<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
--------------- -------------
Commission file number 0-23917
Chastain Capital Corporation
(Exact name of registrant as specified in its governing instrument)
Georgia 58-2354416
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3424 Peachtree Road N.E., Suite 800, Atlanta, Georgia 30326
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) (404) 848-8850
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 7,346,778 shares of
common stock outstanding as of November 12, 1998
<PAGE> 2
CHASTAIN CAPITAL CORPORATION
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets as of September 30, 1998
(Unaudited) and December 31, 1997 (Unaudited)
Consolidated Statements of Operations for the three
and nine months ended September 30, 1998 (Unaudited)
Consolidated Statement of Changes in Shareholders' Equity
for the nine months ended September 30, 1998 (Unaudited)
Consolidated Statement of Cash Flows for the nine
months ended September 30, 1998 (Unaudited)
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure about Market Risk
PART II - OTHER INFORMATION
Items 1 through 6
Signatures
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHASTAIN CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 (Unaudited) AND
DECEMBER 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Commercial mortgage-backed securities (CMBS)
available-for-sale, at market value $ 96,235,624
Mezzanine loan investments 41,338,164
Mortgage loan investments 28,056,755
Real estate investment, net 7,547,625
Cash and short-term investments 5,115,540 $1,000
Escrow cash 2,055,404
Accrued interest receivable 1,740,718
Other assets 662,705
------------- ------
Total assets $ 182,752,535 $1,000
============= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Short-term borrowings $ 78,930,614
Treasury locks payable 15,671,000
Accrued loan commitments losses 8,406,695
Dividends payable 2,446,969
Accrued management fees 437,598
Accrued interest expense 356,283
Accrued expenses and other liabilities 5,878,547
-------------
Total liabilities 112,127,706
-------------
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value. Authorized 25,000,000 shares, no
shares issued
Common stock, $.01 par value. Authorized 200,000,000 shares,
7,646,778 and 100 shares issued and 7,646,778 and 100
outstanding at September 30, 1998 and December 31, 1997,
respectively 76,468 $ 1
Additional paid-in capital 111,408,730 999
Change in net unrealized gain on securities available-for-sale 461,265
Distributions in excess of earnings (41,321,634)
------------- ------
Total shareholders' equity 70,624,829 1,000
------------- ------
Total liabilities and shareholders' equity $ 182,752,535 $1,000
============= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
CHASTAIN CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1998 1998
------------- -------------
<S> <C> <C>
REVENUE:
Interest income on CMBS $ 2,152,698 $ 2,469,793
Interest income on mezzanine loan investments 878,941 890,543
Interest income on mortgage loan investments 309,622 309,622
Rental income 161,650 169,629
Other income 4,925 4,925
Other interest income 113,654 1,122,968
------------ ------------
Total revenue 3,621,490 4,967,480
------------ ------------
OPERATING EXPENSES:
Losses on forward interest rate lock agreements 15,729,025 15,729,025
Impairment loss on mezzanine and mortgage loan commitments 8,406,695 8,406,695
Impairment loss on CMBS 7,219,289 7,219,289
Impairment loss on mezzanine loan investments 6,800,075 6,800,075
Impairment loss on mortgage loan investments 1,433,225 1,433,225
Impairment loss on real estate investments 189,708 189,708
Interest expense 788,658 788,658
Forfeited deposit 500,000 500,000
Management fees 437,572 658,558
General and administrative expense 210,292 389,490
Real estate operating expenses 54,353 56,719
Depreciation and amortization 21,629 26,942
Stock compensation to Manager -- 877,917
------------ ------------
Total operating expenses 41,790,521 43,076,301
------------ ------------
LOSS BEFORE GAIN ON SALE (38,169,031) (38,108,821)
GAIN ON SALE OF CMBS -- 42,426
------------ ------------
NET LOSS $(38,169,031) $(38,066,395)
============ ============
NET LOSS PER COMMON SHARE:
Basic and Diluted $ (4.46) $ (4.36)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and Diluted 8,553,648 8,735,178
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
CHASTAIN CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Number of Additional Other Distributions Total
Shares Common Paid-in Comprehensive in Excess of Comprehensive Shareholders'
Outstanding Stock Capital Income Earnings Income/(Loss) Equity
----------- ------- ---------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning of
period 100 $ 1 $ 999 $ 1,000
Net proceeds
from initial
public offering
on April
23, 1998 8,977,678 89,777 123,940,142 124,029,919
Shares issued to
Board of
Directors 3,000 30 44,970 45,000
Repurchase and
retirement of
common stock (1,334,000) (13,340) (13,466,154) (13,479,494)
Change in net
unrealized gain
on securities
available-for-sale $ 461,265 $ 461,265 461,265
Value of stock
options issued 888,773 888,773
Net loss $(38,066,395) (38,066,395) (38,066,395)
Dividends paid or
declared ($0.41
per share) (3,255,239) (3,255,239)
---------------------------------------------------------------------------------------------------
Balance at end of
period
7,646,778 $ 76,468 $111,408,730 $ 461,265 $(41,321,634) $(37,605,130) $ 70,624,829
===================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
CHASTAIN CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30,
1998
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- - ------------------------------------
Net loss $ (38,066,395)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Impairment loss on investments 24,048,992
Losses on forward interest rate lock agreements 15,729,025
Gain on sale of CMBS (42,426)
Depreciation and amortization 26,942
Amortization of discount/premium on CMBS available-for-sale (202,327)
Amortization of premium on mezzanine loan investment 71,054
Amortization of deferred financing costs 44,838
Stock options issued 888,773
Shares issued for Directors fees 45,000
Net (increase) decrease in assets:
Accrued interest receivable (1,740,718)
Other assets (687,619)
Net increase (decrease) in liabilities:
Accrued interest expense 356,283
Accrued management fees 437,598
Accrued expenses and other liabilities 2,150,708
-------------
Net cash provided by operating activities 3,059,728
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- - -------------------------------------
Purchases of CMBS available-for-sale (106,231,165)
Proceeds from sale of CMBS available-for-sale 3,477,500
Purchases of mezzanine loan investments (48,227,200)
Purchases of mortgage loan investments (29,525,000)
Purchase of real estate investments (6,854,807)
Capital additions to real estate (18,674)
-------------
Net cash used by investing activities (187,379,346)
-------------
</TABLE>
6
<PAGE> 7
CHASTAIN CAPITAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS - (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on investment borrowings 57,697
Proceeds from initial public offering 124,812,244
Deferred financing costs incurred (117,633)
Proceeds from sale of other invested assets 39,000
Proceeds from warehouse loan facilities 99,541,130
Repayments of warehouse loan facilities (20,610,516)
Purchase and retirement of common stock (13,479,494)
Dividends paid (808,270)
-------------
Net cash provided by financing activities 189,434,158
-------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,114,540
Cash and cash equivalents at beginning of period 1,000
-------------
Cash and cash equivalents at end of period $ 5,115,540
=============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Accrued public offering costs $ 782,325
=============
Accrued tenant liabilities $ 890,794
=============
Common stock dividends declared but not paid $ 2,446,969
=============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
7
<PAGE> 8
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 1-ORGANIZATION
Chastain Capital Corporation (the "Company") was incorporated in Georgia on
December 16, 1997 and was initially capitalized on such date through the sale of
100 shares of common stock, par value $.01 per share ("Common Stock") for an
aggregate purchase price of $1,000. On April 23, 1998, the Company consummated
an initial public offering ("IPO") of 7,380,000 shares of its Common Stock, with
gross proceeds of $110,700,000 and net proceeds to the Company of $102,951,000.
Additional public offering costs of $1,208,689 were incurred in connection with
the IPO.
The Company also issued, pursuant to two separate private placements, an
aggregate of 897,678 shares of Common Stock to Lend Lease Investments Holdings,
Inc. ("LLIH", formerly ERE Yarmouth Holdings, Inc.), an indirect wholly-owned
subsidiary of Lend Lease Corporation Limited ("Lend Lease"), and 700,000 shares
of Common Stock to FBR Asset Investment Corporation, an affiliate of Friedman,
Billings, Ramsey & Co., Inc., each of which closed concurrently with the closing
of the IPO, at $13.95 per share, with total proceeds to the Company of
$22,287,608.
Pursuant to the Company's Directors Stock Plan, each of the Company's three
independent directors received, as of the consummation of the IPO, $15,000
worth of Common Stock equal to 1,000 shares at the IPO price of $15.00 per share
as part of their annual director's fee.
The Company was organized to originate commercial and multifamily mortgage loans
("Mortgage Loans") for the purpose of issuing collateralized mortgage
obligations ("CMOs") collateralized by its Mortgage Loans and retaining the
Mortgage Loans subject to the CMO debt. The Company also was organized to
acquire subordinated interests in commercial mortgage-backed securities
("CMBS"), originate and acquire investments in real property that are
subordinated to first lien Mortgage Loans ("Mezzanine Investments") and acquire
real property and other real estate related assets.
On October 23, 1998 the Company announced that due to turmoil in the credit
markets, it was necessary to obtain temporary waivers from Morgan Guaranty Trust
and Merrill Lynch to avoid being in default of tangible net worth covenants
under the Company's credit facilities. The Board of Directors decided to
discontinue new investment activity and concluded that the Company needed to be
restructured. On November 13, 1998 the Company announced that it has reached an
agreement with Morgan Guaranty Trust Company of New York and Merrill Lynch
Mortgage Capital Inc. to restructure its credit facilities and to dispose of
certain assets to reduce the size and stabilize the volatility of the overall
portfolio. Proceeds from the asset sales will be used to reduce outstanding
indebtedness on both credit facilities. Through the asset sales and indebtedness
reduction, the Company believes it will satisfy its immediate liquidity needs.
The remaining portfolio will consist primarily of CMBS and mezzanine
investments. The Company is evaluating the strategic alternatives available to
maximize shareholder value and meet debt maturities.
In connection with the credit facility amendments, LLIH agreed to provide the
Company with up to $40 million of unsecured subordinated debt. An initial
advance of $17 million was drawn on November 13, 1998 and the remaining funds
can be drawn from time to time by the Company through maturity at March 31,
1999. The advances incur interest at the rate of 14% per annum through January
31, 1999 and 16% thereafter. The advances are prepayable at any time, subject to
certain notice requirements. The terms of the subordinated debt were reviewed
and approved by a special committee of the Board of Directors consisting of
independent directors not affiliated with Lend Lease. The special committee
obtained the advice of independent financial advisors and legal counsel in
negotiating the terms of the loan.
The amended credit facilities and new subordinated debt agreement provide the
Company with the necessary liquidity in the short term to fund its commitments,
meet margin calls and hold investments. The Merrill Lynch amendment requires the
$19 million in borrowings be repaid on or before January 31, 1999. The Morgan
Guaranty Trust amendment and the LLIH subordinated debt agreement both mature on
March 31, 1999. The company is evaluating the strategic alternatives available
to maximize shareholder value and meet these maturities, including additional
asset sales, refinancing or further restructuring of its capital base.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments, which are of a normal
recurring nature, to present fairly the Company's financial position, results of
operations, changes in shareholders' equity and cash flows at the dates and for
the periods presented. Interim results of operations are not necessarily
indicative of results to be expected for the fiscal year.
8
<PAGE> 9
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany accounts
have been eliminated in consolidation.
Cash and Short-term Investments
All highly liquid investments with original maturities of three months or less
are considered to be short-term investments.
Income Recognition
Income and expenses are recorded on the accrual basis of accounting.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business during a
period from transactions and other events and circumstances, excluding those
resulting from investments by and distributions to owners. Comprehensive income
includes net income and changes in unrealized gains and losses on securities
classified as available-for-sale.
CMBS
The Company classifies its CMBS as available-for-sale. Available-for-sale
securities are reported at market value with net unrealized gains and losses
reported as a separate component of shareholders' equity. The Company recognizes
income from CMBS under the effective interest method, using the anticipated
yield over the projected life of the investment. Changes in anticipated yields
are generally due to revisions in estimates of future credit losses, actual
losses incurred and actual prepayments. Changes in anticipated yield resulting
from prepayments are recognized over the remaining life of the investment with
recognition of a cumulative catch-up at the date of change from the original
investment date. The Company recognizes impairment on its CMBS whenever it
determines that the current estimate of expected future credit losses exceeds
credit losses as originally projected or when the Company determines that the
decline in the market value of its CMBS below amortized cost is other than
temporary. Impairment losses are determined by comparing the market value of a
CMBS to its current carrying amount, the difference being recognized as a loss.
If future credit loss estimates are increased and the market value of the
related CMBS is in excess of its carrying amount, the yield is adjusted
accordingly on a prospective basis. Reduced estimates of credit losses are
recognized as an adjustment to the estimated yield over the remaining life of
the CMBS. The Company uses specific identification in determining realized
gains/losses on its CMBS investments.
Mezzanine Loan Investments
The Company purchases and originates certain mezzanine loans to be held as
long-term investments. Loans held for investment are recorded at cost at the
date of purchase. Premiums and discounts related to these loans are amortized
over their estimated lives using the effective interest method. Any origination
fee income, application fee income and costs associated with originating or
purchasing mezzanine investments have been deferred and the net amount is added
to the basis of the loans on the balance sheet. The Company recognizes
impairment on the loans when it is probable that the Company will not be able to
collect all amounts due according to the contractual terms of the loan
agreement, or when the fair value of the loans is below amortized cost and the
Company determines that it may not be able to hold the loans until amortized
cost is recovered. It is currently uncertain whether the Company will be able to
hold its mezzanine investments until maturity. At September 30, 1998, mezzanine
loans are recorded at lower of cost or market value. The Company measures
impairment based on the present value of expected future cash flows discounted
at the loan's effective interest rate or the estimated market value of the loan.
9
<PAGE> 10
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Mortgage Loan Investments
The Company originated and has outstanding commitments for certain mortgage
loans that were to be held as long-term investments. Due to the turmoil in the
credit markets, and the Company's revised credit facility terms, the Company has
changed its strategy and is now holding its mortgage loans and commitments for
resale. Loans held for resale are accounted for at the lower of cost or market
value. Market value is determined based upon the Company's estimate of market
value.
Interest Rate Protection Agreements
The Company acquired interest rate protection agreements, in the form of forward
Treasury locks, to reduce its exposure to interest rate risk. At the time the
Treasury locks were acquired it was anticipated that they would hedge the
Company's exposure to future financing costs and thus qualify for hedge
accounting. Under hedge accounting, any gain or loss on the Treasury lock
settlements would be amortized over the term of the anticipated financing
agreement. To qualify for hedge accounting, these interest rate protection
agreement must meet certain criteria including: (1) the debt to be hedged
exposes the Company to interest rate risk, (2) the interest rate protection
agreement reduces the Company's exposure to interest rate risk, and (3) it is
probable that the anticipated financing will occur. In the event these interest
rate protection agreements do not qualify as hedges, such agreements are
reclassified to be investments accounted for at fair value, with any gain or
loss included as a component of income.
As a result of the recent turmoil in the credit markets the Company has
determined that its ability to obtain long-term, fixed-rate financing is not
probable. The turmoil also created uncertainty as to the Company's ability to
hold the investments and thus the Treasury locks no longer qualify for hedge
accounting. On October 23, 1998 the Company terminated all of its Treasury locks
and incurred a realized loss of $13.4 million, which will result in a gain of
$2.3 million being recognized in the fourth quarter of 1998.
On July 13, 1998 the Company entered into a LIBOR collar in the notional amount
of $89 million to mature on July 1, 1999 in order to hedge against rising short
term borrowing costs. The collar contract effectively locks in the Company's
LIBOR base rate between a floor of 5.51% and a ceiling of 5.80% during the
term.
Income Taxes
The Company plans to make an election to be taxed as a real estate investment
trust ("REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as
amended. As a REIT, the Company must distribute to its shareholders at least 95%
of its taxable income and the Company is not subject to federal income tax to
the extent income is distributed.
Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average number
of shares outstanding for the period. Diluted earnings per share is computed on
the basis of the weighted average number of shares and dilutive common
equivalent shares outstanding for the period. The nine month computation assumes
the period began on April 23, 1998, when the Company commenced operations. For
purposes of diluted earnings per share, the computation of the weighted average
number of shares outstanding includes the impact of the assumed exercise of the
outstanding dilutive options to purchase Common Stock and assumes that the
proceeds from such issuance are used to repurchase shares of Common Stock at the
average market price of the Company's Common Stock for the period. For the three
and nine months ending September 30, 1998, all outstanding options to purchase
Common Stock of $1,246,253 were anti-dilutive.
10
<PAGE> 11
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income, expenses and unrealized gains
(losses) during the reporting period. Actual results could differ from those
estimates.
New Accounting Pronouncements
In June 1997, FASB issued SFAS 131 "Disclosures about Segments of an Enterprise
and Related Information" ("FAS 131"). FAS 131 establishes standards for the way
that public business enterprises to report information about operating segments
and related disclosures about products and services, geographical areas and
major customers. FAS 131 is effective for the Company's year ending December 31,
1998.
In June 1998, FASB issued SFAS 133 "Accounting for Derivative Instruments and
for Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and
reporting standards for derivative investments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. FAS 133 is effective for the Company beginning January 1, 2000. The
Company is evaluating its eventual impact on its financial statements.
11
<PAGE> 12
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 3 - MANAGEMENT FEES
The Company entered into a Management Agreement (the "Management Agreement")
with ERE Yarmouth, Inc., an indirect wholly-owned subsidiary of Lend Lease
Corporation Limited, under which ERE Yarmouth, Inc. advises the Company on
various facets of its business and manages its day-to-day operations, subject to
the supervision of the Company's Board of Directors. On July 13, 1998, the name
of ERE Yarmouth, Inc. was changed to Lend Lease Real Estate Investments, Inc.
("Lend Lease" or the "Manager"). Lend Lease continues as the advisor to the
Company.
Pursuant to the Management Agreement, the Company will pay the Manager a
quarterly base management fee equal to the following:
<TABLE>
<S> <C>
For the first four fiscal quarters
commencing with the fiscal
quarter ended June 30, 1998..... 1.00% per annum of the Average
Invested Assets (1) of the Company
During each fiscal quarter
thereafter...................... 0.85% per annum of the Average
Invested Assets up to $1 billion
0.75% per annum of the Average
Invested Assets from $1 billion
to $1.25 billion
0.50% per annum of the Average
Invested Assets in excess of
$1.25 billion
</TABLE>
The Management Agreement also provides for a quarterly incentive management fee
equal to the product of (A) 25% of the dollar amount by which (1) (a) Funds From
Operations (2) (before the incentive fee) of the Company for the applicable
quarter per weighted average number of shares of Common Stock outstanding plus
(b) gains (or minus losses) from debt restructuring or sales of assets not
included in Funds From Operations of the Company for such quarter per weighted
average number of shares of Common Stock outstanding, exceed (2) an amount equal
to (a) the weighted average of the price per share at initial offering and the
prices per share at any secondary offerings by the Company multiplied by (b) 25%
of the sum of the Ten-Year U.S. Treasury Rate plus four percent, and (B) the
weighted average number of shares of Common Stock outstanding.
In addition, the Management Agreement provides for a termination fee equal to
the sum of the base management fee and incentive management fee, if any, earned
during the immediately preceding four fiscal quarters.
- - ------------
(1) The term "Average Invested Assets" for any period means the average of the
aggregate book value of the assets of the Company, including a proportionate
amount of the assets of all of its direct and indirect subsidiaries, before
reserves for depreciation or bad debts or other similar noncash reserves less
(i) uninvested cash balances and (ii) the book value of the Company's CMO
liabilities, computed by dividing (a) the sum of such values for each of the
three months during such quarter (based on the book value of such assets as of
the last day of each month) by (b) three.
(2) The term "Funds From Operations" as defined by the National Association of
Real Estate Investment Trusts, Inc. means net income (computed in accordance
with GAAP) excluding gains (or losses) from debt restructuring, sales of
property and any unusual or non-recurring transactions, plus depreciation and
amortization on real estate assets, and after deduction of preferred stock
dividends, if any, and similar adjustments for unconsolidated partnerships and
joint ventures. Funds From Operations does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
12
<PAGE> 13
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 4 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of investments available-for-sale at
September 30, 1998 are summarized below. The par value of investment securities
available-for-sale was $123,077,975 at September 30, 1998.
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Realized Amortized Cost Unrealized Fair
Security Rating Cost Loss Adjusted Gain Value
- - -------------------- ------------- ---------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CMBS:
BBB- $ 24,443,465 $24,443,465 $461,265 $24,904,730
BB+ 15,825,389 $ 701,489 15,123,900 15,123,900
BB 20,630,506 987,768 19,642,738 19,642,738
BB- 4,351,742 517,203 3,834,539 3,834,539
B 32,170,042 3,665,355 28,504,687 28,504,687
B- 2,787,829 482,000 2,305,829 2,305,829
Unrated 2,784,675 865,474 1,919,201 1,919,201
------------ ---------- ----------- -------- -----------
Total $102,993,648 $7,219,289 $95,774,359 $461,265 $96,235,624
============ ========== =========== ======== ===========
</TABLE>
The fair value of the CMBS investments is based on either (i) the price obtained
from the investment banking institutions, which sold the CMBS to the Company, or
(ii) an average of at least three quotes received on similarly structured and
rated CMBS. The use of different market assumptions, valuation methodologies,
changing interest rates, widening interest rate spreads and the timing and
magnitude of credit losses may have a material effect on the estimates of fair
value. The fair value estimates presented herein are based on pertinent
information available as of September 30, 1998.
The CMBS tranches owned by the Company provide credit support to the more senior
tranches of the related commercial securitization. Cash flow from the underlying
mortgages is generally allocated first to the senior tranches, with the most
senior tranches having a priority right to cash flow. Then, any remaining cash
flow is generally allocated among the other tranches based on their seniority.
To the extent there are defaults and unrecoverable losses on the underlying
mortgages, resulting in reduced cash flows, the subordinate tranche will bear
this loss first. To the extent there are losses in excess of the most
subordinate tranches stated right to principal and interest, the remaining
tranches will bear such losses in order of their relative subordination.
At September 30, 1998, the amortized cost of the Company's investments in CMBS
exceeded market value by $6,758,024. Due to uncertainty of the Company's
ability to hold its CMBS investments until the cost of the CMBS is recovered,
the Company determined that the decline in the fair value of its CMBS below
amortized cost at September 30, 1998 was other than temporary. Accordingly, the
Company wrote down its investment in CMBS to fair value at September 30, 1998
and recognized an impairment loss of $7,219,289. The Company's ability to hold
its CMBS has been negatively affected by the recent turmoil in the financial
markets and its effect on the value of CMBS securities along with the
restructuring of the Company's debt agreements (see Note 8). Subsequent to
September 30, 1998, the Company sold certain of its investment in BBB- CMBS
securities for $13,826,912 and recognized an additional loss of approximately
$1,555,980. Also, subsequent to September 30, 1998 and through November 13,
1998, the fair value of the Company's remaining CMBS securities has
declined an additional $14,111,259.
13
<PAGE> 14
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 5 - MEZZANINE LOAN INVESTMENTS
As of September 30, 1998, the Company's investment in mezzanine loans consisted
of the following:
<TABLE>
<CAPTION>
Estimated
Underlying Interest Face Principal Unamortized Realized Carrying Fair
Security Rate Value Payments Premium Loss Value Value
-------- ---------- ----------- --------- ------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial real estate:
Office 9.20% $21,000,000 $3,708,946 $4,260,059 $20,448,887 $20,448,887
Hotel 9.55% 19,647,200 2,052,710 17,594,490 17,594,490
Multi-family 12.00% 2,800,000 $13,183 340,613 2,446,204 2,446,204
Other 11.82% 1,000,000 4,724 146,693 848,583 848,583
----------- ------- --------- ---------- ----------- -----------
Total $44,447,200 $17,907 $3,708,946 $6,800,075 $41,338,164 $41,338,164
=========== ======= =========== ========== =========== ===========
</TABLE>
At September 30, 1998, the amortized cost of the Company's investments in
mezzanine loans exceeded market value by $6,800,075. Due to the uncertainty of
the Company's ability to hold the mezzanine loans until the cost of the loans
could be recovered, the Company determined that the decline in the fair value of
the loans below amortized cost at September 30, 1998 was other than temporary.
Accordingly, the Company wrote down its investments in mezzanine loans to fair
value at September 30, 1998, and recognized an impairment loss of $6,800,075. In
addition, as of September 30, 1998 estimated losses on the Company's contractual
commitments to originate mezzanine loans in the amount $4,571,000 were $377,832.
The Company's ability to hold its mezzanine loans has been negatively affected
by the recent turmoil in the financial markets and its effect on the value of
the loans, along with the restructuring of its debt agreements (See Note 8).
The Company's $19,647,200 mezzanine loan investment includes foreign currency
transactions. The Company purchased the investment for 11.98 million in British
Sterling with an interest rate that floats over Sterling LIBOR ("Base Rate")
plus 4.00%. The exchange rate at the date of investment was 1.64. In order to
reduce the risk of foreign currency exchange rate fluctuations, the Company
entered into a foreign currency swap arrangement with Merrill Lynch Capital
Services, Inc. The swap agreement will provide the Company with an exchange rate
of 1.64 on the return of its principal regardless of exchange rate fluctuation.
The swap agreement also converts the Base Rate to US$ LIBOR minus 0.06%
regardless of movements in the Sterling LIBOR. The Company is subject to foreign
currency risk on the spread portion (4.00%) of the quarterly interest payments.
NOTE 6 - MORTGAGE LOAN INVESTMENTS
As of September 30, 1998, the Company's investment in mortgage loans consisted
of the following:
<TABLE>
<CAPTION>
Estimated
Interest Face Principal Realized Carrying Fair
Underlying Security Rate Value Payments Loss Value Value
------------------- ------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate:
Office 7.11% $16,000,000 $ 12,833 $ 678,354 $15,308,813 $15,308,813
Retail 7.00% 7,650,000 509,827 7,140,173 7,140,173
Hotel 7.16% 5,875,000 22,187 245,044 5,607,769 5,607,769
----------- ---------- ----------- ----------- -----------
Total $29,525,000 $ 35,020 $ 1,433,225 $28,056,755 $28,056,755
=========== ========== =========== =========== ===========
</TABLE>
At September 30, 1998, the amortized cost of the Company's investments in
mortgage loans exceeded market value by $1,433,225. In addition, as of September
30, 1998 estimated losses on the Company's contractual commitments to originate
mortgage loans in the amount of $119,900,000 were $8,028,864. Due to the
uncertainty of the Company's ability to hold the mortgage loans until the cost
of the loans are recovered, the Company has changed its strategy and is now
holding its mortgage loans and commitments for resale. Loans held for resale are
accounted for at the lower of cost or market value. Market value is determined
based upon the Company's estimate of market value. The Company recognized
impairment losses on its mortgage loans and commitments of $1,433,225 and
$8,028,864, respectively as of September 30, 1998.
Of the $119,900,000 of commitments outstanding at September 30, 1998,
$15,885,000 have been closed and $57,155,000 have been terminated through
negotiations with borrowers through November 13, 1998. The Company incurred
expenses of approximately $1.1 million associated with the termination of these
contractual commitments. These expenses were provided for in the impairment loss
of $8,406,695 recognized at September 30, 1998. Additionally, subsequent to
September 30, 1998 and through November 13, 1998 the Company estimates that it
has incurred additional impairment losses on its mortgage loans and commitments
of approximately $952,000.
14
<PAGE> 15
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 7 - REAL ESTATE INVESTMENTS
As of September 30, 1998, the Company's investments in real estate consisted of
the following:
<TABLE>
<CAPTION>
Date Acquired Property Location Square Feet Property Type Occupancy Anchor
- - ------------- -------- -------- ----------- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
6/26/98 Lakeside Plaza Stockton, CA 73,000 Retail 86% Marshall's
9/24/98 Bryarwood 85 Atlanta, GA 51,388 Office 100% Bell South
</TABLE>
At September 30, 1998, the cost of the Company's investments in real estate
exceeded market value by $189,708. Due to the uncertainty of the Company's
ability to hold the real estate investments long-term, the Company determined
that the decline in the market value of the real estate below book value at
September 30, 1998 was other than temporary. Accordingly, the Company wrote down
its investments in real estate to market value at September 30, 1998, and
recognized an impairment loss of $189,708. The Company's ability to hold its
real estate investments has been negatively affected by the recent turmoil in
the financial markets and its effect on the value of the property, along with
the restructuring of its debt agreements (See Note 8).
NOTE 8 - BORROWING ARRANGEMENTS
On May 15, 1998, the Company entered into two Master Loan and Security
Agreements, to provide financing for the Company's investments. The facilities
require assets to be pledged as collateral. The first loan agreement (the
"Morgan Stanley Agreement"), which was with Morgan Stanley Mortgage Capital,
Inc. permitted the Company to borrow up to $250,000,000 and was scheduled to
terminate on May 14, 1999. The facility was intended to finance first-mortgage
loans originated by the Company. As of September 30, 1998, there were no
borrowings outstanding under the Morgan Stanley Agreement. On October 26, 1998,
the Company terminated the agreement with Morgan Stanley at no cost to the
Company. The second agreement, which is with Morgan Guaranty Trust Company of
New York (the "Morgan Guaranty Agreement"), permitted the Company to borrow up
to $450,000,000 and was scheduled to terminate on May 14, 1999. As discussed
below, this agreement has been amended and will terminate on March 31, 1999. As
of September 30, 1998, there were $40,367,788 in borrowings outstanding under
the Morgan Guaranty Agreement, secured by the Company's investments.
On August 21, 1998, the Company entered into a Master Assignment Agreement with
Merrill Lynch Mortgage Capital, Inc. and Merrill Lynch Capital Services, Inc.
(the "Merrill Lynch Agreement"), to provide financing for the Company's
investments. The facility requires assets to be pledged as collateral. The
Merrill Lynch Agreement permitted the Company to borrow up to $35,000,000 and
was scheduled to terminate on August 20, 1999. As discussed below, this
agreement has been amended and will terminate on January 31, 1999. Outstanding
borrowings against this line of credit bear interest based on the LIBOR rate
plus 1.25%. The Merrill Lynch Agreement allows the lender to establish a margin
requirement on each borrowing, and to request payments from the Company, at any
time, if the market value of the collateral falls below the applicable margin
requirement. As of September 30, 1998, borrowings outstanding under the Merrill
Lynch Agreement were $20,995,826.
On August 25, 1998, the Company entered into a Master Repurchase Agreement with
Deutsche Bank Securities, Inc. (the "Deutsche Bank Agreement"), which provides
financing for the Company's investments. The facility provides that all
transactions are intended to be treated as sales and purchases rather than
loans, and requires assets to be transferred. The Deutsche Bank Agreement
permits the Company to enter into an unlimited number of transactions, subject
to the approval of both Deutsche Bank and the Company. The Deutsche Bank
Agreement is a 30-day revolving facility, which may be terminated by either
party upon giving written notice to the other, except that the agreement shall
remain applicable to any transactions then outstanding. Transactions bear
interest at a rate negotiated between Deutsche Bank and the Company at the
inception of a transaction. The Deutsche Bank Agreement allows Deutsche Bank to
establish a margin requirement on each transaction, and to request payment from
the Company at any time, if the market value of the underlying assets or
securities falls below the applicable margin requirement however the agreement
had no financial covenants and thus did not require amendment along with the
Morgan Guaranty Trust and Merrill Lynch agreements. As of September 30, 1998,
transactions outstanding under the Deutsche Bank Agreement were $17,567,000 and
principal payments due and accrued totaled $302,625. These transactions were
collateralized by two CMBS investments valued at $18,171,250 at September 30,
1998.
The annualized rate of interest on the Company's borrowings for the three and
nine months ended September 30, 1998 was 6.46%.
The Company has experienced significant losses in its investment portfolio due
to spread widening on its investments, which has adversely affected the value of
the Company's portfolio. As a result of these losses, on October 23, 1998 the
Company announced it was necessary to obtain temporary waivers from Morgan
Guaranty Trust and Merrill Lynch to avoid being in default of tangible net
worth covenants under the Company's credit facilities. On November 13, 1998 the
Company reached an agreement with Morgan Guaranty Trust Company of New York and
Merrill Lynch Mortgage Capital, Inc. to restructure its credit facilities and
terminated the Morgan Stanley Mortgage Capital Facility.
Under its amended agreement with Morgan Guaranty Trust, the Company's credit
facility has been reduced to $90 million, $30 million of which is currently
available to fund the Company's outstanding mortgage loan commitments. The
facility reduces to $50 million on January 31, 1999. The interest rate is LIBOR
plus 1.5% from November 13, 1998 to December 31, 1998 and LIBOR plus 2.0% from
January 1, 1999 until the facility matures on March 31, 1999. As part of the
amended agreement, the Company has agreed to sell $19.6 million of whole
mortgage loans to Morgan Guaranty Trust and has paid an amendment fee of
$800,000.
15
<PAGE> 16
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Under the amended agreement with Merrill Lynch Mortgage Capital, the Company
agreed to pay down the outstanding borrowings to $19 million, and further agreed
that no additional borrowings would be permitted and that the facility matures
on January 31, 1999. The amended agreements with Morgan Guaranty Trust and
Merrill Lynch Mortgage Capital contain covenants that appropriately reflect the
reduced size of the Company's portfolio.
In connection with the credit facility amendments, on November 13, 1998 LLIH
agreed to provide the Company with up to $40 million of unsecured subordinated
indebtedness. An initial advance of $17 million was drawn on November 13, 1998
and the remaining funds can be drawn from time to time by the Company through
maturity at March 31, 1999. The advances incur interest at the rate of 14% per
annum through January 31, 1999 and 16% thereafter. The advances are prepayable
at any time subject to certain notice requirements.
NOTE 9 - STOCK OPTION PLAN
The Company adopted a stock option plan to provide incentive compensation for
the Company's executive officers and the Manager, whereby at the closing of the
IPO the Manager was granted a fully vested option to purchase 1,166,667 shares
of Common Stock of the Company exercisable at the IPO price. One-fourth of the
Manager's options will become exercisable on each of the first four
anniversaries of the closing date of the IPO. The fair value of the option
granted to the Manager was $877,917, which has been recognized as expense in the
quarter ended June 30, 1998.
The underwriters sold 79,586 shares of Common Stock that were purchased in the
IPO to directors and officers of the Company and the Manager for $15.00 per
share. Pursuant to the Company's Directed Share Program, such individuals were
granted an option to purchase one share of Common Stock for each share of Common
Stock purchased in the IPO. One-fifth of the options became exercisable
immediately, and one-fifth of the options will become exercisable on each of the
first four anniversaries of the closing date of the IPO. The fair value of the
options granted under the Company's Directed Share Program was $54,279.
One-fifth of this value, $10,856, has been recognized as expense for the period
ended September 30, 1998.
NOTE 10 - INTEREST RATE PROTECTION AGREEMENTS
In order to help mitigate the risk of a material change in interest rates that
would affect the Company's borrowing rate on its lines of credit and on
anticipated future long-term borrowings secured by the Company's investments,
the Company has entered into forward Treasury lock agreements, an interest rate
collar and an interest rate cap. None of these agreements were held for trading
purposes. The Treasury locks allowed the Company to lock in a rate for
anticipated financings that were expected to close in 1999. The settlement of a
Treasury lock at maturity will create a gain or loss equal to the change in
present value of the Treasury rate lock from the date purchased to the maturity
date. Any gains or losses are included with the related financing and amortized
under the effective interest method. The Company's policy was to purchase a
forward Treasury lock whenever a fixed rate mortgage loan closed or when a
borrower requested a rate lock under an executed loan application. Depending on
the size of fixed rate mortgage loans, the Company in some cases aggregated
loans and purchased a single Treasury lock for a pool of small loans. The
Company also entered into forward Treasury locks in anticipation of long-term
financing of its CMBS and mezzanine investments that were expected to close in
1999.
As a result of the recent turmoil in the credit market, and the Company's
failure to comply with its debt agreements, the Company determined that its
ability to obtain long-term, fixed-rate financing was not probable at September
30, 1998. The turmoil also created uncertainty as to the Company's ability to
hold the investments, and thus the Treasury locks no longer qualified for hedge
accounting. As of September 30, 1998, the Company discontinued hedge accounting
and has reclassified the Treasury looks to investments accounted for at market
value, and a loss of $15,729,025 (including transaction costs) was recognized
as a component of income. On October 23, 1998 the Company terminated all of its
Treasury locks and incurred a realized loss of $13.5 million.
16
<PAGE> 17
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Below is a summary of the Company's interest rate protection agreements, which
included Treasury locks and an interest rate collar at September 30, 1998.
Treasury Locks
- - --------------
<TABLE>
<CAPTION>
Reference
Contract Date Maturity Forward Rate Treasury Notional Amount Fair Value
- - ------------- -------- ------------ -------- --------------- ----------
<C> <C> <C> <C> <C> <C>
5/20/98 4/30/99 5.69% 10 year $ 13,539,250 $ (1,328,000)
6/18/98 4/30/99 5.58% 10 year $ 11,898,031 $ (1,062,000)
6/30/98 4/30/99 5.54% 10 year $ 12,908,997 $ (1,110,000)
7/08/98 7/01/99 5.49% 10 year $ 44,275,490 $ (3,616,000)
7/09/98 7/01/99 5.47% 10 year $ 33,279,044 $ (2,666,000)
7/10/98 7/01/99 5.43% 5 year $ 23,710,586 $ (1,256,000)
8/06/98 4/30/99 5.50% 10 year $ 20,468,381 $ (1,701,000)
8/12/98 4/30/99 5.48% 10 year $ 8,817,961 $ (708,000)
8/24/98 4/30/99 5.35% 10 year $ 18,000,000 $ (1,281,000)
8/26/98 4/30/99 5.27% 10 year $ 14,547,000 $ (943,000)
------------ -----------
Total $201,444,740 $(15,671,000)
</TABLE>
Collar
- - ------
<TABLE>
<CAPTION>
Notional Floating
Purchase Maturity Amount Index Strike Fair Value
- - -------- -------- ------ ----- ------ ----------
<C> <C> <C> <C> <C> <C>
7/13/98 7/01/99 $89,131,070 1 mo. LIBOR 5.8%-5.51% $(294,000)
</TABLE>
17
<PAGE> 18
CHASTAIN CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE 11 - SUBSEQUENT EVENTS
Through November 5, 1998, the Company sold two of its BBB- bonds for
$13,826,912. The sales resulted in an additional loss of $1,555,980 since
September 30, 1998.
On October 23, 1998 the Company obtained temporary waivers from its lenders to
avoid being in default of tangible net worth covenants under the Company's
credit facilities. On November 13, 1998 the Company reached an agreement with
Morgan Guaranty Trust and Merrill Lynch Mortgage Capital to restructure its
credit facilities. On October 26, 1998, the Company terminated the Morgan
Stanley Mortgage Capital facility. As part of the amended agreements, the
Company agreed to sell $19.6 million of whole mortgage loans to Morgan Guaranty
Trust and paid an amendment fee of $800,000. Additional restructuring costs
including independent financial advisor and legal fees, will be approximately
$900,000 for a total of $1.7 million. (Note 8)
On November 13, 1998 LLIH agreed to provide the Company with up to $40 million
of unsecured subordinated indebtedness and funded an initial advance of $17
million. (Note 8)
Through November 13, 1998, the Company closed on mortgage loans totaling
$15,885,000, and terminated loan commitments totaling $57,155,000. The Company
incurred expenses of approximately $1.1 million associated with the termination
of these contractual commitments. These expenses were provided for in the
impairment loss of $8,406,695 recognized at September 30, 1998.
On November 16, 1998, the Company intends to sell $19.6 million in mortgage
loans that cost $21.7 million to Morgan Guaranty Trust.
18
<PAGE> 19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company was incorporated in Georgia on December 16, 1997 by Lend Lease Real
Estate Investments, Inc., formerly ERE Yarmouth, Inc., for the purpose of
investing in multifamily and commercial mortgage loans, CMBS interests,
mezzanine investments and real property. The Company expects to generate income
for distribution to its shareholders primarily from the net income derived from
its investments in real estate related assets. The Company intends to operate in
a manner that permits it to elect, and it intends to elect, to be subject to tax
as a REIT for federal income tax purposes. On April 23, 1998, the Company
commenced its operation upon consummation of a public offering of 7,380,000
shares of its Common Stock.
As of September 30, 1998, the Company closed on total transactions amounting to
$188,293,892. The transactions included CMBS interests, mezzanine loans,
mortgage loans and direct real estate purchases. During the third quarter, the
Company repurchased 1,334,000 outstanding shares of common stock at a price of
$13,479,494. These shares have been retired and accounted for as a reduction of
common stock of $13,340 and a reduction of additional paid-in capital of
$13,466,154.
The following discussion of the Company's consolidated financial condition,
results from operations, and capital resources and liquidity should be read in
conjunction with the Financial Statements and related Notes included in Item 1.
RECENT DEVELOPMENTS
On October 23, 1998 the Company announced that due to turmoil in the credit
markets, it was necessary to obtain temporary waivers from its lenders to avoid
being in default of tangible net worth covenants under the Company's credit
facilities. The Board of Directors decided to discontinue new investment
activity and concluded that the Company needed to be restructured. On November
13, 1998 the Company announced that it has reached an agreement with Morgan
Guaranty Trust and Merrill Lynch Mortgage Capital to restructure its credit
facilities and to dispose of certain assets to reduce the size and stabilize the
volatility of the overall portfolio. Proceeds from the asset sales will be used
to reduce outstanding indebtedness on both credit facilities. As a result of the
asset sales and indebtedness reduction, the Company believes it will satisfy its
immediate liquidity needs and will hold a portfolio consisting primarily of CMBS
and mezzanine investments.
In connection with the credit facility amendments, LLIH agreed to provide the
Company with up to $40 million of unsecured subordinated indebtedness. An
initial advance of $17 million was drawn on November 13, 1998 and the remaining
funds can be drawn from time to time by the Company through maturity at March
31, 1999. The advances incur interest at the rate of 14% per annum through
January 31, 1999 and 16% thereafter. The advances are prepayable at any time,
subject to certain notice provisions. The terms of the subordinated indebtedness
were reviewed and approved by a special committee of the Board of Directors
consisting of independent directors not affiliated with Lend Lease.
Under its amended agreement with Morgan Guaranty Trust, the Company's credit
facility has been reduced to $90 million, $30 million of which is currently
available to fund the Company's outstanding whole loan commitments. The facility
reduces to $50 million on January 31, 1999. As part of the amended agreement,
the Company has agreed to sell $19.6 million of whole mortgage loans to Morgan
Guaranty Trust and has paid an amendment fee of $800,000.
Under the amended agreement with Merrill Lynch Mortgage Capital, the Company
agreed to pay down the outstanding borrowings to $19 million, and further agreed
that no additional borrowings would be permitted and that the facility matures
on January 31, 1999. The amended agreements with Morgan Guaranty Trust and
Merrill Lynch Mortgage Capital contain covenants that appropriately reflect the
reduced size of the Company's portfolio.
FUNDS FROM OPERATIONS
Funds from operations ("FFO") is considered by many industry analysts to be a
useful supplement to reviewing the operating performance of a REIT. The numbers
are not, however, in accordance with GAAP and should be used accordingly. The
following table reconciles FFO and net income:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
ended September 30, 1998 ended September 30,1998
(in thousands except for per share data)
<S> <C> <C>
Net (loss) before gain on sale $(38,169) $(38,109)
Add: Real estate related depreciation 22 27
Stock compensation to Manager 878
-------- ---------
FFO $(38,147) $(37,204)
======== =========
Diluted weighted average shares outstanding 8,554 8,735
FFO per diluted weighted average shares outstanding $ (4.46) $ (4.36)
</TABLE>
FFO does not represent cash generated from operating activities in accordance
with GAAP and is not necessarily indicative of cash available to fund the
Company's operations, which is disclosed in the Consolidated Statement of Cash
Flows for the applicable periods. FFO should not be considered as an alternative
to net income as an indicator of the Company's operating performance, nor as an
alternative to the Statement of Cash Flows as a measure of liquidity. FFO, as
defined by the National Association of Real Estate Investment Trusts, represents
net income (computed in accordance with GAAP) applicable to common shares
excluding gains or losses from debt restructuring, sales of property and any
unusual or non-recurring transactions, plus depreciation and amortization, and
after such adjustments from unconsolidated partnerships and joint ventures.
RESULTS OF OPERATIONS
Revenue. Revenue totaled $3,621,490 and $4,967,480, respectively for the three
and nine months ended September 30, 1998. Revenue is comprised primarily from
interest income on CMBS investments, mezzanine loans, mortgage loans and from
the cash proceeds from the IPO before they were fully invested. The IPO proceeds
were fully invested on July 8, 1998. At September 30, 1998, rental income
consisted of two real estate investments. The real estate investments include
one retail property located in Stockton, California and one office building
located in Atlanta, Georgia.
19
<PAGE> 20
Operating Expenses. Operating expenses consist of expenses incurred in operating
the Company and property and investment operations and totaled $41,790,521 and
$43,076,301 respectively for the three and nine months ended September 30, 1998.
Included in the amounts were impairment losses totaling $39,778,017. These
losses are due to recent financial market conditions and the widening of credit
spreads, as well as losses associated with interest rate Treasury locks. During
the second quarter the Company recorded a one-time charge of $877,917 for stock
options issued to the Manager as part of the IPO. Management fees were
calculated at 1% per annum of the Average Invested Assets per quarter and
totaled $437,572 and $658,558 for the three and nine months ended September 30,
1998, respectively. The Company also recorded general and administrative
expenses of $210,292 and $389,490, respectively, fort the three and nine months
ended September 30, 1998. These costs consist of professional fees, insurance
costs and other miscellaneous expenses.
Gain on Sale of CMBS. The $42,426 gain on the sale of CMBS for the nine months
ended September 30, 1998, was due to a change in interest rates during the
period between the date the Company agreed to purchase a CMBS investment and the
actual settlement date. During the period, the Company decided to sell a portion
of the original investment resulting in the gain.
CHANGES IN FINANCIAL POSITION
Securities available-for-sale. The Company purchased CMBS with a par value of
$33,183,997 and $123,077,975 for the three and nine months ended September 30,
1998 for $29,230,127 and $106,231,165, respectively. At September 30, 1998, the
amortized cost of the Company's investments in CMBS exceeded market value by
$6,758,024. Due to uncertainty of the Company's ability to hold its CMBS
investments until the cost of the CMBS is recovered, the Company determined that
the decline in the market value of its CMBS below amortized cost was other than
temporary. Accordingly, the Company wrote down its investment in CMBS to market
value at September 30, 1998 and recognized an impairment loss of $7,219,289. The
Company's ability to hold its CMBS has been negatively affected by the recent
turmoil in the financial markets and its effect on the value of CMBS securities
along with the restructuring of the Company's debt agreements (see Note 8).
Subsequent to September 30, 1998, the Company sold certain of its investment in
BBB- CMBS securities for $13,826,912 and recognized an additional loss of
$1,555,980. Also, subsequent to September 30, 1998 and through November 13,
1998, the market value of the Company's remaining CMBS securities has
approximately declined an additional $14,111,259.
Mezzanine Loan Portfolio. The Company purchased mezzanine loans with a par value
of $22,447,200 and $44,447,200 for the three and nine months ended September 30,
1998 for $22,839,838 and $48,227,200, respectively. At September 30, 1998, the
amortized cost of the Company's investments in mezzanine loans exceeded market
value by $6,800,075. Due to the uncertainty of the Company's ability to hold the
mezzanine loans until the cost of the loans could be recovered, the Company
determined that the decline in the market value of the loans below amortized
cost at September 30, 1998 was other than temporary. Accordingly, the Company
wrote down its investments in mezzanine loans to market value at September 30,
1998, and recognized an impairment loss of $6,800,075. The Company's ability to
hold its mezzanine loans has been negatively affected by the recent turmoil in
the financial markets and its effect on the value of the loans, along with the
restructuring of its debt agreements (See Note 8). In addition, as of September
30, 1998, estimated losses on the Company's contractual commitments to originate
mezzanine loans in the amount of $4,571,000 were $377,832.
Mortgage Loan Portfolio. The Company originated $29,525,000 of commercial
mortgage loans for the three and nine months ended September 30, 1998. At
September 30, 1998, the amortized cost of the Company's investments in mortgage
loans exceeded market value by $1,433,225. In addition, as of September 30,
1998, estimated losses on Company's contractual commitments to originate
mortgage loans in the amount of $119,900,000 were $8,028,864. Due to the
uncertainty of the Company's ability to hold the mortgage loans until the cost
of the loans are recovered, the Company has changed its strategy and is now
holding its mortgage loans and commitments for resale. The Company recognized
impairment losses on its mortgage loans and commitments of $1,433,225 and
$8,028,864, respectively as of September 30, 1998.
Of the $119,900,000 of commitments outstanding at September 30, 1998,
$15,885,000 have been closed and $57,155,000 have been terminated through
negotiations with borrowers through November 13, 1998. The Company incurred
expenses of approximately $1.2 million associated with the termination of these
contractual commitments. These expenses were provided for in the impairment loss
of $8,406,695 recognized at September 30, 1998. Additionally, subsequent to
September 30, 1998, and through November 13, 1998, the Company estimates that it
incurred additional impairment losses on its mortgage loans and commitments of
approximately $952,000.
Real Estate Investments. The Company purchased Bryarwood 85, a wholly-owned
office building, on September 24, 1998 for $4,100,000. At September 30, 1998,
the cost of the Company's investments in real estate exceeded market value
by $189,708. Due to the uncertainty of the Company's ability to hold the real
estate investments long-term, the Company determined that the decline in the
market value of the real estate below book value at September 30, 1998 was other
than temporary. Accordingly, the Company wrote down its investments in real
estate to market value at September 30, 1998, and recognized an impairment loss
of $189,708. The Company's ability to hold its real estate investments has been
negatively affected by the recent turmoil in the financial markets and its
effect on the value of the property, along with the restructuring of its debt
agreements (See Note 8).
Short-term borrowings. The Company began borrowing on its short-term borrowing
facilities during the quarter ended September 30, 1998. The Company used its
short-term borrowing arrangements to finance its investments in certain CMBS and
mortgage and mezzanine loans. As of September 30, 1998, the Company had short-
term borrowings totaling $78,930,614. The total amount is comprised of:
Loan Facility Amount Borrowed Assets Pledged
- - --------------- --------------- --------------
Morgan Guaranty $40,367,788 Bear Stearns, GSMS 1998-GLII G, ASC 1996-MD6
B1 bonds
Merrill Lynch $20,995,826 Savoy mezzanine loan; CMAC 1997-ML1 F1 bond
Deutsche Bank $17,567,000 GMAC 1998-C1 F, ASC 1997-D4 A8 bonds
On October 23, 1998 the Company announced that due to turmoil in the credit
markets, it was necessary to obtain temporary waivers under its credit
facilities with Morgan Guaranty Trust and Merrill Lynch to avoid being in
default of tangible net worth covenants. The Company subsequently restructured
its credit facilities with these lenders and obtained additional financing from
LLIH as further discussed in Liquidity and Capital Resources and in the
footnotes to the Company's unaudited financial statements as of September 30,
1998.
Treasury locks payable. As a result of the recent turmoil in the credit market
and the Company's failure to comply with its debt agreements, the Company
determined that its ability to obtain long-term fixed rate financing was not
probable at September 30, 1998. The turmoil also created uncertainty as to the
Company's ability to hold its investments. Accordingly, the Company discontinued
hedge accounting for the Treasury locks and recognized a $15.7 million loss on
this agreement at September 30, 1998. On October 23, 1998 the Company terminated
all of its Treasury locks and incurred a loss of $13,345,708 million.
Accrued loan commitment losses. As of September 30, 1998, the market value of
the Company's contractual commitments to originate mortgage loans exceeded the
Company's committed purchase price of $119,900,000 by $8,028,864. Due to the
uncertainty of the Company's ability to hold the mortgage loans until the cost
of the loans are recovered, the Company has changed its strategy and is now
holding its mortgage loans and commitments for resale. Loans held for resale are
accounted for at the lower of cost or market value. The Company recognized
impairment losses on its mortgage loan commitments of $8,406,695 as of
September 30, 1998. In addition, as of September 30, 1998, estimated losses on
the Company's contractual commitments to originate mezzanine loans in the
amount of $4,571,000 were $377,832.
20
<PAGE> 21
Shareholders' Equity. Shareholders' equity increased $70,623,829 to $70,624,829
at September 30, 1998 from $1,000 at December 31, 1997. Shareholders' equity
increased by $124,029,919 as a result of the IPO on April 23, 1998. The increase
is primarily offset by common stock purchased by the company and retired during
the third quarter totaling $(13,479,494) and net losses of $ (38,066,395). Also
included in the change was a net unrealized gain on securities
available-for-sale of $461,265, $888,773 for the value of stock options issued
and dividends declared of $ (3,255,239).
CAPITAL RESOURCES AND LIQUIDITY
Liquidity is the ability for the Company to meet its cash requirements including
any ongoing commitments, borrowings, shareholder distributions, lending and
general business activities. The Company's source of liquidity during the period
ended September 30, 1998 consisted of net proceeds from the IPO, Master Loan and
Security agreement with Morgan Stanley Mortgage Capital, Master Loan and
Security agreement with Morgan Guaranty Trust Company of New York, Master Loan
and Security agreement with Merrill Lynch Mortgage Capital, Inc. and repurchase
financing from Deutsche Bank Securities, Inc. The net proceeds from the IPO were
$124,029,419. From the date of the IPO until the funds were invested in real
estate assets, the IPO proceeds were held in a short-term investment account
earning an annualized yield of 6.15%. Once the IPO proceeds were fully invested,
the Company began to utilize the Master Loan and Security Agreement that was
established with Morgan Guaranty Trust Company of New York in the amount of
$450,000,000, the Merrill Lynch Agreement in the amount of $35,000,000 and the
Deutsche Bank Agreement with unlimited transactions, subject to the approval of
both Deutsche Bank and the Company. As of September 30, 1998, the Company had
short-term borrowings totaling $78,930,614. The total amount is comprised of:
<TABLE>
<CAPTION>
Loan Facility Amount Borrowed Assets Pledged
- - ------------- --------------- --------------
<S> <C> <C>
Morgan Guaranty $ 40,367,788 Bear Stearns, GSMS 1998-GLII G, ASC 1996-MD6 B1 bonds
Merrill Lynch $ 20,995,826 Savoy mezzanine loan; CMAC 1997-ML1 F1 bond
Deutsche Bank $ 17,567,000 GMAC 1998-C1 F, ASC 1997-D4 A8 bonds
</TABLE>
As of September 30, 1998, no borrowings had been made against the Morgan Stanley
Master Loan and Security Agreement. On October 26, 1998, the agreement was
terminated at no cost to the Company.
On October 23, 1998, the Company obtained temporary waivers from Morgan
Guaranty Trust and Merrill Lynch to avoid being in default of tangible net
worth covenants under the Company's credit facilities. At the time, the Company
had $110,900,000 million of mortgage loan commitments that it needed
significant capital to fund. Through November 13, 1998 the Company closed
$6,885,000 of the mortgage loans and $57,155,000 have been terminated through
negotiations with borrowers. The Company incurred expenses of approximately
$1.1 million associated with the termination of these contractual commitments.
On November 13, 1998 the Company reached an agreement with Morgan Guaranty
Trust and Merrill Lynch Mortgage Capital to restructure its credit facilities.
In connection with the credit facility amendments, LLIH agreed to provide the
Company with up to $40 million of unsecured subordinated indebtedness. The
Morgan Guaranty Trust amendment provides additional financing of up to $30
million. The amendment also includes an agreement to sell mortgage loans to
Morgan Guaranty Trust for proceeds of $19.6 million. The proceeds from selling
mortgage loans and the additional financing available from Morgan Guaranty
Trust and LLIH should provide sufficient liquidity to close the Company's
remaining mortgage loan commitments and meet any additional margin calls from
lenders. The Company also intends to dispose of the remaining mortgage loans in
the near term.
The Company believes that it has the capital resources necessary to hold a core
portfolio of mezzanine and CMBS assets until March 31, 1999. During that time
the Company will be reviewing the strategic alternatives available to maximize
shareholder value and meet the March 31, 1999 maturity dates on the Morgan
Guaranty Trust and LLIH financing arrangements.
21
<PAGE> 22
REIT STATUS
The Company plans to make an election to be taxed as a REIT under sections 856
through 860 of the Code, commencing with its first REIT taxable year ending on
December 31, 1998. If the Company qualifies under Sections 856 through 860 of
the Code for taxation as a REIT, it generally will not be subject to federal
corporate income tax on its net income that is distributed currently to its
shareholders. That treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and shareholder levels) that generally
results from an investment in a corporation. In order to satisfy the
requirements, the Company must meet certain criteria, including certain
requirements regarding the Company's record keeping, ownership, assets, income
and distributions of taxable income.
YEAR 2000 DISCLOSURES
The inability of computers, software and other equipment to recognize and
properly process data fields containing a two-digit year is commonly referred to
as the Year 2000 compliance issue ("Y2K"). As the year 2000 approaches, such
systems may be unable to accurately process certain date-based information.
Y2K exposures of the Company are currently being assessed. Potential critical
exposures include reliance on third party vendors and building systems that are
not Y2K compliant. The Company has begun to communicate with our third party
service vendors such as the Manager and property managers in an effort to assess
their Y2K compliance status and the adequacy of their Y2K efforts.
The Manager has made Y2K compliance a high priority for replacement applications
and is in the process of updating and replacing other applications that are not
Y2K compliant. The Manager expects to complete the updating of its critical
systems no later than March 31, 1999, which will allow for nine months of
systems testing to resolve any remaining Y2K compliance issues. However, if any
of the vendors of the Manager's Y2K compliant software fail to perform pursuant
to their contracts with the Manager, the Manager's Y2K compliance could be
jeopardized, and could materially adversely affect the Company. The Manager does
not believe that the costs to remediate any Y2K issues will materially affect
its business, operations or financial condition, or will have an adverse affect
on its clients, including the Company.
Each property owned by the Company is being individually assessed in an effort
to identify critical Y2K issues specific to each property. Required remediation
strategies will depend on the outcome of the assessments and therefore will not
be developed until the property assessments are complete. The Manager expects
the majority of critical property assessments to be completed and remediation
efforts to be underway by the end of the first quarter of 1999.
The Company has not incurred any material costs to date relating to Y2K. Total
property assessment costs to the Company are expected to total approximately
$4,300. These costs were not incurred and therefore not accrued as of
September 30, 1998. Remediation efforts may vary significantly from one building
to the next. Therefore remediation costs can not be reasonably estimated until
the assessments are complete and remediation strategies determined.
The failure to adequately address the Year 2000 issue may result in the closure
of buildings owned by the Company. In order to reduce the potential impact on
the operations of the Company, contingency plans will be developed once Y2K
exposures have been assessed.
Building contingency plans will be developed on a property by property basis
once assessments have been completed. This will allow the efficient development
of contingency plans that take into account individual circumstances surrounding
each property. Contingency plans may involve the engagement of additional
security services, implementation of temporary systems modifications, and the
identification and engagement of alternate service vendors. Additional
contingency plans may be developed as circumstances warrant.
22
<PAGE> 23
FORWARD LOOKING STATEMENTS
Certain statements contained herein are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. These forward-looking statements may be identified by
reference to a future period(s) or by the use of forward-looking terminology,
such as "may", "will", "intend", "should", "expect", "anticipate", "estimate",
or "continue" or the negatives thereof or other comparable terminology. The
Company's actual results could differ materially from those anticipated in such
forward-looking statements due to a variety of factors, including, but not
limited to, changes in national, regional or local economic environments,
competitive products and pricing, government fiscal and monetary policies,
changes in prevailing interest rates, the course of negotiations, the
fulfillment of contractual conditions, factors inherent to the valuation and
pricing of interests in commercial mortgage-backed securities, credit risk
management, asset/liability management, the financial and securities markets,
the availability of and costs associated with the sources of liquidity, other
factors generally understood to affect the real estate acquisition, mortgage and
leasing markets and security investments, and other risks detailed in the
Company's registration statement on Form S-11, as amended, filed with the SEC,
the Company's quarterly report on Form 10-Q filed with the SEC, and other
filings made by the Company with the SEC. The Company does not undertake, and
specifically disclaims any obligation, to publicly release the results of any
revisions which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
23
<PAGE> 24
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
On April 23, 1998, the Securities and Exchange Commission (the "Commission")
declared effective the Company's Registration Statement on Form S-11 (File No.
333-42629) (the "Registration Statement") relating to the initial public
offering of 7,380,000 shares of its Common Stock at an initial public offering
price of $15.00 per share. In addition to the Company's initial public offering,
897,687 shares of the Company's Common Stock were sold to Lend Lease Investments
Holdings, Inc. (formerly ERE Yarmouth Holdings, Inc.) and 700,000 shares of the
Company's Common Stock were sold to FBR Asset Investment Corporation, in each
case for $13.95 per share in sales exempt from registration under the Securities
Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act. Both
Lend Lease Investments Holdings, Inc. and FBR Asset Investment Corporation are
"accredited investors" as that term is defined in Rule 501(a) promulgated by the
Commission under the Act. On April 28, 1998, the Company completed (i) the
offering of 7,380,000 shares of Common Stock, with gross proceeds of
$110,700,000 and net proceeds (after subtracting underwriting discounts and
commissions) to the Company of $102,951,000; (ii) the sale of 897,687 shares of
Common Stock to Lend Lease Investments Holdings, Inc. with net proceeds to the
Company of $12,522,608; and (iii) the sale of 700,000 shares of Common Stock to
FBR Asset Investment Corporation with net proceeds to the Company of $9,765,000.
The managing underwriters of the initial public offering were Friedman,
Billings, Ramsey & Co., Inc. and EVEREN Securities, Inc.
Item 3. Default Upon Senior Securities
None
Item 4. Submission of matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1 Subordinated Loan Agreement dated as of November 13, 1998
between Chastain Capital Corporation, as Borrower and
Lend Lease Investments Holdings, Inc., as Subordinated Lender.
10.2 Amendment and Agreement, dated as of November 13, 1998,
to and in respect of the Master Loan and Security Agreement,
dated as of May 15, 1998, between Chastain Capital Corporation,
a Georgia corporation, as Borrower, and Morgan Guaranty Trust
Company of New York, a New York Banking Corporation, as Lender.
10.3 Master Assignment Agreement among Chastain Capital Corporation,
Merrill Lynch Mortgage Capital, Inc., and Merrill Lynch Capital
Services, Inc.
10.4 Amendment No. 1 to Master Assignment Agreement among
Chastain Capital Corporation, Merrill Lynch Mortgage Capital,
Inc., and Merrill Lynch Capital Services, Inc., dated as of
October 23, 1998.
27.1 Financial Data Schedule (for SEC filing purposes only)
b) Reports
None
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Chastain Capital Corporation
By: /s/ Steve Grubenhoff
---------------------
Steve Grubenhoff
Chief Financial Officer
Date: November 16, 1998
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
10.1 Subordinated Loan Agreement dated as of November 13, 1998 between
Chastain Capital Corporation as Borrower and Lend Lease
Investments Holdings, Inc., as Subordinated Lender.
10.2 Amendment and Agreement, dated as of November 13, 1998, to and in
respect of the Master Loan and Security Agreement, dated as of
May 15, 1998, between Chastain Capital Corporation, a Georgia
corporation, as Borrower, and Morgan Guaranty Trust Company of
New York, a New York Banking Corporation, as Lender.
10.3 Master Assignment Agreement among Chastain Capital Corporation,
Merrill Lynch Mortgage Capital, Inc., and Merrill Lynch Capital
Services, Inc.
10.4 Amendment No. 1 to Master Assignment Agreement among Chastain
Capital Corporation, Merrill Lynch Mortgage Capital, Inc., and
Merrill Lynch Capital Services, Inc., dated as of October 23,
1998.
27.1 Financial Data Schedule (for SEC filing purposes only)
</TABLE>
26
<PAGE> 1
EXHIBIT 10.1
================================================================================
SUBORDINATED LOAN AGREEMENT
DATED AS OF NOVEMBER 13, 1998
BETWEEN
CHASTAIN CAPITAL CORPORATION,
AS BORROWER
AND
LEND LEASE INVESTMENTS HOLDINGS, INC.
AS
SUBORDINATED LENDER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - DEFINITIONS AND INTERPRETATION......................................................1
Section 1.1. Defined Terms............................................................1
Section 1.2. Certain Other Terms......................................................4
Section 1.3. Certain References.......................................................4
Section 1.4. Accounting Principles....................................................4
Section 1.5. Headings.................................................................4
ARTICLE II - THE LOANS..........................................................................5
Section 2.1. The Loan Commitment......................................................5
Section 2.2. Method of Disbursement of the Loans......................................5
Section 2.3. The Subordinated Note....................................................5
Section 2.4. Interest Rate and Payment of Interest....................................6
Section 2.5. Prepayment of the Loans..................................................6
Section 2.6. Repayment and Maturity...................................................6
Section 2.7. Use of Proceeds..........................................................7
Section 2.8. Subordination............................................................7
Section 2.9. Taxes...................................................................10
ARTICLE III - CONDITIONS PRECEDENT.............................................................11
Section 3.1. Documents Required for the Initial Loan.................................11
Section 3.2. Conditions Precedent to All Loans.......................................11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES....................................................12
Section 4.1. Representations of Borrower.............................................12
Section 4.2. Representations of the Subordinated Lender..............................13
ARTICLE V - COVENANTS..........................................................................14
Section 5.1. Financial Statements....................................................14
Section 5.2. Existence, Etc..........................................................15
Section 5.3. Maintenance of Property; Insurance......................................15
Section 5.4. Notices.................................................................16
Section 5.5. Other Information.......................................................16
Section 5.6. Prohibition of Fundamental Changes......................................16
Section 5.7. Limitation on Distributions.............................................17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VI - DEFAULT AND REMEDIES..............................................................18
Section 6.1. Events of Default.......................................................18
Section 6.2. Interest After Default; Interest on Interest............................19
Section 6.3. Remedies................................................................19
ARTICLE VII - MISCELLANEOUS....................................................................20
Section 7.1. Amendment and Waiver....................................................20
Section 7.2. Further Assurances......................................................20
Section 7.3. Enforcement and Waiver by the Subordinated Lender.......................20
Section 7.4. Costs and Expenses; Indemnification.....................................20
Section 7.5. Notices.................................................................23
Section 7.6. Binding Effect, Assignment and Entire Agreement.........................25
Section 7.7. Counterparts............................................................25
Section 7.8. Governing Law...........................................................25
Section 7.9. Waiver of Jury Trial; Submission to Jurisdiction........................25
</TABLE>
ii
<PAGE> 4
SUBORDINATED LOAN AGREEMENT
This Subordinated Loan Agreement, dated as of November 13, 1998,
between CHASTAIN CAPITAL CORPORATION, a Georgia corporation (the "BORROWER"),
and LEND LEASE INVESTMENTS HOLDINGS, INC., a Delaware corporation (the
"SUBORDINATED LENDER")
W I T N E S S E T H:
WHEREAS, the Borrower has entered into the agreements identified on
Schedule I hereto (as amended, modified or supplemented from time to time,
together with, to the extent permitted hereunder, all replacements, renewals,
extensions, substitutions or refinancings thereof, whether in whole or in part,
all referred to herein as the "SENIOR LOAN AGREEMENTS") with the financial
institutions identified on such Schedule (together with their respective
successors and assigns, the "SENIOR LENDERS"); and
WHEREAS, the Borrower has requested that the Senior Lenders modify
certain terms of the Senior Loan Agreements; and
WHEREAS, as a condition precedent to the Senior Lenders' modification
of the Senior Loan Agreements, the Senior Lenders have required that the
Borrower obtain additional financial support in the form of subordinated
capital; and
WHEREAS, in order to satisfy the condition precedent described above,
the Borrower has requested that the Subordinated Lender lend to the Borrower
from time to time the sum of up to $40,000,000, to be used by the Borrower to
fund loan commitments of the Borrower in existence on the date hereof and for
general working capital purposes; and
WHEREAS, the Subordinated Lender has agreed to lend to the Borrower
from time to time the sum of up to $40,000,000, upon the terms and subject to
the conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINED TERMS. For the purposes of this Agreement, the
following terms shall have the respective meanings set forth below:
"AGREEMENT" means this Subordinated Loan Agreement, as
amended, modified or supplemented from time to time.
<PAGE> 5
2
"BANKRUPTCY CODE" means the United States Bankruptcy Code of
1978, as in effect from time to time.
"BUSINESS DAY" means any day (other than a day that is a
Saturday, Sunday or legal holiday in the State of New York) on which
banks are open for business in New York City.
"CHANGE IN CONTROL" means the occurrence of any of the
following: (i) any entity, person (within the meaning of Section 14(d)
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) (other than the Borrower) that theretofore was
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
less than 51% of the Borrower's then outstanding common stock either
(A) acquires shares of common stock of the Borrower in a transaction or
series of transactions that results in such entity, person or group
directly or indirectly owning beneficially 51% or more of the
outstanding common stock of the Borrower, or (B) acquires, by proxy or
otherwise the right to vote for the election of directors, for any
merger, combination or consolidation of the Borrower or any of its
direct or indirect Subsidiaries, or for any other matter or question,
more than 51% of the then outstanding voting securities of the Borrower
(except where such acquisition is made by a person or persons appointed
by at least a majority of the board of directors of the Borrower to act
as proxy for any purpose); or (ii) Lend Lease Real Estate Investments,
Inc. ("LEND LEASE") or another Subsidiary of Lend Lease shall cease to
be the "Manager" under the Management Agreement, dated as of April 28,
1998 (the "MANAGEMENT AGREEMENT"), between the Borrower and [Lend
Lease] or the Management Agreement shall be terminated, unless the
"Manager" resigns voluntarily or terminates the Management Agreement.
"CLOSING DATE" means the date on which all of the conditions
set forth in Article III hereto have been satisfied in full by Borrower
or waived by the Subordinated Lender.
"COMMITMENT" has the meaning specified in Section 2.1.
"COMMITMENT TERMINATION DATE" means the earlier to occur of
(i) March 31, 1999 and (ii) the declaration by the Subordinated Lender,
pursuant to Section 6.3, of a Commitment Termination Event.
"COMMITMENT TERMINATION EVENT" means (i) any Event of Default
described in Section 6.1(f), (g), (h) or (j) or (ii) the declaration by
any Senior Lender, following a default under the Senior Loan Agreements
to which such Senior Lender is a party, that the Senior Debt owing to
such Senior Lender is due and payable before its stated maturity or
before its regularly scheduled dates of payment.
<PAGE> 6
3
"DEFAULT" means an event or condition the occurrence or
existence of that would, with the lapse of time or the giving of notice
or both, become an Event of Default.
"DEFAULT RATE" means the rate of interest in effect from time
to time applicable to Loans hereunder plus five percent (5%).
"DISTRIBUTION EVENT" has the meaning specified in Section
2.8(b).
"EVENT OF DEFAULT" has the meaning specified in Section 6.1.
"GAAP" has the meaning specified in Section 1.4.
"INTEREST PERIOD" has the meaning specified in Section 2.4(b).
"LOAN" means each loan made hereunder by the Subordinated
Lender in accordance with Article II.
"PERSON" means any individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated organization, association, joint venture
or other entity, or a government or any political subdivision or agency
thereof.
"SENIOR DEBT" means all obligations of the Borrower to make
payments of the principal of (and premium, if any), and interest on,
amounts outstanding under the Senior Loan Agreements and all other
obligations of the Borrower to the Senior Lenders under the Senior Loan
Agreements.
"SENIOR DEFAULT" means a Senior Nonmonetary Default or a
Senior Payment Default.
"SENIOR NONMONETARY DEFAULT" has the meaning specified in
Section 2.8(c).
"SENIOR PAYMENT DEFAULT" has the meaning specified in Section
2.8(c).
"SENIOR LENDERS" has the meaning specified in the recitals to
this Agreement.
"SENIOR LOAN AGREEMENTS" has the meaning specified in the
recitals to this Agreement.
"SUBORDINATED DEBT" has the meaning specified in Section
2.8(a).
<PAGE> 7
4
"SUBORDINATED LOAN DOCUMENTS" means this Agreement and the
Subordinated Note.
"SUBORDINATED NOTE" means a duly authorized, executed and
appropriately completed promissory note in the form of Exhibit A
attached hereto and made a part hereof.
"SUBSIDIARY" means, with respect to any Person, any other
Person of which at least a majority of the securities or other
ownership interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other
entity (irrespective of whether or not at the time securities or other
ownership interests of any other class or classes of such corporation,
partnership or other entity shall have or might have voting power by
reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person.
SECTION 1.2. CERTAIN OTHER TERMS. When used herein, words of any gender
shall include any other gender, and singular words shall include the plural and
vice versa, as the context may require.
SECTION 1.3. CERTAIN REFERENCES. Each reference in this Agreement to a
designated section, subsection, paragraph or subparagraph is a reference to the
designated section, subsection, paragraph or subparagraph, as the case may be,
of this Agreement. When used in this Agreement, the words "herein", "hereof" and
"hereunder", and other words of similar import, refer to this Agreement as a
whole and not to any particular provision of this Agreement.
SECTION 1.4. ACCOUNTING PRINCIPLES. When the character or amount of any
asset or liability or item of income or expense is required to be determined, or
any consolidation or other accounting computation is required to be made, for
the purposes of this Agreement, the same shall be determined or made, as the
case may be, in accordance with United States generally accepted accounting
principles ("GAAP") as in effect on the date of such determination.
SECTION 1.5. HEADINGS. All section and paragraph headings in this
Agreement, and any table of contents or index of documents or exhibits, are
included herein solely for convenience of reference and shall not constitute a
part of this Agreement for the purpose of the construction or interpretation
hereof.
<PAGE> 8
5
ARTICLE II
THE LOANS
SECTION 2.1. THE LOAN COMMITMENT. (a) AMOUNT. Subject to the terms and
conditions of this Agreement, the Subordinated Lender hereby agrees to lend to
the Borrower, in one or more disbursements made during the period from the date
hereof to the Commitment Termination Date, an aggregate principal amount not to
exceed the sum of $40,000,000 at any time outstanding (the "COMMITMENT"). Within
the foregoing limitations, and subject to the conditions set forth herein, the
Borrower may borrow, pay or prepay and reborrow hereunder.
(b) REDUCTION OF THE COMMITMENT. The Borrower may, at any time upon
written notice to the Subordinated Lender and written consent of the Senior
Lenders, reduce in part or terminate in whole the Commitment. Notwithstanding
any other provision of this Agreement, on the Commitment Termination Date, the
Commitment shall automatically and permanently terminate.
SECTION 2.2. METHOD OF DISBURSEMENT OF THE LOANS. Each disbursement of
a Loan shall be made by the Subordinated Lender pursuant to a notice of
borrowing delivered to the Subordinated Lender, with a copy to each Senior
Lender, not later than 11:00 AM (New York time) on the third Business Day before
the proposed date of the disbursement (the "DISBURSEMENT DATE"). Each notice of
borrowing shall be delivered by telecopier, or by telephone, confirmed
immediately by telecopier, specifying the requested Disbursement Date and the
amount of the Loan to be made on such date. The Subordinated Lender agrees that
on or before such Disbursement Date, the Subordinated Lender shall make
available to the Borrower, in same day funds such amounts requested by the
Borrower according to Section 2.1, which shall be delivered to the account
identified for such purpose in the notice of borrowing delivered to the
Subordinated Lender by the Borrower.
SECTION 2.3. THE SUBORDINATED NOTE. The indebtedness of the Borrower to
the Subordinated Lender resulting from Loans made from time to time pursuant to
this Agreement shall be evidenced by a Subordinated Note. The Subordinated
Lender will note on the grid attached to the Subordinated Note and in its
internal records, to the extent applicable, the date and amount of each Loan
made hereunder, and the amount of each payment in respect thereof, and prior to
any transfer of the Subordinated Note or any portion thereof, will endorse
thereon the outstanding principal amount evidenced thereby. Failure to make any
such notation shall not affect the Borrower's obligations in respect of the
Loans. Absent manifest error, the Subordinated Lender's records or notations on
the Subordinated Note as to the outstanding principal amount of the Subordinated
Note shall be conclusive.
<PAGE> 9
6
SECTION 2.4. INTEREST RATE AND PAYMENT OF INTEREST. (a) The outstanding
principal amount of each Loan shall bear interest from the date of such Loan
until the principal amount thereof is paid in full, payable on the last day of
each Interest Period for such Loan and on the date of payment in full of such
principal amount, at a rate equal to 14% per annum at all times during the
period from the date hereof through (and including) January 31, 1999 and 16% per
annum at all times thereafter. Interest shall be calculated on the basis of a
year of 365 days for the actual number of days (including the first day but
excluding the last day) elapsed.
(b) The period between the date any Loan is made and the date of
payment in full of the principal amount thereof shall be divided into successive
periods of one calendar month (each, an "INTEREST PERIOD"), with each such
Interest Period ending on the last day of a calendar month, except that the
initial Interest Period for any Loan shall begin on the date it is made. Each
subsequent Interest Period shall begin on the last day of the preceding Interest
Period; provided, that (i) any Interest Period that would otherwise end on a day
that is not a Business Day shall, subject to clauses (ii) and (iii) below, be
extended to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the next
preceding Business Day; (ii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (iii), end on the last Business Day of a calendar
month; and (iii) any Interest Period that would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
SECTION 2.5. PREPAYMENT OF THE LOANS. Subject to Section 2.8, the
Borrower shall have the right at any time, and from time to time, upon providing
notice to the Subordinated Lender at least one Business Day before the date of
prepayment, to prepay the Loans, in whole or in part, without premium or
penalty; provided that (a) both before and after giving effect to such
prepayment, no Senior Default shall have occurred and be continuing, (b) no
later than two Business Days prior to such prepayment, the Borrower shall have
provided to the Senior Lenders, a certificate establishing that, after giving
effect to such prepayment, the Borrower shall remain in compliance with all
financial covenants under the Senior Loan Agreements, and (c) prior to such
prepayment no Senior Lender shall have notified the Borrower that such Senior
Lender believes that such prepayment would result in a Senior Default. On and
after the Commitment Termination Date, if the Subordinated Note is paid in full,
it shall be surrendered to the Borrower and canceled and shall not be reissued.
SECTION 2.6. REPAYMENT AND MATURITY. (a) Subject to Section 2.8, the
Borrower shall repay the outstanding principal amount of the Subordinated Note
on the Commitment Termination Date. The Borrower shall make each payment under
this Agreement and under the Subordinated Note not later than 11:00 A.M. (New
York time) on the date when due in dollars of the United States of America to
the Subordinated Lender at the location set forth in the Subordinated Note
<PAGE> 10
7
(or such other location as the Subordinated Lender shall designate in writing to
the Borrower) in same day funds.
(b) Whenever any payment shall be stated to be due on a day other than
a Business Day, such payment shall be made on the next succeeding Business Day,
and interest shall be calculated up to that Business Day.
SECTION 2.7. USE OF PROCEEDS. The Borrower shall use the proceeds of
the Loans for only the purposes set forth in the recitals to this Agreement.
SECTION 2.8. SUBORDINATION.
(a) SUBORDINATION OF LIABILITIES. The Borrower, for itself, its
successors and assigns, covenants and agrees, and the holder of the indebtedness
evidenced by this Agreement and the Subordinated Note (the "SUBORDINATED DEBT")
by its acceptance hereof and thereof likewise covenants and agrees that the
payment of the principal of, and interest on, and all other amounts owing in
respect of, the Subordinated Debt is hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, to the prior payment in full of
the Senior Debt in cash. In furtherance of the foregoing, in each case to the
extent prohibited by this Section 2.8, the Subordinated Lender will not take,
demand or receive from the Borrower, and the Borrower will not make, give or
permit, directly or indirectly, by set-off, redemption, purchase or in any other
manner, any payment of or security for the whole or any part of the Subordinated
Debt. The subordination provisions set forth herein shall constitute a
continuing offer to the Senior Lenders and all persons who, in reliance upon
such provisions, become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the Senior Lenders and such holders,
which are hereby made obligees hereunder to the same extent as if their names
were written herein as such, and they and/or each of them may proceed to enforce
such provisions.
(b) UPON LIQUIDATION, DISSOLUTION, ETC. Upon any payment or
distribution of assets of the Borrower to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency or similar
proceedings of the Borrower, whether voluntary or involuntary (except in
connection with the consolidation or merger of the Borrower or its liquidation
or dissolution following the conveyance, transfer or lease of its properties and
assets substantially as an entirety) (each such event, a "DISTRIBUTION EVENT"),
the holders of Senior Debt will first be entitled to receive payment in full, in
cash or cash equivalents, of all amounts due or to become due on or in respect
of such Senior Debt (including interest accruing after the commencement of any
such proceeding at the rate specified in the applicable Senior Loan Agreement)
before the Subordinated Lender is entitled to receive any payment of principal
of or interest on the Subordinated Debt. In the event that, notwithstanding the
foregoing, the Subordinated Lender receives any payment or distribution of
assets of the Borrower of any kind or character after the occurrence of a
Distribution Event but
<PAGE> 11
8
before all the Senior Debt is paid in full, then such payment or distribution
will be held in trust for the holders of Senior Debt and will be required to be
paid over or delivered forthwith to the trustee in bankruptcy or other Person
making payment or distribution of assets of the Borrower for application to the
payment of all Senior Debt remaining unpaid, to the extent necessary to pay the
Senior Debt in full.
Upon the occurrence of any bankruptcy, insolvency or similar event or
proceeding commenced by or against the Borrower:
(i) the Subordinated Lender irrevocably authorizes and
empowers each Senior Lender (A) to demand, sue for, collect and receive
every payment or distribution on account of the Subordinated Debt
payable or deliverable in connection with such event or proceeding and
give acquittance therefor, and (B) to file claims and proofs of claim
in any statutory or non-statutory proceeding and take such other
actions, in its own name, or in the name of the Subordinated Lender or
otherwise, as such Senior Lender may deem necessary or advisable for
the enforcement of the provisions of this Agreement; provided, however,
that the foregoing authorization and empowerment imposes no obligation
on any Senior Lender to take any such action;
(ii) the Subordinated Lender shall take such action, duly and
promptly, as any Senior Lender may request from time to time (A) to
collect the Subordinated Debt for the respective accounts of the Senior
Lenders (ratably in accordance with the obligations owed to them by the
Borrower) and (B) to file appropriate proofs of claim in respect of the
Subordinated Debt; and
(iii) the Subordinated Lender shall execute and deliver such
powers of attorney, assignments or proofs of claim or other instruments
as the Senior Lenders may request to enable the Senior Lenders to
enforce any and all claims in respect of the Subordinated Debt and to
collect and receive (ratably in accordance with the obligations owed to
them by the Borrower) any and all payments and distributions that may
be payable or deliverable at any time upon or in respect of the
Subordinated Debt.
(c) UPON CERTAIN DEFAULTS. The Borrower may not make (and the
Subordinated Lender may not ask, demand, sue for, or otherwise take, accept or
receive) any payments on account of the Subordinated Debt if (i) a default in
the payment of principal of (or premium, if any) or interest on any Senior Debt
has occurred and is continuing or a default in the payment when due of any other
obligation under any Senior Debt has occurred and is continuing (a "SENIOR
PAYMENT DEFAULT") or (ii) any default (other than a Senior Payment Default) has
occurred and is continuing with respect to any Senior Debt permitting the
holders thereof (or a trustee or agent on behalf thereof) to accelerate the
maturity thereof (a "SENIOR NONMONETARY DEFAULT") until the date, if any, on
which the Senior Debt to which such Senior Default relates is paid in full or is
<PAGE> 12
9
waived or otherwise cured. In furtherance of the foregoing, unless and until the
earlier to occur of (i) the payment in full of the Senior Debt and (ii) April
10, 1999, the Subordinated Lender will not commence any proceeding against the
Borrower, or join with any creditor in any such proceeding, under any
bankruptcy, reorganization, readjustment of debt, arrangement of debt,
receivership, liquidation or insolvency law or statute of the Federal or any
state government, unless any Senior Lender shall also join in bringing such
proceeding (it being understood that the mere filing of a proof of claim by the
Subordinated Lender shall not constitute a breach hereof).
(d) SUBROGATION. Subject to the prior payment in full of all Senior
Debt in cash, the Subordinated Lender shall be subrogated to the rights of the
Senior Lenders to receive payments or distributions of assets of the Borrower
applicable to the Senior Debt until all amounts owing in respect of the
Subordinated Debt shall be paid in full, and for the purpose of such subrogation
no payments or distributions to the holders of the Senior Debt by or on behalf
of the Borrower or by or on behalf of the Subordinated Lender by virtue of the
subordination provisions set forth herein that otherwise would have been made to
the Subordinated Lender, shall be deemed to be payment by the Borrower to or on
account of the Senior Debt, it being understood that the subordination
provisions set forth herein are and are intended solely for the purpose of
defining the relative rights of the Subordinated Lender, on the one hand, and
the Senior Lenders, on the other hand.
(e) OBLIGATION OF THE BORROWER UNCONDITIONAL. Nothing contained in the
subordination provisions set forth herein is intended to or shall impair, as
between the Borrower and the Subordinated Lender, the obligation of the
Borrower, which is absolute and unconditional, to pay to the Subordinated Lender
the principal of and interest on the Subordinated Debt as and when the same
shall become due and payable in accordance with its terms, or is intended to or
shall affect the relative rights of the Subordinated Lender and creditors of the
Borrower other than the Senior Lenders, nor shall anything herein or therein
prevent the Subordinated Lender from exercising all remedies otherwise permitted
by applicable law, subject to the rights, if any, under the subordination
provisions set forth herein of the Senior Lenders in respect of cash, property,
or securities of the Borrower received upon the exercise of any such remedy.
Upon any distribution of assets of the Borrower referred to herein, the
Subordinated Lender shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
Subordinated Lender, for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Borrower, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
hereto.
(f) SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF BORROWER
OR SENIOR LENDERS. No rights of the Senior Lenders to enforce subordination as
herein provided shall at any
<PAGE> 13
10
time in any way be prejudiced or impaired by an act or failure to act on the
part of the Borrower or by any act or failure to act by any such Senior Lender,
or by any noncompliance by the Borrower with the terms and provisions of the
Subordinated Debt, regardless of any knowledge thereof that any such Senior
Lender may have or be otherwise charged with. The Senior Lenders may, without in
any way affecting the obligations of the Subordinated Lender with respect
thereto, at any time or from time to time and in its absolute discretion, change
the manner, place or terms of payment of, change or extend the time of payment
of, or renew or alter, any Senior Debt, or amend, modify or supplement any
agreement or instrument governing or evidencing such Senior Debt or any other
document referred to therein, or exercise or refrain from exercising any other
of their rights under the Senior Debt including, without limitation, the waiver
of a default thereunder and the release of any collateral securing such Senior
Debt, all without notice to or assent from the Subordinated Lender.
SECTION 2.9. TAXES. (a) Any and all payments by the Borrower shall be
made, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding taxes imposed on the Subordinated Lender's
income, and franchise taxes imposed on the Subordinated Lender, by any
jurisdiction (all such nonexcluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "TAXES"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable to the Subordinated Lender, (i) the sum payable shall be increased
as may be necessary so that, after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.9) the
Subordinated Lender receives an amount equal to the sum it would have received
had no such deductions been made; provided, however, that if the Borrower's
obligation to deduct or withhold Taxes is caused solely by the Subordinated
Lender's failure to provide appropriate withholding exemption certificates for
which the Subordinated Lender is eligible, no such increase shall be required;
(ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamps or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made or from the execution, delivery
or registration of, or otherwise with respect to, this Agreement or the
Subordinated Note (hereinafter referred to as "OTHER TAXES").
(c) The Borrower will pay when due all Taxes payable in respect of any
payment. Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Subordinated Lender, at its address set forth in the
Subordinated Note, the original or a certified copy of a receipt evidencing
payment of such Taxes.
<PAGE> 14
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(d) In the event that any amount payable to the Subordinated Lender is
increased pursuant to Section 2.9(a) on account of Taxes or the Borrower pays on
behalf of the Subordinated Lender any Taxes or Other Taxes, and subsequently the
Subordinated Lender receives a refund with respect to such amount, such Taxes or
Other Taxes, the Subordinated Lender shall promptly turn over such refund to
Borrower; provided, however, that such refund shall be retained by the
Subordinated Lender and turned over to the Borrower only when the Subordinated
Lender's rights to receive such refund shall have become final and
non-appealable.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1. DOCUMENTS REQUIRED FOR THE INITIAL LOAN. The obligation of
the Subordinated Lender to make the initial Loan hereunder is subject to the
satisfaction of the condition precedent that the Borrower shall have delivered
the following documents to the Subordinated Lender, in such number of
counterparts or copies as the Subordinated Lender may reasonably request:
(a) a duly executed copy of this Agreement and the Subordinated Note;
(b) certified (as of the Closing Date) resolutions of the board of
directors of the Borrower, in form and substance reasonably satisfactory to the
Subordinated Lender, authorizing the execution, delivery and performance of the
Subordinated Loan Documents;
(c) a certificate of an authorized officer of the Borrower, dated the
Closing Date, to the effect that:
(i) the representations and warranties of the Borrower set
forth in Section 4.1 are true and correct in all material respects as
of the Closing Date; and
(ii) no Commitment Termination Event has occurred and is
continuing as of the Closing Date;
(d) evidence, satisfactory to the Subordinated Lender that the Senior
Loan Agreements are in full force and effect; and
(e) such other documents, certificates and legal opinions as the
Subordinated Lender may reasonably request.
SECTION 3.2. CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the
Subordinated Lender to make each Loan (including the initial Loan) hereunder is
subject to the satisfaction of
<PAGE> 15
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the condition precedent that on the applicable Disbursement Date, no Commitment
Termination Event shall have occurred and be continuing (and the Subordinated
Lender shall have received a certificate of an authorized officer of the
Borrower, dated such Disbursement Date, to such effect).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS OF BORROWER. The Borrower represents and
warrants to the Subordinated Lender as follows:
(a) CORPORATE EXISTENCE: COMPLIANCE WITH LAW. The Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, (ii) has the corporate power and authority,
and has all governmental licenses, authorizations, consents and approvals
necessary, to own and operate its property, to lease the property it operates as
lessee and to carry on its business as now being or as proposed to be conducted,
(iii) is duly qualified to do business and is in good standing under the laws of
each jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify should be reasonably
expected (either individually or in the aggregate) to have a material adverse
effect on the business, assets, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries, taken as a whole, (iv) is in
compliance in all material respects with all applicable laws, and (v) is in
compliance in all material respects with its obligations under its articles of
incorporation and by-laws.
(b) CORPORATE POWER: AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
(i) The Borrower has the corporate power and authority, and the legal
right, to make, deliver and perform this Agreement and the Subordinated Note,
and has taken all necessary corporate action to authorize the borrowings on the
terms and conditions of this Agreement and the Subordinated Note, and the
execution, delivery and performance of this Agreement and the Subordinated Note.
(ii) No consent or authorization of, approval by, notice to, filing
with or other act by or in respect of, any governmental authority or any other
Person is required or necessary in connection with the borrowings hereunder or
with the execution, delivery, performance, validity or enforceability of this
Agreement or the Subordinated Note, except as previously obtained and currently
in full force and effect.
(iii) This Agreement and the Subordinated Note have been duly and
validly executed and delivered by the Borrower, and each constitutes, a legal,
valid and binding obligation of the
<PAGE> 16
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Borrower, enforceable against the Borrower in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(c) NO LEGAL BAR. The execution, delivery and performance of this
Agreement and the Subordinated Note, the borrowings hereunder and the use of the
proceeds thereof will not (i) violate any applicable law, any provision of the
Borrower's articles of incorporation or by-laws or contractual obligation of the
Borrower or (ii) result in, or require, the creation or imposition of any lien
on any of the Borrower properties or revenues pursuant to any applicable law,
any provision of any agreement, instrument or other undertaking to which the
Borrower is a party or by which any of its property is bound, or any provision
of any security issued by the Borrower.
(d) MARGIN REGULATIONS. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under, or for any other purpose which
violates or would be inconsistent with the provisions of, Regulation T, U or X
of the Board of Governors of the Federal Reserve System.
(e) INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Borrower is not an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or state statute or
regulation which limits its ability to incur indebtedness.
(f) BORROWER SOLVENT; FRAUDULENT CONVEYANCE. As of the date hereof and
immediately after giving effect to each Loan, (i) the fair value of the assets
of the Borrower is and shall be greater than the fair value of the liabilities
(including, without limitation, contingent liabilities if and to the extent
required to be recorded as a liability on the financial statements of the
Borrower in accordance with GAAP) of the Borrower, and (ii) the Borrower is and
will be solvent, is and will be able to pay its debts as they mature and does
not and will not have an unreasonably small capital to engage in the business in
which it is engaged and proposes to engage. Borrower does not intend to incur,
or believe that it has incurred, debts beyond its ability to pay such debts as
they mature. Borrower is not transferring any assets with any intent to hinder,
delay or defraud any of its creditors.
SECTION 4.2. REPRESENTATIONS OF THE SUBORDINATED LENDER.
(a) INFORMATION RECEIVED. The Subordinated Lender has had the
opportunity to ask questions of and receive answers from representatives of the
Borrower concerning the terms and conditions of this investment, and all
questions asked by the Subordinated Lender have been adequately answered to the
satisfaction of the Subordinated Lender. The Subordinated Lender has
<PAGE> 17
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received or has had access to all additional information concerning the Borrower
and the transactions contemplated hereby that it has requested.
(b) NONDISTRIBUTIVE INTENT. The Subordinated Lender is acquiring the
Subordinated Note for its own account, for investment and with no view to the
distribution thereof.
(c) SUBORDINATED NOTE NOT REGISTERED. The Subordinated Lender
acknowledges that the Subordinated Note has not been registered under the
Securities Act of 1933 or the securities laws of any state of the United States
or any other jurisdiction and may not be offered or sold by the Subordinated
Lender unless subsequently registered under that Act and any other applicable
securities laws or unless exemptions from the registration or other requirements
thereof are available for the transaction, which exemptions shall be established
to the reasonable satisfaction of the Borrower, by opinion of counsel or
otherwise.
(d) ECONOMIC LOSS AND SOPHISTICATION. The Subordinated Lender is able
to bear the economic risk of losing its entire investment in the Subordinated
Note. The Subordinated Lender's overall commitment to investments that are not
readily marketable is not disproportionate to its net worth. The Subordinated
Lender's investment in the Subordinated Note will not cause such overall
commitment to become excessive. The Subordinated Lender has such knowledge and
experience in financial and business matters that it is capable of evaluating
the risks and merits of this investment.
(e) LEGENDS ON THE SUBORDINATED NOTE. The Subordinated Lender
acknowledges that the certificates representing the Subordinated Note will
contain legends reflecting the subordination provisions hereof and the
restrictions on transfer imposed by the United States securities laws and that
such restrictions will be noted on the Borrower's transfer records.
ARTICLE V
COVENANTS
The Borrower covenants and agrees with the Subordinated Lender that, so
long as the Subordinated Lender shall have any Commitment or any amount payable
by the Borrower under the Subordinated Loan Documents shall remain outstanding:
SECTION 5.1. FINANCIAL STATEMENTS. The Borrower shall deliver to the
Subordinated Lender:
(a) as soon as available and in any event within 50 days after the end
of each of the first three quarterly fiscal periods of each fiscal year of the
Borrower, the consolidated and consolidating balance sheets of the Borrower and
its consolidated Subsidiaries as at the end of
<PAGE> 18
15
such period and the related unaudited consolidated and consolidating statements
of income and of cash flows for the Borrower and its consolidated Subsidiaries
for such period and the portion of the fiscal year through the end of such
period, if applicable, setting forth in each case in comparative form the
figures for the previous year, accompanied by a certificate of an authorized
officer of the Borrower, which certificate shall state that said consolidated
financial statements fairly present the consolidated and consolidating financial
condition and results of operations of the Borrower and its Subsidiaries in
accordance with GAAP, consistently applied, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 100 days after the end
of the fiscal year of the Borrower, the audited consolidated and consolidating
balance sheets of the Borrower and its consolidated Subsidiaries as at the end
of such fiscal year and the related consolidated and consolidating statements of
income and retained earnings and of cash flows for the Borrower and its
consolidated Subsidiaries for such year, if applicable, setting forth in each
case in comparative form the figures for the previous year, accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall not be qualified as to scope of audit or
going concern and shall state that said consolidated and consolidating financial
statements fairly present the consolidated Subsidiaries as at the end of, and
for, such fiscal year in accordance with GAAP; and
(c) promptly and in any event within five Business Days following
request therefor by the Subordinated Lender directed to the persons to whom
notice is to be given pursuant to Section 7.5, from time to time such other
information regarding the financial conditions, operations, or business of the
Borrower and its Subsidiaries as the Subordinated Lender may reasonably request.
SECTION 5.2. EXISTENCE, ETC. The Borrower will:
(i) preserve and maintain all of its material rights,
privileges, licenses and franchises;
(ii) comply with the requirements of all applicable laws
(including, without limitation, all environmental laws) if failure to
comply with such requirements should reasonably be expected (either
individually or in the aggregate) to have a material adverse effect on
the business, assets, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries, taken as a whole; and
(iii) keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently
applied.
SECTION 5.3. MAINTENANCE OF PROPERTY; INSURANCE. The Borrower shall
keep all property useful and necessary in its business in good working order and
condition. The Borrower shall
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16
maintain errors and omissions insurance and/or mortgage impairment insurance and
blanket bond coverage in such amounts as are in effect on the date hereof (as
disclosed to Subordinated Lender in writing) and shall not reduce such coverage
without the written consent of the Subordinated Lender, and shall also maintain
such other insurance with financially sound and reputable insurance companies,
and with respect to property and risk of a character usually maintained by
entities engaged in the same or similar business similarly situated, against
loss, damage and liability of the kinds and in the amounts customarily
maintained by such entities.
SECTION 5.4. NOTICES. The Borrower shall give notice to the
Subordinated Lender promptly:
(i) upon the Borrower becoming aware of and in any event
within two Business Days after, the occurrence of any Default or Event
of Default or any default under any other material agreement of the
Borrower including, but not limited to, any Senior Loan Agreement;
(ii) upon, and in any event within three Business Days after,
service of process on the Borrower or any of its Subsidiaries, or any
agent thereof for service of process, in respect of any legal or
arbitrable proceedings affecting the Borrower or any of its
Subsidiaries (A) that questions or challenges the validity or
enforceability of any of this Agreement or the Subordinated Note or (B)
in which the amount in controversy exceeds $1,000,000; and
(iii) of entry of a judgment or decree affecting the Borrower
in an amount in excess of $1,000,000.
Each notice pursuant to this Section 5.4 shall be accompanied by a statement of
an authorized officer of the Borrower setting forth details of the occurrence
referred to therein and stating what action the Borrower has taken or proposes
to take with respect thereto.
SECTION 5.5. OTHER INFORMATION. The Borrower shall furnish to the
Subordinated Lender, as soon as available, copies of any and all proxy
statements, financial statements and reports which the Borrower sends to its
stockholders, and copies of all regular, periodic and special reports, and all
registration statements filed with the Securities and Exchange Commission and/or
any governmental authority that supervises the issuance of securities by the
Borrower.
SECTION 5.6. PROHIBITION OF FUNDAMENTAL CHANGES. Neither the Borrower
nor any of its Subsidiaries shall enter into any transaction of merger or
consolidation or amalgamation, or dissolve itself (or suffer any dissolution).
<PAGE> 20
17
SECTION 5.7. LIMITATION ON DISTRIBUTIONS. The Borrower shall not make
any payment on account of, or set apart assets for, a sinking or other analogous
fund for the purchase, redemption, defeasance, retirement or other acquisition
of any equity or partnership interest of the Borrower, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower;
provided, however, that the foregoing shall not limit or prohibit the Borrower's
payment of dividends or distributions as required by the Internal Revenue Code
of 1986, as the same may be amended from time to time, in connection with the
Borrower's status as a real estate investment trust.
SECTION 5.8. LIMITATION ON ACQUISITIONS. Neither the Borrower nor any
of its Subsidiaries shall acquire any assets in excess of $1,000 individually
and $5,000 in the aggregate, other than pursuant to loan commitments in
existence on the date hereof.
SECTION 5.9. AMENDMENTS. The Borrower shall not agree to or enter into
any amendment to or other modification of any Senior Loan Agreement, other than
any amendments entered into on the date of this Agreement, that would have the
effect of increasing the principal amount of indebtedness, or rate of interest
or fees payable, under such Senior Loan Agreement.
SECTION 5.10. ADDITIONAL INDEBTEDNESS. Neither the Borrower nor any of
its Subsidiaries shall incur any indebtedness not outstanding on the date hereof
that shall rank senior to, or pari passu with, the Subordinated Debt except for:
(a) indebtedness under the Senior Loan Agreements; and
(b) indebtedness secured by assets of the Borrower upon which no lien,
security interest or encumbrance then exists, provided that such lien or
encumbrance, or recourse to the Borrower (subject to customary exceptions to
nonrecourse provisions), does not extend beyond the asset being financed. Such
assets shall include, but shall not be limited to, (i) a mortgage loan secured
by Lakeside Plaza and Bryarwood 85 Office Center and (ii) loans secured by
various mortgage-backed securities held by the Borrower on the date hereof and
upon which no lien or encumbrance currently exists.
<PAGE> 21
18
ARTICLE VI
DEFAULT AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if
any of the following conditions or events shall occur and be continuing:
(a) the Borrower shall default in the payment of any principal of the
Loans after the same becomes due and payable, whether at maturity or at a date
fixed for prepayment or by declaration or otherwise; or
(b) at any time the Borrower is not prohibited from making payments of
interest pursuant to Section 2.8, the Borrower shall default in the payment of
any interest on the Loan for more than three Business Days after the same
becomes due and payable; or
(c) the Borrower shall default in the performance or compliance with
any obligation to be performed or complied with by it hereunder (except the
obligations described in subsections (a) and (b) of this Section 6.1) and such
default shall not be remedied within twenty Business Days after the Borrower
shall receive notice of such failure from the Subordinated Lender; or
(d) the Borrower shall default in the payment of, or the Borrower shall
default in the performance of or compliance with any term under any agreement
creating, evidencing or securing, any Senior Debt in an aggregate outstanding
principal amount of at least $1,000,000, and, in each case as a consequence of
such default, such Senior Debt has become, or has been declared due and payable
before its stated maturity or before its regularly scheduled dates of payment;
or
(e) any representation, warranty or certificate made or furnished by
the Borrower in writing to the Subordinated Lender in connection with any
Subordinated Loan Document, or as inducement to the Subordinated Lender to enter
into any Subordinated Loan Document, or in any separate statement or document
delivered hereunder to the Subordinated Lender, shall have been materially false
or incorrect on the date as of which made; or
(f) the Borrower is generally not paying, or admits in writing its
inability to pay, its debts as they become due or shall have made an assignment
for the benefit of any of its creditors; or
(g) proceedings in bankruptcy, or for reorganization of the Borrower,
or for the readjustment of any of the debts thereof, or for the relief of
debtors, now or hereafter existing, shall have been commenced by the Borrower,
or shall have been commenced against the Borrower and shall not have been
discharged within 60 days of their commencement; or
<PAGE> 22
19
(h) a receiver, custodian or trustee shall have been appointed for the
Borrower or for any substantial part of its assets, or any proceedings shall
have been instituted for the dissolution or the full or partial liquidation of
the Borrower, and such receiver, custodian or trustee shall not have been
discharged within 60 days of its appointment, or such proceedings shall not have
been discharged within 60 days of their commencement, or the Borrower shall have
discontinued business or shall have materially changed the nature of its
business; or
(i) the Borrower shall have suffered final judgments for the payment of
money aggregating in excess of $1,000,000 that are not covered by insurance and
shall not have discharged or bonded the same within a period of 60 days unless,
pending further proceedings, execution shall not have been commenced or shall
have been effectively stayed; or
(j) a Change in Control shall occur.
SECTION 6.2. INTEREST AFTER DEFAULT; INTEREST ON INTEREST. Immediately
and without notice upon the occurrence of an Event of Default, and thereafter
until such Event of Default shall have been cured or waived by the Subordinated
Lender, the Loans shall accrue interest at the Default Rate, payable on demand
subject to Section 2.8. In addition to the foregoing, any interest payable
hereunder that is not paid when due, other than by operation of Section 2.8 at
any time prior to April 10, 1998, shall accrue interest at the Default Rate,
payable on demand, subject in all cases to Section 2.8.
SECTION 6.3. REMEDIES. If an Event of Default has occurred and is
continuing, the Subordinated Lender, by notice to the Borrower (i) may, if such
Event of Default constitutes a Commitment Termination Event, declare the
obligation of the Subordinated Lender to make Loans to be terminated, whereupon
the same shall forthwith terminate, and (ii) subject to Section 2.8, may declare
the Subordinated Note, all interest thereon and all other amounts payable under
this Agreement to be forthwith due and payable, whereupon the Subordinated Note,
all such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, however, that
upon the occurrence of an Event of Default pursuant to subsection (g) of Section
6.1, (A) the obligation of the Subordinated Lender to make Loans shall
automatically be terminated and (B) the Subordinated Note, all such interest and
all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower. Subject to Section 2.8, after any acceleration
of a Loan, as provided for above, the Subordinated Lender shall have, in
addition to the rights and remedies given it by the Subordinated Loan Documents,
all others allowed by all applicable laws.
<PAGE> 23
20
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. AMENDMENT AND WAIVER. This Agreement and the Subordinated
Note may not be amended except by an instrument in writing signed by the parties
hereto. The observance of any term hereof or of the Subordinated Note may be
waived (either retroactively or prospectively), with (and only with) the written
consent of the Borrower or the Subordinated Lender, as the case may be.
SECTION 7.2. FURTHER ASSURANCES. From time to time, the Borrower will
execute and deliver to the Subordinated Lender such additional documents and
will provide such additional information as the Subordinated Lender may
reasonably require to carry out the terms of this Agreement and to be informed
of the Borrower's status and affairs.
SECTION 7.3. ENFORCEMENT AND WAIVER BY THE SUBORDINATED LENDER. The
Subordinated Lender shall have the right at all times, subject to the provisions
of Section 2.8, to enforce the provisions of the Subordinated Loan Documents in
strict accordance with the terms hereof and thereof, notwithstanding any conduct
or custom on the part of the Subordinated Lender in refraining from so doing at
any time or times. The failure of a Subordinated Lender at any time or times to
enforce its rights under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of the Subordinated Loan Documents or as having in any
way or manner modified or waived the same. All rights and remedies of the
Subordinated Lender are cumulative and concurrent and the exercise of one right
or remedy shall not be deemed a waiver or release of any other right or remedy.
SECTION 7.4. COSTS AND EXPENSES; INDEMNIFICATION. (a) The Borrower
agrees to pay on demand (i) all reasonable costs and expenses of the
Subordinated Lender in connection with the execution, delivery, waiver,
amendment or enforcement of the Subordinated Loan Documents (including, without
limitation, the fees and expenses of counsel to the Subordinated Lender with
respect thereto, with respect to advising the Subordinated Lender as to its
rights and responsibilities, or the perfection, protection or preservation of
rights or interests, under the Subordinated Loan Documents, with respect to
negotiations with the Borrower or with other creditors of the Borrower or any of
its Subsidiaries arising out of any Default or any events of circumstances that
may give rise to a Default and with respect to presenting claims in or otherwise
participating in or monitoring any bankruptcy, insolvency or other similar
proceedings involving creditors' rights generally and any proceeding ancillary
thereto) and (ii) all costs and expenses of the Subordinated Lender in
connection with the enforcement of the Subordinated Loan Documents, whether in
any action, suit or litigation, any bankruptcy, insolvency or other similar
<PAGE> 24
21
proceeding affecting creditors' rights generally or otherwise (including,
without limitation, the reasonable fees and expenses of counsel for the
Subordinated Lender with respect thereto).
(b) (i) The Borrower agrees that it will indemnify and hold harmless
the Subordinated Lender to the fullest extent permitted by law, from
and against any and all losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and
disbursements (and any and all actions, suits, proceedings and
investigations in respect thereof and any and all legal or other costs,
expenses and disbursements in giving testimony or furnishing documents
in response to a subpoena or otherwise), including, without limitation,
the costs, expenses and disbursements, as and when incurred, of
investigating, preparing or defending any such action, proceeding or
investigation (whether or not in connection with litigation in which
the Subordinated Lender is a party thereto), directly or indirectly,
caused by, relating to, based upon, arising out of or in connection
with (A) this Agreement and the other Subordinated Loan Documents, (B)
the Senior Loan Agreements or (C) any untrue statement or alleged
untrue statement of a material fact contained in, or omissions or
alleged omissions from any filing with any governmental agency or
similar statements or omissions in or from any information furnished by
the Borrower or any of its Subsidiaries or Affiliates to the
Subordinated Lender or any other person in connection with this
Agreement and the other Subordinated Loan Documents; provided, however,
that such indemnity agreement shall not apply to any such loss, claim,
damage, obligation, penalty, judgment, award, liability, cost, expense
or disbursement to the extent it is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) to have
resulted primarily and directly from the gross negligence or willful
misconduct of the Subordinated Lender. The Borrower also agrees that
the Subordinated Lender shall have no liability (whether direct or
indirect, in contract or tort or otherwise) to the Borrower for or in
connection with this Agreement and the other Subordinated Loan
Documents or the transactions contemplated thereby including, without
limitation, the Senior Loan Agreements, except for any such losses,
claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses and disbursements that are finally
judicially determined by a court of competent jurisdiction (not subject
to further appeal) to have resulted from the bad faith or gross
negligence of the Subordinated Lender.
(ii) The indemnification provisions in this Section shall be
in addition to any liability that the Borrower may have to the
Subordinated Lender or the Persons indemnified below in this sentence
and shall extend to the following: the Subordinated Lender and its
Affiliates, directors, officers, employees, legal counsel, agents and
controlling persons (within the meaning of the federal securities
laws), and none of such indemnified persons shall be liable for any act
or omission of the others. All references to "the Subordinated Lender"
in these indemnification provisions shall be understood to include any
and all of the foregoing.
<PAGE> 25
22
(iii) In case any action or proceeding shall be commenced
involving the Subordinated Lender in respect of which indemnity may be
sought pursuant to this Section, the Subordinated Lender shall promptly
notify the Borrower in writing and the Borrower shall have the right to
assume the defense of such action, including the employment of counsel
reasonably satisfactory to the Subordinated Lender and the payment of
all fees and expenses of such counsel, as incurred. The Subordinated
Lender shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the Subordinated
Lender unless (A) the employment of such counsel shall have been
specifically authorized in writing by the Borrower, (B) the Borrower
shall have failed to assume the defense of such action or employ
counsel reasonably satisfactory to the Subordinated Lender or (C) the
named parties to any such action (including any impleaded parties)
include both the Subordinated Lender and the Borrower, and the
Subordinated Lender shall have been advised by such counsel that either
(A) there may be one or more legal defenses available to it that are
different from or additional to those available to the Borrower or (B)
a conflict may exist between the Borrower and the Subordinated Lender
(in which case the Borrower shall not have the right to assume the
defense of such action on behalf of the Subordinated Lender). The
Borrower shall indemnify and hold harmless the Subordinated Lender from
and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (A) effected with
the written consent of the Borrower or (B) effected without its written
consent if the settlement is entered into more than twenty Business
Days after the Borrower shall have received a request from the
Subordinated Lender for reimbursement for the reasonable fees and
expenses of counsel (in any case where such fees and expenses are at
the expense of the Borrower) and, prior to the date of such settlement,
the Borrower shall have failed to comply with such reimbursement
request. The Borrower shall not, without the prior written consent of
the Subordinated Lender, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the Subordinated Lender is or
could have been a party and indemnity or contribution may be or could
have been sought hereunder by the Subordinated Lender, unless such
settlement, compromise or judgment includes an unconditional release of
the Subordinated Lender from all liability on claims that are or could
have been the subject matter of such action.
(iv) Neither termination of the Commitment nor repayment of
the Loans shall affect the indemnification provisions contained in this
Section, which shall then remain operative and in full force and
effect.
(v) Notwithstanding anything to the contrary set forth herein,
no provision of Section 7.4 shall in any way effect or prejudice any
claim that the Borrower may have
<PAGE> 26
23
against Lend Lease or any Subsidiary thereof arising out of its
performance as "Manager" under the Management Agreement.
SECTION 7.5. NOTICES. Any notices or consents required or permitted by
this Agreement shall be in writing and shall be deemed delivered: (i) when
delivered in person: or (ii) if sent by certified mail, postage prepaid, return
receipt requested, or by a recognized overnight delivery service (with charges
prepaid) when received by the addressee thereof; or (iii) if sent by telecopy,
on the Business Day on which sent; in any such case to the following applicable
address, unless such address is changed by written notice hereunder:
If to the Borrower:
Chastain Capital Corporation
Attn: Steven G. Grubenhoff
Monarch Tower
3424 Peachtree Road, N.E.
Suite 800
Atlanta, Georgia 30326
Telecopier: (404) 848-8929
with a copy to:
Alston & Bird LLP
Attn: John S. Hetzel
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopier: (404) 881-7777
If to the Subordinated Lender:
Lend Lease Investments Holdings, Inc.
Attn: Amber Degnan
Monarch Tower
3424 Peachtree Road, N.E.
Suite 800
Atlanta, Georgia 30326
Telecopier: (404) 848-8904
<PAGE> 27
24
with a copy to:
King & Spalding
Attn: John J. Kelley, III
191 Peachtree Street
Atlanta, Georgia 30303-1763
Telecopier: (404) 572-5100
If to Senior Lenders:
Morgan Guaranty and Trust Company of New York
60 Wall Street, 18th Floor
New York, New York 10260
Attention: Clive Bull
Telephone: (212) 648-9496
Telecopier: (212) 648-5138
with a copy to:
Attention: General Counsel
Telephone: (212) 648-9344
Telecopier: (212) 648-5968
Merrill Lynch Mortgage Capital Inc.
Merrill Lynch World Headquarters
World Financial Center
North Tower - 22nd Floor
New York, New York 10281
Attention: James B. Cason
Telephone: (212) 449-1219
Telecopier: (212) 449-3673
with a copy to:
Attention: Michael A. Blum
Telephone: (212) 449-8486
Telecopier: (212) 449-6673
<PAGE> 28
25
Deutsche Bank AG, New York Branch
31 West 52nd Street
New York, New York
Attention: Repo Desk, Third Floor
SECTION 7.6. BINDING EFFECT, ASSIGNMENT AND ENTIRE AGREEMENT. (a) This
Agreement shall inure to the benefit of, and shall be binding upon, the
respective successors and permitted assigns of the parties hereto. The Borrower
has no right to assign any of its rights or obligations hereunder without the
prior written consent of the Subordinated Lender. This Agreement, and the
documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties and may be amended only by a writing signed on
behalf of the Borrower and the Subordinated Lender.
(b) The Subordinated Lender may at any time, with the consent of the
Borrower, such consent not to be unreasonably withheld, and which consent shall
not be required if an Event of Default has occurred and is continuing, assign
the Subordinated Note (or any part thereof) to any other person, and the
assignee thereof will be deemed to be a "Subordinated Lender" hereunder.
Borrower agrees to promptly notify the Senior Lenders of any assignment of the
Subordinated Note.
SECTION 7.7. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument.
SECTION 7.8. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 7.9. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. (a) The
Borrower agrees for the exclusive benefit of the Subordinated Lender that the
courts of the Supreme Court of the State of New York, County of New York,
Borough of Manhattan, and the United States District Court for the Southern
District of New York will have jurisdiction to settle any disputes which may
arise out of or in connection with this Agreement and that accordingly any suit,
action or proceeding arising out of or in connection with this Agreement may be
brought by the Subordinated Lender in any such court.
(b) The Borrower irrevocably waives and agrees not to raise any
objection that it may have now or hereafter to the laying of the venue of any
proceedings described in subsection (a) above in any such court as is referred
to in this Section 7.9 and any claim that any such proceedings have been brought
in an inconvenient forum and further irrevocably agrees that a
<PAGE> 29
26
judgment in any such proceedings brought in any such courts shall be conclusive
and binding upon the Borrower and may be enforced in the courts of any other
jurisdiction.
(c) The Borrower knowingly, voluntarily and intentionally waives any
right which it may have to a trial by jury in respect of any proceedings
described in subsection (a) above. The Borrower acknowledges and agrees that it
has received full and sufficient consideration for this provision.
<PAGE> 30
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives thereto duly authorized effective
as of the date first above written.
CHASTAIN CAPITAL CORPORATION
By
-----------------------------
Name:
Title:
LEND LEASE INVESTMENTS
HOLDINGS, INC.
By
-----------------------------
Name:
Title:
<PAGE> 1
AMENDMENT AND AGREEMENT
AMENDMENT AND AGREEMENT, dated as of November 13, 1998 (this
"Amendment"), to and in respect of the Master Loan and Security Agreement,
dated as of May 15, 1998 (as amended, supplemented or otherwise modified prior
to the date hereof, the "Existing Loan Agreement", and as amended hereto, the
"Loan Agreement"), between CHASTAIN CAPITAL CORPORATION, a Georgia corporation
(the "Borrower"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York
Banking corporation (the "Lender").
RECITALS
The Borrower has notified the Lender that it is unable to comply with
certain covenants and conditions contained in the Existing Loan Agreement. The
Borrower has requested the Lender to agree to amend certain provisions of the
Existing Loan Agreement as set forth in this Amendment. The Lender is willing
to agree to such amendments, but only on the terms and subject to the
conditions set forth in this Amendment (unless otherwise defined herein, terms
defined in the Existing Loan Agreement are used herein as therein defined).
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Borrower and the Lender hereby agree as follows:
SECTION 1
AMENDMENTS TO EXISTING LOAN AGREEMENT.
1.1 Section 1.01 of the Existing Loan Agreement is hereby
amended by adding the following new defined terms:
"`Amendment and Agreement' shall mean the Amendment
and Agreement, dated as of November 13, 1998, between the
Borrower and the Lender."
"`Change of Control' shall mean a "Change of
Control", as defined in the Subordinated Debt Agreement."
"`Subordinated Debt Agreement' shall mean the
Subordinated Loan Agreement, dated as of November 13, 1998
between Lend Lease Investments Holdings, Inc. and the
Borrower, as amended, modified and supplemented in accordance
with the provisions of this Amendment."
<PAGE> 2
1.2 Section 1.01 of the Existing Loan Agreement is hereby
amended by deleting the word "and" at the end of clause (c) of the
definition "Applicable Collateral Percentage", by replaceing the
punctuation at the end of clause (d) thereof with "; and" and by
adding the following clause (e) to the end thereof:
"(e) Notwithstanding the foregoing, from and after
November 13, 1998, the Applicable Collateral Percentage for
each additional First Mortgage Loan pledged on or after such
date pursuant to the Loan Agreement shall be 75%, and the
Applicable Collateral Percentages listed in clauses (a)
through (d) above, as applicable, shall continue to apply to
any Collateral pledged prior to such date."
1.3 Section 1.01 of the Existing Loan Agreement is hereby
amended (i) by deleting the introductory clause of the definition of
"Applicable Margin" and substituting in lieu thereof the following new
clause:
"`Applicable Margin' shall mean, for each Type of
Advance at all times prior to November 13, 1998, the
corresponding percentage set forth below:"; and
(ii) by inserting the following at the end of the definition thereof:
"and shall mean, for each Type of Advance (a) from
November 13,1998 through and including December 31, 1998,
1.50% and (b) on and after Juanuary 1, 1999, 2.00%."
1.4 Section 1.01 of the Existing Loan Agreement is hereby
amended by deleting the words "the higher of (i) the Lender's Prime
Rate and (ii)" from the definition of "Base Rate".
1.5 (a) Section 1.01 of the Existing Loan Agreement is
hereby amended by deleting the definition of "Eligible Assets" and
substituting in lieu thereof the following new definition:
"`Eligible Assets' shall mean (a) at all times prior
to November 13, 1998, the collective reference to Eligible
First Mortgage Loans, Eligible Mezzanine Loans, Eligible REO
Property, Eligible Second Mortgage Loans and Eligible
Securities, and (b) on and after the November 13, 1998, (i)
First Mortgage Loans which are listed on Schedule 1 attached
to the Amendment and Agreement and which otherwise satisfy
the requirements for Eligible First Mortgage Loan, (ii)
Eligible Assets which were pledged to the Lender prior to
November 13, 1998 and which otherwise continue to satisfy the
eligibility criteria for such Eligible Assets and (iii)
Additional Securities (as defined in the Amendment and
Agreement) so long as they satisfy the criteria for Eligible
Securities."
-2-
<PAGE> 3
1.6 Section 1.01 of the Existing Loan Agreement is hereby
amended by inserting at the end of the definition of "Interest
Expense" the phrase "other than Indebtedness under the Subordinated
Debt Agreement."
1.7 Section 1.01 of the Existing Loan Agreement is hereby
amended by deleting the definition of "Maximum Committed Credit" and
substituting in lieu thereof the following new definition:
"`Maximum Committed Credit' shall mean (a)
$90,000,000 until January 31, 1999 and (b) $50,000,000
thereafter."
1.8 Section 1.01 of the Existing Loan Agreement is hereby
amended by adding the following phrase after the word "GAAP" at the
end of paragraph (a) of the definition of "Tangible Net Worth":
", plus advances outstanding under the Subordinated
Debt Agreement".
1.9 Section 1.01 of the Existing Loan Agreement is hereby
amended by deleting the definition of "Termination Date" and
substituting in lieu thereof the following new definition:
"`Termination Date' shall mean March 31, 1999."
1.10 Section 2.09 of the Existing Loan Agreement is hereby
amended by deleting the number "$500,000" in the second line thereof
and substituting in lieu thereof "$90,000".
1.11 Section 2.14 of the Existing Loan Agreement is
hereby deleted in its entirety.
1.12 Section 6.22(b) of the Existing Loan Agreement is
hereby amended by deleting the figure "$100,000,000" therefrom and
substituting in lieu thereof "$65,000,000 until January 1, 1999 and
$50,000,000 thereafter".
1.13 Section 7.10(a) of the Existing Loan Agreement is
hereby amended by deleting the figure "$100,000,000" therefrom and
substituting in lieu thereof "$65,000,000 until January 31, 1999 and
$50,000,000 thereafter".
1.14 Section 7.10 of the Existing Loan Agreement is
hereby amended by adding the following Section (d):
"(d) Maintenance of Liquidity. The Borrower shall at
all times maintain cash or cash equivalents acceptable to the
Lender in an amount not less than $10,000,000."
-3-
<PAGE> 4
1.15 Section 8 of the Existing Loan Agreement is hereby
amended by replacing the punctuation at the end of subsection (q)
thereof with "; or" and by adding the following new subsections (r)
and (s) at the end thereof:
"(r) Change of Control. A Change of Control shall
occur; or"
"(s) Amendment and Agreement. The Borrower shall
fail to perform any of its obligations under the Amendment
and Agreement, and, in the case of Section 2.6 of the
Amendment and Agreement, such failure to perform shall
continue unremedied for a period of fourteen (14) days."
SECTION 2
COVENANTS
2.1 Financial Reporting. No later than 5:00 p.m., New
York City time, on Monday of each week (or if such day is not a
Business Day, the next succeeding Business Day), the Borrower shall
deliver to the Lender an updated balance sheet as of the end of the
previous week, which shall be in a form satisfactory to the Lender.
2.2 Amendment Fee. On or prior to the effective date of
this Amendment, the Borrower shall pay to the Lender an amendment fee
in an amount equal to $800,000.
2.3 Agreement Regarding Securities. The Borrower shall
pledge and deliver to the Custodian for the benefit of the Lender the
Bear Stearns Commercial Mortgage Securities, Inc. Commercial Mortgage
Pass-Through Certificates, Series 1998-C1, Class K (the "Additional
Securities") as additional collateral for the Secured Obligations to
be held by the Lender in accordance with the Loan Documents, and from
and after the date hereof, the Additional Securities shall constitute
Collateral under the Loan Agreement.
2.4 Purchase of Loans. The Borrower agrees to sell, and
the Lender agrees to purchase, the mortgage loans listed on Schedule 2
attached hereto on or prior to November 16, 1998 pursuant to a
Mortgage Loan Purchase Agreement substantially in the form of Exhibit
A hereto, subject to satisfactory completion of due diligence by the
Lender with respect to such mortgage loans.
2.5 Subordinated Debt. The Borrower shall not amend,
modify or otherwise supplement the Subordinated Debt Agreement, other
than amendments which are ministerial or operational in nature and not
adverse to the interests of the Lender, without the prior written
consent of the Lender. The Borrower agrees to deliver to the Lender a
substantially final draft of any proposed amendment no later than
12:00 noon, New York City time, two Business Days prior to the
proposed date of execution of such amendment and, no later than 12:00
noon, New York City time, two Business Days after the date of
execution, a copy of the final executed amendment.
-4-
<PAGE> 5
2.6 Asset Disposition Plan. Within fourteen (14) days
following the date of this Amendment, the Borrower shall deliver to
the Lender an asset disposition plan, in form and substance reasonably
satisfactory to the Lender.
2.7 Borrowing Base Deficiency. No later than November 13,
1998, the Borrower shall pay to the Lender all amounts owing to the
Lender pursuant to Section 2.09 of the Loan Agreement relating to any
existing Borrowing Base Deficiency;
SECTION 3
EFFECTIVENESS
3.1 Effectiveness. This Amendment shall become effective
upon:
(a) receipt by the Lender of evidence satisfactory
to the Lender that this Amendment has been duly executed and
delivered by the Borrower;
(b) receipt by the Custodian for the benefit of the
Lender of the Securities referenced in Section 2.3 hereof;
(c) receipt by the Lender of the Subordinated Debt
Agreement, duly executed and delivered by the Borrower and
Lend Lease Investments Holdings, Inc. ("Lend Lease"), in form
and substance satisfactory to the Lender;
(d) disbursement to the Borrower of an advance under
the Subordinated Debt Agreement in an amount sufficient to
permit the Borrower to comply with Section 7.10(a) of the
Loan Agreement (but in any event not less than $17,000,000);
(e) receipt by the Lender of the amendment fee and
payment by the Borrower of all other expenses required to be
paid in connection herewith or otherwise owing to the Lender
or its counsel;
(f) receipt by the Lender of a legal opinion of
counsel to the Borrower and Lend Lease, in form and substance
satisfactory to the Lender; and
(g) receipt by the Lender of an officer's
certificate which certifies that (i) no changes have been
made to the corporate governing documents of the Borrower
previously delivered to the Lender since such date of
delivery, (ii) all representations and warranties contained
in the Loan Agreement and this Amendment are true and correct
and (iii) no Default or Event of Default shall have occurred
and be continuing following consummation of the transactions
contemplated hereby.
SECTION 4
REPRESENTATIONS AND WARRANTIES
-5-
<PAGE> 6
4.1 To induce the Lender to enter into this Agreement,
the Borrower hereby represents and warrants to the Lender that, after
giving effect to the amendments and agreements provided for herein,
the representations and warranties contained in the Loan Agreement and
the other Loan Documents will be true and correct in all material
respects as if made on and as of the date hereof and that no Default
or Event of Default will have occurred and be continuing.
SECTION 5
MISCELLANEOUS
5.1 Reservation of Rights. The Lender hereby advises the
Borrower that, other than expressly provided herein, the Lender does
not waive any Defaults or Events of Default which may exist, and that
the current non-exercise of rights, remedies, powers and privileges by
the Lender under the Loan Documents and applicable law with respect to
such Defaults or Events of Default, if any, shall not be, and shall
not be construed as, a waiver thereof, and the Lender reserves its
rights (i) fully to invoke any and all such rights, remedies, powers
and privileges under the Loan Documents and applicable law at any time
any of them deems appropriate in such respect of any Defaults or
Events of Default that may exist, (ii) to refuse to make available any
further extensions of credit except in strict accordance with the
terms of the Loan Documents and (iii) to require that all Advances
bear interest at the rates specified in the Loan Agreement. Nothing in
this Amendment, and no extension of credit made by the Lender on or
after the date hereof, shall be construed as an acknowledgment or
determination by the Lender that no Default or Event of Default has
occurred or is continuing.
5.2 No Other Amendments. Except as expressly amended
hereby, the Existing Loan Agreement and the other Loan Documents shall
remain in full force and effect in accordance with their respective
terms, without any waiver, amendment or modification of any provision
thereof.
5.3 Counterparts. This Amendment may be executed by one
or more of the parties hereto on any number of separate counterparts
and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
5.4 Expenses. The Borrower agrees to pay and reimburse
the Lender for all of the out-of-pocket costs and expenses incurred by
the Lender in connection with the preparation, execution and delivery
of this Amendment, including, without limitation, the fees and
disbursements of Cadwalader, Wickersham & Taft, counsel to the Lender.
5.5 Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF NEW YORK.
[SIGNATURE PAGES FOLLOW]
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
CHASTAIN CAPITAL CORPORATION
By:
------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Lender
By:
------------------------------
Name:
Title:
-7-
<PAGE> 8
Schedule 1
LOANS CAPABLE OF BEING ELIGIBLE MORTGAGE LOANS
1. Country Squire $30,500,000
2. Shoppes at Longwood $14,200,000
-8-
<PAGE> 9
Schedule 2
LOANS TO BE SOLD TO THE LENDER
[DESCRIPTION TO BE SUPPLEMENTED]
<TABLE>
<CAPTION>
Loan Name Applicable Spread for Sale
--------- --------------------------
<S> <C> <C>
1. 330 Whitney 350 bps
2. Hampton Inn 380 bps
3. 3211 Scott 350 bps
4. Eckerd 325 bps
5. Hollywood Video 390 bps
</TABLE>
Purchase Prices shall be calculated using a yield equal to the yield on the 4
3/4% of 11/08 10 year US Treasury plus the applicable spread indicated above.
-9-
<PAGE> 10
EXHIBIT A
Form of Mortgage Loan Purchase Agreement
-10-
<PAGE> 1
EXHIBIT 10.3
MASTER ASSIGNMENT AGREEMENT
THIS AGREEMENT is made as of the 21st day of August, 1998 by and
between CHASTAIN CAPITAL CORPORATION ("Assignor"), MERRILL LYNCH MORTGAGE
CAPITAL INC. ("MLMCI") and MERRILL LYNCH CAPITAL SERVICES, INC. ("MLCS") By
executing this Agreement, Assignor, MLMCI and MLCS agree to be bound by the
terms of this Agreement.
WITNESSETH
WHEREAS the parties elect to enter into this Agreement and, at the
request of Assignor, MLMCI may from time to time at its option agree to make one
or more loans (in each instance, a "Loan") to Assignor, which Loans shall be
limited in aggregate outstanding principal amount, as of any date of
determination, to $35,000,000, said Loans to be evidenced by Assignor's Note
(the "Note") of even date herewith maturing on August 20, 1999 (the "Maturity
Date"), a form of which is attached hereto as Exhibit A; and
WHEREAS, in order to induce MLMCI to make Loans from time to time to
it, Assignor has agreed to assign and pledge to MLMCI and its affiliate, MLCS,
and grant to MLMCI and MLCS a lien upon and a security interest in the
Collateral (as hereinafter defined) for the purpose of securing its obligations
under the Note and certain obligations of Assignor to MLCS;
NOW, THEREFORE, in consideration of the foregoing and of the covenants
and agreements hereinafter set forth, Assignor and MLMCI agree as follows:
SECTION 1. DEFINITIONS; CONSTRUCTION
(a) Definitions. As used herein, the following terms shall have
the meaning herein specified (to be equally applicable to be the singular and
plural forms of the terms defined):
"Act of Insolvency" shall have the meaning set forth in Section 10(d)
hereof.
"Agency" shall refer to the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, and the Governmental National Mortgage
Association, as applicable.
"Agreement" shall mean this Master Assignment Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Base Currency" shall mean United States dollars.
"Book Net Worth" shall mean the equity of Assignor determined in
accordance with GAAP.
<PAGE> 2
"Business Day" shall mean any day excluding Saturday, Sunday, or any
other day on which banks in The City of New York are authorized or required by
law to be closed.
"Certificate Issuance Agreements" shall mean the agreements pursuant to
which the related Pledged MBSs or Pledged Certificates, as the case may be, have
been issued, including any agreements relating to the payment or distribution of
amounts to the holder of such Pledged MBSs or Pledged Certificates, which
agreements have been previously approved by MLMCI or its affiliate.
"Closing Date" shall mean with respect to each Loan, the closing date
set forth in the Confirmation Statement applicable to such Loan.
"Collateral" shall have the meaning ascribed thereto in Section 2 (a)
hereof and shall include any Supplemental Collateral.
"Collateral Summary" shall mean the description of each Eligible Asset
proposed to be pledged hereunder that accompanies a request for funding, the
submission of Substitute Collateral or the submission of Supplemental
Collateral, which description shall set forth the outstanding principal amount,
the interest rate and such other information as MLMCI may reasonably request.
"Confirmation Statement" shall have the meaning set forth in Section 4
hereof.
"Contractual Currency" shall have the meaning set forth in Section 2(g)
hereof.
"Covenant Compliance Certificate" shall refer to a certificate of
Assignor to the effect that Assignor is in compliance, as of the date of such
certificate, with the covenants set forth in Section 9 of this Agreement.
"Current Margin" shall have the meaning ascribed to it in Section 5(b)
hereof.
"Default" shall mean any condition, act or event which, with notice or
lapse of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning specified in Section 11(e)
hereof.
"Dollar" and the sign "$" shall mean lawful money of the United States
of America.
"DTC" shall mean The Depository Trust Company.
"Effective Date" shall mean the date that all of the conditions set
forth in Section 7 hereof have been met.
"Eligible Assets" shall mean the Pledged MBSs, Pledged Certificates,
Pledged Whole Loans and Pledged Syndicated Bank Loans subject to this Agreement.
"Event of Default" shall have the meaning set forth in Section 10
hereof.
"GAAP" shall have the meaning specified in Section 1(b) hereof.
2
<PAGE> 3
"Governmental Authority" shall mean any nation, government, or state,
or any political subdivision of any of them, or any court, entity or agency
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Lien" shall mean any interest in property, or a claim by, a Person
other than the owner of such property, whether such interest is based on the
common law, statute or contract, and including, but not limited to, a security
interest, security title or lien arising from a security agreement, mortgage,
deed of trust, deed to secure debt, encumbrance, pledge, conditional sale,
financing statement or trust receipt or a lease, consignment or bailment for
security purposes.
"Loan" shall have the meaning set forth in the preamble hereof.
"Loan Documents" shall mean and include this Agreement, the Note, each
Confirmation Statement, the Swap Agreement and all instruments and documents now
or hereafter executed and/or delivered pursuant hereto or thereto or in
connection herewith or therewith.
"Loan Schedule" shall mean the schedule of Loans and the repayment
thereof attached to the Note.
"Market Value" shall mean, for any Eligible Asset and for the Swap
Agreement, the value thereof determined by MLMCI (or its affiliate) from time to
time (and at such times in its sole discretion) in the good faith exercise of
its reasonable business judgement.
"MLCS" shall refer to Merrill Lynch Capital Services, Inc., a Delaware
corporation.
"Note" shall have the meaning set forth in the preamble hereof.
"Obligations" shall mean the principal of and all interest on the
Loans, all fees, expenses, reimbursements (including, without limitation the
reasonable fees and expenses of attorneys), taxes and indemnities and other
amounts payable by Assignor under the Loan Documents and under any other
documents or instruments executed and delivered by Assignor in connection
therewith to MLMCI pursuant to Section 2 hereof or any of their respective
successors or assigns, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising and however arising.
"Outstanding Loans" shall mean on the date of determination thereof the
aggregate unpaid principal amount of each Loan made hereunder.
"Person" shall mean any individual, partnership, firm, corporation,
association, joint venture, trust or other entity, or any government or
political subdivision or agency, department or instrumentality thereof.
"Pledged Certificate" shall mean a security (which may be a
subordinated security) (i) which is pledged by Assignor to MLMCI in connection
with a Loan hereunder, which may include a related certificate of novation, and
(ii) which represents a specified undivided beneficial interest in a pool of
partnership interests, which themselves represent interests in commercial real
estate property, acceptable to MLMCI in its sole discretion.
3
<PAGE> 4
"Pledged MBS" shall mean a pass-through certificate (whether rated or
unrated), which (i) is pledged by Assignor and accepted by MLMCI in connection
with a Loan hereunder, (ii) is issued by an issuer other than an Agency, and
(iii) represents a specified undivided beneficial interest (which interest may
be composed of the right to receive payments of principal only or payments of
interest only thereon) in a pool consisting of single family or commercial
mortgage loans.
"Pledged Syndicated Bank Loan" shall mean a collateralized loan (which
may be a subordinated loan) which is (i) made by a syndicate of financial
institutions, (ii) assigned by Assignor to MLMCI in connection with a Loan
hereunder, and (iii) the assignment of which has been notified in writing to the
obligor on such collateralized loan.
"Pledged Whole Loan" shall mean a whole mortgage loan (which may be a
subordinated mortgage loan) collateralized by assets acceptable to MLMCI in its
sole discretion.
"Proceeds" shall have the meaning assigned to it under the UCC and, in
any event, shall include, but not be limited to, (i) any and all Proceeds of any
insurance, indemnity, warranty or guaranty payable to Assignor from time to time
with respect to any of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to Assignor from time to time in connection
with any reacquisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any Governmental Authority and any sale,
transfer or other disposition of all or any part of the Collateral, and (iv) any
and all other amounts from time to time paid or payable under or in connection
with any of the Collateral.
"Rating" shall mean the credit rating, if any, received by any Eligible
Asset from any of the Rating Agencies. In the event of a split in the rating
received by any Eligible Asset, the lower rating shall be considered the Rating
for purposes of this Agreement.
"Rating Agencies" shall refer to (i) Moody's Investors Service, Inc.
and any successor thereto, (ii) Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. and any successor thereto, (iii) Fitch IBCA
and any successor thereto, and (iv) Duff & Phelp's Credit Rating Co. and any
successor thereto.
"Spot Rate" shall mean, where an amount in one currency is to be
converted into a second currency on any date, unless the parties otherwise
agree, the spot rate of exchange quoted by Barclays Bank PLC in the London inter
bank market for the sale by it of such second currency against a purchase by it
of such first currency.
"Substitute Collateral" shall have the meaning set forth in Section 6
hereof.
"Supplemental Collateral" shall mean collateral acceptable to MLMCI in
accordance with the provisions of Section 5(c) hereof.
"Swap Agreement" shall mean that certain ISDA Master Agreement dated as
of August 21, 1998 between MLCS and Assignor, including all supplements thereto
and confirmations thereunder, including, without limitation, that certain
Confirmation dated August 21, 1998, as any of the foregoing may be amended,
supplemented or otherwise modified from time to time.
4
<PAGE> 5
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York or in the state whose version of the UCC furnishes
the law applicable to the transactions contemplated herein.
(b) Accounting Terms and Determinations. Unless otherwise defined
or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared and all financial records
shall be maintained in accordance with generally accepted accounting principles
("GAAP").
(c) Other Definitional Terms. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, schedule, exhibit and like references are to
this Agreement unless otherwise specified. Any defined term which relates to a
document shall include within its definition any amendments, modifications,
renewals, restatements, extensions, supplements or substitutions which may have
been heretofore or may be hereafter executed in accordance with the terms
hereof.
SECTION 2. GRANT OF SECURITY INTEREST; DELIVERY OF COLLATERAL; LOANS
DISCRETIONARY; CONTRACTUAL CURRENCY
(a) Assignor hereby grants, pledges, assigns, transfers and
delivers to MLMCI with respect to each Loan on the related Closing Date, and
grants to MLMCI a lien upon and continuing security interest in all of
Assignor's right, title and interest in, to and under all of the following
whether now owned or existing, or at any time hereafter acquired or arising, by
Assignor or in which Assignor now has or at any time in the future may acquire
any right, title or interest (all of which being hereinafter collectively called
the "Collateral"): (i) the Eligible Assets described in the Confirmation
Statement delivered pursuant to Section 4 relating to a Loan effective upon
delivery of such Confirmation Statement, (ii) any Supplemental Collateral that
may be granted to MLMCI pursuant to Section 5(c) hereof (provided, however, that
any representations, warranties or covenants contained herein, and the grant of
a lien and security interest with respect to any Supplemental Collateral, shall
be effective as to any Supplemental Collateral (or any Proceeds, distributions
or other amounts realized in respect of such Supplemental Collateral) only upon
the delivery of such Supplemental Collateral to MLMCI pursuant to such Section
5(c) hereof), (iii) all right, title and interest of Assignor in and to the Swap
Agreement (including, without limitation, all amounts owed to Assignor under the
Swap Agreement, (iv) all Proceeds, distributions and other amounts realized in
respect of any of the foregoing, and (v) with respect to any Loan, all books and
records of Assignor pertaining to any of the foregoing, as security for the due
and punctual payment by Assignor of the Note and any amounts that may become
payable thereunder or hereunder.
(b) Assignor hereby grants, pledges, assigns, transfers and
delivers to MLCS a second lien on the Collateral as security for the due and
punctual payment by Assignor of its obligations under the Swap Agreement and any
amount that may become payable thereunder. MLMCI hereby agrees to act as bailee
and agent for MLCS for purposes of perfecting such second lien and administering
the Collateral.
5
<PAGE> 6
(c) Assignor shall, with respect to each Loan and the Swap
Agreement, deliver to MLMCI the Collateral registered in the name of MLMCI or
its nominee or, if permitted by MLMCI in its sole discretion, properly endorsed
instruments of transfer (including, without limitation, any necessary
assignments, corporate resolutions and opinions of legal counsel and
certificates required for transfer) that will either enable MLMCI to cause such
Collateral to be so registered or allow MLMCI to receive all payments with
respect to, and to transfer to a third party, in each case without further
action on the part of MLMCI other than delivering such Collateral and such
instruments of transfer to the appropriate transfer agent. The right of MLMCI to
receive, and the obligation of Assignor to deliver, Collateral in the form
described in the preceding sentence will not be waived, diminished or modified
by MLMCI's having accepted and received, knowingly or unknowingly, Collateral
that has not been so registered or is not accompanied by such instruments of
transfer. In respect of any rights in respect of a Pledged Syndicated Bank Loan
made to an obligor incorporated in England which is included in the Collateral,
the Assignor shall deliver to each obligor and the agent under such Pledged
Syndicated Bank Loan a notice of assignment substantially in the form of Exhibit
E hereto, as approved by MLMCI and MLCS and shall ensure that each such obligor
and agent acknowledge such notice.
(d) MLMCI shall not be required to make any Loans hereunder and
any Loan hereunder shall be made by MLMCI in its sole discretion.
(e) If MLMCI determines to make any Loan hereunder, then in
accordance with the related Confirmation Statement, MLMCI shall advance such
Loan to Assignor in a principal amount of up to the percentage (as set forth in
the related Confirmation Statement) of the sum of (i) the Market Value of the
Collateral described in such Confirmation Statement and (ii) accrued and unpaid
interest on such amount. Each Loan advance hereunder shall be recorded as such
by MLMCI and be evidenced by the "Loan Schedule" attached to the Note, and any
repayments of each such Loan shall be recorded as such by MLMCI and be evidenced
by such "Loan Schedule"; provided, however, that the failure of such recordation
by MLMCI shall not affect the rights of the parties hereunder with respect to
such Loan.
(f) Each Loan shall bear interest, as calculated on a monthly
basis, on the unpaid principal amount thereof from and including the related
date of determination to but excluding the related Maturity Date at a per annum
rate (based upon a 360-day year and the actual number of days elapsed) equal to
the interest rate specified in the related Confirmation Statement. The interest
rate for each Loan shall be calculated as a specified percentage over the
prevailing London Interbank Offered Rate for one-month United States Dollar
deposits as set forth on page 8695 of Knight-Ridder as of 8:00 a.m. New York
City time two Business Days prior to the related Closing Date as specified in
the related Confirmation Statement.
(g) (i) All repayments of any Loan shall be made in the
currency of the advance made with respect to such Loan (the "Contractual
Currency") except as provided in Section 11(i). Notwithstanding the foregoing,
the payee of any money may, at its option, accept tender thereof in any other
currency, provided, however, that, to the extent permitted by applicable law,
the obligation of the payer to pay such money will be discharged only to the
extent of the amount of the Contractual Currency that such payee may, consistent
with normal banking procedures, purchase with such other currency (after
deduction of any premium and costs of exchange) for
6
<PAGE> 7
delivery within the customary delivery period for spot transactions in respect
of the relevant currency.
(ii) If for any reason the amount in the Contractual Currency
received by a party, including amounts received after conversion of any recovery
under any judgement or order expressed in a currency other than the Contractual
Currency, falls short of the amount in the Contractual Currency due and payable,
the party required to make the payment will, as a separate and independent
obligation, to the extent permitted by applicable law, immediately transfer such
additional amount in the Contractual Currency as may be necessary to compensate
for the shortfall.
(iii) If for any reason the amount in the Contractual Currency
received by a party exceeds the amount of the Contractual Currency due and
payable, the party receiving the transfer will refund promptly the amount of
such excess.
SECTION 3. EARNINGS ON COLLATERAL
In the event that the Collateral is registered in the name of MLMCI or
any affiliate or designee thereof or MLMCI or its affiliate or designee is
entitled to receive payments and distributions on the Collateral, all payments
and distributions, whether in cash or in kind, made on or with respect to the
Collateral will, unless otherwise agreed by MLMCI, be paid, delivered or
transferred directly to MLMCI (or such affiliate or designee) and, within one
(1) business day of receipt thereof, will, so long as an Event of Default as
defined in Section 10 hereof shall not have occurred and be continuing, be paid
to Assignor by wire transfer in immediately available funds. Following the
occurrence and during the continuation of an Event of Default, if Assignor shall
receive any payment or distribution on or with respect to the Collateral, it
shall hold such payment or distribution in trust for the benefit of MLMCI.
In the event that the Collateral is registered in the name of Assignor
or Assignor is entitled to receive payments and distributions on the Collateral,
all payments and distributions, whether in cash or in kind, made on or with
respect to the Collateral shall, so long as an Event of Default shall not have
occurred and be continuing, be paid to Assignor directly by the applicable
paying agent. MLMCI may, in its sole discretion after the occurrence and during
the continuation of an Event of Default, cause all such payments and
distributions to be paid, delivered or transferred directly to MLMCI, to be
applied by MLMCI to the then outstanding Obligations.
SECTION 4. CONFIRMATION STATEMENT
MLMCI shall, with respect to each Loan, deliver a confirmation
statement substantially in the form attached hereto as Exhibit B (in each case,
the "Confirmation Statement") to Assignor confirming the agreement between
Assignor and MLMCI as to the specific terms of the Loan. Each such Confirmation
Statement shall constitute a binding agreement between Assignor and MLMCI, and
this Agreement is hereby incorporated in each such Confirmation Statement and
made a part thereof as if it were set out in full in each such Confirmation
Statement. Each such Confirmation Statement will be binding upon the parties
hereto unless written notice of
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<PAGE> 8
objection is given by the objecting party to the other party within two (2)
Business Days after the objecting party's receipt of such Confirmation
Statement.
SECTION 5. MARGIN DETERMINATIONS
(a) A margin requirement (the "Margin Requirement") expressed as a
percentage shall be established by MLMCI with respect to each Loan on the
related Closing Date and shall be set forth in the related Confirmation
Statement. MLMCI shall determine the Market Value for the Eligible Assets in the
good faith exercise of its reasonable business judgment from time to time, but
no less frequently than once monthly, and at such time as it may elect in its
sole discretion.
(b) MLMCI may, in its reasonable discretion, from time to time
calculate the current margin (the "Current Margin") with respect to any Loan,
which Current Margin shall equal the amount by which (i) 100% exceeds (ii) a
fraction (expressed as a percentage) (A) the numerator of which is the then
outstanding principal amount of such Loan together with accrued and unpaid
interest thereon to the date of determination and (B) the denominator of which
shall be the sum of (1) the Market Value of the related Eligible Assets
(including any Supplemental Collateral delivered pursuant to this Agreement)
then held by MLMCI together with accrued and unpaid interest thereon to the date
of determination and (2) the Market Value of the Swap Agreement (expressed a
positive number if such Market Value is in favor of Assignor and expressed as a
negative number if such Market Value is in favor of MLCS).
(c) If MLMCI shall at any time determine with respect to a Loan
that the Current Margin is less than the related Margin Requirement, MLMCI may
in its discretion notify Assignor of such fact, and Assignor shall be obligated,
not later than twenty-four (24) hours after Assignor's receipt of such notice,
to deliver to MLMCI cash or Supplemental Collateral acceptable to MLMCI in its
sole reasonable judgment as Collateral hereunder, which cash shall be applied to
reduce the principal balance of the related Loan and which Supplemental
Collateral shall, in the aggregate, equal an amount such that, after giving
effect to the application of such cash and the delivery of such Supplemental
Collateral, the Current Margin for such Loan will be at least equal to the
related Margin Requirement. Delivery of Supplemental Collateral pursuant to this
Section 5(c) shall be in such manner as is acceptable to, and under such
additional conditions as may be required by, MLMCI in its sole reasonable
judgment.
(d) If at any time the Current Margin for a Loan exceeds the
Margin Requirement for such Loan and provided that Assignor shall not have
failed to satisfy the requirements of Section 5(c) with respect to any notice
thereunder given by MLMCI relating to any Loan, Assignor may, upon notice to
MLMCI, demand that MLMCI redeliver all or any portion of the Supplemental
Collateral, provided, however, that after giving effect to such redelivery, the
Current Margin would not be less than the Margin Requirement, and MLMCI shall
make good delivery of such Supplemental Collateral, in a manner equivalent to
the manner in which such Supplemental Collateral was delivered to MLMCI, no
later than the Business Day following receipt by MLMCI of such notice. In such
connection, MLMCI shall execute such other documents and take such other actions
as Assignor may reasonably request in order to evidence and give effect to the
release of such Supplemental Collateral from the security interest granted by
this Agreement.
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(e) The parties agree that for purposes of the calculations to be
made and any cash to be posted pursuant to this Section 5, all amounts not
denominated in the Base Currency shall be converted into the Base Currency at
the Spot Rate prevailing at the relevant time.
SECTION 6. SUBSTITUTION OF COLLATERAL
(a) MLMCI shall allow Assignor, in Assignor's sole discretion, to
provide collateral acceptable to MLMCI, in MLMCI's sole reasonable discretion,
to be substituted for existing Collateral of equal Market Value. All
certificates or instruments representing such substituted collateral
("Substitute Collateral") shall be accompanied by duly executed instruments of
transfer or assignments in blank, all in form and substance reasonably
satisfactory to MLMCI.
(b) In the case of any Loan for which the repayment date is other
than the Business Day immediately following the related Closing Date and with
respect to which Assignor does not have any existing right to substitute
substantially the same Collateral for existing Collateral, Assignor shall have
the right, subject to the proviso to this sentence, upon notice to MLMCI, which
notice shall be given at or prior to 12:00 pm (New York time) on such Business
Day, to substitute substantially the same Collateral for any existing
Collateral; provided, however, that MLMCI may elect, by the close of business on
the Business Day notice is received, or by the close of the next Business Day if
notice is given after 12:00 pm (New York time) on such day, not to accept such
substitution. In the event such substitution is accepted by MLMCI, such
substitution shall be made by Assignor's delivery to MLMCI of such other
Collateral and MLMCI's delivery to Assignor of such existing Collateral, and
after such substitution, the substituted Collateral shall be deemed to replace
the existing Collateral. In the event MLMCI elects not to accept such
substitution, MLMCI shall offer Assignor the right to terminate the Loan.
(c) In the event Assignor exercised its right to substitute or
terminate under sub-paragraph (b), Assignor shall be obligated to pay to MLMCI,
by the close of the Business Day of such substitution or termination, as the
case may be, an amount equal to (A) MLMCI's actual cost (including all fees,
expenses and commissions) of (i) entering into replacement transactions; (ii)
entering into or terminating hedge transactions; and/or (iii) terminating
transactions or substituting securities in like transactions with third parties
in connection with or as a result of such substitution or termination, and (B)
to the extent MLMCI determines not to enter into replacement transactions, the
loss incurred by MLMCI directly arising or resulting from such substitution or
termination. The foregoing amounts shall be solely determined and calculated by
MLMCI in good faith.
SECTION 7. CONDITIONS TO THE LOANS
(a) Conditions to the Effective Date. The obligation of MLMCI to
enter into this Agreement is subject to the satisfaction by Assignor of the
following conditions on the Effective Date:
(i) Loan Documents. MLMCI shall have received the
following documents each in form and substance satisfactory to MLMCI and its
counsel:
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a. this Agreement, executed and delivered on behalf of
Assignor by a duly authorized officer of Assignor,
b. the Note, executed and delivered on behalf of
Assignor by a duly authorized officer of Assignor,
and
c. the related Collateral and transfer documents, if
delivery of the Collateral and transfer documents is
required in order to perfect MLMCI's security
interest in such Collateral.
(ii) Proceedings of Assignor. MLMCI shall have received a
copy of the resolutions in form and substance satisfactory to MLMCI and its
counsel, of Assignor authorizing (i) the execution, delivery and performance of
the Loan Documents and the other documents to be executed and/or delivered by it
pursuant hereto or thereto or in connection herewith or therewith, (ii) the
borrowings contemplated hereunder and (iii) the granting by it of the security
interest contemplated hereby, certified by a duly authorized officer of Assignor
as of the Effective Date, which certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as of
the date of such certificate.
(iii) Corporate Documents of Assignor. MLMCI shall have
received true and complete copies of the Certificate of Incorporation and
By-Laws of Assignor (including any and all amendments, supplements and
modifications thereto) certified to such effect by a duly authorized officer of
Assignor as of the Effective Date.
(iv) No Violation. The consummation of the transactions
contemplated hereby and by the other Loan Documents shall not contravene,
violate or conflict with, nor involve MLMCI in a violation of, any requirement
of law.
(v) Permits, Licenses, Approvals, Consent, etc. MLMCI
shall have received a certificate of a duly authorized officer of Assignor
certifying that all permits, licenses, approvals and consents required in
connection with the execution, delivery and performance by Assignor and the
validity and enforceability against Assignor of this Agreement and the other
Loan Documents have been obtained and such permits, licenses, approvals and
consents are in full force and effect and have not been amended, modified,
revoked or rescinded.
(vi) Swap Agreement. The Swap Agreement shall have been
duly authorized, executed and delivered by the parties thereto.
(vii) Additional Matters. All other documents and legal
matters in connection with the transactions contemplated by this Agreement and
the other Loan Documents shall be reasonably satisfactory in form and substance
to MLMCI and its counsel.
(b) Conditions Precedent to all Loans and Substitutions. The
making of any Loan or the permitting of any substitution of Substitute
Collateral by MLMCI hereunder is, except as otherwise provided in this Section
7, subject to compliance by Assignor with the following conditions precedent and
the other terms and conditions hereof and, the giving of any notice by Assignor
with respect to a Loan pursuant to Section 4 and the acceptance of the Proceeds
of any
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Loan by Assignor and the substitution of any Substitute Collateral shall be
deemed certification by Assignor that the following conditions shall have been
met:
(i) Representations and Warranties. Each of the
representations and warranties made by Assignor herein and in the other Loan
Documents are true and correct on and as of the Closing Date, before and after
giving effect to the Loan (and the application of the Proceeds therefrom) or the
substitution, as though made on and as of such date.
(ii) No Default. Before and after giving effect to such
Loan (and the application of Proceeds therefrom) or such substitution, no
Default or Event of Default shall have occurred and is continuing on and as of
the Closing Date.
(iii) Financing Statements. The separate financing
statement, instrument or other document, if required by MLMCI to be recorded
and/or filed with respect to the subject Loan or substitution, shall have been
so recorded and/or filed.
(iv) Good Standing Certificates. On or prior to the
initial Closing Date hereunder and from time to time thereafter as MLMCI may
reasonably request (but not more frequently than quarterly), MLMCI shall have
received original certificates, in form and substance satisfactory to MLMCI and
its counsel, from the Secretary of State or other appropriate authority of such
jurisdiction, evidencing the good standing of Assignor in their respective
jurisdiction of incorporation and in each other jurisdiction where the ownership
of their respective property or the conduct of its business requires such
qualification.
(v) Legal Opinion of Counsel to Assignor. On or prior to
the initial Closing Date hereunder and on each date after the initial Closing
Date that a security interest in Collateral is granted to MLMCI and MLCS
hereunder Assignor shall cause to be delivered to MLMCI and MLCS an opinion of
counsel to Assignor with respect to the matters set forth in Exhibit C, in form
and substance acceptable to MLMCI and MLCS.
(vi) Recordings and Filings. All material instruments and
documents (including, without limitation, financing statements and continuation
statements) required to be filed hereunder in order to create in favor of MLMCI
a perfected security interest in the Collateral hereunder shall have been
properly filed in each office in each relevant jurisdiction and copies of such
instruments and documents, stamped to indicate such filing, shall have been
delivered to MLMCI.
(vii) On or prior to the Closing Date of any Loan, MLMCI
shall have received with respect to an Eligible Asset:
a. if applicable, a fully executed copy of the
Certificate Issuance Agreements; and
b. if applicable, any financing statements or
continuation statements naming MLMCI as secured party
which MLMCI reasonably requests be filed with respect
to the related Collateral.
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SECTION 8. REPRESENTATIONS AND WARRANTIES
Assignor hereby represents and warrants to MLMCI, and shall on and as
of the Closing Date of each Loan be deemed to represent and warrant to MLMCI,
that:
(a) Due Incorporation. Assignor has been duly organized and is
validly existing as a corporation in good standing under the laws of the state
of its incorporation.
(b) Authorization. Assignor has full power and authority to
execute and deliver this Agreement and the Note and to perform its obligations
hereunder and thereunder; this Agreement and the Note have each been duly
authorized by all necessary action and neither requires any additional approval
of any directors or officers other than that which has already been obtained,
each has been duly executed and delivered by Assignor and constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or
similar laws of general applicability relating to or affecting creditors'
rights, to the assumption that enforcement will be undertaken in a commercially
reasonable manner and to general principles of equity and equitable remedies,
regardless of whether enforcement is considered in a proceeding in equity or at
law.
(c) No Conflict. Neither the execution and delivery nor the
performance by Assignor of this Agreement or the Note will conflict with the
governing instruments of Assignor or conflict with, result in a breach of or
constitute a default (which default could reasonably be expected to result in
any material adverse change in the financial condition, earnings or business
affairs of Assignor or could reasonably be expected to materially and adversely
affect the properties or assets thereof, including but not limited to the
Collateral) or require any consent under any material instrument or agreement to
which Assignor is a party or by which Assignor may be bound, or any law, order
or regulation applicable to Assignor of any court, Governmental Agency,
authority or body having jurisdiction over Assignor and do not and will not
result in or require the creation of any lien, security interest or other charge
or encumbrance (other than pursuant hereto) upon or with respect to any of
Assignor's properties.
(d) Approvals, etc. Neither the execution and delivery nor the
performance by Assignor of this Agreement requires any authorization, approval,
consent, license, exemption (other than any self-executing exemption), filing,
registration or the taking of any other action in respect of any federal or
state authority except where the failure to comply with such requirement would
not adversely affect the delivery, execution or performance by Assignor of this
Agreement or cause a material adverse change in the business, operations,
properties, prospects or condition (financial or otherwise) of Assignor.
(e) Good Title. Assignor is the owner of the Collateral and such
Collateral is free and clear of all security interests, liens, charges,
encumbrances and rights of others, except for the lien and security interest
created hereby, and on the related Closing Date, (1) MLMCI has a first priority
lien on and security interest in the Collateral (including all proceeds,
distributions and other amounts realized in respect thereof) in favor of MLMCI,
subject to no prior security interest, lien, charge, encumbrance or rights of
others, and, MLMCI having taken possession of the Collateral registered in the
name of MLMCI or its nominee or delivered with such instruments of transfer as
provided in Section 2(c) hereof, no further action, including any filing
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or recordation of any document, is currently required in order to establish and
perfect the liens on and security interests in the Collateral in favor of MLMCI
against any third parties in any jurisdiction and (2) MLCS has a second priority
lien on and security interest in the Collateral (including all proceeds
distributions and other amounts realized in respect thereof) in favor of MLCS,
subject only to the first priority interest described in clause (1) above.
(f) Tax Liens. There are no delinquent federal, state, city,
county or other taxes relating to Assignor, the Collateral or any arrangement
pursuant to which the Collateral is issued that might, in the reasonable
judgment of MLMCI, materially adversely affect any of the Collateral or the
business, operations, properties, prospects or condition (financial or
otherwise) of Assignor, and all such delinquent tax liabilities have been
satisfied except those that are being contested by Assignor in good faith and
with respect to which payment has been stayed by a court of competent
jurisdiction.
(g) Financial Statements. Since the date of the financial
statement reflecting information as of May 1998 heretofore delivered by Assignor
to MLMCI (which Assignor represents and warrants to be the most recent financial
statement), there has been no material adverse change in Assignor's financial
condition or results of operations. Assignor shall provide MLMCI with audited
fiscal year-end financial statements and additional publicly available interim
financial statements promptly upon each becoming available.
SECTION 9. COVENANTS
(a) Taxes. Assignor will pay and discharge all taxes, levies,
liens and other charges on its assets and on the Collateral that, in each case,
in any manner would create any lien or charge upon the Collateral.
(b) Laws. Assignor will at all times comply in all material
respects with all laws, ordinances, rules and regulations of any federal, state,
municipal or other public authority having jurisdiction over Assignor or any of
its assets.
(c) Name and Locations. Assignor will immediately advise MLMCI in
writing of the opening of any new chief executive office or the closing of any
such office and of any change in Assignor's name or the places where the books
and records pertaining to the Collateral assigned to MLMCI by Assignor are kept.
(d) Records. Assignor will maintain records with respect to the
Collateral assigned to MLMCI by Assignor and with respect to the conduct and
operation of its business in conformity with general industry standards and with
no less a degree of prudence than if the Collateral were held by Assignor for
its own account and will furnish MLMCI, upon reasonable prior request by MLMCI
or its designated representative, with reasonable information with respect to
the Collateral assigned to MLMCI by Assignor and with respect to the conduct and
operation of its business. Assignor will permit MLMCI without any request from
MLMCI or its designated representative to inspect Assignor's records with
respect to the Collateral and the conduct and operation of its business upon
reasonable notice from MLMCI or its designated representative, at reasonable
times and with reasonable frequency, and to make copies or extracts of any and
all thereof. In addition, Assignor shall, promptly upon receipt and without any
request from
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MLMCI, furnish MLMCI with any reports, notices or other communications from the
issuer of, trustee for, or other party relating to, the Eligible Assets pledged
as Collateral hereunder that would ordinarily be sent to the registered holder
or owner of such Eligible Asset. MLMCI shall act in a commercially reasonable
manner in requesting and conducting any inspection relating to the conduct and
operation of Assignor's business.
(e) MLMCI's Duty of Care. Except as herein provided in this
Section 9(e), MLMCI's sole duty with respect to the Collateral shall be to use
reasonable care in the custody, use, operation and preservation of the
Collateral in its possession or control. MLMCI shall incur no liability to
Assignor for any act of government, act of God, or other destruction in whole or
in part or negligence or wrongful act of custodians or agents selected by and
supervised by MLMCI with reasonable care, or MLMCI's failure to provide adequate
protection or insurance for the Collateral. MLMCI shall have no obligation to
take any action to preserve any rights in any of the Collateral against prior
parties, and Assignor hereby agrees to take such action. Assignor shall defend
the Collateral against all such claims and demands of all persons, at all times,
as are adverse to MLMCI. MLMCI shall have no obligation to realize upon any
Collateral, except through proper application of any distributions with respect
to the Collateral made directly to MLMCI or its agent(s). So long as MLMCI shall
act in a commercially reasonable manner, Assignor hereby waives the defense of
impairment of the Collateral.
(f) Use of Proceeds. None of the proceeds of any Loan will be used
either directly or indirectly to acquire any margin security, as that term is
defined in Regulation U of the Board of Governors of the Federal Reserve System,
and Assignor will not take any action that might cause this Agreement or the
Note (and the Loan evidenced hereby and thereby) to violate any regulation of
the Federal Reserve Board.
(g) Further Information. Assignor shall provide MLMCI, from time
to time at Assignor's expense, with such information concerning Assignor of a
financial or operational nature as MLMCI may reasonably request promptly upon
receipt of such request. Without limiting the foregoing, Assignor shall furnish
to MLMCI,
(i) as soon as available and in any event within sixty (60) days after
the close of each of the first three (3) quarters of each fiscal year
of Assignor, the applicable quarterly financial statement (or the
applicable Form 10-Q as filed with the Securities and Exchange
Commission, to the extent that Assignor is required to file such Form
10-Q), including the statements of income and balance sheets as of the
end of such quarter, subject to normal year-end audit adjustments, and
as prepared in accordance with GAAP; and
(ii) as soon as available and in any event within ninety (90) days
after the close of each fiscal year of Assignor, the statement of
income of Assignor, the balance sheets of Assignor as of the end of
such fiscal year, the statement of cash flow of Assignor and a
statement of changes in financial position of Assignor as at the end of
and for the fiscal year just closed, setting forth the corresponding
figures of the previous fiscal year, if applicable, in comparative
form, all in reasonable detail and certified (without any qualification
or exception deemed material by MLMCI) by independent certified
accountants selected by Assignor and reasonably satisfactory to MLMCI
and
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concurrently with such financial statements, the report of such
independent certified accountants.
(h) Maximum Debt to Equity Ratio. Assignor shall maintain during
the term of this Agreement a debt to equity ratio not to exceed 8 to 1, as of
any date of determination.
(i) Book Net Worth. Assignor shall not experience losses or
changes in its financial condition which cause its Book Net Worth, in any two
consecutive fiscal quarters, to be less than or equal to 80% of its Book Net
Worth as of the commencement of such period. Assignor shall maintain a minimum
Book Net Worth of $100,000,000, evidence of which shall be provided in form and
substance satisfactory to MLMCI.
(j) Covenant Compliance Certificate. Assignor shall deliver to
MLMCI the Covenant Compliance Certificate within ten (10) days following the end
of each calendar quarter.
(k) Additional Credit Facilities. Assignor shall promptly notify
MLMCI of the termination or cancellation of any loan credit facility of Assignor
for which there is a recourse obligation on the part of Assignor.
(l) Further Covenants. Without prior written consent of MLMCI and
MLCS, Assignor will not: (i) assign, sell, transfer, pledge or grant any
security interest in or lien on any of the Collateral to anyone except MLMCI or
MLCS, permit any financing statement (except any financing statements in favor
of MLMCI or MLCS) or assignment (except for any assignments in favor of MLMCI or
MLCS) to be on file in any public office with respect thereto, (ii) permit or
suffer to exist any security interest, lien, charge, encumbrance or right of
others to attach to any of the Collateral, except as contemplated by this
Agreement, or (iii) consent to any amendment or supplement to the documents
pursuant to which the Collateral was issued that would materially and adversely
affect the interests of MLMCI or MLCS or with respect to the Collateral without
the prior written consent of MLMCI or MLCS, respectively.
(m) Swap Agreement. Assignor shall maintain the Swap Agreement, or
enter into currency exchange arrangements satisfactory to MLMCI so long as
Assignor shall have pledged to MLMCI and MLCS hereunder that Pledged Syndicated
Bank Loan arising under the Junior Facility Agreement dated April 30, 1998, for
Blackstone Hotel Acquisitions Company arranged by Merrill Lynch International
with Bankers Trust Company as Junior Agent and Security Trustee and the Novation
Certificate executed by Assignor related thereto.
SECTION 10. EVENTS OF DEFAULT
Each of the following, so long as it shall not have been remedied,
shall constitute an "Event of Default" hereunder:
(a) Nonperformance. Any failure to pay, whether on the
acceleration thereof or otherwise, any amounts due under the Note or any failure
to pay any amount due under this Agreement or to perform any provision of this
Agreement in accordance herewith, or any material breach of any representation,
warranty or covenant set forth herein or in the Note.
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(b) Termination of Interest. MLMCI shall for any reason not have a
valid, enforceable first priority security interest in any of the Collateral
purported to be covered hereby or MLCS shall for any reason not have a valid
enforceable second priority security interest in any of the Collateral purported
to be covered hereby.
(c) Events Set Forth in the Note. The occurrence of any event
described in the Note which causes the Note to become due and payable.
(d) Act of Insolvency. The filing by Assignor or a controlling
entity, of a petition in bankruptcy, the adjudication of Assignor or a
controlling entity as insolvent or bankrupt, the petition or application by
Assignor or a controlling entity for any receiver or trustee for itself or any
substantial part of its property, the commencement by Assignor or a controlling
entity of any proceeding relating to it under any reorganization, arrangement,
dissolution or liquidation law, or the initiation of any such proceeding against
Assignor or a controlling entity, if Assignor or a controlling entity indicates
by any act its consent thereto or if such proceeding is not dismissed or stayed
within thirty (30) days (an "Act of Insolvency").
(e) Material Adverse Change. In the reasonable judgment of MLMCI,
a material adverse change shall have occurred in the business, operations,
properties, prospects or condition (financial or otherwise) of Assignor.
(f) Default Under Other Contracts. Assignor shall be in default
with respect to any normal and customary covenants under any contract or
agreement to which it is a party and which obligates it to pay indebtedness of
at least $5,000,000 (which covenants include, but are not limited to, an Act of
Insolvency of Assignor or the failure of Assignor to make required payments
under such contract or agreement as they become due) which default permits
acceleration of the obligations of Assignor under such contract or agreement by
any other party thereto and which default, in the reasonable judgment of MLMCI,
might result in a material adverse change in the business, operations,
properties, prospects or condition (financial or otherwise) of Assignor.
(g) Merger or Consolidation. Assignor shall merge or consolidate
into any entity unless MLMCI shall have expressly consented to such merger or
consolidation in writing (which consent shall not be unreasonably withheld).
(h) Anticipated Insolvency. MLMCI shall determine in a
commercially reasonable manner that Assignor is or will be unable to meet its
commitments hereunder, notifies Assignor of such determination and Assignor
shall not have responded with appropriate information to the contrary to the
satisfaction of MLMCI within 24 hours.
(i) Final Judgement. A final non-appealable judgment by any
competent court in the United States for the payment of money in an amount of at
least $100,000 is rendered against Assignor, and the same remains undischarged
and unpaid for a period of 60 days during which execution of such judgment is
not effectively stayed.
(j) Breach of Representation or Warranty. Any representation or
warranty made by Assignor herein shall have been incorrect or untrue in any
material respect when made or repeated or when deemed to have been made or
repeated and such breach is continuing and
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MLMCI's or MLCS's interests hereunder or with respect to any Collateral
purported to be covered hereby are materially adversely affected thereby.
(k) Opinion. A firm of independent accountants shall have failed
to issue an opinion or shall have issued an opinion qualified adversely in any
material respect in connection with the most recent audited financial statements
of Assignor.
(l) Breach of Covenant. Assignor shall breach in any material
respect any covenant made by it herein or in the Note and such breach is
continuing and MLMCI's or MLCS's interests hereunder are materially adversely
affected thereby.
(m) Swap Agreement. An Early Termination Date (as defined under
the Swap Agreement) shall have occurred under the Swap Agreement.
(n) Default Under the Certificate Issuance Agreements. There shall
occur a default under any of the Certificate Issuance Agreements.
SECTION 11. REMEDIES
(a) Action Regarding Collateral. If an Event of Default shall
occur, MLMCI, without demand of performance or other demand or notice of any
kind to Assignor or any other person, all of which are hereby expressly waived,
may forthwith apply the cash, if any, then held by it as part of the Collateral
relating to any Loan to the payment of any of the Obligations, and, if there
shall be no such cash or the cash so applied shall not be sufficient to pay in
full all such Obligations, may thereafter collect, receive, appropriate, retain
and realize upon the Collateral, or any part thereof, and may forthwith sell,
assign, give an option or options to purchase, contract to sell, or otherwise
dispose of and deliver the Collateral, or any part thereof, in one or more
parcels at such public or private sale or sales, at such place or places, at
such price or prices and upon such other terms and conditions as MLMCI may deem
best (provided, however, that MLMCI shall act in a commercially reasonable
manner), for cash or on credit or for future delivery without assumption of any
credit risk, with the right of MLMCI upon any such sale or sales to purchase all
or any part of the Collateral so sold. Upon any sale, transfer or other
disposition of the Collateral pursuant hereto MLMCI shall have the right to
deliver, assign and transfer to the transferee thereof the Collateral so sold.
Each transferee upon any such transfer or other disposition shall hold the
property thereby acquired by it absolutely free from any claim or right of any
kind, including any equity or rights of redemption, of Assignor, who hereby
specifically waives all rights of redemption, stay or appraisal which it has or
may have under any rule of law or statute whether now existing or hereafter
adopted (in the latter case, to the extent permitted thereby). Assignor agrees
that MLMCI need give only such notice of the time and place of any public or
private sale (including any adjourned private sale) or other intended
disposition as may be required by market conditions and standards of commercial
reasonableness and that MLMCI need not in any event give more than five days'
notice that such sale or disposition is to take place. Assignor agrees that the
notice provided for in the preceding sentence is reasonable notification of such
matters.
MLMCI shall not be obligated to make any sale pursuant to any such
notice. MLMCI may, without notice or publication, adjourn any public or private
sale or cause the same to be
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adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by MLMCI until the
selling price is paid by the purchaser thereof, but MLMCI shall not incur any
liability in case of the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may again
be sold upon like notice. MLMCI, however, instead of exercising the power of
sale herein conferred upon it, may proceed by a suit or suits at law or in
equity to foreclose the lien and security interest created hereby and sell the
Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) Deficiency. If the proceeds of sale, collection, foreclosure
or other realization of or upon the Collateral are insufficient to cover the
costs and expenses of such realization and the payment in full of the
Obligations, Assignor shall remain liable for any deficiency.
(c) Private Sale. Neither MLMCI nor MLCS shall incur any liability
as a result of the sale of the Collateral (provided, however, that MLMCI and
MLCS shall act in a commercially reasonable manner) or any part thereof, at any
private sale. Assignor hereby waives any claims against MLMCI, MLCS or any
holder or holders of the Note arising by reason of the fact that the price at
which the Collateral may have been sold at such a private sale was less than the
price which might have been obtained at a public sale or was less than the
aggregate amount of the Obligations, even if MLMCI and MLCS accept the first
offer received and do nor MLCS not offer the Collateral to more than one offeree
(provided, however, that MLMCI and MLCS shall act in a commercially reasonable
manner).
(d) Application of Proceeds. The proceeds of any sale or other
realization of all or any part of the Collateral, and any other cash at the time
held by MLMCI under this Agreement, shall be applied by MLMCI in the following
order of priority:
First, to the payment of the costs and expenses of such sale
and all expenses (including the fees and expenses of counsel),
liabilities and advances made or incurred by MLMCI in
connection therewith.
Second, to the payment of all accrued interest under the Note
due or past due.
Third, to the payment of principal upon the Note due or past
due.
Fourth, to the payment of all other amounts owing under this
Agreement.
Fifth, to the payment of any amounts owed by Assignor to
MLMCI, MLCS or any affiliate thereof under the Swap Agreement
or any repurchase agreement.
Sixth, to the payment of any amounts owed by Assignor to MLMCI
or any affiliate thereof under any other instrument or
agreement.
Seventh, to the payment to Assignor, or to such other person
as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds and other cash.
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<PAGE> 19
As used in this Agreement, "proceeds" of the Collateral shall mean cash and
other property received or otherwise realized in respect of the Collateral.
(e) Default Rate of Interest. After demand is made with respect to
the Note or upon acceleration thereof, until the balance thereof shall be paid,
the Loan amounts due thereunder shall bear interest at a per annum rate (based
on a year of 360 days and actual days elapsed) equal to the greater of (i) two
hundred (200) basis points in excess of the interest rate for such Loan and (ii)
two hundred (200) basis points in excess of the prime rate for short term bank
commercial loans as published in The Wall Street Journal, changing as such
published rate changes, but in no event higher than the maximum rate permitted
by law.
(f) Attorney-in-Fact. Effective upon the occurrence of an Event of
Default hereunder, MLMCI is hereby appointed the attorney-in-fact of Assignor
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instruments which MLMCI may deem necessary or advisable
to accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, after an Event of Default has occurred, MLMCI shall have the right
and power to receive, endorse and collect all checks made payable to the order
of Assignor representing any distribution in respect of the Collateral or any
part thereof and to give full discharge for the same.
(g) Payments on Collateral to Assignor.
(i) Following the occurrence and during the continuation
of an Event of Default hereunder, all rights of Assignor to receive any
payments from the related Collateral which it would otherwise be
authorized to receive shall cease, and all such rights shall thereupon
become vested in MLMCI, which shall thereupon have the sole right to
receive and hold as Collateral such payments.
(ii) Following the occurrence and during the continuation
of an Event of Default hereunder, all payments which are received by
Assignor contrary to the provisions of the preceding subsection (i)
shall be received in trust for the benefit of MLMCI, shall be
segregated from other funds of Assignor and shall be promptly paid to
MLMCI.
(h) Cross-Collateralization; Right of Set-Off. MLMCI may, in its
sole discretion upon the occurrence and during the continuation of an Event of
Default hereunder, proceed against any assets held by it or any of its
affiliates under any other agreement with Assignor or any of Assignor's
subsidiaries (including, without limitation, the Swap Agreement) and shall have
a right of set-off against any amounts owed by MLMCI, MLCS or any of their
affiliates to Assignor under any other agreement with Assignor or any of
Assignor's subsidiaries. In addition, the parties agree that MLMCI may, in its
sole discretion upon the occurrence and during the continuation of an event of
default under any other agreement with Assignor or any of Assignor's
subsidiaries (including, without limitation, the Swap Agreement), proceed
against any assets held by it hereunder and shall have a right of set-off
against any amount owed by MLMCI to Assignor hereunder.
19
<PAGE> 20
(i) Base Currency Calculations. All calculations of amounts due
and any set-off calculations under this Section 11 shall, if the sums involved
are not denominated in the Base Currency, be converted into the Base Currency on
the relevant date at the Spot Rate prevailing at the relevant time.
SECTION 12. MATURITY DATE; INTEREST PAYMENT DATES; REPAYMENT OF
PRINCIPAL
(a) Assignor and MLMCI hereby agree that the Obligations of
Assignor hereunder and under the Note are payable on the Maturity Date unless
earlier payment thereof is required pursuant to the terms of this Agreement.
(b) Interest on each Loan shall be payable on the dates described
in the related Confirmation Statement.
(c) The principal portion of each Loan may be repaid in whole or
in part at the discretion of Assignor on any date on which a payment of interest
is to be made thereon by Assignor pursuant to the terms of this Agreement and
the related Confirmation Statement provided that (i) Assignor shall have
provided MLMCI with not less than two (2) Business Days' written notice of
Assignor's intention to effect such repayment and the amount thereof, (ii) all
payments of interest then due and owing on the Loan are paid in full and (iii)
no Event of Default has occurred and is continuing with respect to any of
Assignor's Obligations hereunder or under the Note. In the event that Assignor
prepays the principal portion of any Loan, in whole or in part, as set forth in
this Section 12(c), Assignor shall be obligated to pay to MLMCI, by the close of
business on the Business Day of such prepayment, an amount equal to MLMCI's
actual cost (including all fees, expenses and commissions) of (i) entering into
or terminating hedge transactions related to the Collateral securing the subject
Loan and (ii) terminating transactions or substituting securities in like
transactions with third parties in connection with or as a result of such
prepayment. The foregoing amounts shall be determined and calculated solely by
MLMCI acting in good faith.
(d) Nothing in this Section 12 shall be deemed to limit the right
of MLMCI to require, so long as an Event of Default shall have occurred and is
continuing, the payment by Assignor of all Obligations arising hereunder and
under the Note.
(e) Netting of Payments. Any payments to be made by or to MLMCI
pursuant to this Agreement shall be netted against and paid in conjunction with
any payments to be made by or to MLCS under the Swap Agreement.
SECTION 13. GENERAL PROVISIONS
(a) No Waiver. No waiver or amendment of or forbearance in
enforcing any provision of this Agreement nor consent to any departure by either
party herefrom shall be effective unless expressly granted in writing and shall
be limited to the extent expressed therein.
(b) Governing Law; Severability. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and entirely performed therein without regard to the conflict
of laws principles thereof. Unless
20
<PAGE> 21
otherwise defined herein, terms defined in the Uniform Commercial Code in the
State of New York are used herein as defined therein. Each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
be invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(c) Construction. The captions in this Agreement are for
convenience of reference only and shall not affect the construction or
interpretation of any of the provisions hereof.
(d) Assignment. This Agreement shall be binding upon and shall
inure to the benefit of each of the parties hereto and their respective
successors and assigns; provided, however, that neither this Agreement nor any
rights or other obligations hereunder or under the Note may be assigned by
Assignor without the prior written consent of MLMCI and any attempted or
purported assignment hereof or thereof shall be void. MLMCI may assign, pledge,
sell or hypothecate any or all of its rights hereunder without consent.
(e) Change in Applicable Law.
(i) In the event that any applicable law with respect to
any item of Collateral or any change of applicable law with respect to
any item of Collateral results in any material restriction or
limitation on the corporate power or authority of MLMCI to enter into a
proposed Loan or to continue to maintain an existing Loan with respect
to such Collateral, (A) the parties hereto shall in good faith
negotiate such additional or revised terms to this Agreement as will
result in a permissible transaction that corresponds to the economic
equivalent of the arrangement originally contemplated by the parties
hereunder or (B) if such applicable law or change of applicable law, as
the case may be, does not permit such renegotiation, the commitment of
MLMCI to enter into or to continue to maintain the Loan with respect to
such Collateral shall be cancelled or modified (depending upon the
stated effect of the applicable law or change of applicable law, as
appropriate), with such cancellation and/or modification to be
operative upon the earlier of (x) the date required by such applicable
law or change of applicable law, as appropriate, or (y) the date on
which Assignor has secured alternative financing for the affected
Collateral.
(ii) In the event that any applicable law with respect to
any item of Collateral or any change of applicable law with respect to
any item of Collateral results in any adverse economic effect on MLMCI
that is material with respect to the particular Loan, the parties
hereto shall in good faith negotiate such additional or revised terms
related to pricing that will result in a Loan that corresponds to the
economic equivalent of the arrangement originally contemplated by MLMCI
and Assignor.
(f) Notices, Payments, Deliveries. Unless otherwise provided
herein, all notices and other communications provided for hereunder shall be in
writing (including telegraphic, facsimile or telex communication), and such
notices and other communications shall, when mailed, telegraphed, communicated
by facsimile transmission or telexed, be effective when
21
<PAGE> 22
received at the address for notices for the party to whom such notice or
communications is to be given as follows:
If to MLMCI:
Merrill Lynch Mortgage Capital Inc.
Merrill Lynch World Headquarters
World Financial Center
North Tower - 22nd Floor
New York, New York 10281
Attention: James B. Cason
Telephone: (212) 449-1219
Telecopy: (212) 449-3673
with a copy to:
Merrill Lynch Mortgage Capital Inc.
Merrill Lynch World Headquarters
World Financial Center
North Tower - 22nd Floor
New York, New York 10281
Attention: Michael A. Blum
Telephone: (212) 449-8486
Telecopy: (212) 449-6673
If to Assignor:
Chastain Capital Corporation
3424 Peachtree Road, N.E. Suite 800
Atlanta, Georgia 30326
Attention: Steve Grubenhoff
Telephone: (404) 848-8871
Telecopy: (404) 848-8929
provided, however, that a facsimile transmission shall be deemed to be received
when transmitted so long as the transmitting machine has provided an electronic
confirmation of such transmission, and provided further, however, that all
financial statements delivered shall be hand-delivered or sent by first-class
mail to MLMCI at such address. All payments on and deliveries of Collateral
hereunder shall be made to the address or account for payments and deliveries of
such Collateral for the party to whom such payment or delivery is to be made as
set forth above. Either party may revise any information relating to it by
notice in writing to the other party, which notice shall be effective on the
third Business Day following receipt thereof.
22
<PAGE> 23
(g) Termination. When all Obligations shall have been paid in full
and upon the written request of Assignor, this Agreement shall terminate and
MLMCI and MLCS shall release their liens and security interests hereunder and
assign, transfer and deliver, against receipt, any remaining Collateral and
money received in respect thereof to or on the order of Assignor. Upon the
request of Assignor, MLMCI and MLCS will then execute termination statements and
such other documents as Assignor may reasonably request as are necessary to make
clear upon the public record the termination of the lien and security interests
created hereby with respect to such assignment. The obligations of Assignor
under Section 13(i) below shall, with respect to each transaction entered into
hereunder, survive any termination hereof.
(h) Aggregate Amount of Loans; Disbursement of Funds.
(i) The aggregate outstanding principal amount of the
Loans shall be limited, as of any date of determination, to
$35,000,000.
(ii) Assignor may request disbursement of amounts borrowed
hereunder upon not less than two (2) Business Days' written notice to
MLMCI.
(iii) MLMCI is not obligated to make any Loan or advance
under this Agreement or pursuant to the Note.
(i) Expenses.
(i) Assignor shall pay its own costs and expenses and all
reasonable costs and expenses of MLMCI (including reasonable expenses
for legal services) incident to the preparation and negotiation of this
Agreement and any documents relating hereto; provided, however, that
Assignor shall not be responsible for paying MLMCI's legal expenses in
excess of $15,000.
(ii) Assignor agrees to pay to MLMCI on demand all
reasonable costs and expenses (including reasonable expenses for legal
services) of any subsequent enforcement of any of the provisions
hereof, or of the performance by MLMCI of any Obligations of Assignor
in respect of the Collateral which Assignor has failed or refused to
perform, or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement in respect of any of the
Collateral and for the custody, care or preservation of the Collateral
(including insurance costs) and defending or asserting rights and
claims of MLMCI in respect thereof, by litigation or otherwise,
including expenses of insurance.
(iii) Assignor agrees to pay to MLMCI on demand all
reasonable costs and expenses (including reasonable expenses for legal
services) incurred by MLMCI in connection with any due diligence review
of the Collateral.
(iv) Assignor agrees to pay to MLMCI on demand all costs
and expenses (including reasonable expenses for legal services) of the
registration of the Collateral in the name of MLMCI or its nominee.
23
<PAGE> 24
(v) All such expenses shall be Obligations to MLMCI
secured under this Agreement.
(j) MLMCI's Right to Pledge. Nothing in this Agreement shall
preclude MLMCI from engaging in transactions with third parties involving the
selling pursuant to a repurchase arrangement, pledging or hypothecating of the
Collateral, but no such transaction shall relieve MLMCI of its obligations
hereunder.
(k) Indemnification. Assignor agrees to indemnify and hold
harmless MLMCI against all liabilities and expenses to which MLMCI may become
subject relating to any fees, taxes or liability to any third party resulting
from any action taken or omitted by or upon instructions of Assignor with
respect to the Collateral.
(l) Appointment of Agent. The parties acknowledge that MLCS has
appointed MLMCI as its agent for purposes of exercising MLCS's rights under the
Swap Agreement. The parties further acknowledge that the appointment by MLCS of
MLMCI as its agent as aforesaid is irrevocable and coupled with an interest.
(m) Confidentiality.
(i) Each of the parties hereto acknowledges that this
Agreement is confidential in nature and each such party agrees that, unless
otherwise directed by a court or regulatory entity of competent jurisdiction or
as may be required by federal or state law (which determination as to federal or
state law shall be based upon written advice of counsel), it shall limit the
distribution of such document to only its officers, employees, attorneys,
accountants and agents as required in order to conduct its business with the
other party hereto. This subparagraph shall not apply to information which has
otherwise lawfully entered the public domain or which the other party has given
written permission to disclose.
(ii) In connection with the Transactions contemplated
under this Agreement, the Assignor will be providing MLMCI and MLCS with certain
information with respect to its financial condition, assets and operations that
is non-public, confidential or proprietary in nature, including, without
limitation, the information contained in any reports provided to MLMCI and MLCS
pursuant to Section 9(g) hereof (the "Information"). Neither MLMCI nor MLCS
agree that it will not (a) disclose the Information to any other person or use
any portion thereof except in connection with the Transactions or (b) disclose
to any person the fact that the Information has been made available.
Notwithstanding the foregoing, MLMCI and MLCS may disclose the Information: (a)
to its directors, officers and employees who need to know the Information for
purposes of evaluating the Transactions, who are informed of the confidential
nature of the Information and who agree to be bound by the terms of this
Agreement; (b) as may be required by applicable law or at the request of any
regulatory or supervisory authority having jurisdiction over MLMCI and MLCS; or
(c) with our prior consent.
(n) Further Assurances. Assignor agrees that, from time to time
upon the prior written request of MLMCI, it will (i) execute and deliver such
further documents and do such other acts and things as MLMCI may reasonably
request in order to fully effectuate the purposes
24
<PAGE> 25
of this Agreement and (ii) provide such opinions of counsel concerning matters
relating to this Agreement as MLMCI may reasonably request.
(o) Remedies Cumulative. All rights, remedies and powers of MLMCI
and MLCS hereunder and in connection herewith are irrevocable and cumulative,
and not alternative or exclusive, and shall be in addition to all other rights,
remedies and powers of MLMCI and MLCS whether under law, equity or agreement. In
addition to the rights and remedies granted to it in this Agreement or under the
Note, MLMCI and MLCS shall have all the rights and remedies of a secured party
under the Uniform Commercial Code.
(p) Litigation. Notwithstanding any termination hereof, Assignor
hereby agrees that any legal action or proceeding against it in connection
herewith may be brought in the courts of the State of New York or of the United
States of America located in the City and State of New York, Borough of
Manhattan, as MLMCI may elect, and Assignor hereby irrevocably submits to the
jurisdiction of each of said courts, and waives any objection on the grounds of
venue, forum non conveniens or similar ground.
(q) Entire Agreement. This Agreement, including the Exhibits
hereto, contains the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements between them, whether
oral or written, of any nature whatsoever with respect to the subject matter
hereof.
25
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CHASTAIN CAPITAL CORPORATION
By: /s/ Rufus Chambers, Jr.
--------------------------------------------------
Name: Rufus Chambers, Jr.
------------------------------------------------
Title: President
-----------------------------------------------
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: /s/ James B. Cason
--------------------------------------------------
Name: James B. Cason
------------------------------------------------
Title: Vice President
-----------------------------------------------
MERRILL LYNCH CAPITAL SERVICES, INC.
By: /s/ John Mulholland
--------------------------------------------------
Name: John Mulholland
------------------------------------------------
Title: Vice President
-----------------------------------------------
<PAGE> 27
EXHIBIT A
THIS NOTE IS NOT A
NEGOTIABLE INSTRUMENT.
NO TRANSFER OR SALE OF THIS NOTE SHALL BE
MADE UNLESS SUCH TRANSFER IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR IS
MADE IN ACCORDANCE WITH SAID ACT AND
LAWS.
NOTE
$35,000,000 New York, New York August 21, 1998
FOR VALUE RECEIVED, CHASTAIN CAPITAL CORPORATION (the "Assignor")
promises to pay to MERRILL LYNCH MORTGAGE CAPITAL INC. (the "Payee") the
principal sum of [_] Dollars ($[_]) (or so much thereof as shall have been
advanced here against and shall be outstanding), in lawful money of the United
States of America, in immediately available funds, with interest on each
principal sum advanced here against or the unpaid balance thereof with such
frequency and to such location as is specified in the related confirmation
statement (in each case, the "Confirmation Statement") for such advance (or on
such other day and with such other frequency and to such other location as may
be mutually agreed upon by Assignor and the Payee) at said office and in said
money and funds from the date of the related advance until August 20, 1999 (the
"Maturity Date") at the rate per annum (based on a year of 360 days and actual
days elapsed) indicated on the related Confirmation Statement attached hereto,
but in no event higher than the maximum rate permitted by law, and after such
Maturity Date, or upon acceleration as hereinafter provided, until said balances
shall be paid, at the rate per annum (based on a year of 360 days and actual
days elapsed) equal to the greater of (i) two hundred (200) basis points in
excess of the interest rate for such advance and (ii) two hundred (200) basis
points in excess of the prime rate for short term bank commercial loans as
published in The Wall Street Journal, changing as such published rate changes,
but in no event higher than the maximum rate permitted by law.
Advances here against shall be in minimum amounts of $1,000,000 and
integral multiples of $100,000 in excess thereof. Assignor may request
disbursement of amounts borrowed hereunder upon not less than two (2) Business
Days' written notice to the Payee. The Payee is not obligated to make any
advances hereunder. The Payee is hereby authorized by Assignor to endorse on the
Loan Schedule amounts advanced here against, the rate of interest relating
thereto and any principal prepayments hereunder (as permitted by the Assignment
defined below), it being understood, however, that failure to make any such
endorsement shall not affect the obligations of Assignor hereunder in respect of
the amounts advanced here against.
A-1
<PAGE> 28
This Note is the Note referred to in the Master Assignment Agreement
(as amended, supplemented or otherwise modified from time to time, the "Master
Assignment Agreement"), dated as of August ____, 1998, between Assignor, Merrill
Lynch Capital Services, Inc. and the Payee, granting to the Payee a first
priority perfected security interest in the Collateral, as described therein.
The holder is entitled to the benefits of the Master Assignment Agreement and
may enforce the agreements of Assignor contained therein and exercise the
remedies provided for thereby or otherwise available in respect thereof. All
capitalized terms used in this Note and not otherwise defined shall have the
respective meanings set forth in the Master Assignment Agreement except where
the context clearly indicates otherwise.
This Note and all other present and future obligations of any and all
kinds of Assignor in favor of the holder hereof, whether created directly or
acquired by assignment, whether absolute or contingent, shall, unless the holder
shall otherwise elect, forthwith be due and payable without notice or demand of
any kind (except as expressly provided in the Master Assignment Agreement), all
of which are expressly waived upon the occurrence of an Event of Default.
Assignor hereby agrees that any legal action or proceeding against it
for enforcement of this Note or of any judgment with respect to this Note may be
brought in the courts of the State of New York or of the United States of
America located in the City and State of New York, Borough of Manhattan, as the
holder may elect, and Assignor hereby irrevocably submits to the jurisdiction of
each of said courts, and waives any objection on the grounds of venue, forum non
conveniens or similar ground. Assignor irrevocably consents that service of
process in any such action or proceeding may be made upon Assignor by the
mailing thereof by the holder by United States registered or certified mail,
postage prepaid, to Assignor at the address set forth herein below the signature
of Assignor, and Assignor hereby further agrees that service of process in such
manner shall be full and sufficient notice of any such action or proceeding.
Assignor waives diligence, presentment of any instrument, protest and
notice of non-payment or protest and any and all other notices and demands
whatsoever in connection with the delivery, acceptance, performance, default or
enforcement of this Note. Assignor will pay on demand all costs of collection
(including reasonable attorneys' fees) paid or incurred by the holder in
enforcing this Note on default. As used herein, the word "holder" shall mean the
Payee or any endorsee of this Note who is in possession hereof, if this Note is
at the time payable to the bearer.
A-2
<PAGE> 29
This Note shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and entirely
performed therein, without regard to the conflict of laws principles thereof.
CHASTAIN CAPITAL CORPORATION
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address: 3424 Peachtree Road, N.E. Suite 800
Atlanta, Georgia 30326
Attention: Steve Grubenhoff
A-3
<PAGE> 30
LOAN SCHEDULE
This Note evidences Loans made by the Payee to Assignor and the repayment of
principal by Assignor to the Payee, in the principal amounts and on the dates
and with the related interest rates set forth below as well as the total amount
advanced here against as of each such date:
<TABLE>
<CAPTION>
DATE PRINCIPAL INTEREST PRINCIPAL TOTAL
AMOUNT LOANED RATE AMOUNT REPAID OUTSTANDING
<S> <C> <C> <C> <C>
- - -------- ---------------- ---------- --------------- -------------
- - -------- ---------------- ---------- --------------- -------------
- - -------- ---------------- ---------- --------------- -------------
- - -------- ---------------- ---------- --------------- -------------
- - -------- ---------------- ---------- --------------- -------------
- - -------- ---------------- ---------- --------------- -------------
</TABLE>
A-4
<PAGE> 31
EXHIBIT B
CONFIRMATION STATEMENT
MERRILL LYNCH MORTGAGE CAPITAL INC.
Date: __________________________
Borrower: Chastain Capital Corporation
Address: 3424 Peachtree Road, N.E. Suite 800
Atlanta, Georgia 30326
Attention: Steve Grubenhoff
Telephone: (404) 848-8871
Fax Number: (404) 848-8929
Re: LOAN PURSUANT TO MASTER ASSIGNMENT AGREEMENT
Gentlemen:
Merrill Lynch Mortgage Capital Inc. ("MLMCI") is pleased to confirm our Loan to
you (the "Assignor") pursuant to the Master Assignment Agreement (the "Master
Assignment Agreement"), dated as of August 21, 1998, between you, MLMCI and
Merrill Lynch Capital Services, Inc. under the following terms and conditions:
<TABLE>
<S> <C> <C>
1. Eligible Asset Description: ________________________
A. Security Issue Date or
Date of Origination of the
Obligation Represented
by the Eligible Asset: ______________________
B. Percentage Ownership: _____________________%
C. Face Amount: $_____________________
D. Current Market Value: $_____________________
E. Margin Requirement: _____________________%
2. Loan: _____ New Funds _____ Roll
A. Amount: $______________
B. Closing Date: _______________
C. Interest Payment Date: The last Business Day of each month.
D. Interest Rate: __________ (____) basis points over the prevailing London
Interbank Offered Rate for one-month United States Dollar
deposits as set forth on page 8695 of Knight-Ridder as of 8:00 a.m.
New York City time two Business Days prior to the Closing Date
as set forth herein.
</TABLE>
B-1
<PAGE> 32
<TABLE>
<CAPTION>
MLMCI's Wiring Instructions Assignor's Wiring Instructions
- - ---------------------------------------------------------------------------
<S> <C>
Bankers Trust New York [NAME OF BANK]
For the Account of Merrill Lynch For the Account of
Mortgage Capital Inc. Chastain Capital Corporation
Account Number: 00812914 Account Number: _______________
ABA Number: 021-001-033 ABA Number: __________________
</TABLE>
The Note, dated August 21, 1998, which evidences advances under the
Master Assignment Agreement will be annotated on the schedule attached thereto
to reflect the date, amount and interest rate relating to this advance.
The Master Assignment Agreement is incorporated by reference into this
Confirmation Statement and made a part hereof as if it were fully set forth
herein. All capitalized terms used herein but not otherwise defined shall have
the meanings specified in the Master Assignment Agreement.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
AGREED AND ACKNOWLEDGED:
CHASTAIN CAPITAL CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
B-2
<PAGE> 33
EXHIBIT C
OPINION OF COUNSEL TO ASSIGNOR
1. Assignor is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its organization and has
power and authority to enter into and perform its obligations under (i)
the Master Assignment Agreement (the "Agreement") between Merrill Lynch
Mortgage Capital Inc. ("MLMCI"), Merrill Lynch Capital Services, Inc.
and Chastain Capital Corporation ("Assignor") and (ii) the Note
relating thereto. Assignor is duly qualified to do business and is in
good standing in each jurisdiction in which the character of the
business transacted by it requires such qualification and in which the
failure so to qualify would have a material adverse effect on the
business, properties, assets or condition (financial or other) of
Assignor and its subsidiaries, considered as a whole.
2. The Agreement and the Note have each been duly authorized, executed and
delivered by Assignor.
3. The consummation of any of the transactions contemplated by the
Agreement will not conflict with, result in a breach of, or constitute
a default under the organizational documents of Assignor or the terms
of any indenture or other agreement or instrument known to us to which
Assignor is party or bound, or any order known to such counsel to be
applicable to Assignor or any regulations applicable to Assignor, of
any state or federal court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over Assignor.
4. There is no pending or threatened action, suit or proceeding before any
court or governmental agency, authority or body or any arbitrator
involving Assignor or relating to the transaction contemplated by the
Agreement which, if adversely determined, would have a material adverse
effect on MLMCI.
5. The Collateral will have been endorsed in a manner which satisfies any
requirement of endorsement in order to transfer all right, title and
interest in and to the Collateral from Assignor to MLMCI and MLCS.
Assuming that the applicable law in the jurisdiction in which the
Collateral is held is the same as that which exists in any jurisdiction
in which such counsel is admitted to practice, the Agreement together
with (a) the delivery of the Collateral by Assignor to MLMCI and (b)
the endorsement of such Collateral to MLMCI or in blank, creates a
valid, perfected security interest in favor of MLMCI; such security
interest will have the same priority and will be subject to the same
security interests and liens as apply to such Collateral in the hands
of Assignor.
C-1
<PAGE> 34
EXHIBIT D
Form of Monthly Financial Statements
[To Be Provided By Assignor]
D-1
<PAGE> 35
EXHIBIT E
[Letterhead of Assignor]
[Date]
To: [Obligor]
To: [Agent]
Re: [Pledged Syndicated Bank Loan]
Dear Sirs:
We refer to the [Agreement]. Terms defined in the Agreement have the same
meaning in this notice.
We hereby give you notice that by a Master Assignment Agreement dated as of [ ]
we have assigned in favor of Merrill Lynch Mortgage Capital, Inc. ("MLMCI") all
our right, title and interest in and to the Agreement and the other Finance
Documents in respect of a Commitment of (pound)[ ] and Advances in a
principal amount of (pound)[ ] and Advances in a principal amount of
(pound)[ ] together with all interest, fees and other moneys and property
related to such Commitment and Advances (together the "Assigned Rights").
Please note the following:
(a) We continue to be solely responsible for the performance of our
obligations under the Junior Facility Agreement and the other Finance
Documents.
(b) We irrevocably authorize and instruct you and the Agent to pay all
amounts which are now or in future payable to us in respect of the
Assigned Rights to MLMCI at the following account (or such other
accounts as MLMCI may notify to you for this purpose): [details of
MLMCI account].
(c) We have agreed that MLMCI may exercise all our rights under the
Assigned Rights and to receive any payments due under or in respect of
the Assigned Rights.
E-1
<PAGE> 36
(d) The authority and instructions contained in this letter cannot be
revoked or varied by us without the prior written consent of MLMCI.
Please confirm to [name] at MLMCI, [address] that you have received this notice
and will act in accordance with its terms in the attached form.
Yours faithfully,
- - ------------------------------------
For and on behalf of
[Assignor]
E-2
<PAGE> 37
[Form of Confirmation]
To: Merrill Lynch Mortgage Capital, Inc.
[Address]
Attention: [Name of contact]
Dear Sirs:
[Facility Agreement]
We refer to the notice of assignment dated [ ] from [Assignor] a copy of
which is attached.
We confirm that we will act in accordance with the terms of that notice.
Yours faithfully,
- - ------------------------
For and on behalf of
[Name of company]
E-3
<PAGE> 1
EXHIBIT 10.4
===============================================================================
AMENDMENT NO. 1
TO
MASTER ASSIGNMENT AGREEMENT
AMONG
CHASTAIN CAPITAL CORPORATION,
MERRILL LYNCH MORTGAGE CAPITAL INC.
AND
MERRILL LYNCH CAPITAL SERVICES, INC.
DATED AS OF OCTOBER 23, 1998
===============================================================================
<PAGE> 2
THIS AMENDMENT No. 1 (the "Amendment") is made as of the 23rd day of
October, 1998 by and among CHASTAIN CAPITAL CORPORATION (the "Assignor") and
MERRILL LYNCH MORTGAGE CAPITAL INC. ("MLMCI") and MERRILL LYNCH CAPITAL
SERVICES, INC. ("MLCS"). By executing this Amendment, the Assignor, MLMCI and
MLCS agree to be bound by the terms of the Agreement as amended hereby.
WITNESSETH
WHEREAS, the parties entered into a Master Assignment Agreement, dated
as of August 21, 1998 (the "Agreement"); and
WHEREAS, Assignor, by virtue of having breached its covenant set forth
in Section 9(i) of the Agreement, is in Default under the Agreement, and MLMCI
and MLCS have advised Assignor that an Event of Default has occurred and such
Event of Default is continuing;
WHEREAS, Assignor has requested that MLMCI and MLCS refrain from
exercising their remedies with respect to the aforementioned Event of Default
until 5:00 p.m., New York City time on November 13, 1998 (the period from the
date of such Default until such time on November 13, 1998, being herein
referred to as the "Forbearance Period");
WHEREAS, Assignor has entered into certain transactions that are
governed by that ISDA Master Agreement, dated as of July 10, 1998, between MLCS
and Assignor that are not contemplated in the Agreement and Assignor now
desires to grant to MLMCI and MLCS a right of cross-collateralization and
set-off with respect to such transactions in consideration of the forbearance
contemplated by this Amendment;
WHEREAS, in order to effectuate the foregoing, the parties desire to
amend the Agreement in the manner provided herein;
NOW, THEREFORE, in consideration of the foregoing and of the covenants
and agreements hereinafter set forth and of other good and valuable
consideration (the receipt and sufficiency of which is hereby acknowledged),
Assignor, MLMCI and MLCS agree as follows:
SECTION 1. DEFINITIONS
(a) Capitalized terms used herein and not otherwise defined shall have
the meanings assigned in the Agreement. Capitalized terms used in the Agreement
whose definitions are modified in this Amendment shall, for all purposes of the
Agreement, be deemed to have such modified definitions.
(b) The following defined terms are added:
"August 25, 1998 Swap Transaction" shall mean the transaction
under the Swap Agreement entered into pursuant to a confirmation dated
August 25, 1998, as the same may be amended, supplemented or otherwise
modified from time to time.
"Forbearance Period" shall have the meaning set forth in the
third WHEREAS clause of this Amendment.
2
<PAGE> 3
"July 13, 1998 Swap Transaction" shall mean the transaction
under the Swap Agreement entered into pursuant to a confirmation dated
July 13, 1998, as the same may be amended, supplemented or otherwise
modified from time to time.
"July 14, 1998 Swap Transaction" shall mean the transaction
under the Swap Agreement entered into pursuant to a confirmation dated
July 14, 1998, as the same may be amended, supplemented or otherwise
modified from time to time.
"September 14, 1998 Swap Transaction" shall mean the
transaction under the Swap Agreement entered into pursuant to a
confirmation dated September 14, 1998, as the same may be amended,
supplemented or otherwise modified from time to time.
"Subordinated Loan Agreement" shall mean the $40,000,000
Subordinated Loan Agreement, dated as of November 13, 1998 between
Assignor and Lend Lease Investment Holdings, Inc.
(c) The definitions of the following terms are hereby amended and
restated as follows (and the parties confirm that all references to such terms
in the Agreement shall be to such terms as so amended and restated):
"Book Net Worth" shall mean the sum of (i) the equity of
Assignor determined in accordance with GAAP and (ii) [such
subordinated debt as related to the Subordinated Loan Agreement].
"Market Value" shall mean, for any Eligible Asset and for any
transaction under the Swap Agreement, the value thereof determined by
MLMCI (or its affiliate) from time to time (and at such times in its
sole discretion) in the good faith exercise of its reasonable business
judgement.
"Swap Agreement" shall mean that certain ISDA Master
Agreement dated as of July 10, 1998 between MLCS and Assignor,
including all amendments and supplements thereto and confirmations
thereunder, including, without limitation, the September 14, 1998 Swap
Transaction, the August 25, 1998 Swap Transaction, the July 13, 1998
Swap Transaction and the July 14, 1998 Swap Transaction, as any of the
foregoing may be amended, supplemented or otherwise modified from time
to time.
SECTION 2. THE NOTE; FINANCING STATEMENTS
(a) The Note, attached hereto as Exhibit A, and all obligations of
Assignor thereunder is ratified and confirmed and all references to the
Agreement therein shall be deemed to mean the Agreement as amended hereby.
(b) The parties confirm that all references to the Agreement and the
defined terms used therein in any financing statement of record that names
either MLMCI or MLCS as the secured party and Assignor as the debtor shall be
deemed to be the Agreement as amended hereby.
3
<PAGE> 4
SECTION 3. MARGIN DETERMINATIONS
Section 5(b) of the Agreement is amended by deleting the phrase "Swap
Agreement" in clause (2) thereof and substituting the phrase "September 14,
1998 Swap Transaction" therefor.
SECTION 4. FORBEARANCE; COVENANTS
(a) Assignor is in Default with respect to the Book Net Worth covenant
set forth in Section 9(i) of the Agreement, MLMCI and MLCS have advised
Assignor of such Event of Default and such Event of Default is continuing.
MLMCI and MLCS agree to refrain from exercising their remedies with respect to
such Event of Default during the Forbearance Period so long as Assignor
maintains a Book Net Worth of $50,000,000 and no other Default exists under the
Agreement.
(b) Assignor hereby covenants and agrees to maintain a minimum Book
Net Worth during the Forbearance Period of $50,000,000; to maintain a minimum
Book Net Worth from period commencing immediately after the Forbearance Period
and ending January 31, 1999 of $65,000,000.
(c) Assignor hereby covenants and agrees to maintain a cash position
on its balance sheet of a minimum amount of $10,000,000; such cash position to
be free and clear of any lien, encumbrance or pledge.
(d) Assignor hereby covenants and agrees to send MLMCI and MLCS, no
later than 5:00 p.m. November 13, 1998, $5,000,000 in immediately available
funds pursuant to the wiring instructions set forth on Exhibit B hereto, of
which MLMCI and MLCS shall apply the amounts as set forth on Exhibit B in
partial satisfaction of the aggregate Repurchase Price under the Agreement and
in partial satisfaction of the obligations of the Assignor under the Swap
Agreements.
(e) Assignor hereby covenants and agrees (i) to enter into the
$40,000,000 Subordinated Loan Agreement, pursuant to which the obligations of
Assignor to MLMCI and MLCS shall be senior to the obligations of Assignor under
the Subordinated Loan Agreement; (ii) to maintain such Subordinated Loan
Agreement; (iii) to notify MLMCI and MLCS of any borrowings under such
Subordinated Loan Agreement; and (iv) that Assignor shall not amend, modify or
otherwise supplement the Subordinated Debt Agreement in any manner that could
reasonably be expected to have a material adverse effect on the Agreement, the
Collateral or the Assignor.
(f) Assignor hereby covenants and agrees, with respect to the July 13,
1998 Swap Transaction that either (i) such Swap Transaction shall be unwound
before the close business on January 31, 1999 or (ii) MLCS and Assignor shall
have entered into an amendment to the July 13, 1998 Swap Transaction with
amended mark-to-market provision and such other conditions satisfactory to
MLCS, in its sole discretion.
(g) The forbearance granted hereby does not extend to any other
Default or Event of Default that has occurred or may occur at any time in the
future (including, without limitation, any event of default that occurs during
the Forbearance Period). MLMCI and MLCS hereby
4
<PAGE> 5
advise Assignor that, other than expressly provided herein, neither MLMCI nor
MLCS waives any Default or Event of Default which may exist, and that the
current non-exercise of rights, remedies, powers and privileges by MLMCI and
MLCS under the Loan Documents and applicable law with respect to such Defaults
or Events of Defaults, if any, shall not be, and shall not be construed as, a
waiver thereof, and MLMCI and MLCS reserve their rights (i) fully to invoke any
and all such rights, remedies, powers and privileges under the Loan Documents
and applicable law at any time any of them deems appropriate in such respect of
any Defaults or Events of Default that may exist, (ii) to refuse to make
available any further extensions of credit except in strict accordance with the
terms of the Loan Documents and (iii) to require that all Loans bear interest
at the rates specified in the Agreement. Nothing in this Amendment, and no
extension of credit made by MLMCI or MLCS on or after the date hereof, shall be
construed as an acknowledgment or determination by either MLMCI or MLCS that no
Default or Event of Default has occurred or is continuing.
SECTION 5. TERMINATION OF AGREEMENT AND SWAP AGREEMENT
Notwithstanding Section 13(g) of the Agreement, the definition of
Maturity Date or any other provision of the Agreement to the contrary, the
Agreement as amended hereby shall terminate when the Obligations thereunder
have been paid in full pursuant to the terms of the Agreement as so amended
(which terms shall include the due date and any other terms set forth in any
Confirmation Statement relating to a Loan); provided, that, so long as no Event
of Default shall have occurred, MLMCI and MLCS hereby covenant that any Loans
outstanding as of the date hereof shall be extended pursuant to the terms of
the Agreement through January 31, 1999. Such termination shall not require the
written request of Assignor.
SECTION 6. NO REQUIREMENT TO LEND; NO FURTHER LOANS
The parties confirm that all Loans under the Agreement are at the sole
and exclusive option of MLMCI and MLMCI is not now, and has never been, under
any obligation to make any Loan (including future Loans) under the Agreement.
The parties hereby acknowledge that there shall be no further Loans
under the Agreement.
SECTION 7. EXPENSES
The expenses of the parties in connection with this Amendment
(including, without limitation, the fees and expenses of counsel incurred in
connection with the preparation of this Amendment) shall be paid by Assignor.
SECTION 8. GOVERNING LAW; SEVERABILITY
This Amendment shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and entirely
performed therein. Each provision of this Amendment shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Amendment shall be prohibited by or be invalid under such
law, such provision shall be ineffective to the extent of such prohibition or
invalidity,
5
<PAGE> 6
without invalidating the remainder of such provision or the remaining
provisions of this Amendment.
SECTION 9. INTERPRETATION
The provisions of the Agreement shall be read so as to give effect to
the provisions of this Amendment.
SECTION 10. COUNTERPARTS
This Amendment may be executed in any number of counterparts, each of
which counterparts shall be deemed to be an original, and all such counterparts
shall constitute but one and the same instrument.
SECTION 11. RATIFICATION AND CONFIRMATION
As amended by this Amendment, the Agreement is hereby in all respects
ratified and confirmed, and the Agreement as amended by this Amendment shall be
read, taken and construed as one and the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
CHASTAIN CAPITAL CORPORATION
By: /s/ StevenGrubenhoff
Name: Steven Grubenhoff
Title: CFO
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: /s/ James B. Cason
Name: James B. Cason
Title: Vice President
MERRILL LYNCH CAPITAL SERVICES, INC.
By: /s/ John Mulholland
Name: John Mulholland
Title: Vice President
7
<PAGE> 8
EXHIBIT A
THIS NOTE IS NOT A
NEGOTIABLE INSTRUMENT.
NO TRANSFER OR SALE OF THIS NOTE SHALL BE MADE UNLESS SUCH TRANSFER IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND ANY APPLICABLE STATE SECURITIES LAWS OR IS MADE IN ACCORDANCE WITH SAID ACT
AND LAWS.
NOTE
$35,000,000 New York, New York August 21, 1998
FOR VALUE RECEIVED, CHASTAIN CAPITAL CORPORATION (the "Assignor")
promises to pay to MERRILL LYNCH MORTGAGE CAPITAL INC. (the "Payee") the
principal sum of Thirty-Five Million Dollars ($35,000,000) (or so much thereof
as shall have been advanced here against and shall be outstanding), in lawful
money of the United States of America, in immediately available funds, with
interest on each principal sum advanced here against or the unpaid balance
thereof with such frequency and to such location as is specified in the related
confirmation statement (in each case, the "Confirmation Statement") for such
advance (or on such other day and with such other frequency and to such other
location as may be mutually agreed upon by Assignor and the Payee) at said
office and in said money and funds from the date of the related advance until
January 31, 1999 (the "Maturity Date") at the rate per annum (based on a year
of 360 days and actual days elapsed) indicated on the related Confirmation
Statement attached hereto, but in no event higher than the maximum rate
permitted by law, and after such Maturity Date, or upon acceleration as
hereinafter provided, until said balances shall be paid, at the rate per annum
(based on a year of 360 days and actual days elapsed) equal to the greater of
(i) two hundred (200) basis points in excess of the interest rate for such
advance and (ii) two hundred (200) basis points in excess of the prime rate for
short term bank commercial loans as published in The Wall Street Journal,
changing as such published rate changes, but in no event higher than the
maximum rate permitted by law.
Advances here against shall be in minimum amounts of $1,000,000 and
integral multiples of $100,000 in excess thereof. Assignor may request
disbursement of amounts borrowed hereunder upon not less than two (2) Business
Days' written notice to the Payee. The Payee is not obligated to make any
advances hereunder. The Payee is hereby authorized by Assignor to endorse on
the Loan Schedule amounts advanced here against, the rate of interest relating
thereto
A-1
<PAGE> 9
and any principal prepayments hereunder (as permitted by the Assignment
defined below), it being understood, however, that failure to make any such
endorsement shall not affect the obligations of Assignor hereunder in respect
of the amounts advanced here against.
This Note is the Note referred to in the Master Assignment Agreement
(as amended, supplemented or otherwise modified from time to time, the "Master
Assignment Agreement"), dated as of August 21, 1998, between Assignor, Merrill
Lynch Capital Services, Inc. and the Payee, granting to the Payee a first
priority perfected security interest in the Collateral, as described therein.
The holder is entitled to the benefits of the Master Assignment Agreement and
may enforce the agreements of Assignor contained therein and exercise the
remedies provided for thereby or otherwise available in respect thereof. All
capitalized terms used in this Note and not otherwise defined shall have the
respective meanings set forth in the Master Assignment Agreement except where
the context clearly indicates otherwise.
This Note and all other present and future obligations of any and all
kinds of Assignor in favor of the holder hereof, whether created directly or
acquired by assignment, whether absolute or contingent, shall, unless the
holder shall otherwise elect, forthwith be due and payable without notice or
demand of any kind (except as expressly provided in the Master Assignment
Agreement), all of which are expressly waived upon the occurrence of an Event
of Default.
Assignor hereby agrees that any legal action or proceeding against it
for enforcement of this Note or of any judgment with respect to this Note may
be brought in the courts of the State of New York or of the United States of
America located in the City and State of New York, Borough of Manhattan, as the
holder may elect, and Assignor hereby irrevocably submits to the jurisdiction
of each of said courts, and waives any objection on the grounds of venue, forum
non conveniens or similar ground. Assignor irrevocably consents that service of
process in any such action or proceeding may be made upon Assignor by the
mailing thereof by the holder by United States registered or certified mail,
postage prepaid, to Assignor at the address set forth herein below the
signature of Assignor, and Assignor hereby further agrees that service of
process in such manner shall be full and sufficient notice of any such action
or proceeding.
Assignor waives diligence, presentment of any instrument, protest and
notice of non-payment or protest and any and all other notices and demands
whatsoever in connection with the delivery, acceptance, performance, default or
enforcement of this Note. Assignor will pay on demand all costs of collection
(including reasonable attorneys' fees) paid or incurred by the holder in
enforcing this Note on default. As used herein, the word "holder" shall mean
the Payee or any endorsee of this Note who is in possession hereof, if this
Note is at the time payable to the bearer.
A-2
<PAGE> 10
This Note shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and entirely
performed therein, without regard to the conflict of laws principles thereof.
CHASTAIN CAPITAL CORPORATION
By: /s/ StevenGrubenhoff
Name: StevenGrubenhoff
Title: CFO
Address: 3424 Peachtree Road, N.E. Suite 800
Atlanta, Georgia 30326
Attention: Steve Grubenhoff
A-3
<PAGE> 11
LOAN SCHEDULE
This Note evidences Loans made by the Payee to Assignor and the repayment of
principal by Assignor to the Payee, in the principal amounts and on the dates
and with the related interest rates set forth below as well as the total amount
advanced here against as of each such date:
<TABLE>
<CAPTION>
DATE PRINCIPAL INTEREST PRINCIPAL TOTAL
AMOUNT LOANED RATE AMOUNT REPAID OUTSTANDING
<S> <C> <C> <C> <C>
- - -------- -------------- ---------- -------------- -------------
- - -------- -------------- ---------- -------------- -------------
- - -------- -------------- ---------- -------------- -------------
- - -------- -------------- ---------- -------------- -------------
- - -------- -------------- ---------- -------------- -------------
- - -------- -------------- ---------- -------------- -------------
</TABLE>
A-4
<PAGE> 12
EXHIBIT B
WIRING INSTRUCTIONS AND AMOUNTS
To Merrill Lynch Mortgage Capital Inc.
$________________
Bankers Trust NYC
ABA #: 021 001 033
ACCT #: 008 129 14
FAO: MLMCI Matched
To Merrill Lynch Capital Services, Inc.
$________________
Bankers Trust Company
ABA#: 021 001 033
ACCT #: 00 811 874
Ref: Merrill Lynch Capital Services, Inc., U.S. Dollar Swap Account
B-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CHASTAIN CAPITAL CORPORATION FOR THE PERIOD ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,115,540
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,458,827
<PP&E> 7,574,567
<DEPRECIATION> 26,942
<TOTAL-ASSETS> 182,752,535
<CURRENT-LIABILITIES> 112,127,706
<BONDS> 0
76,468
0
<COMMON> 0
<OTHER-SE> 70,535,021
<TOTAL-LIABILITY-AND-EQUITY> 182,752,535
<SALES> 0
<TOTAL-REVENUES> 4,967,480
<CGS> 0
<TOTAL-COSTS> 83,661
<OTHER-EXPENSES> 2,425,965
<LOSS-PROVISION> 39,778,017
<INTEREST-EXPENSE> 788,658
<INCOME-PRETAX> (38,066,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (38,066,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,066,395)
<EPS-PRIMARY> (4.36)
<EPS-DILUTED> (4.36)
</TABLE>
