EXHIBIT 6
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March 5, 0000
Xxxxxxx X. Xxxxx
The Berkshire Group
Xxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Dear Xxxxxxx:
Reference is made to the letter dated February 22, 1999 among the three
of us (the "Term Sheet Letter").
This is to confirm our agreement that the "Summary of Terms" attached
to the Term Sheet Letter is hereby amended and replaced in its entirety with the
attached "Summary of Terms." All other provisions of the Term Sheet Letter shall
remain in full force and effect.
[Signatures on next page]
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This letter may be executed in one or more counterparts, each of which
shall be considered an original, but all of which taken together shall
constitute one and the same letter.
Very truly yours,
WHITEHALL STREET REAL ESTATE
LIMITED PARTNERSHIP XI
By: WH Advisors, L.L.C. XI
By: /s/ Xxxxxx X. Xxxxxxx
BLACKSTONE REAL ESTATE
ACQUISITIONS III L.L.C.
By: /s/ Xxxxxx X. Xxxxxx
Agreed as of the date set forth above:
/s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx, on behalf
of himself and his affiliates who will be members
of Aptco, LLC
3/5/99
SUMMARY OF TERMS
The following sets forth an outline of discussions concerning a
possible joint venture involving Blackstone Real Estate Acquisitions III L.L.C.
or one of its affiliates ("Blackstone"), The Berkshire Companies Limited
Partnership ("Berkshire Group") and Whitehall Street Real Estate Limited
Partnership XI ("Whitehall" and, together with Blackstone and Berkshire Group,
the "Investors").
GENERAL
Berkshire Group, Blackstone and Whitehall would form a new entity
(Aptco) to acquire all the equity securities (including common stock, preferred
stock and operating partnership units) of Berkshire Realty Company, Inc. and
subsidiaries ("Berkshire"). It is initially envisioned that Aptco would be
organized as an LLC. Aptco would focus on the ownership, acquisition,
management, renovation and existing development of multifamily properties,
primarily value-added/repositioning opportunities.
PRICING
The price to be offered by Aptco would be unanimously determined by
Berkshire Group, Blackstone and Whitehall.
STRUCTURE
Upon execution of a definitive agreement between Aptco and Berkshire,
the Investors would commit to contribute cash, Berkshire common stock and/or
operating partnership units to Aptco to fund the acquisition of Berkshire.
Berkshire Group would contribute to Aptco as common equity all of its
stock and operating partnership units (which shall be not less than 5,416,000
shares and units) valued at the bid price, and Blackstone and Whitehall would
each provide 50% of the balance of the required equity (initially to be at least
$106 million, increasing at the time the bridge financing is refinanced as
provided below, but not in excess of $125.5 million each) as preferred equity.
Cash equity required in excess of $251 million shall be contributed as provided
below. It is expected that some or all of the third party owners of limited
partnership interests in BRI OP
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Limited Partnership (the "OP") will exchange their interests in the OP for
equity interests in Aptco on the terms set forth in the draft merger agreements
to be submitted by Aptco with its bid to Berkshire.
In the event cash equity in excess of $251 million is required by
Aptco, such excess, not to exceed $30 million in the aggregate, would be funded
one third each by Blackstone, Whitehall and Berkshire Group. Any such amounts
funded by the Investors pursuant to the immediately preceding sentence shall be
treated as preferred equity with respect to distribution rights (i.e. shall be
pari passu with the other preferred equity held by Blackstone and Whitehall). As
an alternative to providing additional equity above $212 million, with the
consent of each of the Investors, Aptco may secure subordinated debt upon terms
acceptable to each of the Investors. Any Investor not funding its share of any
portion of the $30 million of additional required capital calls (described in
the first sentence of this paragraph) will be diluted on a 2 for 1 basis (based
on book equity).
GOVERNANCE
Aptco would be governed by a three member Board of Directors (Board).
Whitehall, Blackstone and Berkshire Group would each have one seat on the Board.
Xxxxxxx Xxxxx (DK) would be Chairman of the Board (as Berkshire Group's
designee) and Chief Executive Officer (CEO). Berkshire Group would lose its
Board seat in the event that (i) it transfers any portion of its initial
ownership interest in Aptco in violation of Aptco's Operating Agreement, (ii)
Aptco acquires the interest of Berkshire Group, (iii) DK is removed as CEO for
cause (as defined in Annex A), company cause (as defined in Annex A), or if he
resigns prior to the fifth anniversary of closing or (iv) upon DK's or Berkshire
Group's default of a loan that is secured by a pledge of its interest in Aptco,
but only if such loan becomes due, whether as a result of an acceleration or
maturity of such loan. Except for those decisions described in this Summary of
Terms that require unanimous approval, do not require any Board approval (i.e.,
can be decided by DK) or can be decided unilaterally by either Blackstone or
Whitehall, all decisions (such as all annual budget and business plan approvals,
acquisitions of any assets within the parameters set forth on Exhibit 1, etc.)
would be approved by a 2 out of 3 vote of the Board. If Aptco is organized as a
limited partnership instead of a limited liability company, Whitehall,
Blackstone and Berkshire Group would each have the right to have a subsidiary
act as a co-general partner of Aptco and the governance provisions would be
modified accordingly (E.G., decisions that are described below as requiring a
unanimous vote of the Board would instead require unanimous approval of the
general partners).
A unanimous vote of the Board would be required for (i) amending the
Operating Agreement of Aptco, (ii) admitting any new members, (iii) capital
calls in excess of the $281
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million required above (except that 2 out of 3 Board members may approve capital
calls ("Mandatory Capital Calls") for debt service shortfalls, health and safety
items, taxes and similar necessary expenditures as long as Berkshire Group's
share of such capital calls does not exceed, in the aggregate, $10 million, and
any Investor not funding its share of any required capital calls will be diluted
on a 2 for 1 basis (based on book equity)), (iv) change in the nature of Aptco's
business (E.G., to include mortgage lending), (v) except as set forth in the
third paragraph below, any sale of Aptco or sale of all or substantially all of
Aptco's assets, in each case prior to 3 1/2 years after closing (i.e., a 2 out
of 3 vote will be required to approve a sale of Aptco (and/or its subsidiaries
or substantially all of their assets) between the 3 1/2 year anniversary of
closing and the fifth anniversary of closing; provided, that if Berkshire
Group's designee on the Board does not approve such a sale and such sale occurs
between the 3 1/2 year anniversary and the 4 1/2 year anniversary of closing, at
the election of Berkshire Group, such sale may not occur unless in connection
therewith Berkshire Group receives, in exchange for its interest in Aptco, an
amount in cash equal to the greater of (A) the actual proceeds of such sale
payable to Berkshire Group in accordance with the "Waterfall" (described in
Annex A) or (B) an amount equal to the aggregate amount of capital contributions
made by Berkshire Group to Aptco prior to the date of such sale less any prior
distributions to Berkshire Group), (vi) acquisition of any assets outside of the
parameters set forth on Exhibit 1 (i.e., a 2 out of 3 vote will be required to
approve acquisitions within such parameters), (vii) changes to the bid from the
terms submitted to the Board of Berkshire on February 22, 1999, the execution of
the merger documentation, the acceptance of any closing deliveries and/or the
grant of consents or approvals or acceptance or waiver of conditions to Aptco's
obligation to close pursuant to the merger documentation and (viii) a
disposition of all or a portion of the property known as Berkshire Towers (or of
the subsidiary that owns such property) prior to the fifth anniversary of
closing, other than in a tax deferred transaction. Any equity funded by the
Investors pursuant to a Mandatory Capital Call shall be treated as preferred
equity with respect to distribution rights (i.e., shall be pari passu with the
other preferred equity of the Investors). None of the Investors shall enter into
any separate voting agreement with any other Investor in respect of its
interests. In addition, any related-party transaction involving an Investor
would require a majority vote of the non-interested Investor designee-directors.
In the event any Investor or its controlling persons files a bankruptcy or
similar proceeding with respect to Aptco without first obtaining the prior
written approval of two of the three Board members, the ownership interest and
capital account of such Investor shall be reduced to zero.
Notwithstanding the general requirement that all financings require the
approval of at least two of the three Board members, DK, acting alone, will have
the authority to accept a financing from the Federal Home Loan Mortgage
Corporation ("Xxxxxxx Mac") or another institutional lender provided that (I)
the amount of such financing is 75% of the appraised value of the Properties on
Exhibit 2 hereto and in any event at least $650 million (the
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financing amount to be reduced by 75% of the appraised value of any assets on
Exhibit 3 sold at or prior to the closing), (II) such financing is not recourse
in any respect to any Investor without its approval, (III) the term of such
financing is equal to 7 years with a fixed interest rate at 8.0% per annum or
less, (IV) in order to benefit from lower interest rate spreads, the entire
financing will be subject to yield maintenance penalties on prepayments until
the fifth anniversary of the closing of the financing (i.e., will be prepayable
during the first five years only with yield maintenance and thereafter without
yield maintenance), (V) the properties subject to such financing will not be
cross-collateralized and the loans will not be cross-defaulted and (VI) the
other terms are no less favorable to Aptco than the terms of the "Conditional
Commitment" (dated November 16, 1998) previously provided to the Investors from
Xxxxxxx Mac. Financing outside of the foregoing parameters may be authorized by
2 out of the 3 Board members provided (x) the Board will use commercially
reasonable efforts to obtain financing on terms as close to possible as the
parameters set forth above, (y) any such alternative financing shall be fixed
rate or be subject to appropriate hedging arrangements and (z) such financing
shall not be recourse in any respect to any Investor without its approval.
Provided that DK is still acting as chairman and CEO, DK will be
authorized without the approval of the Board (i) to carry out business plans
approved by the Board, provided that payroll expenses do not exceed 105% of the
annual amount of that item on the approved budgets, and all other expenses do
not in the aggregate exceed 105% of annual expenses (other than payroll
expenses) in the approved budgets, (ii) to sell the 10 Assets in Exhibit 3 for
prices that yield Aptco net proceeds (after all transactions costs, taxes and
debt prepayment fees and expenses) equal to at least 95% of the amounts set
forth in Exhibit 3 (provided that such net proceeds shall not be less than 97.5%
of all such amounts in the aggregate) in transactions with third parties
(unaffiliated with Berkshire Group) and in which Berkshire Group has no
continuing interest and (iii) to sell certain individual assets in any calendar
year not in excess of $100 million in gross proceeds provided that the price for
each sold asset yields Aptco net proceeds (after all transaction costs, taxes
and debt prepayment fees and expenses) equal to at least 103% of allocated
acquisition cost. If DK does not sell the 10 Assets as provided in clause (ii)
above within the time period contemplated by the initial business plan approved
by the Board, Whitehall and Blackstone, acting together, may cause Aptco to sell
such Assets during the immediately succeeding 6-month period for the prices
described in clause (ii) in transactions with third parties (unaffiliated with
either Whitehall or Blackstone) and in which neither Whitehall nor Blackstone
have any continuing interest. If DK does not sell at least $50 million of assets
in any calendar year as provided in clause (iii), during the six months
following such year Whitehall and Blackstone, acting together, may cause Aptco
to sell that amount of assets not sold in such year, up to $50 million, for the
asset prices described in clause (iii).
Each of the Investors will be authorized unilaterally to cause a sale
of Aptco to an
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unaffiliated third party in a bona fide transaction (in which no Investor has a
continuing interest) to the highest bidder after the fifth anniversary; provided
that DK may not exercise such right until three months following such fifth
anniversary; provided further that if, during such three month period DK's
Employment Agreement is terminated without cause and Whitehall and Blackstone
have not already exercised their right to cause a sale of Aptco then DK may
exercise such right. In addition, at any time between the second anniversary and
fifth anniversary of closing, DK may cause a sale of Aptco subject to a right of
first offer in favor of each of Whitehall and Blackstone (which may be exercised
by either or both of Whitehall and Blackstone) and if such right of first offer
is not exercised, DK may cause such sale at a price equal to or higher than the
price offered to Whitehall and Blackstone as long as (i) the net proceeds from
such sale results in a 12% per annum annually compounded IRR to each of the
Investors (with Berkshire Group being permitted to use its own funds to allow
such IRR threshold to be achieved), and (ii) such sale is consummated with a
bona fide third party (unaffiliated with Berkshire Group) within 180 days after
the right of first offer is declined. If Whitehall and Blackstone each exercise
the right of first offer, they shall each acquire 50% of the offered interests.
Any sale to either or both of Whitehall or Blackstone may be accomplished by
purchasing the ownership interests in Aptco not owned by them, rather than Aptco
itself. In addition, at any time between the 3 1/2 year anniversary of closing
and the fifth year anniversary of closing, Whitehall and Blackstone, acting
together, may cause a sale of Aptco; provided that (A) such sale is consummated
with a bona fide third party (unaffiliated with either Whitehall or Blackstone)
and (B) if such sale occurs between the 3 1/2 year anniversary and the 4 1/2
year anniversary of closing, at the election of Berkshire Group, in connection
with such sale Berkshire Group receives, in exchange for its interest in Aptco,
an amount in cash equal to the greater of (X) the actual proceeds of such sale
payable to Berkshire Group in accordance with the "Waterfall" (described in
Annex A) or (Y) an amount equal to the aggregate amount of capital contributions
made by Berkshire Group to Aptco prior to the date of such sale less any prior
distributions to Berkshire Group.
The budget and business plan for the 1999 calendar year will be
approved by each of the Investors prior to execution of the Aptco governing
documents.
MANAGEMENT
As described above, day-to-day management would be the responsibility
of the Aptco management team. The acquisition of Berkshire would include
Berkshire's multifamily management operations. Prior to the execution of a
definitive agreement with Berkshire, the staffing, senior management and
operating budget of Aptco would be discussed and agreed.
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DISPOSITIONS
The management of Aptco would develop a sale/hold/capital expenditure
analysis for each asset, which would be reviewed by the Board annually.
Selection of sale agents would be at the Board's discretion. Prior to closing,
certain assets will be identified for sale during the first two years after
closing.
CONFIDENTIALITY
Subject to requirements of law, Blackstone, Whitehall and Berkshire
Group would each keep confidential all discussions and materials prepared and
exchanged in connection with the proposed transaction. It is anticipated that a
joint press release would be issued upon execution of a definitive agreement
with Berkshire, and possibly earlier if required by law.
This summary is for discussion purposes only and constitutes only a
general non-binding expression of interest on the part of Blackstone, Whitehall
and Berkshire Group and is not intended to, and does not, create a legally
binding commitment, agreement or obligation on the part of Blackstone, Whitehall
or Berkshire Group, other than the section entitled "Break-Up Fee; Cost
Reimbursement" (set forth in Annex A).
EXPIRATION
The obligation of the parties hereto shall automatically expire on the
earlier of (i) March 31, 1999, if the Aptco bid is not accepted by such date by
the Board of Directors of Berkshire, (ii) the date which is 210 days after the
date Aptco's bid is accepted by Berkshire's Board and (iii) the date upon which
Berkshire's Board definitively rejects Aptco's bid.
SUPPLEMENTARY TERMS AND CONDITIONS
The supplementary terms and conditions set forth in Annex A hereto are
incorporated by reference herein.
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