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

 

(3)            HSRE-ESP will distribute cash to Extra Space in the amount specified in the Pool 2 Contribution Agreement;

 

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

 

(1)            Extra Space will contribute cash in the amount specified in this Agreement and all of Extra Space’s right, title, and interest in and to the ESP Interests in exchange for additional membership interests in HSRE-ESP (the “ Additional ESS HSRE-ESP Interests ”), which Additional ESS HSRE-ESP Interests are more particularly described in the HSRE-ESP Operating Agreement;

 

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

 

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

 

WHEREAS , the Facilities are subject to the Existing Indebtedness (defined below) in the aggregate approximate amount of $112,000,000.00 and after contribution of the ESP Interests to HSRE-ESP, the Facilities will continue to be subject to the Existing Indebtedness.

 

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

 

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

 

2.              TRANSFER OF ESP INTERESTS .

 

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

 

2

 

2.2            Consideration and Closing Structure .

 

2.2.1         Contribution Value .  The parties hereby agree that the gross fair value of the ESP Interests (which include the value of all of the Facilities), for all purposes of this Agreement, is equal to $155,500,000 (the “ Contribution Value ”).

 

2.2.2         Distribution Amount .  Immediately after the Closing Extra Space and HSRE shall cause HSRE-ESP to distribute to Extra Space cash in an amount (the “ Extra Space Distribution Amount ”) equal to the sum of: (i) the “Initial HSRE Contribution Amount” (hereinafter defined) minus (ii) any closing costs and prorations described in Section 4.3 below (including the costs described in Section 4.3.4 below) (collectively, the “ Prorations ”) and credited, as of the Proration Date (as defined below), to HSRE-ESP, plus (iii) any Prorations credited, as of the Proration Date, to Extra Space.  As used herein, the term “ Initial HSRE Contribution Amount ” shall mean eighty percent (80%) of the difference between (A) the Contribution Value, minus (B) the sum of the aggregate unpaid principal balance of the Existing Indebtedness plus all accrued and unpaid interest with respect to the Existing Indebtedness as of the Proration Date.  Extra Space and HSRE agree that for purposes of determining the balance of Extra Space’s “Capital Account” (as defined in the HSRE-ESP Operating Agreement) and Extra Space’s “Adjusted Capital Account” (as defined in the HSRE-ESP Operating Agreement), the gross amount of Extra Space’s initial “Capital Contribution” to HSRE-ESP shall be reduced by the Initial HSRE Contribution Amount notwithstanding the fact that the amount actually distributed to Extra Space by HSRE-ESP is adjusted (either increased or decreased) pursuant to the provisions of this Section 2.2.2.  The parties hereby agree that the provisions of this Section 2.2.2  are intended to cause the Adjusted Capital Accounts of HSRE and Extra Space to be in an 80.00%/20.00% ratio, respectively, following the contribution of the ESP Interests by Extra Space and the Initial HSRE Contribution Amount by HSRE and the distribution of the Extra Space Distribution Amount to Extra Space and the pro-rations and credits provided for herein.

 

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

 

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

 

3.              THE PROPERTY; EXISTING INDEBTEDNESS .

 

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

 

3

 

3.1.1         Land .  Those certain tracts of real estate underlying the Facilities, as more particularly described on Schedules 3.1(a) 1 through 23 , together with all easements, covenants, rights, privileges, tenements, hereditaments and appurtenances thereunto now or hereafter belonging or appertaining thereto (collectively, the “ Land ”);

 

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

 

3.1.3         Tangible Personal Property .  To the extent owned by either ESP 52 or ESP Maryland Two, all furniture, furnishings, fixtures, equipment, machinery, maintenance vehicles and equipment, tools, parts, recreational equipment, carpeting, window treatments, stationery and other office supplies and other tangible personal property of every kind situated in, on, over and under the Premises or used in connection therewith, which is not owned by tenants under the Leases (defined below), together with all replacements and substitutions therefor between the date hereof and Closing (the “ Tangible Personal Property ”), including but not limited to those items set forth on Schedule 3.1(c)   attached hereto;

 

3.1.4         Leases and Contracts .  All right, title and interest of ESP 52 or ESP Maryland Two (as applicable) in and to the Contracts, if any, and the Leases (as such terms are defined below); and

 

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

 

Notwithstanding anything to the contrary set forth above or otherwise contained herein, “ Property ” expressly excludes (i) all property owned by tenants or other users or occupants of the Premises (other than ESP 52 and ESP Maryland Two), (ii) all property

 

4

 

owned by the property manager of the Premises, (iii) all property owned by any vendor under any Contract, (iv)  all rights and liabilities of either ESP 52 or ESP Maryland Two in, to and under those litigation matters, if any, described in Schedule 3.1 attached hereto.

 

3.2            Existing Indebtedness .  As used in this Agreement, the term “ Existing Indebtedness ” shall mean those certain loans evidenced by separate Promissory Notes with respect to each of the Facilities in which either ESP 52 or ESP Maryland Two appears as Borrower and Wachovia Bank N.A. appears as Lender (each a “ Third Party Note ” and collectively the “ Third Party Notes ”).  The Third Party Notes are secured by one or more mortgages or deeds of trust against the Property (each a the “ Third Party Mortgage ” and collectively the “ Third Party Mortgages ”).  Extra Space and HSRE agree as follows with respect to the Existing Indebtedness:

 

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

 

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

 

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

 

3.2.2         Extra Space agrees that, within ten (10) days of the execution of this Agreement, Extra Space will apply for and will thereafter pursue with

 

5

 

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

 

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

 

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

 

4.              CLOSING .

 

4.1            Closing Date .  The “ Closing Date ” or “ Closing ” of the transaction contemplated by this Agreement shall be on or before the date which is fifteen (15) days from the end of the Due Diligence Period.  The “ Closing Date ” shall be the date on which the “ Closing ” occurs.  The Closing shall occur at the office of HSRE’s Counsel, DLA Piper LLP (US), 203 North LaSalle Street, 19th Floor, Chicago, IL, 60601.  The “ Closing ” shall be deemed to have occurred when all of the conditions to Closing (as set forth in this Agreement) have either been satisfied or waived, the Escrow Agent (defined

 

6

 

below) holds a settlement statement signed by Extra Space, a settlement statement signed by HSRE, and all of the funds and all of the other documents required by this Agreement, and Extra Space and HSRE have authorized Escrow Agent to disburse such funds and deliver such documents in accordance with the provisions of this Agreement.

 

4.2            Closing Documents .

 

4.2.1         Coordination with Closing Under Pool 2 Contribution Agreement .  It is the anticipation of the parties to this Agreement that the Closing under the Pool 2 Contribution Agreement will occur prior to the Closing under this Agreement.  If the Closing under the Pool 2 Contribution has not occurred prior to the Closing under this Agreement, the parties will, in connection with the Closing under this Agreement, proceed to (a) form HSRE-ESP, (b) make such modifications to the HSRE-ESP Operating Agreement and the Pool 2 Contribution Agreement to reflect the fact that the Closing is occurring under this Agreement prior to the Closing under the Pool 2 Contribution Agreement, and (c) execute the HSRE-ESP Operating Agreement (as modified pursuant to the provisions of this Section 4.2.1 ) as part of the Closing under this Agreement.

 

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

 

4.2.2.1                  [ RESERVED ].

 

4.2.2.2                  two counterparts of an Assignment and Assumption of the Membership Interests in ESP 52 and ESP 58 (the “ Assignment Agreement ”) executed by Extra Space in the form of Exhibit B attached hereto and by this reference made a part hereof [at Closing, one counterpart will be delivered to Extra Space and one counterpart will be delivered to HSRE-ESP];

 

4.2.2.3                  if the Closing under the Pool 2 Contribution Agreement has not occurred, three counterparts of the HSRE-ESP Operating Agreement (as modified pursuant to Section 4.2.1 above), executed by Extra Space [at Closing, one counterpart will be delivered to Extra Space, one counterpart will be delivered to HSRE and one counterpart will be delivered to HSRE-ESP];

 

4.2.2.4                  any and all affidavits, undertakings, certificates or other documents customarily required by Title Insurer in order to cause it to issue the Title Policy or the Endorsements (as defined in Section 11.1.1 hereto), as applicable, to HSRE-ESP or any applicable subsidiary of HSRE-ESP including, without limitation, ESP 52 or ESP Maryland Two;

 

4.2.2.5                  Extra Space’s affidavit stating Extra Space’s U.S. taxpayer identification number and that Extra Space is not a disregarded entity or foreign person within the meaning of Section 1445 of the Internal

 

7

 

Revenue Code (and any similar affidavit that may be required under state law);

 

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

 

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

 

4.2.2.8                  two counterparts of a new property management agreement with respect to each Facility executed by Extra Space Management, Inc. (“ ESMI ”), in the form of Property Management Agreement attached as Exhibit C to the HSRE-ESP Operating Agreement and by this reference made a part hereof (each a “ Property Management Agreement ” and collectively the “ Property Management Agreements ”) [at Closing, one counterpart of each Property Management Agreement will be delivered to ESMI and one counterpart of each Property Management Agreement will be delivered to HSRE-ESP];

 

4.2.2.9                  if the Closing under the Pool 2 Contribution Agreement has not occurred, two counterparts of a Non-Competition and Right of First Opportunity Agreement in the form attached hereto as Exhibit C and by this reference made a part hereof (the “ ROFO Agreement ”) [at Closing, one counterpart will be delivered to Extra Space and one counterpart will be delivered to HSRE];

 

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

 

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

 

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

 

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

 

4.2.3.2                  if the Closing under the Pool 2 Contribution Agreement has not occurred, three counterparts of the HSRE-ESP Operating Agreement (as modified pursuant to Section 4.2.1 above), executed by Extra Space [at Closing, one counterpart will be delivered to Extra Space, one counterpart will be delivered to HSRE and one counterpart will be delivered to HSRE-ESP]

 

8

 

4.2.3.3                  if the Closing under the Pool 2 Contribution Agreement has not occurred, two counterparts of the ROFO Agreement executed by Harrison Street Real Estate Capital, LLC [at Closing, one counterpart of the ROFO Agreement will be delivered to Extra Space and one counterpart of the ROFO Agreement will be delivered to HSRE]; ;

 

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

 

4.2.4.1                  if the Closing under the Pool 2 Contribution Agreement has not occurred, the Additional ESS HSRE-ESP Interests and the Additional HSRE HSRE-ESP Interests (the delivery of which shall be evidenced by the execution and delivery of the HSRE-ESP Operating Agreement by HSRE and Extra Space);

 

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

 

4.2.4.3                  two counterparts of a Property Management Agreement with respect to each of the Facilities executed, as applicable, by either ESP 52 or ESP Maryland Two [at Closing, one counterpart of each Property Management Agreement will be delivered to ESMI and one counterpart of each Property Management Agreement will be delivered to HSRE-ESP];

 

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

 

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

 

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

 

4.3            Credits and Prorations .

 

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

 

9

 

4.3.1.1                  all collected rents and other sums received under Leases (“ Rents ”) (including prepaid Rents) (to the e