Lease and development agreement

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Section 14A.12 Subordination.

Notwithstanding anything contained in any Mortgage or in this Article 14A, it is understood and agreed that the rights of the holder of any Mortgage, including a Recognized Mortgagee, shall be subject and subordinate to this Agreement. The terms, covenants, conditions and provisions of this Agreement shall govern as between the Port Authority, the Lessee and any Recognized Mortgagee, and in the event of any inconsistency between the terms, covenants, conditions and provisions of this Agreement and the terms, covenants, conditions and provisions of a Mortgage, the terms, covenants, conditions, and provisions of this Agreement shall control. Notwithstanding any provisions of any Mortgage to the contrary, the Lessee shall be deemed to be the Lessee hereunder for all purposes unless and until a Recognized Mortgagee shall have acquired the Lessee’s interest herein or a New Lease has been executed pursuant to this Article, as the case may be. Any Mortgage granted hereunder shall make reference to the provisions of this Agreement and shall provide that the Mortgage and the rights of the Recognized Mortgagee thereunder are and shall be in all respects subject to all provisions of this Agreement. Without limiting the generality of the foregoing, each Mortgage shall contain the following provisions:

“This mortgage is executed upon the condition (i) that no purchaser at any foreclosure sale shall acquire any right, title or interest in or to the agreement hereby mortgaged (the “Lease”) unless such purchaser, or the person, firm or corporation to whom or to which such purchaser’s right has been assigned, in the instrument transferring to such purchaser or to such assignee of the interest of the Lessee under the Lease, assumes and agrees to perform all of the terms, covenants and conditions of the Lease thereafter to be observed or performed on the part of such Lessee, (ii) that no further or additional mortgage or assignment of the Lease shall be made except in accordance with the provisions of the Lease and (iii) that a duplicate original of the instrument containing such assumption agreement, duly executed and acknowledged by purchaser or assignee and in recordable form, is delivered to the Port Authority promptly after the consummation of such sale or assignment.”

“The mortgagee agrees to have the proceeds of any insurance or the proceeds of any condemnation award applied to the repair or restoration of the mortgaged premises to the extent such application is required by the provisions of the Lease.”

Section 14A.13 Assignment by Recognized Mortgagee.

A Recognized Mortgagee shall have the right, at any time and without the consent of the Port Authority, to assign the Mortgage held by it to another Institutional Investor or to grant participations in its Mortgage so long as a single Institutional Investor continues to act as the Recognized Mortgagee thereunder, and the Port Authority will be obligated to give notices to and otherwise deal with only the one Institutional Investor that acts as such Recognized Mortgagee.

Section 14A.14 No Merger.

So long as any Mortgage held by a Recognized Mortgagee is in effect, unless all Recognized Mortgagees shall otherwise expressly consent in writing, the Port Authority’s interest in the Premises and the leasehold estate of the Lessee created herein shall not merge, but shall remain separate and distinct, notwithstanding the acquisition of the fee title and leasehold estate by the Port Authority, the Lessee or any third party, by purchase or otherwise.

Section 14A.15 No Mortgage by Port Authority.

The Port Authority acknowledges that it has not granted any mortgage encumbering the Premises, and confirms that this Agreement and the Lessee’s interest hereunder are and shall remain prior to any mortgage that the Port Authority may make of its interest in the Premises.


Section 15.1 Definitions.

Adjusted Gross Proceeds” shall mean the amount by which the Transaction Receipts of a transaction exceed the Transaction Expenses applicable to the transaction.

Alternative Disposition” shall mean any transaction which, by virtue of transfer of control or other incidents of ownership, would allow the Lessee or the beneficial owners of the Lessee to realize appreciation in the value of the leasehold estate created by this Agreement or would constitute the functional equivalent of a Sale.

Development Costs” shall mean all actual hard and soft costs of construction, development and equipping of the Project incurred after [ , 201_. Soft costs shall be defined as: planning and design, general contractor’s and construction management fees (which shall, if paid to an Affiliate, be no more than twenty percent (20%) of the total Development Costs for the Project), professional fees (including without limitation legal, appraisal, environmental, accounting, historical preservationist, architectural and engineering fees), premiums and fees for construction period insurance, construction financing fees and expenses (including construction period interest), property testing and remediation costs, mortgage taxes, transfer taxes and the Lessee’s reasonable salary and overhead costs. In no event, however, shall Development Costs include (i) amounts contributed to reserve funds unless and until such amounts are actually expended for purposes which would otherwise constitute Development Costs, (ii) developer fees of any kind paid, incurred or imputed to the Lessee or an Affiliate, (iii) any amounts paid or owed to an Affiliate to the extent such are in excess of that which would have been paid to an unrelated party in an arms-length transaction, (iv) principal payments or, to the extent the Lessee or its beneficial owners realize the benefit of currently deducting interest expenses for income tax purposes (i.e., dollar tax savings), interest payments on Mortgages (other than construction period interest), and (v) any expense for which the Lessee is reimbursed, directly or indirectly, including, without limitation, by the City, the State, other public entities, or any Subtenant.

Financing” shall mean (x) any Mortgage or other financing secured by the Lessee’s interest in all or any part of this Agreement or the leasehold estate created hereby, or (y) any refinancing, assignment, or restructuring of any such Mortgage or financing; provided, however, that neither the Construction Loan nor the Permanent Loan shall be deemed to be a Financing unless the amount of either Loan exceeds the Development Costs of the Project, in which case such excess amount shall be deemed a Financing.

Major Sublease” shall mean any Sublease for (x) fifty percent (50%) or more of the Gross Square Footage of the Retail Space or (y) thirty percent (30%) or more of the total number of Hotel Rooms.

Proceeds Percentage” shall mean [ ] percent ( %).

Proportionate Share” of any item included in Transaction Receipts, with respect to a particular transaction, shall be equal to the percentage of the total assets, the entire leasehold interest, or the total ownership interest in the Lessee or its constituent entity (as the case may be) that is being sold.

Sale” shall mean any Assignment, Transfer, Major Sublease, license, unsecured loan, sale (including without limitation, resale or sale among shareholders, partners or members), syndication, or other transfer of part or all of the Lessee’s interest in this Agreement or the leasehold estate created hereby, or any Alternative Disposition.

Total Project Cost” shall mean the Development Costs of the Project through the Construction Completion Date, as established pursuant to Section 15.3 below.

Transaction Expenses” shall mean all reasonable and customary expenses of the pertinent transaction, which expenses shall include, without limitation, attorneys’ fees and disbursements, accountants’, appraisers’, consultants’, and other professional fees, title insurance premiums, escrow fees, transfer and recording taxes, real property transfer gains taxes, mortgage recording taxes, brokerage fees, origination fees, institutional lender participations, and prepayment penalties; provided, however, that with respect to such expenses paid to any Affiliate of the Lessee, such amounts shall be no more than would have been paid to an unrelated party in an arms-length transaction.

Transaction Receipts” shall mean:

(1) in the case of a Sale other than a Major Sublease, the aggregate of the following amounts, computed as of the closing date of such Sale, received as, or deemed to be, consideration for the Sale: (A) all cash or cash equivalent proceeds, (B) the fair market value of any property, other than cash, cash-equivalents or debt obligations made in connection with the Sale, (C) the outstanding principal amount of any Mortgages or other debt assumed or satisfied by the purchaser at such Sale or to which the Sale is made subject, (D) the principal amount of any purchase money note or debt obligation made in connection with such Sale and (E) any other consideration for the Sale (e.g., debt forbearance), if, as, and when received from each Sale, or at such time as the transferor is relieved of a Mortgage or other debt obligation;

(2) in the case of a Financing, the cash proceeds received in connection with the Financing; and

(3) in the case of a Major Sublease, the rental and any other amounts paid to the Lessee under such Major Sublease for each month during the term thereof.

Section 15.2 Payments.

(a) Proceeds Payments.

(1) It is the intention of this Article that the Port Authority share in any appreciation in the value of the Leased Premises realized by the Lessee, a Master Sublessee or any other person with a direct or indirect interest in the Lessee or Master Sublessee, upon the terms and conditions of this Article. Accordingly, any transaction or series of transactions by which the Lessee, or any person, seeks to evade the clear intent and purpose of this Article, however characterized, and which is not expressly exempted from the scope of this Article, shall be deemed to come within the scope of a “Sale”.

(2) In the event of any Sale or Financing, Lessee shall pay or cause to be paid to the Port Authority as additional rent hereunder, simultaneously with the consummation of each such Sale (except as provided in Section 15.2(b) below and except as otherwise provided below in the case of a Major Sublease) or Financing, a payment (a “Proceeds Payment”) in a total amount equal to the Proceeds Percentage of the Adjusted Gross Proceeds; provided, however, that where a Sale is of interests representing assets in addition to a direct or indirect interest in the Lessee (such direct or indirect interest, the “Lessee Interest”), then the Proceeds Payment shall be equal to the Proceeds Percentage of the Proportionate Share of the Lessee Interest in the value of such multiple-property transaction. The Lessee shall make the Proceeds Payments in the manner specified in this Article regardless of whether Transaction Receipts are received in a lump sum or in a stream of payments, and whether based on a fixed price or a formula or index, and whether received directly or indirectly.

(b) Certain Sales Exempt.

(1) Notwithstanding Section 15.2(a) above, no Proceeds Payment shall be due to the Port Authority by reason of any Transfer that is both (x) made solely between Initial Owners and (y) consummated prior to the tenth (10th) anniversary of the Lease Commencement Date.

(2) Notwithstanding Section 15.2(a) above, no Proceeds Payment shall be due to the Port Authority by reason of a Transfer of publicly traded equity interests.

(c) Distribution of Adjusted Gross Proceeds.

Adjusted Gross Proceeds shall be distributed first to the Port Authority, in the amount of the Proceeds Payment, and thereafter to the Lessee, in the amount of the remaining balance of the Adjusted Gross Proceeds.

Section 15.3 Determination of Total Project Cost.

Not later than ninety (90) days after the Construction Completion Date, the Lessee shall deliver to the Port Authority a statement of the Development Costs expended up to the Construction Completion Date, listing in reasonable detail the components thereof, certified by an authorized corporate officer, general partner or manager (if the Lessee is a limited liability company) of Lessee, as the case may be, as being accurate in all material respects, and audited by the Certified Public Accountant (who shall give an opinion thereon that is qualified only to the extent prescribed for any comparable audit of this kind by generally accepted auditing standards). Within a period of one hundred eighty (180) days after receipt of such statement, the Port Authority may examine and audit the records, account books and other data of the Lessee used as the basis for such certified statement, all of which the Lessee shall make available to the Port Authority. If such audit shall establish that such Development Costs were overstated, then such Development Costs for purposes of this Agreement shall be reduced accordingly. The audit, if any, shall be conducted at the expense of the Port Authority unless it shall be established that the Lessee overstated such Development Costs by more than three percent (3%), in which case the Lessee shall pay the cost of the audit. If any item of Development Costs has not yet been determined by ninety (90) days after the Construction Completion Date, the Lessee shall make one or more supplemental submissions of such additional Development Cost items (which supplemental submission[s] shall be certified and audited, the cost of such audits borne as provided in the preceding sentence).

Section 15.4 Closings.

The Lessee shall notify the Port Authority of the time and location of the closing of any Sale or Financing, at least ninety (90) days prior thereto, and shall include therewith a statement of the anticipated Transaction Receipts, Transaction Expenses and Adjusted Gross Proceeds, and a copy of the most recent available drafts of the Sale or Financing documents, as the case may be. If there is any material change in the facts as set forth in such notice (including any change whatsoever in anticipated Adjusted Gross Proceeds), the Lessee shall re-notify the Port Authority, with the corrected information, as soon as reasonably practicable prior to the closing. The Lessee shall thereafter supply the Port Authority with any documents or information requested by the Port Authority in order for the Port Authority to verify the calculation of Adjusted Gross Proceeds. Representatives of the Port Authority may attend such closing. Each Proceeds Payment shall be paid to the Port Authority at such closing by certified check or by wire transfer.

Section 15.5 Monitoring of Transfers of Ownership Interests.

(a) Amendment to Organizational Documents.

All of the Lessee’s organizational documents and the organizational documents of any direct or indirect constituent entity of the Lessee (the “Organizational Documents”) shall be amended prior to or as of the Lease Commencement Date, and the Organizational Documents of any other entity shall be amended prior to becoming a direct or indirect constituent entity of Lessee, so that the Organizational Documents contain, and shall thereafter continue to contain, throughout the term of this Agreement, provisions that (x) no new partner or member shall be admitted, (y) no transfer of stock ownership or of a beneficial interest in the Lessee or in any direct or indirect constituent entity in the Lessee shall be effective and (z) no Organizational Documents shall be amended to reflect any such changes in partnership or membership interests or transfers of stock ownership or beneficial interests, until the Lessee receives reasonably satisfactory evidence, a copy of which the Lessee shall promptly deliver to the Port Authority, that any Proceeds Payment due to the Port Authority in connection with such change or transfer has been or will be paid.

(b) Legend.

In addition, any instrument evidencing a direct ownership interest in the Lessee or in any direct or indirect constituent entity of the Lessee shall contain a legend giving notice of, or a complete description of, the foregoing transfer restrictions, in form and substance satisfactory to the Port Authority.

(c) Lessee’s Monitoring Obligations.

If any principal of the Lessee becomes aware of any assignments or transfers of a direct ownership interest in the Lessee or in any direct or indirect constituent entity of the Lessee in respect of which a Proceeds Payment was due but was not paid, the Lessee shall charge the shareholder, partner or member or other transferor (including, if necessary, by a reduction in the capital account of the partner involved) to the extent necessary to make the requisite Proceeds Payment, with interest at the Late Charge Rate (accruing from the day the payment should have been made in accordance with this Agreement), and the Lessee shall make such payment to the Port Authority. As a condition of every Sale, the Lessee shall require that the Organizational Documents and instruments evidencing ownership of the purchaser contain identical restrictions on transfer as are contained in this Section.

(d) Annual Certificate.

Annually on or before each February 1 during the term of this Agreement, the Lessee shall deliver to the Port Authority a certificate, subscribed by the secretary or managing partner or manager of the Lessee, as the case may be, expressly referring to this Section 15.5, and setting forth the names, addresses and beneficial and record interests of all Persons with five percent (5%) or more of the nominal or beneficial interests in the Lessee and its direct and indirect constituent entities as of the preceding January 1.

Section 15.6 Validity of Transactions.

Nothing contained in this Article with respect to Sales and Financings shall be construed to limit the rights of the Port Authority under the applicable provisions of the Article entitled “Assignment, Transfer, Mortgage and Subletting”. Any Sale or Financing transacted in violation of such Article or this Article shall be null and void.

Section 15.7 Proceeds Payments on Major Subleases.

(a) Payments.

In the event of any Major Sublease, the Lessee shall pay the Proceeds Payments applicable to such transaction by paying to the Port Authority on the first day of each month an amount equal to the Proceeds Percentage of the Transaction Receipts from such Major Sublease for such month.

(b) Transactions of Major Subtenants.

In the event of a transaction by, or involving an interest in, a Major Subtenant, which transaction would, if the Major Subtenant were the Lessee, create the requirement for the payment of a Proceeds Payment, such a Proceeds Payment shall be payable by the Lessee to the Port Authority, in an amount calculated to produce the Proceeds Percentage share of profits from the transaction according to the principles set forth in this Article, for calculating the Proceeds Payments in connection with Lessee transactions.

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