Exhibit 10.6
July 1, 1998
LINE OF CREDIT
---------------
Hudson Hotels Trust
One Airport Way
Suite 200
Rochester, NY 14624
Attention: Tony Wilson
John Sabin
Re: $100,000,000 Limited Service Hotel Line of Credit
Loan No. 24140
Dear Tony and John:
This Commitment Letter is intended to set forth the results of discussions
between The Capital Company of America LLC ("Capital America") and Hudson
Hotels Trust ("Borrower Sponsor") relating to the financing facility (the
"Financing") proposed by Borrower Sponsor to several bankruptcy remote,
special purpose subsidiary entities (such special purpose entities are
hereinafter referred to as the "Borrower or Borrowers"). The assets (the
"Properties") to be owned by the Borrowers and to be financed pursuant to our
commitment set forth herein are as described in the Summary of Terms (the "Term
Sheet") which is attached hereto and incorporated herein by reference. All
capitalized terms used in this Commitment Letter and not otherwise defined
herein shall have the meanings ascribed to such terms in the Term Sheet.
1. General Understanding
---------------------
As described more fully in the Term Sheet, our obligations under this
Commitment Letter are subject in their entirety to among other things, (a)
the absence of any material development occurring prior to the date of the
consummation of the Financing which could, in Capital America's sole
opinion, adversely affect the transactions contemplated hereby, (b) Capital
America's undertaking of and completion of due diligence on the Properties
and the Borrower Sponsor with results satisfactory to Capital America in
its sole discretion and (c) the execution and delivery of definitive
agreements and other documentation relating to the Financing satisfactory
to Capital America in its sole discretion. Borrower Sponsor expressly
acknowledges and agrees that Capital America has set forth in the Term
Sheet the terms and conditions upon which it is willing to make the
Financing based upon Borrower Sponsor's oral or written representations
regarding the Properties and prior to the commencement of its own due
diligence investigation. In such investigation, Capital America will need
to be satisfied in
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its judgment, among other things, with the level of the net operating
income which has been and is expected to be generated by the Properties,
the value of the Properties, environmental and structural matters relating
to the Properties and the structure and ownership of the Borrowers. If
Capital America's findings with respect to the foregoing are inconsistent
with Borrower Sponsor's oral or written representations regarding the
Properties, Capital America may, in its sole discretion, terminate its
obligations under this Commitment Letter or modify any of the terms set
forth in the Term Sheet to be consistent with its findings.
2. Covenants of Borrower Sponsor
-----------------------------
Borrower Sponsor will, and will cause Borrowers to, cooperate and use best
efforts to promptly supply Capital America with all due diligence materials
requested by Capital America; prepare or cause to be prepared documents
relating to the Financing; cause its legal counsel to deliver various
opinion letters customarily required in Financing transactions of this
type, all in form and substance satisfactory to Capital America; and act in
good faith to do all things reasonably required to consummate the closing
of the Financing. Borrower Sponsor represents that (i) the proposed finance
transaction described herein is not the subject of a commitment from
another lender and (ii) no other party has a right of refusal or any other
option which could cause the transaction contemplated herein not to be
consummated.
Prior to the closing of the Financing, Borrower Sponsor will not, and will
cause Borrowers and Borrowers' affiliates not to, sell, assign or otherwise
dispose of the Properties to any person or entity without Capital America's
consent provided, however, Borrower Sponsor or Borrowers may transfer the
Properties to an affiliate which becomes bound by the terms of this
Commitment Letter. In addition, prior to the Commitment Termination Date
(as defined in Section 6 hereof), the Borrower Sponsor will not, and will
cause its affiliates not to, obtain, or attempt to obtain, the Financing or
any other debt financing with respect to the Properties with any party
other than Capital America. Borrower Sponsor acknowledges that, by
commencing the due diligence investigation contemplated by this Commitment
Letter, Capital America is devoting time and resources to the Borrower
Sponsor that it otherwise could be devoting to other projects. Therefore,
if Borrower Sponsor breaches its obligations pursuant to this Section 2 or
Section 5, Borrower Sponsor agrees to pay Capital America, in addition to
its obligations to pay fees and expenses described in the Term Sheet, a
termination fee equal to 2% of the proposed Financing amount. Receipt of
such payment by Capital America shall not constitute a waiver of any rights
or remedies Capital America may have either at law or equity.
The obligations of Borrower Sponsor and Borrowers pursuant to this Section
2 shall be terminated on the Commitment Termination Date (as it may be
extended by Capital America) or such earlier date that Capital America
notifies the Borrower Sponsor that based on its due diligence investigation
it does not intend to proceed with the consummation of the Financing.
3. Brokers Fee
-----------
The Borrower Sponsor represents and warrants to Capital America that no
broker(s), agent(s) or finder(s) brought about this Commitment Letter or
was otherwise involved in any manner in the Financing or any aspect
thereof.
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4. Authorization
-------------
Borrower Sponsor hereby represents that it has the power and authority to
enter into this Commitment Letter on behalf of itself and, upon the
formation of the Borrowers, to bind the Borrowers hereunder.
5. Confidentiality
---------------
From the date hereof through the date immediately prior to the date on
which any document regarding the Borrower Sponsor which must disclose the
terms of this Commitment Letter and accompanying term sheet is filed with
the Securities and Exchange Commission, each of the parties hereto agrees
not to disclose, and to cause Related Parties (hereinafter defined) not to
disclose, either the fact that discussions or negotiations are taking place
concerning the Financing or any of the terms, conditions, or other facts
relating to the Financing, including the status thereof, except that
information may be disclosed to employees or agents (all of whom are
collectively referred to as "Related Parties") who, in each party's
considered judgment, need to know such information for the purpose of
causing the consummation of the transactions contemplated hereby. Capital
America acknowledges that Morgan Keegan Company, Inc. is a Related Party in
its capacity as agent for the Borrower Sponsor. Related Parties shall be
informed of the confidential nature of the information and material and
shall be directed to keep the information and material in the strictest
confidence and to use the information and material only for the purpose of
causing the consummation of the transactions contemplated hereby. The terms
set forth in this Commitment Letter and the attached Term Sheet are
proprietary to Capital America and are made available to Borrower Sponsor
solely for the evaluation of the transaction contemplated hereby. Oral or
written disclosure of the Term Sheet to any competitor of Capital America
shall be detrimental to Capital America and shall be an explicit violation
of this section.
6. Miscellaneous
-------------
If this Commitment Letter shall not have been executed by Borrower Sponsor
on or prior to July 1, 1998, this Commitment Letter shall expire, unless
extended in writing by Capital America in its sole discretion. If Capital
America has not received the Good Faith Deposit and the Expense Deposit
described in the Term Sheet within two business days of execution of this
Commitment Letter, Capital America's obligations hereunder will be
terminated. In addition, if the Financing does not close on or prior to
September 1, 1998, or such later date selected by Capital America (the
"Commitment Termination Date"), Capital America may, at its option,
terminate this Commitment Letter and its obligations hereunder. Each of
Capital America and the Borrower Sponsor agrees that notwithstanding the
expiration or termination of this Commitment Letter, its existence and the
contents hereof are and shall remain subject to the provisions of
Confidentiality set forth in Section 5. If the Financing is not consummated
by the Commitment Termination Date and such date has not been extended in
writing by Capital America, or if any other event whereby Capital America's
obligations hereunder have terminated has occurred, yet discussions or
negotiations between the parties shall continue, Capital America's
continued negotiations with respect to the Financing shall be nothing more
than a good faith effort to consummate the Financing, shall not be
construed in any way to extend its commitment described herein, but shall
not relieve the Borrower Sponsor of its obligations hereunder. Borrower
Sponsor and Borrowers hereby waive any claim or cause of
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action with respect to negotiations which take place after Capital
America's commitment has been terminated.
THIS COMMITMENT LETTER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. EACH PARTY
HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK FOR ANY LEGAL ACTION OR PROCEEDING RESULTING FROM THE
TRANSACTION CONTEMPLATED HEREIN. EACH PARTY HERETO HEREBY WAIVES ITS RIGHT
TO A TRIAL BY JURY. THIS COMMITMENT LETTER IS INTENDED FOR THE BENEFIT OF
THE PARTIES HERETO AND THEIR RESPECTIVE AFFILIATES AND NOT FOR THE BENEFIT
OF ANY THIRD PARTIES.
Please indicate your agreement to the above by executing a copy of this
Commitment Letter in the place provided below and returning a fully executed
copy to the undersigned.
Very truly yours,
THE CAPITAL COMPANY OF AMERICA LLC
By: /s/ Michael L. Brody
----------------------------------------
Name: Michael L. Brody
Title: Managing Director
Agreed and Accepted as of
this 1st day of July, 1998
HUDSON HOTELS TRUST
By: /s/ E. Anthony Wilson
------------------------------------------
Name: E. Anthony Wilson
Title: CEO - Trustee
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JULY 1, 1998
THE CAPITAL COMPANY OF AMERICA LLC
$100,000,000 LINE OF CREDIT
SUMMARY OF TERMS
(Incorporated by Reference in Commitment Letter dated July 1, 1998)
GENERAL: Subject to the satisfaction of the conditions set forth in the
Commitment Letter between The Capital Company of America LLC
("Capital America") and Hudson Hotels Trust ("Borrower
Sponsor") and subject to the satisfaction of the conditions set
forth in this Summary of Terms, Capital America will provide a
line of credit for first priority mortgage loans (each, a
"Loan"), in the aggregate amount of up to $100,000,000 (the
"Facility"), to be made to a limited liability entity (the
"Borrower") controlled by Borrower Sponsor. The proceeds of
each mortgage loan will be used to fund the Borrower's
acquisition of various properties approved by Capital America
(each, a "Property") or for any working capital purposes, and
to provide permanent long term financing for a portion of those
Properties, as further described herein. The Properties shall
not include any of the properties from the Benderson Portfolio.
Capital America shall have no approval rights over Borrower
Sponsor's acquisition of any properties which do not secure the
Facility. The closing of the Facility shall be conditioned upon
the closing of the Permanent Loan described in a permanent loan
term sheet dated July 1, 1998, between Capital America and
Borrower Sponsor.
LINE OF CREDIT
- --------------
BORROWER: The Borrower for the Properties shall be a bankruptcy remote,
special purpose entity, whose activities will be limited to
owning and operating the Properties and whose form, structure
and organizational documents shall be acceptable to Capital
America in its sole discretion. The Borrower will be controlled
by the Borrower Sponsor. The Borrower shall have at least one
independent director (or the functional equivalent), whose
responsibility will be limited solely to matters involving
insolvency and bankruptcy issues and whose vote will be
required to approve any election by the Borrower to voluntarily
seek protection from creditors under any applicable bankruptcy
or insolvency laws or the Borrower's dissolution. Capital
America shall have the right to approve such director. The
Borrower shall be a limited partnership or a limited liability
company, and a bankruptcy remote, special purpose entity in
form and substance acceptable to Capital America will be
required to act as the General Partner or the Managing Member
of the Borrower, as the case may be. Notwithstanding the
foregoing, Capital America agrees to restructure the Borrower,
so long as it continues to satisfy Rating Agency requirements,
in order to accommodate an operating lease structure which
Borrower Sponsor may elect to use in connection with its REIT
formation.
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CROSS-
COLLATERALIZATION: Each of the Advances under the Facility and all of the
collateral securing the Facility shall be cross-
collateralized and cross-defaulted.
LINE OF CREDIT
ADVANCE PERIOD: Capital America will agree to make Advances under the
Facility, subject to the terms and conditions described
herein, for a period of 18 months, unless Borrower exercises
the Extension Option described below, in which case Capital
America will agree to make Advances under the Facility for a
period of 24 months.
LINE OF CREDIT
EXTENSION OPTION: At Borrower's option, the Line of Credit Advance Period will
be extended by 6 months for a total term of 24 months (the
"Extension Option"). In the event that Borrower exercises
such Extension Option, the Permanent Loan Commitment Amount
(as defined below) will increase to $75 million.
LINE OF CREDIT
AMOUNT: The maximum amount of any Advance under the Line of Credit
for any Property shall be that amount which results in a
debt service coverage ratio ("DSCR") of at least 1.50:1,
based upon the underwritten net operating income ("UNOI") of
the Property (as defined below), the calculation of which is
described below, and an assumed debt service constant of
11.33%.
LINE OF CREDIT
INTEREST RATE: One-month LIBOR + 1.85% per annum, reset monthly two
eurodollar business days prior to each payment date. The
Line of Credit Interest Rate is inclusive of Capital
America's servicing and administrative expenses associated
with the Facility.
INTEREST RATE
PROTECTION: At any time when the 10 year US Treasury security then being
used by Capital America to price loans exceeds 6.25%, the
Borrower will be required to forward rate lock, for the
Remaining Permanent Loan Commitment Amount (as defined
below), (the "Locked Amount"), such 10 year US Treasury
Security, pursuant to Capital America's standard interest
rate management arrangement. If the Permanent Loan
Commitment Amount has been met, at any time when the 10 year
US Treasury security then being used by Capital America to
price loans exceeds 7.00%, the Borrower will be required to
forward rate lock, for the outstanding balance of the
Facility, (the "Locked Amount"), such 10 year US Treasury
Security, pursuant to Capital America's standard interest
rate management arrangement. The cost of this hedge will be
4 basis points per month on the Locked Amount. The Borrower
and the Borrower Sponsor shall guarantee the payment of any
hedging losses and breakage amounts associated with such
rate lock.
MONTHLY PAYMENTS: The Facility will require payments, in arrears, of interest
only, and monthly payments of escrows and reserves. All
payments on the Facility will be required to be made on the
eleventh (11th) day of every calendar month (except if the
11th day is not a business day, then payment shall be
required on the first business day following the 11th)
(each, a "Payment Date"). All payments shall be made in
arrears and shall be for the period beginning on the 11th
calendar day of the
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preceding month through and including the 10th calendar day
of the month when payment is due. The Facility will require
no amortization.
FEES/DEPOSITS: Within two business days of signing the Commitment Letter,
Borrower Sponsor will pay to Capital America an "Expense
Deposit" of $100,000. The Expense Deposit shall be applied
by Capital America to the payment of Capital America's
expenses hereunder, as more fully described below in the
section entitled "Expenses". Expenses incurred in connection
with the Facility which are in excess of the Expense
Deposit, will be withheld from the first Advance proceeds to
the extent not already paid. If actual expenses are less
than the Expense Deposit, Borrower Sponsor shall be remitted
the difference at closing.
In addition, Capital America may be paid a Draw Fee equal to
0.25% on the amount of each Advance under the Facility,
based upon the funding date of such Advance under the
Facility, according to the following schedule:
From Facility Closing Date through September 10, 1998: 0.0% Draw Fee
From August 11 through September 10 of any year: 0.0% Draw Fee
From February 11 through March 10 of any year: 0.0% Draw Fee
During any other period of the Facility: 0.25% Draw Fee
In addition, Capital America may be paid an Exit Fee equal
to 0.25% on the amount of any full or partial prepayment of
the Facility, based upon the date of such prepayment,
according to the following schedule:
From Facility Closing Date through September 10, 1998: 0.0% Exit Fee
From August 11 through September 10 of any year: 0.0% Exit Fee
From February 11 through March 10 of any year: 0.0% Exit Fee
At the Maturity Date of the Facility: 0.0% Exit Fee
During any other period of the Facility: 0.25% Exit Fee
LINE OF CREDIT
MATURITY DATE: The Facility shall mature eighteen months following the
first Line of Credit Payment Date (the "Line of Credit
Maturity Date"), unless Borrower exercises the Extension
Option, in which case Capital America will agree to make
Advances under the Facility for a period of 24 months.
PREPAYMENT: The Facility is prepayable at any time prior to the Line of
Credit Maturity Date, subject to at least 60 days notice
from the Borrower and subject to the Exit Fee schedule
described above under "Fees/Deposits".
APPROVAL PROCESS: Borrower Sponsor will provide Capital America, no later than
45 days prior to the expected date on which Capital America
will place a mortgage on the Property, all documentation,
reports and other information required by Capital America in
accordance with Capital America's Line of Credit due
diligence and underwriting standards (each, a "Loan
Package") with respect to each Property proposed to be
financed hereunder which shall be approved by Capital
America in its sole discretion. Capital America will provide
Borrower Sponsor with written notice when it has completed
its review of a Loan Package.
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DOCUMENTS: The Advances under the Facility shall be evidenced by
documentation customary for similar transactions, and in form
and substance acceptable to Capital America in its sole and
absolute discretion, which documentation shall be consistent
in all material respects with the terms and provisions hereof.
Such documentation shall include customary representations and
warranties from the Borrower to Capital America and customary
events of default. In addition, all relevant ancillary
documents relating to the Borrower, including without
limitation any applicable management agreements and franchise
agreements, shall be satisfactory to Capital America in its
sole discretion.
LEGAL OPINIONS: As a condition to the closing, the Borrower's counsel shall
render all customary legal opinions regarding the Borrower and
the Facility. Such opinions shall include an opinion of
Borrower's counsel, which counsel shall be reasonably
acceptable to Capital America, including, without limitation,
a usury opinion and an opinion as to the enforceability of the
Facility under New York law. In the event that Capital America
desires to have the Facility, or any securities representing
interests in the Facility, rated by any Rating Agency, the
Borrower's counsel shall render a substantive non-
consolidation opinion and such other opinions as may be
requested by the applicable Rating Agency, all in form and
substance customary or required for rated transactions.
DUE DILIGENCE/ADDITIONAL
CONDITIONS PRECEDENT TO
FUNDING/CLOSING: The obligation of Capital America to make the Advances under
the Facility is subject to the completion by Capital America
to Capital America's satisfaction of Capital America's due
diligence with respect to the Properties and the Borrower,
including, without limitation, the receipt by and reasonable
approval of Capital America of the following prior to the
funding of any Advance:
(i) Perfected first mortgage on the Properties;
(ii) Title insurance policies issued by a national company
reasonably acceptable to Capital America showing
indefeasible title to the Properties vested in the
Borrower, insuring the first priority of the lien
arising under the applicable mortgage in an amount
acceptable to Capital America, excepting from coverage
thereunder only such matters as are approved by
Capital America, and including such co-insurance
and/or reinsurance as is required by Capital America;
(iii) Market studies with respect to the Properties' markets
by a firm approved by Capital America, which studies
shall be commissioned by Capital America for its own
use and Borrower Sponsor shall reimburse Capital
America for the cost of such market studies;
(iv) Environmental audits (i.e. Phase I surveys and, if
deemed necessary or appropriate by Capital America,
Phase II surveys) of the Properties, acceptable to
Capital America from a firm approved by Capital
America;
(v) Structural engineering reports acceptable to Capital
America from a firm approved by Capital America,
identifying, among other things, a
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schedule of anticipated capital expenditures and the
per annum cost thereof;
(vi) Probable maximum loss analysis acceptable to Capital
America from a firm approved by Capital America
delivered prior to closing for any Property located in
the states of California, Oregon, Washington or
Hawaii;
(vii) Insurance policies (including earthquake insurance, if
applicable) in such form, with such carriers, and in
such amounts as are required pursuant to the Loan
Documents and deemed acceptable to Capital America;
(viii) Three years of historical operating statements of the
Properties (verified by a certified public accounting
firm acceptable to Capital America), trailing 12 month
operating statements of the Properties and operating
budgets for the Properties for the then current
operating year;
(ix) Smith Travel reports for each of the Properties from
1994 to the present;
(x) Surveys (or, if reasonably acceptable to Capital
America, updated and recertified surveys) meeting
Capital America's specifications (including with
respect to the surveyor's certification) and legal
description of the Properties;
(xi) Certificates of occupancy for each Property and
reasonable evidence of compliance with all applicable
zoning, building, environmental and other laws
applicable to the Properties. Zoning letters or the
like from applicable governmental authorities are
acceptable for the purposes hereof;
(xii) Copies of all leases, material contracts and permits
affecting the Properties;
(xiii) Evidence that any ground lease allows for first
mortgage financing on the Properties and confirmation
that all terms and conditions of the ground lease are
acceptable to Capital America (including delivery of
estoppel certificates acceptable to Capital America);
and
(xiv) Other information reasonably required by Capital
America.
PERMANENT LOANS
- ---------------
CONVERSION TO
PERMANENT LOANS: Borrower Sponsor shall be required to close $50,000,000 of
Permanent Loans with Capital America subject to the following
terms (the "Permanent Loan Commitment Amount") by February 11,
1999. Borrower Sponsor may elect which Properties shall be
released with the proceeds of the Permanent Loan, subject to
Capital America's approval in its sole discretion. Any
Permanent Loans closed between Borrower Sponsor and Capital
America by February 11, 1999 shall reduce the Permanent Loan
Commitment Amount, regardless of
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whether such Permanent Loans were used to refinance Properties
securing the Facility. If Borrower exercises the Extension
Option, the Permanent Loan Commitment Amount shall increase to
$75,000,000.
BORROWER: The Borrower for the Permanent Loan shall be a bankruptcy
remote, special purpose entity, whose activities will be
limited to owning and operating the Properties and whose form,
structure and organizational documents shall be acceptable to
Capital America in its sole discretion. The Borrower will be
controlled by the Borrower Sponsor. The Borrower shall have at
least one independent director (or the functional equivalent),
whose responsibility will be limited solely to matters
involving insolvency and bankruptcy issues and whose vote will
be required to approve any election by the Borrower to
voluntarily seek protection from creditors under any
applicable bankruptcy or insolvency laws or the Borrower's
dissolution. Capital America shall have the right to approve
such director. The Borrower shall be a limited partnership or
a limited liability company, and a bankruptcy remote, special
purpose entity in form and substance acceptable to Capital
America will be required to act as the General Partner or the
Managing Member, as the case may be. Notwithstanding the
foregoing, Capital America agrees to restructure the Borrower,
so long as it continues to satisfy Rating Agency requirements,
in order to accommodate an operating lease structure which
Borrower Sponsor may elect to use in connection with its REIT
formation.
PERMANENT LOAN
FUNDING DATE: The Permanent Loan Commitment Amount shall be funded by
February 11, 1999, unless the Extension Option is exercised,
in which case the final $25,000,000 of Permanent Loan
Commitment Amount shall be funded at any time during the
Facility.
PERMANENT LOAN
FEES: A structuring fee equal to 2.0% of the amount of any Permanent
Loan shall be paid to Capital America on the closing date of
such Permanent Loan to reimburse it for the payment of
structuring and placement services related to the Permanent
Loan.
PERMANENT
LOAN AMOUNT: The Permanent Loan shall be made in an amount no less than
$50,000,000, and shall be collateralized by a pool of
Properties such that the DSCR on the Permanent Loan is no less
than 1.40:1, based upon Capital America's determination of
UNOI (as defined below) and a debt service constant equal to
the greater of (a) the actual constant using a 25 year
amortization and (b) 10.48%, and subject to a loan to value
not to exceed 65% based upon an MAI appraisal approved by
Capital America. Actual Loan proceeds are also dependent upon
prevailing interest rates at the closing of the Loan (unless
Borrower Sponsor has entered into Capital America's standard
Rate Lock Agreement, as described above under "Interest Rate
Protection").
PERMANENT LOAN
INTEREST RATE: For the Permanent Loan, the locked yield on the 10 year US
Treasury Security, plus the applicable Spread and Forward
Premium:
DSCR Spot Spread Forward Premium
---- ----------- ---------------
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1.40:1 - 1.69:1 2.15% 1.5 basis points per
month following
Facility Closing
1.70:1+ 1.75% 1.5 basis points per
month following
Facility Closing
Interest shall be calculated based on a 360-day year and
actual days elapsed.
MONTHLY PAYMENTS: The Permanent Loan will require level monthly payments of
interest and principal, and monthly payments of escrows and
reserves. All payments on the Loan will be required to be made
on the eleventh (11th) day of every calendar month (except if
the 11th day is not a business day, then payment shall be
required on the first business day following the 11th) (each,
a "Payment Date"). All payments shall be made in arrears and
shall be for the period beginning on the 11th calendar day of
the preceding month through and including the 10th calendar
day of the month when payment is due. The Permanent Loan will
require equal payments consisting of principal and interest
sufficient to fully amortize the face amount thereof over 300
months.
PERMANENT LOAN
MATURITY DATE: The effective maturity date of the Permanent Loan shall be the
date no later than 120 months after the first Permanent Loan
Payment Date (the "Effective Maturity Date"). The actual
maturity date of each Loan shall be no later than 300 months
after first Permanent Loan Payment Date (the "Actual Maturity
Date").
PAYMENTS AFTER
EFFECTIVE MATURITY
DATE: Provided no other default exists, from the Effective Maturity
Date through the earlier of (i) repayment of all Borrower's
obligations under the Permanent Loan or (ii) the Actual
Maturity Date, the Interest Rate payable on the Permanent Loan
will increase to 500 basis points plus the greater of: (a) the
Interest Rate at the time of maturity (the "Maturity Interest
Rate") or (b) the sum of (i) the then prevailing yield on US
Treasury Constant Maturities with terms most nearly
approximating those non callable US Treasury obligations
having maturities as close as possible to the Actual Maturity
Date of the Permanent Loan and (ii) the lower of 200 basis
points or the Spread (rounded down to nearest 1/8th) (the
greater of (a) or (b), the "Reset Note Rate"). The difference
between interest accrued on the principal balance at the
Maturity Interest Rate and interest accrued on the principal
balance at the Reset Note Rate shall be defined as "Additional
Interest". Following the Effective Maturity Date, and until
all Borrowers' obligations under the Loan Agreement have been
fully satisfied, 100% of the cash flow shall be allocated in
the following order of priority: (i) ground rent, if
applicable, (ii) tax and insurance escrow, (iii) interest at
the Maturity Interest Rate, (iv) principal based on the
original 300-month amortization schedule, (v) operating
expenses, (vi) reserves, (vii) prepayment of principal until
reduced to zero and (viii) the balance, if any, to Additional
Interest and interest accrued thereon. Non-payment of any
portion of the Additional Interest to the extent sufficient
cash flow was not available, will not be a default under the
Permanent Loan. Unpaid Additional Interest shall be deferred
and shall accrue interest at the Reset Note Rate and shall be
payable in
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full no later than the Actual Maturity Date. Notwithstanding
the above, failure at any time to make payments in amounts at
least equal to those required under (i) through (vi) above
shall constitute a default under the Permanent Loan.
Notwithstanding the foregoing, if Borrower repays the Loan
within the first 60 days following the Effective Maturity
Date, including interest through the next Payment Date, the
Additional Interest accrued since the Effective Maturity Date
shall be forgiven and any excess cash flow held in reserve
shall be refunded to the Borrower.
TOTAL RELEASE OF
COLLATERAL: The Permanent Loan may not be prepaid prior to the Effective
Maturity Date. However, two years after Capital America sells
the Permanent Loan into a securitization (the "Lockout
Period"), all Properties may be released as security for the
Permanent Loan by payment to Capital America or its assignee
of (i) all accrued but unpaid interest and other payments due
under the Permanent Loan; (ii) the entire principal balance of
the Permanent Loan then outstanding; and (iii) Capital
America's standard yield maintenance premium derived from a US
Treasury benchmark (the "Total Release Payment").
PARTIAL RELEASE OF
COLLATERAL: After the Lockout Period but prior to the maturity of the
Permanent Loan, provided that no Event of Default has occurred
or is continuing, less than all the Properties securing the
Permanent Loan may be released upon payment to Capital America
or its assignee of (i) all accrued and unpaid interest on the
Permanent Loan, (ii) 125% of the Allocated Loan Amount for the
Properties requested to be released and (iii) Capital
America's standard yield maintenance on such amount (the
"Partial Release Payment"). Notwithstanding the foregoing, a
partial release of Properties will only be permitted if the
DSCR for the remaining Properties is greater than both (i) the
DSCR for the Loan at the Closing Date and (ii) the DSCR for
the Loan immediately prior to the release.
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CONDITIONS TO RELEASE
OF COLLATERAL: Total or partial releases are subject to at least 30 days
written notice to Capital America or its assignee, which
notice must include the Properties proposed to be released,
and may only occur on a regularly scheduled payment date. Any
release is subject to Capital America's or its assignee's
receipt of a legal opinion of outside counsel acceptable to
Capital America or its assignee which states without
qualification that Capital America or its assignee will have,
upon the release, a first priority perfected security interest
in the US Treasury Securities referred to below. Borrower may
be relieved of its obligations under the Loan after payment of
the Total Release Payment or the Partial Release Payment, as
the case may be, in an amount equal to the Loan Amount, in the
case of a total release or 125% of the Allocated Loan Amount
in the case of a partial release, provided that it assigns to
a special purpose corporation acceptable to Capital America or
its assignee that portion of the Permanent Loan equal to the
Permanent Loan Amount, in the case of a total release, or 125%
of the Allocated Loan Amount, in the case of a partial
release; and provided further that, in the case a partial
release, Borrower shall remain liable for the remaining
balance of the Permanent Loan.
"Allocated Loan Amount" shall be determined at the closing of
the Permanent Loan by Capital America in its sole discretion,
and will be the portion of the original principal amount of
the Permanent Loan allocated among the Properties relative to
its UNOI. The sum of the Allocated Loan Amounts for all the
Properties securing the Permanent Loan shall equal the
original principal amount of the Permanent Loan. Capital
America's standard yield maintenance premium shall be an
amount that, together with the Allocated Loan Amount being
paid, will be sufficient to purchase non-callable US Treasury
Securities whose cash flows are equal to and occur as close as
possible before the successive remaining scheduled interest
and principal payments required under the Permanent Loan
during the Term. Capital America's standard yield maintenance
premium shall also apply due to any prepayment resulting from
an acceleration of the Permanent Loan following an Event of
Default.
DOCUMENTS: The Permanent Loan shall be evidenced by documentation
customary for similar transactions, and in form and substance
acceptable to Capital America in its sole and absolute
discretion, which documentation shall be consistent in all
material respects with the terms and provisions hereof. Such
documentation shall include customary representations and
warranties from the Borrower to Capital America and customary
events of default. In addition, all relevant ancillary
documents relating to the Borrower, including without
limitation any applicable management agreements and franchise
agreements, shall be satisfactory to Capital America in its
sole discretion.
LEGAL OPINIONS: As a condition to the closing, the Borrower's counsel shall
render all customary legal opinions regarding the Borrower and
the Loan. Such opinions shall include an opinion of Borrower's
counsel, which counsel shall be reasonably acceptable to
Capital America, including, without limitation, a usury
opinion and an opinion as to the enforceability of the Loan
transaction under New York law. In addition, the Borrower's
counsel shall render a substantive non-consolidation opinion
and such other opinions as may be requested by the applicable
Rating Agency, all in form and substance customary or required
for rated transactions.
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DUE DILIGENCE/ADDITIONAL
CONDITIONS PRECEDENT TO
FUNDING/CLOSING: The obligation of Capital America to make the Permanent Loan
is subject to the completion by Capital America to Capital
America's satisfaction of Capital America's due diligence with
respect to the Properties and the Borrower, including, without
limitation, the receipt by and reasonable approval of Capital
America of the following prior to the funding of the Permanent
Loan:
(i) Perfected first mortgage on the Properties;
(ii) Title insurance policies issued by a national company
reasonably acceptable to Capital America showing
indefeasible title to the Properties vested in the
Borrower, insuring the first priority of the lien
arising under the applicable mortgage in an amount
acceptable to Capital America, excepting from coverage
thereunder only such matters as are approved by
Capital America, and including such co-insurance
and/or reinsurance as is required by Capital America;
(iii) MAI appraisals (prepared in compliance with FIRREA)
with respect to the Properties by a firm approved by
Capital America;
(iv) Environmental audits (i.e. Phase I surveys and, if
deemed necessary or appropriate by Capital America,
Phase II surveys) of the Properties, acceptable to
Capital America from a firm approved by Capital
America;
(v) Structural engineering reports acceptable to Capital
America from a firm approved by Capital America,
identifying, among other things, a schedule of
anticipated capital expenditures and the per annum
cost thereof;
(vi) Probable maximum loss analysis acceptable to Capital
America from a firm approved by Capital America
delivered prior to closing for any Property located in
the states of California, Oregon, Washington or
Hawaii;
(vii) Insurance policies (including earthquake insurance, if
applicable) in such form, with such carriers, and in
such amounts as are required pursuant to the Loan
Documents and deemed acceptable to Capital America;
(viii) Three years of historical operating statements of the
Properties (verified by a certified public accounting
firm acceptable to Capital America), trailing 12 month
operating statements of the Properties and operating
budgets for the Properties for the then current
operating year;
(ix) Smith Travel reports for each of the Properties from
1994 to the present;
(x) Surveys (or, if reasonably acceptable to Capital
America, updated and recertified surveys) meeting
Capital America's specifications (including
14
with respect to the surveyor's certification) and
legal description of the Properties;
(xi) Certificates of occupancy for each Property and
reasonable evidence of compliance with all applicable
zoning, building, environmental and other laws
applicable to the Properties. Zoning letters or the
like from applicable governmental authorities are
acceptable for the purposes hereof;
(xii) Copies of all leases, material contracts and permits
affecting the Properties;
(xiii) Evidence that any ground lease allows for first
mortgage financing on the Properties and confirmation
that all terms and conditions of the ground lease are
acceptable to Capital America (including delivery of
estoppel certificates acceptable to Capital America);
and
(xv) Other information reasonably required by Capital
America.
GENERAL TERMS
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The following terms are applicable to both the Line of Credit
and the Permanent Loan.
UNDERWRITTEN NOI: At all times during the Facility, and upon the funding of the
Permanent Loan, each of the Properties must demonstrate UNOI
(as determined in accordance with the terms hereof) on a
trailing 12-month basis (based on the consecutive 12-month
period ending in the month immediately preceding the closing
date for which detailed financial information is available)
in an amount sufficient to generate the minimum DSCR for
either the Facility or Permanent Loan, as the case may be.
UNOI shall be calculated by determining the actual net income
of the Properties before interest, depreciation and income
taxes during the most recent 12-month period immediately
prior to the closing of the Loan. Capital America will make
adjustments, in its sole discretion, based on underwriting
criteria which will include, but not be limited to, the
following (i) supply and demand dynamics in the specific
market for each Property and the effect of new construction
on occupancy and rate; (ii) the growth or decline, as the
case may be, in occupancy, average daily rate, gross revenue,
departmental profit and gross operating profit for each
Property; (iii) the operating performance of Properties which
have been recently renovated; and (iv) expense and other
operating ratios of each Property compared to those ratios
achieved for a comparable asset in the hotel industry at
large. In addition, Capital America will analyze the
management contract and franchise agreement for each Property
and adjust the fees currently paid on those contracts, when
necessary, to reflect minimum standards in the hotel industry
for either full-service or limited-service hotels that have
both a national franchise and management affiliation.
Furthermore, Capital America's determination of the
appropriate FF&E reserve will be based upon third-party
reports and other due diligence, but in no event will the
adjustment be less than 5% of gross revenues. In determining
UNOI, all pro forma adjustments to revenue and
15
expenses shall be approved by Capital America in its sole
discretion and shall be subject to Capital America's full
due diligence. The above underwriting assumes that there is
no material adverse change anticipated in the operations of
the Properties or in the UNOI of the Properties from the
execution of the Commitment Letter to the closing of the
Loan.
GROUND LEASE: The terms of any ground lease must provide that the payments
thereunder are subordinate to the lien of the mortgage or
deed of trust, must have a remaining term of at least 10
years later than the Final Maturity Date, and must otherwise
be acceptable to Capital America in its sole discretion. Any
ground lease must be financeable as determined by Capital
America in its sole discretion (e.g., Capital America or its
assignee must be given notice of, and an opportunity to
cure, defaults, and otherwise be adequately protected in the
event the ground lessee disaffirms the ground lease in
connection with a bankruptcy. The ground lease must not be
cancelable in the event a lender forecloses on the leasehold
estate.). In addition, Borrower shall deliver to Capital
America prior to closing a ground landlord's estoppel
certificate, signed by the Borrower's ground landlord
containing, among other things, leasehold mortgagee
protections as shall be acceptable to Capital America in its
sole discretion.
COLLATERAL: The Borrowers shall grant to Capital America a first
mortgage lien on the land and improvement as built and a
first priority perfected security interest in all contracts,
agreements, trademarks, licenses, goods, equipment,
accounts, fixtures and all other tangible and intangible
personal property located on or used in connection with each
Property, and other collateral and assurances customary in
similar financings by Capital America. The mortgage liens
and the priority thereof shall be the subject of title
insurance in favor of Capital America and its successors
and/or assigns, which insurance shall be issued and
underwritten by a title insurance carrier acceptable to
Capital America in its sole discretion. Capital America
reserves the right to require co-insurance or evidence of
reinsurance. Capital America shall use its best efforts to
assume the existing Credit Lyonnaise mortgages and deeds of
trust on the Properties, subject to Capital America's
standard mortgage/deed of trust requirements.
INITIAL RESERVES: Each Borrower will establish sufficient initial reserves (i)
for taxes and insurance, which reserves shall be funded at
closing in an amount sufficient, as determined by Capital
America, inclusive of the ongoing reserves described below,
to make the next due real estate tax and insurance premium
payments, (ii) for deferred maintenance items as set forth
in the property condition reports, if any, and (iii)
environmental remediation amounts as set forth in the
environmental reports.
ONGOING RESERVES: At all times during the term of the Facility or any
Permanent Loan, the Borrowers shall fund reserves in the
following amounts on a monthly basis:
taxes and insurance premiums -- monthly deposit of one-
twelfth of the budgeted annual real estate taxes and
insurance premiums;
capital expenditures -- one-twelfth of the amount estimated
by Capital America at its discretion which shall generally
be computed at 5% of gross revenues, (or such higher amount
as may be indicated by Capital America's due diligence);
16
debt service -- deposit equal to the monthly debt service
amount;
ground rent -- deposit equal to the ground rent payment, if
applicable; and
seasonality reserves -- deposit determined by Nomura
sufficient to cover the debt service on the Loans in months
with low cash flow due to the seasonality of the Properties,
if applicable.
CASH MANAGEMENT: Each Borrower will establish a separate "A" account and "B"
account with a bank designated by Borrower (the "Clearing
Bank") through which all property receipts will be cleared.
Borrower will be required to cause its credit card clearing
banks and any space tenants to send directly to the Clearing
Bank for deposit into an "A" account the applicable payments
required to be made on account of the Property on a daily
basis and Borrower shall be required to deposit directly into
the "A" account all other proceeds from the operation of each
Property on a daily basis. Until the earlier to occur of (a)
the Effective Maturity Date and (b) a default or event of
default under the loan documents (each, a "Cash Trap Event"),
as such receipts are cleared, the Clearing Bank will transfer
them daily from the "A" account to the "B" account, which "B"
account is an account not subject to any restriction and is
under the sole control of Borrower. Upon a Cash Trap Event, as
such receipts are cleared, the Clearing Bank, upon notice from
Capital America, will transfer them daily during such transfer
period, commencing on the 12th day of each month, from the "A"
account to an account owned and controlled by Capital America
at a bank selected by Capital America (the "Deposit Bank").
Upon a Cash Trap Event, the Deposit Bank will establish sub-
accounts for certain items including ongoing taxes and
insurance premiums, ongoing capital expenditures, debt
service, seasonality reserves, ground rent and such other
reserves as may be required by Capital America based on its
due diligence review. The amounts of such reserves are
described below in the section entitled "Ongoing Reserves".
Once the monthly required amount of each such reserve is on
deposit in each subaccount, transfers to the Deposit Bank from
the Clearing Bank will stop and cleared funds (other than
insurance proceeds and condemnation awards, security deposits
and any rent that is paid for more than one month in advance
all of which will be transferred to the Deposit Bank, subject
to legal and lease requirements in the case of security
deposits) will instead be transferred into a "B" account at
the Clearing Bank. Prior to the Effective Maturity Date, and
provided that there has been no election to accelerate the
indebtedness, any funds transferred to the Deposit Bank in
excess of the monthly requirement shall be immediately
remitted back to the Borrower.
Capital America will have a senior security interest in the
aforementioned accounts and subaccounts. The up front and
ongoing expenses of maintaining such accounts and subaccounts,
and any other accounts maintained pursuant to the Loan
Documents, shall be the responsibility of the Borrowers.
12 months after the beginning of a Cash Trap Event, provided
that no default has occurred or is continuing and provided
that there has been no election to accelerate the indebtedness
under the Loan, if the DSCR for the Loan is at least as high
as the DSCR at the time of the closing of the Loan, the Cash
Trap Event
17
shall cease until the earlier of the Effective Maturity
Date or the occurrence of another Cash Trap Event.
Notwithstanding the foregoing, Capital America agrees to
restructure the Cash Management System, so long as it
continues to satisfy Rating Agency requirements, in order
to accommodate an operating lease structure which Borrower
Sponsor may elect to use in connection with its REIT
formation.
DEFAULT: During the continuance of an Event of Default by the
Borrower (after the lapsing of applicable cure/grace
periods), all cash flow on the Properties and cash in the
reserve accounts will be applied, at Capital America's
option, to interest payments and principal repayments.
In addition, if the Loan is accelerated upon an Event of
Default, the Borrower shall owe the current outstanding
balance of the Loan, all accrued interest (including any
default interest), Capital America's standard yield
maintenance payment and any other amounts due and payable.
PROPERTY
MANAGEMENT: The Properties will be managed by a manager acceptable to
Capital America and pursuant to a written management
agreement approved by Capital America. The management
agreement and all management fees shall be subordinated to
debt service. The management agreement will terminate upon
an event of default under the Loan. The management
agreement shall have a term ending on the Effective
Maturity Date and may have renewal rights thereafter. If
the Loan remains outstanding after the Effective Maturity
Date, Capital America will have approval rights over
renewal of the manager or substitution of a new property
manager.
CHANGE IN
MANAGEMENT: The manager of a Property may be replaced by the holder of
the Loan in the event that, as of the last day of a
calendar quarter, (i) the UNOI on a trailing twelve (12)
month basis decreases to less than 65% of the original
UNOI, (ii) the DSCR on a trailing twelve (12) month basis
on the remaining outstanding balance of the Loan shall fall
below 1.10:1 and/or (iii) upon an Event of Default.
Notwithstanding the preceding sentence, management will be
permitted to remain in place by prepaying the Loan
(including all applicable yield maintenance premiums and
accrued interest) to a level such that the DSCR on a
trailing twelve (12) month basis on the remaining
outstanding balance of the Loan is restored to a level of
at least 1.50:1. If either (i) or (ii) above is true,
Capital America shall take into consideration, prior to the
removal of the manager: a) both the manager's and the
hotel's performance relative to the competitive set and b)
forces outside the manger's control. At such time as the
property manager is removed, a replacement property
manager, acceptable to Capital America (or its assignee)
and any applicable rating agency in their respective
discretion, will assume the management of the Properties
and will receive a property management fee that will not
exceed then market rates.
FINANCIAL REPORTING: During the term of the Facility and the Permanent Loan, the
Borrowers shall provide to Capital America on each of the
individual Properties (i) annual (a) unaudited financial
statements within 40 days and (b) audited financial
statements within 90 days following the close of the
Borrower's fiscal year, (ii)
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monthly unaudited financial statements within 20 days
following the end of each calendar month and (iii) monthly
occupancy statistics within 20 days following the end of each
calendar month. Audited statements prepared on a combined
basis for the Properties will be acceptable provided such
statements are accompanied by an agreed-upon procedures
report demonstrating that the unaudited property level
statements on the individual Properties tie to the combined
audited statements. Audited financial statements (including
those audited financial statements to be delivered as a
condition to closing) shall be accompanied by an unqualified
opinion from a "Big Six" accounting firm or other certified
public accounting firm acceptable to Capital America.
Unaudited statements and occupancy statistics shall include a
certification (a "Certificate") by a senior executive of the
Borrower stating that the relevant financial information
fairly reflects the financial condition and operations of the
Borrower for the relevant period. All financial statements
(including those to be delivered as a condition to closing)
(i) shall be prepared in accordance with generally accepted
accounting principles ("GAAP"), (ii) shall be presented in a
format acceptable to Capital America, and (iii) shall include
a statement of operations (profit and loss), a statement of
cash flows, a calculation of UNOI, and such other information
or reports as shall be reasonably requested by Capital
America or any applicable Rating Agency. In addition,
Borrower shall be required to deliver regulatory surveys and
related plans of correction within 15 days of receipt or
filing and regulatory cost reports within 15 days of receipt
or filing.
INSURANCE: Each Property will be covered by fire and casualty, machine
and boiler, business interruption and liability insurance
(general, employer and workers' compensation insurance),
along with flood, hurricane or earthquake insurance if any of
the Properties are located in a flood, hurricane or
earthquake zone, as applicable. In general, the amount of the
coverage relating to damage to the Property shall be in an
amount not less than the full replacement cost of the
Property, shall contain deductibles not in excess of $100,000
and shall be written by carriers having a Standard & Poor's
rating of at least "AA" and a Best Rating of at least "AVII".
Business interruption insurance shall cover a period of not
less than 18 months. Capital America and its affiliates will
be named as additional insured, mortgagee and loss payees on
all policies insuring the Properties, and all such policies
will otherwise be in a form acceptable to Capital America.
SUBORDINATE DEBT: The Borrowers may not incur any indebtedness other than the
Facility or the Permanent Loan during the term thereof. No
secured or unsecured debt, including subordinate debt, shall
be permitted on the Properties during the term of the
Facility or Permanent Loan. In addition, owners of the
Borrower shall be prohibited from pledging their interests in
the Borrower to secure any financing during the term of the
Facility and the Permanent Loan.
SUBORDINATION OF
LEASES: The leases for any space tenants at the Properties shall be
subordinate to the lien of the mortgage and Borrower Sponsor
will use its best efforts to provide any subordination, non-
disturbance and attornment agreement in form and substance
acceptable to Capital America
19
SUBORDINATION: Borrower Sponsor and its affiliates will be required to
subordinate to Capital America and its assignees the
right to receive any fees (including management fees),
distributions or other payments from the Borrower.
ESTOPPEL CERTIFICATES: Borrower will provide to Capital America prior to
closing estoppel certificates, in form and substance
acceptable to Capital America, from any space tenants at
the Properties.
SERVICER: The Loan will be serviced by a third-party servicer (the
"Servicer") to be selected by Capital America, which
servicer may be an affiliate of Capital America.
RECOURSE: The Facility and Permanent Loan will be non-recourse,
except for Capital America's standard carve-outs
including, but not limited to, indemnification for
environmental liability, misappropriation of funds,
material or intentional misrepresentation, fraud,
physical waste of the Properties and removal or disposal
of any portion of the Properties.
SUBSTITUTION OF
COLLATERAL: At any time during the Facility or the Permanent Loan,
collateral may be substituted provided that (a) all such
Properties substituted during the term of the Loans do
not represent more than the lesser of (i) the greatest
of (A) 30% of the trailing 12-month Net Operating Income
of the Properties as of the date of substitution and (B)
40% of the trailing 12-month Net Operating Income of the
Properties as of the closing date, and (ii) the greatest
of (A) 30% of the value of the Properties (as determined
by Capital America) as of the date of substitution and
(B) 40% of the value of the Properties (as determined by
Capital America) as of the closing date, (b) such
substitutions shall not be allowed more than three times
during the term of the Loans, and (c) all of the
following conditions are satisfied: (1) the new
property(ies) to be substituted in are satisfactory to
Capital America in all respects (after Capital America's
due diligence investigation), (2) as a result of the
substitution, the overall DSCR for the Loans is not less
than the greater of (x) the overall DSCR at the initial
closing of the Loans and (y) the overall DSCR for the
Loans immediately prior to the substitution, (3) as a
result of the substitution, the overall LTV for the
Loans is not greater than the lesser of (x) the overall
LTV at the initial closing of the Loans and (y) the
overall LTV for the Loans immediately prior to the
substitution, (4) the trailing 12-month Net Operating
Income for the new property(ies) may not show a downward
trend for any of the preceding three years and shall be
adjusted, if necessary, to cap the growth of
departmental profits at 10% from each of the previous
three year's, (5) confirmation that no downgrade in
ratings on the securities backed by the Loans will
result from the substitution is obtained or would result
if this Loans were a stand alone securitization, and any
fees associated with such confirmation are paid by the
Borrower, (6) all of Capital America's due diligence and
other costs and expenses are paid by the Borrower and
(7) an opinion is obtained from reputable counsel
approved by Capital America stating that the
substitution does not violate the REMIC rules.
ASSUMABILITY: The equity interests in the Borrowers will be
transferable with the consent of Capital America. If all
of the Properties securing the Facility or the Permanent
Loans are transferred to one purchaser, such Loans may
be assumed by the
20
purchaser if the purchaser assumes the Borrower's obligations
under such Loans and, if any of the Loans have been sold into
a securitization, the Rating Agencies confirm that such
transfer will not result in a downgrade in the securities
issued in connection with such Loans, all pursuant to
documentation which is acceptable Capital America and any
applicable Rating Agencies (if the Loans are sold into a
securitization). Such transfer provisions will apply to a
change in control of the Borrower. Upon the transfer of the
equity interests or sale of the Properties, Borrower will pay
all reasonable expenses in connection with the assumption of
the Loan capped at 1% of the outstanding principal amount of
the Loans. In addition, Capital America shall use its best
efforts to coordinate with the servicers of past deals closed
with affiliates of Borrower Sponsor to facilitate the
assumption of such loans by Borrower Sponsor.
EXPENSES: By executing the Commitment Letter, Borrower Sponsor agrees to
pay or to reimburse, and to cause the Borrower to pay or
reimburse, Capital America and its affiliates, upon demand and
whether or not the Facility is consummated in whole or in
part, the reasonable fees and out of pocket expenses incurred
by Capital America and the outside counsel and auditors
retained by Capital America in connection with the matters and
transactions contemplated hereby which fees and expenses shall
also include, but not be limited to, the fees of all third
parties relating to the due diligence review to be undertaken
by Capital America and its third party consultants, title
insurance, insurance review costs, the cost of an appraisal,
environmental reports, engineering and structural reports, and
all expenses associated with engaging a servicer and a trustee
(each of which shall be selected by Capital America in its
sole discretion), setting up and pre-funding a cash management
account and structuring the Facility.
INDEMNIFICATION: Borrower Sponsor agrees that it and the Borrower (if a
separate entity) will indemnify and hold Capital America and
each of its affiliates (including its officers, directors,
partners, employees and agents) (each, an "Indemnified Party")
harmless against any and all losses, claims, damages, costs,
expenses or liabilities ("Losses") in connection with, arising
out of or resulting from the transactions and matters referred
to or contemplated hereby, except to the extent that it is
finally judicially determined that any losses resulted solely
from the gross negligence or bad faith of an Indemnified
Party. In the event that Capital America or its affiliates
becomes involved in any action, proceeding or investigation in
connection with any transaction or matter referred to or
contemplated hereby, Borrower Sponsor and the Borrower (if a
separate entity) shall periodically reimburse Capital America
or its affiliates upon demand therefore in an amount equal to
the reasonable legal and other expenses (including the costs
of any investigation and preparation) incurred in connection
therewith to the extent such legal or other expenses are the
subject of indemnification hereunder. The obligations of the
Borrower Sponsor and Borrower pursuant to this paragraph shall
survive in the event a Loan is not consummated for any reason.
ASSIGNMENT: The Facility and the Permanent Loan (but not the Commitment
Letter or this Summary of Terms) may be assigned by Capital
America at any time in its sole discretion. All references to
Capital America in this Summary of Terms or in the
accompanying Commitment Letter (as reflected in the Loan
documents) shall be deemed to refer to Capital America and its
successors and assigns.
21
SECONDARY MARKET
TRANSACTIONS: Borrower Sponsor understands that Capital America will close
the Loans described herein as principal. Nevertheless, after
the closing of the Facility or a Permanent Loan, Capital
America may engage in a secondary market transaction by either
selling a Loan to an affiliate in order to enable such
affiliate to complete a securitization by way of either a
public or private securities offering which is rated by one or
more rating agencies, syndicating the loan or engaging in some
other transaction (each, a "Secondary Market Transaction").
Therefore, the loan documentation will require the Borrower
Sponsor and Borrower to, among other things, assist Capital
America and its affiliates in the preparation of a disclosure
document describing the Secondary Market Transaction and
provide Capital America all information and materials
reasonably required (including an updated appraisal and
environmental report and financial and operating statements)
in a manner that satisfies the requirements of any applicable
federal laws and applicable state laws, and use its best
efforts to help facilitate the consummation of the Secondary
Market Transaction. Borrower Sponsor and Borrower agree to act
reasonably and promptly in connection with their review of the
relevant portions of the offering documents.
In connection with a Secondary Market Transaction, each Loan
Agreement will require Borrower Sponsor and Borrower to
indemnify and hold Capital America and its controlling persons
and affiliates harmless against all costs, expenses and
damages incurred by Capital America and its controlling
persons and affiliates (including, without limitation, all
liabilities under all applicable federal and state securities
laws) as a direct result of any untrue statement of a material
fact contained in such offering documents based on information
provided by Borrower Sponsor or the Borrower (if a separate
entity), which describes Borrower Sponsor, the Borrower (if a
separate entity), the Properties, the property manager or any
aspect of the subject financing or the parties directly
involved therein, or as a result of any untrue statement of
material fact in any of the financial statements of Borrower
Sponsor or the Borrower incorporated into the offering
documents or the failure to include in such financial
statements or in such offering documents any material fact
relating to Borrower Sponsor, the Borrower, the Properties,
the property manager and any aspect of the subject financing
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading;
provided that the Borrower shall have had an opportunity to
review and comment upon the relevant portions of the offering
documents.
PUBLICITY: In the event the Facility contemplated herein is made, Capital
America shall have the right to issue press releases,
advertisements and other promotional materials describing
Capital America's participation in the origination of any Loan
or of any Loan's inclusion in any Secondary Market Transaction
effectuated by Capital America. Capital America recognizes
that Borrower Sponsor will disclose and publicize certain
details of this transaction in connection with its public
offering.
GOVERNING LAW: The Loan transaction and each of the documents with respect
thereto (other than the mortgages or deeds of trust which
shall be governed by the laws of the States in which the
Properties are located) shall be governed by the internal laws
of the
22
State of New York. The Borrower agrees that all actions
relating to this Summary of Terms, the Commitment Letter, or
each Loan (other than actions by Capital America, its
successors and assigns in connection with the enforcement of
any Loan document) shall be brought exclusively in the federal
or state courts located in the State of New York and that trial
by jury is hereby waived for all actions relating to this
Summary of Terms, the Commitment Letter or any Loan.
NO MATERIAL
ADVERSE CHANGE: Except as may be expressly otherwise provided herein, on the
closing date, the income and expenses of the Properties, the
financial statements of the Borrower and all other features of
the transaction shall be as represented in this Summary of
Terms, and all other documents and communications presented to
Capital America in order to induce Capital America to make a
Loan, shall be without material change or Capital America shall
have no obligation to close and fund a Loan under the
Commitment Letter. At closing, the Borrower shall certify that
no material changes shall have occurred as may be requested by
Capital America.
In addition, if, on or before the date of the closing of a
Loan, any of the following shall have occurred, Capital America
shall have no obligation to close and fund the Loan under the
Commitment Letter; (i) any of the Properties shall have been
(a) damaged and not repaired to Capital America's satisfaction
or (b) taken in condemnation or other similar proceeding, or
any such proceeding shall be pending; (ii) a structural change
in the physical condition of any portion of the Properties;
(iii) Borrower or any partners, members, principal shareholders
or officers of Borrower or any tenant under any lease deemed by
Capital America to be material to Capital America's security or
any guarantor of any such lease shall be the subject of any
bankruptcy, reorganization or insolvency proceeding; (iv) any
default shall have occurred and be continuing in the
performance of any obligation of Borrower or an affiliate of
Borrower in the instruments evidencing, securing or
guaranteeing another loan of Borrower or such affiliate; and
(v) discovery of any asbestos, toxic waste, or other hazardous
substance on the Properties which discovery would be materially
adverse to Capital America. Borrower Sponsor hereby represents
and warrants to Capital America that it has received no notice
of, and has no other knowledge of or basis upon which to
believe that it or any partner is or may become the subject of
any bankruptcy, reorganization or insolvency proceeding.
23
July 1, 1998
Hudson Hotels Trust
One Airport Way
Suite 200
Rochester, NY 14624
Attention: Tony Wilson
John Sabin
Re: Loan No. 24139
Dear Tony and John:
This Commitment Letter is intended to set forth the results of discussions
between The Capital Company of America LLC ("Capital America") and Hudson
Hotels Trust ("Borrower Sponsor") relating to the financing (the
"Financing") proposed by Borrower Sponsor to a to-be-formed special purpose
subsidiary entity (such special purpose entity, as the case may be, is
hereinafter referred to as the "Borrower"). The assets (the "Properties")
to be owned by the Borrower and to be financed pursuant to our commitment set
forth herein are as described in the Summary of Terms (the "Term Sheet") which
is attached hereto and incorporated herein by reference. All capitalized terms
used in this Commitment Letter and not otherwise defined herein shall have the
meanings ascribed to such terms in the Term Sheet.
1. General Understanding
---------------------
As described more fully in the Term Sheet, our obligations under this
Commitment Letter are subject in their entirety to among other things, (a)
the absence of any material development occurring prior to the date of the
consummation of the Financing which could, in Capital America's sole
opinion, adversely affect the transactions contemplated hereby, (b) Capital
America's undertaking of and completion of due diligence on the Properties
and the Borrower Sponsor with results satisfactory to Capital America in
its sole discretion and (c) the execution and delivery of definitive
agreements and other documentation relating to the Financing satisfactory
to Capital America in its sole discretion. Borrower Sponsor expressly
acknowledges and agrees that Capital America has set forth in the Term
Sheet the terms and conditions upon which it is willing to make the
Financing based upon Borrower Sponsor's oral or written representations
regarding the Properties and prior to the commencement of its own due
diligence investigation. In such investigation, Capital America will need
to be satisfied in its judgment, among other things, with the level of the
net operating income which has been and is expected to be generated by the
Properties, the value of the Properties, environmental
Hudson Hotels Trust
Page 2
July 1, 1998
and structural matters relating to the Properties and the structure and
ownership of the Borrower. If Capital America's findings with respect to
the foregoing are inconsistent with Borrower Sponsor's oral or written
representations regarding the Properties, Capital America may, in its sole
discretion, terminate its obligations under this Commitment Letter or
modify any of the terms set forth in the Term Sheet to be consistent with
its findings.
2. Covenants of Borrower Sponsor
-----------------------------
Borrower Sponsor will, and will cause Borrower to, cooperate and use best
efforts to promptly supply Capital America with all due diligence materials
requested by Capital America; prepare or cause to be prepared documents
relating to the Financing; cause its legal counsel to deliver various
opinion letters customarily required in Financing transactions of this
type, all in form and substance satisfactory to Capital America; and act in
good faith to do all things reasonably required to consummate the closing
of the Financing. Borrower Sponsor represents that (i) the proposed finance
transaction described herein is not the subject of a commitment from
another lender and (ii) no other party has a right of refusal or any other
option which could cause the transaction contemplated herein not to be
consummated.
Prior to the closing of the Financing, Borrower Sponsor will not, and will
cause Borrower and its affiliates not to, sell, assign or otherwise dispose
of the Properties to any person or entity without Capital America's consent
provided, however, Borrower Sponsor or Borrower may transfer the Properties
to an affiliate which becomes bound by the terms of this Commitment Letter.
In addition, prior to the Commitment Termination Date (as defined in
Section 6 hereof), the Borrower Sponsor will not, and will cause its
affiliates not to, obtain, or attempt to obtain, the Financing or any other
debt financing with respect to the Properties with any party other than
Capital America. Borrower Sponsor acknowledges that, by commencing the due
diligence investigation contemplated by this Commitment Letter, Capital
America is devoting time and resources to the Borrower Sponsor that it
otherwise could be devoting to other projects. Therefore, if Borrower
Sponsor breaches its obligations pursuant to this Section 2 or Section 5,
Borrower Sponsor agrees to pay Capital America, in addition to its
obligations to pay fees and expenses described in the Term Sheet, a
termination fee equal to 2% of the proposed Financing amount. Receipt of
such payment by Capital America shall not constitute a waiver of any rights
or remedies Capital America may have either at law or equity.
The obligations of Borrower Sponsor and Borrower pursuant to this Section 2
shall be terminated on the Commitment Termination Date (as it may be
extended by Capital America) or such earlier date that Capital America
notifies the Borrower Sponsor that based on its due diligence investigation
it does not intend to proceed with the consummation of the Financing.
3. Brokers Fee
-----------
The Borrower Sponsor represents and warrants to Capital America that no
broker(s), agent(s) or finder(s) brought about this Commitment Letter or
was otherwise involved in any manner in the Financing or any aspect
thereof.
Hudson Hotels Trust
Page 3
July 1, 1998
4. Authorization
-------------
Borrower Sponsor hereby represents that it has the power and authority to
enter into this Commitment Letter on behalf of itself and, upon the
formation of the Borrower, to bind the Borrower hereunder.
5. Confidentiality
---------------
From the date hereof through the date immediately prior to the date on
which any document regarding the Borrower Sponsor which must disclose the
terms of this Commitment Letter and accompanying term sheet is filed with
the Securities and Exchange Commission, each of the parties hereto agrees
not to disclose, and to cause Related Parties (hereinafter defined) not to
disclose, either the fact that discussions or negotiations are taking place
concerning the Financing or any of the terms, conditions, or other facts
relating to the Financing, including the status thereof, except that
information may be disclosed to employees or agents (all of whom are
collectively referred to as "Related Parties") who, in each party's
considered judgment, need to know such information for the purpose of
causing the consummation of the transactions contemplated hereby. Capital
America acknowledges that Morgan Keegan Company, Inc. is a Related Party in
its capacity as agent for the Borrower Sponsor. Related Parties shall be
informed of the confidential nature of the information and material and
shall be directed to keep the information and material in the strictest
confidence and to use the information and material only for the purpose of
causing the consummation of the transactions contemplated hereby. The terms
set forth in this Commitment Letter and the attached Term Sheet are
proprietary to Capital America and are made available to Borrower Sponsor
solely for the evaluation of the transaction contemplated hereby. Oral or
written disclosure of the Term Sheet to any competitor of Capital America
shall be detrimental to Capital America and shall be an explicit violation
of this section.
6. Miscellaneous
-------------
If this Commitment Letter shall not have been executed by Borrower Sponsor
on or prior to July 1, 1998 this Commitment Letter shall expire, unless
extended in writing by Capital America in its sole discretion. If Capital
America has not received the Good Faith Deposit and the Expense Deposit
described in the Term Sheet within two business days of execution of this
Commitment Letter, Capital America's obligations hereunder will be
terminated. In addition, if the Financing does not close on or prior to
September 1, 1998 or such later date selected by Capital America (the
"Commitment Termination Date"), Capital America may, at its option,
terminate this Commitment Letter and its obligations hereunder. Each of
Capital America and the Borrower Sponsor agrees that notwithstanding the
expiration or termination of this Commitment Letter, its existence and the
contents hereof are and shall remain subject to the provisions of
Confidentiality set forth in Section 5. If the Financing is not consummated
by the Commitment Termination Date and such date has not been extended in
writing by Capital America, or if any other event whereby Capital America's
obligations hereunder have terminated has occurred, yet discussions or
negotiations between the parties shall continue, Capital America's
continued negotiations with respect to the Financing shall be nothing more
than a good faith effort to consummate the Financing, shall not be
construed in any way to
Hudson Hotels Trust
Page 4
July 1, 1998
extend its commitment described herein, but shall not relieve the Borrower
Sponsor of its obligations hereunder. Borrower Sponsor and Borrower hereby
waive any claim or cause of action with respect to negotiations which take
place after Capital America's commitment has been terminated.
THIS COMMITMENT LETTER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. EACH PARTY
HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK FOR ANY LEGAL ACTION OR PROCEEDING RESULTING FROM THE
TRANSACTION CONTEMPLATED HEREIN. EACH PARTY HERETO HEREBY WAIVES ITS RIGHT
TO A TRIAL BY JURY. THIS COMMITMENT LETTER IS INTENDED FOR THE BENEFIT OF
THE PARTIES HERETO AND THEIR RESPECTIVE AFFILIATES AND NOT FOR THE BENEFIT
OF ANY THIRD PARTIES.
Please indicate your agreement to the above by executing a copy of this
Commitment Letter in the place provided below and returning a fully executed
copy to the undersigned.
Very truly yours,
THE CAPITAL COMPANY OF AMERICA LLC
By: /s/ Michael L. Brody
----------------------------------------
Name: Michael L. Brody
Title: Managing Director
Agreed and Accepted as of
this 1st day of July, 1998
HUDSON HOTELS TRUST
By: /s/ E. Anthony Wilson
--------------------------------------------
Name: E. Anthony Wilson
Title: CEO - Trustee
THE CAPITAL COMPANY OF AMERICA LLC
$50,000,000 FINANCING FACILITY
SUMMARY OF TERMS
(Incorporated by Reference in Commitment Letter dated July 1, 1998)
GENERAL: Subject to the satisfaction of the conditions set forth in the
Commitment Letter between The Capital Company of America LLC
("Capital America") and Hudson Hotels Trust ("Borrower
Sponsor") and subject to the satisfaction of the conditions set
forth in this Summary of Terms, Capital America will provide a
10-year first mortgage loan (the "Loan"), in the aggregate
amount of up to $50,000,000 to a to-be-formed limited liability
entity (the "Borrower"), which Loan Borrower Sponsor, on behalf
of the Borrower, commits to borrow. The Loan will be secured by,
among other things, certain properties from the Fairfield
Portfolio listed on Exhibit A (the "Properties") attached
---------
hereto, which properties shall be approved by Capital America.
The Properties shall not include any of the properties from the
Benderson Portfolio.
TERMS OF THE LOAN
- -----------------
BORROWER: The Borrower shall be a bankruptcy remote, special purpose
entity, whose activities will be limited to owning and operating
the Properties and whose form, structure and organizational
documents shall be acceptable to Capital America in its sole
discretion. The Borrower shall be controlled by the Borrower
Sponsor. The Borrower shall have at least one independent
director (or the functional equivalent), whose responsibility
will be limited solely to matters involving insolvency and
bankruptcy issues and whose vote will be required to approve any
election by the Borrower to voluntarily seek protection from
creditors under any applicable bankruptcy or insolvency laws or
the Borrower's dissolution. Capital America shall have the right
to approve such director. The Borrower shall be a limited
partnership or a limited liability company. A bankruptcy-remote
special purpose entity in form and substance acceptable to
Capital America will be required to act as the General Partner or
Managing Member of the Borrower, as the case may be.
Notwithstanding the foregoing, Capital America agrees to
restructure the Borrower, so long as it continues to satisfy
Rating Agency requirements, in order to accommodate an operating
lease structure which Borrower Sponsor may elect to use in
connection with its REIT formation.
PROPERTIES: The Loan will be secured by first lien mortgages or deeds of
trust on the Properties. All the Properties are owned in fee
simple or are subject to a leasehold interest except for
________. The Properties and their respective locations are set
forth on Exhibit A attached hereto.
---------
LOAN AMOUNT: The maximum aggregate principal amount of the Loan will be
based upon a 1.70:1 debt service coverage ratio ("DSCR"),
Capital America's determination of net operating income (as
defined below) and a Debt Service Constant equal to the
greater of (a) the actual constant using a 25 year
amortization and (b) 10.48%, and subject to a loan to value
not to exceed 60% based upon MAI appraisals approved by
Capital America. Actual Loan proceeds are also dependent upon
prevailing interest rates at the closing of the Loan (unless
Borrower Sponsor enters into Capital America's standard Rate
Lock Agreement; see "Interest Rate" and "Rate Lock" below).
Borrower shall Borrow up to $50,000,000 by February 11, 1999,
and in no event shall borrow less than $25,000,000 by
September 1, 1998. At Borrower's option, Borrower may elect to
borrow at a DSCR of at least 1.40:1, but less than 1.70:1,
subject to all of the terms described herein, at the Alternate
Spread described below (the "Alternate Loan Structure").
Capital America reserves the right in its discretion at or
prior to closing to allocate the amount of the Loan between a
lower original principal amount (at an interest rate greater
than the Interest Rate, as defined below) and a premium
amount; provided that the scheduled monthly payments of
principal and interest payable with respect to such allocated
principal amount shall be substantially the same as the
monthly payments calculated pursuant to this Term Sheet prior
to the election described in this paragraph, and shall be
adjusted only to the extent necessary such that the projected
unpaid principal amount of the Loan at the Effective Maturity
Date shall be the same as that projected prior to the election
described in this paragraph.
Capital America also reserves the right in its discretion to
split the Loan into a senior loan and mezzanine financing
(which may be preferred equity), provided that the amount of
the combined financing, as well as the interest rate, payment
obligations and other terms are no different to Borrower than
before such split.
USE OF PROCEEDS: The Loan proceeds will be applied toward the total transaction
costs, which will include, among other allowed items, the
purchase of the Properties.
FEES/DEPOSITS: A structuring fee equal to 2.0% shall be paid to Capital
America on the closing date of each Loan or Loans to reimburse
it for the payment of structuring and placement services
related to the Loan. Within two business days of signing the
Commitment Letter, Borrower Sponsor will pay to Capital
America a "Good Faith Deposit" of $50,000 and an "Expense
Deposit" of $50,000. The Good Faith Deposit is non-refundable
(except in the case of a default by Capital America under the
terms of the Commitment Letter); is deemed earned upon the
execution of the Commitment Letter; and shall be applied by
Capital America to the structuring fee upon the closing dates
of each of the Loans. The Expense Deposit shall be applied by
Capital America to the payment of Capital America's expenses
hereunder, as more fully described below in the section
entitled "Expenses". Expenses incurred in connection with the
Loan which are in excess of the Expense Deposit, will be
withheld from the loan proceeds to the extent not already
paid. If actual expenses are less than the Expense Deposit,
Borrower Sponsor shall be remitted the difference at closing.
2
INTEREST RATE: The interest rate ("Interest Rate") will be fixed for the
entire term of the Loan at a rate equal to (i) 1.75% (the
"Spread") plus (ii) the yield on the 5.50% U.S. Treasury Note
maturing on February 15, 2008, determined at or prior to the
closing or pursuant to Capital America's standard Interest
Rate Lock Agreement. If the Borrower elects to take the
Alternate Loan Structure, the Interest Rate will be fixed for
the entire term of the Loan at a rate equal to (i) 2.15% (the
"Alternate Spread") plus (ii) the yield on the 5.50% U.S.
Treasury Note maturing on February 15, 2008, determined at or
prior to the closing or pursuant to Capital America's
standard Interest Rate Lock Agreement. Interest shall be
calculated based on a 360-day year and actual days elapsed in
the related accrual period.
RATE LOCK: Borrower Sponsor shall have the option, simultaneous with the
execution of the Commitment Letter, or at any time up to the
closing of the Loan, to lock in the Interest Rate, upon the
terms and conditions set forth in Capital America's standard
Interest Rate Lock Agreement. If Borrower Sponsor has not
previously locked the Interest Rate at any time, Capital
America shall have the option in its sole discretion to lock
the Interest Rate within the 3-days prior to and including
the day of closing of the Loan.
MONTHLY PAYMENTS: All payments on the Loan will be required to be made on the
eleventh (11th) day of every calendar month (except if the
11th day is not a Business Day, then payment shall be
required on the first Business Day following the 11th) (each,
a "Payment Date"). All payments shall be made in arrears and
shall be for the period beginning on the 11th calendar day of
the preceding month through and including the 10th calendar
day of the month when payment is due. The Loan will require
equal payments consisting of principal and interest
calculated to fully amortize the face amount thereof over 300
months.
MATURITY DATE: The effective maturity date of the Loan shall be the eleventh
day of the 120th month following the closing of the Loan (the
"Effective Maturity Date"). The actual maturity date of the
Loan shall be the eleventh day of the 300th month following
the closing of the Loan (the "Actual Maturity Date").
PAYMENT AFTER
EFFECTIVE MATURITY
DATE: Provided no other default exists, from the Effective Maturity
Date through the earlier of (i) repayment of all Borrower's
obligations under the Loan or (ii) the Actual Maturity Date,
the Interest Rate payable on the Loan will increase to 500
basis points plus the greater of: (a) the Interest Rate at
the time of maturity (the "Maturity Interest Rate") or (b)
the sum of (i) the then prevailing yield on U.S. Treasury
Constant Maturities with terms most nearly approximating
those non callable U.S. Treasury obligations having
maturities as close as possible to the Actual Maturity Date
of the Loan and (ii) the lower of 200 basis points or the
Spread (rounded down to nearest 1/8th) (the greater of (a) or
(b), the "Reset Note Rate"). The difference between interest
accrued on the principal balance at the Maturity Interest
Rate and interest accrued on the principal balance at the
Reset Note Rate shall be defined as "Additional Interest".
Following the Effective Maturity Date, and until all
Borrowers' obligations under the Loan Agreement have been
fully satisfied, 100% of the cash flow shall be allocated in
the
3
following order of priority: (i) ground rent, (ii) tax and
insurance escrow, (iii) interest at the Maturity Interest
Rate, (iv) principal based on the original 300-month
amortization schedule, (v) operating expenses, (vi) reserves,
(vii) prepayment of principal until reduced to zero and
(viii) the balance, if any, to Additional Interest and
interest accrued thereon. Non-payment of any portion of the
Additional Interest to the extent sufficient cash flow was
not available, will not be a default under the Loan. Unpaid
Additional Interest shall be deferred and shall accrue
interest at the Reset Note Rate and shall be payable in full
no later than the Actual Maturity Date. Notwithstanding the
above, failure at any time to make payments in amounts at
least equal to those required under (i) through (vi) above
shall constitute a default under the Loan. Notwithstanding
the foregoing, if Borrower repays the Loan within the first
60 days following the Effective Maturity Date, including
interest through the next Payment Date, the Additional
Interest accrued since the Effective Maturity Date shall be
forgiven and any excess cash flow held in reserve shall be
refunded to the Borrower.
CALCULATION OF
UNDERWRITTEN NOI: As a condition to closing the Loan, the Properties must
demonstrate UNOI (as determined in accordance with the terms
hereof) on a trailing 12-month basis (based on the
consecutive 12-month period ending in the month immediately
preceding the closing date for which detailed financial
information is available) in an amount sufficient to generate
the minimum DSCR for the Loan. UNOI shall be calculated by
determining the actual net income of the Properties before
interest, depreciation and income taxes during the most
recent 12-month period immediately prior to the closing of
the Loan. Capital America will make adjustments, in its sole
discretion, based on underwriting criteria which will
include, but not be limited to, the following (i) supply and
demand dynamics in the specific market for each Property and
the effect of new construction on occupancy and rate; (ii)
the growth or decline, as the case may be, in occupancy,
average daily rate, gross revenue, departmental profit and
gross operating profit for each Property; (iii) the operating
performance of Properties which have been recently renovated;
and (iv) expense and other operating ratios of each Property
compared to those ratios achieved for a comparable asset in
the hotel industry at large. In addition, Capital America
will analyze the management contract and franchise agreement
for each Property and adjust the fees currently paid on those
contracts, when necessary, to reflect minimum standards in
the hotel industry for either full-service or limited-service
hotels that have both a national franchise and management
affiliation. Furthermore, Capital America's determination of
the appropriate FF&E reserve will be based upon third-party
reports and other due diligence, but in no event will the
adjustment be less than 5% of gross revenues. Borrower
Sponsor acknowledges that the UNOI will be determined by
Capital America upon completion of its due diligence. In
determining UNOI, all pro forma adjustments to revenue and
expenses shall be approved by Capital America in its sole
discretion and shall be subject to Capital America's full due
diligence. The above underwriting assumes that there is no
material adverse change anticipated in the operations of the
Properties or in the UNOI of the Properties from the
execution of the Commitment Letter to the closing of the
Loan.
GROUND LEASE: The terms of any ground lease must provide that the payments
thereunder are subordinate to the lien of the mortgage or
deed of trust, must have a remaining
4
term of at least 10 years later than the Final Maturity Date,
and must otherwise be acceptable to Capital America in its
sole discretion. Any ground lease must be financeable as
determined by Capital America in its sole discretion. Capital
America or its assignee must be given notice of, and an
opportunity to cure, defaults, and otherwise be adequately
protected in the event the ground lessee disaffirms the
ground lease in connection with a bankruptcy. The ground
lease must not be cancelable in the event a lender forecloses
on the leasehold estate. The ground lessor must agree to
enter into a new lease with Capital America in the event of a
bankruptcy by the Borrower or a foreclosure by Capital
America. In addition, Borrower shall deliver to Capital
America prior to closing a ground landlord's estoppel
certificate, signed by the Borrower's ground landlord
containing, among other things, leasehold mortgagee
protections as shall be acceptable to Capital America in its
sole discretion.
COLLATERAL: Perfected first mortgage liens on the Properties and a first
priority perfected security interest in all contracts,
agreements, trademarks, licenses, goods, equipment, accounts,
fixtures and all other tangible and intangible personal
property located on or used in connection with the
Properties, and other collateral and assurances customary in
similar financings by Capital America. All the mortgages will
be cross collateralized and cross defaulted. The mortgage
liens and the priority thereof shall be the subject of title
insurance in favor of Capital America and its successors
and/or assigns, which insurance shall be issued and
underwritten by a title insurance carrier acceptable to
Capital America in its discretion. Capital America reserves
the right to require co-insurance or evidence of reinsurance.
Capital America shall use its best efforts to assume the
existing Credit Lyonnaise mortgages and deeds of trust on the
Properties, subject to Capital America's standard
mortgage/deed of trust requirements.
TOTAL RELEASE OF
COLLATERAL: The Loan may not be prepaid prior to the Effective Maturity
Date. However, two years after Capital America sells the Loan
into a "conduit-type" securitization (the "Lockout Period"),
all Properties may be released as security for the Loan by
payment to Capital America or its assignee of (i) all accrued
but unpaid interest and other payments due under the Loan;
(ii) the entire principal balance of the Loan then
outstanding; and (iii) Capital America's standard yield
maintenance payment derived from a U.S. Treasury benchmark
(the "Total Release Payment").
5
PARTIAL RELEASE OF
COLLATERAL: After the Lockout Period but prior to the maturity of the
Loan, provided that no Event of Default has occurred or is
continuing, less than all the Properties may be released upon
payment to Capital America or its assignee of (i) all accrued
and unpaid interest on the Loan, (ii) 125% of the Allocated
Loan Amount for the Properties requested to be released and
(iii) Capital America's standard yield maintenance payment on
such amount (the "Partial Release Payment"). Notwithstanding
the foregoing, a partial release of Properties will only be
permitted if the DSCR for the remaining Properties is greater
than both (i) the original DSCR for the Loan and (ii) the
DSCR for the Loan immediately prior to the release.
CONDITIONS TO
RELEASE: Total or partial releases are subject to at least 30 days
written notice to Capital America or its assignee, which
notice must include the Properties proposed to be released,
and may only occur on a regularly scheduled payment date. Any
release prior to the Effective Maturity Date is subject to
Capital America's or its assignee's receipt of a legal
opinion of outside counsel acceptable to Capital America or
its assignee which states without qualification that Capital
America or its assignee will have, upon the release, a first
priority perfected security interest in the U.S. Treasury
Securities referred to below. Borrower may be relieved of its
obligations under the Loan, after payment of the Total
Release Payment or the Partial Release Payment, as the case
may be, in an amount equal to the Loan Amount, in the case of
a total release, or 125% of the Allocated Loan Amount in the
case of a partial release, provided that it assigns to a
special purpose corporation acceptable to Capital America or
its assignee that portion of the Loan equal to the Loan
Amount, in the case of a total release, or 125% of the
Allocated Loan Amount, in the case of a partial release; and
provided further that, in the case a partial release,
Borrower shall remain liable for the remaining balance of the
Loan.
The "Allocated Loan Amount" shall be determined at the
closing of the Loan by Capital America in its sole
discretion, and will be the portion of the original principal
amount of the Loan allocated among the Properties relative to
its UNOI. The sum of the Allocated Loan Amounts for all the
Properties shall equal the original principal amount of the
Loan. Capital America's standard yield maintenance payment
shall be an amount that, together with the Allocated Loan
Amount being paid, will be sufficient to purchase non-
callable U.S. Treasury Securities whose cash flows are equal
to and occur as close as possible before the successive
remaining scheduled interest and principal payments required
under the Loan through the Effective Maturity Date. Capital
America's standard yield maintenance payment shall also apply
due to any prepayment resulting from an acceleration of the
Loan following an Event of Default. The Borrower will be
responsible for all costs and expenses incurred in connection
with the release of the lien and the purchase of the U.S.
Treasury securities.
PREPAYMENT
WITHOUT RELEASE OF
COLLATERAL: After the Lockout Period, the Loan may be prepaid in whole or
in part, provided that the Borrower gives at least 30 days
written notice to Capital America, the prepayment occurs on a
regularly scheduled payment date and Borrower pays
6
Capital America an amount sufficient to purchase non-callable
U.S. Treasury Securities whose cash flows are equal to and
occur as close as possible before the successive remaining
scheduled interest and principal payments required under the
Loan through the Effective Maturity Date with respect to the
amount being prepaid. Borrower may be relieved of its
obligations under the Loan in an amount equal to the amount
being prepaid, provided that it assigns to a special purpose
corporation acceptable to Capital America or its assignee
that portion of the Loan equal to such amount; and provided
further that Borrower shall remain liable for the remaining
balance of the Loan.
INITIAL RESERVES: The Borrower will establish a reserve for existing deferred
maintenance. The deferred maintenance reserve will be funded
at closing. The amount required to be funded therein will be
125% of the amount specified in the property condition
reports obtained during Capital America's due diligence
review, as the amount of deferred maintenance required to be
completed within the first year following closing. Borrower
may draw on the deferred maintenance reserve by presenting
Officer's Certificates indicating a completion of and cost of
completion of each item of deferred maintenance listed in the
property condition report. All remaining funds in such
reserve will be paid to Borrower when the last item on the
list is completed and appropriate documentation is provided.
The deferred maintenance reserve will be maintained by the
servicer/trustee in accounts established by the
servicer/trustee, and funds therein will be invested in
permitted investments for the benefit of the Borrower.
Borrower will also establish sufficient initial reserves for
taxes and insurance, which reserves shall be funded at
closing. The amount of such reserves will be determined by
Capital America in amount sufficient, inclusive on ongoing
reserves described below, to make the next due tax and
insurance payments.
ONGOING RESERVES: At all times during the term of the Loan, the Borrower shall
fund reserves in the following amounts on a monthly basis:
taxes and insurance premiums -- monthly deposit of one-
twelfth of the budgeted annual real estate taxes and
insurance premiums;
capital expenditures -- one-twelfth of the amount estimated
by Capital America at its discretion which shall generally be
computed at 5% of gross revenues (or such higher amount as
may be indicated by Capital America's due diligence);
seasonality reserve -- a working capital reserve, in an
amount to be determined by Capital America, to provide some
protection for the payment of operating expenses and debt
service during seasonal periods when gross income may be
reduced (if necessary); and
ground rent -- one twelfth of the yearly ground rental due to
the fee owner.
CASH MANAGEMENT: The Borrower will establish a separate "A" account and "B"
account with a bank designated by Borrower (the "Clearing
Bank") through which all property receipts will be cleared.
Borrower will be required to cause its credit card clearing
banks and any space tenants to send directly to the Clearing
Bank for
7
deposit into an "A" account the applicable payments required
to be made on account of the Properties on a daily basis and
Borrower shall be required to deposit directly into the "A"
account all other proceeds from the operation of the
Properties on a daily basis. Until the earlier to occur of
(a) the Effective Maturity Date and (b) a default or event of
default under the loan documents (each, a "Cash Trap Event"),
as such receipts are cleared, the Clearing Bank will transfer
them daily from the "A" account to the "B" account, which "B"
account is an account not subject to any restriction and is
under the sole control of Borrower. Upon a Cash Trap Event,
as such receipts are cleared, the Clearing Bank, upon notice
from Capital America, will transfer them daily during such
transfer period, commencing on the 12th day of each month,
from the "A" account to an account owned and controlled by
Capital America at a bank selected by Capital America (the
"Deposit Bank"). Upon a Cash Trap Event, the Deposit Bank
will establish sub-accounts for certain items including
ongoing taxes and insurance premiums, ongoing capital
expenditures, debt service, seasonality reserves, ground rent
and such other reserves as may be required by Capital America
based on its due diligence review. The amounts of such
reserves are described below in the section entitled "Ongoing
Reserves". Once the monthly required amount of each such
reserve is on deposit in each subaccount, transfers to the
Deposit Bank from the Clearing Bank will stop and cleared
funds (other than insurance proceeds and condemnation awards,
security deposits and any rent that is paid for more than one
month in advance all of which will be transferred to the
Deposit Bank, subject to legal and lease requirements in the
case of security deposits) will instead be transferred into a
"B" account at the Clearing Bank. Prior to the Effective
Maturity Date, and provided that there has been no election
to accelerate the indebtedness, any funds transferred to the
Deposit Bank in excess of the monthly requirement shall be
immediately remitted back to the Borrower.
Capital America will have a senior security interest in the
aforementioned accounts and subaccounts. The upfront and
ongoing expenses of maintaining such accounts and
subaccounts, and any other accounts maintained pursuant to
the Loan Documents, shall be the responsibility of the
Borrower.
12 months after the beginning of a Cash Trap Event, provided
that no default has occurred or is continuing and provided
that there has been no election to accelerate the
indebtedness under the Loan, if the DSCR for the Loan is at
least as high as the DSCR at the time of the closing of the
Loan, the Cash Trap Event shall cease until the earlier of
the Effective Maturity Date or the occurrence of another Cash
Trap Event.
Notwithstanding the foregoing, Capital America agrees to
restructure the Cash Management System, so long as it
continues to satisfy Rating Agency requirements, in order to
accommodate an operating lease structure which Borrower
Sponsor may elect to use in connection with its REIT
formation.
DEFAULT: During the continuance of an Event of Default by the Borrower
(after the lapsing of applicable cure/grace periods), all
cash flow on the Properties and cash in the reserve accounts
will be applied, at Capital America's option, to interest
payments and principal repayments.
8
In addition, if the Loan is accelerated upon an Event of
Default, the Borrower shall owe the current outstanding
balance of the Loan, all accrued interest (including any
default interest), Capital America's standard yield
maintenance payment and any other amounts due and payable.
CHANGE IN
MANAGEMENT: The manager of the Properties may be replaced by the holder
of the Loan in the event that, as of the last day of a
calendar quarter, (i) the UNOI on a trailing twelve (12)
month basis decreases to less than 65% of the original UNOI,
(ii) the DSCR on a trailing twelve (12) month basis on the
remaining outstanding balance of the Loan shall fall below
1.10:1 and/or (iii) upon an Event of Default. Notwithstanding
the preceding sentence, management will be permitted to
remain in place by prepaying the Loan (including all
applicable yield maintenance premiums and accrued interest)
to a level such that the DSCR on a trailing twelve (12) month
basis on the remaining outstanding balance of the Loan is
restored to a level of at least 1.75:1. If either (i) or (ii)
above is true, Capital America shall take into consideration,
prior to the removal of the manager: a) both the manager's
and the hotel's performance relative to the competitive set
and b) forces outside the manager's control. At such time as
the Property Manager is removed, a replacement property
manager, acceptable to Capital America (or its assignee) and
any applicable rating agency in their respective discretion,
will assume the management of the Properties and will receive
a property management fee that will not exceed then market
rates.
FINANCIAL
REPORTING: During the term of the Loan, the Borrower shall provide to
Capital America on each of the individual Properties (i)
annual (a) unaudited financial statements within 40 days and
(b) audited financial statements within 90 days following the
close of the Borrower's fiscal year, (ii) monthly unaudited
financial statements within 20 days following the end of each
calendar month and (iii) monthly occupancy and room rate
statistics within 20 days following the end of each calendar
month. Audited statements prepared on a combined basis for
the Properties will be acceptable provided such statements
are accompanied by an agreed-upon procedures report
demonstrating that the unaudited property level statements on
the individual Properties tie to the combined audited
statements. Audited financial statements (including those
audited financial statements to be delivered as a condition
to closing) shall be accompanied by an unqualified opinion
from a "Big Six" accounting firm or other certified public
accounting firm acceptable to Capital America. Unaudited
statements, occupancy and room rate statistics shall include
a certification (a "Certificate") by a senior executive of
the Borrower stating that the relevant financial information
fairly reflects the financial condition and operations of the
Borrower for the relevant period. All financial statements
(including those to be delivered as a condition to closing)
(i) shall be prepared in accordance with generally accepted
accounting principles ("GAAP"), (ii) shall be presented in a
format acceptable to Capital America, and (iii) shall include
a statement of operations (profit and loss), a statement of
cash flows, a calculation of UNOI, and such other information
or reports as shall be reasonably requested by Capital
America or any applicable Rating Agency. If audited
financials of the Borrower indicate that less than 90% of
actual receipts have been deposited in Account "A" described
under the Cash Management Section of the Term Sheet, a Cash
Trap Event shall be deemed to have occurred.
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INSURANCE: Each of the Properties will be covered by fire and casualty,
machine and boiler, business interruption and liability insurance
(general, employer and workers' compensation insurance), along
with flood, hurricane or earthquake insurance if any of the
Properties are located in a flood, hurricane or earthquake zone,
as applicable. Additional insurance may be required by Capital
America in its reasonable discretion. In general, the amount of
the coverage relating to damage to the Properties shall be in an
amount not less than the full replacement cost of the Properties,
shall contain deductibles not in excess of $100,000 and shall be
written by carriers having a Standard & Poor's rating of at least
"AA" and a Best rating of at least "AVII". Business interruption
insurance shall cover a period of not less than 18 months.
Capital America and its affiliates will be named as additional
insured, mortgagee and loss payee on all policies insuring the
Properties, and all such policies will otherwise be in a form
acceptable to Capital America.
SUBORDINATE
DEBT: The Borrower may not incur any indebtedness other than the
Loan during the term thereof. No secured or unsecured debt,
including subordinate debt, shall be permitted on the Properties
during the term of the Loan. In addition, owners of the Borrower
shall be prohibited from pledging their interests in the Borrower
to secure any financing during the term of the Loan.
SUBORDINATION
OF LEASES: The leases for any space tenants at the Properties shall be
subordinate to the lien of the mortgage and Borrower Sponsor will
use its best efforts to provide any subordination, non-
disturbance and attornment agreement in form and substance
acceptable to Capital America.
SUBORDINATION: Borrower Sponsor and its affiliates will be required to
subordinate to Capital America and its assignees the right to
receive any fees (including management fees), distributions or
other payments from the Borrower.
ESTOPPEL
CERTIFICATES: Borrower will provide to Capital America prior to closing
estoppel certificates, in form and substance acceptable to
Capital America, from any space tenants at the Properties.
SERVICER: The Loan will be serviced by a third-party servicer (the
"Servicer") to be selected by Capital America, which Servicer may
be an affiliate of Capital America.
NON-RECOURSE: The Loan will be non-recourse, except for Capital America's
standard carve-outs including, but not limited to,
indemnification for environmental liability, misappropriation of
funds, material or intentional misrepresentation, fraud, physical
waste of the Properties and removal or disposal of any portion of
the Properties.
SUBSTITUTION
OF COLLATERAL: At any time during the Loan, collateral may be substituted
provided that (a) all such Properties substituted during the term
of the Loan do not represent more than the lesser of (i) the
greatest of (A) 30% of the trailing 12-month Net Operating Income
of the Properties as of the date of substitution and (B) 40% of
the trailing 12-month Net Operating Income of the Properties as
of the closing
10
date, and (ii) the greatest of (A) 30% of the value of the
Properties (as determined by Capital America) as of the date of
substitution and (B) 40% of the value of the Properties (as
determined by Capital America) as of the closing date, (b) such
substitutions shall not be allowed more than three times during
the term of the Loan, and (c) all of the following conditions are
satisfied: (1) the new property(ies) to be substituted in are
satisfactory to Capital America in all respects (after Capital
America's due diligence investigation), (2) as a result of the
substitution, the overall DSCR for the Loan is not less than the
greater of (x) the overall DSCR at the initial closing of the
Loan and (y) the overall DSCR for the Loan immediately prior to
the substitution, (3) as a result of the substitution, the
overall LTV for the Loan is not greater than the lesser of (x)
the overall LTV at the initial closing of the Loan and (y) the
overall LTV for the Loan immediately prior to the substitution,
(4) the trailing 12-month Net Operating Income for the new
property(ies) may not show a downward trend for any of the
preceding three years and shall be adjusted, if necessary, to cap
the growth of departmental profits at 10% from each of the
previous three year's, (5) confirmation that no downgrade in
ratings on the securities backed by the Loan will result from the
substitution is obtained or would result if this Loan were a
stand alone securitization, and any fees associated with such
confirmation are paid by the Borrower, (6) all of Capital
America's due diligence and other costs and expenses are paid by
the Borrower and (7) an opinion is obtained from reputable
counsel approved by Capital America stating that the substitution
does not violate the REMIC rules.
ASSUMABILITY: The equity interests in Borrower will be transferable with
the consent of Capital America. If all of the Properties are
transferred to one purchaser, the Loan may be assumed by the
purchaser provided that the Rating Agencies confirm that such
transfer will not result in a downgrade in the securities issued
in connection with the Loan and the purchaser assumes the
Borrower's obligations under the Loan pursuant to documentation
which is acceptable to the Rating Agencies and Capital America.
Such transfer provisions will apply to a change in control of the
Borrower. Upon the transfer of the equity interests or sale of
the Properties, Borrower will pay all reasonable expenses in
connection with the assumption of the Loan capped at 1% of the
outstanding principal amount of the Loan.
DOCUMENTS: The Loan shall be evidenced by documentation customary for
similar transactions, and in form and substance acceptable to
Capital America in its sole and absolute discretion, which
documentation shall be consistent in all material respects with
the terms and provisions hereof. Such documentation shall
include customary representations and warranties from the
Borrower to Capital America and customary events of default. In
addition, all relevant ancillary documents relating to the
Borrower, including without limitation any applicable management
agreements and franchise agreements, shall be satisfactory to
Capital America in its sole discretion.
LEGAL
OPINIONS: As a condition to the closing, the Borrower's counsel shall
render all customary legal opinions regarding the Borrower and
the Loan. Such opinions shall include an opinion of Borrower's
counsel, which counsel shall be reasonably acceptable to Capital
America, including, without limitation, a usury opinion and an
opinion as to the enforceability of the Loan transaction under
New York law. The Borrower's counsel shall render a substantive
non-consolidation opinion
11
and such other opinions as may be requested by the applicable
Rating Agency, all in form and substance customary or required
for rated transactions.
DUE DILIGENCE/ADDITIONAL
CONDITIONS PRECEDENT TO
FUNDING/
CLOSING: The obligation of Capital America to make the Loan is subject
to the completion by Capital America to Capital America's
satisfaction of Capital America's due diligence with respect to
the Properties and the Borrower, including, without limitation,
the receipt by and reasonable approval of Capital America of the
following:
(i) Perfected first mortgage or deed of trust on the
Properties;
(ii) Title insurance policies issued by a national company
reasonably acceptable to Capital America showing
indefeasible title to the Properties vested in the
Borrower, insuring the first priority of the lien arising
under the applicable mortgage in an amount acceptable to
Capital America, excepting from coverage thereunder only
such matters as are approved by Capital America, and
including such co-insurance and/or reinsurance as is
required by Capital America;
(iii) MAI appraisals (prepared in compliance with FIRREA) with
respect to the Properties by a firm approved by Capital
America, which appraisals shall be completed after the
Borrower Sponsor completes its REIT IPO, but prior to
August 11, 1998. In the event that the appraisals are
completed after August 11, 1998, but prior to February 11,
1999, then the Spread (as defined above) shall increase by
9 basis points;
(iv) Environmental audits (i.e. Phase I surveys and, if deemed
necessary or appropriate by Capital America, Phase II
surveys) of the Properties, acceptable to Capital America
from a firm approved by Capital America;
(v) Structural engineering report acceptable to Capital America
from a firm approved by Capital America, identifying, among
other things, (a) deferred maintenance for the Properties
and the cost thereof and (b) a 10 year schedule of
anticipated capital expenditures and the per annum cost
thereof;
(vi) Insurance policies (including, without limitation,
earthquake, hurricane and/or flood insurance, as
applicable) in such form, with such carriers, and in such
amounts as are required pursuant to the Loan Documents and
deemed acceptable to Capital America;
(vii) Three year historical operating statements of the
Properties (verified by a certified public accounting firm
acceptable to Capital America), trailing 12 month operating
statements of the Properties and operating budgets for the
Properties for the year ending December 31, 1998.
(viii) Surveys (or, if reasonably acceptable to Capital America,
updated and recertified surveys) meeting Capital America's
reasonable specifications
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(including with respect to the surveyor's certification)
and legal description of the Properties;
(ix) Certificates of occupancy for each Property and
reasonable evidence of compliance with all applicable
zoning, building, environmental and other laws applicable
to the Properties. Zoning letters or the like from
applicable governmental authorities are acceptable for
the purposes hereof;
(x) Copies of all leases, material contracts and permits
affecting the Properties;
(xi) Evidence that all utility services required for the
Properties are available and that the Properties are
subject to separate tax assessment;
(xii) Opinions of counsel and local counsel to Borrower and
Borrower Sponsor in form and substance reasonably
satisfactory to Capital America (including, without
limitation, a substantive non-consolidation opinion);
(xiii) Copy of the current occupancy statistics and room rates
for the Properties;
(xiv) Evidence that the ground lease allows for first mortgage
financing on the Properties and confirmation that all
terms and conditions of the ground lease are acceptable
to Capital America; and
(xv) Other information reasonably required by Capital America.
EXPENSES: By executing the Commitment Letter, Borrower Sponsor agrees to
pay or to reimburse, and to cause the Borrower to pay or
reimburse, Capital America and its affiliates, upon demand and
whether or not the Loan is consummated in whole or in part, the
reasonable fees and out of pocket expenses incurred by Capital
America and the outside counsel and auditors retained by
Capital America in connection with the matters and transactions
contemplated hereby which fees and expenses shall also include,
but not be limited to, the fees of all third parties relating
to the due diligence review to be undertaken by Capital America
and its third party consultants, title insurance, insurance
review costs, the cost of an appraisal, environmental reports,
engineering and structural reports, and all expenses associated
with engaging a servicer and a trustee (each of which shall be
selected by Capital America in its sole discretion), setting up
and pre-funding a cash management account and structuring the
Loan.
INDEMNIFICATION: Borrower Sponsor agrees that it and the Borrower (if a separate
entity) will indemnify and hold Capital America and each of its
affiliates (including its officers, directors, partners,
employees and agents) (each, an "Indemnified Party") harmless
against any and all losses, claims, damages, costs, expenses or
liabilities ("Losses") in connection with, arising out of or
resulting from the transactions and matters referred to or
contemplated hereby, except to the extent that it is finally
judicially determined that any losses resulted solely from the
gross negligence or bad faith of an Indemnified Party. In the
event that Capital
13
America or its affiliates becomes involved in any
action, proceeding or investigation in connection with any
transaction or matter referred to or contemplated hereby,
borrower sponsor and the borrower (if a separate entity) shall
periodically reimburse capital america or its affiliates upon
demand therefore in an amount equal to the reasonable legal and
other expenses (including the costs of any investigation and
preparation) incurred in connection therewith to the extent
such legal or other expenses are the subject of indemnification
hereunder. the obligations of the borrower sponsor and borrower
pursuant to this paragraph shall survive in the event the loan
is not consummated for any reason.
ASSIGNMENT: The Loan may be assigned by Capital America at any time in its
sole discretion. The Commitment Letter and this Summary of
Terms may be assigned by Capital America at any time to The
Capital Company of America LLC. All references to Capital
America in this Summary of Terms or in the accompanying
Commitment Letter (as reflected in the Loan documents) shall be
deemed to refer to Capital America and its successors and
assigns. Neither the Loan nor the Commitment Letter nor this
Summary of Terms may be assigned by Borrower Sponsor.
SECONDARY MARKET
TRANSACTIONS: Borrower Sponsor understands that Capital America will close
the Loan described herein as principal. Nevertheless, after the
closing of the Loan, Capital America may engage in a secondary
market transaction by either selling the Loan to an affiliate
in order to enable such affiliate to complete a securitization
by way of either a public or private securities offering which
is rated by one or more rating agencies or engaging in some
other transaction (each, a "Secondary Market Transaction").
Therefore, the loan documentation will require the Borrower
Sponsor and Borrower to, among other things, assist Capital
America and its affiliates in the preparation of a disclosure
document describing the Secondary Market Transaction and
provide Capital America all information and materials
reasonably required (including an updated appraisal and
environmental report and financial and operating statements) in
a manner that satisfies the requirements of any applicable
federal laws and applicable state laws, and use its best
efforts to help facilitate the consummation of the Secondary
Market Transaction. Borrower Sponsor and Borrower agree to act
reasonably and promptly in connection with their review of the
relevant portions of the offering documents.
In connection with a Secondary Market Transaction, the Loan
Agreement will require Borrower Sponsor and Borrower to
indemnify and hold Capital America and its controlling persons
and affiliates harmless against all costs, expenses and damages
incurred by Capital America and its controlling persons and
affiliates (including, without limitation, all liabilities
under all applicable federal and state securities laws) as a
direct result of any material omission or untrue statement of a
material fact contained in such offering documents based on
information provided by Borrower Sponsor or the Borrower (if a
separate entity), which describes Borrower Sponsor, the
Borrower (if a separate entity), the Properties, the property
manager or any aspect of the subject financing or the parties
directly involved therein, or as a result of any material
omission or untrue statement of material fact in any of the
financial statements of Borrower Sponsor
14
or the Borrower incorporated into the offering documents or the
failure to include in such financial statements or in such
offering documents any material fact relating to Borrower
Sponsor, the Borrower, the Properties, the property manager and
any aspect of the subject financing necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading; provided that the Borrower
shall have had an opportunity to review and comment upon the
relevant portions of the offering documents.
PUBLICITY: In the event the Loan contemplated herein is made, Capital
America shall have the right to issue press releases,
advertisements and other promotional materials describing
Capital America's participation in the origination of the Loan
or the Loan's inclusion in any Secondary Market Transaction
effectuated by Capital America. Capital America recognizes that
Borrower Sponsor will disclose and publicize certain details of
this transaction in connection with its public offering.
GOVERNING LAW: The Loan transaction and each of the documents with respect
thereto (other than the mortgages or deeds of trust which shall
be governed by the laws of the States in which the Properties
are located) shall be governed by the internal laws of the State
of New York. The Borrower agrees that all actions relating to
this Summary of Terms, the Commitment Letter, or the Loan (other
than actions by Capital America, its successors and assigns in
connection with the enforcement of any Loan document) shall be
brought exclusively in the federal or state courts located in
the State of New York and that trial by jury is hereby waived
for all actions relating to this Summary of Terms, the
Commitment Letter or the Loan.
NO MATERIAL
ADVERSE CHANGE: Except as may be expressly otherwise provided herein, on the
closing date, the income and expenses of the Properties, the
financial statements of the Borrower and all other features of
the transaction shall be as represented in this Summary of
Terms, and all other documents and communications presented to
Capital America in order to induce Capital America to make the
Loan, shall be without material change or Capital America shall
have no obligation to close and fund the Loan under the
Commitment Letter. At closing, the Borrower shall certify that
no material changes shall have occurred as may be requested by
Capital America.
In addition, if, on or before the date of the closing of the
Loan, any of the following shall have occurred, Capital America
shall have no obligation to close and fund the Loan under the
Commitment Letter; (i) any of the Properties shall have been (a)
damaged and not repaired to Capital America's satisfaction or
(b) taken in condemnation or other similar proceeding, or any
such proceeding shall be pending; (ii) a structural change in
the physical condition of any portion of the Properties; (iii)
Borrower or any partners, members, principal shareholders or
officers of Borrower or any tenant under any lease deemed by
Capital America to be material to Capital America's security or
any guarantor of any such lease shall be the subject of any
bankruptcy, reorganization or insolvency proceeding; (iv) any
default shall have occurred and be continuing in the performance
of any obligation of Borrower or an affiliate of Borrower in the
instruments evidencing, securing or guaranteeing another loan of
Borrower or such affiliate; and (v) discovery of any asbestos,
toxic waste, or other hazardous substance on the Properties
which discovery would be materially adverse to
15
Capital America. Borrower Sponsor hereby represents and warrants
to Capital America that it has received no notice of, and has no
other knowledge of or basis upon which to believe that it or any
partner is or may become the subject of any bankruptcy,
reorganization or insolvency proceeding.
16