender to comply with Anti-Money Laundering Laws as now in
existence or hereafter amended, and (3) execute and deliver, or cause to
be executed and delivered, all such other documents, agreements and instruments
as Lender may reasonably request to further evidence and more fully describe
the collateral for the Loan, to correct any omissions in the Loan Documents, to
perfect, protect or preserve any Liens created under any of the Loan Documents,
or to make any recordings, file any notices, or obtain any consents, as may be
necessary or appropriate in connection therewith. From time to time upon the
written request of Lender, Borrower shall deliver to Lender a schedule of the
name, legal domicile address and jurisdiction of organization, if applicable,
for each Borrower Party and each holder of a direct legal interest in Borrower
or ESP 7.

 

Section 8.10          Estoppel Certificates. Borrower, within
ten (10) days after request, shall furnish to Lender a written statement,
duly acknowledged, setting forth the amount due on the Loan, the terms of
payment of the Loan, the date to which interest has been paid, whether any
offsets or defenses exist against the Loan and, if any are alleged to exist,
the nature thereof in detail, and such other matters as Lender reasonably may
request.

 

Section 8.11          Notice of Certain Events.
Borrower shall promptly notify Lender of (1) any Potential Default or
Event of Default, together with a detailed statement of the steps being taken
to cure such Potential Default or Event of Default; (2) any notice of
default received by Borrower or any Subsidiary under other obligations relating
to any Project or otherwise material to Borrower’s or any Subsidiary’s business;
and (3) any threatened or pending legal, judicial or regulatory
proceedings, including any dispute between Borrower or any Subsidiary and any
governmental authority, affecting Borrower, any Subsidiary or any Project in
any material respect.

 

Section 8.12          Indemnification. Except for matters
caused by Lender’s gross negligence or willful misconduct, Borrower shall
indemnify, defend and hold Lender harmless from and against any and all losses,
liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs and disbursements (including the reasonable fees and
actual expenses of Lender’s counsel) of any kind or nature whatsoever,
including those arising from the joint, concurrent, or comparative negligence
of Lender, in connection with (1) any inspection, review or testing of or
with respect to the Projects, (2) any investigative, administrative,
mediation, arbitration, or judicial proceeding, whether or not Lender is
designated a party thereto, commenced or threatened at any time (including
after the repayment of the Loan) in any way related to the execution, delivery
or performance of any Loan Document or to any Project, (3) any proceeding
instituted by any Person claiming a Lien, and (4) any brokerage
commissions or finder’s fees claimed by any broker or other party in connection
with the Loan, any Project, or any of the transactions contemplated in the Loan
Documents, except to the extent any of the foregoing is caused by Lender’s
gross negligence or willful misconduct.

 

37

 

Section 8.13          Application of Operating Revenues. All
Operating Revenues shall be applied to the payment of Debt Service and other
payments due under the Loan Documents, taxes, assessments, water charges, sewer
rents and other governmental charges levied, assessed or imposed against the
Projects, insurance premiums, operations and maintenance charges relating to
the Projects, and other obligations of the lessor under leases of space at each
Project, before using Operating Revenues for any other purpose.

 

Section 8.14          Representations and Warranties.
Borrower will cause all representations and warranties to remain true and
correct all times while any portion of the Loan remains outstanding.

 

Section 8.15          Immediate Repairs. Within six (6) months
after the Closing Date, Borrower shall deliver to Lender evidence reasonably
satisfactory to Lender that Borrower has completed, Lien free and in accordance
with applicable Laws, the immediate repairs work described in the table set
forth in Schedule 8.15 for the designated Projects (as such work is more
particularly described in the engineering reports for such Projects prepared by
Lender’s consultant(s) in connection with the Loan closing, copies of
which have been delivered to Borrower).

 

Section 8.16          1206 Waltham, MA Lease. On or before July 31,
2008, Borrower shall either (i) deliver to Lender evidence reasonably
satisfactory to Lender that Foster-Miller or one or more other tenants
acceptable to Lender have leased the entirety of the space currently covered by
the Foster-Miller Lease through at least October 31, 2013 (with no early
termination rights or options) at an annual base rental rate of not less than
$22.00 per square foot plus percentage rent and other amounts equivalent to
those due under the Foster-Miller Lease (and such lease or leases otherwise
comply with the terms of this Agreement), and each such tenant has accepted
possession of its leased premises, has commenced paying rent, is not then
otherwise in default under its lease, and has executed and delivered to Lender
an estoppel certificate, in form and substance satisfactory to Lender,
confirming the foregoing matters and such other matters concerning such tenant
and its lease as Lender reasonably requires, or (ii) have (A) caused
the Project known as “1206 Waltham, MA” to be released from the Lien of the
Loan Documents in accordance with Section 2.8 above and (B) added one
or more Additional Project(s) in accordance with Section 2.9 above
which have an aggregate Valuation Amount that equals or exceeds the Valuation
Amount of the “1206 Waltham, MA” Project, and which would increase the Debt
Service Coverage to at least 1.15:1.00 based on an Applicable Margin of 2.05%
and assuming the outstanding Loan balance equals the Maximum Commitment. Should
Borrower fail to satisfy the requirements set forth in either of clause (i) or
(ii) above, Lender, in its sole and absolute discretion, may decrease the
Valuation Amount and the Underwritten NOI of the “1206 Waltham, MA” Project to
exclude any value or income attributable to retail or office uses.

 

Section 8.17          Contribution Agreement. Without the
prior written consent of Lender, Borrower and the Subsidiaries shall not amend,
modify or terminate the Contribution Agreement.

 

38

 

ARTICLE 9

 

ANTI-MONEY LAUNDERING AND

INTERNATIONAL TRADE CONTROLS

 

Section 9.1       Compliance
with International Trade Control Laws and OFAC Regulations.
Borrower represents, warrants and covenants to Lender that:

 

(1)          It is not now nor
shall it be at any time until after the Loan is fully repaid a Person with whom
a U.S. Person, including a Financial Institution, is prohibited from
transacting business of the type contemplated by this Agreement, whether such
prohibition arises under U.S. law, regulation, executive orders and lists
published by the OFAC (including those executive orders and lists published by
OFAC with respect to Specially Designated Nationals and Blocked Persons) or
otherwise.

 

(2)          No Borrower Party and
no Person who owns a direct interest in Borrower is now nor shall be at any
time until after the Loan is fully repaid a Person with whom a U.S. Person,
including a Financial Institution, is prohibited from transacting business of
the type contemplated by this Agreement, whether such prohibition arises under
U.S. law, regulation, executive orders and lists published by the OFAC
(including those executive orders and lists published by OFAC with respect to
Specially Designated Nationals and Blocked Persons) or otherwise.

 

Section 9.2       Borrower’s
Funds. Borrower represents, warrants and covenants to Lender
that:

 

(1)          It has taken, and
shall continue to take until after the Loan is fully repaid, such measures as
are required by law to verify that the funds invested in the Borrower are
derived (a) from transactions that do not violate U.S. law nor, to the
extent such funds originate outside the United States, do not violate the laws
of the jurisdiction in which they originated; and (b) from permissible
sources under U.S. law and to the extent such funds originate outside the
United States, under the laws of the jurisdiction in which they originated.

 

(2)          To the best of its
knowledge, neither Borrower, nor any Borrower Party, nor any holder of a direct
interest in Borrower, nor any Person providing funds to Borrower (a) is
under investigation by any governmental authority for, or has been charged
with, or convicted of, money laundering, drug trafficking, terrorist-related
activities, any crimes which in the United States would be predicate crimes to
money laundering, or any violation of any Anti-Money Laundering Laws; (b) has
been assessed civil or criminal penalties under any Anti-Money Laundering Laws;
and (c) has had any of its/his/her funds seized or forfeited in any action
under any Anti-Money Laundering Laws.

 

(3)          Borrower shall make
payments on the Loan using funds invested in Borrower, Operating Revenues or
insurance proceeds unless otherwise agreed to by Lender.

 

39

 

(4)      To the best of Borrower’s
knowledge, as of the Closing Date and at all times during the term of the Loan,
all Operating Revenues are and will be derived from lawful business activities
of Project tenants or other permissible sources under U.S. law. Notwithstanding
the foregoing, Borrower shall not be in violation of this Section 9.2(4) if
upon discovery that Operating Revenues are derived from the unlawful business
activity of a Project tenant, or from any impermissible source under U.S. law,
Borrower takes commercially reasonable steps to terminate or remove or prohibit
the same.

 

(5)      During the term of the Loan
and on the Maturity Date, Borrower will take reasonable steps to verify that
funds used to make payments on the Loan and to repay the Loan in full (whether
in connection with a refinancing, asset sale or otherwise) are from sources
permissible under U.S. law and to the extent such funds originate outside the
United States, permissible under the laws of the jurisdiction in which they
originated.

 

ARTICLE 10

 

EVENTS OF DEFAULT

 

Each of the
following shall constitute an Event of Default under the Loan:

 

Section 10.1         Payments. Borrower’s failure to pay any
regularly scheduled installment of principal, interest or other amount due under
the Loan Documents within five (5) days after the date when due, or
Borrower’s failure to pay the Loan at the Maturity Date, whether by
acceleration or otherwise.

 

Section 10.2         Insurance. Borrower’s failure to
maintain or cause any Subsidiary to maintain insurance as required under Section 3.1
of this Agreement.

 

Section 10.3         Transfer. Any Transfer occurs in
violation of Section 8.1 of this Agreement.

 

Section 10.4         Covenants. Borrower’s failure to
perform, observe or comply with any of the agreements, covenants or provisions
contained in this Agreement or in any of the other Loan Documents, or any
Borrower Party’s failure to perform observe or comply with any of the
agreements, covenants or provisions contained in any of the other Loan
Documents to which it is a party (in each case, other than those agreements,
covenants and provisions referred to elsewhere in this Article 10), and
the continuance of such failure for thirty (30) days after notice by Lender to
Borrower; however, subject to any shorter period for curing any failure by
Borrower or the applicable Borrower Party as specified in any of the other Loan
Documents, Borrower or the applicable Borrower Party shall have an additional
sixty (60) days to cure such failure if (1) such failure does not involve
the failure to make payments on a monetary obligation; (2) such failure
cannot reasonably be cured within thirty (30) days but, using reasonable
diligence, is curable within such 60-day period; (3) Borrower or the
applicable Borrower Party is diligently undertaking to cure such default, and (4) Borrower
or the applicable Borrower Party has provided Lender with security reasonably
satisfactory to Lender against any

 

40

 

interruption of payment
or impairment of collateral as a result of such continuing failure. The notice
and cure provisions of this Section 10.4 do not apply to the other Events
of Default described in this Article 10 or to Borrower’s or any Borrower
Party’s failure to perform, observe or comply with any of the agreements,
covenants or provisions contained in Article 9 (for which no notice and
cure period shall apply).

 

Section 10.5         Representations and Warranties. Any
representation or warranty made in any Loan Document proves to be untrue in any
material respect when made or deemed made.

 

Section 10.6         Other Encumbrances. Any default under
any document or instrument, other than the Loan Documents, evidencing or
creating a Lien on any Project or any part thereof.

 

Section 10.7         Involuntary Bankruptcy or Other Proceeding.
Commencement of an involuntary case or other proceeding against Borrower, any
Borrower Party or any other Person having an ownership or security interest in
any Project (each, a “Bankruptcy Party”)
which seeks liquidation, reorganization or other relief with respect to it or
its Debts or other liabilities under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeks the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any of its
property, and such involuntary case or other proceeding shall remain
undismissed or unstayed for a period of sixty (60) days; or an order for relief
against a Bankruptcy Party shall be entered in any such case under the Federal
Bankruptcy Code.

 

Section 10.8         Voluntary Petitions, Etc. Commencement
by a Bankruptcy Party of a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its Debts
or other liabilities under any bankruptcy, insolvency or other similar law or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official for it or any of its property, or consent by a Bankruptcy
Party to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or the making by a Bankruptcy Party of a general assignment for the benefit of
creditors, or the failure by a Bankruptcy Party, or the admission by a
Bankruptcy Party in writing of its inability, to pay its debts generally as
they become due, or any action by a Bankruptcy Party to authorize or effect any
of the foregoing.

 

Section 10.9         Joinder. Any Joinder Party’s failure to
timely perform, observe or comply with any of the agreements, covenants or
provisions contained in the Joinder hereto.

 

ARTICLE 11

 

REMEDIES

 

Section 11.1         Remedies - Insolvency Events. Upon the
occurrence of any Event of Default described in Section 10.7 or 10.8, the
obligations of Lender to advance amounts hereunder shall immediately terminate,
and all amounts due under the Loan Documents immediately shall become due and
payable, all without written notice and without presentment, demand, protest,
notice of protest or dishonor, notice of intent to accelerate the maturity
thereof,

 

41

 

notice of acceleration of
the maturity thereof, or any other notice of default of any kind, all of which
are hereby expressly waived by Borrower; however, if the Bankruptcy Party under
Section 10.7 or 10.8 is other than Borrower, then all amounts due under
the Loan Documents shall become immediately due and payable at Lender’s
election, in Lender’s sole discretion.

 

Section 11.2         Remedies - Other Events. Except as set
forth in Section 11.1 above, while any Event of Default exists, Lender may
(1) by written notice to Borrower, declare the entire Loan to be
immediately due and payable without presentment, demand, protest, notice of
protest or dishonor, notice of intent to accelerate the maturity thereof,
notice of acceleration of the maturity thereof, or other notice of default of
any kind, all of which are hereby expressly waived by Borrower, (2) terminate
the obligation, if any, of Lender to advance amounts hereunder, and (3) exercise
all rights and remedies therefor under the Loan Documents and at law or in
equity.

 

Section 11.3         Lender’s Right to Perform the Obligations.
If Borrower or any Subsidiary shall fail, refuse or neglect to make any payment
or perform any act required by the Loan Documents, then while any Event of
Default exists, and without notice to or demand upon Borrower or any Subsidiary
and without waiving or releasing any other right, remedy or recourse Lender may
have because of such Event of Default, Borrower (on its own behalf and of
behalf of the Subsidiaries) agrees that Lender may (but shall not be obligated
to) make such payment or perform such act for the account of Borrower or the
applicable Subsidiary and at the expense of Borrower, and shall have the right
to enter upon the Projects for such purpose and to take all such action thereon
and with respect to the Projects as it may deem necessary or appropriate. If
Lender shall elect to pay any sum due with reference to any Project, Lender may
do so in reliance on any bill, statement or assessment procured from the
appropriate governmental authority or other issuer thereof without inquiring
into the accuracy or validity thereof. Similarly, in making any payments to
protect the security intended to be created by the Loan Documents, Lender shall
not be bound to inquire into the validity of any apparent or threatened adverse
title, lien, encumbrance, claim or charge before making an advance for the
purpose of preventing or removing the same. Borrower shall indemnify, defend
and hold Lender harmless from and against any and all losses, liabilities,
claims, damages, expenses, obligations, penalties, actions, judgments, suits,
costs or disbursements of any kind or nature whatsoever, including reasonable
attorneys’ fees, incurred or accruing by reason of any acts performed by Lender
pursuant to the provisions of this Section 11.3, including those arising
from the joint, concurrent, or comparative negligence of Lender, except as a
result of Lender’s gross negligence or willful misconduct. All sums paid by
Lender pursuant to this Section 11.3 and all other sums expended by Lender
to which it shall be entitled to be indemnified, together with interest thereon
at the Default Rate from the date of such payment or expenditure until paid,
shall constitute additions to the Loan, shall be secured by the Loan Documents
and shall be paid by Borrower to Lender upon demand.

 

42

 

ARTICLE 12

 

MISCELLANEOUS

 

Section 12.1    Notices.  Any notice required or
permitted to be given under this Agreement shall be in writing and either shall
be mailed by certified mail, postage prepaid, return receipt requested, or sent
by overnight air courier service, or personally delivered to a representative
of the receiving party, or sent by telecopy or electronic mail (provided that
for both telecopy and electronic mail delivery, an identical notice is also
sent simultaneously by mail, overnight courier or personal delivery as
otherwise provided in this Section 12.1). All such notices shall be
mailed, sent or delivered, addressed to the party for whom it is intended at
its address set forth below.

 

	
  If to Borrower:

  	
   

  	
  ESP Seven Subsidiary LLC

  	
   

  
	
   

  	
   

  	
  2795 East Cottonwood Parkway, Suite 400

  	
   

  
	
   

  	
   

  	
  Salt Lake City, Utah 84121

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  David L. Rasmussen, General Counsel

  
	
   

  	
   

  	
  Telecopy:

  	
  (801) 365-4947

  
	
   

  	
   

  	
  E-Mail: drasmussen@extraspace.com

  	
   

  
						

 

	
  If to Lender:

  	
   

  	
  General Electric Capital Corporation

  	
   

  
	
   

  	
   

  	
  c/o GE Real Estate

  	
   

  
	
   

  	
   

  	
  16479 Dallas Parkway, Suite 500

  	
   

  
	
   

  	
   

  	
  Addison, Texas 75001

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  Asset Manager/Extra Space Credit Line

  
	
   

  	
   

  	
  Telecopy:

  	
  (972) 447-2520

  
	
   

  	
   

  	
  E-Mail: scot.florsheim@gecapital.com

  	
   

  
					

 

Any notice so
addressed and sent by United States mail or overnight courier shall be deemed
to be given on the earliest of (1) when actually delivered, (2) on
the first Business Day after deposit with an overnight air courier service, or (3) on
the third Business Day after deposit in the United States mail, postage
prepaid, in each case to the address of the intended addressee (except as
otherwise provided in the Mortgages). Any notice so delivered in person shall
be deemed to be given when receipted for by, or actually received by Lender or
Borrower, as the case may be. If given by telecopy, a notice shall be deemed
given and received when the telecopy is transmitted to the party’s telecopy
number specified above and confirmation of complete receipt is received by the
transmitting party during normal business hours or on the next Business Day if
not confirmed during normal business hours, and an identical notice is also
sent simultaneously by mail, overnight courier, or personal delivery as
otherwise provided in this Section 12.1. If given by electronic mail, a
notice shall be deemed given and received when the electronic mail is
transmitted to the recipient’s electronic mail address specified above and
electronic confirmation of receipt (either by reply from the recipient or by
automated response to a request for delivery receipt) is received by the
sending party during normal business hours or on the next Business Day if not
confirmed during normal business hours, and an identical notice is also sent
simultaneously by mail, overnight courier or personal delivery as otherwise provided
in this Section 12.1. Except for telecopy and electronic mail notices sent
as expressly described above, no notice hereunder shall be effective if sent or
delivered by electronic means. Either

 

43

 

party may designate a
change of address by written notice to the other by giving at least ten (10) days
prior written notice of such change of address.

 

Section 12.2    Amendments and Waivers; References. No
amendment or waiver of any provision of the Loan Documents shall be effective
unless in writing and signed by the party against whom enforcement is sought.
This Agreement and the other Loan Documents shall not be executed, entered
into, altered, amended, or modified by electronic means. Without limiting the
generality of the foregoing, the Borrower and Lender hereby agree that the
transactions contemplated by this Agreement shall not be conducted by
electronic means, except as specifically set forth in Section 12.1
regarding notices. Any reference to a Loan Document, whether in this Agreement
or in any other Loan Document, shall be deemed to be a reference to such Loan
Document as it may hereafter from time to time be amended, modified,
supplemented and restated in accordance with the terms hereof.

 

Section 12.3    Limitation on Interest. It is the
intention of the parties hereto to conform strictly to applicable usury laws.
Accordingly, all agreements between Borrower and Lender with respect to the
Loan are hereby expressly limited so that in no event, whether by reason of
acceleration of maturity or otherwise, shall the amount paid or agreed to be
paid to Lender or charged by Lender for the use, forbearance or detention of
the money to be lent hereunder or otherwise, exceed the maximum amount allowed
by law. If the Loan would be usurious under applicable law, then,
notwithstanding anything to the contrary in the Loan Documents: (1) the
aggregate of all consideration which constitutes interest under applicable law
that is contracted for, taken, reserved, charged or received under the Loan
Documents shall under no circumstances exceed the maximum amount of interest
allowed by applicable law, and any excess shall be credited on the Note by the
holder thereof (or, if the Note has been paid in full, refunded to Borrower);
and (2) if maturity is accelerated by reason of an election by Lender, or
in the event of any prepayment, then any consideration which constitutes
interest may never include more than the maximum amount allowed by applicable
law. In such case, excess interest, if any, provided for in the Loan Documents
or otherwise, to the extent permitted by applicable law, shall be amortized,
prorated, allocated and spread from the date of advance until payment in full
so that the actual rate of interest is uniform through the term hereof. If such
amortization, proration, allocation and spreading is not permitted under
applicable law, then such excess interest shall be canceled automatically as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited on the Note (or, if the Note has been paid in full, refunded to
Borrower). The terms and provisions of this Section 12.3 shall control and
supersede every other provision of the Loan Documents. If at any time the laws
of the United States of America permit Lender to contract for, take, reserve,
charge or receive a higher rate of interest than is allowed by applicable state
law (whether such federal laws directly so provide or refer to the law of any
state), then such federal laws shall to such extent govern as to the rate of
interest which Lender may contract for, take, reserve, charge or receive under
the Loan Documents.

 

Section 12.4    Invalid Provisions. If any provision of
any Loan Document is held to be illegal, invalid or unenforceable, such
provision shall be fully severable; the Loan Documents shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part thereof; the remaining provisions thereof shall remain in full
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance

 

44

 

therefrom; and in lieu of
such illegal, invalid or unenforceable provision there shall be added automatically
as a part of such Loan Document a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible to be legal,
valid and enforceable.

 

Section 12.5    Reimbursement of Expenses. Except as
expressly provided in Section 5.2(3) and Section 7.5, Borrower
shall pay all costs and expenses incurred by Lender in connection with the
negotiation, documentation, closing, disbursement and administration of the
Loan (excluding the costs of any sale of an interest in the Loan under Section 12.11),
including fees and expenses of Lender’s attorneys and Lender’s environmental,
engineering, accounting and other consultants; fees, charges and taxes for the
recording or filing of Loan Documents; financial investigation, audit and
inspection fees and costs; settlement of condemnation and casualty awards;
title search costs, premiums for title insurance and endorsements thereto; and
fees and costs for UCC and litigation searches and background checks. Borrower
shall, upon request, promptly reimburse Lender for all amounts expended,
advanced or incurred by Lender to collect the Note, or to enforce the rights of
Lender under this Agreement or any other Loan Document, or to defend or assert
the rights and claims of Lender under the Loan Documents or with respect to the
Projects (by litigation or other proceedings), which amounts will include all
court costs, attorneys’ fees and expenses, fees of auditors and accountants,
and investigation expenses as may be incurred by Lender in connection with any
such matters (whether or not litigation is instituted), together with interest
at the Default Rate on each such amount from the date of disbursement until the
date of reimbursement to Lender, all of which shall constitute part of the Loan
and shall be secured by the Loan Documents.

 

Section 12.6    Approvals; Third Parties; Conditions.
All rights retained or exercised by Lender to review or approve leases,
contracts, plans, studies and other matters, including Borrower’s and any other
Person’s compliance with the provisions of Article 9 and compliance with
laws applicable to Borrower, the Projects or any other Person, are solely to
facilitate Lender’s credit underwriting, and shall not be deemed or construed
as a determination that Lender has passed on the adequacy thereof for any other
purpose and may not be relied upon by Borrower or any other Person. This
Agreement is for the sole and exclusive use of Lender and Borrower and may not
be enforced, nor relied upon, by any Person other than Lender and Borrower. All
conditions of the obligations of Lender hereunder, including the obligation to
make advances, are imposed solely and exclusively for the benefit of Lender,
its successors and assigns, and no other Person shall have standing to require
satisfaction of such conditions or be entitled to assume that Lender will
refuse to make advances in the absence of strict compliance with any or all of
such conditions, and no other Person shall, under any circumstances, be deemed
to be a beneficiary of such conditions, any and all of which may be freely
waived in whole or in part by Lender at any time in Lender’s sole discretion.

 

Section 12.7    Lender Not in Control; No Partnership.
None of the covenants or other provisions contained in this Agreement shall, or
shall be deemed to, give Lender the right or power to exercise control over the
affairs or management of Borrower, the power of Lender being limited to the
rights to exercise the remedies referred to in the Loan Documents. The
relationship between Borrower and Lender is, and at all times shall remain,
solely that of debtor and creditor. No covenant or provision of the Loan
Documents is intended, nor shall it be deemed or construed, to create a
partnership, joint venture, agency or common interest in profits or income
between Lender and Borrower (or any Subsidiary) or to create an equity interest
in the

 

45

 

Projects in Lender.
Lender neither undertakes nor assumes any responsibility or duty to Borrower,
to the Subsidiaries or to any other Person with respect to the Projects or the
Loan, except as expressly provided in the Loan Documents; and notwithstanding
any other provision of the Loan Documents: (1) Lender is not, and shall
not be construed as, a partner, joint venturer, alter ego, manager, controlling
person or other business associate or participant of any kind of Borrower or
its stockholders, members, partners or Subsidiaries and Lender does not intend
to ever assume such status; (2) Lender shall in no event be liable for any
Debts, expenses or losses incurred or sustained by Borrower or any Subsidiary;
and (3) Lender shall not be deemed responsible for or a participant in any
acts, omissions or decisions of Borrower or its stockholders, members, partners
or Subsidiaries. Lender and Borrower disclaim any intention to create any
partnership, joint venture, agency or common interest in profits or income
between Lender and Borrower or the Subsidiaries, or to create any equity in the
Projects in Lender, or any sharing of liabilities, losses, costs or expenses.

 

Section 12.8    Time of the Essence. Time is of the
essence with respect to this Agreement.

 

Section 12.9    Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of Lender and Borrower and the
respective successors and assigns of Lender and Borrower, provided that neither
Borrower nor any other Borrower Party shall, without the prior written consent
of Lender, assign any rights, duties or obligations hereunder.

 

Section 12.10
   Renewal, Extension or
Rearrangement. All provisions of the Loan Documents shall apply
with equal effect to each and all promissory notes and amendments thereof
hereinafter executed which in whole or in part represent a renewal, extension,
increase or rearrangement of the Loan. For portfolio management purposes, at
any time during the term of the Loan Lender may elect to divide the Loan into
two or more separate loans evidenced by separate promissory notes so long as
the payment and other obligations of Borrower are not effectively increased or
otherwise modified. Borrower agrees to cooperate, and to cause the Subsidiaries
to cooperate, with Lender and to execute such documents as Lender reasonably
may request to effect such division of the Loan.

 

Section 12.11
   Sale of Loan,
Participation. Lender, at any time and without the consent of
Borrower or any Borrower Party, may grant participations in or sell, transfer,
assign and convey all or any portion of its right, title and interest in and to
the Loan, this Agreement and the other Loan Documents and any collateral given
to secure the Loan. Lender shall have the right (but shall be under no
obligation) to make available to any party for the purpose of granting
participations in or selling, transferring, assigning or conveying all or any
part of the Loan (including any governmental agency or authority and any
prospective bidder at any foreclosure sale of any Project) any and all
information which Lender may have with respect to the Projects, Borrower and any
Borrower Party, whether provided by Borrower, any Borrower Party or any third
party, or obtained as a result of any environmental assessments. Borrower and
each Borrower Party agrees that Lender shall have no liability whatsoever as a
result of delivering any such information to any third party, and Borrower and
the other Borrower Parties, on behalf of themselves and their successors and
assigns, hereby release and discharge Leader from any and all liabilities,
claims, damages, or causes of action arising out of, connected with or
incidental to the delivery of any such information to any third party.

 

46

 

Section 12.12
   Waivers.
No course of dealing on the part of Lender, its officers, employees,
consultants or agents, nor any failure or delay by Lender with respect to
exercising any right, power or privilege of Lender under any of the Loan
Documents, shall operate as a waiver thereof.

 

Section 12.13
   Cumulative Rights.
Rights and remedies of Lender under the Loan Documents shall be cumulative, and
the exercise or partial exercise of any such right or remedy shall not preclude
the exercise of any other right or remedy.

 

Section 12.14
   Singular and Plural.
Words used in this Agreement and the other Loan Documents in the singular,
where the context so permits, shall be deemed to include the  plural and vice versa. The definitions of
words in the singular in this Agreement and the other Loan Documents shall
apply to such words when used in the plural where the context so permits and
vice versa.

 

Section 12.15
   Phrases.
When used in this Agreement and the other Loan Documents, the phrase “including”
shall mean “including, but not limited to,” the phrase “satisfactory to Lender”
shall mean “in form and substance satisfactory to Lender in all respects,” the
phrase “with Lender’s consent” or “with Lender’s approval” shall mean such
consent or approval at Lender’s sole discretion, and the phrase “acceptable to
Lender” shall mean “acceptable to Lender at Lender’s sole discretion.”

 

Section 12.16
   Exhibits and Schedules.
The exhibits and schedules attached to this Agreement are incorporated herein
and shall be considered a part of this Agreement for the purposes stated
herein.

 

Section 12.17
   Titles of Articles, Sections
and Subsections. All titles or headings to articles, sections,
subsections or other divisions of this Agreement and the other Loan Documents
or the exhibits hereto and thereto are only for the convenience of the parties
and shall not be construed to have any effect or meaning with respect to the
other content of such articles, sections, subsections or other divisions, such
other content being controlling as to the agreement between the parties hereto.

 

Section 12.18
   Promotional Material.
Borrower authorizes Lender to issue press releases, advertisements and other
promotional materials in connection with Lender’s own promotional and marketing
activities, and describing the Loan in general terms or in detail and Lender’s
participation in the Loan, provided that all references to Borrower contained
in any such press releases, advertisements or promotional materials shall be
approved in writing by Borrower in advance of issuance. All references to
Lender contained in any press release, advertisement or promotional material
issued by Borrower shall be approved in writing by Lender in advance of
issuance; provided, however, Lender shall not have any approval rights over any
disclosures to, or filings with, the Securities and Exchange Commission or New
York Stock Exchange (or similar public notices) made by REIT.

 

Section 12.19
   Survival.
All of the representations, warranties, covenants, and indemnities hereunder,
and under the indemnification provisions of the other Loan Documents, shall
survive the repayment in full of the Loan and the release of the liens
evidencing or securing

 

47

 

the Loan, and shall
survive the transfer (by sale, foreclosure, conveyance in lieu of foreclosure
or otherwise) of any or all right, title and interest in and to the Projects to
any party, whether or not an Affiliate of Borrower.

 

Section 12.20
   WAIVER OF JURY TRIAL.
TO THE MAXIMUM EXTENT PERMITTED BY LAW, BORROWER AND LENDER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY OR ANY
EXERCISE BY ANY PARTY OF THEIR RESPECTIVE RIGHTS UNDER THE LOAN DOCUMENTS OR IN
ANY WAY RELATING TO THE LOAN OR THE PROJECTS (INCLUDING, WITHOUT LIMITATION,
ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIM OR DEFENSE ASSERTING
THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE).
THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER THIS AGREEMENT.

 

Section 12.21
   Punitive or
Consequential Damages; Waiver. Neither Lender nor Borrower shall
be responsible or liable to the other or to any other Person for any punitive,
exemplary or consequential damages which may be alleged as a result of the Loan
or the transaction contemplated hereby, including any breach or other default
by any party hereto. Borrower represents and warrants to Lender that as of the
Closing Date neither Borrower nor any Borrower Party has any claims against
Lender in connection with the Loan.

 

Section 12.22
   Governing Law.
Except as otherwise expressly provided in any of the other Loan Documents, in
all respects, including all matters of construction, validity and performance,
this Agreement, the other Loan Documents, and the obligations arising hereunder
and thereunder, are being executed and delivered, and are intended to be
performed, in the state of Utah and the laws of the state of Utah and of the
United States of America shall govern the rights and duties of the parties
hereto and the validity, construction, enforcement and interpretation of the
Loan Documents, without regard to the principals thereof regarding conflict of
laws. Lender and Borrower agree to submit to personal jurisdiction and to waive
any objection as to venue in the County of Salt Lake, State of Utah. Nothing
herein shall preclude Lender or Borrower from bringing suit or taking other
legal action in any other jurisdiction.

 

Section 12.23
   Entire Agreement.
This Agreement and the other Loan Documents embody the entire agreement and
understanding between Lender and Borrower and supersede all prior agreements
and understandings between such parties relating to the subject matter hereof
and thereof, including any commitment letter (if any) issued by Lender with
respect to the Loan. Accordingly, the Loan Documents may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements of the
parties. There are no unwritten oral agreements between the parties. If any
conflict or inconsistency exists between this Agreement and any of the other
Loan Documents, the terms of this Agreement shall control.

 

48

 

Section 12.24
   Counterparts.
This Agreement may be executed in multiple counterparts, each of which shall
constitute an original, but all of which shall constitute one document.

 

Section 12.25
   Agreements Regarding
Borrower and Subsidiaries.

 

(1)          Performance of Obligations. Borrower
and Lender acknowledge that (a) Borrower and ESP 7 have formed the
Subsidiaries for the purposes of owning and operating certain Projects, (b) the
Loan Documents contain many provisions relating to the Subsidiaries, the
ownership and operation of certain Projects and the determination of
Underwritten NOI, Net Cash Flow and net sales proceeds resulting from the
operation and/or sale of such Projects, and (c) Borrower and ESP 7
collectively hold directly all of the beneficial ownership interests in the
Subsidiaries and have total control of the Subsidiaries in all respects.
Therefore, for purposes of this Agreement and each of the other Loan Documents,
whether or not expressly stated herein or therein, whenever this Agreement or
any of the other Loan Documents imposes any obligation on Borrower with respect
to the Projects owned by the Subsidiaries (other than the Non-Borrower
Subsidiaries) that would typically be an obligation performed by the direct
owner of the Projects: (i) Borrower shall be obligated to perform such
obligation itself, or to cause the applicable Subsidiary to perform such
obligation on behalf of Borrower; and (ii) Borrower’s failure to perform
any such obligation itself, or to cause the applicable Subsidiary to perform
such obligation on behalf of Borrower, shall be deemed a default by Borrower
hereunder. In addition, for purposes of all representations and warranties of
Borrower under the Loan Documents, all knowledge of the Subsidiaries shall be
attributed to Borrower. Even though particular covenants, obligations or
representations and warranties set forth in this Agreement or any of the other
Loan Documents may refer to Borrower only, all such references shall deemed
subject to the foregoing rules of construction and any default in the
performance of any such covenant or obligation, and any breach of any such
representation and warranty, shall be deemed a default of Borrower hereunder.

 

(2)          Loan Advances and Payments By Lender.
All advances of Loan proceeds may be made by Lender (at Lender’s option) to
Borrower or directly to one or more Subsidiaries, and all such advances to (i) Subsidiaries
other than Non-Borrower Subsidiaries shall be deemed to have been made by
Lender to Borrower and thereupon contributed by Borrower to the capital of such
Subsidiaries and (ii) Non-Borrower Subsidiaries shall be deemed to have
been made by Lender to Borrower and thereupon distributed by Borrower to ESP 7,
and thereupon contributed by ESP 7 to the capital of such Subsidiaries.
Further, any reserve funds or other amounts that are disbursed by Lender to a
Subsidiary under this Agreement or any of the other Loan Documents shall be
deemed to have been disbursed to Borrower. Lender’s advance of any Loan funds
or disbursement of any reserve funds or other amounts to or for the benefit or
account of any Subsidiary shall constitute a complete discharge of Lender’s
obligations to Borrower under the Loan Documents with respect to such sums; and
the Subsidiaries and Borrower shall look solely to each other for the proper
distribution of any such sums among themselves. Lender shall have no
responsibility or liability whatsoever for the proper distribution of any such
sums between Borrower and the Subsidiaries.

 

49

 

(3)          Communications. All notices,
instructions and other communications of any nature (a) that are given to
Lender by any Subsidiary shall be deemed to have been given by Borrower (and
Borrower hereby appoints each Subsidiary to act as its agent for such purpose),
and (b) that are given to a Subsidiary by Lender shall be deemed to have
been given to Borrower.

 

ARTICLE 13

 

LIMITATIONS ON LIABILITY

 

Section 13.1    Limitation on Liability.

 

(1)          Except
as provided below in this Section 13.1, Borrower shall not be personally
liable for amounts due under the Loan Documents.

 

(2)          Borrower
shall be personally liable to Lender for any deficiency, loss or damage
suffered by Lender because of: (a) Borrower’s commission of a criminal
act, (b) the failure by Borrower or any Borrower Party to apply any funds
derived from any Project, including Operating Revenues, security deposits,
insurance proceeds and condemnation awards, as required by the Loan Documents; (c) the
fraud or misrepresentation by Borrower or any Borrower Party made in or in
connection with the Loan Documents or the Loan; (d) Borrower’s, ESP 7’s or
any Subsidiary’s collection of rents more than one month in advance (except to
the extent permitted in Section 6.3) or entering into, modifying or
canceling leases, or receipt of monies by Borrower or any Borrower Party in
connection with the modification or cancellation of any leases, in violation of
this Agreement or any of the other Loan Documents; (e) Borrower’s, ESP 7’s
or any Subsidiary’s interference with Lender’s exercise of rights under the
Assignment of Rents and Leases; (f) Borrower’s, ESP 7’s or any Subsidiary’s
failure to turn over to Lender all tenant security deposits upon Lender’s
demand following an Event of Default; (g) Borrower’s failure to timely
renew any letter of credit issued in connection with the Loan; (h) Borrower’s,
ESP 7’s or any Subsidiary’s failure to maintain insurance as required by this
Agreement or to pay any taxes or assessments affecting any Project; (i) damage
or destruction to any Project caused by the negligent or intentional acts or
omissions of Borrower, ESP 7 any Subsidiary, its agents, employees, or
contractors; (j) Borrower’s, ESP 7’s or any Subsidiary’s failure to
perform its obligations with respect to environmental matters under Article 5;
(k) Borrower’s failure to pay for any loss, liability or expense incurred
by Lender arising out of any claim or allegation made by Borrower, ESP 7 or any
Subsidiary, their successors or assigns, or any creditor of Borrower, ESP 7 or
any Subsidiary, that this Agreement or the transactions contemplated by the
Loan Documents establish a joint venture, partnership or other similar
arrangement between Borrower, ESP 7 and/or any Subsidiary and Lender; (1) any
brokerage commission or finder’s fees claimed in connection with the
transactions contemplated by the Loan Documents; or (m) uninsured damage
to any Project resulting from acts of terrorism. Borrower also shall be
personally liable to Lender for any and all attorneys’ fees and expenses and
court costs incurred by Lender in enforcing this Section 13.1(2) or
otherwise incurred by Lender in connection with any of the foregoing

 

50

 

matters, regardless of
whether such matters are legal or equitable in nature or arise under tort or
contract law.

 

(3)          Notwithstanding
anything to the contrary contained in the Loan Documents, the limitation on
Borrower’s liability contained in Section 13.1(1) SHALL BECOME NULL
AND VOID and shall be of no further force and effect:

 

(a)    if any Transfer in violation of the Loan
Documents occurs;

 

(b)    if Borrower, ESP 7, any Subsidiary or any of
their respective members, partners or shareholders files a petition under the
United States Bankruptcy Code or similar state insolvency laws;

 

(c)    if Borrower, ESP 7 or any Subsidiary becomes
the subject of an involuntary proceeding under the United States Bankruptcy
Code or similar state insolvency laws, and either (i) Borrower, ESP 7, any
Subsidiary or any Affiliate of Borrower, ESP 7 or any Subsidiary conspired or
cooperated with one or more creditors of Borrower, ESP 7 or the applicable
Subsidiary to commence such involuntary proceeding, or (ii) Borrower, ESP
7 or the applicable Subsidiary fails to use commercially reasonable efforts to
obtain a dismissal of such involuntary proceeding; or

 

(d)    without limiting paragraphs (b) and (c) above,
upon the avoidance or any attempted avoidance or claim of avoidability by any
Subsidiary or any Affiliate of any Subsidiary (whether directly by such
Subsidiary or such Affiliate, as a debtor or as a debtor in possession), or by
a trustee in bankruptcy, an assignee for the benefit of creditors or a receiver
for any of them, whether brought directly by or on behalf of any Subsidiary’s
creditors, equity holders or estate in a state or federal bankruptcy or
insolvency proceeding or brought by any debtor, debtor in possession or trustee
in bankruptcy, assignee for the benefit of creditors or receiver for any
Subsidiary or any Affiliate of any Subsidiary or brought on behalf of any
Subsidiary or any Affiliate of any Subsidiary as a creditor of any other
Affiliate of any Subsidiary, or by any other Person, of (i) any transfer
to (or for the benefit of) Lender of an interest of any Subsidiary in property
(including the payment of money to Lender by any Subsidiary and the creation in
favor of Lender of a lien or any other encumbrance on property of any
Subsidiary pursuant to its Mortgage) or (ii) any obligation incurred by
any Subsidiary under its Mortgage, which avoidance or attempted avoidance is
brought pursuant to any state or federal fraudulent transfer, fraudulent
conveyance, debtor-creditor, or partnership or corporate powers/authority
statutory or common law, including Sections 544, 547 or 548 of Title 11 of the
United States Code (or such successor statutory provision as may provide for a
similar remedy) and the Uniform Fraudulent Transfer Act and the Uniform Fraudulent
Conveyance Act (as adopted by any applicable state).

 

51

 

(4)          The
limitation on Borrower’s personal liability in Section 13.1(1) shall
not modify, increase, diminish or discharge the personal liability of any
Joinder Party, except as otherwise expressly provided in the Joinder.

 

(5)          Nothing in
this Section 13.1 shall be deemed to be a waiver of any right which Lender
may have under Sections 506(a), 506(b), 1111(b) or any other provision of
the United States Bankruptcy Code, as such sections may be amended, or
corresponding or superseding sections of the Bankruptcy Amendments and Federal
Judgeship Act of 1984, to file a claim for the full amount due to Lender under
the Loan Documents or to require that all Collateral shall continue to secure
the amounts due under the Loan Documents.

 

Section 13.2    Limitation on Liability of Lender’s Officers, Employees, Etc. Any
obligation or liability whatsoever of Lender which may arise at any time under
this Agreement or any other Loan Document shall be satisfied, if at all, out of
the Lender’s assets only. No such obligation or liability shall be personally
binding upon, nor shall resort for the enforcement thereof be had to, the
property of any of Lender’s shareholders, directors, officers, employees or
agents, regardless of whether such obligation or liability is in the nature of
contract, tort or otherwise.

 

[Remainder of page intentionally
left blank.]

 

52

 

EXECUTED as of the date
first written above.

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  GENERAL ELECTRIC CAPITAL

  CORPORATION, a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ERIC VESSELE

  
	
   

  	
   

  	
  Name:

  	
  ERIC VESSELE

  
	
   

  	
   

  	
  Title:

  	
  RISK MANAGER

  

 

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  ESP
  SEVEN SUBSIDIARY LLC, a Delaware

  limited liability company

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Kent W Christensen

  
	
   

  	
   

  	
  Name: 

  	
  Kent W Christensen

  
	
   

  	
   

  	
  Title:

  	
  Manager

  

 

S-1Exhibit 10.39

 

SUBSCRIPTION
AGREEMENT

(Membership
Interests in Extra Space Development, LLC)

 

THIS SUBSCRIPTION
AGREEMENT (“Agreement”) is made this 31 day of December, 2007, by and among
Extra Space Development, LLC (“Company”), and Extra Space Storage LLC (“Subscriber”),
(the Company and the Subscriber are sometimes collectively referred to as “Parties.”)

 

WITNESSETH:

 

WHEREAS, the Company has
entered into six agreements with the Subscriber for the purchase and sale of
limited liability company interests, as identified in the attached Exhibit A (“Six
Sale Agreements”); and

 

WHEREAS, Subscriber
desires to acquire certain membership interests in the Company for the
consideration set forth herein; and

 

WHEREAS, the Parties
desire to enter into this Agreement to set forth with specificity and detail
the terms and conditions upon which the foregoing subscription and acquisition
of membership interests shall be accomplished.

 

NOW, THEREFORE, in
consideration of the mutual covenants and agreements contained herein, and
intending to be legally bound, the Parties hereto agree as follows:

 

1.             Sale of Membership
Interest. The Subscriber agrees to contribute, and the Company agrees to
accept from Subscriber, the sum of $356,718.90
as a capital contribution to Company in exchange for a membership
interest in the Company as described below.

 

2.             Admission/
Operating Agreement. Subscriber hereby consents to the Amended and Restated
Operating Agreement of the Company dated January 1, 2004 (“Operating Agreement”)
and agrees to be bound thereby, subject to the further Second Amended and
Restated Operating Agreement attached hereto as Exhibit B, which shall be
effective as of the Effective Date of this Agreement.

 

3.             Subscriber Review
of Disclosure Materials. Subscriber acknowledges that it has received no
representations or warranties from the Company, the Manager, Kenneth M. Woolley
or by any person acting on behalf of the Company, with respect to the proposed
business of the Company, or any other aspects or consequences of a purchase of
membership interests, and that Subscriber has not relied upon any information
concerning the Company, written or oral. Subscriber represents and warrants to
Company and Manager that it has had full access to Company records and has made
such inquiry regarding the Company and its business, as Subscriber deems
necessary.

 

4.             Subscriber
Representations and Warranties. The Subscriber further represents and
warrants to the Company as follows:

 

(a)           Economic Risk.
The Subscriber is aware that the membership interests are speculative
investments involving a high degree of risk.

 

(b)           Counsel.
Subscriber, its counsel, its advisors, and such other persons, with whom it has
found it necessary to consult, have sufficient knowledge and experience in
business and financial matters

 

1

 

to evaluate the Company, and the merits and risks of
the investment, and to make an informed investment decision with respect
thereto.

 

(c)           Examination. The
Company has made available to the Subscriber, its counsel and advisors, prior
to the date hereof, the opportunity to ask questions of, and to receive answers
from, the Company and its representatives, concerning the terms and conditions
of the investment, and access to obtain any information, documents, financial
statements, records and books (i) relative to the Company, the business, and an
investment in the Company, and (ii) necessary to verify the accuracy of any
information furnished to the Subscriber.

 

(d)           Transfer
Restrictions. The membership interests are subject to restrictions on
transferability and resale and may not be transferred or resold except as
permitted under the Operating Agreement, and applicable state and federal
securities laws, pursuant to registration or an exemption therefrom. Subscriber
should be aware that it might be required to bear the financial risks of this
investment for an indefinite period.

 

(e)           Correctness,
Remaking of Warranties. The foregoing representations and warranties are
true and correct as of the date hereof and each such representation and
warranty shall survive the purchase of membership interests.

 

5.             Company
Representations and Warranties: AS IS, WHERE IS. The Company represents and
warrants to the Subscriber as follows:

 

(a)           Company is a Utah
limited liability company, and duly formed, existing and in good standing in
the State of Utah

 

(b)           Company has adopted a
Plan of Dissolution in form attached as Exhibit C, which includes a plan for a
series of redemptions of the membership interests of all of the existing
members of the Company other than the Subscriber.

 

(c)           The Company, and its
members and managers, make no representations or warranties to the Subscriber
other than as specifically set forth herein. Otherwise, and in all respects, the
membership interest of the Company hereby subscribed for, and the
organizational documents of the Company, and the assets, liabilities, and
business of the Company are hereby approved by and conveyed to the Subscriber “AS
IS, WHERE IS” and without warranty of any kind.

 

6.             Miscellaneous.

 

(a)           Utah Law. This
Subscription Agreement shall be construed in accordance with and be governed by
the laws of the State of Utah. The parties hereto hereby agree to submit to the
jurisdiction of the state of federal courts in Utah to resolve all claims or
disputes arising under this Subscription Agreement.

 

(b)           Successors and
Assigns. This Subscription Agreement shall be binding upon and inure to the
benefit of the successors, heirs, assigns and personal representatives of all
parties; provided, however, that Subscriber may not assign its rights or
delegate his duties under this Subscription Agreement.

 

2

 

(c)           Effective Date.
This Subscription Agreement shall become Effective upon execution by all
parties named below.

 

(d)           Entire Agreement.
It is expressly understood that this Subscription Agreement and the documents
referred to herein constitute the entire agreement of the parties hereto with
respect to the subject matter hereof. All prior understandings or commitments
of any kind, oral or written, pertaining thereto are hereby superseded and
canceled.

 

(end of text)

 

3

 

IN WITNESS WHEREOF, the Parties to this Agreement have
duly executed it on the date and year first above written.

 

COMPANY:

 

Extra Space Development, LLC

 

 

	
  By:

  	
  /s/ Kenneth M. Woolley

  	
   

  
	
  Its: Manager

  

 

 

SUBSCRIBER:

 

Extra Space Storage LLC

 

 

	
  By:

  	
  /s/ Kent W. Christensen

  	
   

  
	
  Its: Manager

  

 

CONSENT TO
ADMISSION OF MEMBER

 

Pursuant to Article 3.06
of the Operating Agreement, the undersigned, representing greater than 50% of
the Membership Interests in the Company waive any rights of first refusal set
forth in the Operating Agreement and consent to the transaction described above
and the admission of Extra Space Storage LLC as a Member of the Company.

 

	
  MEMBERS:

  	
  KRISPEN FAMILY HOLDINGS, L.C., Member

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Kenneth M. Woolley

  	
   

  	
  By:

  	
  /s/ Spencer F. Kirk

  
	
  Kenneth M. Woolley, Member

  	
  Spencer F. Kirk

  
	
  Percentage Interest: 32.630%

  	
  Its: Manager

  
	
   

  	
  Percentage Interest: 20.195%

  
				

 

4

 

EXHIBIT A

 

SIX SALE
AGREEMENTS

 

1.    Agreement for Purchase and
Sale of Limited Liability Company Interest (Extra Space of Culver City LLC– ESS#
1160)

 

2.    Agreement for Purchase and
Sale of Limited Liability Company Interest (Extra Space of Middletown LLC– ESS#
1192)

 

3.    Agreement for Purchase and
Sale of Limited Liability Company Interest (Extra Space of Jamaica Plain– ESS#
1098)

 

4.    Agreement for Purchase and Sale
of Limited Liability Company Interest (Extra Space of Elk Grove LLC– ESS# 1166)

 

5.    Agreement for Purchase and
Sale of Limited Liability Company Interest (Extra Space of Extra Space West Two
LLC)

 

6.    Agreement for Purchase and
Sale of Limited Liability Company Interest (Storage Associates Holdco)

 

5

 

	
   

  	
   

  	
  LC# 029047

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RECEIVED

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLES
  OF ORGANIZATION

  	
  SEP
  22 1998

  
	
   

  	
   

  	
   

  
	
   

  	
  OF

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
  EXTRA
  SPACE DEVELOPMENT, LLC

  	
   

  

 

The
undersigned hereby form a limited liability company (the “Company”) — pursuant
to the Utah Limited Liability Company Act and adopt as the Articles of
Organization of such limited liability company the following:

 

1.             Name of the Company:

 

The
name of the  Company shall be “EXTRA
SPACE DEVELOPMENT, LLC”

 

2.             Period of its Duration:

 

The
duration of the Company shall be forty (40) years from the date of filing of these
Articles of Organization with the Division of Corporations & Commercial
Code of the State of Utah.

 

3.             Purposes of the Company.

 

The
purposes for which the Company is organized are to develop, finance, lease,
construct, own, operate, maintain and sell real and personal property of all  types, and other related business within
the State of Utah. In addition, the Company shall have unlimited power to
engage in and do any lawful act concerning any or all lawful businesses for
which limited liability companies may be organized according to the laws of the
State of Utah, including all powers and purposes now and hereafter permitted by
law to a limited liability company.

 

4.             Principal Place of Business and Registered
Agent.

 

The
address of the principal place of business of the Company is as follows:

 

	
   

  	
  Extra Space Development,
  LLC

  
	
   

  	
  488 East Winchester, Suite
  150 

  
	
   

  	
  Salt Lake City, UT 84107

  

 

The
name and address of the agent for service of process is:

 

	
   

  	
  Kenneth M.Woolley

  
	
   

  	
  488 East Winchester, Suite
  150

  
	
   

  	
  Salt Lake City, UT 84107

  

 

 

However,
if the agent appointed therein cannot be found or served with the exercise of
reasonable diligence, or if said agent’s authority has been revoked, then the
Utah Division of Corporations & Commercial Code is appointed as the agent
of the company for service of process.

 

5.             Management.

 

The
Company is to be managed by a manager. The name and address of the manager who
is to serve until its successors are elected and qualify is:

 

	
   

  	
  Kenneth M. Woolley

  
	
   

  	
  488 East Winchester, Suite
  150

  
	
   

  	
  Salt Lake City, UT 84107

  

 

6.             Operations.

 

The
Company shall be governed by a written Operating Agreement, the terms of which
shall supplement the provisions of Utah law.

 

DATED:
September 17, 1998.

 

 

	
   

  	
  /s/ KENNETH M. WOOLLEY

  	
   

  
	
   

  	
  KENNETH M. WOOLLEY,
  Manager

  

 

 

ACCEPTANCE BY REGISTERED
AGENT:

 

	
  /s/ Kenneth M. Woolley

  	
   

  
	
  Kenneth M. Woolley

  

 

2

 

	
   

  	
  LL 029047

  
	
   

  	
  Nov 29 1999

  

 

 

ARTICLES OF
AMENDMENT

TO THE

ARTICLES OF ORGANIZATION

OF

EXTRA SPACE DEVELOPMENT, LLC

 

THE UNDERSIGNED, pursuant
to the Utah Limited Liability Company Act, hereby adopts these Articles of
Amendment to the Articles of Organization for Extra Space Development, LLC (the
“Company”), and certifies that:

 

	
   

  	
  FIRST:

  	
  The name of the Company is Extra Space Development, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  SECOND:

  	
  The date of registration of the Company with the
  Utah Division of Corporations and Commercial Code was September 22, 1998.

  
	
   

  	
   

  	
   

  
	
   

  	
  THIRD:

  	
  The Articles of Organization are hereby amended by
  replacing the initial Period of Duration in Article 2 with the following new
  Period of Duration:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  The duration of the Company shall be sixty (60)
  years from the date of filing of the Articles of Organization with the
  Division of Corporations and Commercial Code of the State of Utah.

  
	
   

  	
   

  	
   

  
	
   

  	
  FOURTH:

  	
  Except as amended by this Certificate, the Articles
  of Organization shall remain unchanged.

  

 

IN WITNESS WHEREOF, this
Certificate of Amendment was executed on the date given below by the
undersigned member/manager of the Company, who is duly authorized to execute
and file this Certificate of Amendment and to affirm, under penalties of
perjury, that the facts stated in this Certificate of Amendment are true.

 

DATED this 16th
day of November, 1999.

 

 

	
   

  	
  /s/ Kenneth M.Woolley

  	
   

  
	
   

  	
  Kenneth M.Woolley

  
	
   

  	
  Member/Manager

  

 

3

 

 

CERTIFICATE OF GOOD STANDING

FOREIGN LIMITED LIABILITY COMPANY

 

I, KEVIN SHELLEY,
Secretary of State of the State of California, hereby certify:

 

That on the 18th day of
November, 1998, EXTRA SPACE DEVELOPMENT, LLC, complied with the requirements of
California law in effect on that date for the purpose of registering to
transact intrastate business in the State of California; and further purports
to be a limited liability company organized and existing under the laws of Utah
as EXTRA SPACE DEVELOPMENT, LLC, and;

 

That the above limited
liability company is entitled to transact intrastate business in the State of
California as of the date of this certificate subject, however, to any
licensing requirements otherwise imposed by the laws of this state; and

 

That no information is
available in this office on the financial condition, business activity or
practices of this limited liability company.

 

 

	
  

  	
   

  	
  IN WITNESS WHEREOF, I execute this certificate and
  affix the Great Seal of the State of California this day of April 8, 2004.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ KEVIN SHELLEY

  
	
   

  	
  KEVIN SHELLEY

  Secretary of State

  
	
   

  	
   

  
	
   

  	
   

  

 

4

 

AMENDED AND RESTATED OPERATING AGREEMENT

FOR

EXTRA SPACE DEVELOPMENT, LLC

 

THIS AMENDED AND RESTATED
OPERATING AGREEMENT FOR EXTRA SPACE DEVELOPMENT, LLC (the “Agreement”) is made
and entered effective as of the 1st day of January, 2004, by,
between, and among the Members and the Manager(s) of the Company, as such terms
are defined below.

 

RECITALS

 

a.             The Articles of
Organization for Extra Space Development, LLC (hereinafter the “Articles of
Organization”) were filed with the Division on September 22, 1998. Extra Space Storage
LLC, a Delaware limited liability company, was the sole member of the Company.

 

b.             Pursuant to that
certain Plan of Reorganization (Extra Space Development, LLC) dated effective
as of the same date as this Agreement between Extra Space Storage LLC, the Company,
and the Members, the Extra Space Storage LLC has distributed all of the
membership interests in the Company to the Members.

 

c              The Members have
each reviewed this Agreement, in its entirety, and desire to cause the same to
be adopted as and for the operating agreement of the Company, in accordance
with the Act.

 

AGREEMENT:

 

Pursuant to the Act, and
all other pertinent laws of the State of Utah and its political subdivisions,
and in exchange for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the undersigned Members mutually
agree and covenant as follows:

 

ARTICLE 1:
ORGANIZATION

 

1.01         Adoption of Operating
Agreement. The Members hereby unanimously adopt this Agreement as the
Operating Agreement for the Company pursuant to the provisions of the Act.

 

1.02         Name.  The name of the Company shall be EXTRA SPACE
DEVELOPMENT, LLC

 

1.03         Commencement of Business.
The existence of the Company commence as of the date of filing of the Company’s
Articles of Organization with the Division and shall continue thereafter until
terminated as provided herein. For purposes of this Section 1.03, the Articles
of Organization of the Company shall be deemed filed with the Division on the
date indicated by the Division as part of its stamp or seal on the original
Articles of Organization which are filed with the office of the Division.

 

1

 

1.04         Registered Office,
Registered Agent, Designated Office. The Company shall continuously
maintain a registered office and registered agent in the State of Utah as
required by the Act. The registered agent of the Company in the State of Utah
is Kenneth M. Woolley, and the registered office of the Company in the State of
Utah is 2795 E. Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121. The
designated office of the Company in the State of Utah for purposes of Section
48-2c-l11 of the Act shall be 2795  E. Cottonwood Parkway, Suite 400,
Salt Lake City, Utah 84121. The Company may designate or maintain any
registered agent, registered office or other office in any jurisdiction whether
or not required by law, and any such designation heretofore made is hereby
ratified and approved. The registered office, registered agent and designated
office of the Company may be changed at any time and from time to time by the
Manager(s).

 

1.05         Purposes. The
principal business purposes for which the Company is organized are to acquire,
own, develop, mortgage, encumber, hypothecate, lease, sell, maintain, improve,
alter, remodel, expand, manage, and otherwise operate and deal with real and
personal property from time to time acquired by the Company and for any other
lawful purpose for which a limited liability company may be organized under the
laws of the State of Utah.

 

1.06         No Liability of
Managers, Members, Organizers, Officers and Employees. Except as otherwise
agreed by such Organizer, Member, Manager officer or employee, no Organizer,
Member, Manager, officer or employee of the Company is or shall be personally
liable under a judgment, decree, or order of a court, or in any other manner,
for a debt, obligation, or liability of the Company or for the acts or
omissions of the Company or any other Organizer, Member, Manager, officer or
employee of the Company. The failure of the Company to maintain records, to
hold meetings, or to observe any formalities or requirements imposed by the Act
or by the Articles of Organization or this Agreement is not a ground for
imposing personal liability on any Member, Manager, Officer or employee of the
Company for any debt, obligation or liability of the Company.

 

1.07         Title to Property.
All real and personal property owned by the Company shall be owned by the
Company as an entity and no Member shall have any ownership interest in such
property in its individual name or right, and each Member’s interest in the
Company shall be personal property for all purposes. Except as otherwise
provided in this Agreement, the Company shall hold all of its real and personal
property in the name of the Company and not in the name of any Member.

 

1.08         Payments of Individual
Obligations. The Company’s credit and assets shall be used solely for the
benefit of the Company, and no asset of the Company shall be transferred or
encumbered for or in payment of any individual obligation of a Member.

 

1.09         Independent
Activities: Transactions With Affiliates.

 

(a)           Each Member and Manager
and any of their respective Affiliates shall be required to devote only such
time to the affairs of the Company as such Member or Manager determines in its
sole discretion may be necessary, and each Affiliate of a Member or Manager, to
the extent not otherwise directed by the Member or Manager, shall be free to
serve any other Person or enterprise in any capacity that it may deem
appropriate in its discretion.

 

2

 

(b)           Insofar as permitted by  applicable
law, any Member, Manager and their respective Affiliates may, notwithstanding
this Agreement, engage in whatever activities they choose, whether the same are
competitive with the Company or otherwise, without having or incurring any
obligation to offer any interest in such activities to the Company or any
Member, and neither this Agreement nor any activity undertaken pursuant hereto
shall prevent any Member, Manager or Affiliate of any of them from engaging in
such activities, or require any Member or Manager to permit the Company or any
Member, Manager or Affiliate of any of them to participate in any such
activities, and as a material part of the consideration for the execution of
this Agreement by each Member, each Member hereby waives, relinquishes, and
renounces any such right or claim of participation. This provision shall not be
construed to be in derogation of any obligation which any Person may have to
the Company arising out of such Person’s employment by, or position as an
officer of the Company, or any contract or agreement such Person may have with
the Company.

 

(c)           To the extent permitted
by applicable law and except as otherwise provided in this Agreement, the
Company is hereby authorized to purchase property from, sell property to, or
otherwise deal with any Member or Manager, acting on its own behalf, or any
Affiliate of any Member or Manager, provided that any such purchase, sale, or
other transaction shall be made on terms and conditions which are no less
favorable to the Company than if the sale, purchase, or other transaction had
been entered into with an independent third party.

 

ARTICLE 2:
DEFINITIONS

 

2.01         Definitions.  The
terms used in this Agreement shall have the following meanings:

 

(a)           Act means the
Utah Revised Limited Liability Company Act, Title 48, Chapter 2c, Utah Code
Annotated.

 

(b)           Adverse Act
means, with respect to any Member, any of the following:

 

(1)           A Transfer of all or
any portion of such Member’s interest in the Company except as expressly
permitted or required by this Agreement;

 

(2)           Transfer of all or any
portion of any Person’s interest in any Member except as expressly permitted or
required by this Agreement;

 

(3)           An attempt by such
Member to withdraw from the Company or dissolve the Company or take any action
in breach of Section 11.02 hereof;

 

(4)           Any termination,
dissolution or liquidation of a corporation, limited liability company, or
partnership which is a Member, or the taking of any action by its directors,
majority shareholders or general partners looking to the termination,
dissolution or liquidation of such Member, unless substantially all assets of
such Member are transferred, or are to be transferred, to a Wholly Owned
Affiliate of such Member;

 

3

 

(5)           The Bankruptcy of such
Member or the occurrence of any other event which would permit a trustee or
receiver to acquire control of the affairs or assets of such Member;

 

(6)           A determination by the
Third Judicial District Court of Salt Lake County, State of Utah, or any other
court having jurisdiction over the Company and the Members, that such Member
has taken an action, or has failed to take an action within the scope of his
duties hereunder, that results, or can reasonably be expected to result in,
such Member becoming liable to indemnify the Company for a material sum
pursuant to any provision of this Agreement or that would justify a decree of
dissolution of the Company under the Act; or

 

(7)           In the case of a Member
who is a natural person, his or her death or the entry of an order by a court
of competent jurisdiction adjudicating him or her incompetent to manage his or
her person or his or her estate.

 

(c)           Adverse Member
means any Member with respect to whom an Adverse Act pursuant to Section
2.01(b) has occurred.

 

(d)           Affiliate means,
with respect to any Person, (i) any other Person directly or indirectly
controlling, controlled by or under common control with such Person, (ii) any
other Person owning or controlling interests in such Person possessing the
right to cast ten percent (10%) or more of the total votes entitled to be cast
for the  election of management of
such Person or to be cast with respect to management decisions of such Person,
(iii) any officer, director, manager, or general partner of such Person, or
(iv) any other Person who is an Affiliate of any other Person described in
clauses (i) through (iii) of this sentence. For purposes of this definition,
the term “controls,” “is controlled by,” or “is under common control with”
shall mean the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person or entity, whether
through the ownership of voting securities, by contract or otherwise.

 

(e)           Aggregate Buy-Sell
Price has the meaning set forth in Section 10.03 hereof.

 

(f)            Appraisers’ Notice
has the meaning set forth in Section 9.06 hereof.

 

(g)           Articles of
Organization means the Articles of Organization of the Company as filed
with the Division.

 

(h)           Bankruptcy
means, with respect to any Person, a “Voluntary Bankruptcy” or an “Involuntary
Bankruptcy.” A “Voluntary Bankruptcy” means, with respect to any Person, the
filing of any petition or answer by such Person seeking to adjudicate it a
bankrupt or insolvent, or seeking for itself any liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
such Person or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking, consenting to, or acquiescing
in the entry of an order for relief or the appointment of a receiver, trustee,
custodian, or other similar official for such Person or for any substantial

 

4

 

part of its property; or corporate action taken by  such Person to authorize any of the
actions set forth above. An “Involuntary Bankruptcy” means, with respect to any
Person, without the consent or acquiescence of such Person, the entering of an
order for relief or approving a petition for relief or reorganization or any other
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or other similar relief under any present or future
bankruptcy, insolvency or similar statute, law or regulation, or the filing of
any such petition against such Person which petition shall not be dismissed
within ninety (90) days, or, without the consent or acquiescence of such
Person, the entering of an order appointing a trustee, custodian, receiver or
liquidator of such Person or of all or any substantial part of the property of
such Person which order shall not be dismissed within sixty (60) days.

 

(i)            Business Day
means any day  other than a
Saturday or Sunday on which banks are not required or authorized to close in
the state of Utah.

 

(j)            Capital Account
means the Capital Account of each Member as described in Section 4.01 below.

 

(k)           Capital
Contributions means collectively all contributions of cash or other
Property to the Company.

 

(l)            Code means the
Internal Revenue Code of 1986, as amended.

 

(m)          Division means the  Division of Corporations and Commercial
Code of the Department of Commerce, State of Utah.

 

(n)           Election Day has
the meaning set forth in Section 10.02 hereof.

 

(o)           Election Period
has the meaning set forth in Section 10.02 hereof.

 

(p)           First Appraiser
has the meaning set forth in Section 10.05 hereof.

 

(q)           Fiscal Year
means (i) the period commencing on the effective date of this Agreement and
ending on December 31, next following (ii) any subsequent twelve (12) month
period commencing on January 1 and ending on December 31, or (iii) any portion
of the period described in clause (ii) for which the Company is required to
allocate Profits, Losses and other items of Company income, gain, loss or
deduction pursuant to ARTICLE 4 hereof.

 

(r)            Interest or Member’s
Interest means an individual Member’s share of the Company capital, assets,
profits, surplus or losses, and all rights of a Member of a limited liability
company under the Act and all rights of a Member of the Company under this Agreement.

 

(s)           Involuntary Bankruptcy
has the meaning set forth in Section 2.01(b) hereof.

 

(t)            Liquidating Event
has the meaning set forth in Section 11.03 hereof.

 

5

 

(u)           Manager(s) shall
have the meaning set forth in Section 6.01 below.

 

(v)           Member or Members
means the persons named in ARTICLE 3 below, and such other Members as may be
admitted from time to time in accordance with this Agreement, but shall not
mean the husband, wife, child or parent of any Member unless such husband,
wife, child or parent is expressly named herein as a Member.

 

(w)          Net Cash From
Operations means the gross cash proceeds from Company operations less the
portion thereof used to pay, or establish reserves for, all Company expenses (including
without limitation, operating expenses, development expenses, debt payments,
capital improvements, replacements, and contingencies), all as determined by
the Manager(s). Net Cash From Operations does not include Net Cash From Sales
or Net Cash From Refinancings. Net Cash From Operations shall not be reduced by
depreciation, amortization, cost recovery deductions, or similar allowances,
but shall be increased by any reductions of reserves previously established
pursuant to the first sentence of this Section 2.01(w) and Sections 2.01(x) and
2.01(y).

 

(x)            Net Cash From
Refinancings means the net cash proceeds from any initial financing and all
refinancings of Property, less any portion thereof used to establish reserves,
all as determined by the Manager(s).

 

(y)           Net Cash From Sales
means the net cash proceeds from all sales and other dispositions of Property,
less any portion thereof used to establish reserves, all as determined by the
Manager(s). Net Cash From Sales shall include all principal and interest
payments with respect to any note or other obligation received by the Company
in connection with the sale or other disposition of Property.

 

(z)            Net Equity has
the meaning set forth in Section 10.04 hereof.

 

(aa)         Percentage Interest
means the Percentage Interest in the Company of each Member as set forth in
Section 3.01 below.

 

(bb)         Person means any
individual, partnership, limited liability company, corporation, trust, or
other entity.

 

(cc)         Profits and Losses
means the net profits or losses of the Company for federal income tax purposes
as determined by the accountants employed by the Company; provided, however,
that in the event the profits or losses of the Company are later adjusted in
any manner, as the result of an audit by the Internal Revenue Service, or
otherwise, then the net profits or losses of the Company shall be adjusted to
the same extent.

 

(dd)         Property means all
real and personal property acquired by the Company and any improvements
thereto, and shall include both tangible and intangible property.

 

(ee)         Purchase Notice
has the meaning set forth in Section 10.02 hereof.

 

6

 

(ff)           Regulations
means the Income Tax Regulations, including Temporary Regulations, promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

 

(gg)         Second Appraiser
has the meaning set forth in Section 10.05 hereof.

 

(hh)         Third Appraiser
has the meaning set  forth in Section 10.05 hereof.

 

(ii)           Transfer means,
as a noun, any voluntary or involuntary transfer, sale, or other disposition
and, as a verb, voluntarily or involuntarily to transfer, sell, or otherwise
dispose of.

 

(jj)           Voluntary Bankruptcy
has the meaning set forth in Section 2.01(h) hereof.

 

(kk)         Wholly Owned Affiliate
of any Person shall mean (i) an Affiliate of such Person one hundred percent
(100%) of the voting stock or beneficial ownership of which is owned directly
by such Person, or by any Person who, directly or indirectly, owns one hundred
percent (100%) of the voting stock or beneficial ownership of such Person, (ii)
an Affiliate of such Person who, directly or indirectly, owns one hundred
percent (100%) of the voting stock or beneficial ownership of such Person, and
(iii) any Wholly Owned Affiliate of any Affiliate described in clause (i) or
clause (ii) of this Section 2.01(kk).

 

ARTICLE 3: MEMBERS
OF THE COMPANY

 

3.01         Members. The
names, addresses and Percentage Interests of the  Members of the Company are set forth on 

Exhibit A attached hereto and by this reference made a part hereof. The Members
agree that the Members interests in the capital, Profits, Losses and other
items of Company income, gain, loss or deduction, and distributions from the
Company shall be in accordance with their respective Percentage Interests.

 

3.02         Classes of Members.
There shall be one class of Members. There shall be no distinction between the
rights and liabilities of Members.

 

3.03         Additional Capital
Contributions. From time to time, upon written consent of the Members
holding more than fifty percent (50%) of the Percentage Interests, each of the
Members may contribute additional cash and other properties into the Company
upon such terms as are approved by Members holding more than fifty percent
(50%) of the Percentage Interests. Such contributions shall constitute
additional Capital Contributions.

 

3.04         Withdrawal of Capital
Contributions. Except as otherwise expressly provided in this Agreement:

 

(a)           only after the
dissolution and winding-up of the Company may any of the Capital Contributions
be withdrawn;

 

(b)           no Member shall have
priority over any other Member, either as to the return of Capital
Contributions or as to Profits, Losses, or distributions;

 

7

 

(c)           no Member shall be
personally liable to any other Member for the return of any part of the Members’
Capital Contributions; and

 

(d)           Capital Contributions
shall not bear interest.

 

3.05         Member’s Compensation.
Except as otherwise approved by the Members or provided in this Agreement, no
Member shall receive any interest, salary, or drawing with respect to Capital
Contributions or for services rendered on behalf of the Company or otherwise in
the capacity as Member. The Members agree that the Manager(s) may receive such
salaries and other compensation as are approved from time to time by the
Members.

 

3.06         Admission of New
Members. Except as otherwise provided in this Section 3.06 and ARTICLE 9
hereof, relating to Transfers of Company interests, no Person shall be admitted
to the Company as a Member without the consent of Members holding more than
fifty percent (50%) of the aggregate Percentage interests of all Members. With
the approval of Members holding more than fifty percent (50%) of the Percentage
Interests, the Manager(s) may admit one or more Persons as new Members of the
Company upon such terms as are approved by Members holding more than fifty
percent (50%) of the Percentage Interests.

 

ARTICLE 4: CAPITAL
ACCOUNTS; ALLOCATIONS OF PROFITS AND LOSSES

 

4.01         Capital Accounts.
A separate Capital Account shall be maintained for each Member. Each Member’s
Capital Account shall be credited with each Member’s share of the capital of
the Company. Each Member’s Capital Account shall be increased by the additional
Capital Contributions made by such Member and by such Member’s share of gains
and profits of the Company as allocated under Section 4.01 below. Such account
shall be decreased by any distributions to such Member under Sections 5.01 and,
and by such Member’s share of losses and deductions of the Company as allocated
under Section 4.01 below. Solely for accounting purposes among the Members, a
Member may have a minus or debit balance in his or her Capital Account, but any
such minus or debit balance shall not represent a liability of such Member to
the  Company and no Member shall
have any obligation to restore a negative balance in such Member’s Capital
Account.

 

4.02         Allocation of Profits
and Losses. The Profits and Losses of the Company shall be allocated to the
Members in accordance with their Percentage Interests; provided, however, that
if a Member has contributed appreciated property to the Company in kind, and
the property is later transferred by the Company (including but not limited to
sales or distributions in kind to Members other than the contributing Member),
to the extent required by Section 704(c) of the Code, income, gain, loss or
other deductions, other than depreciation, shall be allocated to the
contributing Member.

 

ARTICLE 5:
DISTRIBUTIONS

 

5.01         Distributions of Net
Cash From Operations. Net Cash From Sales. and Net Cash From Refinancings.
Net Cash from Operations, Net Cash from Sales, and Net Cash from Refinancings
shall be distributed, at such times as the Manager(s) may determine, to the
Members in accordance with the respective Percentage Interests.

 

8

 

5.02         Reinvestment of Net
Cash From Operations and Net Cash From Sales and Net Cash From Refinancings.
The Manager(s) may, from time to time, reinvest all or any portion of Net Cash
From Operations and Net Cash From Sales and Net Cash From Refinancings.

 

5.03         Distribution in Kind.
Distributions of property other than cash shall be apportioned among the
members on the same basis as would be a distribution of Net Cash From Sales in
the amount of the fair market value of the distributed property as of the date
of distribution, with the same effect on the apportionment of the distribution
and all future distributions of cash or other property as a distribution of
cash in such amount.

 

ARTICLE 6:
MANAGEMENT

 

6.01         Management. The
business, operations and properties of the Company shall be managed by the
Manager(s). The initial Manager(s) shall be Kenneth M. Woolley. Kenneth M.
Woolley shall serve as Manager(s) of the Company until the dissolution of the
Company, as hereinafter provided, or until otherwise replaced as set forth in
this Agreement. The Manager(s) can be replaced upon a vote of the Members at a
regular meeting of the Members or special meeting of the Members called for
that purpose. If the Manager(s) should fail or cease to serve then a
replacement Manager(s) shall be elected by a vote of the Members at a regular
or special meeting of the Members, called for that purpose. At any time when
more than one Manager is serving, every action, determination, vote, consent,
or approval of the Manager(s) shall require the unanimous consent of the
Manager(s). If the Manager(s) cannot agree upon any particular matter, such
matter shall be determined by the Members.

 

6.02         General Powers of
Manager(s). The Manager(s) shall be solely responsible for the management
of the Company’s business and activities with all rights and powers generally
conferred by law or necessary, advisable or consistent in connection therewith.
In the event that the Manager(s) are unable to agree upon any matter calling
for the vote, consent, approval, action, or determination of the Manager(s),
the matter shall be determined by the Members. Except as expressly provided
otherwise in this Agreement, no Member, in the capacity of a Member, shall have
any right to participate in the management of the Company or to vote with
respect to any matter to be determined by the Members of the Company.

 

6.03         Specific Powers of the
Manager(s). In addition to any other rights and powers which a manager may
possess, the Manager(s) shall have all specific rights and powers required or
appropriate to his management of the Company business, conferred by this
Agreement, by the Act or otherwise, including by way of illustration and not by
way of limitation the following:

 

(a)           To acquire, hold and
dispose of any real or personal property, interest therein, or appurtenance
thereto, as well as personal or mixed property connected with any real
property, including the purchase, lease development, improvement, maintenance,
exchange, trade or sale of such properties, at such price, rental or amounts,
for cash, securities or other property, and upon such terms, as are deemed by
such Manager(s) to be in the best interest of the Company;

 

9

 

(b)           To authorize any entity
in which the Company holds an interest to acquire, hold and dispose of any real
or personal property, interest therein, or appurtenance thereto, as well as
personal or mixed property connected with any real property, including the
purchase, lease development, improvement, maintenance, exchange, trade or sale
of such properties, at such price, rental or amounts, for cash, securities or
other property, and upon such terms, as are deemed by such 

Manager(s) to be in the best interest of the Company;

 

(c)           To borrow money and, if
security is required therefore, to mortgage or lien any portion of the property
of the Company, to obtain replacements of any mortgage or other security
device, and to prepay, in whole or in part, refinance, increase, modify,
consolidate, or extend any mortgage or other security device, all of the
foregoing at such terms and in such amounts as are deemed by such Manager(s) to
be in the best interest of the Company;

 

(d)           To authorize any entity
in which the Company owns an interest to borrow money and, if security is
required therefore, to authorize such entity to mortgage or lien any portion of
the property of such entity, to obtain replacements of any mortgage or other
security device, and to prepay, in whole or in part, refinance, increase,
modify, consolidate, or extend any mortgage or other security device, all of
the foregoing at such terms and in such amounts as are deemed by such 

Manager(s) to be in the best interest of the Company;

 

(e)           To place record title
to, or the right to use, Company assets in the name or names of a nominee or
nominees for any purpose convenient or beneficial to the Company;

 

(f)            To acquire and enter
into any contract or insurance which the Company deems necessary and proper for
the protection of the Company, for the conservation of its assets, or for any
purpose convenient, or beneficial to the Company;

 

(g)           To employ from time to
time persons, firms or corporations for the operation and management of the
Company business, including but not limited to, supervisory and managing
agents, brokers, attorneys, accountants and other professionals, on such terms
and for such compensation as the Manager(s) shall determine;

 

(h)           To pay any and all
organizational expenses incurred in the creation of the Company;

 

(i)            To compromise,
arbitrate, or otherwise adjust claims in favor of or against the Company and to
commence or defend litigation with respect to the Company or any assets of the
Company as the Manager(s) may deem advisable, all or any of the above matters
being at the expense of the Company;

 

(j)            To borrow money from
banks, other lending institutions, and other lenders for any Company purpose
including the maintenance of a margin account with any securities broker
(except as specifically prohibited by this Agreement), and in connection
therewith issue notes, debentures and other debt securities and hypothecate the
assets of the Company to secure repayment of borrowed sums; and no bank, other
lending institution, or other lender to which application is made for loan by
the Manager(s) shall be required to inquire as to the

 

10

 

purposes for which such loan
is sought, and as between this Company and such bank, other lending
institution, or other lender, it shall be conclusively presumed that the
proceeds of such loan are to be and will be used for the purposes authorized
under this Agreement;

 

(k)           To authorize any entity
in which the Company holds an interest to borrow money from banks, other
lending institutions, and other lenders for any purpose of such entity
including the maintenance of a margin account with any securities broker
(except as specifically prohibited by this Agreement), and in connection
therewith issue notes, debentures and other debt securities and hypothecate the
assets of such entity to secure repayment of borrowed sums; and no bank, other
lending institution, or other lender to which application is made for loan by
such entity, as authorized by the Manager(s), shall be required to inquire as
to the purposes for which such loan is sought, and as between this Company and
such bank, other lending institution, or other lender, it shall be conclusively
presumed that the proceeds of such loan are to be and will be used for the
purposes authorized under this Agreement;

 

(l)            To maintain, at the
expense of the Company, accurate records and accounts of all operations and
expenditures and furnish the Members with annual statements of account as of
the end of each Company Fiscal Year, together with tax reporting information,
and quarterly reports on the operations of the Company;

 

(m)          To purchase, at the
expense of the Company, liability and other insurance to protect the Company’s
properties and business and to protect the Manager(s), his or her agents and
employees, and the Members;

 

(n)           To execute instruments,
enter into agreements and contracts with parties, and give receipts, releases
and discharges with respect to all of the foregoing matters set forth in
subsections 6.03(a) through 6.03(m) above, and any matters incident thereto as
the Manager(s) may deem advisable or appropriate;

 

(o)           To make certain
elections under the tax laws of the United States, the State of Utah, and other
relevant jurisdictions as to the treatment of items of Company income, gain,
loss, deduction and credit, and as to all other relevant matters (including
without limitation elections under Section 754 of the Code as the Manager(s)
believes necessary or desirable.

 

6.04         Limitations on Manager(s).
Notwithstanding anything in this Agreement to the contrary, without the consent
of the Members, the Manager(s) shall have no authority to:

 

(a)           Do any act in
contravention of this Agreement;

 

(b)           Do any act which would
make it impossible to carry on the ordinary business of the Company;

 

(c)           Confess a judgment
against the Company;

 

(d)           Possess Company
property or assign the rights of the Company in specific Company property for
other than a Company purpose; or

 

11

 

(e)                                  Admit a Person as a Member, except as
otherwise provided in this Agreement.

 

6.05                           Manager(s)’ Time. Each Manager shall devote such of his
time to the business of the Company as he or she may, in his or her sole
discretion, deem to be necessary to conduct the Company’s business. No Manager
shall be required to devote his or her full time to the Company’s business. The
Manager(s) shall be entitled to such compensation for their services as
may be approved, from time to time, by the Members.

 

6.06                           Reimbursement. Each Manager shall be reimbursed for
all out-of-pocket expenses incurred in organizing the Company, including all
legal and accounting fees incurred. Thereafter the Manager shall be reimbursed
for all goods and materials used for or by the Company. All expenses of the
Company shall be billed directly to and paid by the Company. The Manager(s) shall
be reimbursed for any administrative expenses including salaries, rent, travel
expenses, and other items generally within the purview of furthering the Company
business.

 

6.07                           Exculpation. The Manager(s) shall not be liable
to the Company or to any of its Members for honest mistakes of judgment or for
losses due to such mistakes or to the negligence, dishonesty or bad faith of
any employee or agent of the Company; provided that such employee or agent was
selected, engaged or retained by the Manager(s) as authorized by the
Company with reasonable care. The Manager(s) may rely upon the advice of
legal counsel to the Company in determining what acts or omissions are within
the scope of authority conferred by this Agreement. The Company shall indemnify
and hold harmless each Manager and his or her agents from and against any loss,
expense, damage or injury suffered or sustained by them by reason of or in
furtherance of the interest of the Company, including, but not limited to any
judgment, award, settlement, reasonable attorneys’ fees and other costs or
expenses incurred in connection with the defense of any action or threatened
action, proceeding or claim, provided that the acts, omissions, or alleged acts
or omissions upon which such action or threatened action, proceedings or claims
are based were performed or omitted in good faith and not fraudulently, in bad
faith, as a result of wanton and willful misconduct or gross negligence.

 

ARTICLE 7: MEETINGS OF
MEMBERS

 

7.01                           Regular Meetings. The Company may hold regular meetings
as from time to time designated by Members holding over 20% of the then issued
and outstanding Percentage Interests, or by the Manager(s). Such regular
meetings shall be held at such time and place as designated by the Members or
by the Manager(s), designating such meetings, as the case may be.

 

7.02                           Notice of Members Meetings. The Manager(s) shall, and any
Member may, give written notice stating the place, day, and hour of both
regular and special meetings, and in the case of a special meeting, the purpose
or purposes for which the meeting is called, which shall be delivered not less
than ten (10) nor more than thirty (30) days before the date of the
meeting to each Member of record entitled to vote at such meeting. Notice of
any meeting of Members, annual or special, shall be given in the manner
specified in Section 14.01.

 

If any notice addressed to a Member at the address of such Member appearing
on the books of the Company is returned to the Company by the United States
Postal Service marked to indicate

 

12

 

that the United
States Postal Service is unable to deliver the notice to the Member at such
address, all future notices or reports shall be deemed to have been duly given
without further mailing if the same shall be available to the Member upon
written demand of the Member at the principal executive office of the Company
for a period of one (1) year from the date of the giving of such notice. A
certificate or an affidavit of the mailing, transmission or other means of
giving any notice of any Members’ meeting shall be executed by a Manager, and
shall be filed and maintained in the minute book of the Company.

 

7.03                           Waiver of Notice. If,  under the provisions of the Act,
the Articles of Organization, or this Agreement, notice is required to be given
to a Member or to the Manager(s), a waiver in writing signed by the person or
persons entitled to the notice, whether made before or after the time for
notice to be given, is equivalent to the giving of notice.

 

7.04                           Quorum. Members owning more than 50% of the Percentage
Interests of the Company represented in person or by proxy, shall constitute a
quorum at a meeting of Members. If Members holding less than 50% of the
Percentage Interests of the Company are represented at a meeting, Members
holding a majority of the Percentage Interests so represented may adjourn the
meeting from time to time without further notice. At a meeting resumed after
any such adjournment at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The Members present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of Members in such number that less than a quorum remain.

 

7.05                           Voting. A holder of a Percentage Interest, entitled to vote
at a meeting, may vote at such meeting in person or by proxy. Except as may
otherwise be provided in the Articles of Organization, every Member shall be
entitled to a vote equal to the Percentage Interest in the Company of such
Member standing in his name on the records of the Company. Except as herein or
in the Articles of Organization otherwise provided, all matters which call for
a vote, consent, approval or determination of the Members shall be determined
by the concurrence of Members owning more than fifty percent (50%) of the
Percentage Interests then outstanding.

 

7.06                           Proxies/Power of Attorney. At all meetings of Members, a Member
may vote in person or by proxy executed in writing by the Member or by his duly
authorized attorney in fact. Such proxy shall be filed with the Company before
or at the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.

 

7.07                           Action by Written Consent. Any action which may be taken by the
Members at a Meeting held pursuant to this ARTICLE 7 or as provided elsewhere
in this Agreement may be taken without a meeting, upon the written consent to
such action of Members holding the amount of Percentage Interests as is
required to take such action.

 

ARTICLE 8: ACCOUNTING, BOOKS AND RECORDS

 

8.01                           Accounting, Books and Records. The Company shall maintain at its
principal place of business separate books of account for the Company which
shall show a true and accurate record of all costs and expenses incurred, all
charges made, all credits made and received, and all income

 

13

 

derived in
connection with the operation of the Company business in accordance with
generally accepted accounting principles consistently applied and, to the
extent inconsistent therewith, in accordance with this Agreement. The Company
shall use the cash method of accounting in preparation of its annual reports
and for tax purposes and shall keep its books accordingly. Each Member shall,
at his sole expense, have the right, at any time without notice to any other
Member, to examine, copy, and audit the Company’s books and records during
normal business hours.

 

8.02                           Records Required by the Act. The Company shall keep the following
records at its Designated Office:

 

(a)                                  a current list in alphabetical order of
the full name and last-known business, residence, or mailing address of each
member and each manager;

 

(b)                                 a copy of the  stamped articles of organization and all certificates of
amendment thereto, together with a copy of all signed powers of attorney
pursuant to which the articles of organization or any amendment has been
signed;

 

(c)                                  a copy of a writing prepared by the
Person or Persons who signed and filed the Articles of Organization which sets
forth;

 

(1)                                  the name and street address of each
initial Member of the Company;

 

(2)                                  the name and street address of each
initial Manager of the Company (if any);

 

(3)                                  a copy of the Company’s federal, state
and local income tax returns and reports, if any, for the three most recent
years;

 

(4)                                  a copy of any financial statements of the
Company, if any, for the three most recent years;

 

(5)                                  a copy of the Company’s operating
agreement, if any, and all amendments thereto; and

 

(6)                                  a copy of the minutes, if any, of each
meeting of Members and of any written consents obtained from Members.

 

8.03                           Reports. Within one hundred and twenty (120) days after the
end of each Fiscal Year, the Company shall cause each Member to be furnished
with a copy of the balance sheet of the Company as of the last day of the
applicable period, a statement of income or loss for the Company for such
period, and a statement of the Company’s cash flow for such period.

 

8.04                           Tax  Returns:
Information. The
Manager(s) shall cause the Company to prepare all income and other tax
returns of the Company and shall cause the same to be filed in a timely manner.
The Company shall furnish to each Member a copy of each such return, together
with any schedules or other information which each Member may require in
connection with such Member’s own tax affairs.

 

14

 

8.05                           Special Basis Adjustment. In connection with any Transfer of a
Company interest, the Company shall, at the written request of the transferor
or the transferee, on behalf of the Company and at the time and in the manner
provided in Regulations Section 1.754-1(b), make an election to adjust the
basis of the Company’s property in the manner provided in Sections 734(b) and 743(b) of
the Code, and such transferee shall pay all costs incurred by the Company in
connection therewith, including, without limitation, reasonable attorneys’ and
accountants’ fees.

 

8.06                           Tax Matters Partner. A “Tax Matters Partner” shall be
designated by the Members in accordance with the applicable provisions of the
Code and to act in any similar capacity under state or local law. All of the
Members shall be required to cooperate fully with the Tax Matters Partner in
the discharge of its responsibility as such. Kenneth M. Woolley is hereby
designated the Tax Matters Partner, and may be replaced as such by
determination of the Members.

 

ARTICLE 9: TRANSFER OF MEMBERSHIP INTERESTS

 

9.01                           Prohibition on Hypothecation by Members. No Member shall mortgage or grant a
security interest in his Interest in the Company.

 

9.02                           Restrictions on Transfers. Except as expressly permitted or
required by this Agreement, no Member shall Transfer all or any portion of his
interest in the Company or any rights therein without the consent of Members
holding at more than fifty percent (50%) of the aggregate Percentage Interests
of all Members. Any Transfer or attempted Transfer by any Member in violation
of the preceding sentence shall be null and void and of no force or effect
whatever. Notwithstanding anything to the contrary in this Agreement, the
Members hereby agree to consent to Transfers of interests in the Company by any
Member and agree to consent to the substitution of the transferees of such
Transfers as substitute members of the Company provided that (a) such
transfers are made to a limited liability company, trust, partnership, or other
entity for estate planning purposes, (b) such Member retains the ability,
directly or indirectly, to direct the outcome of any determination of such
transferee, whether by vote, consent or otherwise, without the vote, consent or
approval of any other Person, (c) appropriate amendments are made to this
Agreement to reflect such Transfer, and (d) such Transfer and the
transferor and transferee of such Transfer comply with the provisions of
Sections 9.04 and 9.08. Each Member hereby acknowledges the reasonableness of
the restrictions on Transfer imposed by this Agreement in view of the Company
purposes and the relationship of the Members. Accordingly, the restrictions on
Transfer contained herein shall be specifically enforceable. Each Member hereby
further agrees to hold the Company and each Member (and each Member’s
successors and assigns) wholly and completely harmless from any cost,
liability, or damage (including, without limitation, liabilities for income
taxes and costs of enforcing this indemnity) incurred by any of such
indemnified Persons as a result of a Transfer or an attempted Transfer in
violation of this Agreement.

 

9.03                           Transfers to Other Members. If, but only if, a Member (hereinafter
the “Selling Member”) receives from another Member (hereinafter the “Purchasing
Member”) a written offer to purchase all of the Interest of the Selling Member
which written offer (hereinafter the “Purchase Offer”) the Selling Member
desires to accept, the Selling Member shall give all of the other Members
written notice of that fact (hereinafter the “Sale Notice”). The Selling Member
shall attach to the Sale Notice a copy of the Purchase Offer. For a period
(hereinafter the “Election Period”)

 

15

 

ending at 11:59 P.M.
(local time at the Company’s principal place of business) on the forty-fifth
day following the day on which the Sale Notice is given (hereinafter the
“Election Day”), the Members other than the Selling Member may elect, by notice
to the Selling Member, to purchase all or any portion of the Interest of the
Selling Member, which notice shall state the maximum Percentage Interest that
such Member is willing to purchase. Said election and purchase shall be made by
giving notice thereof (the “Purchase Notice”) to all Members, which Purchase
Notice shall not be valid unless it states the maximum Percentage Interest that
such Member (a “Purchase Notice Member”) is willing to purchase. If the aggregate
Percentage Interests that Purchase Notice Members are willing to purchase
pursuant to valid Purchase Notices equals or exceeds the entire Percentage
Interests of the Selling Member, such Purchase Notice Members shall become
“Purchasing Members” and shall be obligated to purchase all of the Interest of
the Selling Member and the Selling Member shall be obligated to sell its
Interest to the Purchasing Members. Each Purchasing Member shall be obligated
to purchase that portion of the Selling Members’ Interest that corresponds to
the ratio of the Percentage Interests that such Purchasing Member indicated
willingness to purchase in his Purchase Notice to the aggregate Percentage
Interests that all such Purchasing Members indicated willingness to purchase under
all Purchase Notices. In the event that the Members other than the Selling
Member do not elect to purchase the entire Interest of the Selling Member, the
Selling Member shall be free to sell his Interest to the Purchasing Member for
the price, and on the terms specified and described in the Purchase Offer;
provided, however, that if the sale contemplated by the Purchase Offer is not
consummated within thirty (30) days after the expiration of the Election
Period, the Selling Member shall again give a Sale Notice with respect to such
Purchase Offer and follow the procedures outlined and required by this Section
9.03 as if such procedures had not previously been followed with respect to
such Purchase Offer. If the Members other than the Selling Member elect to
purchase the entire Interest of the Selling Member, the purchase price and
other terms of purchase shall be identical to those set forth in the Purchase
Offer; provided, however, that the closing shall occur on or before the date
that is thirty (30) days after the expiration of the Election Period, at the
Company’s principal place of business. A Person who acquires all or any part of
the Interest of a Selling Member (either pursuant to this Section 9.03 or
pursuant to a Purchase Offer after the Selling Member has complied with the
provisions of this Section 9.03) shall, upon satisfaction of the requirements
specified in Sections 9.04 and 9.07, acquire such Interest in the capacity as a
Member and shall have all of the rights of a Member with respect to such
Interest (or any part thereof) and particularly, without limiting the
generality of the foregoing, the Percentage Interest relating to such Interest
shall thereafter be deemed part of the total Percentage Interest owned by the
Member for all purposes of this Agreement.

 

9.04         Conditions to
Transfers. Any Transfer not approved under this ARTICLE 9 shall be null and
void and of no force or effect whatever.

 

(a)           Any transferor and
transferee shall execute such documents and instruments of conveyance and assumption
as may be necessary or appropriate in the opinion of counsel to the Company to
effect such Transfer and to confirm the Transferee’s agreement to be bound by
the provisions of this Agreement and assumption of all monetary obligations of
the transferor Member with respect to the interest being transferred and the
transferor Member’s agreement to guarantee the prompt payment and performance
of such assumed obligations.

 

16

 

(b)                                 The Company shall receive, prior to any
Transfer, an opinion of counsel satisfactory to the Company confirming that
such Transfer will not terminate the Company for federal income tax purposes.

 

(c)                                  The transferor and transferee shall
furnish the Company with the transferee’s taxpayer identification number,
sufficient information to determine the transferee’s initial tax basis in the
interest transferred, and any other information reasonably necessary to permit
the Company to file all required federal and state tax returns and other
legally required information statements or returns. Without limiting the
generality of the foregoing, the Company shall not be required to make any
distribution otherwise provided for in this Agreement with respect to any
transferred interest until it has received such information.

 

(d)                                 A Member making a Transfer of all or a
portion of his Company interest and the Transferee thereof shall pay all
reasonable costs and expenses incurred by the Company in connection with such
Transfer.

 

9.05                           Admission of Transferee as a Member. A Transferee of an interest in the
Company shall be admitted as a Member in the Company only upon the consent of
the Members owning more than fifty percent (50%) of the aggregate Percentage
Interests of all Members. The rights of a Transferee who is not admitted as a
Member shall be limited to the right to receive allocations and distributions
from the Company with respect to the interest transferred, as provided by this
Agreement. The Transferee of such interest shall not be a Member with respect
to such interest, and, without limiting the foregoing, shall not have the right
to vote as a Member, inspect the Company’s books, act for or bind the Company,
or otherwise interfere in its operations.

 

9.06                           Effect of Transfer on Company. The Members intend that the Transfer of
an interest in the Company shall not cause the dissolution of the Company under
the Act; however, notwithstanding any such dissolution, the Members shall
continue to hold the Company’s assets and operate its business in limited
liability company form under this Agreement as if no such dissolution had
occurred.

 

9.07                           Distribution Among Members. If a Transfer of an interest in the
Company approved under ARTICLE 9 occurs during any Fiscal Year, Profits,
Losses, each item thereof, and all other items attributable to such interest
for such Fiscal Year shall be divided and allocated between the transferor and
the transferee by taking into account their varying interests during the Fiscal
Year in accordance with Code Section 706(d), using any conventions
permitted by law and selected by the Members. All distributions on or before
the date of a Transfer approved under ARTICLE 9 shall be made to the
transferor, and all distributions thereafter shall be made to the transferee.
If a Transfer was not approved under ARTICLE 9, all of such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Company, on the last day of the Fiscal Year during
which the Transfer occurs, was the owner of the Company interest. The Members
and the Company shall incur no liability for making allocations and
distributions in accordance with the provisions of this Section 9.07,
whether or not any of the Members or the Company has knowledge of any Transfer
or purported Transfer of ownership of any interest in the Company.

 

17

 

9.08                           Additional Restrictions. Notwithstanding the provisions of this
ARTICLE 9, a Member may only sell, assign, or otherwise transfer any Interest
in the Company if:

 

(a)                                  The proposed transfer will not result in
the termination of the Company as provided in Section 708(b) of the
Code, or otherwise adversely affect the Company’s tax status as a partnership
thereunder. The Members are expressly authorized to enforce this provision by
notifying the  Selling Members that all transfers
or assignments will be suspended for a period of up to twelve (12) months
whenever interests in the Company representing aggregate interests of thirty
five percent (35%) or more in Company capital or revenues shall have been
effectively transferred in any twelve (12) month period;

 

(b)                                 Such Selling Member and his purchaser,
transferee or assignee execute such instruments of transfer and assignment with
respect to such transactions as are in form and substance satisfactory to the
non-selling Members; and

 

(c)                                  The assignor or transferor delivers to
the Company an opinion of counsel, in form acceptable to counsel to the
Company; that:

 

(1)                                  the proposed transfer or assignment of
the Interest complies with all federal and state laws and regulations,
including the Securities Act of
1933, and

 

(2)                                  the proposed transfer or assignment will
not affect the availability to the Company of the exemption from registration of
the interest provided by the Securities Act of 1933 or any Rule or
Regulation promulgated by the Securities and Exchange Commission or the similar
exemption from registration under the securities laws of any applicable state.

 

In the event of a transfer of a Member’s Interest, if it is in the best
interest of the Company to do so, the Company may make an election, as provided
for in Section 754 of the Code, to adjust the basis of the Company assets.

 

ARTICLE 10: BUY-SELL

 

10.01                     Determination of Net Equity of Adverse
Member’s Interest.
Prior to the end of the sixtieth day following the day upon which a Member (an “Adverse
Member”) commits or suffers an Adverse Act, or the sixtieth day after the day
any Member other than the Adverse Member receives actual notice of such Adverse
Act, any Member may send notice to the Adverse Member of the Adverse Act, and
such Adverse Member shall have thirty days following the date of such notice
(the “Notice Period”) within which to cure the Adverse Act which is the subject
of the notice. At any time prior to the end of the sixtieth day following the
end of the Notice Period, any Member, by notice to all other Members (“Member
Notice”), may cause the Net Equity of the Adverse Member’s interest in the
Company to be determined as of the date of such Member Notice. Such notice
shall designate the First Appraiser as required by Section 10.05 hereof
and the Adverse Member shall appoint the Second Appraiser within ten (10) Business
Days of receiving such notice designating the First Appraiser.

 

18

 

10.02                             Election to Purchase Interest of Adverse Member. For a period (the “Election Period”)
ending at 11:59 P.M. (local time at the Company’s principal place of
business) on the thirtieth day following the day on which notice of the Adverse
Member’s Net Equity is given pursuant to Section 10.04 hereof (the “Election
Day”), the Members other than the Adverse Member may elect, by notice to the
Adverse Member, to purchase all or any portion of the interest of the Adverse
Member, which notice shall state the maximum Percentage Interest that such
Member is willing to purchase. Said election and purchase shall be made by
giving notice thereof (the “Purchase Notice”) to all Members, which Purchase
Notice shall not be valid unless it states the maximum Percentage Interest that
such Member (a “Purchase Notice Member”) is willing to purchase. If the
aggregate Percentage Interests that Purchase Notice Members are willing to
purchase pursuant to valid Purchase Notices equals or exceeds the entire
Percentage Interests of the Adverse Member, the Purchase Notice Members shall
become “Purchasing Members” and shall be obligated to purchase all of the
interests of the Adverse Member and the Adverse Member shall be obligated to
sell its interests to the Purchasing Members. Each Purchasing Member shall be
obligated to purchase that portion of the Selling Members’ interests that
corresponds to the ratio of the Percentage Interests that such Purchasing
Member indicated willingness to purchase in his Purchase Notice to the
aggregate Percentage Interests that all such Purchasing Members indicated
willingness to purchase under all Purchase Notices. In the event that the other
Members do not elect to purchase the entire interest of the Adverse Member, the
Adverse Member shall be under no obligation to sell any portion of its interest
to any Member. The cost of determining Net Equity shall be borne one-half by
the Adverse Member and one-half by the Company and the amount borne by the
Company shall be treated as an expense of the Company for purposes of such
determination.

 

10.03                     Terms of Purchase: Closing. The closing of the purchase and sale of
the Adverse Member’s interests shall occur on a date and time mutually
agreeable to the Purchasing and the Adverse Members, which shall not be later
than 10:00 A.M. (local time at the place of the closing) on the first
Business Day occurring on or after the sixtieth day following the last day of
the Election Period and at such place as is mutually agreeable to the
Purchasing Members and Adverse Member, or upon the failure to agree, at the
Company’s principal place of business. At the closing each Purchasing Member
shall pay to the Adverse Member, by cash or other immediately available funds,
that portion of the Buy-Sell Price of such Adverse Member’s interest that
corresponds to a fraction, the numerator of which is the portion of the
Aggregate Buy-Sell Price for which such Purchasing Member is liable, and the
denominator of which is the Aggregate Buy-Sell Price, and the Adverse Member
shall deliver to each Purchasing Member good title, free and clear of any
liens, claims, encumbrances, security interests or options (other than those
granted by this Agreement) to the portion of the Adverse Member’s interest thus
Purchased. Each Purchasing Member shall be liable only for the Purchasing
Member’s individual portion of the Buy-Sell Price to Adverse Member. In the
event that any Purchasing Member shall fail to perform his obligation to
purchase hereunder, and no other Purchasing Member elects to purchase the
portion of the Adverse Member’s interest thus not purchased, such Adverse
Member shall not be obligated to sell any portion of his interest to any
Purchasing Member.

 

At the closing the Members shall execute such documents and instruments
of conveyance as may be necessary or appropriate to confirm the transactions
contemplated hereby, including, without limitation, the Transfer of the Company
interests of the Adverse Member to the Purchasing Members and the assumption by
each Purchasing Member of each Adverse Member’s obligation with respect

 

19

 

to the portion of
the Adverse Member’s interest transferred to such Purchasing Member. The
reasonable costs of such Transfer and closing, including, without limitation,
attorneys’ fees and filing fees, shall be divided equally between the Adverse
Member and the Purchasing Members.

 

The price at which the interest of the Adverse Member is purchased and
sold under this Section 10.03 (the “Buy-Sell Price” of such interest) is
ninety percent (90%) of the Net Equity thereof, determined as of the Election
Day, unless the Adverse Member is an Adverse Member solely because of a
transfer of an interest in a Member upon the death of any Person owning,
directly or indirectly, an interest in a Member, in which event the Buy-Sell
Price of such interest shall be one hundred percent (100%) of the Net Equity
thereof, determined as of the Election Day. The aggregate price of all
interests required to be bought and sold hereunder is the “Aggregate Buy-Sell
Price.”

 

10.04                     Net Equity. The “Net Equity” of a Member’s interest in the
Company, as of any day, shall be the amount that would be distributed to such
Member in liquidation of the Company pursuant to ARTICLE 11 hereof if (1) all
of the Company’s assets were sold for their Gross Appraised Values, (2) the
Company paid its accrued, but unpaid, liabilities and established reserves pursuant
to Section 11.06 hereof for the payment of reasonably anticipated
contingent or unknown liabilities, and (3) the Company distributed the
remaining proceeds to the Members in liquidation, all as of such day, provided
that in determining such Net Equity, no reserve for contingent or unknown liabilities
shall be taken into account if such Member (or his successor in interest)
agrees to indemnify the Company and all other Members for that portion of any
such reserve as would be treated as having been withheld pursuant to Section 11.06
hereof from the distribution such Member would have received pursuant to Section 11.05
hereof if no such reserve were established.

 

The Net Equity of a Member’s interest in the Company shall be
determined, without audit or certification, from the books and records of the
Company by a firm of independent certified public accountants designated by the
Manager(s). The Net Equity of a Member’s interest shall be determined within
sixty (60) days of the day upon which such accountants are appraised in writing
of the Gross Appraised Value of the Assets of the Company, and the amount of
such Net Equity shall be disclosed to the Company and each of the Members by
written notice, prepared and delivered by such accountants, the Manager(s), or
any Member, to the Members. The Net Equity determination of such accountants
shall be final and binding in the absence of a showing of gross negligence or
willful misconduct.

 

10.05                     Gross Appraised Value of the Assets of
the Company. “Gross
Appraised Value of the Assets of the Company,” as of any day, shall be equal to
the fair market value of all of the assets of the Company as of such day. As
used herein, as of any day, the “fair market value” of the assets of the
Company means the maximum amount that a single buyer would reasonably be
expected to pay for all of the Assets of the Company, on such day, determined
on an asset by asset basis, free and clear of all liens and encumbrances, in a
single cash purchase.

 

In situations under this Agreement in which it is necessary to
determine the Gross Appraised Value of the Assets of the Company, the provision
requiring such determination provides the manner and time for the appointment
of two appraisers (the “First Appraiser” and the “Second Appraiser”). If the
Second Appraiser is timely designated, the First and Second Appraisers shall
each, within forty-five (45) days of such appointment, give written notice to
the  Company, the Members, and the

 

20

 

firm of
independent certified public accountants designated by the Manager(s), of their
respective determinations of the Gross Appraised Value of the Assets of the
Company. If the difference between the separate determinations of the Gross
Appraised Value of the Assets of the Company of the First Appraiser and the
Second Appraiser is less than $500,000.00, the Gross Appraised Value of the
Assets of the Company shall, for purposes of this Agreement, be equal to the
average of the determinations of the Gross Appraised Value of the Assets of the
Company of the First Appraiser and the Second Appraiser. If the difference
between the separate determinations of the Gross Appraised Value of the Assets
of the Company of the First Appraiser and the Second Appraiser is more than
$500,000.00, then at any time after such period, either the Persons who
appointed the First Appraiser or the Persons who appointed the  Second Appraiser, by written notice to
the First Appraiser and Second Appraiser, may demand that they appoint a Third
Appraiser (the “Third Appraiser”). If the First Appraiser and Second Appraiser
have not appointed the Third Appraiser (who shall have agreed to serve) by the
twentieth day after such demand, either the Persons who appointed the First
Appraiser or the Persons who appointed the Second Appraiser may request any
judge of the Fourth Judicial District Court of the State of Utah to appoint the
Third Appraiser. The Third Appraiser shall, within thirty (30) days after his
or her appointment, make a determination of the Gross Appraised Value of the
Assets of the Company and provide written notice of that determination to the
Company, the members and the firm of independent certified public accountants
designated by the Manager(s). Upon the determination of the Gross Appraised
Value of the Assets of the Company by the Third Appraiser, the Gross Appraised
Value of the Assets of the Company shall, for purposes of this Agreement, be
equal to the average of the two closest determinations of the Gross Appraised
Value of the Assets of the Company by the First, Second, and Third Appraisers.

 

If a Second Appraiser is not timely appointed in the manner provided by
this Agreement, and if such Second Appraiser remains unappointed for more than
ten (10) days after the Person entitled to make such appointment is given
written notice that such Second Appraiser has not been timely appointed as
provided in this Agreement, the Gross Appraised Value of the Assets of the
Company shall be determined solely by the First Appraiser who shall give notice
of such Gross Appraised Value of the Assets of the Company to the Company, the
Members, and the firm of independent certified public accountants designated by
the Manager(s) within thirty (30) days of the last day on which the Second
Appraiser could have been timely designated.

 

Each appraiser appointed hereunder shall be disinterested and shall be
a member of the Appraisal Institute or other appropriate body and qualified to
appraise business similar to that of the Company.

 

ARTICLE 11: DISSOLUTION AND WINDING-UP

 

11.01                     Waiver of Partition. No Member shall, either directly or
indirectly, take any action to require partition, file a bill for Company
accounting or appraisement of the Company or of any of its assets or properties
or cause the sale of any Company property, and notwithstanding any provisions
of applicable law to the contrary, each Member (and each of his legal
representatives, successors, or assigns) hereby irrevocably waives any and all
rights it may have to maintain any action for partition or to compel any sale
with respect to his Company interest, or with respect to any assets or
properties of the Company, except as expressly provided in this Agreement.

 

21

 

11.02                     Covenant Not to Withdraw or Dissolve. Notwithstanding any provision of the
Act, each Member hereby covenants and agrees that the Members have entered into
this Agreement based on their mutual expectation that all Members will continue
as Members and carry out the duties and obligations undertaken by them
hereunder and that, except as otherwise expressly required or permitted hereby,
each Member hereby covenants and agrees not to (a) take any action to file
a certificate of dissolution or its equivalent with respect to itself, (b) take
any action that would cause a Voluntary Bankruptcy of such Member, (c) withdraw
or attempt to withdraw from the Company, (d) exercise any power under the
Act to dissolve the Company, (e) Transfer all or any portion of his
interest in the Company, (f) petition for judicial dissolution of the
Company, or (g) demand a return of such Member’s contributions or profits
(or a bond or other security for the return of such contributions or profits)
without the consent of the Members holding more than fifty percent (50%) of the
Percentage Interests.

 

11.03                     Dissolution and Termination of the
Company. The
Company shall be dissolved and terminated upon the first to occur of any of the
following (“Liquidating Events”):

 

(a)                                  By written agreement of Members holding
more than fifty percent (50%) of the Percentage
Interests;

 

(b)                                 The happening of any other event that
makes it unlawful or impossible to carry on the business of the Company; or

 

(c)                                  When the Company is not the successor or
survivor entity in any merger or consolidation between the Company and any one (1) or
more other entities.

 

(d)                                 If the Company has not previously been
dissolved and terminated, on the date which is thirty (30) years after the date
on which the Articles of Organization for the Company were first filed with the
Division of Corporations and Commercial Code of the Department of Commerce for
the State of Utah.

 

11.04                     Effect of Bankruptcy, Death or
Incompetency of a Member. The bankruptcy, death, dissolution, liquidation, termination or
adjudication of incompetency of a Member shall not cause the termination or
dissolution of the Company and the business of the Company shall continue. Upon
any such occurrence and unless the trustee, receiver, executor, administrator,
committee, guardian or conservator of such Member is admitted as a Member of the
Company in accordance with the Operating Agreement, the trustee, receiver,
executor, administrator, committee, guardian or conservator of such Member
shall have the rights specified in Section 9.05 of this Agreement. The
transfer by such trustee, receiver, executor, administrator, committee,
guardian or conservator of any Company Interest shall be subject to all of the
restrictions set forth in this Agreement to which such transfer would have been
subject if such transfer had been made by such bankrupt, deceased, dissolved,
liquidated, terminated or incompetent Member.

 

11.05                     Winding Up. Upon the dissolution of the Company, the Company
shall continue solely for the purpose of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
Members and no Member shall take any action that is inconsistent with, or not
necessary to or appropriate for, winding up the Company’s business and

 

22

 

affairs. To the extent
not inconsistent with the foregoing, all covenants and obligations in this
Agreement shall continue in full force and effect until such time as the
Property has been distributed pursuant to this Section 11.05 and the
Company has terminated. The Members shall be responsible for overseeing the
winding up and liquidation of the Company, shall take full account of the
Company’s liabilities and Property, shall cause the Property to be liquidated
as promptly as is consistent with obtaining the fair market value thereof, and
shall cause the proceeds therefrom, to the extent sufficient therefore, to be
applied and distributed in the following order:

 

(a)                                  First, to the payment and discharge of
all of the Company’s debts and liabilities to creditors, including debts and
liabilities to creditors who are Members, and to the establishment of reserves
for the payment of the debts and liabilities of the Company in accordance with
applicable law;

 

(b)                                 The balance, if any, to the Members in
accordance with their Percentage Interests.

 

11.06                     Reserve for Liabilities. In the discretion of the Members, a pro
rata portion of the distributions that would otherwise be made to the Members
pursuant to Section 11.05(b) hereof may be:

 

(a)                                  distributed to a trust established for
the benefit of the Members for the purposes of liquidating Company assets,
collecting amounts owed to the Company, and paying any contingent or unforeseen
liabilities or obligations of the Company or of the Members arising out of or
in connection with the Company. The assets of any such trust shall be distributed
to the Members from time to time, in the reasonable discretion of the Members,
in the same proportions as the amount distributed to such trust by the Company
would otherwise have been distributed to the  Members pursuant to Section 11.05
hereof; or

 

(b)                                 withheld to provide a reasonable reserve
for Company liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Company, provided that such
withheld amounts shall be distributed to the Members as soon as practicable.

 

11.07                     Deemed Distribution and Recontribution. Notwithstanding any other provisions of
this ARTICLE 11, in the event the Company is liquidated within the meaning of
Regulations Section 1.704-l(b)(2)(ii)(g) but no Liquidating Event has
occurred, the Property shall not be liquidated, the Company’s liabilities shall not be paid or discharged, and
the Company’s affairs shall not be wound up. Instead, the events described in
Regulations Section 1.708-l(b)(1)(iv) as in effect at the time of the
liquidation described in the previous sentence shall be deemed to have
occurred.

 

11.08                     Return of Capital. Each Member shall look solely to the
assets of the Company and to the Company property remaining after the payment
or discharge of the debts and liabilities of the Company to the Member. If such
assets and property are insufficient to return the Capital Contributions of
each Member, the Members shall have no recourse against any other Member or against
the Manager(s) irrespective of such Member’s capital balance, be it a
debit or credit balance. However, any Member with a debit or negative balance
in his capital balance, upon the dissolution

 

23

 

and winding up of
the Company, shall not be entitled to a distribution as to capital or his share
of profits.

 

11.09                     Winding Up of the Company. Upon a dissolution of the Company, the
winding up of the affairs of the Company and the distribution of its assets shall
be conducted by the Manager(s) who are hereby authorized to do any and all acts
and things reasonably necessary to accomplish the foregoing. In this regard,
the Manager(s) may delegate their obligation to a receiver or a trustee.

 

A reasonable time shall be allowed for the orderly liquidation of the
assets of the Company and the discharge of liabilities to creditors so as to
enable the Manager(s) to minimize the losses customarily attendant to
distressed dispositions of property. In liquidating the assets of the Company,
all assets of a saleable value which the Manager(s) determine are not suitable
for an equitable distribution shall be sold at public or private sale as the
Manager(s) deem advisable. Any Member may purchase such assets at any such
sale.

 

11.10                     Final Accounting. The Company shall furnish each of the Members
with a statement prepared by an accountant designated by the Manager(s) which
shall set forth the assets and liabilities of the Company as of the date of
termination and which shall disclose the sources and applications of Company
assets and proceeds thereof during the course of winding up the Company affairs
and dissolution. Upon completion of the winding up and termination of the
Company, the Members shall execute, acknowledge and cause to be filed Articles
of Dissolution of the Company.

 

11.11                     Method of Distribution of Assets. To the extent feasible, all
distributions in liquidations shall be made pro rata to the Members in kind.
Distribution of specific assets shall be determined by  the Manager(s).

 

11.12                     Judicial Dissolution. Notwithstanding anything to the
contrary in this Agreement, a court having jurisdiction of the Company and the
Members may, in an action commenced by a Member, decree dissolution of the
Company if in such action it is established that the Members are deadlocked in
the management of the affairs of the Company and because of such deadlock
either irreparable injury to the Company is threatened or being suffered or the
business and the affairs of the Company can no longer be conducted to the
advantage of the Members generally.

 

ARTICLE 12: AMENDMENT

 

12.01                     Amendment of Articles of Organization. The Company’s Articles of Organization
shall be amended whenever:

 

(a)                                  There is a change in the name of the
Company;

 

(b)                                 There is a change in the character of the
business of the Company from that specified in the Company’s Articles of
Organization;

 

(c)                                  There is a false or erroneous statement
in the Articles of Organization;

 

(d)                                 There is a change in the time, as stated
in the Articles of Organization, for the dissolution of the Company;

 

24

 

(e)                                  The Members determine to fix a time not
previously specified in the Articles of Organization for the dissolution of the
Company; or

 

(f)                                    The Members desire to make a change in
any of the provisions of the Articles of Organization in order for the Articles
of Organization to accurately represent the agreement among them.

 

12.02                     Amendment of Agreement. Amendments to this Agreement may be proposed
by any Member. The Member proposing such an Amendment shall submit to the
Members a verbatim statement of any proposed amendment and shah seek the
written vote of the Members on the proposed amendment or shall call a meeting
to vote thereon. A proposed amendment shall be adopted and be effective as an
amendment hereto only if it receives approval of the Members holding at least
sixty percent (60%) of the Percentage Interests.

 

ARTICLE 13: INDEMNIFICATION

 

13.01                     Agents. Proceedings and Expenses. For the purposes of this Section 13.01,
“agent” means any Person who is or was a Member, officer, employee, or other
agent of this Company, or is or was serving at the request of this Company as
an officer, employee, or agent of another foreign or domestic corporation,
company, joint venture, trust or other enterprise, or was an employee, or agent
of foreign or domestic corporation which was a Member of this Company. The term
“proceeding” means any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative, or investigative. The term “expenses”
includes, without limitation, attorney’s fees and any expenses of establishing
a right to indemnification under Subsection 13.01(d), or Subsection 13.01(e) of
this Section 13.01.

 

(a)                                  Actions Other Than By The Company. The Company shall indemnify any Person
who was or is a party, or is threatened to be made party, to any proceeding
(other than an action by or in the right of this Company) by reason of the fact
that such Person is or was an agent of this Company, against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with such proceeding if that Person acted in good faith
and in a manner that person reasonably believed to not be contrary to the best
Interests of this Company and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of this Company or that
the Person had reasonable cause to believe that the Person’s conduct was
unlawful.

 

(b)                                 Actions By The Company. The Company shall indemnify any Person
who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action by or in the right of this Company to procure a
judgment in its favor by reason of the fact that Person is or was an agent of
this Company, against expenses actually and reasonably incurred by that Person
in connection with the defense or settlement of that action if that Person
acted in good faith, in a manner that person believed to not he contrary to the
best interests of this Company and with such care, including reasonable
inquiry, as an ordinarily

 

25

 

prudent person in
a like position would use under similar circumstances. No indemnification shall
be made under this Subsection 13.01(b):

 

(1)                                  In respect of any claim, issue or matter
as to which that Person shall have been adjudged to be liable to the Company in
the performance of that Person’s duty to the Company, unless and only to the extent
that the court in which that action was brought shall determine upon
application that, in view of all the  circumstances of the case, that
Person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;

 

(2)                                  Of amounts paid in settling or otherwise
disposing of a threatened or pending action, with or without court approval; or

 

(3)                                  Of expenses incurred in defending a
threatened or pending action which is settled or otherwise disposed of without
court approval.

 

(c)                                  Successful Defense By Agent. To the extent that an agent of this
Company has been successful on the merits in defense of any proceeding referred
to in Subsection 13.01(b) or 13.01 (c), or in the defense of any claim,
issue, or matter therein, the  agent shall be indemnified against
expenses actually and reasonably incurred by the agent in connection therewith.

 

(d)                                 Advance of Expenses. Expenses incurred in defending any
proceeding shall be advanced by this Company before the final disposition of
the proceeding on receipt of an agreement by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is not entitled to be indemnified as authorized in this ARTICLE 13.

 

(e)                                  Other Contractual Rights. Nothing contained in this ARTICLE 13
shall affect any right to indemnification to which persons other than Members,
any officer or agents of this Company or any subsidiary hereof may be entitled
by contract or otherwise.

 

13.02                     Other Indemnification. The indemnification herein provided
shall not be deemed exclusive of any rights to which those seeking
indemnification may be entitled under any agreement, vote of Members (whether disinterested
or not), or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such position, and shall continue as
to a person who has ceased to be a Member or employee, and shall inure to the
benefit of the heirs, executors and administrators of such person.

 

13.03                     Insurance. The Company may purchase and maintain insurance on
behalf of any person who is or was a Member, officer, or employee of the
Company, or is or was serving at the request of the Company as a member,
employee or agent of another company, joint venture, trustor other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Company
would have the power to indemnify him against liability.

 

26

 

13.04                     Settlement by Company. The right of any person to be
indemnified shall be subject always to the right of the Company, in lieu of
such indemnity, to settle any such claim, action, suit or proceeding at the
sole expense of the Company by the payment of the amount of such settlement and
the costs and expenses incurred in connection therewith.

 

ARTICLE 14: MISCELLANEOUS

 

14.01                     Notices. Each Member shall maintain with the records of the Company
an address for notices from the Company to such Member. Each Member agrees that
as of the date of this Agreement, the address for notices to such Member is set
forth in ARTICLE 3 above. Each Member may, by notice given to all of the other
Members and the Company at the designated office specified in Section 1.04
above in the manner specified in this Section 14.01 designate another
address to which notices are to be sent pursuant to this Agreement. Any notice,
payment, demand, or communication required or permitted to be given by any
provision of this Agreement shall be in writing and sent by overnight courier,
or by telephone or facsimile, if such telephone conversation or facsimile is
followed by a hard copy of the telephone conversation or facsimile
communication sent by registered mail, return receipt requested, postage
prepaid, addressed in the manner specified above in this Section 14.01.
Any such notice shall be deemed to be delivered, given, and received as of the
earlier of the date so delivered or delivery is refused.

 

14.02                     Title and Captions. Article and Section titles or captions contained
in this Agreement are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.

 

14.03                     Gender. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural,
and the masculine gender shall include the feminine and neuter genders and the
word “person” shall include corporation, firm, company, or other form of
association.

 

14.04                     Counterparts. This Agreement may be executed in
several counterparts, and all so executed shall constitute one agreement
binding on all parties hereto, notwithstanding that all the parties are not
signatory to the original or the same counterpart.

 

14.05                     Governing Law. This Agreement and all amendments
hereto shall be governed by the laws of the State of Utah.

 

14.06                     Survival of Terms and Provisions. The terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the respective Members.

 

14.07                     Severability. The invalidity or unenforceability of
any part of this Agreement shall not invalidate or affect the validity or
enforceability of any other provision of this Agreement, which shall continue
to govern the rights and obligations of the parties hereto as though the
invalid or unenforceable provisions(s) were not a part hereof.

 

14.08                     Further Instruments. The Members agree that they will
execute any and all other documents or legal instruments that may be necessary
or required to carry out and effectuate all of the provisions hereof.

 

27

 

14.09                     Preparation of Agreement. The Members acknowledge that they have
all participated in the preparation of this Agreement and, in the event that
any question arises regarding its interpretation, no presumption shall be drawn
in favor of or against any Member with respect to the drafting hereof.

 

14.10                     Entire Agreement. This Agreement constitutes and
represents the entire agreement of the Members with respect to the subject
matter hereof, and all other prior agreements, covenants, promises and
conditions, verbal or written, between the Members are incorporated herein. No
Member hereto has relied upon any other promise, representation or warranty,
other than those contained herein, in executing this Agreement.

 

14.11                     Waiver of Lis Pendens and Partition. The Members recognize that no Member
has any direct right in any Company property, but only an interest in the
Company which is personal property. Accordingly, because the Company may suffer
irreparable financial loss if a lis pendens were filed or an action for
partition were brought with respect to Company property by a Member arising out
of a Company dispute, each Member does hereby waive any such right to file a lis
pendens against any property of the Company or bring an action for partition
thereof.

 

14.12                     Litigation. In the event any Member or the Company finds it
necessary to bring an action at law or other proceeding against any Member to
enforce any of the terms, covenants or conditions hereof, or by reason of any
breach or difficulty hereunder, the party prevailing in any such action or
other proceeding shall be entitled to recover against the other party all
reasonable attorney’s fees and associated costs. In the event any judgment is
secured by such prevailing party, all such attorneys’ fees and associated costs
shall be determined by the court and not a jury and shall be included in any
judgment.

 

14.13                     Qualification in Other States. If the business of the Company is
conducted in states in addition to the State of Utah, then the Members agree
that this Company shall exist under the laws of each state in which such
business is actually conducted to the extent that it is necessary in order to
do business in such state but that otherwise the laws of the State of Utah
shall govern this Company and each Member agrees to execute such other and
further documents as may be required in order to qualify the Company to conduct
its business in other states. To the extent that business of the Company shall
be conducted in another state, the Members may designate a principal place of
business and other offices in such state or states.

 

14.14                     Binding Effect. Except as otherwise provided in this
Agreement, every covenant, term, and provision of this Agreement shall be
binding upon and inure to the benefit of the Members and their respective
heirs, legatees, legal representatives, successors, transferees, and assigns.

 

14.15                     Construction. Every covenant, term, and provision of
this Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Member. The terms of this Agreement are intended to
embody the economic relationship among the Members and shall not be subject to
modification by, or be conformed with, any actions by the Internal Revenue
Service except as this Agreement may be explicitly so amended and except as may
relate specifically to the filing of tax returns.

 

28

 

14.16                     Time. Time is of the essence with respect to this
Agreement.

 

14.17                     Incorporation by Reference. Every exhibit, schedule, and other
appendix attached to this Agreement and referred to herein is not incorporated
in this Agreement by reference unless this Agreement expressly otherwise
provides.

 

14.18                     Further Action. Each Member agrees to perform all
further acts and execute, acknowledge, and deliver any documents which may be
reasonably necessary, appropriate, or desirable to carry out the provisions of
this Agreement.

 

14.19                     Variation of Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine, or neuter, singular or plural,
as the identity of the person or persons may require.

 

[The Rest of This Page Is Intentionally Left
Blank]

 

29

 

DATED effective as of January 1, 2004.

 

	
   

  	
  MANAGER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Kenneth M. Woolley

  
	
   

  	
  Kenneth M. Woolley

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MEMBERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Kenneth M. Woolley

  
	
   

  	
  Kenneth M. Woolley

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Charles L. Allen

  
	
   

  	
  Charles L. Allen

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Dean A. Anderson

  
	
   

  	
  Dean A. Anderson

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Timothy Arthurs

  
	
   

  	
  Timothy Arthurs

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Kenneth R. Beck

  
	
   

  	
  Kenneth R. Beck

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  K. Bruce Boucher

  

 

30

 

	
   

  	
  /s/ Robert L. Burns

  
	
   

  	
  Robert L. Burns

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Larendee B. Call

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Kent W. Christensen

  
	
   

  	
  Kent W. Christensen

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Monty J. Conrad

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Alex Engel

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  James Hafen

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Russell Brent Hardy

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ William E. Hoban

  
	
   

  	
  Bill Hoban

  

 

31

 

	
   

  	
  KRISPEN FAMILY HOLDINGS,
  L.C., a Utah

  
	
   

  	
  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Spencer F. Kirk

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Mark M. Landes

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Todd A. Lucas

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Diane Manning

  	
   

  
	
   

  	
  Diane Manning

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ James L. Overturf

  	
   

  
	
   

  	
  James L. Overturf

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ David L. Rasmussen

  	
   

  
	
   

  	
  David L. Rasmussen

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Brian G. Sheppard

  	
   

  
	
   

  	
  Brian G. Sheppard

  	
   

  
						

 

32

 

	
   

  	
  SSA VENTURES, L.L.C., a Utah limited liability 

  
	
   

  	
  company

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen C. Aldous

  	
   

  
	
   

  	
  Name:

  	
  Stephen C. Aldous

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Jim M. Stevens

  	
   

  
	
   

  	
  Jim M. Stevens

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Robert Strandt

  	
   

  
	
   

  	
  Robert Strandt

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Peter Scott Stubbs

  	
   

  
	
   

  	
  Peter Scott Stubbs

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Richard S. Tanner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Ann Maureen King, as
  Trustee of the Ann Maureen

  
	
   

  	
  King Trust dated June 26, 1998

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Kenneth M. High, as
  Trustee of the High Family

  
	
   

  	
  Trust dated December 31, 2000

  	
   

  
						

 

33

 

	
   

  	
   

  	
   

  
	
   

  	
  Sandra J. High, as Trustee of the High Family Trust

  
	
   

  	
  dated December 31, 2000

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE KIRK 101 TRUST

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  David R. Spafford, Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen C.
  Aldous, Trustee

  	
   

  
	
   

  	
   

  	
  Stephen C. Aldous, Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Thomas P. Pecht, as Trustee of the Pecht Family

  
	
   

  	
  Trust dated April 11, 1997

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Karen M. Pecht, as Trustee of the Pecht Family

  
	
   

  	
  Trust dated April 11, 1997

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE SFKC KIRK CHARITABLE REMAINDER TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Leland S. McCullough, Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  David R. Spafford, Trustee

  	
   

  
					

 

34

 

	
   

  	
   

  	
   

  
	
   

  	
  Robert C. Weiss, in his capacity as Trustee of the

  
	
   

  	
  Weiss Trust dated August 2, 1996

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Gwynneth F. Weiss, in her capacity as Trustee of

  
	
   

  	
  the Weiss Trust dated August 2, 1996

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Kenneth T. Woolley

  	
   

  
	
   

  	
  Kenneth T. Woolley

  	
   

  

 

35

 

EXHIBIT B

 

SECOND AMENDED AND
RESTATED OPERATING AGREEMENT

OF

EXTRA SPACE DEVELOPMENT, LLC

 

 

SECOND AMENDED AND
RESTATED OPERATING AGREEMENT

FOR

EXTRA SPACE DEVELOPMENT, LLC

 

THIS SECOND AMENDED AND
RESTATED OPERATING AGREEMENT (this “Agreement”) is made as of December 31, 2007
(the “Effective Date”) by and between KENT W. CHRISTENSEN and CHARLES L. ALLEN,
as the Managers, and EXTRA SPACE STORAGE LLC (referred to as the “Member”),
with reference to the following facts:

 

A.              Extra Space
Development, LLC (“Company”) a limited liability company organized under the
laws of the State of Utah, has previously filed Articles of Organization (the “Articles”),
with the Utah Secretary of State.

 

B.              The Member has
entered into a Subscription Agreement of even date herewith, whereby Member has
acquired membership interests in the Company.

 

C.              By operation of a
Membership Interest Redemption Agreement, Member is now the sole member of the
Company.

 

D.              The Member desires
to adopt and approve a Second Amended and Restated Operating Agreement for the
Company under the Revised Utah Limited Liability Company Act as currently or
hereinafter in effect in the State of Utah (the “Act”).

 

NOW, THEREFORE,
the Member by this Agreement sets forth the Operating Agreement for the Company
upon the terms and subject to the conditions of this Agreement.

 

ARTICLE I

ORGANIZATIONAL MATTERS

 

1.1             Name. The name
of the company shall be “Extra Space Development, LLC.” The Company may conduct
business under that name or any other name approved by the Member.

 

1.2             Term. This
Agreement shall be effective from the date of the adoption of this Agreement by
all of the Members and the term of this Agreement shall continue until
dissolution of the Company as hereinafter provided.

 

1.3             Office and Agent.
The Company shall continuously maintain an office and registered agent in the
State of Utah as required by the Act. At the time of its formation, the
registered office and registered agent of the Company in the State of Utah is
Extra Space Storage LLC of2795 E, Cottonwood Parkway, #400, Salt Lake City,
Utah 84121 Attn: David L. Rasmussen. In addition, the Company shall maintain
its principal office at 2795 E. Cottonwood Parkway, Suite 400, Salt Lake City,
Utah 84121, or at such other place as the Manager(s) may determine. The
registered office, registered agent and principal office of the Company may be
changed at any time and from time to time by the Manager(s).

 

1.4             Business of the
Company. The Company shall not engage in any business other than the
following without the consent of all of the Members:

 

1

 

(a)           The purpose of the
Company is to engage in any other lawful activity for which a limited liability
company may be organized under the Act; and

 

(b)           Such other activities
directly related to the foregoing activities as may be necessary or advisable
in the reasonable opinion of the Manager to further such business.

 

ARTICLE II

CAPITAL CONTRIBUTIONS

 

2.1             Capital
Contributions. The Member shall make a contribution to the capital of the
Company in the amount shown opposite the Member’s name on Exhibit “A” attached
hereto. No Member shall be required to make any additional contributions to the
capital of the Company. Additional contributions to the capital of the Company
shall be made only with the unanimous consent of the Manager and the Member.
Except as provided in this Agreement, no Member may withdraw his or her capital
contribution.

 

2.2             Capital Accounts.
The Company shall establish an individual capital account (“Capital Account”)
for each Member. The Company shall determine and maintain each Capital Account
in accordance with Treasury Regulations Section 1.704-1 (b)(2)(iv).

 

2.3             No Interest.
The Company shall not pay any interest on capital contributions.

 

ARTICLE III

MEMBERS

 

3.1             Member. The
liability of the Member shall be limited as provided in the Act, which
generally provides that no Member is personally liable for the debts,
obligations, or liabilities of the Company.

 

3.2             Admission of
Additional Members. Additional Members may be admitted with the approval of
all Members. Additional Members will participate in the “Net Profits,” “Net
Losses” (as such terms are defined in Section 5.1), and distributions of the Company
on such terms as are determined by the Members. Exhibit “A” shall be amended
upon the admission of an additional Member to set forth such Member’s name and
capital contribution.

 

3.3             Member Services:
Reimbursement of Expenses. Unless otherwise specifically agreed among the
Members, no Member shall receive any payment or compensation for performance of
obligations under this Agreement. Subject to reasonable regulations adopted by
the Manager, the Company shall reimburse Members for all reasonable direct
out-of-pocket expenses incurred by them at the request of the Company.

 

ARTICLE IV

MANAGEMENT AND CONTROL OF THE COMPANY

 

4.1             Manager to Manage
Business.

 

(a)           The business of the
Company shall be conducted under the exclusive management of a manager or
managers (the “Manager”) elected by the Members. The initial Managers shall be
Kent W. Christensen and Charles L. Allen. At all times when there is more than
one Manager for the Company, each Manager shall have full power and authority
to act on behalf of the Company and to bind the Company

 

2

 

thereby, without the approval
of any other Manager, except as otherwise prohibited by other provisions of
this Agreement.

 

(b)           The Manager shall act on behalf of the Company. The Manager may, but
need not, act at meetings.

 

4.2             Powers of Managers. The Manager is authorized on the Company’s
behalf to make all decisions as to: (i) management of all or any part of the
Company’s assets and business; (ii) borrowing money (including borrowing from
Members), and the granting of security interests in the Company’s assets; (iii)
prepayment, refinancing, or extension of any indebtedness of the Company for
borrowed money; (iv) compromise or release of any of the Company’s claims or
debts; and (v) employment of persons, firms, or corporations for the operation
and management of the Company’s business.

 

In
the exercise of the Manager’s management powers, the Manager is authorized to
execute and deliver on behalf of the Company and in its name: (i) contracts,
conveyances, assignments, leases, subleases, franchise agreements, licensing
agreements, management contracts, and maintenance contracts covering or affecting
the Company’s business and assets; (ii) checks, drafts, and other orders for
the payment of the Company’s funds; (iii) promissory notes, mortgages, deeds of
trust, security agreements, and other similar documents; and (iv) other
instruments of any kind or character relating to the Company’s affairs, whether
like or unlike the foregoing.

 

4.3             Election of
Managers.

 

(a)           The Company shall initially have two (2) Managers. The number of
Managers of the Company shall be fixed from time to time by the affirmative
vote or written consent of a majority of the Membership Interests, provided
that in no instance shall there be less than one Manager and provided further
that if the number of Managers is reduced from more than one to one, the
Articles shall be amended to so state, and if the number of Managers is
increased to more than one, the Articles shall be amended to delete the
statement that the Company has only one Manager. Unless he or she resigns or is
removed, each Manager shall hold office until a successor shall have been
elected and qualified. Managers shall be elected by the affirmative vote or
written consent of Members holding a majority of the Membership Interests. A
Manager need not be a Member, an individual, a resident of the State of Utah,
or a citizen of the United States.

 

(b)           Any Manager may resign at any time by giving written notice to the
Members and remaining Manager, if any, without prejudice to the rights, if any,
of the Company under any contract to which the Manager is a party. The resignation
of any Manager shall take effect upon receipt of that notice or at such later
time as shall be specified in the notice. Unless otherwise specified in the
notice, the acceptance of the resignation shall not be necessary to make it
effective. The resignation of a Manager who is also a Member shall not affect
the Manager’s rights as a Member and shall not constitute a withdrawal of a
Member.

 

(c)           Any Manager may be removed at any time, with cause, by the affirmative
vote of a majority of the Membership Interest at a meeting called expressly for
that purpose, or by the written consent of a majority of the Membership
Interest. Any removal shall be without prejudice to the rights, if any, of the
Manager under any employment contract and, if the Manager is also a Member,
shall not affect the Manager’s rights as a Member or constitute a withdrawal of
a Member. For purposes of this Section, “cause” shall mean fraud, gross
negligence, willful misconduct, embezzlement or a breach of such Manager’s
obligations under this Agreement or any employment contract with the Company.

 

(d)           Any vacancy occurring for any reason in the number of Managers may be
filled by the affirmative vote or written consent of a majority of the
Membership Interest.

 

3

 

4.4             Time Devoted to
Business. The Manager shall devote such time to the business of the Company
as he in his discretion deems necessary for the efficient operation of the
Company’s business. The Manager and any person or entity controlled by,
controlling or under common control with the Manager (each such person or
entity is defined as an “Affiliate”) may engage or invest in any activity,
including, without limitation, those that might be in direct or indirect
competition with the Company. Neither the Company nor any Manager shall have
any right in or to such other activities or to the income or proceeds derived
therefrom.

 

4.5             Information
Relating to Company. On request, the Manager shall supply to any Member
information regarding the Company or its activities. Each Member or authorized
representative of a Member shall have access to and may inspect and copy all
books, records, and materials in the Manager’s possession regarding the Company
or its activities. The exercise of the rights contained in this Section shall
be at the requesting Member’s expense.

 

4.6             Exculpation.
Any act or omission of the Manager, the effect of which may cause or result in
loss or damage to the Company or the Members if done in good faith to promote the
best interests of the Company, shall not subject the Manager to any liability
to the  Members.

 

4.7             Management Fee:
Reimbursement of Expenses. The Company shall pay the Manager a management
fee and no Manager shall be prevented from receiving any fee because the
Manager is also a Member. In addition, the Company shall pay the Manager or
Affiliates of the Manager for services rendered or goods provided to the
Company. The Company shall reimburse the Manager for all reasonable direct
out-of-pocket expenses incurred by him or his Affiliates in managing the
Company.

 

ARTICLE V

ALLOCATIONS OF NET PROFITS AND NET LOSSES AND DISTRIBUTIONS

 

5.1             Definitions.
When used in this Agreement, the following terms shall have the meanings set
forth below.

 

(a)           “Code” shall mean the
Internal Revenue Code of 1986, as amended from time to time, the provisions of
succeeding law, and to the extent applicable, the Treasury Regulations.

 

(b)           “Company Minimum Gain”
shall have the meaning ascribed to the term “Partnership Minimum Gain” in the
Treasury Regulations Section l.704-2(d).

 

(c)           “Member Nonrecourse
Debt” shall have the meaning ascribed to the term “Partner Nonrecourse Debt” in
Treasury regulations Section 1.704-2(b)(4).

 

(d)           “Member Nonrecourse
Deductions” shall mean items of Company loss, deduction, or Code Section
705(a)(2)(B) expenditures which are attributable to Member Nonrecourse Debt.

 

(e)           “Net Profits” and “Net
Losses” shall mean the income, gain, loss, deductions, and credits of the
Company in the Aggregate or separately stated, as appropriate, determined in
accordance with the method of accounting at the close of each fiscal year
employed on the Company’s information tax return filed for federal income tax
purposes.

 

(f)            “Nonrecourse Liability”
shall have the meaning set forth in Treasury Regulations Section 1.752-l(a)(2).

 

4

 

(g)           “Treasury Regulations”
shall mean the final or temporary regulations that have been issued by the U.S.
Department of Treasury pursuant to its authority under the Code, and any
successor regulations.

 

5.2             Allocations of Net
Profit and Net Loss.

 

(a)           Net Loss. Net
Loss shall be allocated to the Members in proportion to their Membership
Interest. Notwithstanding the previous sentence, loss allocations to a Member
shall be made only to the extent that such loss allocations will not create a
deficit Capital Account balance for that Member in excess of an amount, if any,
equal to such Member’s share of Company Minimum Gain that would be realized on
a foreclosure of the Company’s property. Any loss not allocated to a Member
because of the foregoing provision shall be allocated to the other Members (to
the extent the other Members are not limited in respect of the allocation of
losses under this Section 5.2(a)). Any loss reallocated under this Section
5.2(a) shall be taken into account in computing subsequent allocations of
income and losses pursuant to this Article V, so that the net amount of
any item so allocated and the income and losses allocated to each Member
pursuant to this Article V, to the extent possible, shall be equal to
the net amount that would have been allocated to each such Member pursuant to
this Article V if no reallocation of losses had occurred under this Section 5.2(a).

 

(b)           Net Profit. Net
Profit shall be allocated to the Members in proportion to their Membership
Interests.

 

5.3             Code Section
704(c) Allocations. Notwithstanding any other provision in this Article
V, in accordance with Code Section 70-4(c) and the Treasury Regulations promulgated
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its fair market value on the date of contribution. Allocations pursuant to
this Section 5.4 are solely for purposes of federal, state and local
taxes. As such, they shall not affect or in any way be taken into account in
computing a Member’s Capital Account or share of profits, losses, or other
items of distributions pursuant to any provision of this Agreement.

 

(a)           Distribution of
Assets by the Company. Subject to applicable law and any limitations
contained elsewhere in this Agreement, Members holding at least a majority of
the Membership Interests may elect from time to time to cause the Company to
make distributions. Distributions shall be first to the Members in proportion
to their unreturned capital contributions until each Member has recovered his
or her capital contributions, and then to the Members in proportion to their
Membership Interests.

 

ARTICLE VI

CONSEQUENCES OF DISSOLUTION EVENTS AND

TERMINATION OF MEMBERSHIP INTEREST

 

6.1             Dissolution Event.
Upon the occurrence of the death, withdrawal, resignation, retirement, insanity
or dissolution of any Member (“Dissolution Event”), the Company shall dissolve
unless all of the remaining Members (“Remaining Members”) consent within ninety
(90) days of the Dissolution Event to the continuation of the business of the
Company. If the Remaining Members so consent, the Company and/or the Remaining
Members shall have the right to purchase, and if such right is exercised, the
Member (or his or her legal representative or estate) whose actions or conduct
resulted in the Dissolution Event (“Former Member”) shall sell, the Former
Member’s Membership Interest (“Former Member’s Interest”) as provided in this
Article.

 

5

 

6.2             Withdrawal.
Notwithstanding Section 6.1, upon the withdrawal by a Member such Member
shall be treated as a Former Member, and, unless the Company dissolves as a
result of such withdrawal, the Company and/or the Remaining Members shall have
the right to purchase, and if such right is exercised, the Former Member shall
sell, the Former Member’s Interest as provided in this Article.

 

6.3             Purchase Price.
The purchase price for the Former Member’s Interest shall be the fair market value
of the Former Members Interest as determined by an independent appraiser
jointly selected by the Former Member and by Remaining Members holding a
majority of the remaining Membership Interests. The Company and the Former
Member shall each pay one-half of the cost of the appraisal. Notwithstanding
the foregoing, the Dissolution Event results from a breach of this Agreement by
the Former Member, the purchase price shall be reduced by an amount equal to
the damages suffered by the Company or the Remaining Members as a result of
such breach.

 

6.4             Notice of Intent
to Purchase. Within thirty (30) days after the fair market value of the
Former Member’s Interest has been determined in accordance with Section 6.3,
each Remaining Member shall notify the Members in writing of his or her desire
to purchase a portion of the Former Member’s Interest. The failure of any
Remaining Member to submit a notice within the applicable period shall
constitute an election on the part of the Member not to purchase any of the
Former Member’s Interest. Each Remaining Member so electing to purchase shall
be entitled to purchase a portion of the Former Member’s Interest in the same
proportion that the Membership Interest of the Remaining Member bears to the
aggregate of the Membership Interests of all of the Remaining Members electing
to purchase the Former Member’s Interest.

 

6.5             Election to Purchase
Less Than All of the Former Member’s Interest. If any Remaining Member
elects to purchase none or less than all of his or her pro rata share of the
Former Member’s Interest, then the Remaining Members can elect to purchase more
than their pro rata share. If the Remaining Members fail to purchase the entire
interest of the Former Member, the Company may purchase any remaining share of
the Former Member’s Interest.

 

6.6             Payment of
Purchase Price. The Company or the Remaining Members, as the case may be,
shall pay at the closing one-fifth (1/5) of the purchase price and the balance
of the purchase price shall be paid in four equal annual principal installments,
plus accrued interest, and be payable each year on the anniversary date of the
closing. The unpaid principal balance shall accrue interest at the current
applicable federal rate as provided in the Code for the month in which the
initial payment is made, but the Company and the Remaining Members shall have
the right to prepay in full or in part at any time without penalty. The
obligation of each purchasing Remaining Member, and the Company, as applicable,
to pay its portion of the balance due shall be evidenced by a separate
promissory note executed by the respective purchasing Remaining Member or the
Company, as applicable. Each such promissory note shall be in an original
principal amount equal to the portion owed by the respective purchasing Remaining
Member or the company, as applicable. The promissory note executed by each
purchasing Remaining Member shall be secured by a pledge of that portion of the
Former Member’s Interest purchased by such Remaining Member.

 

6.7             Closing of
Purchase of Former Member’s Interest. The closing for the sale of a Former
Member’s Interest pursuant to this Article shall be held at a time and place
mutually agreed upon by the parties. At the closing, the Former Member shall
deliver to the Company or the Remaining Members an instrument of transfer
(containing warranties of title and no encumbrances) conveying the Former
Member’s Interest. The Former Member, the Company and the Remaining Members
shall do all things and execute and deliver all papers as may be reasonably necessary
fully to consummate such sale and purchase in accordance with the terms and
provisions of this Agreement.

 

6

 

ARTICLE VII

ACCOUNTING, RECORDS, REPORTING BY MEMBERS

 

7.1             Books and Records.
The books and records of the Company shall be kept in accordance with the
accounting methods followed for federal income tax purposes.

 

7.2             Reports. The
Company shall cause to be filed, in accordance with the Act, all reports and
documents required to be filed with any governmental agency. The Company shall
cause to be prepared at least annually information concerning the Company’s
operations necessary for the completion of the Members’ federal and state
income tax returns. The Company shall send or cause to be sent to each Member
within ninety (90) days after the end of each taxable year (i) such information
as is necessary to complete the Members’ federal and state income tax or
information returns and (ii) a copy of the Company’s federal, state and local
income tax or information returns for the year.

 

7.3             Bank Accounts.
The Manager shall maintain the funds of the Company in one or more separate
bank accounts in the name of the Company, and shall not permit the funds of the
Company to be commingled in fashion with the funds of any other person. The
Manager, acting alone, is authorized to endorse checks, drafts and other
evidences of indebtedness made payable to the order of the Company.

 

7.4             Tax Matters for
the Company. The Manager is designated at “Tax Matters Partner” (as defined
in Code Section 6231), to represent the Company (at the Company’s expense) in
connection with all examination of the Company’s affairs by tax authorities and
to expend Company funds for professional services and costs associated
therewith.

 

ARTICLE VIII

DISSOLUTION AND WINDING UP

 

8.1             Conditions of
Dissolution. The Company shall dissolve upon the occurrence of any of the following
events:

 

(a)           Upon the happening of
any event of dissolution specified in the Articles;

 

(b)           Upon the entry of a decree
of judicial dissolution pursuant to Section 17351 of the Corporations Code;

 

(e)           Upon the vote of
Members holding at least a majority of the Membership Interests; or

 

(d)           The sale of all or
substantially all of the assets of the Company.

 

8.2             Winding Up.
Upon the dissolution of the Company, the Company’s assets shall be disposed of
and its affairs wound up. The Company shall give written notice of the
commencement of the dissolution to all of its known creditors.

 

8.3            Order of Payment of
Liabilities Upon Dissolution. After determining that all the known debts
and liabilities of the Company have been paid or adequately provided for, the
remaining assets shall be distributed to the Members in accordance with their
positive capital account balances, after taking into account income and loss
allocations for the Company’s taxable year during which liquidation occurs.

 

8.4            Limitations on
Payments Made in Dissolution. Except as otherwise specifically provided in
this Agreement, each Member shall be entitled to look only to the assets of the
Company for the return of his or

 

7

 

her positive Capital Account balance and shall have no
recourse for his or her Capital Contribution and/or share of Net Profits
against any other Member except as provided in Article VIII.

 

8.5             Certificates.
The Company shall file with the Utah Secretary of State a Certificate of
Dissolution upon the dissolution of the Company and a Certificate of
Cancellation upon the completion of the winding up of the Company’s affairs.

 

ARTICLE IX

INDEMNIFICATION

 

9.1             Indemnification of
Agents. The Company shall indemnify any Manager and Member and may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding by reason of
the fact that he or she is or was a Manager, Member, officer, employee or other
agent of the Company or that, being or having been such a Manager, Member,
officer, employee or agent, he or she  is
or was serving at the request of the Company as a manager, director, office,
employee or other agent of another limited liability company, corporation,
partnership, joint venture, trust or other enterprise (all such persons being
referred to hereinafter as an “agent”), to the fullest extent permitted by
applicable law in effect on the date hereof and to such greater extent as
applicable law may hereafter from time to time permit.

 

ARTICLE X

INVESTMENT REPRESENTATIONS

 

Each Member hereby
represents and warrants to, and agrees with, the Manager the Members and the
Company as follows:

 

10.1            Pre-existing
Relationship or Experience. He or she has a pre-existing personal or
business relationship with the Company or one or more of its officers or
controlling persons, or by reason of his or her business or financial
experience, or by reason of the business or financial experience of his or her
financial advisor who is unaffiliated with and who is not compensated, directly
or indirectly, by the Company or any affiliate or selling agent of the Company,
he or she is capable of evaluating the risks and merits of an investment in the
Company and of protecting his or her own interests in connection with this
investment.

 

10.2            No Advertising.
He or she has not seen, received, been presented with, or been solicited by any
leaflet, public promotional meeting, article or any other form of advertising
or genera! solicitation with respect to the sale of the Membership Interest.

 

10.3            Investment Intent.
He or she is acquiring the Membership Interest for investment purposes for his
or her own account only and not with a view to or for sale in connection with
any distribution of all or any part of the Membership Interest. No other person
will have any direct or indirect beneficial interest in or right to the
Membership Interest.

 

ARTICLE XI

MISCELLANEOUS

 

11.l             Complete Agreement.
This Agreement and the Articles constitute the complete and exclusive statement
of agreement among the Members with respect to the subject matter herein and
therein and replace and supersede all prior written and oral agreements among
the  Members. To the extent that
any provision of the Articles conflict with any provision of this Agreement,
the Articles shall control.

 

8

 

11.2           Binding Effect.
Subject to the provision of this Agreement relating to transferability, this
Agreement will be binding upon and inure to the benefit of the Members, and
their respective successors and assigns.

 

11.3           Interpretation.
All pronouns shall be deemed to refer to the masculine, feminine, or neuter,
singular or plural, as the context in which they are used may required. All
headings herein are inserted only for convenience and ease of reference and are
not to be considered in the interpretation of any provision of this Agreement.
Numbered or lettered articles, sections and subsections herein contained refer
to articles, sections and subsections of this Agreement unless otherwise
expressly stated. In the event any claim is made by any Member relating to any
conflict, omission or ambiguity in this Agreement, no presumption or burden of
proof or persuasion shall be implied by virtue of the fact that this Agreement
was prepared by or at the request of a particular Member or his or her counsel.

 

11.4           Jurisdiction.
Each Member hereby consents to the exclusive jurisdiction of the state and
federal courts sitting in Utah in any action on a claim arising out of, under
or in connection with this Agreement or the transactions contemplated by this
Agreement. Each Member further agrees that personal jurisdiction over him or
her may be effected by service of process by  registered or
certified mail addressed as provided in Section 11.6, and that when so
made shall be as if served upon him or her personally within the State of Utah.

 

11.5           Severability. If
any provision of this Agreement or the application of such provision to any
person or circumstance shall be held invalid, the remainder of this Agreement
or the application of such provision to persons or circumstances other than
those to which it is held invalid shall not be affected thereby.

 

11.6          Notices. Any
notice to be given or to be served upon the Company or any party hereto in
connection with this Agreement must be in writing (which may include facsimile)
and will be deemed to have been given and received when delivered to the
address specified by the party to receive notice. Such notices will be given to
a Member at the address specified in Exhibit “A” hereto. Any party may,
at any time by given five days’ prior written notice to the other Members,
designate any other address in substitution of the foregoing address to which
such notice will be given.

 

11.7          Amendments. All
amendments to this Agreement will be in writing and signed by all of the
Members.

 

11.8          Multiple Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which shall constitute one and the same
instrument.

 

11.9          Attorney Fees. In
the event that any dispute between the Company and the Members or among the
Members should result in litigation or arbitration, the prevailing party in
such dispute shall be entitled to recover from the other party all reasonable
fees, costs and expenses of enforcing any right of the prevailing party,
including without limitation, reasonable attorneys’ fees and expenses, all for
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 attorney fees  and
costs incurred in enforcing such judgment and an award of prejudgment interest
from the date of the breach at the maximum rate allowed by law. For the
purposes of this Section: (a) attorney fees shall include, without limitation,
fees incurred in the following: (1) post judgment motions; (2) contempt
proceedings; (3) garnishment, levy, and debtor and third party examinations;
(4) discovery; and (5) bankruptcy litigation and (b) prevailing party shall
mean the party who is determined in the proceeding to have prevailed or who
prevails by dismissal, default or otherwise.

 

9

 

11.10         Remedies Cumulative.
The remedies under this Agreement are cumulative and shall not exclude any
other remedies to which any person may be lawfully entitled.

 

11.11         Qualification in Other
States. In the event that the business of the Company is conducted in
states in addition to the State of Utah, then the Members agree that this
Company shall exist under the laws of each state in which such business is
actually conducted to the extent that it is necessary in order to do business
in such state but that otherwise the laws of the State of Utah shall govern
this Company and each Member agrees to execute such other and further documents
as may be required in order to qualify the Company to conduct its business in
other states. To the extent that business of the Company shall be conducted in
another state, the Manager(s) may, in their discretion, designate a principal
place of business and other offices in such state or states.

 

10

 

IN  WITNESS WHEREOF, the Member and Managers
of Extra Space Development, LLC, a Utah limited liability company, have
executed this Agreement, effective as of the date written above.

 

	
   

  	
  MEMBER:

  
	
   

  	
   

  
	
   

  	
  EXTRA SPACE STORAGE LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Kenneth
  M. Woolley

  	
   

  
	
   

  	
  Its: Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MANAGERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Kent W. Christensen

  	
   

  
	
   

  	
  Kent W. Christensen

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Charles L. Allen

  	
   

  
	
   

  	
  Charles L. Allen

  

 

11

 

EXHIBIT “A”

 

CAPITAL
CONTRIBUTION AND ADDRESSES OF

MEMBERS AS OF THE EFFECTIVE DATE

 

	
   

  	
   

  	
  Capital

  	
   

  	
  Membership

  	
   

  
	
  Member

  	
   

  	
  Contribution

  	
   

  	
  Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Extra Space Storage LLC

  2795 E. Cottonwood Parkway, Suite 400

  Salt Lake City, UT 84121 

  	
   

  	
  $

  	
   

  	
   

  	
  100

  	
  %

  
							

 

12

 

EXHIBIT C

 

PLAN OF DISSOLUTION
 OF
 EXTRA SPACE DEVELOPMENT, LLC

 

 

PLAN OF DISSOLUTION
 OF
 EXTRA SPACE DEVELOPMENT, LLC

 

This
Plan of Dissolution of Extra Space Development, LLC, a Utah limited liability
company (“Company”), is made pursuant to the Amended and Restate Operating
Agreement for the Company, dated as of January 1, 2004.

 

WHEREAS,
the manager of the Company, Kenneth M. Woolley, and the undersigned holders of
a majority-in-interest of the Percentage Interests of the Company have
determined that it is in the best interests of the Company and its members for
the Company to sell all of its assets and to wind up its affairs and dissolve;

 

WHEREAS,
the Company has negotiated an agreement with Extra Space Storage, Inc and its
subsidiaries for the purchase of all of the Company assets, with provision for
the payment of Company liabilities and a reserve for the expenses of winding up
it affairs.

 

IT
IS RESOLVED, that the Company be dissolved and wind up its affairs in
accordance with the following (“Plan”):

 

1.       Enter into an agreement to sell all of the
Company’s interest in its property owning entities (subsidiaries and all joint
venture interests) to Extra Space Storage LLC, for the sum of $21,486,446.75
(which reflects the agreed upon real estate values of the Company properties,
less existing property level debts, less a reduction for the interests of the Company’s
joint venture partners, adjusted for the actual net results of operation thru 11/30/07
per the Company balance sheet, and further adjusted for the estimated results
of operations from 11/30/07 through 12/31/07).

 

2.       Pay in full the Company obligations on its
line of credit from Zions First National Bank in the approximate amount of
$9,055,000.

 

3.       Retain a reserve of approximately $357,000 in
cash and receivables, for winding up expenses and for known and contingent
liabilities and retained by the Company.

 

4.       Accept a Subscription Agreement from Extra
Space Storage LLC for a membership interest in the Company, in exchange for
payment equal to the $357,000 in retained reserves.

 

5.       Distribute all remaining net proceeds of sale
and all other cash, in the approximate amount of $8,793,000, to its current
members in proportion to their Percentage Interests and in complete redemption
of their respective membership interests in the Company.

 

6.       Authorize Kenneth M. Woolley as manager to
conduct and wind up the final affairs of the Company, including preparation of
a final accounting and tax returns, and application of the reserves to the
liabilities of the Company (which will then be a wholly-owned

 

1

 

subsidiary of Extra Space
Storage LLC, with the reserved funds and any contingent assets and liabilities
which may remain isolated in the Company).

 

THE FOREGOING PLAN IS HEREBY
APPROVED THIS December, 24 2007.

 

 

	
  MANAGER

  	
  MEMBERS
  [majority-in-interest]

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Kenneth M. Woolley

  	
   

  	
  /s/ Kenneth M. Woolley

  	
   

  
	
  Kenneth M. Woolley

  	
  Kenneth M. Woolley

  
	
   

  	
  32.6300419%

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Krispen Family Holdings,
  L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Spencer F. Kirk

  	
   

  
	
   

  	
  Its:

  	
  MANAGER

  	
   

  
	
   

  	
  20.1946641%

  
					

 

2

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