EXHIBIT 10.6
COLUMN FINANCIAL, INC.
Eleven ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
May 11, 2006
Morgans Hotel Group Co.
▇▇▇ ▇▇▇▇ ▇▇▇.
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇ ▇▇▇▇▇▇▇
Re: US$700,000,000.00 Credit Facility
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Gentlemen:
On behalf of MHG HR Acquisition Corp, a Delaware corporation (the
"PURCHASER") that is owned in whole or in part by, and controlled by Morgans
Hotel Group Co. ("MHG" or "YOU"), you have requested Column Financial, Inc.
("COLUMN" and, together with its affiliates, the "LENDER," "WE" or "US") to, and
we are prepared to, make available to the Purchaser and certain of its
affiliates, pursuant to a transaction structure to be mutually agreed upon by
the parties hereto, acting reasonably, the credit facility described in the term
sheet annexed hereto as EXHIBIT A (the "TERM SHEET") in an aggregate principal
amount not to exceed US$700,000,000.00, subject to adjustment as provided in the
Term Sheet (the "AGGREGATE COMMITMENT"), consisting of (a) one or more CMBS
Loans (as hereinafter defined) or (b) to the extent that the conditions to the
availability of CMBS Loans have not been satisfied or waived as to any portion
of the Aggregate Commitment, a bridge loan (the "BRIDGE LOAN") in an amount
equal to such portion of the Aggregate Commitment (up to the entire amount of
the Aggregate Commitment, subject to the terms and conditions hereof), to
finance (i) the acquisition (the "ACQUISITION") by the Purchaser, directly or
indirectly, pursuant to a certain Agreement and Plan of Merger to be entered
into by and among Purchaser and/or a wholly-owned subsidiary of Purchaser
("MERGERCO"), Hard Rock Hotel, Inc., a corporation organized under the laws of
the State of Nevada ("TARGET"), and the stockholders of Target (the "MERGER
AGREEMENT"), the Other Transaction Documents (as defined in the Merger
Agreement) and the other agreements, documents and instruments required to be
delivered in connection with the Acquisition pursuant to the Merger Agreement
and/or the Other Transaction Documents (the Merger Agreement, the Other
Transaction Documents, the PMR/RWB Escrow Agreement (as defined in the Merger
Agreement), the ▇▇▇▇▇▇ Indemnification Agreement (as defined in the Term Sheet)
and such other agreements, documents and instruments, collectively, the
"TRANSACTION DOCUMENTS"), of (A) 100% of the issued and outstanding capital
stock of Target, which owns and operates the Hard Rock Hotel and Casino (the
"RESORT"), (B) 100% of the tangible and intangible assets of PM Realty, LLC, a
Nevada limited liability company ("PMR") and HR Condominium Investors (Vegas),
L.L.C., a Delaware limited liability company ("HRCI"), including, without
limitation, certain land and any improvements thereon adjacent to the Resort
(the "ADJACENT PROPERTY"), (C)
certain trademarks and other intellectual property rights related to the
operation of the Resort that are currently owned by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and/or his
affiliates, as described on EXHIBIT C hereto (the "INTELLECTUAL PROPERTY"), and
(D) additional land adjacent to the Resort owned by Red White & Blue Pictures,
Inc. ("PICTURES") and Picture's rights in the improvements thereon commonly
known as the Hard Rock Cafe (the "CAFE PROPERTY"), (ii) the repayment,
restructuring or redemption of certain existing indebtedness of Target, and
(iii) all transaction costs of the Acquisition and the foregoing refinancings
(the transactions described in the foregoing CLAUSES (i) through (iii),
collectively, the "TRANSACTIONS").
As a result of the Acquisition, the Purchaser will gain control of all of
Target's assets, including the Resort, the Adjacent Property, the Cafe Property
and the other properties set forth in EXHIBIT B (collectively, the "PROPERTIES")
and the Intellectual Property.
In connection with the Transactions, the Purchaser is requesting the credit
facility described in the Term Sheet (the "CREDIT FACILITY") in an aggregate
principal amount to be disbursed in full upon the closing of the Acquisition,
equal to the Aggregate Commitment, subject to adjustment as provided in the Term
Sheet, comprised of (x) one or more mortgage and/or mezzanine loans (the "CMBS
LOANS") to be borrowed by one or more newly formed, single purpose, bankruptcy
remote direct or indirect subsidiaries of Purchaser or the Holdco Mezzanine
Borrower (the "CMBS BORROWERS") and/or (y) to the extent that the conditions to
the availability of the CMBS Loans have not been satisfied or waived as to any
portion of the Aggregate Commitment, a Bridge Loan (together with the CMBS
Loans, the "LOANS" and each a "LOAN") to be borrowed by Purchaser or one or more
newly formed single purpose, bankruptcy remote subsidiaries of Purchaser
(collectively, "HOLDCO"; Purchaser or Holdco, in its capacity as borrower under
the Bridge Loan, the "BRIDGE BORROWER" and, together with the CMBS Borrowers,
the "BORROWERS").
To facilitate the foregoing, and as a condition to the Acquisition and any
financing under the Term Sheet, the Purchaser will cause the reorganization of
certain businesses, operations and assets of Target, in each case as required in
order to effectuate the foregoing consistent with the material terms of the Term
Sheet.
1. COMMITMENT.
In connection with the foregoing, Lender is pleased to advise you of its
commitment to provide the entire principal amount of the Aggregate Commitment
upon the terms and subject to the conditions set forth in this commitment letter
(including the Term Sheet and other attachments hereto, collectively, this
"COMMITMENT LETTER").
2. REPRESENTATIONS AND WARRANTIES.
You hereby represent and covenant that (a) all information (the
"INFORMATION"), other than the financial information and projections
("PROJECTIONS"), that have been or will be made available to Lender by or on
behalf of you or any of your representatives in connection with the
Transactions, when taken as a whole, is or will be, when furnished, correct in
all material respects and does not or will not, when furnished, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not materially misleading in
light of the circumstances under which such statements are made and
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(b) the Projections that have been or will be made available to Lender by
or on behalf of you or any of your representatives have been or will be prepared
in good faith based upon customary and reasonable accounting principles and
based upon assumptions that are reasonable at the time they are made available
to Lender (it being understood that the Projections are subject to significant
uncertainties and contingencies, many of which are beyond your control and no
assurance can be given that any particular Projection will be realized). You
agree that if at any time prior to the closing of the Credit Facility or any
Loan you become aware that any of the representations in the preceding sentence
are incorrect, in any material respect, you will promptly supplement the
Information and the Projections so that such representations will be correct
under those circumstances. In connection with our arranging and syndicating of
the Credit Facility, and the origination, syndication or securitization of any
Loan, we will be entitled to use and rely primarily on the Information and the
Projections without responsibility for independent verification thereof.
3. FEES; DEPOSITS; CERTAIN RIGHTS.
As consideration for Lender's commitment hereunder, and the agreement of
Lender to perform the services and make available the Credit Facility described
herein, you agree to pay (or to cause the Borrowers to pay) to Lender the fees
set forth in this Commitment Letter and in the fee letter dated the date hereof
and delivered herewith with respect to the Credit Facility (the "FEE LETTER").
In order to commence our underwriting review, the Purchaser shall pay to
Lender, in addition to the Commitment Fee payable under the Fee Letter, a total
of US$1,000,000.00 (the "GOOD FAITH DEPOSIT"), of which $250,000.00 shall be
payable upon the execution of this Commitment Letter by you and the remaining
$750,000.00 shall be payable upon execution and delivery of the Merger
Agreement. The Good Faith Deposit shall be used for actual reasonable documented
expenses incurred by Lender in connection with third party reports and other
out-of-pocket expenses, including, without limitation, the fees and
disbursements of Lender's external legal counsel and auditors, travel expenses,
credit review costs, underwriting and due diligence fees and expenses and the
fees of all third parties relating to any such underwriting and due diligence
review; if the Good Faith Deposit is insufficient to cover the cost of any
reports or professional fees incurred by Lender, then you shall remit to Lender,
immediately upon demand, any such additional amounts necessary to pay for such
expenses.
4. CONDITIONS.
In addition to those conditions set forth in the Term Sheet, the commitment
of Lender hereunder is subject to (i) Transaction Documents, substantially in
the form submitted to Lender for approval, having been executed and delivered by
the Purchaser and each of the other parties thereto, and being and remaining in
effect and there being no material amendment, supplement or other modification
to any of the terms or conditions thereof or any of the schedules or attachments
thereto or any material waiver by any party thereto or extension of any term or
condition thereof, in each case to the extent adverse to Lender, unless
consented to by Lender in Lender's sole discretion, exercised in good faith,
and, in all other cases, in Lender's reasonable discretion, (ii) the Purchaser
having received cash equity contributions from you and any non-controlling third
party investors selected by you and otherwise reasonably acceptable to Lender
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(the "THIRD PARTY EQUITY") in such amounts that, when added to the Aggregate
Commitment and the cash held by Target and its consolidated subsidiaries, if
any, (collectively, the "AGGREGATE CONSIDERATION") are sufficient to, without
duplication, (A) consummate the Transactions, (B) defease, repay, discharge or
otherwise satisfy in full the Company Bonds (as defined in the Merger Agreement)
other than any Company Junior Notes (as defined in the Merger Agreement) that
are not tendered in the tender offer relating thereto (with repayment of such
Company Junior Notes to be and remain subordinate in all respects to all Loans
under the Credit Facility and with all covenants thereunder that would be
violated by the consummation of the Transactions or any closings under the
Credit Facility, as well as certain other covenants required by Lender in its
sole but reasonable discretion, having been eliminated), (C) satisfy all other
existing indebtedness of Target and its consolidated subsidiaries, if any, other
than (1) customary trade payables not overdue, (2) amounts payable under capital
and equipment leases in the ordinary course of business, and (3) any Company
Bonds that shall have been defeased and for which funds shall have been
deposited in escrow on or prior to the Closing Date for repayment on the day
after Closing, (D) pay all liabilities and obligations of Target and its
consolidated subsidiaries, if any, arising as a result of the Acquisition, (E)
pay all fees and expenses in connection with the Transactions (as defined
below), and (F) fund reserves as required by the Term Sheet or otherwise, and
such Aggregate Consideration shall be applied as provided in the foregoing
CLAUSES (A) through (F) on the Closing Date, (iii) Lender having received true,
correct and complete copies of all written information and materials supplied to
you, the Purchaser or your affiliates prior to the Closing Date pursuant to the
terms and conditions of the Merger Agreement, (iv) the execution and delivery of
definitive documentation with respect to the Credit Facility consistent with the
terms of this Commitment Letter and otherwise reasonably satisfactory to Lender,
acting in good faith, (v) there not having occurred and be continuing a Parent
Condition Failure or Company Condition Failure (as such terms are defined in the
Merger Agreement), (vi) there not having occurred (A) except for the
Transactions, since December 31, 2005, any event that has had or would
reasonably be expected to have a "Material Adverse Effect" (as defined in the
Merger Agreement) or (B) any material adverse change in the business, assets,
results of operations or financial condition of MHG and its consolidated
subsidiaries, taken as a whole, since the date of the audited financial
statements included in MHG's 2005 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission (any of the events described in this clause
(vi) being referred to herein as a "COLLATERAL ADVERSE EFFECT"), (vii) each of
the conditions precedent to the Acquisition set forth in the Transaction
Documents having been satisfied and the Acquisition being consummated
simultaneously with the closing of the Credit Facility and any Loan being funded
at such time, (viii) Lender having received all fees and reimbursements of all
out-of-pocket expenses payable by the Borrowers in connection with the Credit
Facility and any Loan being funded simultaneously with the Acquisition pursuant
to this Commitment Letter and the Fee Letter, (ix) Purchaser and/or MergerCo
having entered into an agreement, in form and substance acceptable to Lender in
its reasonable discretion, with a minimum term of one year from the Closing
Date, with any of the persons specified on SCHEDULE 1 hereto or another person
or entity acceptable to Lender in its sole, but reasonable, discretion,
exercised in good faith and giving due regard to factors such as prior gaming
and licensing experience, industry reputation, creditworthiness and other
factors customarily considered in recruiting, selecting and hiring persons or
entities for gaming operations and licensing in the State of Nevada (any such
person or entity, the "GAMING LICENSEE") that shall seek to obtain all Gaming
Approvals (as defined in the Merger Agreement), and (x) your compliance with the
terms and conditions of this Commitment Letter and the Fee Letter, if any
failure to so comply
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(except with respect to the other conditions set forth in this paragraph (the
"OTHER CONDITIONS"), which such Other Conditions shall be satisfied without
qualification) could reasonably be expected to have a Material Adverse Effect or
a Collateral Adverse Effect, it being understood that Lender shall make the
Credit Facility available and shall advance Loans thereunder as provided herein,
subject, however to the satisfaction of each of the Other Conditions,
notwithstanding your breach of a representation, warranty or covenant contained
in Sections 2, 5, 6, 7 (other than the first sentence of Section 7), 9 or 13 of
this Commitment Letter or any provision of the Fee Letter (other than the
obligations referred to in clause (viii) above), so long as neither a Collateral
Adverse Effect nor a Material Adverse Effect shall occur as a result thereof;
PROVIDED that the funding of any Loan under such circumstances shall not be
deemed to constitute a waiver by or on behalf of Lender of any of Lender's
rights or remedies under this Commitment Letter, the Fee Letter, the Loan
Documents or otherwise in respect of such breach.
Notwithstanding anything to the contrary contained in the Loan Documents
(as defined in the Term Sheet) or Section 2 of this Commitment Letter, it shall
not be a condition to the availability of the Bridge Loan on the Closing Date
that any representation or warranty relating to Target, its affiliates and their
businesses and assets be true and correct as of the Closing Date other than (a)
the representations and warranties made by Target and its affiliates in the
Merger Agreement and the Other Transaction Documents (as defined in the Merger
Agreement) (the accuracy of which will be certified by Target and its affiliates
on the Closing Date) in each case, to the extent any breach of such
representations and warranties by Target and/or its affiliates would give you
the right to terminate the Merger Agreement, and (b) the representations and
warranties of Borrowers to be included in the Loan Documents, as described in
the Term Sheet, relating to corporate power and authority, due authorization,
execution and delivery, legality, validity, binding effect and enforceability of
the Credit Facility, the validity, perfection and first priority of the security
interests in the Properties, the Bridge Collateral, the Holdco Mezzanine
Collateral, the IP Collateral and the other collateral for the CMBS Loans, and
no conflicts with, among other things, agreements binding upon you or your
affiliates (the representations and warranties described in clauses (a) and (b),
collectively, the "CLOSING REPRESENTATIONS"), it being understood and agreed
that the accuracy of each of the Closing Representations shall be a condition to
the availability of the Credit Facility and the funding of any Loans thereunder.
Notwithstanding the foregoing, Lender's funding of any Loan on the Closing Date
despite the existence of any breach of a representation or warranty contained in
the Loan Documents shall not be deemed to constitute a waiver of any of Lender's
rights or remedies under the Loan Documents or otherwise in respect of such
breach, and Lender shall not be required to fund any Loan under the Credit
Facility if any breach by any party of any representation or warranty contained
in the Loan Documents, the Merger Agreement, the Other Transaction Documents,
this Commitment Letter or elsewhere could reasonably be expected to have a
Collateral Adverse Effect.
No term, condition, right, remedy or other provision of the Merger
Agreement or any of the Other Transaction Documents shall be deemed to limit or
otherwise modify, in any manner, any of the terms, conditions, qualifications,
limitations, rights or remedies of Lender set forth in this Commitment Letter
and no approval or deemed approval or waiver or deemed waiver thereunder shall
be deemed to represent Lender's approval or waiver under this Commitment Letter,
unless Lender shall have expressly granted such approval or waiver in writing.
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5. INDEMNIFICATION.
You agree (a) to indemnify and hold harmless Lender, any Syndicated Lender
(as defined in SECTION 13 below) and their respective affiliates and each of
their respective officers, directors, employees, agents, controlling persons,
members and successors and assigns (each, an "INDEMNIFIED PERSON") from and
against any and all losses, claims, damages, liabilities and expenses, joint or
several, to which any such Indemnified Person may become subject arising out of
or in connection with this Commitment Letter, the Transactions, the Credit
Facility or any related transaction, or any claim, litigation, investigation or
proceeding relating to any of the foregoing, regardless of whether any such
Indemnified Person is a party thereto (and regardless of whether such matter is
initiated by a third party or by the Borrowers, the Purchaser, Target or any of
their respective affiliates), and to reimburse each such Indemnified Person upon
demand for any reasonable legal or other expenses incurred in connection with
investigating or defending any of the foregoing, PROVIDED that the foregoing
indemnity will not, as to any Indemnified Person, apply to losses, claims,
damages, liabilities or related expenses to the extent they are found in a
final, non-appealable judgment of a court of competent jurisdiction to have
resulted from the willful misconduct or gross negligence of such Indemnified
Person, and (b to reimburse Lender, from time to time, upon presentation of a
summary statement, for all reasonable out-of-pocket expenses (including but not
limited to expenses of Lender's due diligence investigation, consultants' fees,
syndication expenses, travel expenses and fees, disbursements and other charges
of counsel), in each case, incurred in connection with the Credit Facility, and
the preparation, negotiation and enforcement of this Commitment Letter, the Fee
Letter, the definitive documentation for the Credit Facility and any ancillary
documents or security arrangements in connection therewith. Notwithstanding any
other provision of this Commitment Letter, no Indemnified Person shall be liable
for any indirect, special, punitive or consequential damages in connection with
its activities related to the Credit Facility.
6. SHARING INFORMATION; ABSENCE OF FIDUCIARY RELATIONSHIP; AFFILIATE
ACTIVITIES.
You acknowledge that Lender and any Syndicated Lenders and their respective
affiliates may be providing debt financing, equity capital or other services
(including financial advisory services) to other companies in respect of which
you may have conflicting interests regarding the transactions described herein
or otherwise. Neither we nor any of our affiliates will disclose confidential
information obtained solely from you by virtue of the transactions contemplated
by this Commitment Letter or our other relationships with you to other companies
or in any manner in connection with the performance by us of services for other
companies. You also acknowledge that neither we nor any of our affiliates has
any obligation to use in connection with the transactions contemplated by this
Commitment Letter or to furnish to you, confidential information obtained by us
from other companies.
You further acknowledge and agree that (a) no fiduciary relationship
between you and Lender is intended to be or has been created in respect of any
of the transactions contemplated by this Commitment Letter, irrespective of
whether Lender has advised or is advising you on other matters, (b) Lender, on
the one hand, and you, on the other hand, have an arms-length business
relationship that does not directly or indirectly give rise to, nor do you rely
on, any fiduciary duty on the part of Lender, (c) you are capable of evaluating
and understanding, and you understand and accept, the terms, risks and
conditions of the transactions contemplated by this Commitment
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Letter, (d) you have been advised that we are engaged in a broad range of
transactions that may involve interests that differ from your interests,
including the foregoing, and that we have no obligation to disclose such
interests and transactions to you by virtue of any fiduciary, advisory or agency
relationship, and (e) you waive, to the fullest extent permitted by law, any
claims you may have against Lender for breach of fiduciary duty or alleged
breach of fiduciary duty and agree that Lender shall have no liability (whether
direct or indirect) to you in respect of such a fiduciary duty claim or to any
person asserting a fiduciary duty claim on behalf of or in right of you,
including your stockholders, employees or creditors.
You further acknowledge that Column and its affiliates are full service
securities firms engaged in securities trading and brokerage activities as well
as providing investment banking and other financial services. In the ordinary
course of business, Column or its affiliates may provide investment banking and
other financial services to, and/or acquire, hold or sell, for their own
accounts and the accounts of customers, equity, debt and other securities and
financial instruments (including bank loans and other obligations) of, you or
your respective affiliates, the Borrowers, the Purchaser, Target and other
companies with which you or your affiliates, the Borrowers, the Purchaser or
Target may have commercial or other relationships and/or conflicts of interest.
7. ASSIGNMENTS, AMENDMENTS, GOVERNING LAW, ETC.
This Commitment Letter (i) shall not be assignable by you without our prior
written consent, which such consent may be granted or withheld in our sole
discretion, and any attempted assignment without such consent shall be null and
void, (ii) is intended to be solely for the benefit of the parties hereto (and
Indemnified Persons), and (iii) is not intended to confer any benefits upon, or
create any rights in favor of, any person other than the parties hereto (and
Indemnified Persons). Lender may assign and delegate its obligations hereunder
to any of its affiliates or any prospective Syndicated Lender (as defined below)
whereupon Lender will be released from the portion of its obligations so
assigned; PROVIDED that any such assignment by Lender shall not relieve Lender
of its obligation to fund any Loan upon satisfaction of the terms and conditions
therefore set forth in the Term Sheet. Any and all obligations of, and services
to be provided by, Lender hereunder (including, without limitation, Lender's
commitment) may be performed and any and all rights of Lender (or any Syndicated
Lender pursuant to SECTION 13 below) may be exercised by or through any of their
respective affiliates or branches. This Commitment Letter may not be amended or
any provision hereof waived or modified except by an instrument in writing
signed by Lender and you. This Commitment Letter may be executed in any number
of counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement. Delivery of an executed counterpart of
a signature page of this Commitment Letter by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof. Section
headings used herein are for convenience of reference only, are not part of this
Commitment Letter and are not to affect the construction of, or to be taken into
consideration in interpreting, this Commitment Letter. You acknowledge that
information and documents relating to the Credit Facility may be transmitted
through Syndtrak, Intralinks, the internet, e-mail, or similar electronic
transmission systems, and that Lender shall not be liable for any damages
arising from the unauthorized use by others of information or documents
transmitted in such manner. Lender may place advertisements in financial and
other newspapers and periodicals or on a home page or similar place for
dissemination of information
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on the Internet or worldwide web as it may choose, and circulate similar
promotional materials in the form of a "tombstone" or otherwise describing the
names of the Borrowers and their affiliates (or any of them), and the amount,
type and closing date of such Transactions, all at Lender's expense. This
Commitment Letter supersedes all prior understandings, whether written or oral,
between us with respect to the Credit Facility. THIS COMMITMENT LETTER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
8. JURISDICTION.
Each of the parties hereto hereby irrevocably and unconditionally (a)
submits, for itself and its property, to the non-exclusive jurisdiction of any
New York State court or Federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Commitment Letter, the Fee Letter
or the transactions contemplated hereby, or for recognition or enforcement of
any judgment, and agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State court or, to the
extent permitted by law, in such Federal court, (b) waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Commitment Letter or the transactions contemplated
hereby in any New York State court or in any such Federal court, (c) waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court and (d) agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
9. CONFIDENTIALITY.
(a) This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter nor any of its terms or substance, nor the
involvement of Lender or any Syndicated Lender pursuant hereto, shall be
disclosed by you, directly or indirectly, to any other person except (i) to your
officers, directors, employees, attorneys, accountants and advisors on a
confidential and need-to-know basis or (ii) as required by applicable law or
compulsory legal process (in which case you agree to inform us promptly
thereof); PROVIDED that you may disclose this Commitment Letter, but not the Fee
Letter, and the contents hereof (A) to Target and its officers, directors,
employees, attorneys, accountants and advisors on a confidential and
need-to-know basis, (B) to any Third Party Equity, (C) to other lenders
providing any portion of the financing for the Transactions as permitted hereby,
(D) in any prospectus or other offering memorandum relating to any financing
contemplated by the Credit Facility, (E) to any rating agencies that shall be
engaged to rate any portion of the Loans in connection with any Syndication
(hereinafter defined), or (F) in any press release reasonably approved by
Lender.
(b) Notwithstanding anything herein to the contrary, any party to this
Commitment Letter (and any employee, representative or other agent of such
party) may disclose to any and all persons, without limitation of any kind, the
tax treatment and tax structure of the transactions contemplated by this
Commitment Letter and all materials of any kind (including opinions or other tax
analyses) that are provided to it relating to such tax treatment and tax
structure, except
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that (i) tax treatment and tax structure shall not include the identity of any
existing or future party (or any affiliate of such party) to this
Commitment Letter, and (ii) no party shall disclose any information relating to
such tax treatment and tax structure to the extent nondisclosure is reasonably
necessary in order to comply with applicable securities laws. For this purpose,
the tax treatment of the transactions contemplated by this Commitment Letter is
the purported or claimed U.S. federal income tax treatment of such transactions
and the tax structure of such transactions is any fact that may be relevant to
understanding the purported or claimed U.S. federal income tax treatment of such
transactions.
10. SURVIVING PROVISIONS.
The compensation, reimbursement, indemnification, confidentiality,
syndication, jurisdiction, governing law, and waiver of jury trial provisions
contained herein and in the Fee Letter and the Term Sheet shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this Commitment
Letter or Lender's commitment hereunder; PROVIDED that none of the
indemnification provisions set forth herein shall apply to MHG from and after
the funding of any Loans under the Credit Facility and MHG is expressly released
from its indemnification obligations hereunder; PROVIDED, FURTHER, that nothing
in the foregoing proviso shall apply to, or in any way limit or modify, any
separate guaranty or indemnity that may be provided by MHG under the Loan
Documents, or any obligation of Target after the Acquisition as a result of the
merger contemplated by the Merger Agreement.
11. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY OR ON BEHALF OF ANY
PARTY RELATED TO OR ARISING OUT OF THIS COMMITMENT LETTER OR THE PERFORMANCE OF
SERVICES HEREUNDER.
12. PATRIOT ACT NOTIFICATION.
Lender and any Syndicated Lenders hereby notify you that pursuant to the
requirements of the USA PATRIOT Act, Title III of Pub. L. 107-56 (signed into
law October 26, 2001) (as the same may be extended and in effect from time to
time, the "PATRIOT ACT"), Lender and each Syndicated Lender is required to
obtain, verify and record information that identifies the Borrowers, which
information includes the name, address, tax identification number and other
information regarding the Borrowers that will allow Lender or such Syndicated
Lender to identify the Borrowers in accordance with the PATRIOT Act. This notice
is given in accordance with the requirements of the PATRIOT Act and is effective
as to Lender.
13. SYNDICATION, ASSIGNMENT, PARTICIPATION.
(a) Lender reserves the right, as the case may be, prior to or after the
closing of the Credit Facility or any loan thereunder to syndicate, assign,
participate, sell, securitize or otherwise transfer (collectively, a
"SYNDICATION") all or any portion of the Credit Facility and any remaining
commitment hereunder to one or more banks, financial institutions or other
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institutional or conduit lenders (the "SYNDICATED LENDERS"). We may commence
Syndication efforts promptly upon the execution of this Commitment Letter and
you agree actively to assist us in completing a Syndication satisfactory to
Lender, in its reasonable judgment, provided that the success of any Syndication
shall not be a condition to Lender's commitment hereunder. Lender acknowledges
and agrees that no assignment and assumption by any assignee of any obligations
of Lender in respect of any portion of its commitment hereunder shall relieve
Lender of its obligations hereunder with respect to such portion of the
Commitments prior to the Closing Date. Such assistance shall include (i) your
using commercially reasonable efforts to ensure that any Syndication efforts
benefit materially from your and the Target's existing lending and investment
banking relationships, (ii) direct contact between your senior management,
representatives and advisors and the proposed Syndicated Lenders (and your using
commercially reasonable efforts to cause direct contact between senior
management, representatives and advisors of Target), (iii) your assistance in
the preparation of a Confidential Information Memorandum (and your using
commercially reasonable efforts to cause the assistance by Target) for any
facility hereunder and other marketing materials to be used in connection with
the Syndication, (iv) using your commercially reasonable efforts, both before
and after the launch of the Syndication, to assist the Syndicated Lenders to
obtain ratings for any Loans from each of Standard & Poor's Ratings Service and
▇▇▇▇▇'▇ Investors Service, Inc., (v) your providing or causing to be provided a
detailed business plan or projections of Target and its subsidiaries for the
years 2006 through 2010 and for the eight quarters beginning with the first
quarter of 2006, and (vi) the hosting, with Lender, of one or more meetings of
prospective Syndicated Lenders (and your using commercially reasonable efforts
to cause direct contact between senior management, representatives and advisors
of Target at such meetings). To assist us in our Syndication efforts, you agree
promptly to prepare and provide to us all information with respect to the
Borrowers and their respective subsidiaries, the Acquisition and the other
transactions contemplated hereby, including all Information and Projections as
we may reasonably request. You agree, at our request, to assist in the
preparation of a version of the Confidential Information Memorandum and other
marketing materials and presentations to be used in connection with the
Syndication of the Credit Facility, including information and documentation that
are either (i) publicly available or (ii) not material with respect to the
Purchaser, Target or their respective subsidiaries or any of their respective
securities for purposes of foreign, United States Federal and state securities
laws or (iii) not subject to any confidentiality obligation set forth herein or
any other agreement regarding confidentiality between the undersigned and Target
(all such information and documentation being "PUBLIC INFORMATION"). Any
information and documentation that is not Public Information is referred to
herein as "PRIVATE INFORMATION". You further agree that each document provided
by you to us or to any Syndicated Lender in connection with the facilities or
indebtedness hereunder or any Syndication thereof will be identified by you as
either (i) containing Private Information or (ii) containing solely Public
Information.
(b) Lender will manage all aspects of any Syndication, including decisions
as to the selection of institutions to be approached and when they will be
approached, when their commitments will be accepted, which institutions will
participate, the allocation of the commitments among Syndicated Lenders, any
naming rights and the amount and distribution of fees among Syndicated Lenders.
To assist us in our Syndication efforts, you agree promptly to prepare and
provide (and to use commercially reasonable efforts to cause Target to provide)
to us all information with respect to the Purchaser, Target, the Borrowers and
their respective
-10-
subsidiaries, the Acquisition and the other transactions contemplated
hereby, including all financial information and projections, as we may
reasonably request.
14. ACCEPTANCE, EFFECTIVENESS AND TERMINATION.
(a) If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms of this Commitment Letter (including the Term
Sheet) and the Fee Letter by returning to us executed counterparts hereof and
thereof, together with the Good Faith Deposit, not later than 5:00 p.m., Eastern
Standard Time, on May 12, 2006 (the "EXPIRATION DATE"). Notwithstanding anything
herein to the contrary, Lender shall not be obligated to provide any portion of
the Aggregate Commitment, and the Aggregate Commitment shall not be available to
you, unless and until Target and/or its affiliates shall have accepted your
Acquisition proposal in writing and executed and delivered the Merger Agreement
and you shall have paid the Commitment Fee in accordance with the Fee Letter.
(b) Lender's obligations hereunder will expire, and this Commitment Letter
shall be null and void, in the event that we have not received executed
counterparts of this Commitment Letter and the Fee Letter, together with the
portion of the Good Faith Deposit payable upon your execution hereof, on or
prior to the Expiration Date. In addition, (i) if the Target and/or its
affiliates have not accepted your Acquisition proposal in writing, and executed
the Merger Agreement, on or prior to May 15, 2006 (the "BID ACCEPTANCE
EXPIRATION DATE"), (ii) if the Merger Agreement shall have been terminated at
any time, or (iii) if your Acquisition proposal shall have been accepted and the
Merger Agreement shall have been executed on or prior to the Bid Acceptance
Expiration Date, but the conditions to the financing contemplated by this
Commitment Letter shall not have been satisfied or such financing shall
otherwise not have been consummated on or prior to February 11, 2007 or such
later date to which the Outside Date under the Merger Agreement shall have been
extended with our prior consent (the "OUTSIDE CLOSING DATE"), then this
Commitment Letter and our commitment to provide the Aggregate Commitment as
provided herein shall, in each such case, automatically terminate and be of no
further force or effect.
[signature page follows]
-11-
We are pleased to have been given the opportunity to assist you in
connection with the financing for the Transactions.
Very truly yours,
COLUMN FINANCIAL, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
-----------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: Vice President
Accepted and agreed to as of
the date first above written:
MHG HR ACQUISITION CORP
By: /s/ W. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
Name: W. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
MORGANS HOTEL GROUP CO.
By: /s/ W. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
Name: W. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
-12-
EXHIBIT A
CREDIT FACILITY TERM SHEET
MAXIMUM $700,000,000.00 CREDIT FACILITY
SUMMARY OF PRINCIPAL TERMS AND CONDITIONs
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Commitment Letter (the "COMMITMENT") to which this Term Sheet
is attached as EXHIBIT A. All monetary amounts set forth in this Term Sheet are
denominated in United States Dollars.
LENDER: Column Financial, Inc. or one or more of its affiliates
CREDIT
FACILITY: A credit facility (the "CREDIT FACILITY"), in an aggregate amount
up to the Aggregate Commitment, comprised of (a) (i) one or more
mortgage loans to the owner of one or more of the Properties
(collectively, the "MORTGAGE LOANS") and/or one or more levels of
mezzanine financing relating thereto (collectively, the
"MEZZANINE LOANS") and/or (ii) a mezzanine loan (the "HOLDCO
MEZZANINE LOAN"; and, together with the Mortgage Loans and the
Mezzanine Loans, the "LONG-TERM LOANS") to Purchaser or one or
more newly formed, single purpose, bankruptcy remote wholly-owned
subsidiaries of Purchaser that will, upon the effectiveness of
the Acquisition, directly or indirectly own all of the Properties
and the Intellectual Property (collectively, "HOLDCO") and/or (b)
to the extent that the conditions to the availability of CMBS
Loans set forth below have not been satisfied, or waived by
Lender, as to any portion of the Aggregate Commitment, a bridge
loan (the "BRIDGE LOAN" and, together with the Long-Term Loans,
the "LOANS") in a principal amount equal to the Bridge Funding
Amount, to Purchaser or Holdco, in each case, as required by
Lender. Each of the Loans may be severed, at Lender's discretion,
into two or more tranches of notes, including but not limited to,
senior and junior notes or participations; PROVIDED that, except
as the result of amortization of the Loans arising from any
prepayments thereof following any Property release, casualty or
condemnation or event of default, the weighted average interest
rate of all tranches of notes shall, at all times during the term
of the Credit Facility, in the aggregate, equal the weighted
average interest rate of the Loans as of the Closing Date.
AVAILABILITY;
NET
REFINANCING
OF BRIDGE
LOAN: The Bridge Loan must be fully drawn in a single drawing at or
immediately prior to the Effective Time under the Merger
Agreement (the "CLOSING DATE"). Amounts borrowed under the Credit
Facility that are repaid or prepaid may not be reborrowed, except
that the Bridge Loan may be refinanced as one or more Long-Term
Loans by Lender in its sole discretion as described in the
immediately following paragraph. Any amounts to be advanced as
Long-Term Loans in repayment of the Bridge Loan may, in the sole
discretion of Lender be advanced on a net financing basis by
increasing the amount outstanding under any outstanding Long-Term
Loan by such amount and decreasing the amount outstanding under
the Bridge Loan by a corresponding amount.
Exhibit A-1
CONVERSION TO
CMBS
FINANCING: To the extent that any portion of the Aggregate Commitment is
funded as a Bridge Loan, such Bridge Loan will be refinanced as
Long-Term Loans under the Credit Facility, so long as the
conditions to Long-Term Loans described herein have been
satisfied or waived, or the Bridge Loan may be refinanced, at the
election of Lender and Purchaser, with other CMBS financing
arranged with Lender on terms no less favorable to Bridge
Borrower than the terms applicable to Long-Term Loans hereunder,
subject, however, to Lender's then-effective underwriting
criteria and terms for loans of such type, but any failure to
convert the Bridge Loan to CMBS financing as contemplated hereby
shall not relieve the Borrowers from any of their obligations
hereunder with respect to any Loans.
PROPERTIES: The Hard Rock Hotel and Casino (the "RESORT"), certain land and
any improvements thereon adjacent to the Resort (the "ADJACENT
PROPERTY"), additional land adjacent to the Resort owned by Red
White & Blue Pictures, Inc. ("PICTURES") and Picture's rights in
the improvements thereon commonly known as the Hard Rock Cafe
(the "CAFE PROPERTY") and other properties, all as more
particularly identified on EXHIBIT B to the Commitment
(collectively, the "Properties").
INTELLECTUAL
PROPERTY: The trademarks and other intellectual property identified on
EXHIBIT C to the Commitment, together with all rights therein or
arising thereunder (collectively, the "INTELLECTUAL PROPERTY").
AGGREGATE
COMMITMENT: The lesser of (a) $700,000,000.00 or (b) 82.5% of Capitalized
Cost, MINUS, in either case, the amount of any Company Bonds (as
defined in the Merger Agreement) that are not defeased, repaid,
discharged or otherwise satisfied as of the Closing Date. For
purposes of the foregoing, "CAPITALIZED COST" means the sum of
(i) the aggregate consideration paid by the Purchaser and its
affiliates in connection with the Acquisition, (ii) the aggregate
closing costs incurred by the Purchaser in connection with the
Acquisition, including, without limitation, such costs as title
search and policy fees and premiums, survey fees, brokerage
commissions, attorneys fees and expenses and the costs incurred
for the preparation of engineering, environmental, marketing and
other due diligence reports in anticipation of the Acquisition,
but excluding fees or expenses of any nature paid to any
affiliate of the Purchaser (except for such sums as are disclosed
in writing to Lender and, in any event, are not in excess of sums
which would otherwise be payable to an unrelated third party for
similar services), (iii) all costs and fees incurred by Lender in
connection with the preparation, negotiation, consummation,
execution, administration, repayment, collection and enforcement
of the Credit Facility and any approval, consent, amendment,
modification or waiver related thereto, and (iv) amounts
necessary to fund the reserves required pursuant to this Term
Sheet. The costs and fees referred to in the foregoing clause
(iii) and the reserve amounts referred to in the foregoing clause
(iv) may be funded, in Lender's sole discretion, on a net basis
from the proceeds of any Loans funded on the Closing Date.
BRIDGE
FUNDING
AMOUNT: The Aggregate Commitment less any amount funded as Long-Term
Loans on the Closing Date.
Exhibit A-2
BORROWERS: In the case of the Bridge Loan, Purchaser or Holdco (in such
capacity, the "BRIDGE BORROWER"). Lender shall be reasonably
satisfied with the capitalization, structure, single purpose
nature and equity ownership of the Bridge Borrower, both before
and after giving effect to the Acquisition.
In the case of Mortgage Loans or Mezzanine Loans, one or more
newly formed, single purpose, bankruptcy remote direct or
indirect subsidiaries of Purchaser or Holdco with each such
borrower having two independent directors and owning one of the
Properties (each, a "CMBS BORROWER" and collectively the "CMBS
BORROWERS"). Lender shall be reasonably satisfied with the
capitalization, structure, single purpose nature and equity
ownership of each CMBS Borrower under the Mortgage Loans and
Mezzanine Loans, after giving effect to the Acquisition. The
obligations of CMBS Borrowers shall be joint and several.
In the case of the Holdco Mezzanine Loan, Purchaser or Holdco (in
such capacity, the "HOLDCO MEZZANINE BORROWER" and, together with
the CMBS Borrowers, the "LONG-TERM BORROWERS" and, together with
the CMBS Borrowers and the Bridge Borrower, the "BORROWERS").
Lender shall be reasonably satisfied with the capitalization,
structure, single purpose nature and equity ownership of the
Holdco Mezzanine Borrower, both before and after giving effect to
the Acquisition.
Each Borrower shall deliver a customary non-consolidation opinion
with respect to its parent and any other guarantors that is
reasonably acceptable to Lender.
USE OF
PROCEEDS: The proceeds of the Loans shall be used by the Borrowers solely
to (a) finance the aggregate consideration payable to consummate
the Acquisition under the Acquisition Agreement, (b) satisfy all
existing indebtedness of Target and its subsidiaries, if any,
other than trade payables and capital and equipment leases in the
ordinary course of business and (c) pay fees and expenses
required to be paid by Purchaser or any of its subsidiaries in
connection with the Transactions. The proceeds of the Long-Term
Loans shall be loaned, directly or indirectly, by the Borrowers
to the Purchaser on the Closing Date as an inter-company loan, on
customary terms reasonably acceptable to Lender, solely for
purposes of consummating the Acquisition.
INTEREST
RATE: The Interest Rate will be 30-day LIBOR plus the applicable
Interest Rate Spread. The Interest Rate shall be adjusted on the
first day of each calendar month or such other day of each
calendar month as determined by Lender (rounded up to the nearest
1/100th of 1%), based upon the LIBOR rate in effect on the date
that is two London business days prior to the adjustment date.
Interest will be payable monthly in arrears on an actual/360
basis. Payments on the Loans shall be made on the 9th day of each
calendar month (the "PAYMENT DATE").
INTEREST
RATE SPREAD: BRIDGE LOAN: 385 basis points; provided that the Interest Rate
Spread applicable to the Bridge Loan will increase by 25 basis
points every 90 days after the Closing Date until the Bridge Loan
is either refinanced or repaid in full. In connection with each
such increase in the Interest Rate Spread, Bridge
Exhibit A-3
Borrower shall obtain an adjusted Interest Rate Cap that gives
effect to such increase.
LONG-TERM LOANS: 385 basis points
INTEREST
RATE CAP: Each Borrower will be required to purchase an interest rate cap
(the "INTEREST RATE CAP") (i) for the initial term of its
applicable Loan, at a 30-day LIBOR strike price which shall be no
greater than 5.5%, and (ii) for any extension term of such Loan,
at such strike price and on such terms and conditions as shall be
acceptable to Lender in its sole discretion at such time. The
Interest Rate Cap provider must be rated at least "AA" by
Standard & Poor's Rating Services and ▇▇▇▇▇'▇ Investors Service,
Inc. and otherwise be reasonably acceptable to Lender. Each
Interest Rate Cap shall be in a notional amount equal to the
aggregate amount of the applicable Loan.
AMORTIZATION: Interest only, subject to any prepayments permitted or required
hereunder (see "PROPERTY RELEASES" and "MANDATORY PREPAYMENTS"
below).
LOAN
ORIGINATION
FEE: BRIDGE LOAN: 0.50% of the Bridge Funding Amount
LONG-TERM LOANS: 0.50% of the principal amount of such Long-Term
Loan; provided that no Loan Origination Fee shall be payable on
any Long-Term Loan that is funded in connection with the
refinancing of any portion of the Bridge Loan within 90 days
after the Closing Date. A Loan Origination Fee shall be payable
with respect to all Long-Term Loans funded on the Closing Date
and all Long-Term Loans funded later than 90 days after the
Closing Date.
In each case, the Loan Origination Fee shall be earned and
payable on the date of funding of the Loans.
EXIT FEE: On repayment or prepayment of any portion of any Loan, an exit
fee of 0.50% of the paid amount (including, at maturity, the
entire outstanding principal amount of the Loans) shall be due
and payable to Lender, unless any such Loan is refinanced by
Lender or any of its affiliates including, in the case of the
Bridge Loan, refinancing as a Long-Term Loan under the Credit
Facility.
TERM: BRIDGE LOAN: The Bridge Loan shall have a term of one year from
the Closing Date.
LONG-TERM LOANS: The Long-Term Loans shall have an initial term
of two years from the Closing Date.
EXTENSION: BRIDGE LOAN: One six month extension. Such extension will be
granted upon the request of Bridge Borrower, upon written notice
to Lender not less than one (1) month nor more than two (2)
months prior to the end of the initial term, PROVIDED that, INTER
ALIA, the following conditions are satisfied by Bridge Borrower:
(i) there exists no event of default (or any event that, with the
giving of notice or the passage of time or both would constitute
an event of default) at the time the option is exercised or when
the option commences, (ii) payment of an extension fee in the
amount of 0.25% of the outstanding principal balance of the
Bridge Loans, (iii) the purchase of an Interest Rate
Exhibit A-4
Cap for the extension period at the strike rate as set forth
above, and (iv) a continued increase in the Interest Rate Spread
by 25 basis points per quarter during the extended term.
LONG-TERM LOANS: Two one-year extension options. Each such
extension will be granted upon the request of Long-Term
Borrowers, upon written notice to Lender not less than one (1)
month nor more than six (6) months prior to the end of the
current term, provided that, INTER ALIA, the following conditions
are satisfied by Long-Term Borrowers: (i) there exists no event
of default (or any event that, with the giving of notice or the
passage of time or both would constitute an event of default) at
the time the option is exercised or when the option commences,
(ii) payment of an extension fee, with respect to the second
extension option only, in an amount of 0.25% of the outstanding
principal balance of the Loans, (iii) the purchase of an Interest
Rate Cap for the extension period at a strike rate as set forth
above, (iv) upon exercise of the second extension option, the
Interest Rate Spread shall increase to 410 basis points and (v)
immediately prior to the second extension, Debt Yield
(hereinafter defined) for the Credit Facility shall be not less
than 11%, including as the result of any permitted voluntary
prepayment at such time in accordance herewith.
The entire outstanding principal balance of each Loan, together
with any accrued and unpaid interest thereon, shall be due and
payable at the expiration of the term of such Loan and any
extensions thereto.
COLLATERAL: The Bridge Loan shall be secured by (i) a perfected first
priority pledge of 100% of the equity ownership interests of each
of the Long-Term Borrowers, (ii) a perfected security interest in
the Interest Rate Cap referred to above, (iii) an assignment of
and security interest in all leases, rents, room revenues,
deposits, letters of credit, income and profits, reserve
accounts, contracts, agreements, and personal property relating
to the Properties and any and all assets of any kind or nature
whatsoever of the Purchaser and its subsidiaries, including,
without limitation, the IP Collateral (as defined below), and
(iv) at Lender's option, a perfected first mortgage on the fee
simple interest in the land and improvements as to each Property
(collectively, the "BRIDGE COLLATERAL").
The Mortgage Loans shall be secured by, among other things, (i) a
perfected first mortgage on the fee simple interest in the land
and improvements as to each Property (each, a "MORTGAGE LIEN"),
(ii) an assignment of all related leases, rents, deposits,
letters of credit, income and profits, (iii) a perfected security
interest in the Interest Rate Cap referred to above and (iv) an
assignment and/or a perfected security interest in all other
construction and other contracts, agreements and personal
property relating to the Properties, including sales contracts
and related deposits (collectively, the "MORTGAGE LOAN
COLLATERAL")
Any Mezzanine Loans shall be secured by, among other things, (i)
a perfected first priority pledge of 100% of the equity ownership
interests in the applicable CMBS Borrower (or, with respect to
multiple levels of Mezzanine Loans, such holder of indirect
interests in the applicable CMBS Borrower as determined by
Lender), (ii) a perfected security interest in any reserve
accounts established on behalf of Lender, subject to the Mortgage
Loans and
Exhibit A-5
any senior Mezzanine Loans, (iii) a perfected security interest
in the applicable Interest Rate Cap, and (iv) an assignment
and/or a perfected security interest in all other contracts,
agreements and personal property, subject to the Mortgage Loans
and any senior Mezzanine Loans (the "MEZZANINE COLLATERAL").
The Holdco Mezzanine Loan shall be secured by (i) a perfected
first priority pledge of 100% of the equity ownership interests
of each of the CMBS Borrowers, (ii) a perfected security interest
in the Interest Rate Cap referred to above, (iii) a perfected
security interest in any reserve accounts established on behalf
of Lender, subject to the Mortgage Loans and any senior Mezzanine
Loans, and (iv) to the extent obtainable, an assignment of and
security interest in all leases, rents, room revenues, deposits,
letters of credit, income and profits, reserve accounts,
contracts, agreements, and personal property relating to the
Properties and any and all assets of any kind or nature
whatsoever of the Holdco Mezzanine Borrower, including, at
Lender's option as described below, the IP Collateral, subject,
in all events, to the Mortgage Loans and the Mezzanine
Loans(collectively, the "HOLDCO MEZZANINE COLLATERAL").
The Bridge Loan and/or one or more of the Long Term Loans, as
determined by Lender in its sole discretion, shall be secured by
(i) a perfected first priority security interest in the
Intellectual Property, (ii) an assignment and/or a perfected
first priority security interest in all contracts, agreements and
tangible and intangible personal property relating in any manner
to the Intellectual Property (the Intellectual Property and the
other property described in this clause (ii), collectively, the
"IP COLLATERAL"), and (iii) a collateral assignment of Borrowers'
rights under that certain Indemnification Agreement to be
executed on the Closing Date by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ in favor of
Borrowers (the "▇▇▇▇▇▇ INDEMNIFICATION AGREEMENT"), as well as
the PWR/RWB Escrow Agreement (as defined in the Merger Agreement)
(such additional collateral, together with the IP Collateral, the
Holdco Mezzanine Collateral, the Mezzanine Collateral, the
Mortgage Loan Collateral and the Bridge Collateral, the
"COLLATERAL").
HOLDCO
MEZZANINE
GUARANTEE: As consideration for the intercompany loans between Borrowers and
Purchaser described under "Use of Proceeds" above, Purchaser will
execute a guaranty and indemnity with respect to the recourse
obligations of the Holdco Mezzanine Borrower and MergerCo
described under "Recourse" below. Such guaranty and indemnity
shall be secured by a pledge of, and recourse under the guaranty
shall be limited to, Purchaser's equity interest in the Holdco
Mezzanine Borrower and MergerCo. Purchaser shall covenant that,
except for the payment of employee salaries and benefits, not to
voluntarily dispose of its assets other than on an arms-length
basis in exchange for fair consideration or declare any dividends
or other distributions.
RECOURSE: Except as set forth below, the Bridge Loan and/or the Holdco
Mezzanine Loan, as determined by Lender in its sole discretion,
shall be recourse only to the Bridge Collateral, the Holdco
Mezzanine Collateral and/or the IP Collateral (whether such IP
Collateral is held directly or indirectly by Bridge Borrower or
Holdco Mezzanine Borrower, as the case may be, or collaterally
assigned to Bridge Borrower or Holdco Mezzanine Borrower by any
of their direct or indirect subsidiaries having rights therein),
as applicable.
Exhibit A-6
Except as set forth below, the Mortgage Loans and the Mezzanine
Loans will be recourse only to the Properties, the Mortgage Loan
Collateral and/or the Mezzanine Collateral, as the case may be.
Notwithstanding the foregoing, certain principals of the
Purchaser and the Borrowers, as determined by Lender in its sole
discretion, including, without limitation, Morgans Hotel Group
Co., (collectively, the "GUARANTORS") shall be jointly and
severally liable for any actual losses, damages, liabilities and
reasonable expenses incurred by Lender pursuant to standard
non-recourse carve-outs, including, but not limited to: (i)
misappropriation of insurance proceeds,
condemnation/expropriation proceeds, and/or any tenant security
deposits by Borrowers or a party controlled by Borrowers,
including any property manager, in violation of the Loan
Documents, (ii) the misapplication, by Borrower, any affiliated
managing agent or other agent of Borrower or any other party with
whom Borrower shall collude or cooperate, of rents collected more
than one month in advance, (iii) revenues and rents collected by
Borrower or any manager or agent of Borrower after an event of
default under the Loan Documents (as hereinafter defined) and not
delivered to Lender, (iv) physical damage to the Properties
arising from intentional misconduct or gross negligence of any
Borrower or any Guarantor, or any of their authorized principals,
officers, agents or employees, and any removal of assets forming
part of the Properties in violation of the Loan Documents, (v)
failure to pay (or deposit into reserves held by Lender funds
sufficient to pay) taxes or other liens with priority over or
equal to Lender's Loan Documents, (vi) damages arising from any
fraud or misrepresentation of any Borrower or any Guarantor, or
any of their authorized principals, officers, agents or
employees, (vii) failure to pay charges for labor or materials or
other charges that have become liens on any portion of the
Properties, (viii) all of the obligations and indemnities in the
Loan Documents with respect to hazardous substances or toxic
substances or the failure of any of the Properties to comply with
environmental laws (Borrowers and each Guarantor will jointly and
severally execute a separate environmental indemnity agreement at
closing), (ix) the failure of any Borrower to maintain its status
as a single purpose entity in accordance with the Loan Documents,
(x) the failure of any Borrower to obtain Lender's consent to any
subordinate financing or other voluntary lien encumbering any
Property, (xi) the interference by Borrower or any Guarantor (or
any of their respective affiliates that control any of the
foregoing) with Lender's pursuit of its rights or remedies under
the Loan Documents following an Event of Default, except if
Borrower or Guarantor shall succeed in such action after Lender
has exhausted all appeals and judicial remedies with respect
thereto, (xii) failure to maintain insurance under blanket
insurance policies to the extent permitted hereunder, (xiii) any
breach by any Borrower of any Closing Representation, and (xiv)
any breach by Borrowers of the negative covenants in the Loan
Documents concerning the exercise of any rights or remedies under
the ▇▇▇▇▇▇ Indemnification Agreement or the PWR/RWB Escrow
Agreement without the prior written consent of Lender or
satisfaction of any indemnification claims from the PWR/RWB
Escrow Fund (as defined in the Merger Agreement) other than
pursuant to the ▇▇▇▇▇▇ Indemnification Agreement.
Each Borrower and each Guarantor shall be jointly and severally
personally liable for the full amount of the Credit Facility in
the event that (a) any Borrower fails to obtain Lender's consent
to any assignment, transfer or conveyance of any Property or any
of the IP Collateral not permitted by the Loan Documents; (b) (1)
any Borrower or any Guarantor files a voluntary
Exhibit A-7
petition under the United States Bankruptcy Code or any other
federal or state bankruptcy or insolvency law, (2) any Borrower
or any Guarantor files an answer consenting to, or any Borrower
or any Guarantor (or any of their respective affiliates that
control any Borrower or Guarantor) consents or acquiesces to or
joins in, any involuntary petition filed against any Borrower or
Guarantor, as the case may be, under the United States Bankruptcy
Code or any other federal or state bankruptcy or insolvency law,
(3) any Borrower or any Guarantor (or any of their respective
affiliates that control any Borrower or Guarantor) consents to,
or otherwise acquiesces or joins in an application for the
appointment of a custodian, receiver, trustee, or examiner for
any Borrower or any portion of any Property or any portion of the
IP Collateral (other than any such appointment at the request or
petition of Lender or its affiliates), or (4) any Borrower or any
Guarantor makes an assignment for the benefit of creditors, or
admits, in writing or in any legal proceeding, its insolvency or
inability to pay its debts as they become due; or (c) an
involuntary petition is filed against any Borrower or any
Guarantor under the United States Bankruptcy Code or any other
federal or state bankruptcy or insolvency law by or on behalf of
any party other than Lender, and any such petition is not
dismissed within 90 days, or any Borrower or any Guarantor (or
any of their respective affiliates that control any Borrower or
Guarantor) solicits or causes to be solicited petitioning
creditors for any involuntary petition against any Borrower or
any Guarantor, unless, in the case of any voluntary or
involuntary petition, receivership or assignment by or affecting
any Guarantor, one or more guarantors acceptable to Lender in its
sole discretion remains or becomes a guarantor of the Credit
Facility as required by this paragraph and the preceding
paragraph.
CROSS DEFAULT;
CO-BORROWING: Lender shall have the right, without the consent of any Borrower
or any other Person, to determine the extent to which any Loans
are cross-defaulted with each other and the extent to which two
or more Borrowers shall be jointly and severally liable for all
or any portion of the Credit Facility.
VOLUNTARY
PREPAYMENT;
SPREAD
MAINTENANCE: BRIDGE LOAN: The Bridge Loan may be prepaid, in whole or in part,
upon not less 10 days' prior written notice, at the option of the
Bridge Borrower at any time; PROVIDED that no such notice shall
be required in connection with any refinancing as Long-Term Loans
under the Credit Facility.
LONG-TERM LOANS: The Long-Term Loans may be prepaid, in whole or
in part, upon not less than 10 days' prior written notice, at the
option of the applicable Long-Term Borrower at any time; PROVIDED
that (a) each prepayment shall be in an amount not less than
$5,000,000.00 and (b) if such prepayment is made prior to the
first Payment Date occurring after the date that is 18 months
from the Closing Date (the "LOCKOUT RELEASE DATE"), Lender shall
receive a "SPREAD MAINTENANCE PREMIUM" in an amount equal to the
product of (a) the principal amount of such prepayment, (b) the
Interest Rate Spread and (c) a fraction, the numerator of which
shall equal the actual number of days from the date of such
payment through the Lockout Release Date and the denominator of
which is 360. If any prepayment is made on a date other than a
Payment Date, such prepayment shall be accompanied by interest
accrued on such prepayment amount through and including the next
succeeding Payment Date.
Exhibit A-8
DUE ON SALE;
NEGATIVE
PLEDGE: As more particularly set forth in the Loan Documents, any sale,
transfer, pledge, assignment or conveyance (directly or
indirectly, voluntarily or involuntarily, by operation of law or
otherwise, and whether or not for consideration or of record)
(each, a "TRANSFER") of all or any part of the Properties or the
IP Collateral or of any direct or indirect interest in any
Borrower or any Guarantor (other than customary transfers of
public securities that do not give rise to a change of control of
any Borrower) shall give Lender the right to declare the entire
balance of the Credit Facility immediately due and payable;
PROVIDED that (i) holders of direct or indirect interests in any
Borrower may Transfer up to an aggregate of 49% of the direct or
indirect interests in such Borrower so long as the control of
such Borrower does not change, Borrowers deliver prior written
notice of any such Transfer to Lender and if the transferee, as a
result of such Transfer, owns, directly or indirectly, more than
49% of the interests in any Borrower, Borrowers deliver a revised
non-consolidation opinion acceptable to Lender in connection with
such transfer and, if such Transfer occurs after Securitization
(as hereinafter defined), a Rating Agency confirmation, (ii)
holders of direct or indirect interests in any Borrower may
Transfer such interests (A) to any other Borrower or any member
or partner of any Borrower (other than members or partners of
Purchaser) who is a member or partner of such Borrower as of the
Closing Date, so long as the control of any Borrower does not
change or (B) by maintenance, devise or bequest or by operation
of law upon the death of a natural person that was the holder of
such interest to a member of the immediate family of such
interest holder or a trust established for the benefit of such
immediate family member, provided that (x) no such Transfer shall
result in a change of the day-to-day operations of the
Properties, (y) Borrowers shall give Lender notice of such
Transfer together with copies of all instruments effecting such
Transfer not less than ten (10) days after the date of such
transfer, (z) the legal and financial structure of Borrowers and
their members or partners, as applicable, and the single purpose
nature and bankruptcy remoteness of Borrowers and their members
or partners, as applicable after such Transfer, shall satisfy
Lender's then current applicable underwriting criteria and
requirements, so long as Borrowers deliver prior written notice
of any such transfer to Lender and if the transferee, as a result
of such transfer, owns, directly or indirectly, more than 49% of
the interests in any Borrower, Borrowers deliver a revised
non-consolidation opinion acceptable to Lender in connection with
such Transfer and, if such Transfer occurs after Securitization
(as hereinafter defined), a Rating Agency confirmation, and (iii)
the Property Releases set forth below shall be permitted.
Notwithstanding the foregoing, the Purchaser shall control the
Long-Term Borrowers and own, directly or indirectly, at least 51%
of each Long-Term Borrower at all times.
In addition, for so long as the Holdco Mezzanine Loan is
outstanding, neither the Purchaser nor any of its subsidiaries
shall Transfer any portion of the equity interests of the
Purchaser or Target; PROVIDED that holders of direct or indirect
equity interests in the Purchaser may transfer up to an aggregate
of 49% of the such interests so long as the control of the
Purchaser does not change; and PROVIDED FURTHER that customary
transfers of public securities that do not give rise to a change
of control of Purchaser or any Borrower shall be permitted. Any
Transfer in violation of the foregoing shall give the Lender the
right to declare the entire balance of all Loans to be
immediately due and payable.
Exhibit A-9
PROPERTY
RELEASES: In connection with any Long-Term Loan, the applicable Long-Term
Borrower shall be permitted to obtain a release (a) of the
Mortgage Lien on any Property securing such Long-Term Loan in
connection with the sale of such Property to an unaffiliated
third party or (b) of Lender's security interest in the IP
Collateral in connection with the transfer of all of such IP
Collateral to an unaffiliated third party; PROVIDED that, INTER
ALIA, the following conditions (the "RELEASE CONDITIONS") are
satisfied: (i) the applicable Long-Term Borrower shall pay to
Lender the Release Price (hereinafter defined) for the applicable
Property or IP Collateral, together with the Spread Maintenance
Premium, if any, on the amount so prepaid, all interest accrued
through the next payment date, and the applicable Exit Fee (ii)
no default exists, (iii) the Debt Yield after giving effect to
the release is equal to or greater than the greater of the Debt
Yield in effect as of the Closing Date or the Debt Yield in
effect immediately prior to the date of such release, (iv) the
applicable Long-Term Borrower shall have paid all of the
reasonable third party legal fees and out-of pocket third party
expenses incurred by Lender, (v) the LTV (as hereinafter defined)
after giving effect to the release shall be equal to or less than
the lesser of the LTV in effect as of the date hereof or the LTV
in effect immediately prior to the Closing Date, (vi) the
applicable Long-Term Borrowers shall execute such documents as
reasonably necessary by Lender to reflect such release and (viii)
if any prepayment is made on a date other than a Payment Date,
such prepayment shall be accompanied by interest accrued on such
prepayment amount through and including the next succeeding
Payment Date.
"RELEASE PRICE" shall mean the greater of (A) the net sale
proceeds from the applicable sale (expenses shall be approved by
Lender but in no event shall they exceed 8% of the sales price)
and (B) 125% of the allocated loan amount (x) for the applicable
Property, as set forth on EXHIBIT B to the Commitment, or (y) for
the IP Collateral, as set forth on EXHIBIT C to the Commitment,
in each case as determined by Lender. "DEBT YIELD" shall mean the
ratio, expressed as a percentage, of the net cash flow (as
determined in accordance with Lender's then current underwriting
standards for similar transactions) of the remaining Properties
as of the date of computation, divided by the outstanding
principal balance of the Loans as of such date. "LTV" shall mean
the ratio, expressed as a percentage, of the outstanding
principal balance of the Loans on the date of computation,
divided by the value of the remaining Properties as determined by
Lender in its reasonable discretion.
PARTIAL
RELEASE OF
ADJACENT
PROPERTY: In connection with any Long-Term Loan secured by the Adjacent
Property, the applicable Long-Term Borrower shall be permitted to
obtain a partial release of the Mortgage Lien on a portion of the
Adjacent Property in connection with a sale of such portion of
the Adjacent Property (each, a "RELEASE PARCEL") to an
unaffiliated third party; PROVIDED that each of the Release
Conditions set forth above shall have been satisfied (but based
upon a Release Price determined as set forth in the definition of
that term set forth above, but using an allocated loan amount for
the Release Parcel in an amount specified by Lender in its sole
but reasonable discretion) and the following additional
conditions, inter alia, are satisfied: (i) the sale of the
Release Parcel and the remaining portion of the Adjacent Property
after giving effect to the release shall comply with all
applicable zoning, land use, certificate of occupancy and other
applicable laws and regulations, (ii) the use and operation of
the Release Parcel by the purchaser thereof shall (A) comply with
all applicable zoning, land use, certificate of occupancy and
other applicable
Exhibit A-10
laws and regulations, (B) not be in violation of the terms of any
lease applicable to the Adjacent Property, and (C) be consistent
with, in Lender's reasonable discretion, the other then-current
uses of the Adjacent Property, and the purchaser of the Release
Parcel shall have executed and delivered to the applicable
Long-Term Borrower a written agreement acknowledging the
foregoing obligations on the part of such purchaser; (ii) if
Lender shall deem the same to be necessary, Long-Term Borrower
shall cause to be created and properly recorded, a reciprocal
easement agreement (or such other agreement or instrument as
Lender shall require in its sole discretion) for ingress, egress,
parking, utilities and any common areas and common area expenses,
for the benefit of the Release Parcel and the remaining portion
of the Adjacent Property, that is acceptable in form and
substance to Lender in its sole discretion; (iii) the applicable
Long-Term Borrower shall deliver to Lender, at such Long-Term
Borrower's sole cost and expense, ALTA/ASCM surveys of each of
the remaining portion of the Adjacent Property and such Release
Parcel, which surveys shall conform to the requirements of
Lender; (iv) a title insurance company acceptable to Lender shall
issue an endorsement to the applicable title insurance policy
regarding the validity of Lender's lien on the remaining portion
of the Adjacent Property after such partial release and any other
endorsements reasonably requested by Lender in connection
therewith; (v) any such partial release shall be at no cost or
expense to Lender; and (vi) the applicable Long-Term Borrower
shall deliver to Lender such amendments to the Loan Documents as
shall be necessary to effectuate such release, as well as all
documents and information reasonably requested by Lender in order
to verify the satisfaction of the foregoing conditions.
PARTIAL
RELEASE
OF IP
COLLATERAL: In connection with any Long-Term Loan secured by the IP
Collateral, the applicable Long-Term Borrower shall be permitted
to obtain a release of Lender's lien on a portion of the IP
Collateral in connection with a sale of such portion of the IP
Collateral (the "RELEASE IP") to an unaffiliated third party;
PROVIDED that each of the Release Conditions set forth above
shall have been satisfied (but based upon a Release Price
determined as set forth in the definition of that term set forth
above, but using an allocated loan amount for the Release IP in
an amount specified by Lender in its sole but reasonable
discretion) and the applicable Long-Term Borrower shall have
delivered to Lender such amendments to the Loan Documents as
shall be necessary to effectuate such release.
MANDATORY
PREPAYMENT: BRIDGE LOAN: The Bridge Loan shall be prepaid, INTER ALIA, with
(a) 100% of the net cash proceeds of any mortgage financing (or
refinancing thereof) by the Bridge Borrower or any of its
subsidiaries of the Properties or the IP Collateral, including,
without limitation, any Long-Term Loan, (b) 100% of the net cash
proceeds of all asset sales or other dispositions by the Bridge
Borrower or any of its subsidiaries (including insurance and
condemnation proceeds and any purchase price refund in respect of
any acquisition) of any of the Properties or the IP Collateral,
and (c) 100% of the net cash proceeds of issuances, offerings or
placements of debt obligations of Purchaser or any of its
subsidiaries.
LONG-TERM LOANS: The Long-Term Loans shall be prepaid, INTER
ALIA, with 100% of the applicable Release Price in connection
with any asset sale or other disposition by any Borrower or any
of subsidiary of any Borrower and
Exhibit A-11
100% of any insurance and condemnation proceeds from any of the
Properties.
SCHEDULED AMORTIZATION PAYMENT: On or prior to the one year
anniversary of the Closing Date, Borrowers shall make a principal
prepayment on the then-outstanding Loans (including the Bridge
Loan, if the term thereof shall have been extended as provided
herein) under the Credit Facility in an amount equal to either
(a) if such prepayment is made without any release of any
Property, $70,000,000.00 (the "MINIMUM AMORTIZATION PAYMENT") or
(b) if such prepayment is made in connection with a release of
the Mortgage Lien on the Adjacent Property under the Loan
Documents, the greatest of (x) the net proceeds from any sale or
refinancing of the Adjacent Property at such time (expenses shall
be approved by Lender but in no event shall they exceed 8% of
gross proceeds of such sale or refinancing), (y) $250,000,000.00
or (z) such amount as would be sufficient, after giving effect to
such prepayment of the Loans, to result in a Debt Yield of not
less than 12%. Any prepayment under the preceding sentence shall
be accompanied by all interest accrued through the next payment
date, the applicable Exit Fee, payment of all of the reasonable
third party legal fees and out-of pocket third party expenses
incurred by Lender, if any, and payment of any other amounts then
due and payable pursuant to the Loan Documents, other than any
Spread Maintenance Premium thereon.
If, at any time prior to the one year anniversary of the Closing
Date, the IP Collateral is sold and released from the lien of the
Loan Documents, Borrowers may, at their option, apply up to
$20,000,000.00 of the proceeds of such sale toward the
satisfaction of the Minimum Amortization Payment.
If the Minimum Amortization Payment shall have been paid in full,
then the allocated loan amount for the Adjacent Property shall be
reduced to either (i) $144,000,000.00, if no proceeds from any
sale of the IP Collateral were applied to the satisfaction of the
Minimum Amortization Payment or (ii) $160,000,000.00, if the IP
Collateral shall have been sold and $20,000,000.00 of the
proceeds of such sale shall have been applied toward the
satisfaction of the Minimum Amortization Payment as provided in
the preceding paragraph.
If, at any time prior to the one year anniversary of the Closing
Date, Borrowers effect a partial release with respect to the
Adjacent Property in the manner described under "Partial Release
of Adjacent Property" above that results in repayment of a
portion of the outstanding Loans, the Minimum Amortization
Payment shall be reduced as a result of such repayment by an
amount to be determined by Lender and reasonably acceptable to
Borrowers.
DEFAULT RATE: Four percent (4.0%) over the non-default rate (no grace period).
LATE CHARGES: Five percent (5.0%) for any overdue payment (no grace period).
REPRESENTATIONS
WARRANTIES;
LOAN
DOCUMENTS: The definitive documentation relating to the Loans (the "LOAN
DOCUMENTS") will contain representations, warranties and
covenants that are usual and customary for transactions of this
nature or reasonably required by Lender for this transaction in
particular, and that are reasonably acceptable to Borrowers,
including but not limited to, those specified under the
Commitment Letter,
Exhibit A-12
with such changes as are appropriate in connection with any Loan,
as well as a representation and warranty that the Acquisition and
the Other Transaction Closings (as defined in the Merger
Agreement) were consummated in accordance with the terms and
conditions of the Merger Agreement and the Other Transaction
Documents (as defined in the Merger Agreement), with only such
amendments, supplements and modifications thereto, and waivers
and extensions thereunder, as Lender shall have approved in
advance. The terms and provisions of any Loan are not limited to
those set forth in this Term Sheet or the Commitment Letter.
Those matters that are not covered by or made clear under this
Term Sheet or the Commitment Letter shall be set forth in the
Loan Documents.
AFFIRMATIVE
COVENANTS: All affirmative covenants customary for transactions of this type
and others to be reasonably specified by Lender (to be applicable
to the Guarantors, the Borrowers and their subsidiaries),
including, without limitation, delivery of financial statements,
reports, accountants' letters, projections, officers'
certificates and other information reasonably requested by
Lender; payment of other obligations; continuation of business
and maintenance of existence; maintenance of material rights and
privileges; compliance with applicable laws and all rules and
regulations; compliance with material contractual obligations;
maintenance of property and insurance; maintenance of books and
records; right of Lender to inspect property and books and
records; notices of defaults, litigation and other material
events; compliance with environmental laws; continued perfection
of security interests in existing and subsequently acquired
collateral; maintenance of Intellectual Property and separateness
and single purpose entities; further assurances.
NEGATIVE
COVENANTS: All negative covenants customary for transactions of this type
and others to be reasonably specified by Lender (to be applicable
to the Guarantors, the Borrowers and their subsidiaries),
including, without limitation, limitations on (with exceptions to
be agreed): indebtedness (including preferred stock of
subsidiaries); liens; guarantee obligations; mergers,
consolidations, liquidations and dissolutions; sales of assets;
dividends and other payments in respect of capital stock; capital
and development expenditures; investments, loans and advances;
optional payments and modifications of subordinated and other
debt instruments; transactions with affiliates; changes in fiscal
year; negative pledge clauses; changes in lines of business; and
changes in passive holding company status. The Loan Documents
shall also include a negative covenant to the effect that
Borrowers will not exercise any rights or remedies under the
▇▇▇▇▇▇ Indemnification Agreement or the PWR/RWB Escrow Agreement
without the prior written consent of Lender and that in no event
shall the PWR/RWB Escrow Fund (as defined in the Merger
Agreement) be used to satisfy any indemnification claims other
than pursuant to the ▇▇▇▇▇▇ Indemnification Agreement until
expiration of the term thereof.
SUBORDINATE
FINANCING
(SECURED/
UNSECURED): None permitted, other than (i) Mezzanine Loans contemplated by
the Credit Facility, (ii) unsecured trade and operational debt
incurred in the ordinary course of business and not outstanding
for more than 60 days with trade creditors and in amounts as are
normal and reasonable under the circumstances, but not exceeding
2.0% of the applicable Loan, and not evidenced by a note or as
otherwise approved by Lender, and (iii) capital lease
obligations.
Exhibit A-13
INTEREST
RESERVE: Borrowers shall deposit on the Closing Date an amount equal to
the difference between underwritten projected net cash flow and
projected interest expense, as determined by Lender in its
reasonable discretion, to cover the payment of interest due on
the Loans for a period of 24 months. Any extension of any Loan
shall require a replenishment of the Interest Reserve in an
amount equal to the difference between underwritten projected net
cash flow and projected interest expense, as determined by Lender
in its reasonable discretion. Amounts on deposit in the Interest
Reserve shall be applied, on a monthly basis, to the payment of
debt service on the Loans. The Interest Reserve will be
terminated, and amounts on deposit therein will be released to
Borrowers, if at any time DSCR meets or exceeds a target DSCR to
be agreed between Lender and Borrowers. "DSCR" shall mean the
ratio of the net cash flow (as determined in accordance with
Lender's then current underwriting standards for similar
transactions) of the remaining Properties for the trailing 12
month period, divided by the debt service for such period. At no
time during the term of the Loans, prior to satisfaction of the
conditions in the preceding sentence, will amounts on deposit in
the Interest Reserve be less than an amount equal to six month's
debt service on the Loans.
Lender's determination of (i) underwritten projected net cash
flow for purposes of calculating the Interest Reserve under this
Section as of the Closing Date shall be calculated in a manner
consistent with Lender's standard underwriting criteria in effect
as of the date hereof (as reflected in a preliminary Sources and
Uses attached hereto as SCHEDULE A, which is attached solely for
purposes of illustrating Lender's current standard underwriting
methodology and is not intended to be dispositive or binding upon
the parties hereto for any purpose), with such changes to
Lender's standard underwriting criteria as Lender may reasonably
apply based upon market factors in effect as of the Closing Date,
and any new or revised standard underwriting criteria that, in
each case, have become applicable to the Properties subsequent to
the date hereof as a result of changes in circumstances relating
to or affecting the Properties, and (ii) projected interest
expense shall be calculated as the actual interest expense on the
Loans funded on the Closing Date (based upon the Interest Rate
Spread over LIBOR at the strike price referred to herein).
TAX &
INSURANCE
RESERVE: Borrowers shall deposit monthly 1/12 of the annual taxes and
insurance premiums as estimated by Lender. At closing, the
reserve will be funded in an amount which, when the required
monthly payments are added thereto, will be sufficient to pay
such charges when due. Borrowers shall not be entitled to any
interest on any amounts deposited in such reserve, which interest
shall be for the account of Lender. If, after reviewing the
blanket insurance policy of Purchaser and its affiliates, Lender
determines, in its sole discretion, that no insurance reserve is
required, Lender shall waive such requirement prior to the
occurrence of any event of default under the Loan Documents or
following any cure of any such event of default.
FF&E RESERVE: Borrowers shall deposit monthly 3% of the gross revenues of the
Properties for FF&E, which, for purposes of the Credit Facility,
shall include customary FF&E items, as well as casino gaming
equipment and rock and roll memorabilia unique to the Resort. Any
interest earned on such amounts shall be accumulated for the
benefit of Borrowers to be used in accordance with the purpose of
such reserve.
Exhibit A-14
REPAIR
RESERVE: Borrowers shall deposit on the Closing Date 115% of the estimated
cost of (i) any immediately needed maintenance and repairs (as
determined by the engineering report) and (ii) any environmental
remediation or other work related to environmental matters that
Lender determines is necessary with respect to the Properties.
Any interest earned on such amounts shall be accumulated for the
benefit of Borrowers to be used in accordance with the purpose of
such reserve. After completion of all repairs and remediation,
all remaining funds in such reserve shall be released to
Borrowers.
CAPITAL
EXPENDITURES
RESERVE: Borrowers shall deposit on the Closing Date an amount to be
determined by Lender and reasonably acceptable to Borrowers but
not less than $10,000,000.00, to fund ongoing capital
expenditures at the Properties, as approved by Lender in its sole
discretion. Any interest earned on amounts on deposit in the
capital expenditures reserve account shall be accumulated for the
benefit of Borrowers to be used in accordance with the purpose of
such reserve.
GENERAL
RESERVE: Borrowers shall deposit $12,000,000.00 into a general reserve
account on the Closing Date to be used for such uses and purposes
as Lender shall determine in its sole discretion, including,
without limitation, application to the Interest Reserve or any
other reserve established hereunder. Any interest earned on
amounts on deposit in the general reserve account shall be
accumulated for the benefit of Borrowers to be used in accordance
with the purpose of such reserve.
MANAGEMENT: Management of the Properties shall be conducted by an entity
approved by Lender in its reasonable good faith judgment. Any
management agreements shall be submitted to, and be approved by
Lender. The management fees payable by Borrowers thereunder shall
not exceed the base management fees set forth in the management
agreements delivered to and approved by Lender prior to the
Closing Date and no incentive fees or other fees shall be payable
thereunder until the DSCR as of three (3) consecutive calendar
quarters is equal to or greater than a DSCR threshold to be
determined by Lender in accordance with its standard underwriting
practices in which event an incentive fee not to exceed an amount
determined by Lender in accordance with its standard underwriting
procedures may be paid to manager. The management agreements and
any agreement with the Gaming Licensee and the fees thereunder
shall be subordinate to the Loan Documents (including payment of
debt service), and shall provide that such agreements may be
terminated by Lender, without penalty or fee, during the term
upon (i) a change in control of the manager or Gaming Licensee,
as the case may be, (iii) a continuing default (beyond any
applicable grace or cure period) under the Loan Documents, (iii)
the manager or Gaming Licensee, as the case may be, becoming
insolvent or a debtor in any bankruptcy or insolvency proceeding,
or (iv) the manager or Gaming Licensee, as the case may be,
committing any fraud, gross negligence, willful misconduct or
misappropriation of funds. Borrowers shall also provide copies of
all other contracts relating to the Properties (certified by
Borrowers to be complete and correct).
If at any time revenue of the Target (or the surviving entity in
the merger contemplated by the Merger Agreement) and its
subsidiaries that arises from, or is attributable to, gaming
operations at the Properties decreases below a revenue threshold
amount determined by Lender in its sole but reasonable
Exhibit A-15
discretion (expressed as a percentage of the projected revenue
for gaming operations as set forth in the Projections supplied to
Lender as of the Closing Date), then Lender or Purchaser shall
have the right to terminate the Gaming Licensee and appoint a new
person or entity to oversee and manage the gaming operations at
the Properties that is acceptable to Lender in its sole
discretion.
REPORTING
REQUIREMENTS: Borrowers and Guarantors shall provide unaudited quarterly
statements within 45 days of the end of each calendar quarter
during the term and audited financial statements certified by an
officer of the applicable entity (acceptable to Lender) within 60
days of the end of the calendar year during the term. Borrowers
shall provide monthly financial statements within 30 days of
month-end for the first 12 months following the Closing Date, and
as reasonably requested by Lender thereafter. Borrowers shall
provide annual budgets for the Properties which shall be subject
to Lender's approval, which approval shall not be unreasonably
withheld.
CASH
MANAGEMENT: Borrowers agree that all credit card receipts and rents from the
Properties and all licensing fees or other receipts from the IP
Collateral will be deposited directly into an account controlled
by Lender at a financial institution reasonably acceptable to
Lender (the "LOCKBOX ACCOUNT"). Borrowers will cause the manager
of the Properties to deposit all other revenues in the Lockbox
Account within one business day after receipt. All funds in the
Lockbox Account will be swept on each business day to an account
designated and controlled by Lender or Lender's servicer (the
"CASH MANAGEMENT ACCOUNT"). On each business day, Lender shall
withdraw all funds from the Cash Management Account and allocate
them in the following order (i) first, to pay Lender the monthly
installment of interest due under the Loans on the next Payment
Date and to fund all monthly reserves required pursuant to the
Loan Documents on such Payment Date, (ii) second, to pay CMBS
Borrowers amounts set forth in the approved annual budget for
operating expenses for such month and any other extraordinary
expenses approved by Lender for such month, and (iii) amounts
remaining in the Cash Management Account after payment of all
such amounts shall be disbursed to the CMBS Borrowers. The Lock
Box Account and Cash Management Account shall be held as
additional security for the Loans.
NO FRANCHISE
AGREEMENTS: Borrowers shall represent and warrant in the Loan Documents that,
other than as approved by Lender, none of the Properties is
subject to any franchise agreement.
GROUND
LEASES: Any ground leases with respect to the Properties shall be
reasonably acceptable to Lender. Borrowers shall cause each
ground lessor under a ground lease to deliver to Lender an
estoppel agreement reasonably satisfactory to Lender prior to the
Closing Date. Lender may require a ground lease reserve be
established with Lender to pay all amounts due from Borrowers
under the ground leases.
INSURANCE: Borrowers shall provide insurance coverage for each Property,
including foreign and domestic terrorism insurance, business
interruption insurance, and such other insurance reasonably
required by Lender (including, flood, earthquake and windstorm),
in all events in an amount sufficient to satisfy in full the
entire principal amount of any Loans secured, directly or
indirectly, by
Exhibit A-16
the applicable Property, together with all interest accrued
thereon and all other amounts due and payable thereunder. The
provider of all such insurance must be rated at least "A" by
Standard & Poor's Rating Services and ▇▇▇▇▇'▇ Investor Service,
Inc. Lender will permit the Properties to be covered by a blanket
insurance policy covering Purchaser's affiliates so long as (i)
no event of default under the Loan Documents shall have occurred
and be continuing and (ii) such blanket policy's aggregates and
deductibles on a per occurrence basis otherwise satisfy the
foregoing requirements.
SECURITIZATION: Borrowers understand that Lender may securitize and/or syndicate
any Loan in a public or private securities offering which is
rated by one or more rating agencies (the "SECURITIZATION"). In
this connection, the Loan Documents will require the Borrowers
to, among other things, provide Lender with all information and
materials reasonably required by Lender in the Securitization
process (including updated financial and operating statements, as
applicable, of the Guarantors), and use commercially reasonable,
good faith efforts to help facilitate the consummation of the
Securitization. Certain of the nationally recognized rating
agencies (the "RATING AGENCIES") will rate some or all of the
securities or the Loans. Borrowers agree to cooperate, at
Lender's expense, with Lender to effect this Securitization,
including providing the Rating Agencies with such additional
information as they may reasonably request after the closing,
amending the Loan Documents and organizational documents of
Borrowers as may be required by the Rating Agencies. Borrowers
shall indemnify Lender for any losses that relate to any
misleading or incorrect information provided by or on behalf of
Borrowers and included in the offering document. Any necessary
amendment of the Loan Documents or the organizational documents
to facilitate any Securitization will not materially adversely
alter the economic and any other terms thereof, including
recourse carve-outs.
TITLE/SURVEY: CMBS Borrowers shall deliver to Lender at the closing of any
Mortgage Loan (and at CMBS Borrower's sole cost and expense)
title policies issued by First American Title Insurance Company
of New York and/or Fidelity National Title Insurance Company in
respect of the Properties in form and substance acceptable to
Lender, with such endorsement, co-insurance and reinsurance as is
approved by Lender, insuring Lender, in an amount at least equal
to the principal amount of the Loans, that Lender's security
instrument constitutes a first lien or charge upon the Properties
subject only to such items as shall have been approved in writing
by Lender and its attorneys. Such title policies shall be
obtained through the services of an agent determined by Lender.
In addition, Borrowers shall deliver Eagle 9 policies and a
mezzanine endorsement to the owner's title policy with respect to
the Bridge Loan, any Mezzanine Loans and the Holdco Mezzanine
Loan, all in form and substance acceptable to Lender.
COST
AND YIELD
PROTECTION: The definitive Loan Documents shall contain customary provisions
(i) protecting Lender, and any of its assignees or participants
against increased costs or loss of yield resulting from changes
in reserve, tax, capital adequacy and other requirements of law
and from the imposition of or changes in withholding or other
taxes and (ii) indemnifying Lender for "breakage costs" incurred
in connection with, among other things, any prepayment on a LIBOR
loan on a day other than the last day of an interest period with
respect thereto.
Exhibit A-17
EXPENSES: Borrowers shall reimburse Lender for all of its actual
out-of-pocket expenses, including, but not limited to, reasonable
and documented fees and expenses of counsel incurred in
connection with this transaction whether or not it actually
closes, third party reports, title policies, surveys, recording
and filing fees, mortgage recording taxes and other taxes, costs
of environmental reports and any remediation required thereunder,
physical condition reports and any structural repairs indicated
therein or any property improvement program, and appraisals
(collectively, the "LENDER EXPENSES"). Lender Expenses, and, if
requested by any Borrower, other third party expenses which shall
be paid by such Borrower, including, but not limited to, any
prepayment premiums or penalties with respect to other financing
to be satisfied by such Borrower or other costs or expenses
incurred in connection with granting a mortgage to Lender shall
be netted from the Loans at closing.
To the extent sufficient funds remain available from the Good
Faith Deposit paid to Lender pursuant to the Commitment, Lender
shall apply such remaining Good Faith Deposit to actual
out-of-pocket expenses incurred in connection with the third
party reports and other Lender Expenses. Borrowers shall, within
5 business days, deposit with Lender such additional funds as
Lender shall reasonably request to supplement such Good Faith
Deposit to the extent the costs of third party reports and other
Lender Expenses exceed any such unapplied Good Faith Deposit.
The balance of any Good Faith Deposit, including any additional
funds deposited pursuant to this section of the Term Sheet, to
the extent not used to pay for third party reports and other
Lender Expenses, will be applied against the Origination Fee (as
defined in the fee letter accompanying the Commitment) due
pursuant to the Commitment at the time of any final closing under
this Term Sheet, and any excess thereof will be refunded promptly
to the Company at such time.
BROKERAGE
FEES: Purchaser, Borrowers and Guarantors represent and warrant to
Lender that they have not dealt with any finder or broker in
connection with this Term Sheet. Purchaser, Borrowers and/or
Guarantors shall pay any and all commissions and fees of any
broker or finder retained by them and hereby agree to jointly and
severally indemnify and hold Lender harmless from any claim for
such commissions or fees. Lender represents and warrants to
Purchaser that Lender has not dealt with any finder or broker in
connection with this Term Sheet. Lender shall pay any and all
commissions and fees of any broker or finder retained by Lender
and hereby agree to indemnify and hold Purchaser harmless from
any claim for such commissions or fees. Such indemnity shall
survive the expiration or termination of this Term Sheet and/or
the Credit Facility.
CONDITIONS
PRECEDENT: BRIDGE LOAN: In addition to the conditions precedent to the
Credit Facility described in the Commitment Letter, the Bridge
Loan shall be subject to the following conditions precedent as of
the Closing Date: (i) Purchaser's counsel shall obtain, at Bridge
Borrower's expense, Uniform Commercial Code/litigation/tax lien
searches against such parties as Lender may require, with such
searches to be updated as of the Closing Date; (ii) Lender shall
Exhibit A-18
have received customary legal opinions (including opinions (A)
from counsel to Borrowers and Guarantors and (B) from such
special and local counsel as may be required by Lender); (iii)
Lender shall have received proof of customary insurance coverage
reasonably satisfactory to Lender, and (iv) Lender shall have
received, at least five business days prior to the Closing Date,
all documentation and other information required by regulatory
authorities under applicable "know your customer" and anti-money
laundering rules and regulations, including without limitation
the PATRIOT Act.
LONG-TERM LOANS: In addition to the conditions precedent to the
Credit Facility described in the Commitment Letter, Long-Term
Loans shall be subject to the following conditions precedent as
of the Closing Date: (i) Lender shall have satisfactorily
completed its due diligence with respect to the Properties
(including the review and approval of third party reports, zoning
compliance and building code compliance) and the IP Collateral,
the Long-Term Borrowers and the Guarantors; (ii) Long-Term
Borrowers shall provide Lender an as-built, ALTA survey of the
Properties certified to Lender and the issuer of the title policy
by a registered land surveyor, dated not more than sixty (60)
days prior to the closing date, and otherwise complying with
Lender's survey requirements; (iii) Borrowers' counsel shall
obtain, at Borrowers' expense, Uniform Commercial
Code/litigation/tax lien searches against such parties as Lender
may require showing that all personal property is owned by the
CMBS Borrowers and is free from all liens and encumbrances and
that none of the CMBS Borrowers, their general partners/managing
members and principals or the Properties is subject to any
pending litigation (other than litigation in the ordinary course
of business and which is not reasonably likely to have a
Collateral Adverse Effect with respect to the related
Collateral), bankruptcy or tax liens, with such searches to be
updated as of the closing date; (iv) Lender shall have received
such legal opinions (including opinions (A) from counsel to
Borrowers and Guarantors and (B) from such special and local
counsel as may be required by Lender), documents, appraisals and
other instruments as are customary for transactions of this type
or as Lender may reasonably request; (v) Lender shall have
received proof of insurance coverage satisfactory to Lender, (vi)
Lender shall have received an Engineering Report for each of the
Properties showing that all material improvements are in good and
workable condition and comply with all applicable material
regulations including ADA or, if not, an estimate of the cost and
description of any deferred maintenance and repairs; (vii) Lender
shall have received an Environmental Report for each of the
Properties showing that there is no material violation of law in
respect of any toxic substance or hazardous waste contained
within the Properties; (viii) Lender shall have received such
reports and other information as Lender shall have reasonably
requested from the United States Patent and Trademark Office or
otherwise relating to the IP Collateral showing that the IP
Borrower has good and marketable title to, or licensing rights
with respect to, the IP Collateral, free and clear of all liens,
security interests or encumbrances; (ix) Lender shall have
received, at least five business days prior to the Closing Date,
all documentation and other information required by regulatory
authorities under applicable "know your customer" and anti-money
laundering rules and regulations, including without limitation
the PATRIOT Act, and (x) Lender shall have received, to its
satisfaction, such other documents and instruments as Lender
shall reasonably request.
GOVERNING LAW: All Loan Documents will be governed by New York law.
COUNSEL
TO LENDER: ▇▇▇▇▇ Raysman ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP.
Exhibit A-19