PINNACLE ATLANTIC CAPITAL, LLC 200 Lexington Avenue, 38th Floor New York, New York 10016
December 9, 2022
SIDE LETTER TO COMMITMENT LETTER
Deposit Refundability and Rate Lock Provisions
Coral Palms Resort Holdings LLC c/o Verimark Hospitality Group Inc. 1400 Bayshore Boulevard, Suite 2200 Miami, Florida 33131
Attention: Derek Huang, SVP – Capital Markets & Treasury
Re: Side Letter Supplementing Commitment Letter dated December 9, 2022, for a $160,000,000 First Mortgage Loan secured by the Coral Palms Grand Resort & Spa, 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037
Ladies and Gentlemen:
Reference is hereby made to that certain Commitment Letter dated as of December 9, 2022 (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the "Commitment Letter"), executed by and between Pinnacle Atlantic Capital, LLC, a Delaware limited liability company (together with its successors and assigns, "Lender" or "PAC"), and Coral Palms Resort Holdings LLC, a Florida limited liability company (together with its successors and assigns, "Borrower"), with Verimark Hospitality Group Inc., a Delaware corporation ("Guarantor" or "VHG"), joining as the limited recourse carve-out guarantor thereunder. Pursuant to the Commitment Letter, Lender has committed, subject to the terms and conditions set forth therein, to make a first mortgage loan in the principal amount of One Hundred Sixty Million and 00/100 Dollars ($160,000,000.00) (the "Loan") to Borrower. The Loan will be secured by, among other things, a first priority mortgage lien on the real property and improvements commonly known as the Coral Palms Grand Resort & Spa, located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037 (the "Property"). The proceeds of the Loan are intended to be used to refinance and pay off the existing first mortgage loan in the approximate outstanding principal balance of $118,500,000 held by Tidewater National Bank, N.A., together with associated closing costs, reserves, and transaction expenses.
The purpose of this side letter (this "Side Letter") is to supplement and, to the extent of any conflict, supersede the Commitment Letter solely with respect to the provisions governing (i) the Good Faith Deposit (as defined below), (ii) the Rate Lock Deposit (as defined below), (iii) rate lock mechanics, and (iv) escrow arrangements with Meridian Title & Escrow, Inc. This Side Letter sets forth the parties' agreement as to the conditions under which such deposits are refundable to Borrower, the circumstances under which such deposits may be retained by Lender, and the procedures for the escrow, investment, and disbursement of such deposits.
Capitalized terms used but not otherwise defined in this Side Letter shall have the respective meanings ascribed to such terms in the Commitment Letter. For the avoidance of doubt, the following key economic terms of the Commitment Letter are referenced herein for context: (a) a maximum loan-to-value ratio ("LTV") of 68.0% based on Lender's appraised value of the Property; (b) a minimum debt yield of 9.5%; (c) a fixed interest rate of 5.35% per annum; (d) a five (5)-year Loan term; (e) a commitment fee of 0.50% of the Loan amount ($800,000), payable by Borrower at closing; and (f) a Lender's counsel fee cap of $275,000 plus reasonable disbursements, payable by Borrower at closing.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows:
SECTION 1: DEFINITIONS
For purposes of this Side Letter, the following terms shall have the meanings set forth below:
"Appraisal Contingency Period" shall mean the period commencing upon Lender's receipt of the final appraisal of the Property prepared by a licensed appraiser engaged by Lender and ending on the date that is fifteen (15) business days following Lender's receipt of such appraisal. During the Appraisal Contingency Period, the parties shall negotiate in good faith to address any issues arising from the appraised value, including any proposed modifications to the Loan terms.
"Borrower Default" shall mean (a) Borrower's failure to satisfy any condition precedent to closing that is within Borrower's reasonable control on or before the Outside Closing Date, (b) Borrower's voluntary termination, abandonment, or repudiation of the Commitment Letter for reasons other than a Material Modification by Lender or any other refundability event expressly set forth in Sections 2.3 or 3.4 of this Side Letter, or (c) any material breach by Borrower of its obligations under the Commitment Letter or this Side Letter.
"Closing Date" shall mean the date on which the Loan closes and funds in accordance with the terms and conditions of the Commitment Letter and the definitive loan documents executed in connection therewith (collectively, the "Loan Documents").
"Commitment Letter" shall have the meaning set forth in the recitals above and shall refer to the commitment letter dated December 9, 2022, between PAC and Borrower, as the same may be amended, restated, or supplemented from time to time (other than by this Side Letter with respect to the subject matter hereof).
"Escrow Agent" shall mean Meridian Title & Escrow, Inc., located at 9100 South Dadeland Boulevard, Suite 1500, Miami, Florida 33156, Attention: Lisa Portman, Title Officer, or such successor escrow agent as the parties may mutually designate in writing.
"Good Faith Deposit" shall mean the sum of One Million Six Hundred Thousand and 00/100 Dollars ($1,600,000.00), equal to one percent (1.0%) of the $160,000,000 Loan amount, to be deposited by Borrower with the Escrow Agent on or before December 12, 2022, in accordance with Section 2.1 of this Side Letter.
"Lender Default" shall mean Lender's failure to fund the Loan on the Closing Date when all conditions precedent to funding set forth in the Commitment Letter have been satisfied by Borrower or waived in writing by Lender, and no Borrower Default then exists, provided that Lender has received at least five (5) business days' prior written notice from Borrower that Borrower believes all such conditions precedent have been satisfied and that Borrower is ready, willing, and able to close.
"Material Modification" shall mean any change to the material economic terms of the Commitment Letter proposed by Lender following the date hereof, including without limitation any change to (a) the Loan amount (including any reduction thereof), (b) the fixed interest rate, (c) the maximum LTV ratio, (d) the minimum debt yield requirement, (e) the guaranty structure (including, without limitation, any conversion of the limited recourse carve-out guaranty to a full recourse guaranty or expansion of the carve-out events), (f) the collateral requirements (including any demand for additional collateral, letters of credit, or reserves not contemplated by the Commitment Letter), or (g) any other economic term that materially and adversely affects Borrower's rights or obligations under the Commitment Letter, in each case that is not the result of Borrower's breach of or failure to satisfy a condition precedent under the Commitment Letter or this Side Letter.
"Outside Closing Date" shall mean April 15, 2023, subject to one (1) extension of thirty (30) calendar days (i.e., to May 15, 2023) at Borrower's sole option, exercisable by Borrower's delivery of written notice to Lender and the Escrow Agent no later than five (5) business days prior to April 15, 2023, together with the contemporaneous payment of a non-refundable extension deposit in the amount of One Hundred Sixty Thousand and 00/100 Dollars ($160,000.00) (equal to 0.10% of the Loan amount) to the Escrow Agent. The extension deposit shall be non-refundable under all circumstances and, upon a successful Closing, shall be credited against Borrower's closing costs.
"Rate Lock Confirmation" shall mean the written confirmation to be delivered by Lender to Borrower upon receipt of the Rate Lock Deposit, substantially in the form attached hereto as Exhibit B, confirming the locked interest rate and the terms of the rate lock.
"Rate Lock Date" shall mean January 5, 2023, or such other date as may be mutually agreed upon by Borrower and Lender in writing, on which Borrower deposits the Rate Lock Deposit with the Escrow Agent and the interest rate applicable to the Loan is locked by Lender.
"Rate Lock Deposit" shall mean the sum of Eight Hundred Thousand and 00/100 Dollars ($800,000.00), equal to one-half of one percent (0.50%) of the $160,000,000 Loan amount, to be deposited by Borrower with the Escrow Agent on or before the Rate Lock Date, in accordance with Section 3.1 of this Side Letter.
"Rate Lock Period" shall mean the period commencing on the Rate Lock Date and expiring on the earliest to occur of (i) the Closing Date, (ii) the Outside Closing Date (as may be extended), or (iii) the date of valid termination of the Commitment Letter in accordance with its terms.
"Total Deposits" shall mean, collectively, the Good Faith Deposit and the Rate Lock Deposit, in the aggregate amount of Two Million Four Hundred Thousand and 00/100 Dollars ($2,400,000.00), together with all interest accrued thereon.
SECTION 2: GOOD FAITH DEPOSIT
2.1 Deposit and Escrow.
Borrower shall cause to be wired, in immediately available federal funds, the Good Faith Deposit in the amount of $1,600,000.00 to the Escrow Agent on or before December 12, 2022. Wire transfer instructions for the Escrow Agent's designated trust or escrow account at Meridian Title & Escrow, Inc. shall be provided by Lisa Portman, Title Officer, under separate cover, and are summarized for reference in Exhibit A attached hereto. Upon receipt of the Good Faith Deposit, the Escrow Agent shall promptly confirm receipt thereof to both Borrower and Lender in writing (which may be via electronic mail). The Escrow Agent shall hold the Good Faith Deposit in a segregated, federally insured, interest-bearing escrow account at a commercial bank reasonably acceptable to both Borrower and Lender. All interest accruing on the Good Faith Deposit shall follow the principal — that is, such interest shall be paid to the party ultimately entitled to receive the Good Faith Deposit upon disbursement in accordance with the terms of this Side Letter.
2.2 Application at Closing.
Upon a successful Closing of the Loan, the Good Faith Deposit, together with all accrued and unpaid interest thereon, shall be released by the Escrow Agent and applied as a credit toward Borrower's closing costs payable in connection with the Closing. Such closing costs to which the Good Faith Deposit may be applied include, but are not limited to, the following:
(a) the commitment fee of $800,000.00 (0.50% of the Loan amount) payable to Lender;
(b) Lender's counsel fees, capped at $275,000.00 plus reasonable out-of-pocket disbursements, payable by Borrower to Lender's counsel, Whitford Baines & Driscoll LLP;
(c) title insurance premiums payable to the title insurer;
(d) Florida documentary stamp taxes and intangible taxes, recording fees, and other governmental charges;
(e) survey, appraisal, and environmental report costs;
(f) escrow fees and charges of the Escrow Agent; and
(g) any other transaction costs and expenses required to be paid by Borrower at or in connection with Closing as set forth in the Commitment Letter or the Loan Documents.
To the extent the Good Faith Deposit (together with accrued interest) exceeds the aggregate amount of Borrower's closing costs to which it is applied, any such excess shall be returned to Borrower promptly following Closing.
2.3 Refundability Conditions — Good Faith Deposit.
The Good Faith Deposit (together with all accrued interest thereon) shall be refundable to Borrower, and the Escrow Agent shall disburse the same to Borrower, in the following circumstances:
(a) Lender Default. If a Lender Default occurs — that is, if Lender fails to fund the Loan on the Closing Date after all conditions precedent to Lender's obligation to fund as set forth in the Commitment Letter have been duly satisfied by Borrower or expressly waived in writing by Lender, and no Borrower Default then exists — then the Good Faith Deposit shall be fully refundable to Borrower. In such event, Borrower shall deliver written notice to the Escrow Agent and to Lender specifying the basis for Borrower's claim of a Lender Default, and the Escrow Agent shall disburse the Good Faith Deposit (together with accrued interest) to Borrower within five (5) business days following receipt of such notice, unless Lender delivers to the Escrow Agent a written objection within such five (5) business day period, in which case the dispute resolution procedures set forth in Section 2.5 below shall apply.
(b) Material Modification by Lender. If, following the date hereof, Lender proposes a Material Modification to the economic terms of the Commitment Letter and the parties are unable to reach agreement on revised terms within the Appraisal Contingency Period (or any mutually agreed extension thereof), then the Good Faith Deposit shall be fully refundable to Borrower. For the avoidance of doubt, the following shall each constitute a Material Modification for purposes of this Section 2.3(b):
(i) any reduction of the Loan amount below $160,000,000.00, including without limitation a reduction resulting from Lender's appraisal of the Property yielding an appraised value that would cause the Loan to exceed the maximum LTV of 68.0% (i.e., an appraised value below approximately $235,294,118);
(ii) any increase in the fixed interest rate above 5.35% per annum;
(iii) any change to the LTV or debt yield requirements from those specified in the Commitment Letter (i.e., maximum LTV of 68.0% and minimum debt yield of 9.5%);
(iv) any demand by Lender for additional collateral, letters of credit, reserves, or credit enhancements not contemplated by the Commitment Letter;
(v) any conversion of the limited recourse carve-out guaranty of VHG to a full recourse guaranty or any material expansion of the carve-out events beyond those set forth in the Commitment Letter; and
(vi) any other Lender-initiated modification that materially and adversely alters the economic terms agreed upon in the Commitment Letter.
In the event of a Material Modification, Borrower shall have the right, but not the obligation, to terminate the Commitment Letter by written notice to Lender, and upon such termination, the Escrow Agent shall refund the Good Faith Deposit (together with accrued interest) to Borrower. Nothing in this Section 2.3(b) shall be construed to prohibit good faith negotiations between the parties regarding modifications proposed by Lender; provided, however, that Borrower shall not be obligated to accept any Material Modification and may elect to terminate and receive a full refund of the Good Faith Deposit.
(c) Title Defect. If, during the course of Lender's due diligence, a defect in or exception to title to the Property is identified by the Escrow Agent, the title insurer, or Lender's counsel that (i) cannot reasonably be cured by Borrower within a period of thirty (30) days following written notice thereof, (ii) cannot be insured over by the title insurer in a manner reasonably acceptable to Lender, and (iii) Lender elects not to waive such title defect or exception as a condition to closing, then the Good Faith Deposit shall be fully refundable to Borrower. In such event, Borrower shall not be deemed in default under the Commitment Letter or this Side Letter solely by reason of such title defect, and the Escrow Agent shall refund the Good Faith Deposit (together with accrued interest) to Borrower promptly upon receipt of joint written instructions from Borrower and Lender or upon receipt of Borrower's sole written instruction accompanied by reasonable evidence that the conditions of this Section 2.3(c) have been satisfied.
(d) Environmental Condition. If the Phase I Environmental Site Assessment of the Property, to be prepared by Oakridge Environmental Consulting Group, Inc. (or such other environmental consulting firm as Lender may engage), identifies a Recognized Environmental Condition (as defined under ASTM Standard E1527-21) that triggers a Phase II Environmental Site Assessment, and such Phase II investigation reveals contamination at, on, under, or migrating to or from the Property that, in Lender's reasonable determination, would cause Lender to decline to fund the Loan, then the Good Faith Deposit shall be fully refundable to Borrower. In such event, Lender shall provide Borrower with a copy of the Phase II report and a written explanation of the basis for Lender's decision not to fund, and the Escrow Agent shall refund the Good Faith Deposit (together with accrued interest) to Borrower within ten (10) business days of Borrower's written request therefor.
(e) Regulatory or Legal Prohibition. If the Closing is prohibited by applicable federal, state, or local law, by order of any court of competent jurisdiction, or by any governmental or regulatory action or directive, in each case through no fault, action, or omission of Borrower, then the Good Faith Deposit shall be fully refundable to Borrower. This provision shall include, without limitation, any prohibition arising from sanctions, anti-money laundering restrictions, or zoning or land use actions affecting the Property that arise after the date of the Commitment Letter and that render the Closing unlawful or impracticable.
2.4 Forfeiture of Good Faith Deposit.
The Good Faith Deposit shall be non-refundable and shall be retained by Lender as liquidated damages in the following circumstances:
(a) Borrower Default. If a Borrower Default occurs — that is, if Borrower fails to satisfy conditions precedent to closing that are within Borrower's reasonable control on or before the Outside Closing Date, or if Borrower voluntarily terminates, abandons, or repudiates the Commitment Letter for reasons other than a Material Modification by Lender or any other refundability event expressly set forth in Section 2.3 above — then the Good Faith Deposit (together with accrued interest) shall be disbursed to Lender by the Escrow Agent upon Lender's written instruction to the Escrow Agent, with a copy to Borrower, specifying the nature of the Borrower Default.
(b) Borrower Misrepresentation. If any representation or warranty made by Borrower in the Commitment Letter or this Side Letter is materially false, misleading, or inaccurate as of the date made or as of the Closing Date (or such earlier date as such representation or warranty is discovered to be false), then the Good Faith Deposit (together with accrued interest) shall be disbursed to Lender by the Escrow Agent upon Lender's written instruction specifying the misrepresentation, with a copy to Borrower.
(c) Failure to Close by the Outside Closing Date. If Borrower fails to close the Loan on or before the Outside Closing Date (as may be extended in accordance with this Side Letter) for reasons attributable to Borrower, including but not limited to Borrower's failure to deliver required due diligence items, organizational documents, opinions of counsel, or other deliverables required under the Commitment Letter, then the Good Faith Deposit (together with accrued interest) shall be disbursed to Lender by the Escrow Agent.
Liquidated Damages Acknowledgment. The parties acknowledge and agree that, in the event of a Borrower Default, voluntary termination by Borrower, or Borrower misrepresentation as described above, Lender will suffer damages that are difficult to ascertain with precision. The parties have negotiated the amount of the Good Faith Deposit as a reasonable estimate of the damages that Lender would incur in such circumstances, taking into account the costs of Lender's due diligence, the opportunity cost of reserving capital for the Loan, legal fees, and other transaction expenses. Accordingly, the Good Faith Deposit constitutes liquidated damages and not a penalty. Lender's retention of the Good Faith Deposit as liquidated damages pursuant to this Section 2.4 shall be Lender's sole and exclusive remedy for Borrower's failure to close the Loan, other than with respect to (i) Borrower's surviving indemnification obligations under the Commitment Letter (including, without limitation, indemnification for Lender's actual out-of-pocket costs and expenses incurred in connection with the transaction), and (ii) any obligations that by their terms survive termination of the Commitment Letter.
2.5 Dispute Resolution Regarding Good Faith Deposit.
In the event of a dispute between Borrower and Lender as to entitlement to the Good Faith Deposit, the Escrow Agent shall continue to hold the Good Faith Deposit (together with accrued interest) in escrow pending resolution of such dispute. The Escrow Agent shall not disburse the Good Faith Deposit until the earliest to occur of the following:
(a) the Escrow Agent's receipt of mutual written instructions signed by both Borrower and Lender directing the disbursement of the Good Faith Deposit;
(b) the Escrow Agent's receipt of a final, non-appealable order of a court of competent jurisdiction directing the disbursement of the Good Faith Deposit; or
(c) the Escrow Agent's receipt of a written settlement agreement executed by both Borrower and Lender resolving the dispute and directing the disbursement of the Good Faith Deposit.
The Escrow Agent shall not be liable to either Borrower or Lender for any action taken or omitted to be taken by the Escrow Agent in good faith in accordance with this Section 2.5, and the Escrow Agent's sole obligation during the pendency of any such dispute shall be to hold the Good Faith Deposit in escrow in accordance with the terms of this Side Letter.
SECTION 3: RATE LOCK DEPOSIT
3.1 Deposit and Timing.
Borrower shall cause to be wired, in immediately available federal funds, the Rate Lock Deposit in the amount of $800,000.00 (equal to 0.50% of the $160,000,000 Loan amount) to the Escrow Agent on or before January 5, 2023 (the "Rate Lock Date"). The Rate Lock Deposit is a separate deposit from the Good Faith Deposit and shall be held by the Escrow Agent in a separate, segregated, federally insured, interest-bearing sub-account or escrow account, distinct from the account in which the Good Faith Deposit is held. Interest accruing on the Rate Lock Deposit shall accrue for the benefit of, and shall follow and be disbursed to, the party ultimately entitled to receive the Rate Lock Deposit principal upon disbursement in accordance with the terms of this Side Letter. Upon receipt of the Rate Lock Deposit, the Escrow Agent shall promptly confirm receipt thereof to both Borrower and Lender in writing.
3.2 Purpose. The Rate Lock Deposit secures Borrower's obligation to close the Loan at the locked interest rate of 5.35% per annum (fixed) for the five (5)-year Loan term, and compensates Lender for the cost and risk associated with entering into hedging arrangements to lock such rate for the benefit of Borrower. The locked rate of 5.35% per annum is based on an interpolated U.S. Treasury rate plus a spread of one hundred seventy-five (175) basis points, as determined by Lender based on market conditions prevailing as of November 2022. The Rate Lock Deposit provides Lender with assurance that Borrower is committed to closing the Loan at the locked rate and provides Borrower with certainty as to the applicable interest rate during the Rate Lock Period.
3.3 Application at Closing.
Upon a successful Closing of the Loan, the Rate Lock Deposit, together with all accrued and unpaid interest thereon, shall be released by the Escrow Agent and, at Borrower's election (to be communicated to the Escrow Agent and Lender in writing no later than three (3) business days prior to the Closing Date), shall be credited against either (a) the commitment fee of $800,000.00 payable to Lender, or (b) other closing costs payable by Borrower in connection with the Closing. If Borrower does not timely communicate its election, the Rate Lock Deposit shall be applied first against the commitment fee.
3.4 Refundability Conditions — Rate Lock Deposit.
The Rate Lock Deposit (together with all accrued interest thereon) shall be refundable to Borrower, and the Escrow Agent shall disburse the same to Borrower, in the following circumstances:
(a) Lender Default. If a Lender Default occurs, the Rate Lock Deposit shall be fully refundable to Borrower under the same conditions and procedures applicable to the Good Faith Deposit as set forth in Section 2.3(a) above.
(b) Material Modification by Lender. If Lender proposes a Material Modification to the economic terms of the Commitment Letter, the Rate Lock Deposit shall be fully refundable to Borrower under the same conditions and procedures applicable to the Good Faith Deposit as set forth in Section 2.3(b) above. For the avoidance of doubt, if Lender reprices the Loan, modifies the fixed interest rate above 5.35% per annum, reduces the Loan amount below $160,000,000.00, alters the guaranty structure, or imposes collateral requirements beyond those set forth in the Commitment Letter, and such changes constitute a Material Modification, the Rate Lock Deposit shall be fully refundable to Borrower upon Borrower's election to terminate the Commitment Letter.
(c) Title Defect, Environmental Condition, or Regulatory Prohibition. The Rate Lock Deposit shall be fully refundable to Borrower under the same conditions and procedures applicable to the Good Faith Deposit as set forth in Sections 2.3(c) (Title Defect), 2.3(d) (Environmental Condition), and 2.3(e) (Regulatory or Legal Prohibition) above.
(d) Rate Lock Expiration Without Closing. If the Rate Lock Period expires without the Closing having occurred, and such failure to close is not attributable to a Borrower Default, the Rate Lock Deposit shall be fully refundable to Borrower. For the avoidance of doubt, if the Rate Lock Period expires due to the passage of time and Borrower has not committed a Borrower Default, the Rate Lock Deposit shall be returned to Borrower regardless of whether the Commitment Letter remains in effect.
The parties acknowledge that the Rate Lock Deposit is intended to be refundable under a broader set of circumstances than the Good Faith Deposit, reflecting its distinct purpose as security for rate lock execution rather than as earnest money for the overall transaction. The refundability provisions of this Section 3.4 shall be construed in light of such intent.
3.5 Forfeiture of Rate Lock Deposit.
The Rate Lock Deposit shall be non-refundable and retained by Lender (in whole or in part, as applicable) only in the event that the following conditions are both satisfied:
(a) Borrower voluntarily terminates the Commitment Letter after the Rate Lock Date for reasons solely attributable to Borrower and not constituting or resulting from a Material Modification by Lender, a Lender Default, or any other refundability event expressly set forth in Section 3.4 above; AND
(b) Lender incurs actual, documented, out-of-pocket hedging or breakage costs as a direct result of unwinding or terminating hedging arrangements entered into by Lender in connection with the rate lock.
In the event that both conditions (a) and (b) above are satisfied, Lender may retain from the Rate Lock Deposit an amount equal to its documented, actual, out-of-pocket hedging breakage costs, and any excess of the Rate Lock Deposit over such documented costs shall be promptly returned to Borrower. Lender shall provide Borrower with reasonable documentation of such hedging breakage costs, including broker or counterparty statements, within ten (10) business days of the termination date.
Notwithstanding anything to the contrary contained herein, if Lender's actual hedging breakage costs exceed the amount of the Rate Lock Deposit, Borrower shall not be liable for any such excess amount. The Rate Lock Deposit shall serve as a cap on Borrower's total exposure for rate lock breakage costs, and Lender hereby waives any right to seek recovery from Borrower for hedging breakage costs in excess of the Rate Lock Deposit.
SECTION 4: RATE LOCK MECHANICS
4.1 Rate Lock Confirmation.
Upon Lender's receipt and confirmation of the Rate Lock Deposit on or about January 5, 2023, Lender shall deliver to Borrower a written Rate Lock Confirmation, substantially in the form attached hereto as Exhibit B, within two (2) business days of such receipt. The Rate Lock Confirmation shall specify the following:
(i) the locked interest rate: 5.35% per annum, fixed for the full five (5)-year Loan term;
(ii) the Rate Lock Period, including the commencement date and expiration date;
(iii) the applicable Treasury index benchmark and credit spread: interpolated U.S. Treasury rate plus one hundred seventy-five (175) basis points;
(iv) the Outside Closing Date (April 15, 2023, subject to one thirty (30)-day extension); and
(v) such other information as Lender customarily includes in its rate lock confirmations.
The Rate Lock Confirmation shall be executed by an authorized signatory of Lender and delivered to Borrower at the address set forth in Section 7.4 below (or by electronic mail to the email address designated by Borrower). Borrower shall acknowledge receipt of the Rate Lock Confirmation within two (2) business days of delivery.
4.2 Rate Lock Period.
The interest rate applicable to the Loan shall be locked at 5.35% per annum (fixed) from the Rate Lock Date (January 5, 2023) through the earlier of (i) the Closing Date, (ii) the Outside Closing Date (April 15, 2023, as may be extended by one thirty (30)-calendar-day extension period to May 15, 2023), or (iii) the date of valid termination of the Commitment Letter in accordance with its terms.
If the Closing does not occur on or before the expiration of the Rate Lock Period, Lender may, in its sole and absolute discretion:
(a) extend the Rate Lock Period for an additional thirty (30) calendar days at an extension cost of 0.125% of the Loan amount (i.e., $200,000.00), payable by Borrower to Lender (or deposited with the Escrow Agent) within two (2) business days of Borrower's written request for such extension, which extension cost shall be non-refundable and, upon a successful Closing, credited against Borrower's closing costs; or
(b) allow the rate lock to expire, in which event the interest rate applicable to the Loan shall be re-determined by Lender based on then-current market conditions, including the then-prevailing interpolated U.S. Treasury rate plus the applicable credit spread, and such re-determined rate shall be communicated to Borrower in writing within five (5) business days of the rate lock expiration. Borrower shall have five (5) business days following receipt of the re-determined rate to elect to proceed with the Loan at such re-determined rate or to terminate the Commitment Letter (in which case the refundability provisions of Section 3.4(d) shall apply to the Rate Lock Deposit, and the refundability provisions of Section 2.3 shall apply to the Good Faith Deposit based on the specific circumstances of the termination).
For the avoidance of doubt, Lender shall have no obligation to extend the Rate Lock Period, and any such extension shall be at Lender's sole discretion.
4.3 Broken Rate Lock.
If Borrower terminates the Commitment Letter or the Loan transaction does not close for reasons attributable to Borrower, Lender shall provide Borrower with documentation of any hedging or breakage costs incurred by Lender in connection with the rate lock within ten (10) business days of the date of termination or expiration of the Commitment Letter. Such documentation shall include, at a minimum, written confirmation from Lender's hedging counterparty or internal treasury desk of the costs incurred in unwinding or terminating any hedging instruments entered into to effectuate the rate lock. Lender's sole recourse for recovery of hedging breakage costs from Borrower is limited to the Rate Lock Deposit, as more fully set forth in Section 3.5 above, and Lender shall have no further claim against Borrower for hedging breakage costs in excess of the Rate Lock Deposit.
4.4 Rate Lock and Appraisal Interaction.
The rate lock provided for in this Section 4 is independent of the appraisal contingency set forth in the Commitment Letter and defined in this Side Letter. The obligation of Lender to honor the locked rate of 5.35% per annum is not conditioned upon the appraised value of the Property meeting any particular threshold, and Lender shall not increase the interest rate above 5.35% per annum solely as a result of the appraisal outcome (any such increase constituting a Material Modification as defined herein).
Notwithstanding the foregoing, if Lender's appraisal of the Property results in an appraised value that is less than the value required to maintain the Loan amount of $160,000,000.00 at the maximum LTV of 68.0% (i.e., an appraised value below approximately $235,294,118), and Lender proposes to (a) reduce the Loan amount, (b) increase the interest rate, or (c) impose additional credit enhancements, reserves, or collateral requirements not contemplated by the Commitment Letter, then such proposal shall constitute a Material Modification, and the refundability provisions of Sections 2.3(b) and 3.4(b) shall govern the disposition of the Good Faith Deposit and Rate Lock Deposit, respectively. In such event, if Borrower elects to terminate the Commitment Letter, both the Good Faith Deposit and the Rate Lock Deposit (together with all accrued interest on each) shall be fully refundable to Borrower in accordance with their respective terms.
The parties acknowledge that the interaction between the rate lock and the appraisal is a key commercial term of this Side Letter and that the protections afforded to Borrower hereunder are a material inducement to Borrower's agreement to deposit the Rate Lock Deposit and lock the interest rate.
SECTION 5: ESCROW AGENT INSTRUCTIONS
5.1 Designation of Escrow Agent.
Meridian Title & Escrow, Inc. (Attention: Lisa Portman, Title Officer), located at 9100 South Dadeland Boulevard, Suite 1500, Miami, Florida 33156, is hereby designated as the Escrow Agent for both the Good Faith Deposit and the Rate Lock Deposit. The Escrow Agent shall hold, invest, and disburse the deposits in accordance with the terms of this Side Letter. The Escrow Agent's execution of this Side Letter below shall constitute its acceptance of the escrow responsibilities set forth herein.
5.2 Investment of Deposits.
The Escrow Agent shall invest the Good Faith Deposit and the Rate Lock Deposit in separate federally insured, interest-bearing accounts or money market accounts at a commercial bank with deposits insured by the Federal Deposit Insurance Corporation. The specific investment vehicle shall be as directed by Borrower, subject to Lender's reasonable approval (which approval shall not be unreasonably withheld, conditioned, or delayed). If Borrower does not provide investment instructions within two (2) business days of the Escrow Agent's receipt of the applicable deposit, the Escrow Agent shall invest the deposit in a standard interest-bearing escrow trust account maintained by the Escrow Agent. All interest earned on each deposit shall accrue for the benefit of, and shall be disbursed to, the party ultimately entitled to receive the principal of such deposit in accordance with this Side Letter.
5.3 Disbursement Instructions.
The Escrow Agent shall disburse the Good Faith Deposit and the Rate Lock Deposit (together with accrued interest on each) in accordance with the following instructions:
(a) At Closing. Upon the occurrence of the Closing, both deposits (together with all accrued interest thereon) shall be disbursed by the Escrow Agent to the closing settlement agent (which may be the Escrow Agent itself, in its capacity as title agent for the Loan transaction) for application toward Borrower's closing costs and/or the commitment fee, as directed by Borrower in the closing settlement statement. The Escrow Agent shall disburse such amounts upon receipt of a joint written instruction from Borrower and Lender or, in the alternative, upon receipt of a fully executed closing settlement statement referencing the application of such deposits.
(b) Upon Refund to Borrower. If a refundability event described in Section 2.3 (with respect to the Good Faith Deposit) or Section 3.4 (with respect to the Rate Lock Deposit) has occurred, the applicable deposit (together with accrued interest thereon) shall be disbursed by the Escrow Agent to Borrower by wire transfer of immediately available funds to the account designated by Coral Palms Resort Holdings LLC in writing. Such disbursement shall be made (i) upon the Escrow Agent's receipt of joint written instructions signed by both Borrower and Lender directing refund to Borrower, or (ii) upon the Escrow Agent's receipt of Borrower's sole written instruction, accompanied by a certification from Borrower that a refundability condition under Section 2.3 or Section 3.4 (as applicable) has been satisfied, provided that the Escrow Agent shall provide Lender with a copy of such instruction and certification, and Lender shall have five (5) business days from receipt thereof to deliver a written objection to the Escrow Agent, in which case the dispute resolution procedures of Section 2.5 shall apply.
(c) Upon Forfeiture to Lender. If a forfeiture event described in Section 2.4 (with respect to the Good Faith Deposit) or Section 3.5 (with respect to the Rate Lock Deposit) has occurred, the applicable deposit (or the applicable portion thereof) shall be disbursed by the Escrow Agent to Pinnacle Atlantic Capital, LLC by wire transfer of immediately available funds to the account designated by Lender in writing. Such disbursement shall be made (i) upon the Escrow Agent's receipt of joint written instructions signed by both Borrower and Lender directing payment to Lender, or (ii) upon the Escrow Agent's receipt of Lender's sole written instruction, accompanied by a certification from Lender that a forfeiture condition under Section 2.4 or Section 3.5 (as applicable) has been established, provided that the Escrow Agent shall provide Borrower with a copy of such instruction and certification, and Borrower shall have five (5) business days from receipt thereof to deliver a written objection to the Escrow Agent, in which case the dispute resolution procedures of Section 2.5 shall apply.
(d) Disputed Deposits. If the Escrow Agent receives conflicting instructions from Borrower and Lender, or if the Escrow Agent has reason to believe that a bona fide dispute exists between the parties as to entitlement to any deposit, the Escrow Agent shall hold the applicable deposit (together with accrued interest) pending resolution of such dispute in accordance with Section 2.5 of this Side Letter. The Escrow Agent may, at its option and without liability, deposit any disputed funds into the registry of a court of competent jurisdiction in Miami-Dade County, Florida, and thereupon be discharged of all further obligations with respect to such funds.
5.4 Escrow Agent Liability.
The Escrow Agent shall have no liability to any party for any action taken or omitted to be taken by the Escrow Agent in connection with its duties hereunder, except in the case of the Escrow Agent's own gross negligence or willful misconduct. The Escrow Agent may rely, and shall be fully protected in relying, upon any written notice, instruction, request, certificate, or other document believed by the Escrow Agent in good faith to be genuine and to have been signed or sent by the proper person or persons. The Escrow Agent shall not be required to make any independent investigation into the facts or matters stated in any such notice, instruction, or document.
Borrower and Lender shall jointly and severally indemnify, defend, and hold harmless the Escrow Agent and its officers, directors, employees, and agents from and against any and all claims, losses, liabilities, damages, costs, and expenses (including reasonable attorneys' fees and court costs) arising out of or in connection with the Escrow Agent's performance of its duties under this Side Letter, except to the extent that any such claim, loss, liability, damage, cost, or expense arises from the Escrow Agent's gross negligence or willful misconduct. The obligations of this Section 5.4 shall survive the closing of the Loan and/or the termination of the Commitment Letter and this Side Letter.
5.5 Escrow Agent Fees.
The Escrow Agent's fees and charges for holding, investing, and disbursing the deposits in accordance with this Side Letter shall be borne by Borrower as part of Borrower's closing costs. If the Loan transaction does not close for any reason, the Escrow Agent's fees shall be split equally between Borrower and Lender, with each party responsible for one-half of such fees. The Escrow Agent shall provide Borrower and Lender with a written schedule of its fees promptly following its execution of this Side Letter.
SECTION 6: REPRESENTATIONS AND WARRANTIES
6.1 Borrower Representations.
Borrower hereby represents and warrants to Lender and the Escrow Agent, as of the date hereof, as follows:
(a) Organization and Good Standing. Borrower is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Florida, and has all requisite power and authority to own and operate the Property and to conduct its business as presently conducted.
(b) Authority. Borrower has full limited liability company power and authority to execute, deliver, and perform its obligations under this Side Letter. The execution, delivery, and performance of this Side Letter by Borrower have been duly authorized by all necessary limited liability company action on the part of Borrower and its manager, and this Side Letter constitutes the legal, valid, and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, and similar laws affecting creditors' rights generally and general principles of equity.
(c) Authorized Signatory. Derek Huang, SVP – Capital Markets & Treasury of Verimark Hospitality Group Inc., in his capacity as authorized signatory on behalf of Borrower's manager, has been duly authorized by Borrower and Borrower's manager to execute this Side Letter on behalf of Coral Palms Resort Holdings LLC.
(d) Source of Funds. The funds to be deposited by Borrower as the Good Faith Deposit and the Rate Lock Deposit are Borrower's own funds (or funds of Borrower's affiliates made available to Borrower), are derived from lawful sources, and are not derived from any illegal activity, including without limitation money laundering, drug trafficking, terrorism financing, or any other activity that would violate applicable anti-money laundering laws and regulations, including the Bank Secrecy Act, the USA PATRIOT Act, and applicable regulations promulgated by the Office of Foreign Assets Control of the U.S. Department of the Treasury.
(e) No Conflict. The execution, delivery, and performance of this Side Letter by Borrower does not and will not (i) violate any provision of Borrower's organizational documents, (ii) violate any applicable law, rule, regulation, or court order, or (iii) result in a breach of or default under any material agreement or instrument to which Borrower is a party or by which Borrower or the Property is bound.
6.2 Lender Representations.
Lender hereby represents and warrants to Borrower and the Escrow Agent, as of the date hereof, as follows:
(a) Organization and Good Standing. Lender is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business in the states where such qualification is required to perform its obligations under the Commitment Letter and this Side Letter.
(b) Authority and Capacity. Lender has full limited liability company power and authority to execute, deliver, and perform its obligations under this Side Letter and the Commitment Letter, including without limitation the obligation to fund the Loan upon the satisfaction of all conditions precedent set forth in the Commitment Letter. The execution, delivery, and performance of this Side Letter by Lender have been duly authorized by all necessary limited liability company action on the part of Lender, and this Side Letter constitutes the legal, valid, and binding obligation of Lender, enforceable against Lender in accordance with its terms, subject to applicable bankruptcy, insolvency, and similar laws affecting creditors' rights generally and general principles of equity.
(c) No Conflict. The execution, delivery, and performance of this Side Letter by Lender does not and will not violate any provision of Lender's organizational documents or any applicable law, rule, regulation, or court order.
SECTION 7: MISCELLANEOUS PROVISIONS
7.1 Relationship to Commitment Letter.
This Side Letter supplements the Commitment Letter dated December 9, 2022, and is an integral part of the understanding between the parties with respect to the Loan transaction. In the event of any conflict, inconsistency, or ambiguity between the terms and conditions of this Side Letter and the terms and conditions of the Commitment Letter with respect to the subject matter addressed herein — specifically, the Good Faith Deposit, the Rate Lock Deposit, rate lock mechanics, and escrow arrangements — the terms and conditions of this Side Letter shall control and supersede the corresponding provisions of the Commitment Letter. All other terms and conditions of the Commitment Letter that do not conflict with the provisions of this Side Letter shall remain in full force and effect and are hereby ratified and confirmed by the parties.
7.2 Governing Law.
This Side Letter shall be governed by and construed in accordance with the laws of the State of Florida, without giving effect to any choice-of-law or conflict-of-laws rules or provisions that would cause the application of the laws of any other jurisdiction. Each party irrevocably submits to the exclusive jurisdiction of the state and federal courts located in Miami-Dade County, Florida, for the purpose of any action, suit, or proceeding arising out of or relating to this Side Letter, and waives any objection to venue in such courts.
7.3 Amendments. This Side Letter may not be amended, modified, supplemented, or waived except by a written instrument duly executed by both Borrower and Lender (and, with respect to any provisions affecting the Escrow Agent's duties, by the Escrow Agent). No oral modification, amendment, or waiver shall be effective, and no course of dealing or course of performance shall constitute a waiver of any term or condition of this Side Letter.
7.4 Notices. All notices, requests, demands, consents, and other communications required or permitted under this Side Letter shall be in writing and shall be delivered in accordance with the notice provisions set forth in the Commitment Letter (including the methods of delivery and timing requirements specified therein). For purposes of this Side Letter, notices shall be sent to the following addresses (or such other addresses as a party may designate by written notice to the other parties):
If to Borrower:
Coral Palms Resort Holdings LLC c/o Verimark Hospitality Group Inc. 1400 Bayshore Boulevard, Suite 2200 Miami, Florida 33131
Attention: Derek Huang, SVP – Capital Markets & Treasury
With a copy to (which shall not constitute notice):
Calderwood & Harkness LLP 100 Southeast Second Street, Suite 3800 Miami, Florida 33131
Attention: Douglas Fairchild, Esq.
If to Lender:
Pinnacle Atlantic Capital, LLC 200 Lexington Avenue, 38th Floor New York, New York 10016
Attention: Martin Drubeck, Managing Director – Real Estate Lending
With a copy to (which shall not constitute notice):
Whitford Baines & Driscoll LLP 1221 Avenue of the Americas, Suite 4400 New York, New York 10020
Attention: Philip Tarrant Corporation, Esq.
If to Escrow Agent:
Meridian Title & Escrow, Inc. 9100 South Dadeland Boulevard, Suite 1500 Miami, Florida 33156
Attention: Lisa Portman, Title Officer
7.5 Counterparts. This Side Letter may be executed in any number of counterparts, each of which shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Side Letter by electronic transmission (including by portable document format (.pdf) or similar electronic imaging means) or by facsimile shall be effective as delivery of a manually executed counterpart of this Side Letter, and electronic and facsimile signatures shall be deemed original signatures for all purposes.
7.6 Entire Agreement.
The Commitment Letter and this Side Letter, together with any exhibits and schedules attached hereto or thereto, constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior and contemporaneous negotiations, discussions, representations, warranties, and agreements, whether oral or written, relating to the Good Faith Deposit, the Rate Lock Deposit, rate lock mechanics, and escrow arrangements for the Loan transaction. No party has relied upon any representation or warranty not expressly set forth in the Commitment Letter or this Side Letter.
7.7 Binding Effect.
This Side Letter shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, and legal representatives. Neither Borrower nor Lender may assign its rights or obligations under this Side Letter without the prior written consent of the other party, except that Lender may assign its rights (but not its obligations) to an affiliate or successor-in-interest without Borrower's consent, provided that such assignee assumes Lender's obligations hereunder.
Guarantor (Verimark Hospitality Group Inc.) acknowledges and consents to the terms and conditions of this Side Letter by executing the acknowledgment set forth below. Guarantor's acknowledgment and consent shall not create any independent obligation of Guarantor under this Side Letter, except to the extent that Guarantor's consent is required to effectuate the purposes hereof.
[Remainder of page intentionally left blank; signature pages follow.]
IN WITNESS WHEREOF, the parties hereto have caused this Side Letter to be duly executed as of the date first written above.
LENDER:
PINNACLE ATLANTIC CAPITAL, LLC
By: ________
Name: Martin Drubeck
Title: Managing Director – Real Estate Lending
Date: December 9, 2022
BORROWER:
CORAL PALMS RESORT HOLDINGS LLC
By: ________
Name: Derek Huang
Title: SVP – Capital Markets & Treasury, Verimark Hospitality Group Inc. (as Manager of Coral Palms Resort Holdings LLC)
Date: December 9, 2022
ACKNOWLEDGMENT AND CONSENT OF GUARANTOR:
The undersigned, Verimark Hospitality Group Inc., in its capacity as Guarantor under the Commitment Letter, hereby acknowledges receipt of this Side Letter and consents to the terms and conditions set forth herein. This acknowledgment and consent is given for the purpose of confirming Guarantor's awareness of and agreement to the deposit, rate lock, and escrow provisions contained in this Side Letter, and shall not be deemed to create any independent obligation of Guarantor under this Side Letter except as expressly set forth herein or in the Commitment Letter.
VERIMARK HOSPITALITY GROUP INC.
By: ________
Name: Natasha Ricard
Title: Chief Financial Officer
Date: December 9, 2022
ACKNOWLEDGED AND AGREED BY ESCROW AGENT:
The undersigned, Meridian Title & Escrow, Inc., in its capacity as Escrow Agent, hereby acknowledges receipt of this Side Letter and agrees to hold, invest, and disburse the Good Faith Deposit and the Rate Lock Deposit in accordance with the terms and conditions set forth herein. By executing this Side Letter, Meridian Title & Escrow, Inc. accepts its appointment as Escrow Agent and agrees to be bound by the escrow provisions contained in Section 5 of this Side Letter.
MERIDIAN TITLE & ESCROW, INC.
By: ________
Name: Lisa Portman
Title: Title Officer
Date: December 9, 2022
EXHIBIT A
WIRE INSTRUCTIONS FOR ESCROW AGENT
All wire transfers of the Good Faith Deposit and the Rate Lock Deposit shall be directed to the following escrow account:
Account Name: Meridian Title & Escrow, Inc. — IOLTA / Escrow Account
Reference: Coral Palms Resort Holdings LLC / Pinnacle Atlantic Capital, LLC — Good Faith Deposit and Rate Lock Deposit
Bank Name: [To be provided under separate cover]
Bank Address: [To be provided under separate cover]
ABA/Routing Number: [To be provided under separate cover]