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                                                       /29                                                                                             Required Disclosures When Selling
                       Commercial Office Building Acquisition                                                                                          (15)
                       by Steve Berkman on Jan 27, 2009                                                                                                1000 views

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                                                                                                                                                       Creative financing
                           Describes the process of acquiring a commercial real estate property from letter of intent to closing, including
                                                                                                                                                       603 views
                           negotiating a purchase agreement, conducting due diligence, and assuming or paying off ...

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                      Commercial Office Building Acquisition                                                                                           KWU MREA Admin: Contract To
                      Presentation Transcript                                                                                                          Close Online Manual
                                                                                                                                                       1907 views

                 1. Commercial Office Building Acquisition December 22, 2008 Prepared By
                                                                                                                                                       Buyers Package
                 Stephen I. Berkman San Francisco, CA
                                                                                                                                                       1417 views

                 2. Purchase and Sale Agreement Negotiation

                                                                                                                                                       Buying Distressed Real Estate Debt
                 3. Letter of Intent Typically the first stage in documenting a purchase and sale                                                      7786 views
                 transaction is the negotiation and drafting of a letter of intent. The letter of
                 intent is a non-binding document which sets forth the key business terms
                                                                                                                                                       FREE Real Estate Listing Presenta-
                 regarding the transaction including: Price Amount of Deposit(s) Length of the                                                         tion
                 Due Diligence Period Closing Date Allocation of Closing Costs Treatment of                                                            27567 views

                 Existing Financing (e.g. sale free and clear of loan, assumption of loan, etc.)
                 Other material terms


                 4. The Purchase and Sale Agreement Once the parties have executed a letter of

                 intent, the attorneys representing the Seller will typically prepare an initial draft
                 of the purchase agreement. The Purchase Agreement will set forth all terms and

                 conditions related to the purchase and sale of the property, typically including,
                 the following: A legal description of the land and improvements to be

                 purchased and a description of the leases, contracts, personal property and
                 intangible property to be acquired in connection with the sale Purchase price,
                 earnest money deposit(s), due diligence period and closing date Terms and



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                conditions upon which the Buyer may access the property to perform its due
                diligence investigations Representations and warranties given by the Seller

                concerning the property Covenants of the Seller to maintain the property in its

                existing condition pending closing Conditions precedent to closing (e.g. receipt
                of tenant estoppel certificates, lender consent to loan assumption, etc.)
                Documents to be delivered by the parties at closing, the allocation of closing
                costs and the proration of taxes, rents and other operating expenses


                5. Formation of “Buyer” Entity In order to shield the parent company from
                liability and to facilitate either the assumption of the existing loan or future
                financings of the property, a new "bankruptcy remote," single-
                purpose entity (an "SPE") will be formed to take title to the real

                property. The SPE will be a wholly-owned subsidiary of Buyer. For tax
                purposes, typically the SPE will be a newly formed Delaware limited liability
                company qualified to do business in California. This can occur prior to or after
                execution of the Purchase Agreement, so long as the Purchase Agreement

                allows for assignment to affiliates.


                6. The Earnest Money Deposit Upon execution of the Purchase Agreement, the

                Buyer will typically make a deposit into an escrow account held by a title

                company. The deposit will be held in an interest bearing account and will be
                fully refundable if Buyer terminates the Purchase Agreement prior to the

                expiration of the due diligence period. The deposit will be applied toward the
                purchase price at closing. If the transaction fails to close due to the Buyer's
                default after the expiration of the due diligence period, then the deposit will be

                paid to the Seller as liquidated damages.


                7. The Due Diligence Phase


                8. Due Diligence Generally The Buyer will typically be granted a period

                ranging from 30-90 days in which to conduct all investigations related to the
                condition of the property, including: financial condition of the tenants and

                confirmation of all assumptions related to the valuation of the property review
                of lease documents and estoppel certificates received from tenants the structural

                condition of the building the environmental condition of the property review of
                zoning, entitlements and other governmental approvals applicable to the
                property review of title documents and a survey of the property review of loan

                documents review of service contracts (if any) to be assumed at closing and any
                other documents related to the property receipt of any required internal or
                external approvals and consents


                9. Due Diligence Generally (continued) If the Buyer is unsatisfied with any
                aspect of the property discovered during the due diligence period, then the

                Buyer may terminate the purchase agreement in its sole and absolute discretion
                and receive the return of its deposit. If the Buyer discovers adverse conditions
                which affect the Buyer's initial valuation of the property (e.g. unexpected
                capital repairs, unexpected environmental remediation, unpaid tenant
                improvement allowances, etc.), then the Buyer may also negotiate a purchase

                price reduction to address those issues.


                10. Financial Analysis The brokers representing the Seller will typically have
                prepared an offering memorandum which is a glossy brochure containing




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                information essential to the valuation of the property. During the due diligence
                phase, the Buyer will evaluate the factual accuracy of the offering memorandum

                and other assumptions used to initially determine the purchase price set forth in

                the Purchase Agreement. The Buyer may also commission a third party to
                perform an appraisal of the property to confirm valuation.


                11. Lease Review and Estoppel Certificates The Buyer's attorneys will review
                and prepare abstracts or summaries of the leases. Lease review will confirm the

                core financial terms of the leases (e.g. rent, escalations, term, extension rights,
                expansion rights, etc.) used to determine cash flows and the valuation of the
                property. Lease review will also identify any tenant concessions which may
                affect expected cash flows (e.g. free rent, unpaid tenant improvement

                allowances, termination rights, etc.). After the closing, the lease abstracts also
                provide a handy summary for quick reference purposes regarding the terms of
                the leases.


                12. Lease Review and Estoppel Certificates (continued) The Seller will also

                solicit estoppel certificates from the tenants which will confirm: The Buyer has
                been provided a complete copy of the lease There are no known defaults under

                the lease The tenant's understanding of other key business terms of the lease

                Negotiation point in the Purchase Agreement as to whether all estoppels must
                be received as a closing condition In this case careful attention will be paid to

                lease expirations and renewal rights and expansion rights of existing tenants.


                13. Title and Survey A title company will prepare a preliminary title report
                confirming that the Seller is the owner of the property and setting forth all

                matters of record relating the property. The Buyer will engage the services of a

                licensed surveyor to prepare an ALTA/ACSM survey of the property which will

                confirm, among other things, boundary lines, acreage, building footprint,
                building height, zoning and flood classifications, the location of all
                improvements located on the property and the location of all easements

                affecting the property. Attorneys for the Buyer will review the preliminary title
                report together with the survey to ensure that the property has adequate access,
                there are no encroachments, there are no restrictions which would adversely
                affect the use of the property and there are no unknown monetary liens.

                Attorneys for the Buyer will also negotiate with the title company the form of
                the title policy and any endorsements thereto. Among other things, the title
                policy will insure that the Buyer is the owner of the property and that there are

                no unknown items of record affecting the property.


                14. Environmental Review The Buyer will engage the services of a licensed
                environmental consultant to prepare a Phase I environmental report for the

                property. The Phase I report will evaluate prior ownership and historical use of
                the property, the listing of the property on databases regarding environmental
                compliance and other documents related to environmental matters. Surface
                level soil samples may also be collected. If any issues of concern are raised by
                the Phase I report, the consultant may recommend performing a Phase II report

                which typically requires test drilling and collection of ground water to
                determine if there are any adverse environmental issues.


                15. Building Physical Evaluation / Zoning Entitlements A third party consultant
                will perform a thorough inspection of the structural portions of the building and



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                all building systems (e.g. HVAC) to evaluate the physical condition of the
                building. The consultant will identify items in need of repair and other capital

                improvements necessary to keep the building in good condition and repair. The

                Buyer may also order a letter from the City in which the property is located
                confirming the zoning for the property and that no code violations are on file
                with the City. The Buyer may also engage a consultant or architect to prepare a
                "zoning report" which will independently confirm the property's
                compliance with zoning code requirements.


                16. Approvals and Consents Board of Directors Approval – Depending upon
                Buyer’s internal approval process, Board of Director approval will need to be
                obtained either prior to execution of the Purchase Agreement or prior to

                expiration of the due diligence period. Lender Consents – If the existing loan
                will be assumed, then the consent of the lender will be required. Governmental
                Entity Consents – Most permits, licenses and other governmental approvals
                relating to the property (e.g. elevator license, certificate of occupancy, etc.) are

                freely assignable. If any consents to assignment are required to assign these

                items, then they will be identified and obtained. Service Contracts – Buyer will

                need to determine whether it intends to assume service contracts related to the

                property (e.g. elevator maintenance, security/fire alarm monitoring,
                landscaping, janitorial) or have the Seller terminate those contracts at closing. If

                any consents to assignment are required to assign these contracts, then they will
                be identified and obtained.


                17. Property Management and Leasing Agreement In order to ensure a seamless

                transition of the property, prior to closing, the Buyer will need to negotiate a
                property management and leasing agreement with a professional third party

                property management company. Upon closing, the property management
                company will handle the day-to-day management of the property (e.g.
                preparation of budgets, collection of rent, building maintenance, etc.). If the

                existing loan will be assumed by the Buyer, the lender may require the

                execution and collateral assignment of the property management agreement

                prior to closing.


                18. The Existing Financing


                19. Options for Addressing the Existing Financing There are several options
                regarding how the Buyer and Seller may address the existing financing for the
                property, including: Prepayment – If permitted by the loan documents (or
                agreed to by the lender), the Seller may prepay the loan in its entirety. A penalty

                may be owed in order to prepay. The loan is typically paid at closing out of the
                sale proceeds. Defeasance – The loan documents may permit the deed of trust

                recorded against the property and securing the loan to be removed in a so-called
                "defeasance" transaction. In a defeasance transaction, government
                backed securities (e.g. bonds and treasuries) are substituted for real property as
                security for repayment of the loan. Given current interest rates, this loan can be
                quite expensive to the Seller. Loan Assumption – The Buyer may assume the

                loan, in which case, upon closing, the Buyer will become responsible for
                repayment of the loan and all of the other obligations of the Seller under the
                loan documents.


                20. Loan Assumption If the loan is to be assumed at closing, then attorneys for



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                the Buyer will undertake a detailed review of the loan documents to confirm the
                financial terms (e.g. interest rate, maturity date, operating covenants, etc.) and

                other obligations set forth in the loan documents. If the loan will be assumed,

                then the lender will require detailed financial information regarding Buyer in
                order to evaluate the company's financial condition and ability to perform under
                the loan documents. The lender may also require a parent guaranty of certain
                non-recourse carve-outs under the loan documents. The Buyer's attorneys will
                negotiate the documents regarding the assumption of the loan and otherwise

                coordinate with the lender's attorneys to cause the loan to be assumed.


                21. The Closing Process


                22. Escrow Closings in California are accomplished through an escrow agent,

                which is typically the title insurance company. Documents required for closing
                (e.g. deed, assignment of lease, bill of sale) are executed by the parties and
                delivered to the escrow agent. If the loan is not assumed by the Buyer, then the

                escrow agent also coordinates with the lender to obtain the necessary

                documents to cause the deed of trust to be removed as a lien against the
                property. The Buyer wires funds to the escrow agent on or before closing to

                close the transaction. Attorneys for the Buyer and Seller coordinate all aspects

                of the closing with the escrow agent on behalf of their respective clients.


                23. Closing Process Prior to closing the escrow agent will prepare a detailed
                closing statement setting forth the purchase price, deposits, credits, prorations

                and allocation of closing costs. The closing statement will set forth the precise
                amount the Buyer will need to wire into escrow in order to close the transaction.

                Upon receipt of all funds and documents, the escrow agent will cause the deed

                to be recorded, the title policy to be issued to the Buyer, originals of the closing

                documents to be delivered to the parties, the loan to be paid off (if applicable)
                and funds to be wired to the Seller. Upon closing, written notice will be
                delivered to the tenants of the building regarding the sale and instructing them

                to pay rent to the Buyer.


                24. Our Global Real Estate Group


                25. Real Estate Group Overview Paul Hastings has one of the largest and most

                sophisticated real estate practices of any international law firm—founded on the
                collective strength of 200 lawyers who advise clients on the purchase, sale,

                leasing, financing, developing, regulatory considerations and securitization of
                real property. Our leadership in real estate has been acknowledged by the
                market and our peers. Real estate law has been a mainstay of our firm since we
                opened for business more than 50 years ago. Backed by 1,300 professionals in
                18 offices worldwide, our lawyers adopt a multidisciplinary approach to

                advising clients on the full range of real estate-related transactions in every
                market where they conduct business. Our firm has long been recognized for our
                ability to adapt to the many different business cultures in the countries in which
                we operate. In each office, local and international lawyers provide clients with
                in-depth regional advice as well as unparalleled insight into the larger

                implications of conducting real estate transactions in the global economy. We
                were one of the first U.S. firms to expand into Asia, and today we have one of
                the largest and most experienced real estate practices in the Asia Pacific
                Region, working on landmark transactions like representing the first Japanese



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                real estate investment trust fund (J-REIT) on the Jasdaq securities exchange. In
                Europe, our offices in Brussels, Frankfurt, London, Paris and Milan are staffed

                by lawyers who are qualified in North America, the U.K., Italy, France and

                Germany. Across the globe, clients return to us not only for our knowledge of
                particular real estate markets, but for our knowledge of their business. Over the
                years, we have built strong, long-term relationships with our clients, who
                include many of the world’s top developers, investors, financial institutions and
                corporations. We partner with clients in every major sector of the industry,

                including residential, office, retail and industrial real estate, to understand how
                their business objectives are best served by their real estate needs. Our
                collaborative, interdisciplinary approach allows us to develop sophisticated
                structures and innovative solutions for some of the most complex multi-

                jurisdictional real estate deals in the world. We take the long view of the real
                estate cycle, staying attuned to where the market is and monitoring trends to
                help our clients anticipate change. Extensive transaction experience on both

                sides of the table gives us an unrivalled perspective on the opportunities and

                risks involved in complex deals. We negotiate on behalf of our clients to make

                sure that risks are allocated appropriately and the maximum rewards are
                realized. Our services extend beyond negotiating and documenting individual
                deals to advising clients on how their real estate strategy can support their

                business objectives.


                26. Real Estate Awards Joel Rothstein (Beijing) – 1 David Blumenfeld

                (Shanghai) – 2 1 2 2 3 China Real Estate: Foreign Investment Funds: Real
                Estate Japan Real Estate: Foreign Hong Kong Real Estate Chambers Asia 2008
                Hergen Haas (Frankfurt) – 3 Mark Eagan (London) – 6 4 4 Europe-wide Real

                Estate Germany Real Estate: Finance Chambers Europe 2008 Deborah Schmall
                (San Francisco) – 2 Peter Weiner (San Francisco) – 2 David Freeman (New

                York) – 3 Gordon Hart (San Francisco) – 4 3 California Environmental
                Chambers USA 2008 Marty Edelman (New York) – 1 Philip Feder (Los
                Angeles) – 1 Rick Kirkbride (Los Angeles) – 1 Charles Sharbaugh (Atlanta) – 2

                Daniel Perlman (Chicago) – 3 Charles Thornton (San Francisco) – 3 Bob
                Wertheimer (New York) – 3 Stephen Berkman (San Francisco) – 4 Eric Landau

                (New York) – 4 Stuart Mass (New York) – 4 Mark Schonberger (New York) – 4
                Robert Grados (New York) – Up & Coming 1 1 1 3 4 California Real Estate

                National Leisure & Hospitality New York Real Estate: Mainly Dirt Georgia
                Real Estate National REITs Chambers USA 2008 N/A 2 3 Japan Real Estate:

                Foreign Investment Funds: REITS Chambers Global 2008 Individuals/Rank
                Rank Practice Group Directory


                27. Real Estate Practice Focus Acquisitions and Dispositions Advising clients
                in the purchase and sale of real property is the core of our practice. We

                represent clients in deals in every major sector of the industry, including
                residential, office, retail and industrial real estate. We negotiate and draft
                contracts, conduct due diligence, resolve issues and structure deals to reduce the
                tax burden. Our clients include buyers and sellers of property used for a variety
                of purposes, and we regularly represent companies whose business is the

                acquisition, development and disposition of real estate, particularly opportunity
                funds, public real estate funds, equity funds and developers. Development and

                Construction We represent clients in every type of traditional development and




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                construction project and are recognized leaders in advising on projects that are
                innovative in their size, scope or impact on a community. We have deep

                experience with the range of development and construction projects our clients

                undertake, including mixed-use projects, large-scale infrastructure projects,
                recreational and retail properties. We represent property owners and developers
                of all sizes, financial institutions, investors and end users around the world.
                Furthermore, the lawyers in our Military Base Redevelopment and Privatization
                practice group represent clients involved in redevelopment and privatization

                projects. Equity Investments and Joint Ventures Clients turn to us as their
                trusted advisers on the profusion of cross-border and multi-jurisdictional
                investment structures available for real estate investment. Our real estate
                investment and joint venture services cover friendly and unsolicited

                acquisitions, mergers, private equity and mezzanine investments,
                recapitalizations and joint ventures. Our clients include investee companies,
                strategic and financial investors, international and local financial institutions,

                major real estate investment groups and hotel and resort groups. We help clients

                customize investment vehicles to satisfy the needs of every type of sponsor,

                including limited partnerships, trusts, limited liability companies and offshore
                entities. Environmental Paul Hastings’ team of environmental lawyers focuses
                its practice on the compliance, transactional and litigation matters that concern

                environmental issues. With our knowledge of federal, state and local regulatory
                systems—and how they interact and affect one another—we meet the steady

                demand for responsive and cost-effective results for clients facing an
                environmental law hurdle. Our attorneys and regulatory specialists know how

                air pollution, water and hazardous waste, among other substances, are regulated
                throughout the United States, and they draw on the complementary strengths of
                our full-service firm to supplement their litigation, transactional, tax and other

                services pertaining to environmental issues. Our environmental attorneys are
                recognized leaders in assisting clients with the redevelopment of “brownfields”

                properties—those abandoned, idled or underutilized industrial and commercial
                facilities where expansion or redevelopment is complicated by real or perceived
                environmental contamination.


                28. Real Estate Practice Focus Hotels and Resorts Paul Hastings’ Resort,
                Restaurant & Recreation (RR&R) practice group focuses on the legal and

                business needs of real estate development companies, institutional lenders,
                investment banks, capital providers, owners and operators. With more than 75

                attorneys serving RR&R clients around the world, the RR&R practice
                encompasses the development, acquisition and sale, finance, leasing, operation,
                management, licensing, branding, repositioning, roll-up, foreclosure, workout

                and restructuring of hospitality, recreational and real estate-based entertainment
                properties and businesses in North America, Latin America, the Caribbean,
                Europe and Asia. Land Use Our land use lawyers help clients at every stage of
                real estate and land use projects, from planning and permitting to financing and
                litigation. Our knowledge of law, planning, architecture and environmental

                issues, combined with our global presence, is unmatched by other international
                law firms. We have pioneered innovative and successful techniques for public
                and private clients in development, land use systems and litigation, and have
                experience litigating matters at the state and federal levels, including before the
                U.S. Supreme Court. We have developed particular experience with California’s



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                especially complex land use and environmental protection laws. Leasing Our
                real estate lawyers who focus their practice on commercial leasing deals have

                built a reputation for excellence through many years of successful

                representation of large, sophisticated landlords and major corporate tenants in
                high-profile deals. Our ability to move deals to completion swiftly and with the
                most favorable terms for our clients is unrivalled. We operate in all of the major
                real estate markets, and are particularly strong in structuring investment-grade
                sales-leaseback, commercial and synthetic leasing arrangements for clients. We

                advise clients on the full range of business issues that can affect a lease, raising
                issues that might otherwise go unnoticed and that could have repercussions long
                after the ink has dried.   Real Estate Finance Our real estate finance lawyers
                represent both lenders and borrowers in financings ranging from conventional

                commercial loans to sophisticated capital market and securitized transactions.
                We handle financings of portfolios of distressed debt in U.S. and foreign
                markets, real estate portfolio securitizations and fund formation for investment

                in real estate debt and equity vehicles. We are highly experienced in real

                property lending, whether first mortgage or mezzanine, secured by a wide

                variety of real estate. Whether real estate occupies a large or small percentage
                of a client’s total investment portfolio, we have the finance experience and
                industry knowledge to ensure the financing structure supports our client’s

                business goals. Real Estate Securities and Capital Markets (REITs) Paul
                Hastings’ leading securities practice represents clients in complex real estate

                capital formation and other related transactions. Lawyers from our corporate,
                real estate and tax practices work together in interdisciplinary teams to address

                the accounting, legal and regulatory issues associated with intricate securities
                transactions. Our attorneys help structure and execute public and private
                offerings by REITs, limited partnerships, limited liability companies and other

                programs that invest in equity and mortgages. We also serve as outside general
                counsel to several REITs.


                29. Our Offices For further information , you may visit our home page at

                www.paulhastings.com or email us at [email_address] . Brussels Avenue Louise
                480 Boîte 5B 1050 Brussels, Belgium Telephone: +32 2 641 7460 Facsimile:

                +32 2 641 7461 Frankfurt Siesmayerstrasse 21 D-60323 Frankfurt am Main,
                Germany Telephone: +49 69 907485 0 Facsimile: +49 69 907485 499 London

                Ten Bishops Square, 8th Floor London E1 6EG United Kingdom Telephone:
                +44 203 023 5100 Facsimile: +44 203 023 5109 Milan Via Palestro, 24 20122

                Milan, Italy Telephone: +39 02 30414 000 Facsimile: +39 02 30414 005 Paris
                96, boulevard Haussmann 75008 Paris, France Telephone: +33 1 42 99 04 50
                Facsimile: +33 1 45 63 91 49 Beijing 19/F, Yintai Center Office Tower 2

                Jianguomenwai Avenue Chaoyang District Beijing, 100022 China Telephone:
                +86 10 8567 5300 Facsimile: +86 10 8567 5400 Hong Kong 22/F, Bank of
                China Tower 1 Garden Road Hong Kong Telephone: +852 2867 1288
                Facsimile: +852 2526 2119 Shanghai 35/F Park Place 1601 Nanjing West Road
                Shanghai, 200040 China Telephone: +86 21 6103 2900 Facsimile: +86 21 6103

                2990 Tokyo Ark Mori Building – 34F 12-32 Akasaka 1-chome Minato-Ku,
                Tokyo 107-6034, Japan Telephone: +81 3 6229 6100 Facsimile: +81 3 6229
                7100 Palo Alto 1117 S. California Avenue Palo Alto, CA 94304 Telephone: +1
                650 320 1800 Facsimile : +1 650 320 1900 San Diego 4747 Executive Drive,
                12th floor San Diego, CA 92121 Telephone: +1 858 458 3000 Facsimile: +1



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                858 458 3005 San Francisco 55 Second Street, 24th Floor San Francisco, CA
                94105 Telephone: +1 415 856 7000 Facsimile: +1 415 856 7100 Washington,

                D.C. 875 15th Street, N.W. Washington, DC 20005 Telephone: +1 202 551

                1700 Facsimile: +1 202 551 1705 Atlanta 600 Peachtree Street, N.E. 24th Floor
                Atlanta, GA 30308 Telephone: +1 404 815 2400 Facsimile: +1 404 815 2424
                Chicago 191 North Wacker Drive 30th Floor Chicago, IL 60606 Telephone: +1
                312 499 6000 Facsimile: +1 312 499 6100 Los Angeles 515 S. Flower Street
                25th Floor Los Angeles, CA 90071 Telephone: +1 213 683 6000 Facsimile: +1

                213 627 0705 New York Park Avenue Tower 75 East 55th Street, 1st Floor New
                York, NY 10022 Telephone: +1 212 318 6000 Facsimile: +1 212 319 4090
                Orange County 695 Town Center Drive, 17th Floor Costa Mesa, CA 92626
                Telephone: +1 714 668 6200 Facsimile: +1 714 979 1921 EUROPE ASIA

                NORTH AMERICA




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11 of 11                                                                                                       2/12/2013 8:13 PM

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Commercial office building acquisition

  • 1. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... SlideShare Upload Browse Go Pro Login Signup Ads by Google Commercial Lawyer Commercial Attorney Commercial Loan Commercial Property Related More Making Money With Real Estate 132 views Real Estate Invasion 92 views Paperwork For Buyers 2795 views Listing 01 588 views Consumer guide 373 views Rpc Residential Purchase Contract 0505[1] 1319 views Buyer Presentation (Landscape For Onscreen) 480 views 300 2010 pl 320 views Arizona Residential Real Estate Pur- chase Contract 935 views 1 of 11 2/12/2013 8:13 PM
  • 2. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... Vannoy test sample offer_4.24.12 126 views «‹›» /29 Required Disclosures When Selling Commercial Office Building Acquisition (15) by Steve Berkman on Jan 27, 2009 1000 views 3,201 views Creative financing Describes the process of acquiring a commercial real estate property from letter of intent to closing, including 603 views negotiating a purchase agreement, conducting due diligence, and assuming or paying off ... More… Required Disclosures When Selling (22) No comments yet 220 views Chap10 240 views Post Comment Subscribe to comments Arizona Real Estate Sellers Guide 642 views 2 Favorites 2011 Colorado Real Estate Contract Frederic Tapé, Manager @AMN ,Real Estate Investor at AMN & SCI LA Tysche - Redlined Version 3 years ago 489 views Real Estate Jargons You Need to Jonathan Boutelle, entrepreneur CTO at SlideShare Know 4 years ago 329 views Home Buyers' Handbook 342 views Commercial Office Building Acquisition KWU MREA Admin: Contract To Presentation Transcript Close Online Manual 1907 views 1. Commercial Office Building Acquisition December 22, 2008 Prepared By Buyers Package Stephen I. Berkman San Francisco, CA 1417 views 2. Purchase and Sale Agreement Negotiation Buying Distressed Real Estate Debt 3. Letter of Intent Typically the first stage in documenting a purchase and sale 7786 views transaction is the negotiation and drafting of a letter of intent. The letter of intent is a non-binding document which sets forth the key business terms FREE Real Estate Listing Presenta- regarding the transaction including: Price Amount of Deposit(s) Length of the tion Due Diligence Period Closing Date Allocation of Closing Costs Treatment of 27567 views Existing Financing (e.g. sale free and clear of loan, assumption of loan, etc.) Other material terms 4. The Purchase and Sale Agreement Once the parties have executed a letter of intent, the attorneys representing the Seller will typically prepare an initial draft of the purchase agreement. The Purchase Agreement will set forth all terms and conditions related to the purchase and sale of the property, typically including, the following: A legal description of the land and improvements to be purchased and a description of the leases, contracts, personal property and intangible property to be acquired in connection with the sale Purchase price, earnest money deposit(s), due diligence period and closing date Terms and 2 of 11 2/12/2013 8:13 PM
  • 3. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... conditions upon which the Buyer may access the property to perform its due diligence investigations Representations and warranties given by the Seller concerning the property Covenants of the Seller to maintain the property in its existing condition pending closing Conditions precedent to closing (e.g. receipt of tenant estoppel certificates, lender consent to loan assumption, etc.) Documents to be delivered by the parties at closing, the allocation of closing costs and the proration of taxes, rents and other operating expenses 5. Formation of “Buyer” Entity In order to shield the parent company from liability and to facilitate either the assumption of the existing loan or future financings of the property, a new "bankruptcy remote," single- purpose entity (an "SPE") will be formed to take title to the real property. The SPE will be a wholly-owned subsidiary of Buyer. For tax purposes, typically the SPE will be a newly formed Delaware limited liability company qualified to do business in California. This can occur prior to or after execution of the Purchase Agreement, so long as the Purchase Agreement allows for assignment to affiliates. 6. The Earnest Money Deposit Upon execution of the Purchase Agreement, the Buyer will typically make a deposit into an escrow account held by a title company. The deposit will be held in an interest bearing account and will be fully refundable if Buyer terminates the Purchase Agreement prior to the expiration of the due diligence period. The deposit will be applied toward the purchase price at closing. If the transaction fails to close due to the Buyer's default after the expiration of the due diligence period, then the deposit will be paid to the Seller as liquidated damages. 7. The Due Diligence Phase 8. Due Diligence Generally The Buyer will typically be granted a period ranging from 30-90 days in which to conduct all investigations related to the condition of the property, including: financial condition of the tenants and confirmation of all assumptions related to the valuation of the property review of lease documents and estoppel certificates received from tenants the structural condition of the building the environmental condition of the property review of zoning, entitlements and other governmental approvals applicable to the property review of title documents and a survey of the property review of loan documents review of service contracts (if any) to be assumed at closing and any other documents related to the property receipt of any required internal or external approvals and consents 9. Due Diligence Generally (continued) If the Buyer is unsatisfied with any aspect of the property discovered during the due diligence period, then the Buyer may terminate the purchase agreement in its sole and absolute discretion and receive the return of its deposit. If the Buyer discovers adverse conditions which affect the Buyer's initial valuation of the property (e.g. unexpected capital repairs, unexpected environmental remediation, unpaid tenant improvement allowances, etc.), then the Buyer may also negotiate a purchase price reduction to address those issues. 10. Financial Analysis The brokers representing the Seller will typically have prepared an offering memorandum which is a glossy brochure containing 3 of 11 2/12/2013 8:13 PM
  • 4. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... information essential to the valuation of the property. During the due diligence phase, the Buyer will evaluate the factual accuracy of the offering memorandum and other assumptions used to initially determine the purchase price set forth in the Purchase Agreement. The Buyer may also commission a third party to perform an appraisal of the property to confirm valuation. 11. Lease Review and Estoppel Certificates The Buyer's attorneys will review and prepare abstracts or summaries of the leases. Lease review will confirm the core financial terms of the leases (e.g. rent, escalations, term, extension rights, expansion rights, etc.) used to determine cash flows and the valuation of the property. Lease review will also identify any tenant concessions which may affect expected cash flows (e.g. free rent, unpaid tenant improvement allowances, termination rights, etc.). After the closing, the lease abstracts also provide a handy summary for quick reference purposes regarding the terms of the leases. 12. Lease Review and Estoppel Certificates (continued) The Seller will also solicit estoppel certificates from the tenants which will confirm: The Buyer has been provided a complete copy of the lease There are no known defaults under the lease The tenant's understanding of other key business terms of the lease Negotiation point in the Purchase Agreement as to whether all estoppels must be received as a closing condition In this case careful attention will be paid to lease expirations and renewal rights and expansion rights of existing tenants. 13. Title and Survey A title company will prepare a preliminary title report confirming that the Seller is the owner of the property and setting forth all matters of record relating the property. The Buyer will engage the services of a licensed surveyor to prepare an ALTA/ACSM survey of the property which will confirm, among other things, boundary lines, acreage, building footprint, building height, zoning and flood classifications, the location of all improvements located on the property and the location of all easements affecting the property. Attorneys for the Buyer will review the preliminary title report together with the survey to ensure that the property has adequate access, there are no encroachments, there are no restrictions which would adversely affect the use of the property and there are no unknown monetary liens. Attorneys for the Buyer will also negotiate with the title company the form of the title policy and any endorsements thereto. Among other things, the title policy will insure that the Buyer is the owner of the property and that there are no unknown items of record affecting the property. 14. Environmental Review The Buyer will engage the services of a licensed environmental consultant to prepare a Phase I environmental report for the property. The Phase I report will evaluate prior ownership and historical use of the property, the listing of the property on databases regarding environmental compliance and other documents related to environmental matters. Surface level soil samples may also be collected. If any issues of concern are raised by the Phase I report, the consultant may recommend performing a Phase II report which typically requires test drilling and collection of ground water to determine if there are any adverse environmental issues. 15. Building Physical Evaluation / Zoning Entitlements A third party consultant will perform a thorough inspection of the structural portions of the building and 4 of 11 2/12/2013 8:13 PM
  • 5. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... all building systems (e.g. HVAC) to evaluate the physical condition of the building. The consultant will identify items in need of repair and other capital improvements necessary to keep the building in good condition and repair. The Buyer may also order a letter from the City in which the property is located confirming the zoning for the property and that no code violations are on file with the City. The Buyer may also engage a consultant or architect to prepare a "zoning report" which will independently confirm the property's compliance with zoning code requirements. 16. Approvals and Consents Board of Directors Approval – Depending upon Buyer’s internal approval process, Board of Director approval will need to be obtained either prior to execution of the Purchase Agreement or prior to expiration of the due diligence period. Lender Consents – If the existing loan will be assumed, then the consent of the lender will be required. Governmental Entity Consents – Most permits, licenses and other governmental approvals relating to the property (e.g. elevator license, certificate of occupancy, etc.) are freely assignable. If any consents to assignment are required to assign these items, then they will be identified and obtained. Service Contracts – Buyer will need to determine whether it intends to assume service contracts related to the property (e.g. elevator maintenance, security/fire alarm monitoring, landscaping, janitorial) or have the Seller terminate those contracts at closing. If any consents to assignment are required to assign these contracts, then they will be identified and obtained. 17. Property Management and Leasing Agreement In order to ensure a seamless transition of the property, prior to closing, the Buyer will need to negotiate a property management and leasing agreement with a professional third party property management company. Upon closing, the property management company will handle the day-to-day management of the property (e.g. preparation of budgets, collection of rent, building maintenance, etc.). If the existing loan will be assumed by the Buyer, the lender may require the execution and collateral assignment of the property management agreement prior to closing. 18. The Existing Financing 19. Options for Addressing the Existing Financing There are several options regarding how the Buyer and Seller may address the existing financing for the property, including: Prepayment – If permitted by the loan documents (or agreed to by the lender), the Seller may prepay the loan in its entirety. A penalty may be owed in order to prepay. The loan is typically paid at closing out of the sale proceeds. Defeasance – The loan documents may permit the deed of trust recorded against the property and securing the loan to be removed in a so-called "defeasance" transaction. In a defeasance transaction, government backed securities (e.g. bonds and treasuries) are substituted for real property as security for repayment of the loan. Given current interest rates, this loan can be quite expensive to the Seller. Loan Assumption – The Buyer may assume the loan, in which case, upon closing, the Buyer will become responsible for repayment of the loan and all of the other obligations of the Seller under the loan documents. 20. Loan Assumption If the loan is to be assumed at closing, then attorneys for 5 of 11 2/12/2013 8:13 PM
  • 6. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... the Buyer will undertake a detailed review of the loan documents to confirm the financial terms (e.g. interest rate, maturity date, operating covenants, etc.) and other obligations set forth in the loan documents. If the loan will be assumed, then the lender will require detailed financial information regarding Buyer in order to evaluate the company's financial condition and ability to perform under the loan documents. The lender may also require a parent guaranty of certain non-recourse carve-outs under the loan documents. The Buyer's attorneys will negotiate the documents regarding the assumption of the loan and otherwise coordinate with the lender's attorneys to cause the loan to be assumed. 21. The Closing Process 22. Escrow Closings in California are accomplished through an escrow agent, which is typically the title insurance company. Documents required for closing (e.g. deed, assignment of lease, bill of sale) are executed by the parties and delivered to the escrow agent. If the loan is not assumed by the Buyer, then the escrow agent also coordinates with the lender to obtain the necessary documents to cause the deed of trust to be removed as a lien against the property. The Buyer wires funds to the escrow agent on or before closing to close the transaction. Attorneys for the Buyer and Seller coordinate all aspects of the closing with the escrow agent on behalf of their respective clients. 23. Closing Process Prior to closing the escrow agent will prepare a detailed closing statement setting forth the purchase price, deposits, credits, prorations and allocation of closing costs. The closing statement will set forth the precise amount the Buyer will need to wire into escrow in order to close the transaction. Upon receipt of all funds and documents, the escrow agent will cause the deed to be recorded, the title policy to be issued to the Buyer, originals of the closing documents to be delivered to the parties, the loan to be paid off (if applicable) and funds to be wired to the Seller. Upon closing, written notice will be delivered to the tenants of the building regarding the sale and instructing them to pay rent to the Buyer. 24. Our Global Real Estate Group 25. Real Estate Group Overview Paul Hastings has one of the largest and most sophisticated real estate practices of any international law firm—founded on the collective strength of 200 lawyers who advise clients on the purchase, sale, leasing, financing, developing, regulatory considerations and securitization of real property. Our leadership in real estate has been acknowledged by the market and our peers. Real estate law has been a mainstay of our firm since we opened for business more than 50 years ago. Backed by 1,300 professionals in 18 offices worldwide, our lawyers adopt a multidisciplinary approach to advising clients on the full range of real estate-related transactions in every market where they conduct business. Our firm has long been recognized for our ability to adapt to the many different business cultures in the countries in which we operate. In each office, local and international lawyers provide clients with in-depth regional advice as well as unparalleled insight into the larger implications of conducting real estate transactions in the global economy. We were one of the first U.S. firms to expand into Asia, and today we have one of the largest and most experienced real estate practices in the Asia Pacific Region, working on landmark transactions like representing the first Japanese 6 of 11 2/12/2013 8:13 PM
  • 7. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... real estate investment trust fund (J-REIT) on the Jasdaq securities exchange. In Europe, our offices in Brussels, Frankfurt, London, Paris and Milan are staffed by lawyers who are qualified in North America, the U.K., Italy, France and Germany. Across the globe, clients return to us not only for our knowledge of particular real estate markets, but for our knowledge of their business. Over the years, we have built strong, long-term relationships with our clients, who include many of the world’s top developers, investors, financial institutions and corporations. We partner with clients in every major sector of the industry, including residential, office, retail and industrial real estate, to understand how their business objectives are best served by their real estate needs. Our collaborative, interdisciplinary approach allows us to develop sophisticated structures and innovative solutions for some of the most complex multi- jurisdictional real estate deals in the world. We take the long view of the real estate cycle, staying attuned to where the market is and monitoring trends to help our clients anticipate change. Extensive transaction experience on both sides of the table gives us an unrivalled perspective on the opportunities and risks involved in complex deals. We negotiate on behalf of our clients to make sure that risks are allocated appropriately and the maximum rewards are realized. Our services extend beyond negotiating and documenting individual deals to advising clients on how their real estate strategy can support their business objectives. 26. Real Estate Awards Joel Rothstein (Beijing) – 1 David Blumenfeld (Shanghai) – 2 1 2 2 3 China Real Estate: Foreign Investment Funds: Real Estate Japan Real Estate: Foreign Hong Kong Real Estate Chambers Asia 2008 Hergen Haas (Frankfurt) – 3 Mark Eagan (London) – 6 4 4 Europe-wide Real Estate Germany Real Estate: Finance Chambers Europe 2008 Deborah Schmall (San Francisco) – 2 Peter Weiner (San Francisco) – 2 David Freeman (New York) – 3 Gordon Hart (San Francisco) – 4 3 California Environmental Chambers USA 2008 Marty Edelman (New York) – 1 Philip Feder (Los Angeles) – 1 Rick Kirkbride (Los Angeles) – 1 Charles Sharbaugh (Atlanta) – 2 Daniel Perlman (Chicago) – 3 Charles Thornton (San Francisco) – 3 Bob Wertheimer (New York) – 3 Stephen Berkman (San Francisco) – 4 Eric Landau (New York) – 4 Stuart Mass (New York) – 4 Mark Schonberger (New York) – 4 Robert Grados (New York) – Up & Coming 1 1 1 3 4 California Real Estate National Leisure & Hospitality New York Real Estate: Mainly Dirt Georgia Real Estate National REITs Chambers USA 2008 N/A 2 3 Japan Real Estate: Foreign Investment Funds: REITS Chambers Global 2008 Individuals/Rank Rank Practice Group Directory 27. Real Estate Practice Focus Acquisitions and Dispositions Advising clients in the purchase and sale of real property is the core of our practice. We represent clients in deals in every major sector of the industry, including residential, office, retail and industrial real estate. We negotiate and draft contracts, conduct due diligence, resolve issues and structure deals to reduce the tax burden. Our clients include buyers and sellers of property used for a variety of purposes, and we regularly represent companies whose business is the acquisition, development and disposition of real estate, particularly opportunity funds, public real estate funds, equity funds and developers. Development and Construction We represent clients in every type of traditional development and 7 of 11 2/12/2013 8:13 PM
  • 8. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... construction project and are recognized leaders in advising on projects that are innovative in their size, scope or impact on a community. We have deep experience with the range of development and construction projects our clients undertake, including mixed-use projects, large-scale infrastructure projects, recreational and retail properties. We represent property owners and developers of all sizes, financial institutions, investors and end users around the world. Furthermore, the lawyers in our Military Base Redevelopment and Privatization practice group represent clients involved in redevelopment and privatization projects. Equity Investments and Joint Ventures Clients turn to us as their trusted advisers on the profusion of cross-border and multi-jurisdictional investment structures available for real estate investment. Our real estate investment and joint venture services cover friendly and unsolicited acquisitions, mergers, private equity and mezzanine investments, recapitalizations and joint ventures. Our clients include investee companies, strategic and financial investors, international and local financial institutions, major real estate investment groups and hotel and resort groups. We help clients customize investment vehicles to satisfy the needs of every type of sponsor, including limited partnerships, trusts, limited liability companies and offshore entities. Environmental Paul Hastings’ team of environmental lawyers focuses its practice on the compliance, transactional and litigation matters that concern environmental issues. With our knowledge of federal, state and local regulatory systems—and how they interact and affect one another—we meet the steady demand for responsive and cost-effective results for clients facing an environmental law hurdle. Our attorneys and regulatory specialists know how air pollution, water and hazardous waste, among other substances, are regulated throughout the United States, and they draw on the complementary strengths of our full-service firm to supplement their litigation, transactional, tax and other services pertaining to environmental issues. Our environmental attorneys are recognized leaders in assisting clients with the redevelopment of “brownfields” properties—those abandoned, idled or underutilized industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination. 28. Real Estate Practice Focus Hotels and Resorts Paul Hastings’ Resort, Restaurant & Recreation (RR&R) practice group focuses on the legal and business needs of real estate development companies, institutional lenders, investment banks, capital providers, owners and operators. With more than 75 attorneys serving RR&R clients around the world, the RR&R practice encompasses the development, acquisition and sale, finance, leasing, operation, management, licensing, branding, repositioning, roll-up, foreclosure, workout and restructuring of hospitality, recreational and real estate-based entertainment properties and businesses in North America, Latin America, the Caribbean, Europe and Asia. Land Use Our land use lawyers help clients at every stage of real estate and land use projects, from planning and permitting to financing and litigation. Our knowledge of law, planning, architecture and environmental issues, combined with our global presence, is unmatched by other international law firms. We have pioneered innovative and successful techniques for public and private clients in development, land use systems and litigation, and have experience litigating matters at the state and federal levels, including before the U.S. Supreme Court. We have developed particular experience with California’s 8 of 11 2/12/2013 8:13 PM
  • 9. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... especially complex land use and environmental protection laws. Leasing Our real estate lawyers who focus their practice on commercial leasing deals have built a reputation for excellence through many years of successful representation of large, sophisticated landlords and major corporate tenants in high-profile deals. Our ability to move deals to completion swiftly and with the most favorable terms for our clients is unrivalled. We operate in all of the major real estate markets, and are particularly strong in structuring investment-grade sales-leaseback, commercial and synthetic leasing arrangements for clients. We advise clients on the full range of business issues that can affect a lease, raising issues that might otherwise go unnoticed and that could have repercussions long after the ink has dried. Real Estate Finance Our real estate finance lawyers represent both lenders and borrowers in financings ranging from conventional commercial loans to sophisticated capital market and securitized transactions. We handle financings of portfolios of distressed debt in U.S. and foreign markets, real estate portfolio securitizations and fund formation for investment in real estate debt and equity vehicles. We are highly experienced in real property lending, whether first mortgage or mezzanine, secured by a wide variety of real estate. Whether real estate occupies a large or small percentage of a client’s total investment portfolio, we have the finance experience and industry knowledge to ensure the financing structure supports our client’s business goals. Real Estate Securities and Capital Markets (REITs) Paul Hastings’ leading securities practice represents clients in complex real estate capital formation and other related transactions. Lawyers from our corporate, real estate and tax practices work together in interdisciplinary teams to address the accounting, legal and regulatory issues associated with intricate securities transactions. Our attorneys help structure and execute public and private offerings by REITs, limited partnerships, limited liability companies and other programs that invest in equity and mortgages. We also serve as outside general counsel to several REITs. 29. Our Offices For further information , you may visit our home page at www.paulhastings.com or email us at [email_address] . Brussels Avenue Louise 480 Boîte 5B 1050 Brussels, Belgium Telephone: +32 2 641 7460 Facsimile: +32 2 641 7461 Frankfurt Siesmayerstrasse 21 D-60323 Frankfurt am Main, Germany Telephone: +49 69 907485 0 Facsimile: +49 69 907485 499 London Ten Bishops Square, 8th Floor London E1 6EG United Kingdom Telephone: +44 203 023 5100 Facsimile: +44 203 023 5109 Milan Via Palestro, 24 20122 Milan, Italy Telephone: +39 02 30414 000 Facsimile: +39 02 30414 005 Paris 96, boulevard Haussmann 75008 Paris, France Telephone: +33 1 42 99 04 50 Facsimile: +33 1 45 63 91 49 Beijing 19/F, Yintai Center Office Tower 2 Jianguomenwai Avenue Chaoyang District Beijing, 100022 China Telephone: +86 10 8567 5300 Facsimile: +86 10 8567 5400 Hong Kong 22/F, Bank of China Tower 1 Garden Road Hong Kong Telephone: +852 2867 1288 Facsimile: +852 2526 2119 Shanghai 35/F Park Place 1601 Nanjing West Road Shanghai, 200040 China Telephone: +86 21 6103 2900 Facsimile: +86 21 6103 2990 Tokyo Ark Mori Building – 34F 12-32 Akasaka 1-chome Minato-Ku, Tokyo 107-6034, Japan Telephone: +81 3 6229 6100 Facsimile: +81 3 6229 7100 Palo Alto 1117 S. California Avenue Palo Alto, CA 94304 Telephone: +1 650 320 1800 Facsimile : +1 650 320 1900 San Diego 4747 Executive Drive, 12th floor San Diego, CA 92121 Telephone: +1 858 458 3000 Facsimile: +1 9 of 11 2/12/2013 8:13 PM
  • 10. Commercial Office Building Acquisition http://www.slideshare.net/sberkman/commercial-office-building-acquisit... 858 458 3005 San Francisco 55 Second Street, 24th Floor San Francisco, CA 94105 Telephone: +1 415 856 7000 Facsimile: +1 415 856 7100 Washington, D.C. 875 15th Street, N.W. Washington, DC 20005 Telephone: +1 202 551 1700 Facsimile: +1 202 551 1705 Atlanta 600 Peachtree Street, N.E. 24th Floor Atlanta, GA 30308 Telephone: +1 404 815 2400 Facsimile: +1 404 815 2424 Chicago 191 North Wacker Drive 30th Floor Chicago, IL 60606 Telephone: +1 312 499 6000 Facsimile: +1 312 499 6100 Los Angeles 515 S. Flower Street 25th Floor Los Angeles, CA 90071 Telephone: +1 213 683 6000 Facsimile: +1 213 627 0705 New York Park Avenue Tower 75 East 55th Street, 1st Floor New York, NY 10022 Telephone: +1 212 318 6000 Facsimile: +1 212 319 4090 Orange County 695 Town Center Drive, 17th Floor Costa Mesa, CA 92626 Telephone: +1 714 668 6200 Facsimile: +1 714 979 1921 EUROPE ASIA NORTH AMERICA Connect on LinkedIn Follow us on Twitter Find us on Facebook Find us on Google+ Learn About Us About Careers Our Blog Press Contact us Help & Support Using SlideShare SlideShare 101 Terms of Use Privacy Policy Copyright & DMCA Community Guidelines SlideShare on mobile Pro & more Go PRO New Business Solutions Advertise on SlideShare 10 of 11 2/12/2013 8:13 PM
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