EFTA01073652.pdf

Proposed Terms of Second Mortgage Loan A $7,500,000 second mortgage loan with a term from November 1, 2011 until June 30, 2012 secured by a second mortgage junior to Tas $21,260,000 first mortgage. Application of Loan Proceeds: $5,300,000 to pay off existing second mortgage $700,000 interest reserve until June 30, 2012 for TD first mortgage $ 75,000- transaction costs (doc stamps, title binder) $100,000 — fee to PP $1,325,000 — loan proceeds to Swanson for 2011 taxes ($160,000), insurance, maintenance, marketing and his personal overhead) Interest payable for 8 month period is fixed at $1,500,000 or 20% of loan amount. Interest accrues and is not paid currently. No reduction in $1,500,000 interest amount for prepayment. Annualized rate is 30% if loan is outstanding until end of 8 month term. The Second Mortgage lien will be for $9,000,000 inclusive of $1,500,000 for interest payable to lender. Profit Participation. There is also a participation on sale of the greater of $1,000,000 or 5% of gross sales price. This could be structured as a guaranteed distribution from the LLC which owns the property ("LLC"), as a fee, or as a loan to the LLC, in each case secured by an assignment of 100% of the membership interests in the LLC and the personal guaranties of Swanson and his wife. PP becomes a co-manager and member of LLC from funding date until payoff with veto rights on any major action; e.g., borrowing, capital calls, recaps, creation of liens, admission of new members or transfer of interests in LLC, sale, lease, bankruptcy or other asset protection methods, and new obligations over $25,000. Scenario 1 — $42 million sale in 6 months Assume property sells for $42,000,000 closing on May 1, 2012. Loan will have been funded for 6 months. Net proceeds of sale (less 4% commission and transaction costs) are $40,000,000. $40,000,000 - Proceeds of Sale after transaction costs and broker commission Less: $21,260,000 Pay Off TD First Mortgage $ 9,000,000 Pay Off Second Mortgage including $1,500,000 interest $ 2,100,000 Pay 5% Profit Participation (say divided between lender and PP) $ 7,640,000 to Swanson (not counting portion of net loan proceeds above applied to his personal expenses) Lender Side - $7,500,000 advanced for six months Total payable to Lender and PP= $3,600,000 $1,500,000 to interest to Lender $1.050.000 profit participation to lender $ 2,550,000 to lender (34% of amount advanced or 68% annualized rate) $1 050 000 — profit participation to PP $1,050,000 — total payable to PP $3,600,000 — total payable to Lender and PP (doe not include $100,000 fee to APP at funding) Scenario 2 — Default Case: $35 million sale - 4 months after default by borrower Assume LLC defaults and property sells 4 months later (1 year from funding) for $35,000,000 closing on November 1, 2012. Loan funded for 12 months. Net proceeds of sale (less 4% commission and estimated transaction costs) are $33,260,000. NB - Lender will be required to advance an additional approximately $750,000 to carry the property from July 1, 2012 until November 1, 2012, estimated to be $530,000 in first mortgage interest, $100,000 in insurance and maintenance and $120,000 for contingencies. $33,260,000 - Proceeds of Sale after transaction costs and broker commission Less: EFTA01073652  $21,260,000 Pay Off TD First Mortgage 340.000 — real estate taxes for 2012 (est.) $ 11,660,000 — Net Proceeds of Sale Application of Net Sale Proceeds: $7,500,000 return of original loan amount to lender $ 750,000 return of expenses advanced by lender to carry house from July 1 — Nov. 1 $8.250.000 — total principal returned to lender $3,410,000 - Excess Distributable over Return of Principal to Lender Proposed Distribution: $1,500,000 — agreed interest on $7,500,000 for 8 months 687.500 — interest on $8.25M @25% for 4 months $1,222,500 — excess proceeds over interest expense Proposed Distribution of Excess Proceeds $ 611,250 to Lender $ 611,250 to PP Total Return to Lender in excess of Amounts Advanced: $2,798,750 on $7,500,000 outstanding for 12 months and additional $750,000 outstanding for 4 months. EFTA01073653