UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 6, 2023
SILVER STAR PROPERTIES REIT, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
| Maryland | | 000-53912 | | 26-3455189 |
(State or other jurisdiction of
incorporation or organization) | | (Commission
File Number) | | (I.R.S. Employer
Identification No.) |
| | | | |
| 2909 Hillcroft, Suite 420, Houston, Texas | | 77057 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant's telephone number, including area code: (713) 467-2222
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| | | | | | | | |
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| | | | | | | | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| | | | | | | | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| | | | | | | | |
| o | Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered or to be registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | None | None |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item 1.01 Entry into a Material Definitive Agreement.
Acquisition of Southern Star Self-Storage Investment Company
On April 6, 2023, the Executive Committee (the “Committee”) of the Board of Directors of Silver Star Properties REIT, Inc. (the “Company”) approved of the Equity Interest Purchase Agreement (the “Purchase Agreement”) to purchase all of the equity interests in Southern Star Self-Storage Investment Company, a Texas corporation, (“Southern Star”) for approximately $3,000,000 in cash and 301,659 restricted stock units of the Company’s Common Stock (the “Acquisition”). The Company expects to close the transaction within thirty days.
Southern Star is a privately held real estate company that specializes in the sponsorship and management of DST investments in self-storage properties. Established in 2019, the company currently operates a portfolio of nine properties, which together comprise 321,291 net rentable square feet (“NRSF”) spread across 2,526 units. Additionally, the company has two facilities, totaling 208,220 NRSF and 703 units, under contract that are expected to close by June 1, 2023. Most of the facilities also have parking for boats, RV’s and autos. The facilities generally contain both climate and non-climate-controlled units and are located predominantly in secondary and tertiary markets in Texas, Florida, North Carolina, and Colorado.
The Company expects to benefit from Southern Star’s experienced self-storage operating capabilities and investment prowess through its management team. Southern Star will use its expertise in developing assets with DSTs and operate as a "Sister" company alongside a subsidiary of the Company’s current operations.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement, a copy of which is attached as Exhibit 10.1 to this Form 8-K and is incorporated herein by reference.
Employment Agreement with Mr. Torok
In conjunction with the Acquisition, on April 6, 2023, Mark T. Torok executed a three-year employment agreement (the “Employment Agreement”) with the Company to serve as the Company’s Chief Executive Officer. Under the Employment Agreement, Mr. Torok will receive a base salary for the first annual period equal to $550,000 and thereafter any increase will be determined by the Executive Committee with input from the Company’s compensation consultant and 1,263,642 Performance Units, as further described below. The Employment Agreement may be terminated by us at any time and for any reason (or no reason), and with or without cause, provided if the agreement is terminated without cause, we are required to provide Mr. Torok with all accrued benefits and his base salary rate until the earlier of twelve months following the termination date or the end of the term of the Employment Agreement.
The foregoing description of the Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the Employment Agreement, a copy of which is attached as Exhibit 10.2 to this Form 8-K and is incorporated herein by reference.
Adoption of the 2023 Incentive Award Plan
On April 6, 2023, the Committee and Managing General Partner of Hartman XX Limited Partnership ("Operating Partnership") approved and adopted the Silver Star Properties REIT, Inc. and Hartman XX Limited Partnership 2023 Incentive Award Plan (the “Plan”) to promote the success and enhance the value of the Company by retaining personnel that have the knowledge vision and ability not only with the Company but also in the capital markets. The Plan recognizes that the entire Acquisition and the New Direction Plans, as defined below, were set up by the work and effort of the Chief Executive Officer and the Committee. The Plan further serves to incentivize and retain the Chief Executive Officer and the Committee, together, to execute the New Direction Plans and enable the Company and its shareholders to realize the value created by the New Direction Plans. Going forward, considering the Committee and the Chief Executive Officer, with their knowledge of the existing operations of the company, their working relationship with management and their vision along with management as to the manner in which the New Direction Plans should be carried out, it is essential that the Committee and the Chief Executive Officer be
retained in a fashion and in the totality for the benefit of the shareholders and all constituents including management, creditors and others to be fulfilled to the fullest extent possible.
The Plan allows for grants of performance units (“Performance Units”) which are intended to constitute profits interests units in the Operating Partnership, of which the general partner is a wholly-owned subsidiary of the Company, convertible into Partnership Common Units of the Operating Partnership at the election of the participant which may be later exchanged for Common Stock of the Company based on a 1:1 ratio. The participant is also able to cause the redemption of the Performance Units, or the applicable Partnership Common Units received as a result of conversion, after three years from the Grant Date. The Plan includes a three-year vesting that is intended to ensure that the Committee and the Chief Executive Officer will stay in place and provide continued services to the Company.
The foregoing description of the Plan does not purport to be complete and is qualified in its entirety by reference to the Plan, a copy of which is attached as Exhibit 10.3 to this Form 8-K and is incorporated herein by reference.
Grants of Performance Units to Mr. Torok and the Executive Committee
On April 6, 2023, pursuant to the Plan, the Committee approved grants of founders’ Performance Units to retain and incentivize the following executive officers and members of the Committee in carrying out the New Direction Plans, as defined below: Mark T. Torok, the Company’s Chief Executive Officer (1,263,642 Performance Units), Gerald Haddock, member of the Committee, (1,053,035 Performance Units), Jack Tompkins, member of the Committee, (1,053,035 Performance Units), and James Still, member of the Committee, (1,053,035 Performance Units). Performance Units vest 1/3 of the grant per year, and the term of each Performance Unit is ten (10) years from the date of grant.
The foregoing description of the grants does not purport to be complete and is qualified in its entirety by reference to the Form of AO LTIP Unit Award Agreement, a copy of which is attached as Exhibit 10.4 to this Form 8-K and is incorporated herein by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
The information contained in Item 1.01 above is incorporated by reference into this Item 5.02.
Item 7.01. Regulation FD Disclosure.
On April 6, 2023, the Company issued a press release announcing the approval by the Committee of the New Direction Plans, as defined below, to pivot the company’s assets into the self-storage asset class, the acquisition of Southern Star Self-Storage Investment Company, and the three-year employment agreement with Mr. Torok and also operating changes for the Company, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.
The information provided pursuant to this Item 7.01, including Exhibit 99.1 in Item 9.01, are “furnished” and shall not be deemed to be “filed” with the Securities and Exchange Commission or incorporated by reference in any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in any such filings. The furnishing of the remarks is not intended to constitute a representation that such furnishing is required by Regulation FD or that the remarks include material investor information that is not otherwise publicly available. In addition, the Company does not assume any obligation to update such information in the future. The attached prepared remarks contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Item 8.01. Other Events.
Approval of the New Direction Plans
On April 6, 2023, the Committee, after receiving support from certain major shareholders, announced that it has completed its review and approval the plan, developed by Mark T. Torok and the Committee, to reposition the Company’s assets into the self-storage asset class to maximize shareholder value (the “New Direction Plans”). With this plan, the Company will shift our predominantly out of favor office assets into the stable, recession-resilient, and growing self-storage real estate asset class.
Item 9.01. Financial Statements and Exhibits.
(a) Exhibits
| | | | | |
Exhibit Number | Exhibit Description |
| |
| |
| |
| |
| |
Forward-Looking Statements
This report contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this report, other than statements of historical fact, are "forward-looking statements" for purposes of these provisions, including statements regarding the Company's plans to acquire the equity interests of Southern Star, the timing of the closing and the expected results of the New Direction Plans. These statements involve risks and uncertainties that could cause actual results to differ materially depending on a variety of important factors, and there can be no assurance that the Company will be able to consummate the acquisition on the terms described or at all. Factors that might cause or contribute to such differences include, but are not limited to, the failure of the Company and Southern Star to satisfy the closing condition and the risk factors detailed in the Company's annual reports on Form 10-K and quarterly reports on Form 10-Q that the Company files with the Securities Exchange Commission (“SEC”) from time to time. The Company's SEC filings are available from the Company and are also available at the SEC's website at http://www.sec.gov. In addition, factors that the Company is not currently aware of could harm the Company's future operating results. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to make any revisions to the forward-looking statements or to reflect events or circumstances after the date of this report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| SILVER STAR PROPERTIES REIT, INC. |
| (Registrant)
|
| Date: April 10, 2023 | By: | /s/ Michael Racusin |
| Michael Racusin |
| General Counsel and Corporate Secretary
|
EQUITY INTEREST PURCHASE AGREEMENT
This EQUITY INTEREST PURCHASE AGREEMENT (“Agreement”) is made and entered into as of April 6, 2023 (“Effective Date”), by and among the equity owners listed on Exhibit A attached hereto (each, a “Seller” and together, the “Sellers”), Southern Star Self-Storage Investment Company, a Texas corporation (the “Company”), and Silver Star Properties REIT, Inc., a Maryland corporation (“Buyer”). The Sellers have included on Exhibit A all of the entities directly or indirectly involved in any manner with the business of the Company and owned in whole or in part by the Company or the Sellers (“Company Affiliates”).
RECITALS
WHEREAS, Sellers owns all of the issued and outstanding stock of the Company (the “Company Interests”), and the term Company Interests shall include the equity interests of any Company Affiliate owned by any or all of the Sellers;
WHEREAS, Buyer desires to acquire from Sellers, and Sellers desire to sell to Buyer on the Closing Date, all of the Company Interests, upon the terms and subject to the conditions set forth in this Agreement, as a result of which, the Company and all Company Affiliates will, at the Closing, become, direct or indirect, wholly-owned subsidiaries of Buyer;
WHEREAS, It is the intent of the Parties to operate Silver Star and Southern Star as separately as possible and management of each company shall take all reasonable actions for that purpose. and
WHEREAS, capitalized terms used but not defined in the context of the section in which such terms first appear shall have the meanings set forth in Section 1.1.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I.
DEFINITION
Section 1.1 Definitions. For purposes of this Agreement, the following terms have the definitions set forth below:
“Affiliate” means, with respect to any Person: (i) any manager, director, officer, employee, member, stockholder, partner or principal of that Person; (ii) any other Person of which that Person is a manager, director, officer, employee, member, stockholder, partner or principal; (iii) any Person who directly or indirectly controls or is controlled by, or is under common control with, that Person; and (iv) with respect to any Person described above who is a natural person, any spouse and any relative (by blood, adoption or marriage) within the third degree of consanguinity of the Person.
“Agreement” has the meaning set forth in the preamble.
"Business Day" means any day on which national banks are open for business in the city of Houston, Texas.
“Buyer” has the meaning set forth in the preamble.
“Buyer Indemnitee” has the meaning set forth in Section 7.2.
“Closing” has the meaning set forth in Section 6.1.
“Closing Date” has the meaning set forth in Section 6.1.
“Closing Purchase Price” has the meaning set forth in Section 2.2.
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” has the meaning set forth in the preamble.
“Company Affiliates” has the meaning set forth in the preamble.
“Company Interests” has the meaning set forth in the recitals.
“Control” means, with respect to any Person, the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
“Employee Plans” has the meaning set forth in Section 3.9.
“Environmental Laws” has the meaning set forth in Section 3.13.
“ERISA” has the meaning set forth in Section 3.9.
“Exchange Act” means the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Executive Committee” means the executive committee of the board of directors of the Buyer.
“FCPA” has the meaning set forth in Section 3.18.
“Fundamental Representations” has the meaning set forth in Section 7.5.
“GAAP” means the United States generally accepted accounting principles in effect from time to time.
“Governmental Authority” means any national, state or local, domestic or foreign or international, government or any judicial, legislative, executive, administrative or regulatory authority, tribunal, agency, body, entity or commission or other governmental, quasi-governmental or regulatory authority or agency, domestic or foreign or international.
“Hazardous Substance” has the meaning set forth in Section 3.13.
“Indemnitee” has the meaning set forth in Section 7.3.
“Indemnitor” has the meaning set forth in Section 7.3.
“Intellectual Property” has the meaning set forth in Section 3.14
“IRS” means the U.S. Internal Revenue Service.
"Knowledge" of Sellers or Company with respect to any fact or matter means the actual knowledge, after due inquiry and reasonable investigation, of Sellers or the Company's officers (as applicable) listed in Section 1.1 of the Disclosure Schedule.
“Law” has the meaning set forth in Section 3.13.
“Lien” has the meaning set forth in Section 2.1.
“Leased Real Property” has the meaning set forth in Section 3.16.
“Losses” has the meaning set forth in Section 7.1.
"Material Adverse Effect" means any state of facts, change, development, event, effect, condition, occurrence, action or omission that, individually or in the aggregate, is reasonably expected to result in a material adverse effect on the business, prospects, assets, properties, financial condition, results of operations or prospects of the Company and Company Affiliates, taken as a whole, or prevent, materially impede or materially delay the consummation by the Company of the transactions contemplated by this Agreement.
“Order” has the meaning set forth in Section 3.13.
“Owned Real Property” has the meaning set forth in Section 3.16.
“Permits” has the meaning set forth in Section 3.13.
"Person" means any individual, corporation, limited liability company, partnership, association, trust, estate or other entity or organization.
“Proceeding” has the meaning set forth in Section 7.3.
“Purchase Price” has the meaning set forth in Section 2.2.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Sellers” has the meaning set forth in the preamble.
“Seller Indemnitee” has the meaning set forth in Section 7.1.
“Tax” or Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance,
environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
“Tax Returns” has the meaning set forth in Section 3.12.
Section 1.2. Interpretation. The words describing the singular number shall include the plural and vice versa, words denoting either gender shall include both genders and words denoting natural Persons shall include all Persons and vice versa. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any Person by virtue of the authorship of any provision of this Agreement.
ARTICLE II
PURCHASE AND SALE OF COMPANY INTERESTS
Section 2.1. Purchase and Sale of Interests. Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Sellers shall sell, transfer, assign and convey to Buyer, and Buyer shall purchase and accept from Sellers, all of Sellers’ rights, title and interest in and to the Company Interests, free and clear of all liens, claims and encumbrances of any nature whatsoever (collectively, “Liens”).
Section 2.2. Purchase Price. The purchase price for purchase of the Company Interests (“Purchase Price”) shall be equal to (i) $3,000,000 (“Cash Purchase Price”), plus (ii) 301,659 restricted stock units (“Incentive Units”) in the Buyer (“Equity Purchase Price”). The Cash Purchase Price shall be paid when the Buyer is in a reasonable position to make such payment, in whole or in part, as reasonably determined by the Executive Committee, provided, however, if cash is available, a payment of $1,500,000 shall be made on or before December 31, 2023 (the “Initial Payment Date”) and a second payment of $1,500,000 shall be made on or before June 30, 2024. Buyer shall ensure that any net income of the Company available on or after the above payment dates is distributed to Buyer to be used to pay the Cash Purchase Price until it is paid in full.
Section 2.3. Incentive Units. The Incentive Units will have cliff vesting after three years and will be subject to forfeiture in a manner that is typical for such Incentive Units. The Incentive Units shall be allocated to the owners and management of the Company, the Company Affiliates and any other individuals as determined by Mark T. Torok (“Torok”). The Incentive Units will be included in a separate agreement to be executed at Closing in a form substantially similar as is attached as Exhibit G, as part of a plan adopted by the Executive Committee.
Section 2.4. Other Assets. In addition to the Company Interests, the Sellers shall transfer any and all rights, not already held or owned by the Company or a Company Affiliate, with respect to any and all master leases used in connection with any Delaware statutory trust (“DST”) sponsored or managed by Company or any Company Affiliate to the Company or an appropriate Company Affiliate or to another entity as directed by Buyer. The Sellers shall also have all fees, including, without limitation, any current or future fees, associated with any DST,
not already payable to the Company or a Company Affiliate, made payable to Buyer, or any entity directed by Buyer, so that after the Closing all such fees shall be paid to a wholly owned direct or indirect subsidiary of Buyer. The Sellers shall also transfer or cause to be transferred to Buyer, or as directed by Buyer, all other assets and entities, owned or controlled by one or more Sellers, in any type or form used in, associated with, related to or part of the business of the Company and all Company Affiliates, including, without limitation, the self-storage business and all activities with respect to the DSTs, and this shall include all revenue streams of any form to any Seller or any family member of Sellers from the Company, any Company Affiliate, any DST or any lease. The Company will receive legal fee reimbursements received from the funding of pending DSTs under contract for properties in Rockport, Texas, Big Spring, Texas and Montgomery, Texas, and the Company will pay a proportionate salary to the attorney at a rate of $150,000 annually. Future compensation to all related parties will be subject to the review and approval of the Executive Committee. In addition, any other fees with respect to such DSTs shall be paid to the Company or a Company Affiliate and the lesser of (a) $900,000 or (b) the aggregate fees earned solely with respect to the acquisition, formation and funding of the DSTs referred to above shall be paid from the applicable Company or Company Affiliate as a bonus for the successful completion of the sale of the applicable properties to a DST. The bonus referred to above shall be paid to the individuals and in the amounts determined by Torok. The excess of any such fees will be taken into account by the Executive Committee in structuring compensation plans for 2023 with advice from the compensation advisors of the Executive Committee.
Section 2.5. Management. If any management members of the Company or any Company Affiliate continue employment with the Company or any Company Affiliate after the Closing, the executives, management and employees of the Company shall receive all of their compensation and any equity incentives solely from the Company and based upon the economic results from operations of the Company, excluding the Incentive Units. Compensation will be determined in a manner that is similar to the compensation of the management of the Buyer and its Affiliates, however, it shall be determined on a stand-alone basis for the Company and any applicable Company Affiliate. Louis T Fox III and Michaeljohn Kudlik shall be offered an employment agreement for three years at a salary of least $300,000 per year. Any such determinations shall be reviewed by and subject to the approval of the Executive Committee.
Section 2.6. Payment of Dividends or Distributions. Sellers shall cause the Company and the Company Affiliates to pay to Buyer, or as directed by Buyer, all fees, funds or other receipts received in excess of amounts necessary to operate the Company on a quarterly basis. Nothing herein shall be construed to prevent payments or transfers on a more frequent basis as may be determined by the Executive Committee. For the period beginning with the Closing and ending June 30, 2024, all available cash in excess of reasonable working capital requirements shall be distributed by the Company and all Company Affiliates to Buyer or as directed by Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY.
Sellers and the Company hereby represent and warrant to Buyer as follows:
Section 3.1. Organization and Power. The Company is a corporation duly formed, validly existing and in good standing under the laws of the State of Texas and has all power and authority necessary to own or lease its properties and assets and to carry on its business as currently conducted. The Company is duly qualified or licensed to do business and is in good standing in each of the jurisdictions in which the character of the properties owned or held under lease by it or the nature of the business transacted by it makes such qualification necessary.
Section 3.2. Capitalization. All of the outstanding Company Interests are owned and held of record by Sellers. The Company Interests constitute 100% of the total issued and outstanding forms of equity interests of the Company and any applicable Company Affiliates. There are no options, restricted interests, convertible debt, exchangeable interests, profits interests, warrants, or other equity rights of any kind or in any form issued or outstanding from or by the Company or any Company Affiliate. The foregoing representation also applies to each Company Affiliate as if given directly from each Company Affiliate.
Section 3.3. Company Affiliates. The Company Affiliates listed on Exhibit A are all entities owned or controlled by the Company and one or more of the Sellers that are involved in the business of the Company or any Company Affiliate. Exhibit A sets forth a complete and correct list of each Company Affiliate, its place and form of organization, its address and each jurisdiction in which it is authorized to conduct or actually conducts business. Each Company Affiliate is a limited liability company or other business entity duly formed, incorporated or organized (as applicable), validly existing and in good standing under the laws of its jurisdiction of formation, incorporation or organization and has all corporate or other organizational powers required to carry on its business as currently conducted. Each such Company Affiliate is duly qualified to do business and is in good standing in each jurisdiction where such qualification is necessary. All the outstanding shares of capital stock of, or other equity or voting interests in each such Company Affiliate are owned by the Sellers, the Company, by one or more wholly owned Company Affiliates or by the Company and one or more wholly owned Company Affiliate, free and clear of all pledges, claims, liens, charges, options, security interests or other encumbrances of any kind, except for transfer restrictions imposed by applicable securities laws, and are duly authorized, validly issued, fully paid and non-assessable. Except for the capital stock of, or other equity or voting interests in, its Company Affiliates, the Company does not own, directly or indirectly, any capital stock of, or other equity or voting interests in, any Person.
Section 3.4. Authorization. Each of Sellers and the Company has the requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and to perform its obligations hereunder. The execution, delivery and performance by Sellers and the Company of this Agreement, and the consummation by Sellers and the Company of the transactions contemplated hereby, have been duly and validly authorized by the Sellers, the Company and no other proceedings on the part of Sellers and the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby or to perform the respective obligations of Sellers and Company hereunder. This Agreement has been duly and validly executed and delivered by Sellers and the Company and, assuming this Agreement constitutes the legal, valid and binding agreement of Buyer, constitutes a legal, valid and binding agreement of Sellers and the Company, enforceable against Sellers and the Company in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws, now or hereafter in effect, affecting creditors' rights generally and by general principles of equity. The
foregoing in this Section is applicable to each Company Affiliate and such representation is included in the representation given by Sellers and the Company in this Section.
Section 3.5. Non-Contravention; Filings and Consents. The execution, delivery and performance by Sellers and the Company of this Agreement and the consummation by Sellers, the Company, and all Company Affiliates of the transactions contemplated hereby do not and will not (with or without notice or lapse of time, or both), (a) contravene, conflict with, or result in any violation or breach of any provision of the certificate of formation or operating agreement of the Company or any Company Affiliate, (b) contravene, conflict with or result in a violation or breach of any provision of any applicable Law or Order, (c) require any consent or approval under, violate, conflict with, result in any breach of or any loss of any benefit under, or constitute a change of control or default under, or result in termination or give to others any right of termination, vesting, amendment, acceleration or cancellation of any contract to which the Company or any Company Affiliate is a party, or by which they or any of their respective properties or assets may be bound or affected or any Governmental Authority affecting, or relating in any way to, the property, assets or business of the Company or any Company Affiliate, or (d) result in the creation or imposition of any Lien on any asset of the Company or any Company Affiliate. The execution, delivery and performance of this Agreement by Sellers and the Company and the consummation of the transactions contemplated hereby by Sellers and the Company do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to, any Governmental Authority.
Section 3.6. Financial Statements. Since the Company and many of the Company Affiliates have limited operating histories, the Sellers and the Company have delivered certain unaudited financial information, but the Buyer is primarily relying upon the projections provided for the operations of the Company and the Company Affiliates and attached hereto as Exhibit F (“Projections”). The financial information given for prior periods present fairly in all material respects the financial condition of the Company as at the end of the covered periods and the results of its operations and its cash flows for the covered periods. The Projections are based upon reasonable and good faith assumptions and estimates for the future operations of the Company and the Company Affiliates. The Company and all Company Affiliates have no debt or other obligations other than those disclosed to the Buyer in writing before the Effective Date.
Section 3.7. Undisclosed Liabilities; Indebtedness. Neither the Company nor any of the Company Affiliates have any liabilities that would have been required to be reflected on the balance sheet or in the notes thereto in accordance with GAAP and were not so reflected, other than (i) as disclosed in, set forth on, or reflected or reserved against in the Company financial statements, (ii) those incurred in the ordinary course of business since the financial information described in Section 3.6, (iii) those that are repaid, terminated, forgiven, settled, cancelled or otherwise extinguished at Closing, or (iv) those that would not have, individually or in the aggregate, a Material Adverse Effect.
Section 3.8. Absence of Certain Changes. Since January 1, 2023 through the date of this Agreement, (a) there has not been a Material Adverse Effect with respect to the Company or any Company Affiliate, (b) the Company and Company Affiliates have conducted their respective businesses only in the ordinary course of business consistent with past practice, and (c) neither the Company nor any Company Affiliate has taken any action that, if taken after the date hereof without the consent of Buyer, would constitute a breach of this Agreement.
Section 3.9. Employee Benefit Plans. Neither the Company nor any Company Affiliate sponsors or otherwise pays for any employee plan as defined in the Employee Retirement Income Security Act of 1974 (93 P.L. 406), as amended (“ERISA”). Neither the Company nor any Company Affiliate has any plan or commitment to establish any new Employee Plan.
Section 3.10. Labor and Employment Matters. Neither the Company nor any Company Affiliate is a party to, bound by, subject to, or is currently negotiating in connection with entering into, any collective bargaining agreement or understanding with a labor union or organization. None of the employees of the Company nor of any Company Affiliate is represented by any union with respect to his or her employment by the Company or any Company Affiliate. There is no claim or grievance pending or, to the Knowledge of Sellers or the Company, threatened against the Company or any Company Affiliate relating to terms and conditions of employment or unfair labor practices, including charges of unfair labor practices or harassment complaints. To the Knowledge of Sellers and the Company there is no activity or proceeding by a labor union or representative thereof to organize any employees of the Company or any Company Affiliate, nor have there been any strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees. There are no liabilities, and no liabilities will be incurred or generated with respect to any labor matter as a result of the transactions included in this Agreement by the Company or any Company Affiliate.
Section 3.11. Litigation. Except as provided in Exhibit C, there is no complaint, claim, action, suit, litigation, proceeding or governmental or administrative investigation pending or, to the knowledge of Sellers or the Company, threatened against or affecting Sellers, the Company or any Company Affiliate with respect to the operations or ownership of the Company or any Company Affiliate. Neither the Company nor any Company Affiliate is subject to any outstanding Order that would interfere or prohibit the ordinary business of the Company or any Company Affiliate or that would otherwise restrict their business.
Section 3.12. Tax Matters. The Company and each Company Affiliate have timely filed all federal, state, local and foreign Tax returns, estimates, information statements and reports relating to any and all Taxes of the Company or any Company Affiliate or their respective operations (the “Tax Returns”) required to be filed by Law by the Company and each Company Affiliate as of the date hereof. All such Tax Returns are true, correct and complete, and Sellers, the Company and each Company Affiliate have timely paid all Taxes attributable to the Company or any Company Affiliate that were due and payable by them as shown on such Tax Returns. As of the date of this Agreement, there is no written claim or assessment pending or, to the Knowledge of the Company, threatened against Sellers, the Company or any Company Affiliate for any alleged deficiency in Taxes of the Company or any Company Affiliate, and there is no audit or investigation with respect to any liability of the Company or any Company Affiliate for Taxes. Neither the Company nor any Company Affiliate has waived any statute of limitations with respect to material Taxes or agreed to any extension of time with respect to a material Tax assessment or deficiency. The Company and each Company Affiliate have withheld from their employees (and timely paid to the appropriate Governmental Authority) proper and accurate amounts for all periods through the date hereof in compliance with all Tax withholding provisions of applicable federal, state, local and foreign Laws (including, without limitation, income, social security, and employment Tax withholding for all types of compensation). There are no deferred tax liabilities and no obligations or amounts that are due
or would become due as a result of the transactions herein under any provision of any applicable tax Law.
Section 3.13. Compliance with Laws; Permits. Neither the Company nor any Company Affiliate is or has been in conflict with, in default or, with notice, lapse of time or both, would be in default, with respect to or in violation of any (i) statute, law, ordinance, rule, regulation or requirement of a Governmental Authority (each, a “Law”) or (ii) order, judgment, writ, decree or injunction issued by any court, agency or other Governmental Authority (each, an “Order”) applicable to the Company or any Company Affiliate or by which any property or asset of the Company or any Company Affiliate is bound or affected. Neither Sellers, the Company nor any Company Affiliate has received any written notice of any violation or potential violation of any Law. The Company and each Company Affiliate have all permits, licenses, authorizations, consents, approvals and franchises from Governmental Authority required to conduct their businesses as currently conducted (“Permits”) and such Permits are valid and in full force and effect. The Company and each Company Affiliate are in compliance with the terms of such Permits and, as of the date of this Agreement, neither the Company nor any Company Affiliate has received written notice from any Governmental Authority threatening to revoke, or indicating that it is investigating whether to revoke, any such Permit.
Section 3.14. Environmental Matters. The Company and Company Affiliates have complied at all times with all applicable Environmental Laws. No property currently or formerly owned or operated by the Company, or any Company Affiliate has been contaminated with any Hazardous Substance in a manner that could reasonably be expected to require remediation or other action pursuant to any Environmental Law. Except as provided in Exhibit D, neither Sellers, the Company nor any Company Affiliate has received any written notice, demand, letter, claim or request for information alleging that the Company or any Company Affiliate is in violation of or liable under any Environmental Law. Neither the Company nor any Company Affiliate is subject to any order, decree or injunction with any Governmental Authority or agreement with any third party concerning liability under any Environmental Law or relating to Hazardous Substances. For purposes of this Agreement, "Environmental Law" means any federal, state or local statute, Law, regulation, order, decree, permit or authorization relating to: (i) the protection of health and safety or the environment or (ii) the handling, use, transportation, disposal, release or threatened release of any Hazardous Substance; and "Hazardous Substance" means any substance that is: (i) listed, classified, regulated or defined pursuant to any Environmental Law or (ii) any petroleum product or by-product, asbestos-containing material, polychlorinated biphenyls or radioactive material.
Section 3.15. Intellectual Property. The Company and Company Affiliates own, have a valid license or otherwise have the right to use all patents, inventions, copyrights, software, trademarks, service marks, domain names, trade dress, trade secrets and all other intellectual property rights of any kind or nature ("Intellectual Property") used in their business as currently conducted. The Intellectual Property used by the Company and Company Affiliates does not infringe, misappropriate or otherwise violate the Intellectual Property of any third party. None of Sellers, the Company or any Company Affiliate has received any written charge, complaint, claim, demand or notice alleging any such infringement, misappropriation or other violation (including any claim that the Company or any Company Affiliate must license or refrain from using any Intellectual Property of any third party). To Sellers' and the Company's knowledge no third party has infringed upon, misappropriated or otherwise violated any Intellectual Property of
the Company or any Company Affiliate. The Company and Company Affiliates use their respective best efforts to protect and maintain their Intellectual Property.
Section 3.16. Properties. The Company and each Company Affiliate have good and marketable title to, or in the case of leased property and leased tangible assets, valid leasehold interests in, all of the real property, personal property, and tangible assets used in the conduct of its business and all such property and assets, other than real property and assets in which the Company or any Company Affiliate has leasehold interests, are free and clear of all Liens, except for Liens disclosed to and approved by Buyer. Exhibit B attached hereto sets forth a complete and correct list of all real property and interests in real property currently owned by the Company or any Company Affiliate (each an “Owned Real Property”) and leased by the Company or any Company Affiliate (each a “Leased Real Property”), including the terms of each lease. Each Owned Real Property and Leased Real Property is in good condition and has been maintained in good repair in a manner consistent with standards generally followed with respect to similar properties, and satisfactorily serves the purposes for which it is used in the business of the Company and Company Affiliates. The Owned Real Property and the Leased Real Property constitute all of such property currently used in the business of the Company and the Company Affiliates.
Section 3.17. Material Contracts. There are no contracts with the Company or any Company Affiliate that would limit, in any manner, any activity of the Buyer, any entity owned or controlled by the Buyer, the Company, or any Company Affiliate with respect to current or future operations or business practices. For example, there are no non-compete, non-solicitation or similar provisions in any contract of the Sellers, Company or any Company Affiliate that would apply to the Sellers, the Company, Company Affiliates, Buyer or any entity owned or controlled by Buyer with respect to the business of the Company and Company Affiliates. Except for the payments described in Section 2.4, the agreements referred to in Section 2.5, and the employment agreement between the Buyer and Mark Torok to be executed contemporaneously herewith, no Seller or Seller Affiliate has any other contract or agreement with the Company or any Company Affiliate, and no other employment or material contracts exist with any other Person.
Section 3.18. Anticorruption. The Company and Company Affiliates have no foreign operations and have made no payments to foreign Persons in violation of any applicable Law.
Section 3.19. Insurance. The Company and Company Affiliates maintain policies of insurance, including property, fire, workers' compensation, products liability, directors' and officers' liability and other casualty and liability insurance, that is in form and amount as customary for the Company's and Company Affiliates' types of business and as may be additionally required under the terms of any contract or agreement. Each insurance policy and bond is in full force and effect, all premiums due and payable thereon have been paid, and the Company and Company Affiliates are in full compliance with the terms of such policies and bonds. There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed. There is no threatened termination of, or pending material premium increase with respect to, any such policies or bonds.
Section 3.20. Brokers; Certain Expenses. No agent, broker, investment banker, financial advisor or other firm or Person, other than those whose fees and expenses shall be paid
entirely by Sellers, is or shall be entitled to receive any brokerage, finder's, financial advisor's, transaction or other fee or commission in connection with this Agreement or the transactions contemplated hereby based upon agreements made by or on behalf of Sellers, the Company or any Company Affiliate.
Section 3.21. Privacy and Data Security. Each of Company and each Company Affiliate materially complies with applicable privacy and security laws, and with privacy and information security obligations to which it is subject under contract, privacy policy, or online terms of use. The Company maintains policies and procedures that materially comply with (i) applicable privacy and security laws and (ii) privacy and information security obligations to its customers and investors, data subjects or other persons, under contract, privacy policy, or online terms of use. To the best of Company’s knowledge, neither Company nor any Company Affiliates has received any written notice from any governmental authority that it is under investigation for a material violation of any of the applicable privacy and security laws. All computer systems, including the Software, firmware, hardware, networks, interfaces, and related systems owned or licensed by the Company or Company Affiliates (collectively, the “Business Systems”) are sufficient for the needs of their business as currently conducted. To the Company’s knowledge, in the last eighteen (18) months, there has been (i) no material disruption, interruption or outage to any material Business System, (ii) no material part of the Business Systems has been prone to material malfunction or error and (iii) no unauthorized material breaches of the security of the Business Systems. The Company and Company Affiliates have safeguarded their Business Systems with information security controls, and disaster recovery and business continuity practices.
Section 3.22. Delaware Statutory Trusts. All DSTs have been properly formed and the Sellers, Company and all Company Affiliates have complied fully with all applicable Laws with respect to such DSTs, including, without limitation, applicable securities laws. The Sellers have included in this transaction all of the rights to fees, leases, operations or otherwise in such DSTs owned or held by or for the Sellers, Company and Company Affiliates. The Sellers, Company and all Company Affiliates have the power and authority to transfer all such rights, including, without limitation, any applicable master lease so that all of such items will be owned and controlled by the Buyer either directly or through a subsidiary of the Buyer. For example, Sellers, Company or Company Affiliates own or control all aspects of Southern Star Self Storage – Airports, DST, and all items (e.g., fees, leases, future fees, operations etc) shall be transferred so that Buyer or an entity owned or controlled by Buyer owns any and all rights with respect to such DST and will receive all future revenue streams of any kind in such DST.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Sellers as follows:
Section 4.1. Organization. Buyer is a corporation duly formed, validly existing, and in good standing under the laws of the jurisdiction of its formation and has the requisite power to carry on its business as now conducted.
Section 4.2. Authority. Buyer has all necessary power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. This
Agreement has been duly executed and delivered by Buyer and, assuming due authorization, execution and delivery of this Agreement by Sellers and the Company, constitutes a legal, valid and binding agreement of Buyer, enforceable in accordance with its terms against Buyer, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and by general principles of equity.
Section 4.3. Consents and Approvals. The execution and delivery of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby require no consent, approval, authorization or filing with or notice to any Governmental Authority.
Section 4.4. Non-Contravention. The execution, delivery and performance of this Agreement by Buyer and the consummation of the transactions contemplated by this Agreement do not and will not (with or without notice or lapse of time or both) contravene, conflict with, or result in any violation or breach of any provision of the articles of incorporation or bylaws of Buyer; or contravene, conflict with or result in a violation or breach of any Law or Order; or require any consent or approval under, violate, conflict with, result in any breach of any loss of any benefit under, or constitute a change of control or default under, or result in termination or give to others any right of termination, vesting, amendment, acceleration or cancellation of any contract to which Buyer is a party, or by which its properties or assets may be bound or affected.
ARTICLE V
COVENANTS.
Section 5.1. Conduct of Business of the Company Pending the Closing. Sellers and the Company each covenant and agree that, during the period from the date of this Agreement until the Closing Date, the business of the Company and Company Affiliates shall be conducted in the ordinary course of business consistent with past practice and the Company and Company Affiliates shall comply with all applicable Laws. Without limiting the generality of the foregoing, from the date of this Agreement until the Closing Date, except with the prior written consent of Buyer, the Sellers and the Company will not and will not permit any change in the structure or ownership of the Company and Company Affiliates, and the Sellers and the Company will not allow any borrowings, distributions, legal settlements, extraordinary payments, liens on property, transfers of property or any similar matters by the Company or any Company Affiliate.
Section 5.2. Non-Competition and Non-Solicitation. Each Seller shall execute the agreement attached hereto as Exhibit E (“Non-Competition Agreement”). For each Seller who continues in the management of the Company or a Company Affiliate, such Seller may execute an appropriate employment agreement with a generally accepted non-competition and non-solicitation clauses along with other generally accepted restrictive clauses, provided, however, that any such agreement must, at a minimum, contain substantially similar provisions as the Non-competition Agreement. Torok shall also have an employment agreement with similar clauses.
Section 5.3. Access to Information. Sellers, Company and Company Affiliates shall provide to Buyer and its representatives such documents, financial, tax and operating data and other information as Buyer and its representatives may reasonably request.
Section 5.4. Best Efforts; Government Filings. Each Seller, the Company and Buyer shall use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable Law to consummate transactions contemplated by this Agreement.
Section 5.5. Press Releases. Buyer and Sellers shall consult with each other before issuing any press release or making any other public statement with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such other public statement without the consent of the other party, which shall not be unreasonably withheld, except as such release, filing or statement may be required by applicable Law or any listing agreement with or rule of any national securities exchange.
Section 5.6. Notification of Certain Matters. Sellers shall promptly notify Buyer in writing of any inaccuracy of any representation or warranty contained in this Agreement and any notices received by any Seller, the Company or any Company Affiliate from any Governmental Authority with respect to the Company or any Company Affiliate.
Section 5.7. Future Operations. The Company and all Company Affiliates shall each provide to the Executive Committee, on a quarterly basis, a statement of net operating income, a balance sheet, a statement of funds flow from operations, a statement of current and proposed or planned capital expenditures, a sources and uses of funds statement with a projection for the next quarter, and any other statement or schedule requested by the Executive Committee. In addition to the foregoing, the Company and the Company Affiliates shall each provide annual budgets to the Executive Committee for its approval on or before November 30 of each year. Statements showing the expected distributions to the Buyer shall be prepared for the Company and each Company Affiliate and given to the Executive Committee on a quarterly basis, and shall show the projected distributions for the next 12 months. The Company and Company Affiliates shall report any material change in forecasts, projections or estimates, including without limitation the Projections, to the Executive Committee as soon as reasonable after discovery. Buyer intends to apply the foregoing to all of its subsidiaries and affiliates.
Section 5.8. Tax Returns and Audits.
(a) Sellers shall be responsible for filing all Tax Returns for the tax periods ending on or before the Closing Date. Any such Tax Returns shall be given to Buyer for review and if any position is disputed the parties will try to resolve it, but if no resolution the parties shall have an independent CPA resolve the issue. Sellers shall be solely responsible for all Taxes with respect to such Tax Returns. With respect to any Tax Returns that include periods before and after the Closing Date, the Buyer shall prepare and file such Tax Returns and the applicable Tax, if any, shall be Buyer shall be obligated to prepare, file, and pay any applicable Tax for any Tax Returns for any Tax period beginning on or after the Closing Date. Sellers and Buyer agree in good faith to resolve any disputes, provided that in the event that they are unable to resolve such disputes prior to the applicable filing deadline, Buyer shall be entitled to file such Tax Returns in accordance with its reasonable determination. Sellers shall timely remit (or cause to be timely remitted) to Buyer any Taxes shown due on any Tax Returns filed by Buyer.
(b) Sellers shall be responsible and shall indemnify Buyer for any and all of Taxes of the Company and Company Affiliates arising out of or attributable to any Pre-Closing Period. Buyer shall be responsible, and indemnify Sellers, for any and all of Taxes of the Company and Company Affiliates for any Post-Closing Period.
(c) If after the Closing Date, Buyer, the Company or any Company Affiliate receives a refund of any Tax of the Company or any Company Affiliate or a credit against any Tax of the Company or any Company Affiliate attributable to a Pre-Closing Period (whether received in cash, or as a credit against other Taxes), Buyer shall pay to Sellers within fifteen (15) Business days after such receipt an amount equal to such refund or credit, together with any interest received or credited thereon, regardless of the nature of or reason for the refund or reduction in Taxes payable.
(d) Following the Closing, Buyer shall control all Contests (as defined below) relating to Taxes of the Company or any Company Affiliate. In the case of a Contest that relates solely and exclusively to Pre-Closing Periods or for which Buyer may otherwise seek indemnification from Sellers under this Agreement; provided, that Sellers shall have acknowledged its obligation to indemnify Buyer under this Section, Sellers shall have the right, at Sellers’ expense, to control the conduct of such Contest, and Buyer shall have the right, at its expense, to participate in such Contest. In the case of a Contest that relates to Pre-Closing Periods and Post-Closing Periods, Buyer shall have the right, bearing its own expenses, to conduct such Contest with respect to such Contest. Sellers, at their own cost, may participate in such Contest. The Party controlling a Contest for a Pre-Closing Period shall in any event keep the other Party informed of the progress of such Contest, shall promptly provide the other Party with copies of all material documents (including material notices, protests, briefs, written rulings and determinations and correspondence) pertaining to such audit or proceeding and shall not settle such Contest without the other Party’s advance written consent, which consent shall not be unreasonably withheld, conditioned or delayed. For purposes of this Agreement, a “Contest” is any audit, administrative or judicial proceeding or other dispute with respect to any Tax matter that affects the Company or any of its Subsidiaries, as the case may be.
(e) If Buyer discovers an error in a Pre-Closing Period Tax Return, Buyer shall have the exclusive right to file (or cause to be filed) an amended Tax Returns with respect to such Pre-Closing Periods. Upon the request of Sellers, Buyer shall file (or caused to be filed) any amended Tax Return described in the preceding sentence and shall execute any powers of attorney or similar documents that may be required for such filing. If such amended Tax Returns would have an effect on a Tax liability of Buyer, the Company or any Company Affiliate for a Post-Closing Period, such amended Tax Returns shall not be filed without Buyer’s written consent (not to be unreasonably withheld or delayed). Prior to the filing of any such amended Tax Return, Sellers shall remit to Buyer the entire amount of tax, interest and additions to tax due in connection with such amended Tax Return.
(f) After the Closing Date, Buyer and Sellers shall (and shall cause their respective Affiliates to) (i) assist the other Party in preparing any Tax Returns which such other Party is responsible for preparing and filing herein, and in connection therewith provide the other Party necessary powers of attorney, (ii) cooperate fully in preparing for and conducting any audits of, or disputes with Taxing Authorities regarding, any Tax Returns of the Company or any Company Affiliate, and (iii) make available to the other Party and to any Taxing Authority as reasonably requested all information, records, and documents relating to Taxes of the Company or any Company Affiliate.
(g) Notwithstanding anything to the contrary in this Agreement, any amounts payable pursuant to the obligations under this Section shall be paid without duplication. The Parties shall treat any indemnity payments made pursuant to this Section as adjustments to the Purchase Price for Tax purposes unless applicable Tax Law causes such payment not to be so treated.
(h) If requested by Buyer and to the extent the purchase herein is qualified, Sellers shall cooperate fully in making an election under Section 338(h)(10) of the Code and the Treasury Regulations and any corresponding or similar elections under state, local or foreign Tax Law (collectively, the “Section 338(h)(10) Elections”) with respect to the Company and Company Affiliates. Sellers and Buyer shall mutually agree on the allocation of the “Aggregate Deemed Sale Price” which shall be prepared in accordance with Section 338(h)(10) and Section 1060 of the Code and the Treasury Regulations promulgated thereunder. Buyer shall be responsible for the preparation and filing of all forms and documents required to effectuate the Section 338(h)(10) Elections.
ARTICLE VI
CLOSING AND CLOSING CONDITIONS.
Section 6.1. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place within thirty (30) days from the Effective Date in a manner reasonably determined by the parties, which can be remotely by the electronic exchange of documents and signatures (or their electronic counterparts). The date on and time at which the Closing occurs is referred to in this Agreement as the “Closing Date.”
Section 6.2. Conditions Precedent to Obligations of Buyer. The obligations of Buyer under this Agreement to proceed with the Closing shall be subject to the satisfaction by Sellers and the Company on or prior to the Closing Date of each of the following conditions precedent:
(a) Accuracy of Representations and Warranties. The representations and warranties of Sellers and the Company set forth in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of that date (other than representations and warranties that are made as of a specific date, which representations and warranties shall have been true and correct on and as of such date).
(b) Performance and Compliance. Sellers and the Company shall have performed or complied in all material respects with each covenant and agreement to be performed or complied with by them under this Agreement on or prior to the Closing Date.
(c) Consents and Approvals. Sellers and the Company shall have obtained or made each consent, authorization, approval, exemption, filing, registration or qualification, required to be obtained or made by any of them in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement.
(d) Litigation. There shall be no pending or threatened action by or before any Governmental Authority or arbitrator (i) seeking to restrain, prohibit or invalidate any of the transactions contemplated by this Agreement or (ii) seeking monetary relief against Buyer by reason of the consummation of these transactions, and there shall not be in effect any order, writ, judgment, injunction or decree issued by any Governmental Authority by which Buyer or any of its properties or assets is bound that has that effect.
(e) Material Adverse Effect. No event shall have occurred and no condition shall exist that constitutes or, with the giving of notice or the passage of time or both, is likely to have a Material Adverse Effect.
(f) Closing Certificate. Sellers and the Company shall have delivered to Buyer a certificate containing their respective execution, dated the Closing Date and certifying that each of the conditions specified in subsections (a), (b), (c), (d) and (e) above have been met.
(g) Secretary's Certificate. The Company shall have delivered to Buyer a certificate of its Secretary, dated the Closing Date and certifying: (i) that correct and complete copies of the Company's charter and by-laws are attached to the certificate; and (ii) that correct and complete copies of each resolution of the Company approving this Agreement and authorizing the execution of this Agreement and the consummation of the transactions contemplated by this Agreement are attached to the certificate.
Section 6.3. Conditions Precedent to Obligations of Sellers. The obligations of Sellers under this Agreement to proceed with the Closing shall be subject to the satisfaction by Buyer on or prior to the Closing Date of each of the following conditions precedent:
(a) Accuracy of Representations and Warranties. The representations and warranties of Buyer set forth in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of that date.
(b) Performance and Compliance. Buyer shall have performed or complied in all material respects with each covenant and agreement to be performed or complied with by it under this Agreement on or prior to the Closing Date.
(c) Consents and Approvals. Buyer shall have obtained or granted each consent, authorization, approval, exemption, filing, registration or qualification required to be obtained or granted by it in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement.
(d) Litigation. There shall be no pending or threatened action by or before any Governmental Authority or arbitrator seeking to restrain, prohibit or invalidate any of the transactions contemplated by this Agreement, and there shall not be in effect any Governmental Order that has that effect.
(e) Officer's Certificate. Buyer shall have delivered to Sellers a certificate of its President, dated the Closing Date and certifying that each of the conditions specified in subsections (a), (b), u and (d) above have been met.
Section 6.4. Closing Deliverables.
(a) At the Closing, Sellers shall deliver to Buyer:
(1) a duly executed certificate of non-foreign status conforming to the form of the sample certification set forth in Treasury Regulation Section 1.1445-2(b)(2)(iv);
(2) the closing certificate described in Section 6.2(f); and
(3) the certificate or certificates evidencing the Company Interests, duly endorsed in blank or accompanied by another proper instrument of assignment endorsed in blank in proper form for transfer.
(b) At the Closing, the Company shall deliver to Buyer:
(1) a duly executed certificate of non-foreign status conforming to the form of the sample certification set forth in Treasury Regulation Section 1.1445-2(b)(2)(iv); and
(2) the closing certificate described in Section 6.2(f); and
(3)the certificate described in Section 6.2(g).
(c) At the Closing, Buyer shall deliver to Sellers and the Company, the closing certificate described in Section 6.3(e); and the applicable agreement for the Incentive Units.
ARTICLE VII
INDEMNIFICATION.
Section 7.1. Indemnification by Sellers. From and after the Closing, Sellers shall defend, indemnify and hold harmless Buyer, all entities directly or indirectly owned or controlled by Buyer, the Company, Company Affiliates and their respective members, shareholders,
directors, managers, officers, employees and agents (each a “Seller Indemnitee”) from and against any and all liabilities, obligations, claims, contingencies, Taxes, fines, deficiencies, demands, assessments, losses (including diminution in value), damages (including incidental and consequential damages), costs and expenses, including, without limitation, all corrective and remedial actions, all court costs and reasonable attorneys’ fees, and all reasonable amounts paid in investigation, defense or settlement of the foregoing (collectively, “Losses”) that constitute, or arise out of or in connection with: (a) any misrepresentation or breach of warranty under Article III; or (b) any default by Sellers, the Company or any Company Affiliate in the performance or observance of any of their covenants or agreements under this Agreement.
Section 7.2. Indemnification by Buyer. From and after the Closing, Buyer shall defend, indemnify and hold harmless Sellers (each a “Buyer Indemnitee”) from and against any Losses that constitute, or arise out of or in connection with: (a) any misrepresentation or breach of warranty under Article IV; or (b) any default by Buyer in the performance or observance of any of its covenants or agreements under this Agreement.
Section 7.3. Representation, Settlement and Cooperation. If any investigation, action or other proceeding (each a “Proceeding”) is initiated against any Seller Indemnitee or Buyer Indemnitee (each, an “Indemnitee”) and the Indemnitee intends to seek indemnification from Sellers or Buyer (each an “Indemnitor”), as applicable, under this Article VII. on account of the Indemnitee's involvement in the Proceeding, then the Indemnitee shall give prompt notice to the applicable Indemnitor; provided, however, that the failure to so notify the Indemnitor shall not relieve the Indemnitor of its obligations under this Article VII. but instead shall reduce those obligations by the amount of damages or increased costs and expenses attributable to the failure to give notice. Upon receipt of notice of a Proceeding for which indemnification is available under this Article VII, the Indemnitor shall diligently defend against the Proceeding on behalf of the Indemnitee at the Indemnitor's own expense using counsel reasonably acceptable to the Indemnitee; provided, however, that if the Indemnitor shall fail or refuse to conduct the defense, or if the Indemnitee has been advised by counsel that it may have defenses available to it which are different from or in addition to those available to the Indemnitor or that its interests in the Proceeding are adverse to the Indemnitor's interests, then the Indemnitee may defend against the Proceeding at the Indemnitor's expense. The Indemnitor or Indemnitee, as applicable, may participate in any Proceeding being defended against by the other at its own expense and shall not settle any Proceeding without the prior consent of the other, which consent shall not be unreasonably withheld. The Indemnitor and Indemnitee shall cooperate with each other in the conduct of any Proceeding.
Section 7.4. Notice and Satisfaction of Indemnification Claims. No indemnification claim shall be deemed to have been asserted until the applicable Indemnitor has been given notice by the Indemnitee of the amount of the claim and the facts on which the claim is based (including evidence supporting the amount of the claim). For purposes of this Article VII, notice of an indemnification claim shall be deemed to cover claims arising out of or in connection with all related Proceedings so long as, in the case of Proceedings instituted by third parties, the Indemnitee complies with Section 7.3. Indemnification claims shall be paid within 30 days after the Indemnitor's receipt of the notice described in this Section 7.4 (including the required evidence of the amount of the claim). Evidence of (a) the amount of the claims for which the Indemnitee seeks indemnification, and (b) the Indemnitor's liability shall be in form and content reasonably satisfactory to the Indemnitor.
Section 7.5. Survival. All representations and warranties made in this Agreement shall survive the Closing until the second anniversary of the Closing Date, other than (a) the representations and warranties set forth in Section 3.1 (Organization and Power), Section 3.2 (Capitalization), Section 3.3 (Subsidiaries), Section 3.4 (Authorization), Section 3.5 (Non-Contravention; Filings and Consents), Section 3.20 (Brokers), and Article IV (Buyer Representations and Warranties), which shall survive indefinitely (collectively, the “Fundamental Representations”), and (b) the representations and warranties set forth in Section 3.6 (Financial Statements), Section 3.9 (Employee Benefit Plans), Section 3.12 (Tax Matters), Section 3.14 (Environmental Matters), Section 3.15 (Intellectual Property), Section 3.21 (Privacy and Data Security), and Section 3.22 (Delaware Statutory Trusts), which shall survive until sixty (60) days following the expiration of the applicable statute of limitations. Each of the covenants and agreements made in this Agreement to be performed prior to the Closing shall survive the Closing for a period of twenty-four (24) months following the Closing Date, and each of the covenants and agreements made in this Agreement to be performed following the Closing shall survive the Closing until they are fully performed or terminate in accordance with their respective terms.
Section 7.6. Effect of Investigation. Buyer’s right to indemnification or any other remedy based on the inaccuracy of, breach of, non-performance of, or non-compliance with any representation, warranty, or obligation in this Agreement, or otherwise with respect to this Agreement, will not be affected by any investigation conducted (or capable of being conducted) with respect to, or any knowledge acquired (or capable of being acquired) at any time (whether on, before, or after the Closing Date) with respect to any fact or matter, including with respect to the inaccuracy of, breach of, non-performance of, or non-compliance with any representation, warranty, or obligation in this Agreement. The waiver of any condition based on the inaccuracy of, breach of, non-performance of, or non-compliance with any representation, warranty, or obligation in this Agreement will not affect the Buyer’s right to indemnification or any other remedy based on the inaccuracy of, performance of, or compliance with such representation, warranty, or obligation, or otherwise with respect to this Agreement.
ARTICLE VIII
MISCELLANEOUS.
Section 8.1. Entire Agreement; Assignment; Amendments. This Agreement constitutes the entire agreement and supersedes all oral agreements and understandings and all written agreements prior to the date hereof between or on behalf of the parties with respect to the subject matter hereof. This Agreement shall not be assigned by any party by operation of law or otherwise without the prior written consent of the other parties hereto. This Agreement may be amended only by a writing signed by each of the parties, and any amendment shall be effective only to the extent specifically set forth in that writing.
Section 8.2. Severability; Expenses; Further Assurances. If any term, condition or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to affect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible. Except as otherwise specifically provided in this Agreement, each party shall be responsible for the expenses it may incur in connection with the negotiation, preparation, execution, delivery, performance and enforcement of this Agreement. The parties shall from time to time do and perform any additional acts and execute and deliver any additional documents and instruments that may be required by applicable Governmental Rules or reasonably requested by any party to establish, maintain or protect its rights and remedies under, or to affect the intents and purposes of, this Agreement.
Section 8.3. Enforcement of the Agreement; Jurisdiction; No Jury Trial.
(a) The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement exclusively in an applicable court in Harris County, Texas, or in the event (but only in the event) that such court does not have subject matter jurisdiction over such action or proceeding, in the United States District Court in Harris County, Texas, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties to this Agreement irrevocably agrees that any legal action or proceeding with respect to this Agreement and the rights and obligations arising under this Agreement, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising under this Agreement brought by the other party to this Agreement or its successors or assigns shall be brought and determined exclusively in Harris County, Texas, or in the event (but only in the event) that such court does not have subject matter jurisdiction over such action or proceeding, in the United States District Court for Harris County, Texas. Each of the parties to this Agreement hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the aforesaid courts. Each of the parties to this Agreement hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (i) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to serve in accordance with this Section 8.3; (ii) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise); and (iii) to the fullest extent permitted by the Law, any claim that (A) the suit, action or proceeding in such court is brought in an inconvenient forum; (B) the venue of such suit, action or proceeding is
improper; or (C) this Agreement, or the subject matter of this Agreement, may not be enforced in or by such courts. Each of Sellers and Buyer hereby agrees that service of any process, summons, notice or document by U.S. registered mail to the respective addresses set forth in Section 8.4 shall be effective service of process for any proceeding arising out of, relating to or in connection with this Agreement or the transactions contemplated hereby.
(b) EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR OTHER PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY HERETO CERTIFIES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER; (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY; AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 8.3(b).
Section 8.4. Notices. All notices and other communications pursuant to this Agreement must be in writing and will be deemed to have been duly delivered and received (a) four Business Days after being sent by registered or certified mail, return receipt requested, postage prepaid; (b) one Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable nationwide overnight courier service; (c) if sent by email in portable document format (PDF) or similar electronic attachment (i) on a Business Day before 5:00 p.m. in the time zone of the receiving Party, when transmitted and the sender has received confirmation of receipt by the recipient; and (ii) on a day other than a Business Day or after 5:00 p.m. in the time zone of the receiving Party, and the sender has received confirmation of receipt by the recipient, on the following Business Day; or (d) immediately upon delivery by hand or by fax (with a written or electronic confirmation of delivery), in each case to the intended recipient. The addresses and other contact information shall be provided on the signature pages hereto. From time to time, any party may provide notice to the other parties of a change in its address, email or fax number through a notice given in accordance with this Section. The inability to deliver because of changed address of which no notice is given will be deemed to be receipt of the notice as of the date of such inability to deliver.
Section 8.5. Governing Law. This Agreement, and any dispute arising out of, relating to, or in connection with this Agreement, shall be governed by and construed in accordance with the Laws of the State of Texas, without giving effect to any choice or conflict of Law provision or rule (whether of the State of Texas or of any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of Texas.
Section 8.6. Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.
Section 8.7. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement.
Section 8.8. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement. At the Closing, signature pages of counterparts may be exchanged by facsimile or by electronic transmittal of scanned images thereof, in each case subject to appropriate customary confirmations in respect thereof by the signatory for the party providing a facsimile or scanned image and that party's Closing counsel.
Section 8.9. Termination.
(a) This Agreement may be terminated at any time prior to the Closing: (1) by mutual written agreement of Buyer and Sellers; (2) by Buyer (A) if there has been a material misrepresentation by Sellers, the Company or any Company Affiliate under this Agreement or a material breach by Sellers or the Company of any of their warranties or covenants set forth in this Agreement or (B) if any of the conditions specified in Section 6.2 shall not have been fulfilled within the time required and shall not have been waived by Buyer; (3) by Sellers (A) if there has been a material misrepresentation by Buyer under this Agreement or a material breach by Buyer of any of its warranties or covenants set forth in this Agreement or (B) if any of the conditions specified in Section 6.3 shall not have been fulfilled within the time required and shall not have been waived by Sellers; or (4) by Buyer or Sellers if the Closing shall not have occurred prior to June 30, 2023; provided, however, that Buyer or Sellers may terminate this Agreement under this subsection only if the Closing shall not have occurred on or prior to June 30, 2023, for a reason other than a failure by the party or parties asserting the right to terminate to satisfy the conditions to Closing of the other party or parties set forth in Section 6.2 or Section 6.3. A material misrepresentation for this Section shall be one or more than results or reasonably could be expected to result in aggregate losses to the other party of (i) $50,000 if made with Knowledge, or (ii) $200,000.
(b) If this Agreement is terminated by either any party as provided in Section 8.9(a) then no party shall have any further obligations or liabilities under this Agreement except for obligations or liabilities arising from a breach of this Agreement prior to the termination or that survive the termination by their own terms.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all at or on the date and year first above written.
BUYER
Silver Star Properties REIT, Inc.
A Maryland corporation
By: __/s Gerald Haddock____
Gerald Haddock as lead director Executive Committee
COMPANY
Southern Star Self-Storage Investment Company
A Texas corporation
By: _/s Mark Torok_____
Mark T. Torok, President
SELLERS
__/s Mark Torok_______
Mark T. Torok
__/s Louis Fox________
Louis T. Fox III
__/s MichaelJohn Kudlik
MichaelJohn Kudlik
EQUITY INTEREST PURCHASE AGREEMENT
EXHIBIT A
LIST OF EQUITY OWNERS AND COMPANY AFFILIATES
Equity Holders
Mark T. Torok 10190 Katy Fwy Suite 228, Houston TX 77043 361-236-0814 mark@southernstarstorage.com
Louis T. Fox III 10190 Katy Fwy Suite 228, Houston TX 77043 713-858-2556 lou@southernstarstorage.com
Michaeljohn Kudlik 10190 Katy Fwy Suite 228, Houston TX 77043 714-335-0600 mjk@southernstarstorage.com
Company Affiliates
EQUITY INTEREST PURCHASE AGREEMENT
EXHIBIT A (CONTINUED)
Southern Star Self-Storage Investment Company Texas corporation
LEASING COMPANIES:
Southern Star Self Storage Leasing Management Company, LLC Texas limited liability company
Southern Star Self Storage Leasing Management Company II, LLC Texas limited liability company
Southern Star Self Storage Leasing Management Company III, LLC Texas limited liability company
To be formed for current DSTs: IV, V, VI,
SIGNATORY TRUSTEES
Southern Star ST, LLC Delaware limited liability company
Southern Star ST II, LLC Delaware limited liability company
Southern Star ST III, LLC Delaware limited liability company
To be formed for current DSTs: IV, V, VI
DELAWARE STATUTORY TRUSTS
Southern Star Self Storage-Airports, DST; Delaware
Southern Star Storage-Montrose II, DST; Delaware
Southern Star Storage III-Carolina, DST; Delaware
To be formed for current DSTs:
Southern Star Storage IV-Rockport, DST; Delaware
Southern Star Storage V-Big Spring, DST; Delaware
Southern Star Storage VI-Montgomery, DST; Delaware
HOLDING COMPANY
Southern Star Storage DST Holding Co., Texas limited liability company
Principal place of business for all companies is: 10190 Katy Fwy, Suite 228, Houston TX 77043
EQUITY INTEREST PURCHASE AGREEMENT
EXHIBIT B
OWNED REAL ESTATE AND LEASED REAL ESTATE INCLUDING ALL MASTER LEASES BY THE COMPANY AND ALL COMPANY AFFILIATES
AIRPORTS DST:
(i) a self storage facility located at 4485 Glenn Curtiss Dr, in Addison, Texas commonly known as Addison Airport Storage (“Addison Airport”);
(ii) a self storage facility located at 63224 La Salle, in Montrose CO, commonly known as Montrose Storage (“Montrose Airport”)
(iii) a self storage facility located at 3608 US -281 George West, TX 78022 commonly known as 281 Mini Storage (“George West”)
(iv) a self storage facility located at 3250 NE Candice Ave, Jensen Beach, FL 34957 commonly known as Jensen Beach Storage (“Jensen Beach”)
MONTROSE II
(i) a self-storage facility located at 19289 Highway 550, in Montrose Colorado, commonly known as StormKing Storage (“StormKing”)
(ii) a self-storage facility located at 1100 East Plano Parkway, in Plano Texas, commonly known as Plano Parkway Self Storage (“Plano”)
CAROLINA DST
(i) a self-storage facility located at 242 E. Main Street Havelock, NC 28532, commonly known as Main Street Self Storage (“Havelock”)
(ii) a self-storage facility located at 5340 NC-12, Frisco NC 27936, commonly known as Island Storage (“Island Storage”).
PENDING DST PROPERTIES
(i) a self-storage facility located at 2517 TX-35, Rockport, Texas, commonly known as Kool Storage (“Rockport”)
(ii) a self-storage facility located at 3301 East FM 700 &1300 East 4th Street Big Spring, Texas, 79720 commonly known as Big Spring Lock Storage (“Big Spring Lock Storage”).
(iii) a self storage facility located at 13040 Pearson Rd Montgomery TX 77356, commonly known as A Storage Place (“Montgomery”)
OFFICE SPACE RENTED
10190 Katy Fwy Suite 228
Houston TX 77043
EQUITY INTEREST PURCHASE AGREEMENT
EXHIBIT C
THREATENED LITIGATION
Southern Star has received a demand letter in January 2023, from an attorney regarding the alleged theft of a trailer from Airports Storage in Montrose Colorado alleging violations of the Deceptive Trade Practices Act. The trailer was recovered by the police and is now in the possession of the claimant and the attorney was not aware of exculpatory clauses in the lease agreement where her client rejected the offer of insurance and specifically agreed to take full responsibility for the properties’ destruction, damage or theft. Once informed of these provisions in February, we have not received any service of process for any claims. We believe the claim to be meritless.
EQUITY INTEREST PURCHASE AGREEMENT
EXHIBIT D
ENVIRONMENTAL MATTERS
At the purchase of the Havelock property in Havelock NC, a search of the environmental records revealed that an adjacent tract had certain contaminants on it (primarily old motor oil). A Phase II report was performed on the adjacent property and no additional action was recommended. A Phase I report revealed no contaminants on the Havelock property, but noted the Phase II report on the adjacent property.
EQUITY INTEREST PURCHASE AGREEMENT
EXHIBIT E
NON-COMPETITION AGREEMENT
CONFIDENTIALITY, NON-SOLICITATION, AND NON-COMPETITION
AGREEMENT
THIS CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into as of April __, 2023 (“Effective Date”) by and between Silver Star Properties REIT, Inc., a Maryland corporation ("Company"), and the undersigned ("Undersigned").
WITNESSETH
WHEREAS, the Company and the Undersigned desire to enter into that certain Equity Purchase Agreement, dated effective as of April 6, 2023 (“Purchase Agreement”) where the Undersigned joined with other individuals to sell equity interests and other assets, including the equity interests in Southern Star Self Storage Investment Company, a Texas corporation (“Southern Star”), to the Company and the Company’s affiliates and subsidiaries (together the “Company Group”). For purposes of this Agreement the Company Group shall include all entities and businesses acquired under the Purchase Agreement, including, without limitation, Southern Star and all of its subsidiaries and affiliates.
NOW THEREFORE, in consideration of the Company's obligations under the Purchase Agreement, and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1.NONDISCLOSURE.
1.1. Undersigned agrees to hold and safeguard any information about the Company Group and/or its shareholders and investors gained by Undersigned during the course of Undersigned’s employment with Southern Star or in negotiating the Purchase Agreement. Undersigned shall not, without the prior written consent of the Company, disclose or make available to anyone for use outside the Company Group’s organization at any time, any information about Company Group or its shareholders or investors, whether or not such information was developed by Undersigned, except as required in the performance of Undersigned’s duties for the Company Group or required by law.
1.2. Undersigned understands and agrees that any information about Company Group is the property of Company Group and is essential to the protection of the Company Group’s goodwill and to the maintenance of the Company Group’s competitive position and accordingly should be kept secret. Such information shall include, but not be limited to, information containing the Company Group’s business plans, investment strategies, investors, and prospective investors, key elements of specific properties, computer programs, system documentation, manuals, ideas, or any other records or information belonging to the Company Group or relating to its business.
1.3. Notwithstanding anything in paragraph 1.1 or paragraph 1.2 to the contrary, the Company agrees that the obligations of Undersigned set forth in paragraphs 1.1 and 1.2 shall not apply to any information which becomes known generally to the public through no fault of Undersigned. In addition, paragraphs 1.1 and 1.2 shall not prevent disclosure by Undersigned that (i) is required by applicable law, legal process or any order or mandate of a court or other governmental authority to be disclosed; or (ii) is reasonably believed by Undersigned, based upon the advice of legal counsel, to be required to be disclosed in defense of a lawsuit or other legal or administrative action brought against Undersigned; provided, that in the case of clauses (i) or (ii) Undersigned shall give the Company reasonable advance written notice of the information intended to be disclosed and the reasons and circumstances surrounding such disclosure in order to permit the Company Group to seek a protective order or other appropriate request for confidential treatment of the applicable information.
1.4. Nothing in this Agreement is intended or should be construed to prohibit Undersigned from (i) making reports of possible violations of law or regulation to any appropriate governmental agency, entity or official, (ii) participating in a proceeding with any appropriate federal, state, or local government agency, (iii) making any truthful statements or disclosures required by law, regulation, or legal process, or (iv) requesting or receiving confidential legal advice. In addition, Undersigned shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, in each case, solely for the purpose of reporting or investigating a suspected violation of law or (2) in a complaint or other document filed in a lawsuit or proceeding, if such filing is made under seal.
2. NON-COMPETITION. By and in consideration of the Company’s entering into this Agreement, and in further consideration of Undersigned’s exposure to the information described in paragraph 1 (“Confidential Information”) of the Company Group, Undersigned agrees that Undersigned shall not, during the later of (a) the term (“Term”) of any employment agreement that Undersigned has with the Company Group and for one (1) year following the termination of any such agreement (“Termination Date”) and (b) three years from the Effective Date (the “Restriction Period”), directly or indirectly, for compensation or otherwise, engage in or have any interest in any Restricted Enterprise (as defined below), including, without limitation, holding any position as a stockholder, officer, consultant, independent contractor, Undersigned, partner, member, or investor in, any Restricted Enterprise; provided, that in no event shall ownership of one percent (1%) or less of the outstanding securities of the limited partnership interest in any private equity fund, hedge fund or venture capital fund or any class of securities of any issuer whose securities are registered under the Exchange Act, standing alone, be prohibited by this paragraph, so long as Undersigned does not have, or exercise, any rights to manage or operate the business of such fund or issuer other than rights as a limited partner or stockholder thereof. For purposes of this paragraph, “Restricted Enterprise” shall mean any real estate enterprise in the business of acquiring, developing, owning, leasing, managing or selling real estate properties used in the self-storage business and any other lines of business the Company Group is participating in, or has taken substantive steps towards participating, as of the Effective Date, during any Term or Undersigned’s Termination Date, that is competitive with the business conducted by the Company Group on the Effective Date, during any Term or the Termination Date, within the United States and anywhere outside the United States where the Company
Group and its direct or indirect subsidiaries, partnerships and joint ventures are operating or have taken substantive steps towards operating as of Undersigned’s Termination Date.
This paragraph shall not apply with respect to any non-competition provisions if Undersigned’s post termination activities constitute the practice of law and would violate the Texas Rules of Professional Conduct rule 5.06.
3. NON-SOLICITATION BUSINESS. During the Restriction Period, Undersigned shall not directly or indirectly contact, induce or attempt to induce any customer, member, partner, shareholder, supplier, or licensee of the Company Group to cease doing business with the Company Group or in any way interfere with the relationship between any member of the Company Group, on the one hand, and any such customer, partner, member, shareholder, supplier, or licensee, on the other hand.
4. NON-DISPARAGEMENT. Subject to paragraph 1.4 above, from and after the Effective Date, Undersigned shall not make any statement that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of any member of the Company Group or any of their respective employees, officers, directors, managers, partners or equity holders.
5. NON-SOLICITATION OF EMPLOYEES. Undersigned agrees that during his employment with the Company Group, if any, and for a period of 18 months following the last day of Undersigned’s employment or the Effective Date, Undersigned shall not, directly or indirectly through another, solicit or induce, or attempt to solicit or induce, any employee of any member of the Company Group, to leave the Company Group, or recommend to a competitor of the Company Group the hiring of any such employee. An employee shall be deemed covered by this paragraph 5 while employed or retained by the Company Group and for a period of six (6) months thereafter.
6. OPPORTUNITY FOR REVIEW; ACKNOWLEDGMENTS. Undersigned understands the nature of the burdens imposed by paragraphs 1-5 of this Agreement (the “Restrictive Covenants”). Undersigned acknowledges that he is entering into this Agreement on his own volition, and that he has been given the opportunity to have this Agreement reviewed by legal counsel of his choosing. Undersigned represents that upon careful review, he knows of no reason why the Restrictive Covenants contained in this Agreement are not reasonable and enforceable and is in full accord as to their necessity for the reasonable and proper protection of confidential and proprietary information of the Company Group now existing or to be developed in the future. Undersigned expressly acknowledges and agrees that each and every Restrictive Covenant is reasonable with respect to subject matter, time period and geographical area. Undersigned further agrees and acknowledges that the Restrictive Covenants do not preclude Undersigned from earning a livelihood, nor do they unreasonably impose limitations on Undersigned’s ability to earn a living. Undersigned agrees and acknowledges that the potential harm to the Company Group of the non-enforcement of the Restrictive Covenants outweighs any potential harm to Undersigned of their enforcement by injunction or otherwise.
7. RESTRICTIVE COVENANTS OF THE ESSENCE. The Restrictive Covenants are of the essence of this Agreement; they shall be construed as independent of any other provision in this Agreement or the Purchase Agreement. The existence of any claim or cause of action of
Undersigned against the Company Group, whether predicated on this Agreement or not, shall not constitute a defense to the enforcement by the Company Group of the restrictive covenants contained herein.
8. INJUNCTIVE RELIEF AND OTHER REMEDIES; TOLLING.
8.1. The Company and Undersigned agree that irreparable injury will result to the Company Group in the event Undersigned violates any restrictive covenant or affirmative obligation contained in this Agreement, and Undersigned acknowledges that the remedies at law for any breach by Undersigned of such provisions will be inadequate and that the Company Group shall be entitled to injunctive relief against Undersigned, in addition to any other remedy that is available, at law or in equity.
8.2. In the event of a violation by Undersigned of the Restrictive Covenants, any amounts being paid to Undersigned under the Purchase Agreement shall immediately cease.
8.3. In the event of any violation of any Restrictive Covenant, the applicable Restriction Period shall be tolled during any period during which Undersigned is in breach of such Restrictive Covenant.
9. GENERAL TERMS.
9.1. All rights of the Company Group under this Agreement shall survive any termination of Undersigned's employment with the Company Group or the Purchase Agreement.
9.2. The waiver by either party of any breach or default by the other party in the performance of any obligation hereunder shall not constitute a waiver of any subsequent breach or default.
9.3. This Agreement may not be modified except by a written amendment signed by the parties.
9.4. This Agreement shall be construed in accordance with the laws of the state of Texas except that no choice of law doctrine shall be used to apply the laws of any other jurisdiction.
9.5. Any notice required under this Agreement shall be in writing and delivered personally against receipt, or by registered or certified mail, return receipt requested, postage prepaid, or sent by Federal Express or other recognized courier service, and addressed to the party to be notified at its address first set forth above or at such other address as it may have given written notice in accordance with this paragraph. Notice may also be sent by email of fax, however, any such email or fax shall be deemed received on the first business day after being send. The applicable addresses and numbers shall be those in the books and records of the Company Group.
9.6. To the extent that any law, statute, treaty or regulation by its terms as determined by a court, tribunal or other governmental authority of competent jurisdiction, is in conflict with the terms of this Agreement, the conflicting terms of this Agreement shall be superseded only to the extent necessary by the terms required by such law, statute, treaty or regulation. If any provision of this Agreement shall be otherwise unlawful, void, or for any reason unenforceable, then that
provision shall be enforced to the maximum extent permissible so as to affect the intent of the parties. In either case, the remainder of this Agreement shall continue in full force and effect.
9.7. This Agreement embodies the entire agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Effective Date.
COMPANY
SILVER STAR PROPERTIES REIT, INC.,
A Maryland corporation
By: ________________________________
UNDERSIGNED
___________________________________
EQUITY INTEREST PURCHASE AGREEMENT
EXHIBIT F
FINANCIAL PROJECTIONS
EQUITY INTEREST PURCHASE AGREEMENT
EXHIBIT G
RESTRICTED STOCK AGREEMENT
RESTRICTED STOCK AGREEMENT
SILVER STAR PROPERTIES REIT, INC.
This Restricted Stock Agreement (“Agreement”) is effective as of ___________________, 2023 (“Effective Date”) by and between the undersigned individuals (“Undersigned”) and Silver Star Properties REIT, Inc., a Maryland corporation (“Company”). This Agreement is being entered into in connection with that certain equity purchase agreement (“Purchase Agreement”) between the parties dated effective as of ______________, 2023 with respect to certain equity interests and other assets, including, without limitation, the equity of Southern Star Self Storage Investment Company, a Texas corporation (“Southern Star”). For purposes of this Agreement, the Company and all of its subsidiaries, affiliates, Southern Star and all of its subsidiaries and affiliates shall be referred to together as “Company Group.”
1. Issuance of Restricted Stock. Subject to the terms and conditions of this Agreement, including but not limited to the restrictions under Section 4, the Company issues to the Undersigned 301,659 shares of Common Stock (the “Shares”) of the Company, subject to applicable withholding for taxes as described in Section 9. The Company has a single class of common stock issued and outstanding as of the Effective Date (“Common Stock”).
2. Certain Definitions: For purposes of this Agreement:
(a) The term “Cause” is to be construed, with respect to each of the Undersigned, the same as such similar term is defined in the Employment Agreement between the applicable Undersigned and the Company, dated _________, or as may be amended, modified or replaced from time to time prior to the Lapse Date, and in the absence of such agreement or letter, shall mean the applicable Undersigned’s (i) failure to comply with any restrictive covenant in an employment agreement with the Company Group, Purchase Agreement or any separate agreement in connection with the Purchase Agreement (“Applicable Agreements”), (ii) willful violation of the covenants in the Purchase Agreement that could reasonably be expected to result in material harm to the Company, (iii) engaging in conduct in violation of any Applicable Agreement that is, or could reasonably expected to be, materially damaging to the Company, (iv) breach of any representation in the Purchase Agreement that could reasonably be expected to result in material harm to the Company, (v) act of fraud or misappropriation, embezzlement or misuse of funds or property belonging to Company Group, (vi) conviction of, or plea of guilty or no contest to, a felony or any crime involving as a material element fraud or dishonesty, or (vii) willful breach of a fiduciary duty owed to the Company Group.
(b) References to the “Executive Committee” refer to the executive committee of the board of directors of the Company.
3. Vesting. The Shares shall vest three years from the Effective Date (the “Lapse Date”).
4. Restriction on Shares. If an Undersigned has an event of Cause prior to the end of the restricted period for any reason, such Undersigned shall forfeit, and shall have no further rights or interest with respect to, any of the Shares allocated to such Undersigned, with automatic and immediate effect.
5. Forfeiture. Each Undersigned shall forfeit and cease to have any right or interest in any of the Shares allocated to such Undersigned, whether or not vested: (i) upon any breach of any provision in the Purchase Agreement or any act constituting Cause, (ii) upon the applicable Undersigned’s breach, as determined by the Executive Committee, of any non-disclosure, non-competition, or non-solicitation restrictive covenant obligation owed to the Company Group, or (iii) upon the Executive Committee’s determination that any conduct of the applicable Undersigned constitutes grounds for forfeiture under the Plan.
6. Change in Control. In the event of a Change in Control (as hereinafter defined), the Shares shall be fully vested immediately before such Change in Control. “Change of Control” means the occurrence of any of the events described in subsections (i) or (ii) below:
(i) the date any person or more than one person acting as a group, acquires ownership of the Common Stock of the Company that, together with the Common Stock held by such person or group, constitutes more than fifty percent of the total fair market value or total voting power of the stock of the Company; or (ii) the date that a majority of members of the board of directors of the Company is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the board of directors of the Company prior to the date of the appointment or election.
7. Transfer of Shares.
(a) The transfer of Shares shall be effectuated by an appropriate entry on the books of the Company, the issuance of certificates representing such shares (bearing such legends as the Executive Committee deems necessary or desirable), and/or other appropriate means as determined by the Executive Committee.
(b) Notwithstanding anything herein to the contrary, no transfer of shares of Common Stock shall become effective nor share certificates issued until the Company determines that such transfer, issuance, and delivery is in compliance with all applicable, laws, regulations of governmental authority, and the requirements of any securities exchange on which shares of Common Stock may be traded.
(c) The Executive Committee may, as a condition to the issuance of Shares, require the applicable Undersigned to make covenants and representations and/or enter into agreements with the Company to reflect the Undersigned’s rights and obligations as a stockholder of the Company and any limitations and restrictions on such Shares.
8. Tax Issues. Each Undersigned is hereby advised to consult with such Undersigned’s own personal tax, financial, and/or legal advisors regarding the tax consequences of the Shares. The Company does not make any recommendation or provide any advice with respect to the tax issues relating to the receipt of the Shares by any Undersigned. It is solely the responsibility of each Undersigned, and not the Company, to determine the tax treatment of the receipt of the Shares by such Undersigned.
9. Withholding. If applicable, the Executive Committee shall have the right to require each Undersigned to remit to the Company in cash an amount sufficient to satisfy any federal, state, and local withholding tax requirements attributable to the Shares. Alternatively, the Company shall have the right to require each Undersigned to surrender to the Company, for no consideration, the portion of any Shares that become vested whose aggregate Fair Market Value is sufficient to satisfy such federal, state, and local withholding tax requirements; provided that the Company shall remit to the applicable Undersigned a cash payment equal to any excess in the value of the surrendered Shares over the aggregate applicable withholding amount.
10. Rights of the Undersigned. The Shares shall be registered on the books and records of the Company in the Undersigned’s as of the Effective Date, but the Shares will not be issued or delivered to such Undersigned until vesting occurs. During such time, the applicable Undersigned has all of the economic rights of a shareholder with respect to the Shares, including the right to receive dividends paid on the Shares; provided that any additional shares of Common Stock or other securities that the applicable Undersigned may become entitled to receive pursuant to a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, separation or reorganization or any other change in the capital structure of the Company will be subject to the same restrictions as the Shares. The Executive Committee may, upon request, issue each Undersigned a certificate representing unvested Shares. The administrative costs and risk of loss of such certificated shares are the sole responsibility of the applicable Undersigned. In addition to any legend required by applicable law, any certificates issued representing Shares shall contain a legend substantially in the following form:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE RESTRICTED STOCK AGREEMENT RELATING TO THE SHARES ENTERED INTO BETWEEN THE REGISTERED OWNER AND SILVER STAR PROPERTIES REIT, INC. A COPY OF SUCH AGREEMENT IS ON FILE IN THE OFFICES OF SILVER STAR PROPERTIES REIT, INC.
Notwithstanding any other provision herein, the Company is investigating if the Shares can be issued to the Undersigned. Immediately after the closing of the transactions in the Purchase Agreement, the Company shall take reasonable actions to issue the Shares, provided, however, if the Executive Committee determines that the Company is unable to issue the Shares then the Undersigned shall be issued partnership units in Hartman XX Limited Partnership, a Texas limited partnership with economic terms substantially equivalent to the Shares.
11. No Assignment or Transfer. The Shares issued hereunder may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution. No transfer by will or the laws of descent and distribution shall be effective to bind the Company unless the Executive Committee shall have been furnished with (i) written notice thereof along with such evidence as the Executive Committee may deem necessary to establish the validity of the transfer and (ii) an agreement by the transferee to comply with all the terms and conditions of this Agreement that are or would have been applicable to the applicable Undersigned and to be bound by the acknowledgments made by the applicable Undersigned in connection with the Shares.
12. Undersigned Representations. By accepting the Shares, the Undersigned represents and acknowledges the following:
(a) Each Undersigned received a copy of this Agreement and reviewed it in its entirety and has had an opportunity to obtain the advice of independent counsel prior to signing this Agreement.
(b) Each Undersigned has had the opportunity to consult with a tax advisor concerning the tax consequences of signing this Agreement and receiving the Shares and understands that the Company makes no representation regarding the tax treatment as to any aspect of this Agreement, including the issuance of the Shares, vesting, or any other actions for the Shares.
(c) Each Undersigned consents to the collection, use, and transfer, in electronic or other form, of the Undersigned’s personal data by the Company, the Executive Committee, and any third party retained with respect to the Shares for the exclusive purpose of administering the Shares. Each Undersigned shall promptly notify the Executive Committee of any changes in such Undersigned’s name, address, or contact information with respect to the Shares.
13. Adjustments. If there is a change in the outstanding shares of Common Stock due to a stock dividend, split, or consolidation, or a recapitalization, corporate change, corporate transaction, or other similar event relating to the Company, the Executive Committee shall adjust the Shares in connection with such action.
14. Successors. This Agreement shall be binding upon and inure to the benefit of the heirs of each Undersigned, or distributees of such Undersigned’s estate and any successor to the Company.
15. Governing Law; Severability; Dispute Resolution.
(a) Governing Law. This Agreement shall be construed and administered in accordance with the laws of Texas without regard to its conflict of law principles.
(b) Severability. Any determination by a court of competent jurisdiction or relevant governmental authority that any provision or part of a provision in this Agreement is unlawful or invalid shall not serve to invalidate any portion of this Agreement not found to be unlawful or invalid, and any provision or part of a provision found to be unlawful or invalid shall be construed in a manner that will give effect to the terms of such provision or part of a provision to the fullest extent possible while remaining lawful and valid.
16. Acknowledgment of Receipt and Acceptance. By signing below (or execution by other means approved by the Executive Committee, including by electronic signature), the undersigned acknowledges receipt and acceptance of this Agreement, agrees to the representations made herein, and indicates his or her intention to be bound by this Agreement.
The parties hereby execute this Agreement to be effective as of the Effective Date.
COMPANY
SILVER STAR PROPERTIES REIT, INC.,
A Maryland corporation
By: ________________________________
UNDERSIGNED
____________________________________
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of April 6, 2023
(“Effective Date”), between Silver Star Properties REIT, Inc., a Maryland corporation (the “Company” and together with its subsidiaries and affiliates, the “Company Group”) and Mark Torok (the “Executive”).
WHEREAS, the Company is in the process of pivoting to a self-storage strategy and it is the good faith intent of the Executive Committee of the Company to continue such strategy as long as is the Executive Committee determines that such continuation of the strategy to be in the best interest of the Company and its shareholders;
WHEREAS, the Company and the Executive entered into the Job Description and Management Agreement dated as of October 15, 2022 (the “Prior Agreement”).
WHEREAS, the Company wishes to employ Executive to serve as its Chief Executive Officer (“CEO”) and the chief executive officer and president of its subsidiary Hartman XX Limited
Partnership, a Texas limited partnership (“Partnership”) (together with the other affiliates of the
Company and the Partnership, the “Company Group”), and Executive is willing to undertake such employment in accordance with the terms of this Agreement;
WHEREAS, Executive currently operates a business through Southern Star Self Storage Investment Company, a Texas corporation, and Southern Star Storage DST Holding Co. LLC, a Texas limited liability company (together “Southern Star”);
WHEREAS, pursuant to that certain Equity Purchase Agreement of even date herewith (the
“Purchase Agreement”), the Company or one of its affiliates has agreed to acquire all of the issued and outstanding equity of Southern Star;
WHEREAS, the Executive Committee of the Board of Directors (the “Executive Committee”) has been given complete authority with respect to the operations of the Company and authority of the Board of Directors and Executive in all capacities shall report to and follow the direction and input of the Executive Committee; and
WHEREAS, this Agreement is subject to the approval of the Executive Committee.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows:
1.TERM OF EMPLOYMENT. Subject to the provisions of this Agreement, Executive is employed as CEO of the Company and chief executive officer and president of the Partnership beginning on the day after the termination of the Prior Agreement and ending on October 16, 2026 (the “Fixed Term”). Notwithstanding the foregoing, Executive’s employment hereunder may be earlier terminated in accordance with paragraph 5 hereof. The period of time between the Effective Date and the termination of Executive’s employment hereunder shall be referred to herein as the “Term.”
2.DUTIES. Executive will devote his best efforts to the business and affairs of the Company Group, perform such services consistent with his position as are designated by the Company Group, and use his best efforts to promote the interest of the Company Group. Executive will perform duties consistent with a person in his capacity and shall
also perform such other functions and undertake such other responsibilities as are customarily associated with such capacity or that are assigned by the Executive Committee from time to time that are not inconsistent with Executive’s position. Executive pledges that during his employment he shall use his time and attention for the business of the Company Group. Executive further agrees to comply with all rules, regulations and policies established or issued by and made applicable to the Company’s executives generally.
3.COMPENSATION. From the Effective Date through October 15, 2023, the Company will pay Executive in accordance with terms of the Prior Agreement. Effective as of October 16, 2023, the Company will pay Executive a regular base salary for the first annual period equal to $550,000 and thereafter any increase will be determined by the Executive Committee with input from the Company’s compensation consultant. Such salary will be payable in periodic installments, less mandatory deductions, on the same basis as that of other executives of the Company. Effective as of October 16, 2023 (or sooner if approved by the Executive Committee) Executive shall be eligible to participate in any current or future bonus, incentive, and other compensation plans available to the Company’s executives. As of the Effective Date, the Executive Committee shall cause the Partnership to issue Executive 1,263,642 Performance Units (as defined in the Partnership Agreement) with economic terms and conditions comparable to Performance Units issued to members of the Executive Committee, such economic terms and conditions to be set forth in the applicable agreements for such Performance Units. The plan under which such Performance Units will be issued is attached hereto as Exhibit A.
4.INTENTIONALLY LEFT BLANK.
5.TERMINATION AND PAYMENTS. The Payments contained in this paragraph 5 shall only apply during the Fixed Term.
5.1. Termination of Employment. Executive’s employment hereunder will terminate upon the first to occur of the following:
a) Death and Disability. Executive’s employment hereunder will terminate immediately upon Executive’s death or Disability (as defined below). For purposes of this Agreement, “Disability” means that Executive, by reason of physical or mental incapacity, is unable, with or without reasonable accommodation, to substantially perform his duties and responsibilities under this Agreement for 120 calendar days (consecutive or non-consecutive) in any consecutive twelve (12) month period.
b) By the Company for Cause. Executive’s employment hereunder will terminate immediately upon Executive’s termination by the Company for Cause (as defined below). For purposes of this Agreement, “Cause” means:
i.Except by reason of death or Disability, Executive fails to devote the time and effort required for him to perform his duties hereunder or to follow the lawful directives of the Executive Committee;
ii.Executive is indicted for, convicted of, or enters a plea of guilty or nolo contendere to a felony or any other crime involving moral turpitude;
iii.Executive violates this Agreement or any other agreement between Executive and any member of the Company Group, including, without limitation, any violation by Executive of any Restrictive Covenant (as defined below);
iv.Executive engages in willful misconduct or gross negligence in the performance of his duties hereunder;
v.Executive’s performance of any act of theft, fraud, malfeasance or dishonesty in connection with the performance of his duties hereunder;
vi.Executive willfully, wantonly, and without approval of the Executive Committee takes any other action that he knows or should know to be materially adverse to the interests of the Company Group or its shareholders;
vii.The termination of the Purchase Agreement in accordance with its terms prior to the consummation of the transactions contemplated thereby; or
viii.A breach of one or more representations or warranties of sellers or Southern Star in the Purchase Agreement (x) that results, or reasonably could be expected to result, in aggregate losses to the Company Group of $50,000 or more and Executive had actual knowledge at the time the purchase agreement was signed that such representation(s) or warrant(ies) was false or misleading in any material respect; or (y) that results, or reasonably could be expected to result, in aggregate losses to the Company Group of $200,000 or more.
If any failure on Executive’s part referred to in clause (i) or (iii) of this paragraph 5.1(b) is curable (as reasonably determined by the Executive Committee), the Company may not terminate Executive’s employment unless the Executive Committee first gives Executive written notice specifying the nature of the failure and the steps that he must take to cure the failure, and Executive fails to take those steps within fifteen (15) days after the notice is given.
c) By the Company without Cause. The Company may terminate Executive’s employment hereunder at any time without Cause upon notice from the Executive Committee to Executive specifying an immediate or future termination date.
d) By Executive for Good Reason. Executive may terminate his employment hereunder for Good Reason (as defined below). For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following without the consent of Executive which is not cured within fifteen (15) days after notice is given by Executive to the Executive Committee of the circumstances alleged to constitute Good Reason:
(i) Executive’s Base Salary is reduced below the amount stated in paragraph 3 at the time of the Effective Date of this Agreement;
(ii) Executive is removed from any of Executive’s offices or his duties or responsibilities with the Company are otherwise materially reduced
(other than (i) temporarily while physically or mentally incapacitated, (ii) during the pendency of any internal investigation by the Company, or (iii) after
(iii) Executive has given or received notice of termination of employment); or Executive’s principal place of employment for the Company is relocated outside of the Houston metropolitan area and, as a result, he is required to relocate.
Notwithstanding the foregoing, if Executive has committed an act or omission constituting Cause prior to the occurrence of one or more of the events listed in clauses (i) through (iii) of this paragraph 5.1(d), then any such termination will be for Cause.
e) By the Executive without Good Reason. The Executive may terminate Executive’s employment hereunder at any time without Cause upon notice to the Executive Committee specifying an immediate or future termination date.
5.2. Payments upon Termination. Following any termination of Executive’s employment with the Company, the Company shall pay and provide to Executive, after the date of the termination (the “Termination Date”), the amounts and benefits set forth below:
a) Termination by the Company for Cause; Termination by Executive without Good Reason. If Executive’s employment is terminated by the Company for Cause, or by Executive without Good Reason, then Executive shall be entitled only to the following (i) any unpaid base salary through the Termination Date; (ii) reimbursement for any unreimbursed business expenses incurred through the Termination Date; and (iii) all other payments, benefits or fringe benefits to which Executive is entitled under the terms of any applicable compensation arrangement or benefit, equity or fringe benefit plan or program or grant (collectively, the “Accrued Amounts”). In addition, if Executive’s employment is terminated by the Company for Cause, then, to the fullest extent permitted by law, Executive shall be liable to the Company for any and all direct damages, losses, costs or expenses incurred by the Company (including, without limitation reasonable out-of-pocket legal fees) with respect to any action or inaction within the definition of Cause.
b) Termination due to Disability. If Executive’s employment is terminated due to Executive’s Disability, then, in addition to the Accrued Amounts, the Company will pay to Executive: (i) the amount of any bonus remaining payable by the Company to Executive for its fiscal year prior to the year in which the termination occurs; and (ii) any unpaid bonus determined by the Executive Committee for the fiscal year in which the termination occurs prorated for the number of completed calendar months served prior to the Termination Date. The payments described in subclauses (i) and (ii) of this paragraph 5.2(b) shall be paid on the later of (x) the date that bonuses are paid to other executives of the Company for the applicable year or (y) the first regular payroll date following the sixtieth (60th) day following the Termination Date. In addition, the Company shall continue to pay Executive at his base salary rate (but not as an employee) until the earlier of twelve (12) months following the Termination Date or the end of the Fixed Term, with the first payment to occur on the first regular payroll date
following the sixtieth (60th) day following the Termination Date and include all amounts that otherwise would have been paid prior thereto absent the delay; provided that if the Company has established a disability insurance policy, the premiums for which are paid by the Company, then Executive shall not be entitled to such salary continuation benefit and shall be entitled only to the benefits received pursuant to such policy.
c) Termination by the Company without Cause, or by Executive for Good Reason. If Executive’s employment hereunder is terminated by the Company without Cause (other than due to death or Disability) or by Executive for Good Reason, then, in addition to the Accrued Amounts, the Company shall continue to pay Executive at his base salary rate (but not as an employee) until the earlier of twelve (12) months following the Termination Date or the end of the Fixed Term, with the first payment to occur on the first regular payroll date following the sixtieth (60th) day following the Termination Date and include all amounts that otherwise would have been paid prior thereto absent the delay.
5.3. Full Satisfaction; Release. Payment and provision of the salary and benefits to which Executive is entitled under paragraph 5.2 shall constitute full satisfaction of all obligations of the Company to Executive arising under this Agreement and/or in connection with the termination of his employment and shall be in lieu of any termination of severance payments of benefits for which Executive may be eligible under any of the plans, policies or programs of the Company or under the Worker Adjustment Retraining Notification Act of 1988 or any similar state statute or regulation. Payment or provision of any amounts or benefits pursuant to paragraph 5.2 beyond the Accrued Amounts shall be conditioned upon Executive executing and delivering to the Company, and not revoking (if applicable), a release of all claims Executive may have against the Company and its affiliates, which release must be executed and delivered to the Company, and no longer subject to revocation, within sixty (60) days following the Termination Date. Any related vesting or forfeiture with respect to any Performance Units or any other type of equity incentive will be made pursuant to the applicable agreements.
5.4. Other Obligations. Upon any termination of Executive’s employment with the Company, Executive shall promptly resign from any other position as an officer, director or fiduciary of any member of the Company Group.
5.5. Survival of Certain Provisions. For the avoidance of doubt, upon any termination of this Agreement or Executive’s employment for any reason, however such termination is effected, whether by Executive or the Company, with or without Cause or Good Reason, or expiration of this Agreement, the provisions of this Agreement that are intended to survive termination of employment and shall survive in accordance with their terms.
6.CONFLICTS. Notwithstanding any other provision herein, (a) Executive must perform his job responsibilities ethically, lawfully and with unwavering integrity, (b) Executive must always conduct himself in a manner that reflects positively on the Company Group and refrain from behavior that would harm the Company Group's reputation or commercial position, and (c) Executive must always act in the best interests of the Company Group when performing his duties and devote his efforts at work to achieving the Company Group's business goals. Behavior that is motivated by, or even creates the reasonable perception that his decisions and actions are motivated by, personal relationships or personal gain violates the standards of conduct of the Company. A conflict of interest exists when personal financial interests or activities—or those of a
family member—influence or interfere with performance of Executive’s job responsibilities or otherwise run counter to his obligation to act in the best interests of the Company Group. For example, participation in a personal business, public office or, in some cases, a not-for-profit organization may prevent Executive from devoting the time and effort necessary to fulfill his job duties and could be a conflict of interest. Executive must promptly disclose to the Executive Committee any situation that may be or may appear to be a conflict of interest and comply with any guidelines or restrictions designed to address the actual or potential conflict. For purposes of this Agreement any participation by the Executive in any aspect of the self-storage business in any form (except as provided and performed pursuant to this Agreement), including without limitation, as an owner of any amount of equity (except Executive may own not more than 1% of a publicly traded self-storage company,) a holder of any debt, an operator, a promoter, a consultant, a lessee (excluding leasing units solely for personal use), a lessor, a manager, or otherwise, which shall include any Restricted Enterprise as defined in paragraph 9 below, shall be deemed for all purposes of this Agreement to be a conflict of interest. The foregoing shall apply whether or not the Executive receives any consideration with respect to such activities. Upon full disclosure of all of the facts of any applicable transaction, the Executive Committee may waive any or all of the provisions of this paragraph.
7.INSURANCE – KEY MAN. The Company shall have the right to acquire life insurance with respect to Executive with the Company as the beneficiary and Executive shall cooperate in a reasonable manner with the Company for such purpose.
8.NONDISCLOSURE.
8.1. Executive agrees to hold and safeguard any information about the Company Group and/or its shareholders and investors gained by Executive during the course of Executive’s employment. Executive shall not, without the prior written consent of the Company, disclose or make available to anyone for use outside the Company’s organization at any time, either during his employment or subsequent to any termination of his employment, however such termination is effected, whether by Executive or the Company, with or without Cause or Good Reason, or expiration of this Agreement, any information about the Company or its shareholders or investors, whether or not such information was developed by Executive, except as required in the performance of Executive’s duties for the Company or required by law.
8.2. Executive understands and agrees that any information about the Company is the property of the Company and is essential to the protection of the Company’s goodwill and to the maintenance of the Company’s competitive position and accordingly should be kept secret. Such information shall include, but not be limited to, information containing the Company’s business plans, investment strategies, investors, and prospective investors, key elements of specific properties, computer programs, system documentation, manuals ideas, or any other records or information belonging to the Company or relating to the Company’s business.
8.3. Notwithstanding anything in paragraph 8.1 or paragraph 8.2 to the contrary, the Company agrees that the obligations of Executive set forth in paragraphs 8.1 and 8.2 shall not apply to any information which becomes known generally to the public through no fault of Executive. In addition, paragraphs 8.1 and 8.2 shall not prevent disclosure by Executive that (i) is required by applicable law, legal process or any order or mandate of a court or other governmental authority to be disclosed; or (ii) is reasonably believed by
Executive, based upon the advice of legal counsel, to be required to be disclosed in defense of a lawsuit or other legal or administrative action brought against Executive; provided, that in the case of clauses (i) or (ii) Executive shall give the Company reasonable advance written notice of the information intended to be disclosed and the reasons and circumstances surrounding such disclosure in order to permit the Company to seek a protective order or other appropriate request for confidential treatment of the applicable information.
8.4. Nothing in this Agreement is intended or should be construed to prohibit Executive from (i) making reports of possible violations of law or regulation to any appropriate governmental agency, entity or official, (ii) participating in a proceeding with any appropriate federal, state, or local government agency, (iii) making any truthful statements or disclosures required by law, regulation, or legal process, or (iv) requesting or receiving confidential legal advice. In addition, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, in each case, solely for the purpose of reporting or investigating a suspected violation of law or (2) in a complaint or other document filed in a lawsuit or proceeding, if such filing is made under seal.
9.NON-COMPETITION. By and in consideration of the Company’s entering into this Agreement, and in further consideration of Executive’s exposure to the information described in paragraph 8 (“Confidential Information”) of the Company Group, Executive agrees that Executive shall not, during the Term and for one (1) year following the Termination Date (the “Restriction Period”), directly or indirectly, for compensation or otherwise, engage in or have any interest in any Restricted Enterprise (as defined below), including, without limitation, holding any position as a stockholder, officer, consultant, independent contractor, employee, partner, member, or investor in, any Restricted Enterprise; provided, that in no event shall ownership of one percent (1%) or less of the outstanding securities of the limited partnership interest in any private equity fund, hedge fund or venture capital fund or any class of securities of any issuer whose securities are registered under the Exchange Act, standing alone, be prohibited by this paragraph, so long as Executive does not have, or exercise, any rights to manage or operate the business of such fund or issuer other than rights as a limited partner or stockholder thereof. For purposes of this paragraph, “Restricted Enterprise” shall mean any real estate enterprise in the business of acquiring, developing, owning, leasing, managing or selling real estate properties used in the self-storage business and any other lines of business the Company Group is participating in, or has taken substantive steps towards participating, as of the Effective Date, during the Term or on Executive’s Termination Date, that is competitive with the business conducted by the Company Group during Executive’s employment, within the United States and anywhere outside the United States where the Company and its direct or indirect subsidiaries, partnerships and joint ventures are operating or have taken substantive steps towards operating as of Executive’s Termination Date.
This section 9 shall not apply with respect to any non-competition provisions to the extent that Executive’s post termination activities constitute the practice of law and would violate the Texas Rules of Professional Conduct rule 5.06.
10.NON-SOLICITATION BUSINESS. During the Restriction Period, Executive shall not directly or indirectly contact, induce or attempt to induce any customer, partner, shareholder, supplier, or licensee of the Company Group to cease doing business with the Company Group or in any way interfere with the relationship between any member of the
Company Group, on the one hand, and any such customer, partner, shareholder, supplier, or licensee, on the other hand.
11.NON-DISPARAGEMENT. Subject to paragraph 8.4 above, from and after the Effective Date and following termination of Executive’s employment with the Company, Executive shall not make any statement that is intended to become public, or that should reasonably be expected to become public, and that criticizes, ridicules, disparages or is otherwise derogatory of any member of the Company Group or any of their respective employees, officers, directors, managers, partners or equity holders.
12.NON-SOLICITATION OF EMPLOYEES. Executive agrees that during his employment with the Company and for a period of 18 months following the last day of Executive’s employment, Executive shall not, directly or indirectly through another, solicit or induce, or attempt to solicit or induce, any employee of any member of the Company Group, to leave the Company Group, or recommend to a competitor of the Company Group the hiring of any such employee. An employee shall be deemed covered by this paragraph 12 while employed or retained by the Company Group and for a period of six (6) months thereafter. This paragraph 12 shall not be violated by placing general job advertisements that are not specifically directed at employees of the Company Group.
13.OPPORTUNITY FOR REVIEW; ACKNOWLEDGMENTS. Executive understands the nature of the burdens imposed by paragraphs 6, 8, 9, 10, 11, and 12 of this Agreement (the “Restrictive Covenants”). Executive acknowledges that he is entering into this Agreement on his own volition, and that he has been given the opportunity to have this Agreement reviewed by legal counsel of his choosing. Executive represents that upon careful review, he knows of no reason why the Restrictive Covenants contained in this Agreement are not reasonable and enforceable and is in full accord as to their necessity for the reasonable and proper protection of confidential and proprietary information of the Company Group now existing or to be developed in the future. Executive expressly acknowledges and agrees that each and every Restrictive Covenant is reasonable with respect to subject matter, time period and geographical area. Executive further agrees and acknowledges that the Restrictive Covenants do not preclude Executive from earning a livelihood, nor do they unreasonably impose limitations on Executive’s ability to earn a living. Executive agrees and acknowledges that the potential harm to the Company Group of the nonenforcement of the Restrictive Covenants outweighs any potential harm to Executive of their enforcement by injunction or otherwise.
14.RESTRICTIVE COVENANTS OF THE ESSENCE. The Restrictive Covenants are of the essence of this Agreement; they shall be construed as independent of any other provision in this Agreement. The existence of any claim or cause of action of Executive against the Company, whether predicated on this Agreement or not, shall not constitute a defense to the enforcement by the Company of the restrictive covenants contained herein.
15.INJUNCTIVE RELIEF AND OTHER REMEDIES; TOLLING.
15.1. The Company and Executive agree that irreparable injury will result to the Company Group in the event Executive violates any restrictive covenant or affirmative obligation contained in this Agreement, and Executive acknowledges that the remedies at law for any breach by Executive of such provisions will be inadequate and that the Company Group shall be entitled to injunctive relief against Executive, in addition to any other remedy that is available, at law or in equity.
15.2. In the event of a violation by Executive of the Restrictive Covenants, any amounts being paid to Executive pursuant to paragraph 5.2 beyond the Accrued Amounts shall immediately cease, and any such amounts previously paid to Executive (other than $1,000) shall be immediately repaid to the Company.
15.3. In the event of any violation of any Restrictive Covenant, the applicable post-termination restriction period shall be tolled during any period during which Executive is in breach of such Restrictive Covenant.
16.COOPERATION. Upon the receipt of reasonable notice from the Company (including outside counsel), Executive agrees that while employed by the Company Group and thereafter, Executive will respond and provide information with regard to matters in which Executive has knowledge as a result of Executive’s employment with the Company Group, and will provide reasonable assistance to the Company Group and its representatives in defense of any claims that may be made against any member of the Company Group, and will assist the Company Group in the prosecution of any claims that may be made by any member of the Company Group, to the extent that such claims may relate to the period of Executive’s employment with the Company. Upon presentation of appropriate documentation, the Company shall pay or reimburse Executive for all reasonable out-of-pocket travel, duplicating or telephonic expenses incurred by Executive in complying with this paragraph 16.
17.SURVIVAL, SUCCESSION AND ASSIGNABILITY. Paragraphs 6 and 8 - 29 of this Agreement, including the obligations of Executive thereunder, shall survive the termination of this Agreement and Executive’s employment and shall be binding on Executive and his heirs, executors, legal representatives and assigns. Such obligations shall inure to the benefit of any successors or assigns of the Company. Executive specifically acknowledges that in the event of a sale of all or substantially all of the assets or stock of the Company, or any other event or transaction resulting in a change of ownership or control of the Company’s business, the rights and obligations of the parties hereunder shall inure to the benefit of any transferee, purchaser, or future owner of the Company’s business. This Agreement may be assigned only by the Company.
18.SEVERABILITY; REFORMATION. It is the intention of the parties that the provisions of this Agreement, including the Restrictive Covenants, shall be enforceable to the fullest extent permissible under applicable law. If any clause or provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, then the remainder of this Agreement shall not be affected thereby, and in lieu of each clause or provision of this Agreement which is illegal, invalid or unenforceable, there shall be added, as part of this Agreement, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and as may be legal, valid and enforceable.
19.ATTORNEYS’ FEES. Executive shall pay, indemnify and hold the Company Group harmless against all costs and expenses (including reasonable attorneys’ fees) incurred by the Company Group with respect to successful enforcement of its rights under this Agreement. The Company shall pay, indemnify and hold Executive harmless against all costs and expenses (including reasonable attorney’s fees) incurred by Executive with successful enforcement of Executive’s rights under this Agreement.
20.JURISDICTION AND VENUE. Executive hereby irrevocably submits to the jurisdiction and venue of any applicable court in Harris County, Texas in any action or proceeding brought by the Company arising out of, or relating to, this Agreement. Executive hereby irrevocably agrees that any such action or proceeding shall, at the Company’s option, be heard and determined in any such Court. Executive agrees that a final order or judgment in any such action or proceeding shall, to the extent permitted by applicable law, be conclusive and may be enforced in other jurisdictions by suit on the order or judgment, or in any other manner provided by applicable law related to the enforcement of judgments.
21.INDEMNIFICATION. During this Agreement and thereafter, the Company shall indemnify Executive as provided in the Company’s governing documents. During Executive’s employment hereunder and following Executive’s termination of employment, the Company shall cover Executive under directors’ and officers’ insurance for the period during which Executive may be subject to potential liability for any claim, action or proceeding as a result of Executive’s service as an officer or director of the Company Group or in any capacity at the request of the Company Group, in the same amount and to the same extent as the highest level then maintained for any then current or former officer or director.
22.SECTION 409A. It is the intention of the Company that all payments and benefits under this Agreement shall be made and provided in a manner that is either exempt from or intended to avoid taxation under Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), to the extent applicable. Any ambiguity in this Agreement shall be interpreted to comply with the above. Executive acknowledges that the Company Group has made no representations as to the treatment of the compensation and benefits provided in this Agreement and Executive has been advised to obtain his own tax advice. In no event whatsoever shall the Company Group be liable for any additional tax, interest or penalty that may be imposed on Executive by Section 409A or damages for failing to comply with Section 409A. For purposes of compliance with Section 409A, (i) all expenses or other reimbursements hereunder shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive, (ii) any right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit and (iii) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year. For purposes of Section 409A, Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified deferred compensation” for purposes of Section 409A be subject to offset by any other amount unless otherwise permitted by Section 409A. The Executive Committee shall have the authority to make all reasonable determinations under this provision.
23.ENTIRE AGREEMENT. Except for the Prior Agreement for the limited purpose set forth in Section 3, this Agreement and the documents expressly referenced herein supersede any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive by the Company and contains all agreements between the parties with respect to such employment. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement will be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged.
24.REPRESENTATIONS. Executive represents and warrants to the Company that (a) Executive has the legal right to enter into this Agreement and to perform all of the obligations on Executive’s part to be performed hereunder in accordance with its terms, and (b) Executive is not a party to any agreement or understanding, written or oral, and is not subject to any restriction, which, in either case, could prevent Executive from entering into this Agreement or performing all of Executive’s duties and obligations hereunder.
25.BINDING EFFECT. This Agreement will be binding upon and inure to the benefit of each of the parties and their successors, heirs or assigns.
26.LAW GOVERNING AGREEMENT. This Agreement will be governed and construed in accordance with the laws of the State of Texas.
27.PARTIAL INVALIDITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions will nevertheless continue in full force and effect.
28.WITHHOLDING. The Company shall have the right to withhold from any amount payable hereunder any federal, state, local and other taxes in order for the Company to satisfy any withholding tax obligation it may have under any applicable law or regulation.
29.NO GUARANTEE OF TAX CONSEQUENCES. None of the Board of Directors, the Executive Committee, the Company, any Affiliate or any agent of any of the foregoing makes any commitment or guarantee that any federal, state, local or other tax treatment will (or will not) apply or be available to Executive (or to any Person claiming through or on behalf of Executive) and shall have no liability or responsibility with respect to taxes (and penalties and interest thereon) imposed on Executive (or on any Person claiming through or on behalf of the Employee) as a result of this Agreement or of the replacement of the Existing Agreement with this Agreement.
30.NOTICES. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person (to the Secretary of the Company in the case of notices to the Company and to Executive in the case of notices to Executive), via e-mail, or mailed by United States registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Silver Star Properties REIT, Inc.
2909 Hillcroft Road, Suite 420
Houston, Texas 77057
Attention: General Counsel
If to Executive:
Mark Torok
2909 Hillcroft Road, Suite 420
Houston, Texas 77057
or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
31.COUNTERPARTS. This Agreement may be executed in counterparts, together, which shall constitute one and the same instrument.
[Signature Page to Follow]
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its name and behalf by its proper officer, thereunto duly authorized, and Executive has set his hand as of the Effective Date.
_/s Mark Torok______________________
MARK TOROK
SILVER STAR PROPERTIES REIT, INC.
A Texas corporation
By: /s Gerald Haddock
Name: Gerald Haddock
Title: Lead Director
SILVER STAR PROPERTIES REIT, INC.
AND HARTMAN XX LIMITED PARTNERSHIP
2023 INCENTIVE AWARD PLAN
ARTICLE 1.
PURPOSE
The purpose of the Silver Star Properties REIT, Inc. and Hartman XX Limited Partnership 2023 Incentive Award Plan (the “Plan”) is to promote the success and enhance the value of Silver Star Properties REIT, Inc., a Maryland corporation (the “Company”), and Hartman XX Limited Partnership, a Texas limited partnership (the “Partnership”). The Company and the Partnership recognize the value that has been provided to the Company by the Executive Committee of the Board (“EC”). That value included the restructuring of the board of directors to create the EC and solicit and seek the employment of a new chief executive officer (“CEO”) to replace the then existing CEO. The person selected is now in the position of CEO and in such position, has engineered the pivot of the Company to the new strategy of developing public storage properties rather than suburban office properties, the industry in which the prior management group and prior CEO were engaged. This entire transaction and restructuring and strategic pivot were set up by the work and effort of the EC and CEO. Additionally, the EC has been engaged in setting the parameters for the compensation of management. Also, the EC has worked with various investment banks in order to prepare the groundwork for a refinancing of material debt. Going forward, considering the EC and CEO, with its knowledge of the existing operations of the company, its working relationship with management and its vision along with management as to the manner in which the pivot in strategy should be carried out, it is essential that the EC be retained in a fashion and in the totality for the benefit of the shareholders and all constituents including management, creditors and others to be fulfilled to the fullest extent possible. Since it is difficult during any transition of this nature to retain personnel that have the knowledge vision and ability not only with the Company but also in the capital markets, which this EC has, this Plan is essential and fair in the opinion of the Company, the Board and the EC, and the proposed grants to the CEO and each EC member are fair and in line with market value to retain the services of the EC and the CEO. The CEO will also be a significant and active participant in the pivot and all other actions described above along with the EC. The Plan includes a three-year vesting that is intended to ensure that the EC and the CEO will stay in place and provide continued services. All of that is essential to realizing the full amount of value to the shareholders.
ARTICLE 2.
DEFINITIONS
Wherever the following terms are used in the Plan they shall have the meanings specified in Article 11, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.
ARTICLE 3.
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares/AO LTIP Unit. The aggregate number of Shares or share equivalents which may be transferred pursuant to Awards under the Plan shall be 4,422,748 Shares (the “Share Limit”). The AO LTIP Unit that may be issued under the Plan shall be as close as possible to the economic equivalent of issuing Options for 4,422,748 Shares and will be in the form of Performance Units. Such Performance Units shall be counted against the Share Limit as reasonably determined by the EC. The Performance Units shall include all required provisions to be profits interests for Federal income tax purposes.
3.2 Limitation on Number of Shares with Respect to any Award. Notwithstanding any provision in the Plan to the contrary, and subject to Section 10.2 hereof, the maximum aggregate number of Shares (or Performance Units or equivalent Shares) with respect to one or more Awards that may be granted to any one person shall be 1,053,035, (the “Individual Award Limit”), provided, however, with respect to the foregoing, the Individual Award Limit for Mark T. Torok shall be 1,263,642.
ARTICLE 4.
GRANTING OF AWARDS
4.1 Participation. Upon approval by the EC, the EC shall cause the Partnership or the Corporation to issue the Individual Award Limit to each Eligible Individual consistent with the terms of the Plan. Each Award shall be evidenced by an award agreement (“Award Agreement”) stating the terms and conditions applicable to such Award, consistent with the requirements of the Plan.
4.2 Additional Terms. Notwithstanding anything contained herein to the contrary, with respect to any Award, the applicable Award may be subject to any additional limitations that are reasonably determined by the EC to be necessary to comply with any Applicable Law. Each Award shall provide an appropriate liquidity opportunity for each Participant.
ARTICLE 5.
GRANTING OF AO LTIP UNITS
5.1 AO LTIP Units. The EC shall cause the Partnership to grant AO LTIP Units in the full amount to each Eligible Individual allowed under the terms of the Plan; provided that the AO LTIP Unit are intended to constitute profits interests within the meaning of the Code, including, to the extent applicable, Revenue Procedure 93-27, 1993-2 C.B. 343 and Revenue Procedure 2001-43, 2001-2 C.B. 191. The AO LTIP Unit shall generally vest 1/3 per year. AO LTIP Unit shall be subject to the terms and conditions of the Partnership Agreement. Notwithstanding the foregoing, in the event that a Participant does not qualify under any Applicable Law to receive a AO LTIP Units, on the date of any grant of AO LTIP Unit to such Participant, then such Participant shall not receive such grant of AO LTIP Unit and in lieu thereof shall automatically be granted an equivalent number of Options.
5.2 Other Terms and Conditions. All applicable terms and conditions of each Award shall be set by the EC in an Award Agreement, with as determined by the EC. The AO LTIP Unit shall be issued under Section 4.2B of the Partnership Agreement. The AO LTIP Units shall
be convertible into Partnership Common Units under certain circumstances. The AO LTIP Units shall be subject to forfeiture under certain circumstances.
ARTICLE 6
GRANTING OF OPTIONS
6.1 Granting of Options. The EC is authorized to cause the Company to grant Options in a manner consistent with the Plan. The exercise price per Share subject to each Option shall be set by the EC, but shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted, provided, however, Options shall only be issued if it is impossible to issue AO LTIP Units to the Participants.
6.2 Option Term and Vesting. The term of each Option shall be ten (10) years from the date the Option is granted. The Options shall vest 1/3 each year, at the end of the year, for three years (100% after three years) from the date of Grant. The Option shall be subject to forfeiture under certain conditions.
ARTICLE 7.
EXERCISE OF OPTIONS
7.1 Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the EC may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of Shares.
7.2 Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company, or such other person or entity designated by the EC:
(a) A written or electronic notice complying with the applicable rules established by the EC stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Participant or other person then entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the EC, in its sole discretion, deems necessary or advisable to affect compliance with Applicable Law. The EC may, in its sole discretion, also take such additional actions as it deems appropriate to affect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Option, as determined in the sole discretion of the EC; and
(d) Full payment of the exercise price and applicable withholding taxes to the Company for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by the EC in accordance with the Plan.
ARTICLE 8.
ADDITIONAL TERMS OF AWARDS
8.1 Payment. The EC shall determine the methods by which payments by any Participant with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, or (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award), or (d) other form of legal consideration acceptable to the EC. The EC shall also determine the methods by which Awards shall be delivered or deemed to be delivered to Participants.
8.2 Tax Withholding. The Company and Partnership shall have the authority and the right to deduct, withhold, or require a Participant to remit to the Company or Partnership, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s social security, Medicare and any other employment tax obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising in connection with any Award. The EC may in its sole discretion and in satisfaction of the foregoing requirement allow a Participant to satisfy such obligations by any payment means described in Section 8.1 hereof.
8.3 Transferability of Awards.
(a) Except as otherwise provided in Section 8.3(b) or (c) hereof:
(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the EC, pursuant to a DRO, for three years after the date of grant and thereafter unless and until all restrictions applicable to such Award have lapsed;
(ii) No Award or interest or right therein shall be subject to the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) unless and until all restrictions applicable to such Award have lapsed, and any attempted disposition of an Award prior to the satisfaction of these conditions shall be null and void and of no effect, except to the extent that such disposition is permitted by clause (i) of this provision; and
(iii) During the lifetime of the Participant, only the Participant may exercise an Award (or any portion thereof) granted to him under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Participant, any exercisable portion of an Award may be exercised by his personal representative or by any person empowered to do so under the deceased Participant’s will or under the then-applicable laws of descent and distribution.
(b) Notwithstanding Section 8.3(a) hereof, the EC, in its sole discretion, may determine to permit a Participant or a Permitted Transferee of such Participant to transfer an Award to any one or more Permitted Transferees of such Participant, subject to the Participant (or transferring Permitted Transferee) and the Permitted Transferee executing any and all reasonable documents requested by the EC, including without limitation, documents to (A)
confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal, state and foreign securities laws and (C) evidence the transfer.
8.4 Conditions to Issuance of Awards. Notwithstanding anything herein to the contrary, neither the Company nor the Partnership shall be required to issue or deliver any Award or any related Shares, unless and until the EC has determined, with advice of counsel, that such action is in compliance with Applicable Law. In addition to the terms and conditions provided herein, the EC may require that a Participant make such reasonable covenants, agreements, and representations as the EC, in its discretion, deems advisable in order to comply with any such Applicable Law. The EC may place legends on any Award or Share certificate or book entry to reference any applicable restrictions. No fractional Shares shall be issued and cash shall be given in lieu of fractional Shares.
8.5 Acceleration of Vesting and Forfeiture Provisions. Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the EC shall have the right to provide, in the terms of Awards that under certain circumstances the Awards may be forfeited, including, without limitation a Termination of Service within a specified time or a Termination of Service with cause, provided, however, that if any Termination of Service is caused by the Company, whether by termination (without cause) or not re-electing the applicable Participant as a Director then any Awards held by such Participant shall become fully vested immediately prior to the termination or the end of the prior term as a Director.
8.6 Leave of Absence. Unless the EC provides otherwise, vesting of Awards granted hereunder shall not be suspended during any unpaid leave of absence. A Participant shall not cease to be considered a Director or Employee in the case of any (a) leave of absence approved by the Company, or (b) change in status (Director to Employee or Consultant, etc.).
ARTICLE 9.
ADMINISTRATION
9.1 Administration. The EC shall administer the Plan, and any action taken by the EC shall be valid and effective, whether or not members of the EC at the time of such action are later determined not to have satisfied the requirements for membership as provided in the Company’s charter or bylaws.
9.2 Duties and Powers of EC. It shall be the duty of the EC to conduct the general administration of the Plan in accordance with its provisions. The EC shall have the power to interpret the Plan and Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan as are not inconsistent with the Plan, to interpret, amend or revoke any such rules and to amend any Award Agreement provided that the rights or obligations of the holder of the Award that is the subject of any such Award Agreement are not affected adversely by such amendment, unless the consent of the Participant is obtained or such amendment is otherwise permitted herein.
9.3 Action by the EC. Unless otherwise required in Articles or bylaws or as required by Applicable Law, a majority of the EC shall constitute a quorum and the acts of a majority of the
members present at any meeting at which a quorum is present, and acts approved in writing by all members of the EC in lieu of a meeting, shall be deemed the acts of the EC.
9.4 Authority of EC. The EC has the exclusive power, authority and sole discretion to determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, any applicable valuations, Gross Asset Value, REIT Shares Amount, exercise price, grant price, or purchase price, any restrictions or limitations on the Award, any schedule for vesting, forfeiture provisions, or restrictions on the exercisability of an Award, based in each case on such considerations as the EC in its sole discretion determines. The EC’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the EC with respect to the Plan are final, binding, and conclusive on all parties.
ARTICLE 10.
MISCELLANEOUS PROVISIONS
10.1 Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the EC. Except as otherwise provided herein, no amendment, suspension or termination of the Plan shall, without the consent of the Participant, impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides.
10.2 Certain Corporate Events. In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of the Company’s stock or the share price of the Company’s stock other than an Equity Restructuring, including any similar events by the Partnership, the EC shall make equitable adjustments, if any, to reflect such change. Any such adjustment shall be factored into making any determination with respect to the REIT Shares Amount. Except as may otherwise be provided in any applicable Award Agreement or other written agreement entered into between the Company or the Partnership and a Participant, if a Change in Control occurs and a Participant’s outstanding Awards are not continued, converted, assumed, or replaced by the surviving or successor entity in such Change in Control, then immediately prior to the Change in Control such outstanding Awards, to the extent not continued, converted, assumed, or replaced, shall become fully vested and, as applicable, exercisable. The existence of the Plan, any Award Agreement and/or any Award granted hereunder shall not affect or restrict in any way the right or power of the Company or the Partnership to take or authorize action allowed under the Bylaws, Articles, Partnership Agreement or Applicable Law.
10.3 REIT Status. The Plan shall be interpreted and construed in a manner consistent with the Company’s status as a REIT. No Award shall be granted or awarded, and with respect to any Award granted under the Plan, such Award shall not vest, be exercisable or be settled if, in the discretion of the EC, the grant, vesting, exercise or settlement of such Award could impair the Company’s status as a REIT.
10.4 Compliance with Laws. All actions under the Plan are subject to compliance with all Applicable Law as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith.
10.5 Titles and Headings, References to Sections of the Code or Exchange Act. The titles and headings of the sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
10.6 Governing Law. The Plan and Award Agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Texas without regard to conflicts of laws thereof.
10.7 Certain Tax Issues. To the extent that the EC reasonably determines that any Award granted under the Plan is subject to Section 409A of the Code, the EC and the Participants shall reasonably determine any alternatives and shall implement any acceptable alternatives as approved by the Participants and the EC. To the extent Code Section 280G applies with respect to any Award the parties shall cooperate on a reasonable basis to make any adjustments that may reduce the potential impact. Any such action shall be in compliance with any Applicable Law.
10.8 No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company, the Partnership nor the EC is obligated to treat Eligible Individuals, Participants or any other persons uniformly.
10.9 Indemnification. The provisions in the Bylaws regarding limitation of liability and indemnification apply for all purposes of the Plan, any Award, any Award Agreement and all other matters with respect to the Plan.
ARTICLE 11
DEFINITIONS
11.1 “AO LTIP Units” shall mean a “AO LTIP Units” described in Section 5.1.
11.2 “Applicable Accounting Standards” shall mean the accounting principles or standards as may apply to the Company’s financial statements under United States federal securities laws from time to time.
11.3 “Applicable Law” shall mean any applicable law, including without limitation, corporate, securities, tax or other laws, statutes, rules, requirements or regulations, whether federal, state, local or foreign.
11.4 “Award” shall mean an Option or AO LTIP Units award.
11.5 “Award Agreement” shall mean any written notice, agreement, contract or other instrument or document evidencing an Award.
11.6 “Board” shall mean the Board of Directors of the Company.
11.7 “Change in Control” shall mean the occurrence of any transaction or event that results in the current stockholders of the Company owning less than 65% of the voting rights of the Company stock or the approval of a sale of substantially all of the assets of the Company or the approval of the liquidation or termination of the Company or the Partnership. Consistent with the terms of this Section, the EC shall have full and final authority to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto.
11.8“Code” shall mean the Internal Revenue Code of 1986, as amended.
11.9 “Common Stock” shall mean the common stock of the Company, par value $0.01 per share.
11.10 “Company” shall mean Silver Star Properties REIT, Inc., a Maryland corporation.
11.11 “Director” shall mean a member of the Board, as constituted from time to time.
11.12 “DRO” shall mean a “domestic relations order” as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.
11.13 “Effective Date” shall mean the date of approval of the Company and the Partnership.
11.14 “Eligible Individual” shall mean Gerald W. Haddock, Jack I. Tompkins, and James S. Still who are the members of the EC and Mark Torok who is the CEO as of the Effective Date.
11.15 “Employee” shall mean any officer or other employee (within the meaning of Section 3401(c) of the Code) of the Company, the Services Company, the Partnership or any Subsidiary.
11.16 “Equity Restructuring” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other securities of the Company) or the share price of Common Stock (or other securities) and causes a change in the per share value of the Common Stock underlying outstanding stock-based Awards.
11.17 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
11.18 “Fair Market Value” shall mean, as of any given date, the value of determined by using the most recent NAV determined for the Shares.
11.19 “Gross Asset Value” has the meaning given in the Partnership Agreement.
11.20 “Individual Award Limit” shall mean limits applicable to Awards granted under the Plan.
11.21 “Non-Employee Director” shall mean a Director of the Company who is not an Employee.
11.22 “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option.
11.23 “Option” shall mean a right to purchase Shares at a specified exercise price, granted herein.
11.24 “Participant” shall mean a person who has been granted an Award pursuant to the Plan.
11.25 “Partnership” shall mean Hartman XX Limited Partnership.
11.26 “Partnership Agreement” shall mean the Agreement of Limited Partnership of Hartman XX Limited Partnership, dated April 11. 2014 as the same may be amended, modified or restated from time to time.
11.27 “Performance Units” has the meaning given in the Partnership Agreement.
11.28 “Permitted Transferee” shall mean, with respect to a Participant, any “family member” of the Participant, as defined under Code Section 267(c)(4).
11.29 “Plan” shall mean this Silver Star Properties REIT, Inc. and Hartman XX Limited Partnership 2023 Incentive Award Plan, as it may be amended from time to time.
11.30 “REIT” shall mean a real estate investment trust within the meaning of Sections 856 through 860 of the Code.
11.31 “REIT Shares Amount” has the meaning given in the Partnership Agreement.
11.32 “Securities Act” shall mean the Securities Act of 1933, as amended.
11.33 “Share Limit” shall have the meaning provided in Section 3.1(a) hereof.
11.34 “Shares” shall mean shares of Common Stock.
11.35 “Subsidiary” shall mean (a) a corporation, association or other business entity of which fifty percent (50%) or more of the total combined voting power of all classes of capital stock is owned, directly or indirectly, by the Company, the Partnership and/or by one or more Subsidiaries, (b) any partnership or limited liability company of which fifty percent (50%) or more of the equity interests are owned, directly or indirectly, by the Company, the Partnership and/or by one or more Subsidiaries, and (c) any other entity not described in clauses (a) or (b) above of which fifty percent (50%) or more of the ownership and the power (whether voting interests or otherwise), pursuant to a written contract or agreement, to direct the policies and management or the financial and the other affairs thereof, are owned or controlled by the Company, the Partnership, and/or by one or more Subsidiaries.
11.36 “Substitute Award” shall mean an Award granted under the Plan in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock, in any case, upon the assumption of, or in substitution for, an outstanding equity award previously granted by a company or other entity that is a party to such transaction.
11.37 “Termination of Service” shall mean the time when a Participant ceases to be a Director or Employee for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Participant simultaneously commences or remains in employment and/or service as an Employee and/or Consultant with the Company or the Partnership.
I hereby certify that the foregoing Plan was duly adopted by the Executive Committee of the Board of Directors of Silver Star Properties REIT, Inc. on March 30, 2023, and approved by the Managing General Partner of Hartman XX Limited Partnership on April 6, 2023.
/s Michael Racusin
______________________________________
Michael Racusin, Corporate Secretary
Silver Star Properties REIT, Inc.
/s Michael Racusin
______________________________________
Michael Racusin, Secretary
Hartman XX REIT GP, LLC, managing general partner of Hartman XX Limited Partnership
HARTMAN XX LIMITED PARTNERSHIP
AO LTIP UNIT AWARD AGREEMENT
This AO LTIP Award Agreement (this “Agreement”), dated as of April 6, 2023 (the “Grant Date”), is made by and between Hartman XX Limited Partnership, a Texas limited partnership (the “Partnership”) and _________ (the “Participant”).
WHEREAS, Silver Star Properties REIT, Inc., a Maryland corporation (the “Company”) and the Partnership maintain the Silver Star Properties REIT and Hartman XX Limited Partnership, L.P. 2023 Incentive Award Plan (as amended from time to time, the “Plan”), which is administered by the executive committee of the board of directors of the Company (“EC”); and
WHEREAS, it has been determined that it would be to the advantage and in the best interest of the Company and its stockholders to issue the Award (as defined below) to the Participant as an inducement to remain in the service of the Company and the Partnership and, the Company and the Participant desire to reflect that the Award in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. Issuance of Award. Pursuant to the Plan the Partnership hereby (a) issues to the Participant an award (the “Award”) of the units in the Partnership described herein (“AO LTIP Units”) and (b) if not already a Partner, admits the Participant as a Partner of the Partnership on the terms and conditions set forth herein, in the Plan and in the Agreement of Limited Partnership of the Partnership (as amended from time to time, the “Partnership Agreement”). AO LTIP Units shall be in the form of ____________ Performance Units as defined in the Partnership Agreement with the terms and conditions described herein. At the request of the Partnership, the Participant shall execute the Partnership Agreement or a joinder or counterpart signature page thereto. The Participant shall be the owner of the AO LTIP Units for all purposes subject to potential forfeiture as provided herein.
2. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below. If the Participant is a party to any employment, consulting or similar service agreement (including without limitation a separation, severance or similar agreement if any) between the Participant on the one hand and the Company, Partnership or one of their affiliates on the other hand (a “Service Agreement”) immediately prior to the termination of the Participant’s employment with the Company, Partnership or one of their affiliates and (i) “Cause” or a substantially equivalent term is defined therein, then “Cause” shall have the meaning set forth in such Service Agreement for such term (or its substantial equivalent), (ii) “Disability” or a substantially equivalent term is defined therein, then “Disability” shall have the meaning set forth in such Service Agreement for such term (or its substantial equivalent), and (iii) “Good Reason” or a substantially equivalent term is defined therein then “Good Reason” shall have the meaning set forth in such Service Agreement as applicable to termination defined therein, and ”a termination by the Participant with Good Reason” shall be substituted for item (iv) under the definition of Qualifying Termination set forth below. If no such Service Agreement exists, then the definitions below shall apply to the Participant. All capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to such terms in the Plan and/or the Partnership Agreement, as applicable. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Plan and/or the Partnership Agreement, as applicable.
(a) “Cause” “Cause” shall mean: with respect to the Participant, the Participant’s: (i) conviction of, or plea of guilty or nolo contender to, a felony pertaining or otherwise relating to his or her services or employment with the Company, the Partnership or an affiliate of either; or (ii) willful misconduct that is materially economically injurious to the Company or any of its affiliates, in each case as reasonably determined by the Company and Partnership.
(b) “Disability” means a disability that qualifies or, had the Participant been a participant, would qualify the Participant to receive long-term disability payments under the Company’s group long-term disability insurance plan or program, as it may be amended from time to time. If no such plan exists the Disability shall mean the Participant, by reason of physical or mental incapacity, is unable, with or without reasonable accommodation, to substantially perform his or her duties and responsibilities for the Company and the Partnership.
(c) “Qualifying Termination” means a Termination of Service by reason of (i) the Participant’s death, (ii) a termination by the Company or the Partnership due to the Participant’s Disability, (iii) a termination by the Company or the Partnership other than for Cause, (iv) a termination by the Participant following any demotion, significant reduction in responsibilities, or reduction in annual salary (other than a reduction that is part of an overall plan to reduce expenses) for such Participant, or (v) termination by the Participant after three years from the Grant Date.
(d) “Restrictions” means the exposure to forfeiture set forth in Section 5.
(e) “Service Provider” means the applicable member of the Board.
3. AO LTIP Units Subject to the Plan and Partnership Agreement. The Award is subject to the terms of the Plan and the terms of the Partnership Agreement, including, without limitation, the restrictions on transfer. Notwithstanding any provision in the Partnership Agreement the AO LTIP Units shall not be transferable for three years after the Grant Date and then shall be subject to any provisions in the Plan and Partnership Agreement.
4. Vesting. The AO LTIP Units shall vest 1/3 each year, on the anniversary of the Grant Date, from the Grant Date and will be 100% vested after three years subject to Section 5 below. In the event that the Participant incurs a Qualifying Termination under Section 2.(c)(iii) above, the AO LTIP Units will vest in full and become nonforfeitable upon such Qualifying Termination. With respect to all other Qualifying Terminations, the unvested AO LTIP Units shall vest for the next tranche.
5. Distributions and Allocations of Profits and Losses.
(a) The Participant shall receive distributions and allocations of Profits and Losses with respect to the AO LTIP Units to the extent provided for in the Partnership
Agreement as if such AO LTIP Units were Partnership Common Units, as modified hereby.
(b) For purposes of this Agreement, the “Distribution Participation Date” with respect to AO LTIP Units granted hereunder means the date that AO LTIP Units have vested in accordance with Section 4. Accordingly, from the Effective Date until the Distribution Participation Date, the holder of the AO LTIP Units issued hereunder shall only be entitled to a percentage of distributions and allocations under the Partnership Agreement equal to ten percent (10%) (“AO LTIP Unit Initial Sharing Percentage”) of regular periodic distributions (“Interim Distributions”) and allocations available to such AO LTIP Unit. Upon vesting, the Participant shall be entitled to receive an amount equal to (i) the distributions payable from the Effective Date until the Distribution Participation Date with respect to a number of Partnership Common Units that is identical to the actual number of AO LTIP Units that became vested on such Distribution Participation Date, less (ii) the amount of the Interim Distributions with respect to such vested AO LTIP Units (“Performance Distribution”). The Performance Distribution shall be paid to the Participant within 30 days after the Distribution Participation Date.
(c) For the avoidance of doubt, (i) in addition to other allocations provided herein, upon vesting, the Participant shall receive an allocation of income (including items of gross income) in an amount equal to the Performance Distribution with respect to the AO LTIP Units that became vested on the applicable Distribution Participation Date, and (ii) commencing immediately after the Distribution Participation Date, the AO LTIP Units issued hereunder that have vested shall be entitled to receive the same distributions and allocations payable with respect to Partnership Common Units.
(d) All distributions paid with respect to the AO LTIP Units issued hereunder, both before and after the Distribution Participation Date, shall be fully vested and non-forfeitable when paid, whether or not the underlying AO LTIP Units have become vested pursuant to this Agreement.
(e) Vested AO LTIP Units shall be entitled to receive the full distribution payable on Partnership Common Units outstanding as of the record date next following the date set forth in the preceding sentence, whether or not they will have been outstanding for the whole period. An amount equal to the Performance Distribution attributable to unvested AO LTIP Units shall be credited to a notional (unfunded) account for the benefit of the Participant on the books and records of the Partnership subject to vesting. Such Performance Distribution with respect to vested AO LTIP Units shall be paid as provided above. Any portion of the notional account that is not payable to the Participant shall be forfeited and revert to the Partnership free and clear of any claims by the Participant. To the extent that the Partnership makes distributions to holders of Partnership Common Units partially in cash and partially in additional Partnership Common Units or other securities, the Participant shall receive such distribution with respect to all AO LTIP Units such distribution in cash other securities, with the cash component subject to the distribution provisions herein, and the securities subject to the same vesting on the applicable AO LTIP Units.
6. Effect of Termination of Service. In the event of the Participant’s Termination of Service for any reason other than a Qualifying Termination, any and all AO LTIP Units that have not vested as of the date of such Termination of Service (after taking into account any accelerated vesting that occurs in connection with such termination) will thereupon automatically and without further action be cancelled and forfeited without payment of any consideration therefor, and the Participant shall have no further right or interest in or with respect to such AO LTIP Units. In addition to the provisions herein, any provisions related to forfeiture or claw back in any Service Agreement shall apply. In connection with any forfeiture the Partnership may make allocations as reasonably determined under any applicable statute or regulation, including without limitation any proposed regulation.
7. Covenants, Representations and Warranties. The Participant hereby represents, warrants, covenants, acknowledges and agrees on behalf of the Participant and his or her spouse, if applicable, that (a) the Participant is holding the Award for the Participant’s own account, and not for the account of any other Person. The Participant is holding the Award for investment and not with a view to distribution or resale thereof except in compliance with applicable laws regulating securities, (b) the Participant is presently a Director or chief executive officer of the Company and is providing services to or for the benefit of the Partnership, and in such capacity has become personally familiar with the business of the Partnership, (c) the Participant has had the opportunity to ask questions of, and to receive answers from, the Partnership with respect to the terms and conditions of the transactions contemplated hereby and with respect to the business, affairs, financial conditions, and results of operations of the Partnership, (d) the Participant understands that the AO LTIP Units have not been registered and except for the redemption rights is an illiquid security, (e) none of the Partnership’s securities is presently publicly traded, and the Partnership has made no representations, covenants or agreements as to whether there will be a public market for any of its securities, and (f) the Partnership has made no warranties or representations to the Participant with respect to the income tax consequences of the transactions contemplated by this Agreement, and the Participant is in no manner relying on the Partnership or its representatives for an assessment of such tax consequences.
8. Capital Account. The Participant shall make no contribution of capital to the Partnership in connection with the Award and, as a result, the Participant’s Capital Account balance in the Partnership attributable to the AO LTIP Units shall be equal to zero.
9. Conversion: From and after the date on which an AO LTIP Unit vests, as set forth herein, it shall be convertible into Partnership Common Units at the election of the Participant. If not converted earlier, the AO LTIP Unit shall be converted on the date that is ten (10) years from the Grant Date (“Mandatory Conversion Date”). Any AO LTIP Units that are vested and have not been converted prior to the Mandatory Conversion Date will automatically be converted on such date. At the time of conversion, the Gross Asset Value of all Partnership assets shall be redetermined as provided in the definition of Gross Asset Value in the Partnership Agreement and the Capital Accounts of all Partners shall be adjusted as provided in the Partnership Agreement (“Book-up”). Based upon such Book-up, the Participant shall receive Partnership Common Units such that the liquidation proceeds form a deemed liquidation of the Partnership would equal the amount that the Participant would have received as a result of holding the AO LTIP Units immediately before the conversion.
10. Redemption Rights. The Participant shall be able to cause the redemption of the AO LTIP Units, or the applicable Partnership Common Units received as a result of conversion, after
three years from the Grant Date. The redemption price shall be reasonably determined by the EC. In the sole discretion of the EC, the EC may calculate a REIT Shares Amount for the AO LTIP Units and adjust it for the Gross Asset Value as of the Grant Date and then apply to resulting number of deemed REIT Shares to the most recent NAV as determined by the Company for its Shares. Such amount shall be paid in readily available funds to the Participant within ninety (90) days of the notice of redemption from the Participant. Following the conversion provided in paragraph 8 above, the adjustment for the Gross Asset Value as of the Grant Date shall not be made, and the applicable REIT Shares Amount shall be calculated for the applicable Partnership Common Units.
11. Section 83(b) Election. The Participant covenants that the Participant shall make a timely election under Section 83(b) of the Code (and any comparable election in the state of the Participant’s residence) with respect to the AO LTIP Units.
12. Ownership Information. The Participant hereby covenants that he shall provide all reasonably requested information required for any applicable reporting by the Partnership, including, without limitation, the Code or the requirements of any other appropriate taxing authority. The Participant shall also provide documents reasonably requested by the Partnership.
13. Taxes. The Partnership and the Participant intend that (i) the AO LTIP Units be treated as a “profits interests” as defined in Internal Revenue Service Revenue Procedure 93-27, as clarified by Revenue Procedure 2001-43, (ii) the issuance not be a taxable event to the Partnership or the Participant as provided in such revenue procedure, and (iii) the Partnership Agreement, the Plan and this Agreement be interpreted consistently with such intent. In furtherance of such intent, effective immediately prior to the issuance of the AO LTIP Units, the Partnership will book-up the Capital Accounts as provided in the applicable Treasury Regulations using the fair market value (as reasonably determined). The Partnership and the Participant shall treat the Participant as the owner of the AO LTIP Units from the Grant Date and the Participant shall takes into account the applicable allocations of Partnership income, gain, loss, deduction, and credit associated with the AO LTIP Units in computing the Participant's income tax liability for the entire period during which the Participant has the AO LTIP Units. On the Grant Date or at the time that the AO LTIP Units become vested. In connection with the AO LTIP Units the Participant shall receive an annual Form 1065 K-1 reporting such applicable amounts and such form will be filed with the Internal Revenue Service.
14. Restrictive Legends. If certificates evidencing the Award are issued they may bear such restrictive legends as the Partnership and/or the Partnership’s counsel may deem necessary or advisable under applicable law or pursuant to this Agreement.
15. Conformity to Securities Laws. The Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of all applicable federal and state laws, rules and regulations (including, but not limited to the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Award of AO LTIP Units shall be made, only in such a manner as to conform to such laws, rules and regulations.
16. Code Sections 409A and 280G. To the extent applicable, this Agreement shall be interpreted in accordance with Sections 409A and 280G of the Code and Department of Treasury
regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the effective date of this Agreement to minimize any impact but in all events consistent with Applicable Law. If Section 409A or 280G is reasonably deemed applicable, the Partnership and the Participant shall cooperate with any plan to reduce the impact of any such application, if reasonably possible without further economic harm to the Participant or the Partnership and in compliance with Applicable Law.
17. Miscellaneous.
(a) Incorporation of the Plan. This Agreement is made under and subject to and governed by all of the terms and conditions of the Plan. In the event of any discrepancy or inconsistency between this Agreement and the Plan, the terms and conditions of the Plan shall control. By signing this Agreement, the Participant confirms that he or she has received a copy of the Plan and has had an opportunity to review the contents thereof.
(b) Successors and Assigns. Subject to the limitations set forth in this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the executors, administrators, heirs, legal representatives, successors and assigns of the parties hereto, including, without limitation, any business entity that succeeds to the business of the Partnership.
(c) Entire Agreement; Amendments and Waivers. This Agreement, together with the Plan and the Partnership Agreement, constitute the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written, of the parties. No amendment, supplement, modification, or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
(d) Severability. If for any reason one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument.
(e) Titles. The titles, captions or headings of the Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of counterparts, any of which may be executed and transmitted by facsimile, and each of which shall be deemed to be an original, but all of which together shall be deemed to be one and the same instrument.
(g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas applicable to contracts entered into and wholly to be performed within the State of Texas, by Texas residents, without regard to any otherwise governing principles of conflicts of law that would choose the law of any state other than the State of Texas.
(h) Notices. Any notice to be given by the Participant under the terms of this Agreement shall be addressed to the Partnership at the Partnership’s address. Any notice to be given to the Participant shall be addressed to him or her at the Participant’s then current address on the books and records of the Partnership. By a notice given pursuant to this Section, either party may hereafter designate a different address for notices to be given to such party. Notice may also be sent by email used by the Partnership to send any information to the Participant for purposes of tax or financial reporting to Participant. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or five business days after deposited in the United States mail by certified mail, with postage and fees prepaid, addressed as set forth above or upon confirmation of delivery by a nationally recognized overnight delivery service or United States Post Office. Any notice sent by email shall be deemed received on the first business day after the email has been sent.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
HARTMAN XX LIMITED PARTNERSHIP,
a Texas limited partnership
By: Hartman XX REIT GP, LLC, a Texas limited liability company
By: Silver Star Property Management, Inc, a Texas corporation
By:____________________________
Name:
Title:
The Participant hereby accepts and agrees to be bound by all of the terms and conditions of this Agreement.
_______________________________
Silver Star Properties Announces Approval of Pivot to Self-Storage and the Acquisition of Southern Star Self-Storage Investment Company
Houston, TX | April 06, 2023 02:01 PM Central Daylight Time
Silver Star Properties REIT, Inc. (“Silver Star Properties”), formerly known as Hartman Short Term Income Properties XX, Inc., announces that its Executive Committee has approved the repositioning plan to pivot the company’s assets into the self-storage asset class. As an additional part of this plan, the board of directors also approved the acquisition of Southern Star Self-Storage Investment Company (“Southern Star Self-Storage”), and it has reached a long-term employment agreement with Mark Torok, Chief Executive Officer (“CEO”), as it solidifies its pivot away from office, retail, and light industrial assets into self-storage.
Southern Star Self-Storage is a privately held real estate company that specializes in the sponsorship and management of DST investments in self-storage properties. Established in 2019, the company currently operates a portfolio of 9 properties, which together comprise 321,291 net rentable square feet (NRSF) spread across 2,526 units. Additionally, the company has two facilities, totaling 208,220 NRSF and 703 units, under contract that are expected to close by June 1, 2023. Most of the facilities also have parking for boats, RV’s and autos. The facilities generally contain both climate and non-climate-controlled units and are located predominantly in secondary and tertiary markets in Texas, Florida, North Carolina, and Colorado.
Gerald Haddock, Lead Director of Silver Star Properties, emphasized the significance of the acquisition and stated, “The acquisition of Southern Star Self-Storage underscores our commitment to repositioning the Company’s assets into the self-storage asset class to maximize shareholder value. The firm inherits experienced self-storage operating capabilities and investment prowess through its Southern Star Self-Storage's management team. Southern Star Self-Storage will use its expertise in developing assets with DSTs and operate as a "Sister" company alongside a subsidiary of current Silver Star Properties’ operations. Silver Star Properties intends to deploy its capital into the larger and more development-oriented assets in order to take advantage of the acquisition skillsets of the current Silver Star Properties Management Team. This is an exciting milestone for the company, as it begins this part of the business with Mark’s team.”
In conjunction with the acquisition, Mark Torok signed a three-year employment agreement with the company, with the goal of creating liquidity for existing shareholders through listing the company on a public exchange. “I am honored to be leading, with the guidance of the Executive Committee, the repositioning pivot that we have been developing for several months with the primary goal to maximize shareholder value and improve liquidity for our investors. With it, we will shift our predominantly out of favor office assets into a stable, recession-resilient, and growing subset of investment real estate. I am thrilled to take the company to new heights and deliver value to our shareholders through a public listing.”
To align the interests of our leadership with our investors in carrying out the repositioning plan, Mark Torok and the members of the Executive Committee have been awarded participation units in a long-term incentive plan.
Silver Star Properties has extensive experience acquiring, owning, managing, and leasing commercial office, retail, light industrial, self-storage, and warehouse properties located in Texas.
Forward-Looking Statements: This press release contains certain statements which may be forward-looking statements. Because such statements include risks, uncertainties, and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements, and you should not place undue reliance on any such statements. Several important factors could cause actual results to differ materially from the forward-looking statements contained in this material. Such factors include those described in the Risk Factors sections of the annual report on Form 10-K for Silver Star Properties REIT, Inc. and other reports filed with the Securities and Exchange
Commission. Forward-looking statements in this press release speak only as of the date on which such statements were made, and the company undertakes no obligation to update any such statements that may become untrue because of subsequent events. Such forward-looking statements are subject to the safe harbor protection for forward looking statements contained in the Private Securities Litigation Reform Act of 1995.
