Execution Copy
Exhibit 99.4
------------
[CHARTERMAC LETTERHEAD]
-----------------------
July 16, 2004
Xx. Xxxxx X. Xxxxxx
Xx. Xxxxxxx X. Xxxxx XXX
Xx. Xxxxx X. Xxxxx
Capri Capital Limited Partnership
000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Gentlemen:
By this letter, CharterMac, a Delaware statutory trust ("CharterMac"),
wishes to express its interest, subject to the terms and conditions described in
this letter, in direct or indirect subsidiaries of CharterMac making certain
loans to Capri Realty Capital, LLC, a Delaware limited liability company
("CRC"), Capri Capital Advisors, LLC, a Delaware limited liability company
("CCA"), and Capri Acquisition, Inc., a Delaware corporation ("CAI"). The making
of such loans shall hereinafter be referred to as the "Transaction."
Should you wish to pursue discussions with XxxxxxxXxx regarding the
Transaction on the terms and conditions set forth in this letter, you should so
notify CharterMac in writing by executing the attached confirmation copy of this
letter and returning it to the undersigned no later than July 16, 2004.
The Transaction is proposed to be made under the following terms and
conditions:
1. The Transaction. The basic terms of the Transaction shall be as set
forth on the Term Sheet attached hereto as Exhibit A (the "Term Sheet"). All
capitalized terms used herein which are not defined herein shall have the
meanings assigned to them in the Term Sheet.
2. Investment Agreement. CRC, CAI, CCLP, CPC, CCA, Xxxxxx, Xxxxx and Fargo
(the "CRC Parties") and CharterMac will proceed as promptly as reasonably
practicable to negotiate and prepare a definitive Investment Agreement
reflecting the terms of the proposed Transaction, including those terms set
forth in the Term Sheet, and containing such additional terms, representations,
agreements, covenants and conditions as are customary in transactions of this
kind or as are otherwise agreed to by the parties.
3. Representations and Warranties. The Investment Agreement shall include
representations and warranties relating to: (A) the financial statements of CCA,
CCLP and their subsidiaries (collectively, the "Capri Entities"), (B) the assets
and liabilities of the Capri Entities, (C) the material contractual obligations
of the Capri Entities, (D) the governmental licenses, permits and authorizations
held by the Capri Entities, (E) the key employees of the Capri Entities, (F) any
material pending or threatened litigation or administrative enforcement actions
involving the Capri Entities, (G) the Capri Entities' compliance with applicable
federal, state and local laws and regulations, (H) CCA's investment advisory
relations and assets under management, (I) CCLP's customers and mortgage loan
relations and experience, (J) matters which could affect the continuation of
CCA's and CCLP's relationships with clients and borrowers or purchasers of
mortgage loans and which could affect the level of business with such persons,
and (K) other representations and warranties which would be customary in
connection with a loan and the possible acquisition of interests similar to
those which may ultimately be acquired by CharterMac.
4. Conditions to Closing. The Investment Agreement shall provide that
consummation of the Transaction will be subject, among other things, to (A)
satisfactory completion by CharterMac of its Due Diligence as provided in
paragraph 5, (B) receipt of all required consents and approvals from
governmental authorities, including without limitation Xxxxxx Xxx and Freddie
Mac, and others in connection with the Transaction, (C) execution of employment
agreements and non-competition/non-disclosure agreements with Xxxxxx (which
shall include mutually agreeable employment agreements with PW and CCLP relating
to Xxxxxx'x employment as chief executive officer of the respective mortgage
banking businesses of PW and CCLP), Primo and Fargo (the "CRC Principals")
(which will be effective on the date of the closing of the Transactions and will
include market rate compensation for each of the CRC Principals) and such other
key employees of the Capri Entities as CharterMac may determine, (D) receipt of
satisfactory opinions of counsel as specified in the Investment Agreement, (E)
the absence of any material adverse change in the assets, liabilities,
businesses or prospects of the Capri Entities, taken as a whole, since December
31, 2003, (F) approval of the CharterMac Board and (G) each of the parties shall
have made Xxxx-Xxxxx-Xxxxxx filings in respect of the Transaction and the
waiting period in respect thereof shall have expired.
5. Due Diligence. The consummation of the Transaction will be contingent
upon CharterMac's conducting and being satisfied with the results of a detailed
review ("Due Diligence") of the operations, financial condition, legal and other
aspects of the Capri Entities and their businesses. CharterMac's Due Diligence
will be conducted at such reasonable times and places as CharterMac and CCLP
shall agree. The Capri Entities shall provide CharterMac and its representatives
with access to, and sufficient information concerning, all aspects of the Capri
Entities and their businesses during CharterMac's Due Diligence.
6. Non-Disclosure; Public Announcement. The existence and contents of this
letter and the parties' discussions of a possible transaction are confidential
and may not be disclosed to any person other than the parties hereto and their
respective advisors (including, in the case of Xxxxxx, Xxxxx and Xxxxx, Xxxxxx
and XxxXxxxxxx), except as provided in this paragraph. CCLP may disclose to its
Detroit pension fund credit enhancer, to its bank lenders, to CAG (defined in
the Term Sheet) and to CalPERS the existence of this letter and the general
structure of the transactions described herein, but not the identity of
CharterMac. CCLP and CharterMac shall consult with each other on the
desirability, timing and substance of any press release or public announcement,
publicity statement or other public disclosure relating to the Transaction or
the fact that negotiations between the parties are being held. The parties
hereto each agree not to make any such public disclosures without the prior
written consent of the other parties as to the content and timing of such
disclosure; provided, however, that either party may make such disclosures as
required to comply with applicable law, regulations or stock exchange
-2-
requirements. The parties acknowledge that they have executed that certain
Confidentiality Agreement, dated May 28, 2004 (the "Confidentiality Agreement"),
and that they shall continue to be obligated by the terms and provisions of such
Confidentiality Agreement notwithstanding the execution of this letter.
7. Expenses; Binding Provisions; Termination. Each of the parties will pay
its own expenses incurred in connection with the implementation of the
provisions of this letter; provided, however, that (i) upon consummation of the
Transaction, CharterMac shall pay 50% of the fee payable by the CRC Principals
to MURC in connection with the Transaction, provided, that if such fee is
$1,000,000 or more, CharterMac shall pay only $500,000 of such fee, and (ii) the
foregoing will not limit the rights and remedies available to any party in the
event of a breach by the other party of a binding term of this letter. It is
understood that except for paragraphs 6, 7 and 8 hereof, which paragraphs
constitute a binding agreement between the parties, this letter is a statement
of present intent only, is not binding upon the parties, contains only summaries
of some of the more basic terms on which the parties presently intend to base
their future discussions and negotiations (if any) which are not all-inclusive
and are subject to change and to each party's right to terminate all discussions
without liability of any kind, and does not contain all matters upon which
agreement must be reached for the Transaction to be consummated. A binding
commitment with respect to the Transaction will result only from the execution
of an Investment Agreement and related documents.
If the parties do not execute an Investment Agreement by August 15,
2004, either party may elect to discontinue the negotiations for the Transaction
and terminate this letter. Termination of this letter by either party shall be
effective only upon delivery of written notice to the other party. Following any
such termination, neither party will have any further liability or obligation
hereunder to the other except pursuant to paragraphs 6, 7 and 8 of this letter,
and except that the foregoing shall not relieve or limit any party's obligation
or liability to a non-breaching party due to such party's breach of any binding
provision of this letter or of the Confidentiality Agreement.
8. Exclusivity. Until the later of (i) August 15, 2004 or (ii) the date
either party notifies the other in writing of termination of the Transaction,
neither the Capri Entities nor the CRC Principals will, directly or indirectly,
solicit, encourage, discuss or negotiate any proposal from any other person or
entity, or enter into any contract or commitment with any other person or
entity, giving such other person rights to acquire equity interests in or any
substantial portion of the assets (except for sales of assets held in commingled
funds or separate accounts of clients, and sales of assets, such as mortgage
loans, in the ordinary course of business consistent with past practice) of any
of the Capri Entities, in each case other than with XxxXXXX. If CharterMac has
proceeded in good faith to negotiate definitive agreements and close the
Transaction on the terms set forth herein, and the Transaction does not close
because either (i) the CRC Principals will not proceed with, or do not agree to,
the Transaction, on the terms set forth herein, except as a result of the
failure to obtain regulatory consents (other than HSR), including for this
purpose Xxxxxx Xxx and Freddie Mac; or (ii) the CRC Principals and CharterMac
have not agreed on the terms of the definitive documents for the Transaction,
and CharterMac has acted in a commercially reasonable manner in not agreeing to
proposed terms that are not provided for in the Term Sheet, and any acquisition
of equity interests or any substantial portion of the assets (except for sales
of assets held in commingled funds or separate accounts of clients, and sales of
-3-
assets, such as mortgage loans, in the ordinary course of business consistent
with past practice) of any of the Capri Entities is consummated with any person
other than CharterMac or one or more of its affiliates or the CRC Parties (or
any affiliate of any of them) enter into any agreement with respect to, or
granting a right to acquire, such interests or assets, within the twelve months
after the date of this letter with any party other than CharterMac or one or
more of its affiliates, then the CRC Parties shall pay to CharterMac the amount
of $3,000,000 in cash (the "Exclusivity Fee"), concurrently with such
consummation or entry into agreement, as applicable. Notwithstanding the
foregoing, the CRC Parties shall not be required to pay the Exclusivity Fee if
the CRC Parties have made payment to CharterMac of the $3,000,000 fee provided
for in the definitive agreements with respect to the interim loan entered into
on the date hereof.
9. Counterparts. This letter may be executed in counterparts, each of
which will be deemed to be an original but both of which together will
constitute one and the same instrument.
-4-
If the foregoing correctly reflects the understanding between us,
please so indicate by signing and returning the enclosed copy of this letter at
your earliest convenience.
Sincerely yours,
CHARTERMAC
By: /s/ Xxxxxx X. Xxxxxx
--------------------
Xxxxxx X. Xxxxxx
Its Chief Executive Officer
Xxxxxx to and accepted as of the 16th day of July, 2004.
/s/ Xxxxx X. Xxxxxx
-------------------
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxx XXX
------------------------
Xxxxxxx X. Xxxxx III
/s/ Xxxxx X. Xxxxx
------------------
Xxxxx X. Xxxxx
-5-
EXHIBIT A
---------
TERM SHEET
----------
1. Parties
1.1. CharterMac and/or affiliates of CharterMac, as the context may
require ("CharterMac")
1.2. PW Funding, an approximately 85%- owned subsidiary of CharterMac
("PW")
1.3. Capri Capital Limited Partnership, a Delaware limited partnership
("CCLP")
1.4. CPC Realty Advisors, Inc., an Illinois corporation ("CPC") which is
the 1% general partner of CCLP and is owned by Xxxxxx, Xxxxx and Xxxxx and whose
only asset is such general partnership interest
1.5. Capri Acquisition, Inc., an Illinois corporation ("CAI") which is a
10% limited partner of CCLP and is owned by Xxxxxx, Xxxxx and Xxxxx and whose
only asset is such limited partnership interest
1.6. Xxxxx X. Xxxxxx ("Xxxxxx"), the holder of 45% of the issued and
outstanding capital stock of CPC, the holder of 45% of the issued and
outstanding capital stock of CAI and a 40.05% limited partner of CCLP
1.7. Xxxxxxx X. Xxxxx XXX ("Primo"), the holder of 45% of the issued and
outstanding capital stock of CPC, the holder of 45% of the issued and
outstanding capital stock of CAI and a 40.05% limited partner of CCLP
1.8. Xxxxx X. Xxxxx ("Fargo" and, together with Xxxxxx and Xxxxx, the "CRC
Principals"), the holder of 10% of the issued and outstanding capital stock of
CPC, the holder of 10% of the issued and outstanding capital stock of CAI and an
8.9% limited partner of CCLP
1.9. Capri Realty Capital , LLC, a newly formed Delaware limited liability
company ("CRC"), which will be owned by Xxxxxx, Xxxxx and Fargo and will own
portions of the limited partnership interests of CCLP and the membership
interests of CCA
1.10. Xxxxx X. XxXxx ("XxXxx")
1.11. Xxxxxx X. Xxxxxxxxx ("Xxxxxxxxx")
1.12. Capital Associates Group Inc., an Illinois corporation ("CAG") owned
by Xxxxxxxxx and XxXxx
1.13. Capri Capital Advisors, LLC, a Delaware limited liability company
("CCA" and, together with CCLP, CPC, CAI, CRC and the CRC Principals, the "CRC
Parties"), owned 51% by CCLP and 49% by CAG, which operates a pension fund
advisory business
1.14. Capri Holdings, LLC, an Illinois limited liability company ("CHI")
of which CCLP is the sole member and whose only assets are 100% of the
membership interests in Associates and Finance
1.15. Capri Capital Associates, LLC, a Delaware limited liability company
("Associates") of which CHI is the sole member and which operates an FHA
mortgage banking business
1.16. Capri Capital Finance, LLC, a Delaware limited liability company
("Finance") of which CHI is the sole member and which is a DUS lender and
operates a mortgage banking business
1.17. MacFarlane Urban Realty Consultants("MURC"), which is owned by
XxxXxxxxxx and Xxxxxx
1.18. Xxxxxx X. XxxXxxxxxx ("XxxXxxxxxx")
1.19. Xxxxx Xxxxxx ("Xxxxxx")
2. The Initial Financing (the following steps will all occur
simultaneously on or before the closing date (the "Closing Date"))
2.1. Xxxxxx, Xxxxx and Xxxxx will contribute all of the limited
partnership interest they own in CCLP (representing 89% of CCLP) to CRC in
exchange for membership interests in CRC (45% for Xxxxxx, 45% for Primo and 10%
for Fargo).
2.2. An affiliate of CharterMac (including any other affiliate to which
any rights may be assigned, the "Lender") loans $20 million in cash to CRC
pursuant to the terms of a note (the "CRC Note"), the terms of which are
described in Section 9. The CRC Note will be personally guaranteed by the CRC
Principals. The CRC Note will be jointly and severally guaranteed by the Capri
Entities, CPC and CAI.
2.3. CCLP will distribute and/or sell to the CRC Principals or CRC the
100% membership interest it owns in CCA (after the acquisition of the remaining
49% membership interest in CCA owned by CAG prior to the Closing Date) and any
other material assets which are solely (except for de minimis sharing) utilized
in or constitute parts of the business of CCA (including its interests in and
concerning Capri Urban Capital I, LLC) and will assume the liabilities related
thereto on terms satisfactory to CharterMac. CRC will assume all of CCLP's
obligations pursuant to the promissory note issued by CCLP to CAG in connection
with CCLP's acquisition of the 51% membership interest in CCA (which promissory
note has a current outstanding principal amount of $2 million) (the "CAG
Promissory Note"). The CRC Parties shall provide arrangements, which may include
the granting of security interests in the ownership interests in and assets of
CRC, satisfactory and adequate, in the judgment of CharterMac, to provide for
the payment of the obligations of CRC pursuant to the CAG Promissory Note, any
obligations of the CRC Parties to the investors, lenders or credit enhancer in
respect of CCLP's $55 million term loan as a result of the closing of the
transactions contemplated by this Term Sheet, and any obligations under the CAG
Agreement (as defined below) (but satisfactory evidence of the payment or other
satisfaction of such term loan, the CAG Promissory Note,
-2-
credit enhancers' obligations or CAG Agreement obligations, respectively, which
shall include a release of all liabilities that any of the CRC Parties may have
to such persons, will obviate any right of Lender to acquire any security
interests or other arrangements relating thereto).
2.4. [Reserved]
2.5. Lender lends $21.5 million to the CRC Principals (the "CAI Note").
The CRC Principals contribute the proceeds of the CAI Note to the capital of
CAI, which contributes it to the capital of CCLP. The CAI Note will be jointly
and severally guaranteed by the Capri Entities, CPC and CRC.
2.6. Lender lends $48.5 million to CRC (the "CCLP Note"). The CCLP Note
will be jointly and severally guaranteed by the Capri Entities, CPC and CRC.
2.7. CRC lends an amount equal to the amount of the CCLP Note to CCLP, or
contributes such amount to the capital of CCLP in exchange for a preferred
partnership interest. CCLP uses the proceeds of the CCLP Note and the CAI Note
to repay CCLP's existing $55 million term loan (the "Term Loan"), which may be
acquired by CharterMac, and to pay the $14.5 million termination fee payable to
the credit enhancer of the Term Loan (or to repay the interim loan, if made by
Lender or its affiliates to fund payment of such fee). The remainder of such
funds shall be used by CCLP to pay various transaction costs related directly or
indirectly to the transactions described in this Term Sheet (including, without
limitation, the satisfaction and retirement of obligations to the credit
enhancers under the senior bank debt). None of the proceeds of the CCLP Note
will be distributed to Xxxxxx, Xxxxx or Fargo.
2.8. Any proceeds from the CRC Note, the CCLP Note and the CAI Note in
excess of the amounts used to repay the interim loan in the principal amount of
$84 million due from CCLP to Lender or its affiliates and any transactions costs
and other liabilities and expenses to be paid by the CRC Partners out of
proceeds (estimated to be $2.5 - 3 million of excess proceeds) will be subject
to a holdback or escrow arrangement to cover losses from breaches of
representations and warranties (exceeding any minimum threshold, if any (to be
agreed upon)) and non-compliance with covenants, and the amount of the holdback
or escrow (plus interest actually earned thereon), less any amounts offset or as
to which there are known and asserted unresolved claims, shall be released on
the first anniversary of the Closing Date; provided that to the extent that any
proposed uses of proceeds (which were deducted in calculating the $2.5-$3
million of excess proceeds) will not be expended for such purposes at the date
of the closing of the loans, such amounts shall be subject to the holdback, but
shall be released upon the request of the CRC Partners; and provided further
that subject to Xxxxxx's review of the adequacy of the holdback, the agreement
will provide that there shall be distributed to the CRC Principals an amount
sufficient to enable them to pay their taxes on the transaction (estimated at $1
- $1.5 million), to the extent that such amount is available after any claims
paid or outstanding against the holdback .
2.9. CHI and PW enter into a joint operating agreement (the "Joint
Operating Agreement"), the terms of which are described in Section 10.
-3-
2.10. The obligations under the CCLP Note, the CRC Note and the CAI Note
shall be cross-collateralized and cross-defaulted.
2.11. The CRC Parties and not CCLP or its subsidiaries shall be
responsible for the payment of any change of control and/or severance payments
where the obligation to pay severance is triggered by a change of control as a
result of the transactions described in this Term Sheet, except to the extent
such amounts are paid out of the proceeds from the CRC Notes, CCLP Note and the
CAI Note in accordance with Section 2.8.
3. Acquisition of MURC. XxxxxxxXxx understands that the CRC Principals are
discussing with MURC a potential acquisition of MURC. It is CharterMac's
intention to work with the CRC Principals to modify the structure of the
transactions described in this Term Sheet if necessary to enable such
acquisition, either simultaneously with or after the Closing hereunder. In any
event, consummation of such acquisition shall be subject to CharterMac's
approval.
4. Purchase Option in CCLP.
4.1. From and after December 1, 2004, Lender has the option to purchase
(and if such option is exercised CAI, CPC and CRC have the obligation to sell),
and CAI, CPC and CRC have the option to sell (and if such option is exercised
Lender has the obligation to purchase) (such sale and purchase, the "CCLP
Purchase", and the date of the CCLP Purchase, the "CCLP Purchase Date"):
(1) CAI's ten percent partnership interest in CCLP, for a purchase
price of $2,150,000 (the "CAI Purchase Price"), payable in cash;
(2) CPC's one percent partnership interest in CCLP, for a purchase
price of $215,000 (the "CPC Purchase Price"), payable in cash; and
(3) CRC's eighty-nine percent partnership interest in CCLP, for a
purchase price (the "CRC Purchase Price") equal to (a) the CCLP Purchase
Price, minus (b) the sum of the CAI Purchase Price and the CPC Purchase
Price; the CRC Purchase Price shall be payable by offsetting the
outstanding principal balance of the CAI Note and the CCLP Note against
the CRC Purchase Price, and the remainder in cash and restricted
CharterMac equity securities as provided in Section 4.3 below.
CAI, CPC and CRC's right to require the Lender to purchase the partnership
interests in CCLP shall be conditioned on (i) the representations and warranties
of the CRC Parties in the Investment Agreement and the documents executed in
connection therewith being true and accurate in all material respects as of the
date of the initial closing under the Investment Agreement, and (ii) the CRC
Parties having complied in all material respects with all covenants made by them
in the Investment Agreement and the documents executed in connection therewith
since the date of the closing under the Investment Agreement, except, in respect
of covenants capable of cure, for non-compliance cured within a reasonable cure
period.
4.2. The "CCLP Purchase Price" shall be $85 million, provided, that if the
"Combined EBITDA" (as hereinafter defined) is less than $11,473,864 ($109
million divided by 9.5), then the CCLP Purchase Price shall be the product of
(x) 9.5 multiplied by the Combined EBITDA
-4-
and (y) 85/109. "Combined EBITDA" means the CCLP EBITDA (as defined in Schedule
A-1) plus 0.49 times the "CCA EBITDA" (as defined in Schedule A-2).
4.3. (a) If the option pursuant to Section 4.1 is exercised, an amount
equal to the Initial CCLP Purchase Price (as defined below), minus the
outstanding principal balance of the CAI Note and the CCLP Note (which
outstanding principal amounts will be offset against the Initial CCLP Purchase
Price at the closing of the CCLP Purchase as follows: first against the purchase
price of $2,150,000 payable to CAI, then against the purchase price of $215,000
payable to CPC and the balance against the portion of the Initial CCLP Purchase
Price payable to CRC), shall be payable upon the later of (i) the closing of the
CCLP Purchase, or (iii) if the CCLP EBITDA has not yet been determined, as soon
thereafter as the CCLP EBITDA is determined.
(b) Such amount shall be payable 50% in immediately available funds and
50% in restricted equity securities of CharterMac, which equity securities will
be (i) listed on a national securities exchange, (ii) registered, or covered by
a binding obligation to register (on customary terms for registration rights
agreements) effective as of the respective dates transfer restrictions are
removed, under the Securities Act of 1934, and (iii) subject to a hold back
equal to the projected losses to CCLP (and its subsidiaries) on any loans which
it then holds.
(i) Transfer of the restricted equity securities shall be
prohibited, provided, that 25% of the aggregate amount of such
restricted equity securities shall be released from transfer
restrictions on each of the first four anniversaries of the CCLP
Purchase Date. The transfer restrictions shall have exceptions for
transfers on death and for estate-planning transfers (provided, that
the transferees shall be subject to the same transfer restrictions).
All transfer restrictions will be released at such time (if any) when
CharterMac ceases to be the legal or beneficial holder or owner of the
CCLP interests acquired on the CCLP Purchase Date.
(ii) The holdback will consist only of restricted equity securities
of CharterMac so long as the amount of the holdback is less than the
aggregate value of the CharterMac shares constituting CRC Purchase
Price. The holdback shall be subject to offset in the amount of any
such losses on loans or losses (exceeding any minimum threshold, if any
(to be agreed upon)) resulting from breaches of representations and
warranties, or non-compliance with covenants of the CRC Parties made in
the Investment Agreement and the documents executed in connection
therewith, provided, that (i) 50% of the amount of the holdback, less
any amounts offset or as to which there are known and asserted
unresolved claims, shall be released on the first anniversary of the
CCLP Purchase Date, and (ii) the remainder of the holdback, less any
amounts offset or as to which there are known and asserted unresolved
claims, shall be released on the second anniversary of the CCLP
Purchase Date. Each release from the holdback shall be made by release
to Xxxxxx, Xxxxx, Fargo and CRC first of any cash then held back and
then of CharterMac equity securities to the extent of CharterMac shares
heldback. Dividends shall not be subject to the hold back.
-5-
(c) The "Initial CCLP Purchase Price" shall equal 9.5 times the CCLP
EBITDA, but not greater than $85 million.
(d) The CharterMac equity securities shall be issued at a price per share
equal to the average closing price for the 30 days preceding the date of
issuance.
4.4. If, after calculation of the CCA EBITDA and the determination of the
Combined EBITDA, the CCLP Purchase Price (which is calculated in accordance with
Section 4.2 based on the Combined EBITDA) is less than the Initial CCLP Purchase
Price, then CAI, CPC and CRC shall pay to Lender the amount by which the CCLP
Purchase Price is less than the Initial CCLP Purchase Price, 50% in immediately
available funds and 50% in restricted equity securities of CharterMac (valued
based on the price at which they were issued), provided that, at Lender's
option, if CAI, CPC and CRC do not make the payment pursuant to the preceding
sentence, CCLP may cancel shares in CharterMac equity securities having a value,
based on the original issuance price, equal to the amount required to be paid.
Any and all amounts payable pursuant to the foregoing shall be secured by all of
the collateral securing the CRC Note, and the Lender shall also have the right
to set off any and all such amounts against any CharterMac equity securities to
be issued in connection with the CCA Purchase (defined in Section 5.1 below).
4.5. If the Initial CCLP Purchase Price is less than $85 million and after
determination of the CCA EBITDA, the CCLP Purchase Price is greater than the
Initial CCLP Purchase Price, the Lender shall pay to CAI, CPC and CRC the amount
of such excess, 50% in immediately available funds and 50% in restricted equity
securities of CharterMac.
4.6. All instruments, documents and other items to be delivered by the CRC
Parties and their affiliates, and all documents to be delivered by CharterMac
(not including any cash or CharterMac shares), on the CCLP Purchase Date shall
be deposited in escrow on the Closing Date, to insure that all parties will
deliver required items on the CCLP Purchase Date (if the right to require such
contribution is exercised).
4.7 Each of the CRC Parties agrees to cooperate with Xxxxxx and take all
reasonable steps in structuring the CCLP Purchase to ensure that Lender will be
in substantially the same position for U.S. federal income tax purposes as if
Xxxxxx purchased the assets of CCLP instead of the partnership interests in
CCLP; provided that Lender shall use all reasonable efforts to require the CRC
Parties to take such steps only in a manner which minimizes or avoids any
additional tax liability on any of the CRC Parties as a result thereof.
5. Purchase Option in CCA
5.1. Effective August 1, 2005, provided that the CRC Principals may delay
the date the option becomes exercisable to a date not later than June 30, 2006
to the extent that they reasonably determine, after consultation with Xxxxxx,
that exercise of such option at such time would adversely impact CCA's business.
Lender has the option to purchase (and if such option is exercised CRC has the
obligation to sell), and CRC has the option to sell (and if such option is
exercised Lender has the obligation to purchase) a 49% membership interest in
CCA (such sale and purchase, the "CCA Purchase", and the date of the CCA
Purchase, the "CCA Purchase
-6-
Date") for a purchase price equal to the CCA Purchase Price (as defined below),
payable first by offsetting the outstanding principal balance of, and any
accrued but unpaid interest on, the CRC Note against the CCA Purchase Price (up
to the amount of the CCA Purchase Price), and the remainder in restricted
CharterMac equity securities (which securities will be listed on a national
securities exchange and be registered, or subject to a binding agreement to
register (on customary terms for registration rights agreements) effective as of
the respective dates transfer restrictions are removed, under the `34 Act).
Transfer of the restricted equity securities shall be prohibited, provided, that
25% of the aggregate amount of such restricted equity securities shall be
released from transfer restrictions on each of the first four anniversaries of
the CCA Purchase Date. The transfer restrictions shall have exceptions for
transfers on death and for estate-planning transfers (provided that the
transferees shall be subject to the same transfer restrictions). All transfer
restrictions will be released simultaneously with CharterMac's ceasing to be the
legal or beneficial owner of the interests in CCA purchased on the CCA Purchase
Date. If requested by Xxxxxx, the CRC Parties will use their commercially
reasonable efforts to accomplish the CCA Purchase within eighteen months after
the Closing Date, to the extent that such earlier CCA Purchase will not, in the
reasonable judgment of the CRC Parties, adversely affect CCA. All instruments,
documents and other items to be delivered by the CRC Parties and their
affiliates, and all documents to be delivered by Lender (not including any cash
or CharterMac shares), on the CCA Purchase Date shall be deposited in escrow on
the Closing Date, to insure that all parties will deliver required items on the
CCA Purchase Date (if the right to require the CCA Purchase is exercised).
(a) The " CCA Purchase Price" shall be $24 million, provided, that if
the Combined EBITDA is less than $11,473,864, then the CCA Purchase Price
shall be the product of (x) 9.5 multiplied by the Combined EBITDA and (y)
24/109.
(b) The CharterMac restricted equity securities shall be issued at a
price per share equal to the average closing price for the 30 days
preceding the date of issuance.
5.2. Regardless of whether the CCA Purchase has occurred, and
notwithstanding the fact that on and after the CCA Purchase Date Lender (or one
of its affiliates) will own 49% of the membership interests in CCA:
(a) All management promotes in commingled funds (including Capri Select
Income II), partnerships and separate accounts existing at the Closing
Date (the "Existing Funds") (provided that any new investments of capital
(whether or not currently committed) or reinvestments in a separate
account , partnership or fund which is not a commingled fund will be
deemed to be a "Future Fund" (as defined in Section 5.2(b) and not an
Existing Fund) payable to CCA at any time, and all distributions, returns
of capital and other payments on account of invested capital or equity
interests in Existing Funds, will be retained by the persons or entities
currently entitled to them (and CharterMac shall have no interest in such
existing promotes, distributions or payments);
(b) in respect of all commingled funds, partnerships and separate
accounts formed after the Closing Date (which does not include Capri
Select Income II, but which includes those investments deemed to be Future
Funds pursuant to Section 5.2(a)) ("Future Funds"), management of CCA or
key employees of the particular Future Fund
-7-
shall be obligated to fund 30% of any capital contributions required in
respect of co-investments;
(c) in respect of each Future Fund, the CRC Principals shall be
obligated to fund either, in the CRC Principals' option, (i) 35% (50% of
the remaining 70%) or (ii) 52.5% (75% of the remaining 70%) of any capital
contributions required in respect of co-investment;
(d) in respect of each Future Fund, CharterMac shall be obligated to
fund (i) if clause (c)(i) above applies, 35% (50% of the remaining 70%),
or (ii) if clause (c)(ii) above applies, 17.5% (25% of the remaining 70%)
of any capital contributions required in respect of co-investment;
(e) All management promotes in all Future Funds will be allocated in
proportion to capital invested or where there is not capital invested, 30%
to management of CCA or key employees responsible for the particular
Future Fund, 35% to CharterMac and 35% to the CRC Principals.
(f) All capital invested in commingled funds, partnerships and separate
accounts (the "Invested Capital") and the returns thereon and all
distributions and other payments on account of equity interest ownership
therein, including return of capital, shall accrue for the benefit of the
persons providing or having provided such capital or owning such interest
(it being understood that CharterMac shall not be entitled to the return
of any capital invested or other distributions on account of equity
interest ownership with respect to the Existing Funds);
(g) CRC shall retain management control of CCA, provided, however, that
the CCA operating agreement will be amended to provide that CCA shall not
take any significant actions or any action outside the ordinary course of
business or which would involve any change in the manner in which CCA's
business is conducted, including but not limited to the following actions,
without the consent of the Lender or one of its affiliates:
(i) Adopting annual operating budgets and making any expenditures
which exceed budget line items, subject to customary exceptions when
the parties have not agreed on a budget or for small expenditures in
excess of budget items;
(ii) Incurrence of any third party indebtedness other than "trade
debt" incurred in the ordinary course of business;
(iii) Making of any capital expenditures;
(iv) Any merger or sale of any material portion of assets;
(v) Changes in independent auditors;
(vi) Related party transactions;
-8-
(vii) Marketing of any new (i.e., other than Existing Funds)
commingled fund or other investment fund;
(viii) Any material adverse (to CCA) change in the terms on which
CCA provides investment advisory services, provided, that (A) if CRC
gives Lender prior written notice of any proposed change, and Lender
fails to disapprove such change within two weeks after such notice,
then such change shall be deemed approved by Xxxxxx, and (B) in
respect of any such change which Lender does not approve (or is not
deemed to have approved), and which disapproval is not commercially
reasonable, and as a result of CCA not implementing such change the
2004 Combined EBITDA is lower than it would have been if such change
were implemented, then the 2004 Combined EBITDA shall be increased
in the amount by which it was so lowered;
(ix) Decisions as to hiring of persons to serve at or above the
level of Executive Vice President (or to perform duties which are
customarily performed by Executive Vice Presidents, or more senior
management), for which Xxxxxx's approval shall be required, or
persons to serve at or above the level of Senior Vice President (or
to perform duties which are customarily performed by Senior Vice
Presidents, or more senior management), in respect of which Xxxxxx
shall be entitled to consultation prior to hiring, but shall not
have an approval right; all other hiring decisions will remain with
CCA, subject to budgetary constraints set out in the approved
budgets;
(x) Commitments, guarantees and agreements outside of the ordinary
course of business or not consistent with past practice; and
(xi) other actions outside the ordinary course of business or
changes in the manner of operating the business;
(h) Notwithstanding the foregoing, Lender shall not have any right to
participate in the selection of members of CCA's various investment committees
or to consent to, or participate in, investment decisions made by CCA or its
investment committees, except that CCA shall not, without Lender's consent, make
any material change in the investment program or policies applicable to any fund
or separate account, or make any investment known by CCA to be inconsistent
with, or which would require a waiver of, the requirements for any fund or
separate account, except, in respect of an identified investment, where the
applicable client has approved that investment specifically. If the Lender does
not respond to CCA's written request for such a consent within 10 business days
after delivery of such request (which request shall conspicuously state that the
Lender's consent will be deemed given if the Lender does not respond within 10
business days), then such consent shall be deemed given. In addition, if Lender
requests, CCA shall provide to Lender copies of all reports submitted to CCA's
various investment committees and the Lender shall have the right to discuss any
such investment with members of such investment committees;
-9-
(i) CCA shall distribute available cash flow to its members not less
frequently than quarterly;
(j) the agreement will include customary affirmative covenants, including
information rights;
(k) in addition, the agreement will include customary lender protective
provisions, including restrictions on direct or indirect transfers of beneficial
ownership of the CCA interests by CRC, subject to customary exceptions for
transfers on death and for estate planning purposes (provided, that the
transferees shall be subject to the same transfer restrictions); and
(l) the agreement will provide that Xxxxxx will have two members out of
five members on CCA's management committee.
(m) the agreement will provide for transfer pricing on terms mutually
agreeable to CCA and Lender which take into account the relative benefits and
costs to the parties with respect to revenues and expenses arising out of
referrals of business between CCA and CCLP or CharterMac and its affiliates and
with respect to providing or obtaining services between CCA and CCLP or Lender
or its affiliates.
5.3. After the third anniversary of the Closing Date, CharterMac shall
have the right to sell its membership interest in CCA at any time, subject to a
right of first refusal to CRC.
5.4. For a period of 90 days following the third anniversary of the
Closing Date, Lender shall have the right to sell its interest in CCA to CCA for
a purchase price equal to 8 times the EBITDA for CCA calculated at the end of
the month preceding such third anniversary on a basis consistent with the
calculation of the 2004 Combined EBITDA. The purchase price shall be payable by
note which will be for a three year term, provide for payment of principal in
equal monthly installments (beginning 90 days after the sale date), and which
will bear interest at the prime rate plus 2%. In the event of such a sale, or a
sale pursuant to Section 5.3, the remaining transfer restrictions on all
CharterMac restricted equity securities shall terminate.
5.5. Each of the CRC Parties agrees to cooperate with Xxxxxx and take all
reasonable steps in structuring the CCA Purchase to ensure that Lender will be
in substantially the same position for U.S. federal income tax purposes as if
Xxxxxx purchased the assets of CCA instead of the membership interests in CCLP;
provided that Lender shall use all reasonable efforts to require the CRC Parties
to take such steps only in a manner which minimizes or avoids any additional tax
liability on any of the CRC Parties as a result thereof.
6. [Reserved.]
7. CCA Call
7.1. On the tenth anniversary of the Closing Date, if CharterMac has
acquired interests in CCA on the CCA Purchase Date as permitted by the above
provisions and CharterMac has not exercised its rights under Section 5.4, Lender
(or one of its affiliates) shall have the right to require CRC to sell to it all
of CRC's membership interests in CCA, provided that if CharterMac
-10-
exercises such right CRC shall have the right to acquire Xxxxxx's membership
interests in CCA instead of selling its interests to Lender or one of its
affiliates, for an aggregate purchase price equal to the Final Purchase Price
(as defined hereafter), in immediately available funds, provided, that if Lender
or one of its affiliates is acquiring CRC's membership interests, a portion of
the Final Purchase Price (as set forth below) shall be payable following the
second anniversary of such tenth anniversary. In connection with such sale, CRC
and the CRC Principals (or such of them who were actively involved in the
management of CCA during the two years preceding such tenth anniversary) shall
execute an agreement not to compete with Lender and its affiliates for a three
year period.
(a) The "Final Purchase Price" shall be determined as follows:
(i) Lender, or if CRC has exercised its right under Section
7.1, CRC shall propose a price for the acquisition of the other
interest in CCA. If CRC and Lender agree to such price, then such
price shall be the Final Purchase Price. If CRC and Lender do not
agree to such price, then each of Lender and CRC shall choose an
independent third party to value CRC's interest in CCA (which shall
(A) be based on a sale of the entire business (without giving any
value to any control premium), (B) if the third party is basing its
valuation on CCA's revenues from asset management fees, the third
party shall take into account any fees payable pursuant to advisory
contracts then in place (provided, that if Lender or an affiliate
is the buyer, the fees payable by a client shall only be taken into
account if such client consents to such acquisition) and (C) if
Lender or its affiliate is the buyer, then to the extent that CCA's
costs are taken into account by such third party, the third party
shall take into account increases or decreases to the costs that
would be needed to run the business after the sale, such as any
increased salaries and compensation for new senior management at
market rates and decreases in respect of senior management that
will not continue with CCA after the closing). If the higher of the
valuations of such third parties is not more than 10% higher than
the lower of such valuations, then the Final Purchase Price shall
be the average of such valuations. Otherwise, such third parties
shall select an arbitrator, who will select one of the valuations
using the baseball arbitration method (i.e., the arbitrator shall
determine whichever of the valuations is closer to the valuation it
determines to be the value), taking into account the assumptions
set forth above, and such valuation shall be the Final Purchase
Price.
(ii) If CRC is the buyer, the Final Purchase Price shall
equal 1.3 times the purchase price determined as a result of such
valuation.
(b) If Lender or one of its affiliates is acquiring CRC's membership
interests in CCA, 20% of the Final Purchase Price shall be held in escrow
for a period of 24 months. If at the end of such 24 month period, the
annualized revenues from clients in place at the tenth anniversary date
("existing clients") has declined by more than 15% from the annualized
revenues during the month preceding such tenth anniversary, such 20%
portion of the Final Purchase Price shall be retained by Lender, provided
that Lender (and its affiliates) have not, since such tenth anniversary,
terminated without cause members of senior management of CCA in place
prior to such tenth anniversary
-11-
whose termination has resulted in the loss of existing clients of CCA or
investors in funds sponsored by CCA prior to such tenth anniversary, or of
commitments to invest funds from advisory clients of CCA existing at the
tenth anniversary (provided that it shall not be considered a decline in
annualized revenues if revenues decline due to a sale of an investment by
a separate account client where such client has committed to reinvest the
proceeds or a sale of an investment by a commingled fund. Otherwise, the
escrow amount shall be distributed to CRC, together with interest earned
thereon, at the end of such 24 month period). CharterMac will continue
employment agreements for senior management (other than the CRC
Principals) who previously had employment agreements in the ordinary
course of business.
7.2. If CRC is the buyer, it shall not assign its right to acquire the CCA
membership interests or acquire with a view to or in contemplation of assigning
such interest [or finance such acquisition, except pursuant to senior and/or
mezzanine financing, which may be structured as debt or as a preferred
instrument that does not include features customary for common equity (but that
may include equity "kickers" customary for mezzanine financing), but which
otherwise does not contemplate any acquisition of equity or assets of CCA or any
of its affiliates.
8. Terms of the CCLP Note and the CAI Note.
8.1. Maturity is the fifth anniversary of the Closing Date. The CCLP and
the CAI Note shall become due on the date of the closing of the CCLP Purchase.
No prepayments are permitted until six months after the Closing Date or such
earlier date as Lender has notified the issuers of the CCLP Note and the CAI
Note that it will not exercise its option to consummate the CCLP Purchase.
8.2. No amortization of principal during the term, provided, that, from
and after the first anniversary of the Closing Date, if the CCLP Purchase Date
has not occurred, 50% of the principal of each of the CCLP Note and the CAI Note
shall amortize in equal quarterly installments prior to maturity (commencing at
the end of the first quarter following the first anniversary of the Closing
Date), and the balance shall be payable on maturity.
8.3. Interest rate of 11.5% per annum, compounded annually. Interest shall
be payable every three months, on the last day of each August, November,
February and May (i) in the amount of 9% per annum, and (ii) to the extent
operating cash flow of CCLP (and its subsidiaries) is available, the remaining
accrued but unpaid interest. Any interest not paid will accrue and be payable
from the first available operating cash flow (in excess of ongoing debt service)
of CCLP and its subsidiaries and any accrued, but unpaid, interest shall be
payable at maturity.
8.4. Each of the CCLP Note and the CAI Note will be secured by a security
interest in all of the assets of CAI, CCLP and their subsidiaries, as well as
the partnership interests in CCLP owned by CPC and CRC.
8.5. Until the CCLP Note and the CAI Note are paid in full or the CCLP
Purchase has occurred, CCLP shall not take any significant actions or any action
outside the ordinary course of business or which would involve any change in the
manner in which CCLP's business is
-12-
conducted, including but not limited to the following actions, without the
consent of the Lender or one of its affiliates:
(a) Adopting annual operating budgets and taking actions which
exceed line items in budget;
(b) Incurrence of any third party indebtedness (other than mortgage
loan warehousing lines and short-term borrowings thereunder and "trade
debt" incurred in the ordinary course of business);
(c) Making of any capital expenditures;
(d) Any merger or sale of any material portion of assets;
(e) Changes in independent auditors;
(f) related-party transactions;
(g) Changes in underwriting standards; and
(h) commitments, guarantees and agreements outside the ordinary
course of business or not consistent with past practices.
8.6. In addition, CAI and CRC shall agree to appropriate affirmative
covenants (taking into account the fact that Lender can be required to acquire
100% of the equity of CCLP), including a covenant that it will operate the
business only in the ordinary course consistent with past practice (unless
Lender consents to a departure therefrom).
8.7. There shall be Events of Default (subject to customary notice and
cure provisions) for:
(a) any of the representations and warranties made by the CRC
Parties in the Investment Agreement and the documents executed in
connection therewith are not true and correct in all material respects as
of the date made;
(b) non-compliance by the CRC Parties, in any material respect, with
any of the covenants made by them in the Investment Agreement and the
documents executed in connection therewith since the date of the closing
under the Investment Agreement, except, in respect of covenants capable of
cure, for non-compliance cured within a reasonable cure period;
(c) if designated CRC Principals cease to be actively involved in
the business of the Capri Entities;
(d) other material adverse events such as significant unresolved
regulatory problems or loss of customers which would result in loss of
future net operating income in the aggregate having a material adverse
effect on CCLP; and
-13-
(e) bankruptcy and other typical lending events of default.
The occurrence of any Event of Default entitles the Lender to (i) exercise
its option to consummate the CCLP Purchase and (ii) if such Event of Default
results from act(s), or failure(s) to act, of CRC Parties, accelerate the debt.
8.8. The lien of the collateral securing the CCLP Note and the CAI Note
will rank junior only to the following: (i) liens securing the mortgage banking
warehouse line of credit of CCLP and its subsidiaries as in effect from time to
time (the "Warehouse Lines") (and the guarantees of the CCLP Note, the CAI Note
and the CRC Note by the borrower under the Warehouse Lines shall be subordinated
to the Warehouse Lines); (ii) reserves as required from time to time in
connection with Xxxxxx Xxx DUS loans originated or serviced by CCLP and its
subsidiaries and any similar reserves which may be required by a similar lender
or agency for whom CCLP or any of its subsidiaries originates or services any
loans (collectively, the "DUS Reserves"); (iii) liens securing indebtedness
incurred from time to time by CCLP and its subsidiaries in connection with
acquisitions or purchase money security interests, to the extent specifically
consented to by Xxxxxx (collectively, the "Acquisition Debt"); and (iv) the lien
on the FHA portfolio securing indebtedness (in a total principal amount not
exceeding $450,000) under the existing term loan, which is scheduled to be
repaid in two installments the last one of which is due December 31, 2004.
Neither the CCLP Note nor the CAI Note will be subordinated in right of payment
to any other indebtedness. While either of the CCLP Note nor the CAI Note is
outstanding, neither CAI, CCLP nor any of their subsidiaries will incur any
indebtedness senior to the CCLP Note or the CAI Note other than the Warehouse
Lines, the DUS Reserves and the Acquisition Debt.
8.9. Except for application of the proceeds of the loans contemplated
herein in accordance with an agreed upon schedule, and as provided in Section
11, CCLP will not make any distributions to its partners (or their members)
prior to the first anniversary of the closing of the loan, except in an amount
equal to the taxes, if any, payable by the partners in CCLP (or their members)
on income allocated to them either for the year ended December 31, 2004 or for
any period after the Closing Date that they are partners in CCLP and as provided
in Section 11.
9. Terms of the CRC Note.
9.1. Maturity is the fifth anniversary of the Closing Date. The CRC Note
shall be due on the date of the closing of the CCA Purchase. The CRC Note may
not be prepaid until two years after the Closing Date or such earlier date as
Lender has notified the issuers of the CRC Note that it will not exercise its
option to consummate the CCA Purchase.
9.2. No amortization of principal during the term, provided, that, from
and after the second anniversary of the Closing Date, if the CCA Purchase Date
has not occurred, 50% of the principal of the CRC Note shall amortize in equal
quarterly installments prior to maturity (commencing at the end of first quarter
following the second anniversary of the Closing Date), and the balance shall be
payable on maturity.
9.3. Interest rate of 10% per annum. Interest shall be payable every three
months, on the last day of each August, November, February and May.
-14-
9.4. In addition to the interest referred to in Section 9.3 above, as
additional interest, CCA shall pay to the holder of the CRC Note quarterly 49%
of all net distributable cash flow (calculated without deducting the interest
payable under the CRC Note) for the preceding quarter exceeding the amount of
$1,020,408.
9.5. The CRC Note will be secured by a security interest in all of the
assets of CCA, as well as the membership interests in CCA owned by CRC.
9.6. The CRC Note will provide Lender with consent and approval rights as
set forth in Section 5.2(g) above and will provide that Lender will have
observer rights on CCA's management committee.
9.7. There shall be Events of Default for:
(a) any of the representations and warranties made by the CRC
Parties in the Investment Agreement and the documents executed in
connection therewith are not true and correct in all material respects as
of the date of the initial closing;
(b) non-compliance by the CRC Parties, in any material respect, with
any of the covenants made by them in the Investment Agreement and the
documents executed in connection therewith since the date of the closing
under the Investment Agreement, except, in respect of covenants capable of
cure, for non-compliance cured within a reasonable cure period;
(c) if designated CRC Principals cease to be actively involved in
the business of the Capri Entities;
(d) other material adverse events such as regulatory problems or
loss of customers which would result in loss of future net operating
income in the aggregate having a material adverse effect on CCLP; and
(e) bankruptcy and other typical lending events of default.
The occurrence of any Event of Default entitles the Lender to (i) exercise
its option to consummate the CCA Purchase and (ii) if such Event of Default
results from act(s), or failure(s) to act, of CRC Parties, accelerate the debt.
9.8. CCA shall not make any distributions to its members prior to the CCA
Purchase Date in excess of 1.0408 times the amount of any interest paid to
Lender (resulting in payments to the other members of CCA and to Lender not
exceeding a 51% to 49% ratio), other than distributions of promotes, returns on
capital and returns of capital allocable to CCA for distribution to persons
entitled to them under Sections 5.2(a), (e) and (f) and as provided in Section
11.
10. Terms of the Joint Operating Agreement.
10.1. Pursuant to the Joint Operating Agreement, CCLP and its mortgage
banking subsidiaries shall retain PW to provide them with all of the services
(the "PW Services")
-15-
required to operate their mortgage banking businesses, other than originating
and underwriting of loans made by them. CCLP and its subsidiaries shall
reimburse PW for all of its direct costs, including the allocable portion of
employee costs and overhead, incurred in providing the PW Services. CCLP shall
not be entitled to terminate such retention of PW until after the first
anniversary of the Closing Date. To the extent not inconsistent with applicable
regulations or requirements of Xxxxxx Xxx and Freddie Mac, PW will have the sole
authority to make decisions relating to the manner in which PW provides the PW
Services to CCLP.
10.2. PW shall have the right to hire any or all of the mortgage banking
business employees of CCLP and its subsidiaries to assist PW in providing the PW
Services, other than Xxxxxx, Xxxxx, Fargo and any origination or underwriting
personnel of CCLP and its subsidiaries. PW shall also have the right to
subcontract the performance of any of the PW Services to CRC and its
subsidiaries for a cost to be mutually agreed upon.
10.3. The Joint Operating Agreement shall have a term which commences on
the Closing Date and terminates on the earlier to occur of (i) the repayment in
full of the CCLP Note and the CAI Note or (ii) the CCLP Purchase Date.
10.4. During the term of the Joint Operating Agreement, CCLP and its
subsidiaries and PW shall work together to develop a plan for the integration of
CCLP and its subsidiaries with PW following the CCLP Purchase Date so that such
integration could be readily, promptly and efficiently accomplished if and when
the CCLP Purchase Date occurs.
11. Permitted Distribution
The Capri Entities will be entitled to make distributions to the CRC
Principals of up to $1,500,000 as follows: (i) up to $1,000,000 out of the
proceeds of the interim loan pursuant to the definitive agreements dated the
date hereof relating to the interim loan; and (ii) consistent with Section 9.8,
up to $500,000 out of the proceeds from the payment on account of the promote
with respect to LACERA.
-16-
Schedule A-1
CCLP EBITDA
"CCLP EBITDA" means the EBITDA of CHI and its subsidiaries for the year
ended December 31, 2004, derived from its audited GAAP financial statements,
subject to the following adjustments:
(i) expenses relating to the interim loan from CharterMac and this transaction
shall be eliminated;
(ii) expenses shall be adjusted to eliminate the one time or non-recurring items
relating to extension or repayment of the $55 million term loan, loan credit
enhancement, the proposed CalPERS financing, this CharterMac Transaction, and
the buyout of CAG;
(iii) 50% of the salary, payroll taxes and employee benefits for Xxxxx Xxxxxx,
and 50% of the overhead and travel expenses allocable to Xxxxx Xxxxxx (provided
such overhead and travel expenses allocated to PW Funding shall not exceed
$75,000) after the Closing Date will be allocated to each of PW Funding and CHI;
as a result only 50% of Xxxxx Xxxxxx'x salary, payroll taxes, and employee
benefits and the remainder of the travel expenses and allocable overhead will be
treated as an expense in calculating EBITDA;
(iv) interest on CHI's and its subsidiaries warehouse lines shall be deducted in
calculating EBITDA;
(v) loan losses and reserves for loan losses will be eliminated;
(vi) any severance or change of control costs incurred as a result of the
transactions contemplated hereby will be eliminated; and
(vii) revenues shall include origination fees related to mortgage loans which
are closed under the warehouse line in 2004 and which are subject to a binding
commitment from the buyer to acquire such mortgage loan, but which are not
delivered until 2005 (provided that any revenues in 2004 from any such
transactions involving mortgage loans closed in 2003 and delivered to the buyer
in 2004 shall be excluded from revenues).
The agreement will include a procedure for reviewing and resolving
disputes on the calculation of CCLP EBITDA.
Schedule A-2
CCA EBITDA
"CCA EBITDA" means CCA's EBITDA for the year ended June 30, 2005, derived
from audited GAAP financial statements for the twelve months then ended, subject
to the following adjustments:
(i) expenses relating to the interim loan from CharterMac and this transaction
shall be eliminated;
(ii) with respect to Capri Select Income II ("CSI II"), asset management fees
will be based on an annualization of the asset management fees that are accrued
in accordance with GAAP for the 30 days ended June 30, 2005;
(iii) the expenses of CCA will be increased by any expense which would have
resulted from providing asset management services to CSI II for a full year with
respect to CSI II based on the commitments which resulted in the annualized
asset management fees under (ii);
(iv) placement agent fees will be adjusted by allocating placement agent fees
incurred in a year over the expected life of the investment (e.g., CSI II -
eight years);
(v) any severance or change of control costs incurred as a result of the
transactions contemplated hereby will be eliminated;
(vi) any extra audit costs incurred in 2004 or 2005 due to the need to conduct
an audit for the 12 months ended June 30, 2005 shall be excluded; and
(vii) any payments or distributions on account of any promotes, returns on
capital and returns of capital allocable to CCA for distribution to persons
entitled to them under Sections 5.2(a), (e) and (f) shall be excluded from
revenues and any distribution thereof shall be excluded from expenses.
The agreement will include a procedure for reviewing and resolving
disputes on the calculation of CCA EBITDA.
