<PAGE>
Exhibit (b)(1)
THE CHASE MANHATTAN BANK
270 Park Avenue
New York, New York 10017
CHASE SECURITIES INC.
270 Park Avenue
New York, New York 10017
September 20, 2000
Senior Secured Credit Facilities
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Commitment Letter
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Nova Finance Company LLC
7361 Calhoun Place, Suite 300
Rockville, Maryland 20855
Attention: Stewart Bainum Jr. and James A. MacCutcheon
Gentlemen:
You have advised The Chase Manhattan Bank ("Chase") and Chase
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Securities Inc. ("CSI") that Nova Finance Company LLC (the "Acquiror"), a
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special purpose limited liability company formed by or on behalf of Stewart
Bainum Jr. and James A. MacCutcheon and certain members of their family and
related trusts (collectively, the "Buyers"), intends to acquire (the
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"Acquisition") all of the outstanding common stock and related options (the
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"Target Shares") of Sunburst Hospitality Corporation (the "Target") pursuant to
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a recapitalization agreement between the Acquiror and the Target (the "Merger
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Agreement"). You have also advised us that the Acquisition will be effected
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pursuant to a merger (the "Merger") of the Acquiror with and into the Target,
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with the Target as the surviving corporation, and that as a result of the
Merger, all of the outstanding common stock of the Target (other than common
stock held by the Buyers) will be exchanged for cash and the common stock held
by the Buyers will be converted into common stock of the surviving corporation.
In connection with the Acquisition, and upon consummation of the Merger, you
have further advised us that the Acquiror intends (a) to terminate and refinance
the existing Credit Agreement of the Target, dated as of October 15, 1997 (the
"Existing Credit Agreement") and to refinance all amounts outstanding
-------------------------
thereunder, (b) to refinance the outstanding multi-class mortgage pass-through
certificates of the Target (the "Mortgage Certificates") and (c) to reduce the
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outstanding principal balance of the Note payable by the Target to Choice Hotels
International (the "Choice
------
<PAGE>
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Hotels International Note") to $60,000,000 (with not more than $77,500,000 of
-------------------------
such principal reduction resulting from cash payments by the Target)
(collectively, the "Refinancing"). You have requested that CSI agree to
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structure, arrange and syndicate senior credit facilities in an aggregate amount
of up to $290,000,000 (the "Credit Facilities") to finance the Acquisition, the
-----------------
Refinancing (including the Existing Credit Agreement) and to pay related fees
and expenses. References herein to the "Transaction" shall include the
financings described herein (including the Refinancing) and all other
transactions (including the Acquisition and the Merger) related to the
Transaction.
CSI is pleased to advise you that it is willing to act as exclusive
advisor, lead arranger and book manager for the Credit Facilities.
Furthermore, Chase is pleased to advise you of its commitment to
provide the entire amount of the Credit Facilities upon the terms and subject to
the conditions set forth or referred to in this commitment letter (the
"Commitment Letter") and in the Summary of Terms and Conditions attached hereto
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as Exhibit A (the "Term Sheet"). Unless otherwise defined herein, capitalized
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terms used herein shall have the meanings given to such terms in the Term Sheet.
It is agreed that Chase will act as the sole and exclusive
administrative agent, and that CSI will act as the sole and exclusive advisor,
lead arranger and book manager, for the Credit Facilities, and each will, in
such capacities, perform the duties and exercise the authority customarily
performed and exercised by it in such roles. It is also agreed that Societe
Generale will be invited to participate in the Credit Facilities, with the title
of syndication agent subject to the receipt of a satisfactory commitment to the
Credit Facilities. You agree that no other agents, co-agents, arrangers or book
managers will be appointed, no other titles will be awarded and no compensation
(other than that expressly contemplated by the Term Sheet and the Fee Letter
referred to below) will be paid in connection with the Credit Facilities unless
you and we shall so agree.
We intend to syndicate the Credit Facilities to a group of financial
institutions (together with Chase, the "Lenders") identified by us in
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consultation with you. CSI intends to commence syndication efforts promptly,
and you agree to actively assist CSI in completing a syndication satisfactory to
it. Such assistance shall include (a) your using commercially reasonable
efforts to ensure that the syndication efforts benefit materially from your and
the Target's existing lending relationships, (b) direct contact between the
Buyers and the Acquiror's and the Target's other senior management and advisors
and the proposed Lenders, (c) assistance in the preparation of a Confidential
Information Memorandum and other marketing materials to be used in connection
with the syndication and (d) the hosting, with CSI, of one or more meetings of
prospective Lenders.
CSI will manage all aspects of the 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 allocations of the commitments among the Lenders and the amount
and distribution of fees among the Lenders. To assist CSI in its syndication
efforts, you agree promptly to prepare and provide to CSI and Chase all
information with respect to the Buyers, the Acquiror, the Target and the
Transaction,
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including all financial information and projections (the "Projections"), as we
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may reasonably request in connection with the arrangement and syndication of the
Credit Facilities. You hereby represent and covenant that (a) all information
other than the Projections (the "Information") that has been or will be made
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available to Chase or CSI by you or any of your representatives is or will be,
when furnished, complete and 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 (b) the Projections that have been or will be
made available to Chase or CSI by you or any of your representatives have been
or will be prepared in good faith based upon reasonable assumptions. You
understand that in arranging and syndicating the Credit Facilities we may use
and rely on the Information and Projections without independent verification
thereof.
As consideration for Chase's commitment hereunder and CSI's agreement
to perform the services described herein, you agree to pay, or to cause the
Target to pay, to Chase the nonrefundable fees set forth in the Term Sheet and
in the Fee Letter dated the date hereof and delivered herewith (the "Fee
---
Letter").
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Chase and CSI shall be entitled, after consultation with you, to
change the pricing, terms and structure of the Credit Facilities, if Chase and
CSI determine that such changes are advisable to ensure a successful syndication
of the Credit Facilities; provided that the total amount of the Credit
Facilities remains unchanged. Chase's commitment hereunder is subject to the
agreements in this paragraph. In the event that the successful syndication of
the Credit Facilities has not been completed prior to the closing and funding of
the Credit Facilities, the agreements in this paragraph shall survive the
closing and funding of the Credit Facilities and you agree to execute amendments
to the definitive documentation with respect to the Credit Facilities necessary
to reflect any changes made pursuant to this paragraph.
Chase's commitment hereunder and CSI's agreement to perform the
services described herein are subject to (a) there not occurring or becoming
known to us any material adverse condition or material adverse change in or
affecting the business, operations, property, condition (financial or otherwise)
or prospects of the Target and its subsidiaries, taken as a whole, (b) our not
becoming aware after the date hereof of any material information or other
material matter (including any matter relating to financial models and
underlying assumptions relating to the Projections) affecting the Buyers, the
Acquiror, the Target or the Transaction that in our judgment is inconsistent in
a material and adverse manner with any such information or other matter
disclosed to us prior to the date hereof, (c) there not having occurred a
material disruption of or material adverse change in financial, banking or
capital market conditions that, in our judgment, could materially impair the
syndication of the Credit Facilities, (d) our satisfaction that prior to and
during the syndication of the Credit Facilities there shall be no competing
offering, placement or arrangement of any debt securities or bank financing by
or on behalf of any of the Target or any of its affiliates, (e) the negotiation,
execution and delivery on or before December 15, 2000 of definitive
documentation with respect to the Credit Facilities satisfactory to Chase and
its counsel and (f) the other conditions set forth or referred to in the Term
Sheet and the Fee Letter.
<PAGE>
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You agree (a) to indemnify and hold harmless Chase, CSI, their
affiliates and their respective officers, directors, employees, advisors, and
agents (each, an "Indemnified Person") from and against any and all losses,
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claims, damages and liabilities to which any such Indemnified Person may become
subject arising out of or in connection with this Commitment Letter, the Credit
Facilities, the use of the proceeds thereof, the Transaction or any claim,
litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether any Indemnified Person is a party thereto, and to
reimburse each Indemnified Person upon demand for any 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,
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apply to losses, claims, damages, liabilities or related expenses to the extent
they are found by a final, non-appealable judgment of a court to arise from the
willful misconduct or gross negligence of such Indemnified Person, and (b) to
reimburse Chase, CSI and their affiliates on demand for all out-of-pocket
expenses (including due diligence expenses, syndication expenses, consultant's
fees and expenses, travel expenses, and reasonable fees, charges and
disbursements of counsel) incurred in connection with the Credit Facilities and
any related documentation (including this Commitment Letter, the Term Sheet, the
Fee Letter, the Side Letter and the definitive financing documentation) or the
administration, amendment, modification or waiver thereof. No Indemnified
Person shall be liable for any damages arising from the use by unauthorized
persons of Information or other materials sent through electronic,
telecommunications or other information transmission systems that are
intercepted by such persons or for any special, indirect, consequential or
punitive damages in connection with the Credit Facilities.
You acknowledge that Chase and its affiliates (the term "Chase" as
used below in this paragraph being understood to include such 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 Transaction and otherwise. Chase will not
use confidential information obtained from you by virtue of the Transaction or
its other relationships with you in connection with the performance by Chase of
services for other companies, and Chase will not furnish any such information to
other companies. You also acknowledge that Chase has no obligation to use in
connection with the Transaction, or to furnish to you, confidential information
obtained from other companies.
This Commitment Letter shall not be assignable by you without the
prior written consent of Chase and CSI (and any purported assignment without
such consent shall be null and void), is intended to be solely for the benefit
of the parties hereto and is not intended to confer any benefits upon, or create
any rights in favor of, any person other than the parties hereto and the
Indemnified Persons. This Commitment Letter may not be amended or waived except
by an instrument in writing signed by you, Chase and CSI. 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 signature page of this Commitment Letter by facsimile
transmission shall be effective as delivery of a manually executed counterpart
hereof. This Commitment Letter, the Fee Letter and the Side Letter dated the
date hereof and delivered herewith (the "Side Letter") are the only agreements
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that have been entered into among us with respect to the Credit Facilities and
set forth the entire understanding of the parties with respect thereto. This
Commitment Letter shall be governed by, and construed in accordance with, the
laws of the State of New York.
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This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet, the Fee Letter or the Side
Letter nor any of their terms or substance shall be disclosed, directly or
indirectly, to any other person except (a) to your agents and advisors who are
directly involved in the consideration of this matter or (b) as may be compelled
in a judicial or administrative proceeding or as otherwise required by law (in
which case you agree to inform us promptly thereof), provided, that the
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foregoing restrictions shall cease to apply (except in respect of the Fee Letter
and its terms and substance) after this Commitment Letter, the Fee Letter and
the Side Letter have been accepted by you.
The compensation, reimbursement, indemnification, market flex and
confidentiality provisions contained herein and in the Fee Letter and Side
Letter 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 Chase's commitment hereunder. Subject
to the immediately preceding sentence, this Commitment Letter may be terminated
at any time by you upon written notice to Chase, provided that the fees (if any)
earned by Chase pursuant to the Fee Letter as of the date of termination will be
payable on such date.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet, the Fee Letter and
the Side Letter by returning to us executed counterparts hereof and of the Fee
Letter and Side Letter not later than 5:00 p.m., New York City time, on
September 20, 2000. Chase's commitment and CSI's agreements herein will expire
at such time in the event Chase has not received such executed counterparts in
accordance with the immediately preceding sentence.
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Chase and CSI are pleased to have been given the opportunity to assist
you in connection with this important financing.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ MARIAN N. SCHULMAN
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Name: Marian N. Schulman
Title: Vice President
CHASE SECURITIES INC.
By: /s/ JAMES G. ROLISON
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Name: James G. Rolison
Title: Managing Director
Accepted and agreed to
as of the date first
written above by:
NOVA FINANCE COMPANY LLC
By: /s/ JAMES A. MACCUTCHEON
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Name: James A. MacCutcheon
Title: Member
<PAGE>
Exhibit A
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$290,000,000 SENIOR SECURED CREDIT FACILITIES
Summary of Terms and Conditions
September 20, 2000
_______________
Nova Finance Company LLC (the "Acquiror"), a special purpose limited
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liability company formed by or on behalf of Stewart Bainum Jr. and James A.
MacCutcheon and certain members of their family and related trusts
(collectively, the "Buyers"), intends to acquire (the "Acquisition") all of the
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outstanding common stock and related options of Sunburst Hospitality Corporation
(the "Target") pursuant to a recapitalization agreement between the Acquiror and
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the Target (the "Merger Agreement"). The Acquisition will be effected pursuant
----------------
to a merger (the "Merger") of the Acquiror with and into the Target, with the
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Target as the surviving corporation, and as a result of the Merger, all of the
outstanding common stock of the Target (other than common stock held by the
Buyers) will be exchanged for cash and the common stock held by the Buyers will
be converted into common stock of the surviving corporation. In connection with
the Acquisition, and upon consummation of the Merger, the Acquiror further
intends (a) to terminate and refinance the existing Credit Agreement of the
Target, dated as of October 15, 1997 (the "Existing Credit Agreement") and to
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refinance all amounts outstanding thereunder, (b) to refinance the outstanding
multi-class mortgage pass-through certificates of the Target (the "Mortgage
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Certificates") and (c) to reduce the outstanding principal balance of the Note
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payable by the Target to Choice Hotels International (the "Choice Hotels
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International Note") to $60,000,000 (with not more than $77,500,000 of such
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reduction resulting from cash payments by the Target) (collectively, the
"Refinancing"). References herein to the "Transaction" shall include the
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financings described herein (including the Refinancing) and all other
transactions (including the Acquisition and the Merger) related to the
Transaction. The sources and uses of funds required to consummate the
Transaction are set forth in the Sources and Uses Table attached hereto as
Schedule I (the "Sources and Uses Table").
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I. Parties
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Borrower: The Target (the "Borrower").
Guarantors: Each of the Borrower's direct and indirect
domestic subsidiaries (the "Guarantors";
the Borrower and the Guarantors,
collectively, the "Loan Parties").
Advisor, Lead Arranger
and Book Manager: Chase Securities Inc. (in such capacity,
the "Arranger").
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Administrative Agent: The Chase Manhattan Bank ("Chase" and, in
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such capacity, the "Administrative
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Agent").
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Lenders: A syndicate of banks, financial
institutions and other entities, including
Chase, arranged by the Arranger
(collectively, the "Lenders").
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2
II. Types and Amounts of Credit Facilities
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1. Term Facilities
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Types and Amounts of
Facilities: Term Loan Facilities (the "Term Facilities")
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in an aggregate amount of $270,000,000 (the
loans thereunder, the "Term Loans") as
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follows:
Term Loan Facility I: A five-year term loan
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facility (the "Term Loan Facility I") in an
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aggregate principal amount equal to
$190,000,000 (the loans thereunder, the
"Facility I Term Loans"). The Facility I Term
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Loans shall be repayable in quarterly
installments after the date which is 24
months after the Closing Date in an aggregate
annual amount of $5,000,000 with the
aggregate outstanding balance due and payable
on the date that is five years after the
Closing Date (as defined below).
Term Loan Facility II: A 24-month term loan
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facility (the "Term Loan Facility II" and,
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together with the Term Loan Facility I, the
"Term Loan Facilities") in an aggregate
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principal amount equal to $80,000,000 (the
loans thereunder, the "Facility II Term
----------------
Loans"). The Facility II Term Loans shall be
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repayable in quarterly installments in
amounts to be agreed until the date which is
24 months after the Closing Date
Purpose: The proceeds of the Term Loans shall be used
to finance the Transaction and to pay related
fees and expenses.
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3
2. Revolving Facility
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Type and Amount of
Facility: Five-year revolving credit facility (the
"Revolving Facility"; together with the Term
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Facilities, the "Credit Facilities") in the
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amount of $20,000,000 (the loans thereunder,
the "Revolving Loans").
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Availability: The Revolving Facility shall be available on
a revolving basis during the period
commencing after the Closing Date and ending
on the fifth anniversary thereof (the
"Revolving Termination Date").
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Letters of Credit: A portion of the Revolving Facility not in
excess of $5,000,000 shall be available for
the issuance of letters of credit (the
"Letters of Credit") by Chase (in such
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capacity, the "Issuing Lender"). No Letter of
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Credit shall have an expiration date after
the earlier of (a) one year after the date of
issuance and (b) thirty days prior to the
Revolving Termination Date, provided that any
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Letter of Credit with a one-year tenor may
provide for the renewal thereof for
additional one-year periods (which shall in
no event extend beyond the date referred to
in clause (b) above).
Drawings under any Letter of Credit shall be
reimbursed by the Borrower (whether with its
own funds or with the proceeds of Revolving
Loans) on the same business day. To the
extent that the Borrower does not so
reimburse the Issuing Lender, the Lenders
under the Revolving Facility shall be
irrevocably and unconditionally obligated to
reimburse the Issuing Lender on a pro rata
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basis.
Maturity: The Revolving Termination Date.
Purpose: The proceeds of the Revolving Loans shall be
used for working capital purposes of the
Borrower and its subsidiaries in the ordinary
course of business.
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4
III. Certain Payment Provisions
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Fees and Interest Rates: As set forth on Annex I.
Optional Prepayments and
Commitment Reductions: Loans may be prepaid and commitments may
be reduced by the Borrower in minimum
amounts to be agreed upon. Optional
prepayments of the Term Loans shall be
applied first to the Facility II Term
Loans then to the Facility I Term Loans.
Each such prepayment of the Facility II
Term Loans may not be reborrowed. Each
such prepayment of the Facility I Term
Loans may not be reborrowed and shall be
applied to the installments thereof due
and payable within 12 months of such
prepayment in the direct order of
maturity, and upon prepayment in full of
all installments due and payable within 12
months of such prepayment, to the
installments thereof due and payable
thereafter in the inverse order of
maturity.
Mandatory Prepayments and
Commitment Reductions: The following amounts shall be applied to
prepay the Term Loans and reduce the
Revolving Facility:
(a) 100% of the net proceeds of any
indebtedness of the Borrower or any of its
subsidiaries, subject to certain
exceptions to be agreed.
(b) 100% of the net proceeds of any
issuance of equity and excess cash flow
(to be defined in a mutually satisfactory
manner) for each fiscal year of the
Borrower (commencing with the fiscal year
ending December 31, 2000), subject, in
each case, to reduction to 50% upon the
repayment in full of the Facility II Term
Loans and the maintenance of a total
leverage ratio of 3.5 to 1.0 or less.
(c) 100% of the net proceeds of asset
sales (including proceeds of casualty and
condemnation).
All such amounts shall be applied, first,
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to the prepayment of the Term Loans and,
second, to the permanent reduction of the
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Revolving Facility. Mandatory prepayments
shall be applied first to Facility II Term
Loans and then to Facility I Term Loans.
Each such mandatory prepayment of the
Facility II Term Loans may not be
reborrowed. Each such mandatory prepayment
of the Facility I Term Loans may not be
reborrowed and shall be applied to the
installments thereof due and
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5
payable within 12 months of such mandatory
prepayment in the direct order of
maturity, and upon prepayment in full of
all installments due and payable within 12
months of such mandatory prepayment, to
the installments thereof due and payable
thereafter in the inverse order of
maturity. The Revolving Loans shall be
prepaid and the Letters of Credit shall be
cash collateralized or replaced to the
extent such extensions of credit exceed
the amount of the Revolving Facility.
IV. Collateral The obligations of each Loan Party in
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respect of the Credit Facilities shall be
secured by a perfected first priority
mortgage lien on or security interest in
all of its tangible and intangible assets
(including, without limitation, real
property, leases, rents and income
attributable to the real property,
management agreements, franchise
agreements, licensing agreements and other
licenses, permits and agreements relating
to the ownership and operation of the real
property, intellectual property, and all
of the capital stock of each of its direct
and indirect domestic subsidiaries),
except for those assets as to which the
Administrative Agent shall determine in
its sole discretion that the costs of
obtaining such a security interest are
excessive in relation to the value of the
security to be afforded thereby.
V. Certain Conditions
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Initial Conditions: The availability of the Credit Facilities
shall be conditioned upon satisfaction of,
among other things, the following
conditions precedent (the date upon which
all such conditions precedent shall be
satisfied, the "Closing Date") on or
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before December 15, 2000:
(a) Each Loan Party shall have executed
and delivered satisfactory definitive
financing documentation with respect to
the Credit Facilities (the "Credit
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Documentation").
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(b) The Acquiror and the Target shall
have entered into the Merger Agreement on
terms and conditions reasonably
satisfactory to the Administrative Agent
and no provision thereof shall have been
amended, modified or waived without the
consent of the Administrative Agent (it
being agreed that the draft Merger
Agreement furnished to the Administrative
Agent on September 20, 2000 is
satisfactory to the Administrative Agent).
The Merger
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6
shall have been consummated in accordance
with applicable law and the Merger
Agreement. All documents and materials
filed publicly by the Borrower in
connection with the Merger shall have been
furnished to the Administrative Agent and
shall be satisfactory in form and
substance to the Administrative Agent.
(c) The Existing Credit Agreement shall
have been terminated, all amounts owing
thereunder shall have been paid in full
and all liens created in connection
therewith shall have been released, in
each case on satisfactory terms and
conditions.
(d) The Mortgage Certificates shall have
been paid in full and all liens created in
connection therewith shall have been
released, in each case on satisfactory
terms and conditions.
(e) The principal balance of the Choice
Hotels International Note shall have been
reduced to $60,000,000 (with not more than
$77,500,000 of such principal reduction
resulting from cash payments by the
Borrower, in addition to the $16,300,000
reduction resulting from the sale of the
three Mainstay Hotels referenced in
paragraph (f)) on satisfactory terms and
conditions. Without limiting the
foregoing, the Choice Hotels International
Note will continue to be unsecured and
will have terms and conditions
satisfactory to the Administrative Agent
(including, without limitation, maturity
and pay-in-kind interest provisions) (it
being agreed that the draft Description of
Senior Subordinated Discount Notes
furnished to the Administrative Agent on
September 20, 2000 is satisfactory to the
Administrative Agent).
(f) The Borrower shall have completed the
sale of the three Mainstay Hotels to
Choice Hotels International for
$16,300,000 pursuant to the existing put
arrangements with Choice Hotels
International on satisfactory terms and
conditions (the "Planned Asset Sale").
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(g) The Lenders, the Administrative Agent
and the Arranger shall have received all
fees required to be paid, and all
reasonable expenses for which invoices
have been presented, on or before the
Closing Date.
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7
(h) All governmental and third-party
approvals (including franchisor consents)
necessary in connection with the
Transaction, the financing contemplated
hereby and the continuing operations of
the Borrower and its subsidiaries shall
have been obtained and be in full force
and effect, and all applicable waiting
periods shall have expired without any
action being taken or threatened by any
competent authority that would restrain,
prevent or otherwise impose adverse
conditions on the Transaction or the
financing thereof.
(i) The Lenders shall have received
satisfactory unaudited interim
consolidated financial statements of the
Borrower for each quarterly period ended
subsequent to March 31, 2000 as to which
such financial statements are available,
but in any event not later than 45 days
after the end of each such quarterly
period.
(j) The Lenders shall have received a
satisfactory pro forma consolidated
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balance sheet of the Borrower as at the
date of the most recent consolidated
balance sheet delivered pursuant to
paragraph (i) above, adjusted to give
effect to the consummation of the
Transaction and the financings
contemplated hereby as if such
transactions had occurred on such date.
(k) No material litigation, investigation
or proceeding of or before any arbitrator
or governmental authority shall have been
commenced, instituted or threatened with
respect to the Merger, the Acquisition or
any of the other transactions contemplated
hereby.
(l) The Lenders shall have received the
results of a recent lien search in each
relevant jurisdiction with respect to the
Borrower and its subsidiaries, and such
search shall reveal no liens on any of the
assets of the Borrower or its subsidiaries
except for liens permitted by the Credit
Documentation or liens to be discharged on
or prior to the Closing Date pursuant to
documentation satisfactory to the
Administrative Agent.
(m) All documents and instruments
required to perfect the Administrative
Agent's first priority mortgage liens on
and security interest in the collateral
under the Credit Facilities (including
delivery and recordation of all mortgages
and assignments or leases and rents and
delivery of capital stock certificates and
undated stock powers executed in blank)
shall have been executed and
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8
be in proper form for filing, and, in
connection with the real estate
collateral, the Administrative Agent shall
have received satisfactory mortgage
insurance policies, surveys, Phase I
environmental reports (and, if reasonably
requested by the Administrative Agent,
Phase II environmental reports), and
seismic and structural engineering
reports.
(n) The fees and expenses to be incurred
in connection with the Transaction and the
financing thereof shall be consistent with
the Sources and Uses Table.
(o) The Lenders shall have received
satisfactory appraisals (the "Appraisals")
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of hotel properties acceptable to the
Administrative Agent owned by the Borrower
and its subsidiaries and listed on Annex
II by appraisers satisfactory to the
Administrative Agent.
(p) The Administrative Agent shall be
satisfied with the insurance program to be
maintained by the Borrower and its
subsidiaries after the Transaction and
shall have received satisfactory evidence
of such insurance policies naming the
Administrative Agent as loss payee for the
benefit of the Lenders.
(q) The Lenders shall have received such
legal opinions (including opinions (i)
from counsel to the Borrower and its
subsidiaries and (ii) from such special
and local counsel as may be required by
the Administrative Agent), documents and
other instruments as are customary for
transactions of this type or as they may
reasonably request.
On-Going Conditions: The making of each extension of credit
shall be conditioned upon (a) the accuracy
of all representations and warranties in
the Credit Documentation (including,
without limitation, the material adverse
change and litigation representations) and
(b) there being no default or event of
default in existence at the time of, or
after giving effect to the making of, such
extension of credit. As used herein and in
the Credit Documentation, a "material
adverse change" shall mean any event,
development or circumstance that has had
or could reasonably be expected to have a
material adverse effect on (a) the
Transaction, (b) the business, property,
operations, condition (financial or
otherwise) or prospects of the Borrower
and its subsidiaries taken as a whole or
(c) the validity or enforceability of any
of the Credit Documentation or the
<PAGE>
9
rights and remedies of the Administrative
Agent and the Lenders thereunder.
VI. Certain Documentation Matters
-----------------------------
The Credit Documentation shall contain
representations, warranties, covenants and
events of default customary for financings
of this type and other terms deemed
appropriate by the Lenders, including,
without limitation:
Representations and
Warranties: Financial statements (including pro forma
financial statements); absence of
undisclosed liabilities; no material
adverse change; corporate existence;
compliance with law; corporate power and
authority; enforceability of Credit
Documentation; no conflict with law or
contractual obligations; no material
litigation; no default; ownership of
property; liens; intellectual property; no
burdensome restrictions; taxes; Federal
Reserve regulations; ERISA; Investment
Company Act; subsidiaries; environmental
matters; solvency; labor matters; accuracy
of disclosure; and creation and perfection
of security interests.
Affirmative Covenants: Delivery of financial statements, reports,
accountants' letters, projections,
officers' certificates and other
information requested by the Lenders;
payment of other obligations; continuation
of business and maintenance of existence
and material rights and privileges;
compliance with laws and material
contractual obligations; maintenance of
property and insurance (including, without
limitation, any remediation recommended in
any Phase I or Phase II environmental
report and any repairs recommended in any
seismic or structural report, with respect
to properties on which the Administrative
Agent holds a mortgage lien); maintenance
of books and records; right of the Lenders
to inspect property and books and records;
notices of defaults, litigation and other
material events; compliance with
environmental laws; further assurances
(including, without limitation, with
respect to security interests in after-
acquired property); and agreement to
obtain within 90 days after the Closing
Date and maintain for at least three years
thereafter interest rate protection such
that at least 50% of the long-term
indebtedness of the Borrower and its
subsidiaries bears interest at a fixed
rate, on terms and conditions satisfactory
to the Administrative Agent.
<PAGE>
10
Financial Covenants: Financial covenants (including, without
limitation, minimum net worth, minimum
fixed charge coverage (to be defined as
the ratio of Adjusted EBITDA to Fixed
Charges), minimum interest coverage, and
maximum total and senior leverage with
appropriate step-ups and step-downs to be
agreed).
Negative Covenants: Limitations on: indebtedness; liens;
guarantee obligations; mergers,
consolidations, liquidations and
dissolutions; sales of assets (which shall
permit, among other things, the Planned
Asset Sale and the pending sales of the
Clarion Inn properties in Roanoke,
Baltimore and Richardson (the "Pending
-------
Clarion Sales")); dividends and other
-------------
payments in respect of capital stock;
capital expenditures; investments, loans
and advances; optional payments and
modifications of subordinated and other
debt instruments; transactions with
affiliates; sale and leasebacks; changes
in fiscal year; negative pledge clauses;
amendments to Merger Agreement; and lines
of business limited to ownership and
operation of hospitality properties in the
United States.
Subject to certain conditions to be agreed
(including, without limitation, the
absence of any default or event of
default, such election not resulting in
any material tax liability and pro forma
--- -----
compliance with the financial covenants),
the Borrower will be permitted to make an
election to be treated as a subchapter S
corporation for tax purposes, and if such
election is made, tax distributions will
be permitted to shareholders (subject to a
limit to be agreed), on terms to be
agreed.
Subject to the satisfaction of the
following conditions, the Borrower will be
permitted to incur indebtedness in the
form of a mortgage financing on any of its
hotel properties:
(a) the Facility II Term Loans have been
paid in full;
(b) before and on a pro forma basis after
giving effect to such financing, the
maximum ratio of total debt to EBITDA is
less than 3.5 to 1.0;
(c) the ratio of the principal amount of
such financing to the appraised value of
such hotel property at the closing of such
financing is at least 0.65 to 1.0;
<PAGE>
11
(d) an amount equal to the greater of the
net proceeds of such financing or 110% of
the Allocated Loan Portion (as defined
below) of such hotel property is applied
to prepay the Facility I Term Loans and to
reduce the Revolving Facility as provided
for above; and
(e) after giving effect to such
financing, the aggregate principal amount
of all such mortgage financings then
outstanding is not more than $100,000,000.
The "Allocated Loan Portion" of any hotel
----------------------
property is equal to the appraised value
of such hotel property as set forth in the
Appraisals multiplied by the ratio of the
aggregate principal amount of the Term
Loans and commitments under the Revolving
Facility outstanding at the Closing Date
to the aggregate appraised value of the
hotel properties as set forth in the
Appraisals.
Events of Default: Nonpayment of principal when due;
nonpayment of interest, fees or other
amounts after a grace period to be agreed
upon; material inaccuracy of
representations and warranties; violation
of covenants (subject, in the case of
certain affirmative covenants, to a grace
period to be agreed upon); cross-default;
bankruptcy events; certain ERISA events;
material judgments; actual or asserted
invalidity of any guarantee or security
document, subordination provisions or
security interest; and a change of control
(the definition of which is to be agreed).
Voting: Amendments and waivers with respect to the
Credit Documentation shall require the
approval of Lenders holding not less than
a majority of the aggregate amount of the
Term Loans, Revolving Loans,
participations in Letters of Credit and
unused commitments under the Credit
Facilities, except that (a) the consent of
each Lender directly affected thereby
shall be required with respect to (i)
reductions in the amount or extensions of
the scheduled date of amortization or
final maturity of any Loan, (ii)
reductions in the rate of interest or any
fee or extensions of any due date thereof
and (iii) increases in the amount or
extensions of the expiry date of any
Lender's commitment and (b) the consent of
100% of the Lenders shall be required with
respect to (i) modifications to any of the
voting percentages and (ii) releases of
all or substantially all of the Guarantors
or all or substantially all of the
collateral.
<PAGE>
12
Assignments
and Participations: The Lenders shall be permitted to assign and sell
participations in their Loans and commitments, subject,
in the case of assignments (other than to another
Lender or to an affiliate of a Lender), to the consent
of the Administrative Agent and the Borrower (which
consent in each case shall not be unreasonably
withheld). Pro rata assignments for the Term Loan
Facilities shall be required. In the case of partial
assignments (other than to another Lender or to an
affiliate of a Lender), the minimum assignment amount
shall be $5,000,000, and, after giving effect thereto,
the assigning Lender shall have commitments and Loans
aggregating at least $5,000,000, in each case unless
otherwise agreed by the Borrower and the Administrative
Agent. Participants shall have the same benefits as the
Lenders with respect to yield protection and increased
cost provisions. Voting rights of participants shall be
limited to those matters with respect to which the
affirmative vote of the Lender from which it purchased
its participation would be required as described under
"Voting" above. Pledges of Loans in accordance with
applicable law shall be permitted without restriction.
Promissory notes shall be issued under the Credit
Facilities only upon request.
Yield Protection: The Credit Documentation shall contain customary
provisions (a) protecting the Lenders 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 (b) indemnifying the
Lenders for "breakage costs" incurred in connection
with, among other things, any prepayment of a
Eurodollar Loan (as defined in Annex I) on a day other
than the last day of an interest period with respect
thereto.
<PAGE>
13
Expenses and On and after the Closing Date, the Borrower shall
Indemnification: pay (a) all reasonable out-of-pocket expenses of
the Administrative Agent and the Arranger
associated with the syndication of the Credit
Facilities and the preparation, execution,
delivery and administration of the Credit
Documentation and any amendment or waiver with
respect thereto (including costs or appraisals,
environmental reports, seismic and engineering
reports, surveys, mortgage insurance and the
reasonable fees, disbursements and other charges
of counsel) and (b) all out-of-pocket expenses of
the Administrative Agent and the Lenders
(including the reasonable fees, disbursements and
other charges of counsel) in connection with the
enforcement of the Credit Documentation.
The Administrative Agent, the Arranger and the
Lenders (and their affiliates and their respective
officers, directors, employees, advisors and
agents) will have no liability for, and will be
indemnified and held harmless against, any losses,
claims, damages, liabilities or expenses incurred
in respect of the financing contemplated hereby or
the use or the proposed use of proceeds thereof,
except to the extent they are found by a final,
non-appealable judgment of a court to arise from
the gross negligence or willful misconduct of the
indemnified party.
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent
and the Arranger: Simpson Thacher & Bartlett.
<PAGE>
Annex I
-------
Interest and Certain Fees
-------------------------
Interest Rate Options: The Borrower may elect that the Loans comprising each
borrowing bear interest at a rate per annum equal to:
the ABR plus the Applicable Margin; or
the Eurodollar Rate plus the Applicable Margin.
As used herein:
"ABR" means the higher of (i) the rate of interest
---
publicly announced by Chase as its prime rate in effect
at its principal office in New York City (the "Prime
-----
Rate") and (ii) the federal funds effective rate from
----
time to time plus 0.5%.
----
"Applicable Margin" means (a) 2.50%, in the case of
-----------------
Base Rate Loans (as defined below) and (b) 3.50%, in
the case of Eurodollar Loans (as defined below). The
foregoing margins shall be subject to reduction, upon
the repayment in full of the Facility II Term Loans and
provided that no event of default has occurred and is
continuing, as follows: (i) to 2.25%, in the case of
Base Rate Loans, and 3.25%, in the case of Eurodollar
Loans, upon the maintenance of a total leverage ratio
of greater than 3.25 to 1.0 but less than 3.5 to 1.0
and (ii) to 2.00%, in the case of Base Rate Loans, and
3.00%, in the case of Eurodollar Loans, upon the
maintenance of a total leverage ratio of 3.25 to 1.0 or
less.
"Eurodollar Rate" means the rate (adjusted for
---------------
statutory reserve requirements for eurocurrency
liabilities) for eurodollar deposits for a period equal
to one, two, three or six months (as selected by the
Borrower) appearing on Page 3750 of the Telerate
screen.
Interest Payment Dates: In the case of Loans bearing interest based upon the
ABR ("ABR Loans"), quarterly in arrears.
---------
In the case of Loans bearing interest based upon the
Eurodollar Rate ("Eurodollar Loans"), on the last day
----------------
of each relevant interest period and, in the case of
any interest period longer than three months, on each
successive date three months after the first day of
such interest period.
Commitment Fees: The Borrower shall pay a commitment fee calculated at
the rate of 0.50% per annum on the average daily unused
portion of the Revolving Facility, payable quarterly in
arrears.
<PAGE>
2
Letter of Credit Fees: The Borrower shall pay a fee on all outstanding Letters
of Credit at a per annum rate equal to the Applicable
Margin then in effect with respect to Eurodollar Loans
on the face amount of each such Letter of Credit. Such
fee shall be shared ratably among the Lenders
participating in the Revolving Facility and shall be
payable quarterly in arrears.
A fronting fee equal to 0.125% per annum on the face
amount of each Letter of Credit shall be payable
quarterly in arrears to the Issuing Lender for its own
account. In addition, customary administrative,
issuance, amendment, payment and negotiation charges
shall be payable to the Issuing Lender for its own
account.
Default Rate: At any time when the Borrower is in default in the
payment of any amount of principal due under the Credit
Facilities, such amount shall bear interest at 2% above
the rate otherwise applicable thereto. Overdue
interest, fees and other amounts shall bear interest at
2% above the rate applicable to ABR Loans.
Rate and Fee Basis: All per annum rates shall be calculated on the basis of
a year of 360 days (or 365/366 days, in the case of ABR
Loans the interest rate payable on which is then based
on the Prime Rate) for actual days elapsed.
<PAGE>
Schedule I
SOURCES AND USES*
<TABLE>
<S> <C> <C>
Sources:**
-------
Facility I Term Loans $190,000,000
Facility II Term Loans $ 80,000,000
Revolving Loans*** $ 0
Choice Hotels International Note $ 60,000,000
Planned Asset Sale $ 16,300,000
Options Proceeds $ 600,000
Bainum Rollover Equity $ 52,600,000
Management Rollover Equity $ 6,200,000
Cash Common Equity $ 0
Total Sources $405,700,000
============
Uses:
----
Purchase of Common Equity $ 52,100,000
Bainum Rollover Equity $ 52,600,000
Management Rollover Equity $ 6,200,000
Refinance Existing Credit Agreement $ 5,800,000
Refinance Mortgage Certificates $ 96,700,000
Working Capital $ 6,100,000
Choice Hotels International Note
Purchase Options $ 900,000
Purchase Restricted Shares $ 5,800,000
Payment of Fees and Expenses
(including breakage costs under Mortgage Certificates) $ 26,000,000
Total Uses $405,700,000
============
</TABLE>
__________________________________
*. All dollar amounts are approximations.
**. To be adjusted upon consummation of the Pending Clarion Sales to reflect
the consummation thereof. The Facility II Term Loans shall be reduced by an
amount equal to the net cash proceeds of such Pending Clarion Sales.
***. $20,000,000 availability after the Closing Date.