[iSTAR | FINANCIAL LOGO] Exhibit 21
June 14, 2005
Xxxxxxxx X. Xxxxxx
JQH Acquisition, LLC
Carnegie Hall Tower
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Re: Acquisition of Xxxx X. Xxxxxxx Hotels, Inc. - Terms of $275,000,000
Line of Credit and up to $165,000,000 Acquisition Facility
Dear Xxxxxxxx:
This Letter Agreement sets forth the principal terms upon which iStar
Financial Inc. ("iStar") will provide a $275,000,000 Line of Credit (the "Lendco
Line") to be used for the sole and exclusive purpose of enabling Lendco (defined
below) to provide the Xxxxxxx Line (defined below) to Xxxx X. Xxxxxxx
("Xxxxxxx") and The Revocable Trust of Xxxx X. Xxxxxxx (the "Xxxxxxx Trust"; and
with Xxxxxxx, the "Xxxxxxx Borrowers") and an up to $165,000,000 Acquisition
Facility (the "Acquisition Facility") to JQH Acquisition LLC (the "Holdco"),
which at the closing (the "Closing Date") of the Transactions (defined below)
will be wholly owned (other than iStar's Participation Interest (defined below),
directly or indirectly, by Xxxxxxxx X. Xxxxxx ("Eilian"), to facilitate Holdco's
acquisition of Xxxx X. Xxxxxxx Hotels, Inc., and its subsidiaries ("JQH
Hotels"). The Lendco Line, the Hammons Line and the Acquisition Facility will
close simultaneously on the Closing Date.
The acquisition transaction will include, among other components , a
cash-out merger pursuant to which all Class A common shares of JQH Hotels will
be acquired, the contribution by the Xxxxxxx Borrowers of all of their remaining
equity interests in JQH Hotels (including all Class B shares and limited
partnership interests), the issuance to the Xxxxxxx Borrowers of a $335,000,000
preferred equity interest (the "Preferred Equity") in the Operating Partnership
(defined below), and the distribution to the Xxxxxxx Borrowers of the Chateau on
the Lake and the management company assets and operations currently owned by JQH
Hotels. The financing transactions and the acquisition transactions described
above are collectively referred to herein as the "Transactions." The
Transactions are described in a certain Amended and Restated Transaction
Agreement (the "Transaction Agreement"), by and among Xxxx X. Xxxxxxx, Revocable
Trust of Xxxx X. Xxxxxxx, dated December 28, 1989, as amended and restated,
Xxxxxxx, Inc., JD Holdings, LLC, and JQH Acquisition LLC, dated as of June 14,
2005, which is attached hereto as Exhibit A and hereby approved by iStar.
Lendco Line
General The Xxxxxxx Line will be provided via back-to-back
credit agreements between iStar and Atrium Lendco,
LLC ("Lendco"), an indirect, wholly owned limited
liability company controlled by Holdco, on the one
hand, and Lendco and the Xxxxxxx Borrowers, on the
other hand (the "Xxxxxxx Line"). The terms and
conditions of the Lendco Line and the Xxxxxxx Line
will be substantially the same, although certain
terms and conditions will apply to Lendco that will
not apply to the Xxxxxxx Borrowers.
Xxxxxxx Line: A draft of the Loan Agreement between Lendco and
the Xxxxxxx Borrowers, to be dated the Closing
Date, is attached hereto as Exhibit B
Xxxxxxxx Xxxxxx
XXX Acquisition, LLC
June 14, 2005
Page 2
(the "Xxxxxxx Line Loan Agreement"). The Xxxxxxx Line
Loan Agreement, in substantially the form attached
hereto, and certain documents ancillary to the Xxxxxxx
Line Loan Agreement (including without limitation a note
and assignments and other collateral documents) will be
entered into on the Closing Date.
Borrower: Lendco, a newly formed, special purpose, bankruptcy
remote limited liability company, which will be
wholly owned and controlled by Holdco, which will
directly or indirectly own all of the common equity
interests (other than the "Participation Interest,"
defined below) and the general partner interest in
the Operating Partnership. Lendco will, in turn, be
the lender to the Xxxxxxx Borrowers under the Xxxxxxx
Line. The Lendco Line, including the related loan
agreement and security documents, will be structured
so that it constitutes a hypothecation loan.
Use of Proceeds: All proceeds will be advanced by iStar directly to
the Xxxxxxx Borrowers on behalf of Lendco for the
purposes set forth in the Xxxxxxx Line.
Amount/Draws: Up to $275,000,000, drawn in amounts, subject to
applicable restrictions and limitations and at such
times as draws are made on the Xxxxxxx Line. All
draws on the Xxxxxxx Line will be required to be made
with proceeds from the Lendco Line; provided,
however, in the event that iStar is in default in its
funding obligations under the Lendco Line, Eilian,
Holdco or their respective affiliates may make
advances directly to the Xxxxxxx Borrowers under the
Xxxxxxx Line. Lendco will not have a draw capability
under the Lendco Line independent from amounts drawn
under the Xxxxxxx Line. Amounts repaid as a result
of repayments under the Xxxxxxx Line may, if
re-borrowed by the Xxxxxxx Borrowers pursuant to the
terms of the Xxxxxxx Line Loan Agreement, be
re-borrowed by Lendco. The Lendco Loan Agreement
will contain mutually acceptable provisions providing
for the repayment of the Lendco Line in the event
that iStar is in material default, which default
remains uncured.
Recourse: The obligations of Lendco under the Lendco Line will
be fully recourse to Lendco.
Guaranty: The obligations of Lendco will be guaranteed (the
"Guaranty") by Holdco; provided, however, that to the
extent that the guaranty relates to the repayment of
the principal of the Lendco Line, such guarantee will
be limited to (i) assuring that payments made in
redemption of the Preferred Equity are applied to
repay the Xxxxxxx Line and, in turn, the Lendco Line,
(ii) any deficiency in the redemption in full of the
Preferred Equity resulting from a breach by Xxxxxx,
Holdco or their respective affiliates of any of their
obligations under the Operating Partnership
Partnership Agreement, (iii) the Quarterly Payments
(defined below), (iv) accrued and unpaid interest
with respect to the Lendco Line (in excess of amounts
accrued and unpaid under the Xxxxxxx Line) and (v)
repayment of the Lendco Line in full in accordance
with the last sentence of the first paragraph of the
section entitled "Principal Payments Generally"
below.
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0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx x Xxx Xxxx, Xxx Xxxx 00000 | Phone -
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Xxxxxxxx Xxxxxx
XXX Acquisition, LLC
June 14, 2005
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Term: The Term of the Lendco Line will be co-terminus with
the Xxxxxxx Line.
Interest Rate/
Interest Payments: 10% per annum, accruing monthly (the "Lendco Interest");
provided, however, that if the Xxxxxxx Borrowers are in
default under the Xxxxxxx Line such that either Default
Interest or "Suspension Default Interest," as defined in
the Xxxxxxx Line Loan Agreement, is paid by the Xxxxxxx
Borrowers, such Default Interest or Suspension Default
Interest will be paid by Lendco to iStar as default
interest payable under the Lendco Line (which shall
contain default provisions parallel to those under the
Xxxxxxx Line).
All interest payments payable to Lendco from the Xxxxxxx
Borrowers under the Xxxxxxx Line (the "Xxxxxxx
Interest") will be used by Lendco to pay interest
currently on the Lendco Line (and paid directly by the
Xxxxxxx Borrowers to iStar). In the event that interest
paid under the Xxxxxxx Line exceeds interest due to
iStar under the Lendco Line, such excess may be retained
by Lendco and distributed, at Lendco's option, to
Holdco. If Xxxxxxx' death occurs prior to the end of the
5th year after the closing of the Xxxxxxx Line and (i)
the Estate of Xxxxxxx elects to receive all or a portion
of the up to $50,000,000 Special Distribution with
respect to the Preferred Equity, (ii) the Estate does
not utilize all of such funds to repay the Xxxxxxx Line
and (iii) the interest rate on a portion of the Xxxxxxx
Line equal to the amount of the Special Distribution not
used for repayment is increased by 3.00%, all as
provided under the Xxxxxxx Line Loan Agreement, such
additional amount of interest paid by the Xxxxxxx
Borrowers will also be paid directly to iStar and used
to pay interest currently on the Lendco Line (but such
additional interest will not increase the amount of
interest payable by Lendco under the Lendco Line).
Holdco will be obligated to make contributions of cash
to Lendco sufficient to pay the excess of the Lendco
Interest over the Xxxxxxx Interest, subject only to (a)
Holdco's inability to obtain distributions of cash from
the Operating Partnership due to restrictions on
distributions of the Operating Partnership caused by
restrictive covenants contained in the underlying
mortgage debt owed by the Operating Partnership (the
"Mortgage Debt") and to certain distribution limitations
to be contained in the Operating Partnership Agreement
and (b) the prior application of cash to payments with
respect to the Acquisition Facility. To the extent that
sufficient cash (i) is not able to be distributed from
the Operating Partnership because of the Mortgage Debt
restrictions or the Operating Partnership limitations
(the "Operating Partnership Distribution
Restrictions/Limitations") or (ii) is not available to
Holdco because Holdco has applied its available cash to
make payments of interest, principal or fees with
respect to the Acquisition Facility, and as a result
sufficient cash is not available to Holdco and, in turn,
to Lendco to satisfy Lendco's payment obligations under
this section, interest on the Lendco Line in excess of
the Xxxxxxx Interest will accrue and compound monthly at
the interest rate then applicable on the Lendco Line
(the "Cumulative Restricted Interest Payments") and
shall be payable when and to the extent that cash
becomes available to Holdco and/or Lendco.
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0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx x Xxx Xxxx, Xxx Xxxx 00000 | Phone -
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XXX Acquisition, LLC
June 14, 2005
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Payments of interest will be made (or accrue) monthly on
the first day of each calendar month and calculated on
the outstanding balance from time to time and on a basis
of actual days elapsed and a 360-day year. There will be
a two-day grace period with respect to monetary
defaults, limited to two times per calendar year.
Origination Fee: 1.0% of the total maximum amount of the Lendco Line,
payable on the Closing Date.
Unused Facility Fee: 0.50% of the undrawn amount of the Lendco Line as of
each annual anniversary thereof; provided, however,
that no Unused Facility Fee will be due and payable
with respect to (i) amounts in excess of the maximum
amount that may be drawn under the Xxxxxxx Line
because of the annual cumulative limitations on draws
thereunder and (ii) any unused amount resulting from
Mandatory Prepayments (discussed below).
Default Rate of The regular interest rate set forth above, plus 5.0%. In
Interest: the event that the default under the Lendco Line is a
result of a default under the Xxxxxxx Line (and not an
independent default under the Lendco Line), then the
default interest payable under the Xxxxxxx Line will be
applied to satisfy the default interest hereunder.
Late Payment Fee: 3.0% of the amount of each late payment.
Principal Repayments All principal payments received by Lendco from the
Generally: Xxxxxxx Borrowers under the Xxxxxxx Line will be paid
directly to iStar and utilized to repay principal on the
Lendco Line. Other than such payments, the Mandatory
Prepayments (discussed below) and the Additional
Principal Payments (discussed below), Lendco will not be
allowed to make principal payments. Under no
circumstances may the Preferred Equity be redeemed,
purchased or satisfied in any way by the Operating
Partnership, Holdco or Eilian, or any of their
respective affiliate(s), for less than the face amount
thereof, unless the Lendco Line is satisfied in full at
such time in connection with such redemption.
Mandatory Prepayments: In the event that the outstanding amount of the Lendco
Line is in excess of $175,000,000, Lendco will be
obligated to make quarterly principal payments (the
"Quarterly Payments") each in the amount of $6,250,000,
payable on the last day of each calendar quarter
commencing the earlier of (i) one year following
Xxxxxxx' death and (ii) September 30, 2011, and
continuing until the outstanding amount of the Lendco
Line is reduced to $175,000,000; provided, however, that
(a) if the Operating Partnership Distribution
Restrictions/Limitations prohibit or limit distributions
or (b) Holdco has made a "Tax Distribution," defined
below, and as a result of either (a) or (b) neither
Lendco nor Holdco have any cash on hand, the quarterly
principal payment obligations set forth in this
paragraph will be suspended until cash becomes available
to Holdco and/or Lendco, following which a payment(s)
representing the cumulative Quarterly Payments
previously prohibited or limited shall be made and the
balance of the Quarterly Payments, if any, shall
thereafter be made currently. For purposes of
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0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx x Xxx Xxxx, Xxx Xxxx 00000 | Phone -
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Xxxxxxxx Xxxxxx
XXX Acquisition, LLC
June 14, 2005
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this paragraph, in the event that in any year there are
cumulative income tax profits or gains (taking into
account all prior allocations of income, profit, gains
and losses) allocated to Xxxxxx from his investment in
Holdco such that the cumulative cash distributions made
to Eilian through such time are not sufficient to pay
Xxxxxx'x income taxes (at Xxxxxx'x effective combined
Federal, state and city rate) due on such cumulative
profits or gains (the "Excess Tax Liability"), then
Holdco may make a "Tax Distribution" to Eilian in the
amount of such Excess Tax Liability.
Additional Principal Each time that Lendco makes a Quarterly Payment, Lendco
Payments: may at its option also make an additional principal
payment (an "Additional Principal Payment"), in an
amount not to exceed $5,000,000 (such that the aggregate
principal payment at any such time may be up to
$11,250,000), provided that the aggregate amount of the
Mandatory Prepayment and the Additional Principal
Payment made at any time shall not reduce the
outstanding balance of the Lendco Line below
$175,000,000.
Collateral: Lendco will assign to iStar all of its rights and
interests in the Xxxxxxx Line, including the
collateral pledged therefor (which would include
without limitation (i) the Xxxxxxx Borrowers'
$335,000,000 Preferred Equity Interest (the
"Preferred Equity") in the Operating Partnership,
(ii) the Xxxxxxx Borrowers' equity interests in the
"Borrower" and the "Property Owners", as such terms
are defined in the Xxxxxxx Line and (iii) the Xxxxxxx
Borrowers' Guarantee).
Interest Reserve: In the event that Operating Partnership Distribution
Restrictions/Limitations are applicable, and provided
that the Operating Partnership Partnership Agreement
does not prohibit such action, the Operating
Partnership will be required to reserve, on a monthly
basis, in an account in which iStar will have a
senior perfected security interest (subject only to
the prior security interests, if any, of the holders
of the Mortgage Debt), the Cumulative Restricted
Interest Payments, which amount will be paid to iStar
immediately after the Operating Partnership
Distribution Restrictions/Limitations are no longer
applicable; provided, however, that the Operating
Partnership may utilize any funds that would
otherwise be deposited into such reserve (i) to
satisfy senior indebtedness of the Operating
Partnership, (ii) to acquire additional real property
assets, (iii) to make payments due under the
Preferred Equity or (iv) to fund reserves required
under the Mortgage Debt or the Operating Partnership
Partnership Agreement.
Servicing/Decision The Lendco Line and the Xxxxxxx Line will be serviced by
Making: iStar. All decisions regarding the Xxxxxxx Line,
including without limitation, all fundings, approvals of
new Xxxxxxx Hotels and other approvals, determinations
of the Xxxxxxx Borrowers' net worth, enforcement of
remedies upon default, modifications to the Xxxxxxx
Line, documentation and waivers, shall be made by iStar
in its sole and absolute discretion; provided, however,
that iStar may not take any action with respect to the
Xxxxxxx Line to increase the principal amount,
accelerate the maximum annual funding limits, increase
the maximum amount that may be advanced with respect to
each property,
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0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx x Xxx Xxxx, Xxx Xxxx 00000 | Phone -
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Xxxxxxxx Xxxxxx
XXX Acquisition, LLC
June 14, 2005
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reduce the interest rate, expand the purposes for which
amounts may be drawn, increase the number of properties
that may be financed at any particular time or, provided
that neither Lendco under the Lendco Line nor Holdco
under the Guaranty are in default, extend the maturity
date, without the consent of Holdco, which consent will
not be unreasonably withheld or delayed. Any action or
inaction on the part of iStar in connection with the
Xxxxxxx Line shall be reflected in similar action or
inaction in connection with the Lendco Line. By way of
example, in the event that iStar waives a default by the
Xxxxxxx Borrowers under the Xxxxxxx Line, iStar will be
required to similarly waive the parallel default by
Lendco under the Lendco Line. iStar will indemnify
Eilian, Lendco and Holdco, and Lendco and Xxxxxx will
indemnify iStar, for their respective gross negligence
or willful misconduct in connection with the servicing
or administration of the Xxxxxxx Line. At iStar's
option, so long as the Lendco Line is outstanding ,
iStar may designate one person to sit on the respective
boards of directors (or other governing bodies) of each
of the Operating Partnership, Holdco and Lendco.
Negative Covenants: At all times that the Lendco Line is outstanding, the
Operating Partnership and Holdco will be operated
under organizational documents approved by iStar in
its sole and absolute discretion, subject to the
sentence below in this paragraph addressing changes
or modifications thereto. (iStar hereby approves the
Fourth Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, a final
draft of which is attached as Exhibit 2.1(i) to the
Transaction Agreement (the "Partnership Agreement"),
as such agreement may be supplemented by a separate
agreement between iStar and Xxxxxx and certain of his
affiliates to be entered into simultaneous with the
execution and delivery of the Partnership
Agreement.) For Federal income tax purposes, Holdco,
Lendco and Atrium GP, LLC (the general partner of the
Operating Partnership) will each qualify either as
partnerships or as disregarded entities owned by a
partnership, and this provision will survive the
repayment of the Lendco Line as long as iStar owns
the Participation Interest, defined below. The
organizational documents may not be changed or
modified, or any provision thereof waived, in any
manner that would have a materially adverse effect,
directly or indirectly, to iStar without iStar's
approval. Among other things, the organizational
documents will contain certain provisions intended to
preserve the assets of the Operating Partnership
until Xxxxxxx' Preferred Equity has been redeemed in
full, and the Lendco Line and the Xxxxxxx Line have
been satisfied in full.
The documentation and structure of the Transactions will
also reflect the following:
1. Holdco may distribute cash to its equity holders,
provided there is no default under the Lendco Line
or the Guaranty, all interest and other payments,
if any, under the Lendco Line are current and
capex reserves and working capital of the
Operating Partnership are fully funded (or a
permanent working capital line on terms
satisfactory to iStar is in place). Working
capital shall be not less than $2,000 per key. At
least $5,000,000 of the aggregate working
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0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx x Xxx Xxxx, Xxx Xxxx 00000 | Phone -
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XXX Acquisition, LLC
June 14, 2005
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capital needs must be reserved in cash (as opposed
to a working capital line);
2. Asset management fees payable directly or
indirectly by the Operating Partnership or Holdco
to Eilian or any affiliate thereof shall be
limited to no more than $1,000,000; any other
payments to Eilian or any affiliate thereof shall
be governed by the distribution provisions set
forth in paragraph 1 immediately above; and
3. The Xxxxxxx Borrowers will enter into a revenue
sharing agreement, with a term co-terminus with
the redemption in full of the Preferred Equity,
with the Operating Partnership pursuant to which
the Xxxxxxx Borrowers will pay 2% of gross
revenues per annum to the Operating Partnership on
all hotel properties now or hereafter owned by the
Xxxxxxx Borrowers (except that such fee will be
more (between 3% and 4% pursuant to current
practice) for certain properties currently owned
by the Xxxxxxx Borrowers and managed by JQH
Hotels). The Operating Partnership will lease its
hotel properties to a new subsidiary that
qualifies as a "taxable REIT subsidiary" ("TRS")
with respect to iStar. The TRS will engage the new
Xxxxxxx affiliated-management company to manage
its hotels, paying a fee equal to the lesser of
(i) the costs of managing both the hotels owned by
the Operating Partnership and the Xxxxxxx
Borrowers' hotels, and (ii) an arms-length fee for
managing just the Operating Partnership's hotels.
The Operating Partnership will reimburse the
Xxxxxxx Borrowers (or their affiliated management
company) for the actual cost of managing all
hotels owned by the Xxxxxxx Borrowers and the
Operating Partnership to the extent that such
actual cost exceeds the fee paid by the TRS
pursuant to the preceding sentence.
Rights of First All rights of first refusal held directly or indirectly
Refusal: by Xxxxxx or his affiliates with respect to properties
owned by the Xxxxxxx Borrowers (the "Rights of First
Refusal") will be collaterally assigned to iStar, until
the Lendco Line is satisfied in full. Such Rights of
First Refusal may not be exercised by Xxxxxx or his
affiliates without iStar's approval, which will not be
unreasonably withheld or delayed, unless on or before
such exercise the Lendco Line is satisfied in full.
In the event that Xxxxxx or any of his affiliates
propose the acquisition of any assets pursuant to the
Rights of First Refusal, Eilian or his affiliates shall
be obligated to offer to iStar the right (but iStar
shall not have any obligation) to acquire a 10% interest
in Xxxxxx'x or his affiliates' interests in such assets,
on the same terms (including any "promote") as Eilian or
his affiliate, for which iStar will contribute 10% of
the equity required to be contributed by Xxxxxx or his
affiliate in connection with such acquisition. Xxxxxx'x
offer shall include such terms and information regarding
the proposed acquisition as are reasonably required for
iStar to make an informed decision. The parties will
exercise good faith to structure the acquisition
transaction in such a way as to cause the acquired
property to be a REIT eligible asset.
Reporting: All reporting under the Xxxxxxx Line will be made
jointly to iStar and Lendco. The Operating
Partnership, Holdco and Lendco will each be required
to provide to iStar audited annual financial
statements, and quarterly and monthly statements of
operations. The Operating
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XXX Acquisition, LLC
June 14, 2005
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Partnership, Holdco and Lendco will be required to
convey promptly to iStar all material notices, demands,
default notices, etc., that it receives from any source
or that it sends.
Transfers of Interest: iStar may freely transfer all or any portion of its
interest in the Lendco Line on the same terms and
conditions that Lendco may transfer all or any portion
of its interest in the Xxxxxxx Line as provided in the
Loan Agreement. Lendco may not transfer its interests in
either the Lendco Line or the Xxxxxxx Line and Holdco
may not transfer its interest in Lendco or in the
general partner of the Operating Partnership. Xxxxxx may
not transfer his interest in Holdco without iStar's
approval, in iStar's sole and absolute discretion
exercised in good faith; provided, however, that, with
iStar's approval, which will not be unreasonably
withheld or delayed, and subject to any restrictions on
transfer contained in the Operating Partnership
Partnership Agreement, Xxxxxx may transfer his interest
in Holdco to a publicly traded REIT, an institutional
investor or, subject to parameters to be mutually agreed
to prior to the Closing Date and contained in the Lendco
Line Loan Agreement, other qualified investors or real
estate owners.
Acquisition Facility
General: iStar will provide to Holdco a short-term debt
facility to enable Holdco to complete the merger of
JQH Merger Corporation, a wholly owned subsidiary of
Holdco, with JQH, Inc., which will include without
limitation the acquisition of all outstanding Class A
shares of JQH Hotels (including outstanding options
for such shares) at price of $24 per share. The
outstanding options may be exercised through a
"cashless" transaction (or cash bonus payments in
lieu of such options), the result of which would be a
reduction in the total cash outlay to purchase the
shares to approximately $158,000,000, and aggregate
cash costs , including fees payable to iStar, of the
Transactions of up to approximately $190,000,000.
Borrower: Holdco.
Amount: Up to approximately $165,000,000 (86.85% of aggregate
cash costs of the Transactions).
Equity: Xxxxxx will be required to contribute to Holdco up to
approximately $25,000,000 in cash equity in order to
close the Transactions; to the extent that the
aggregate cash costs of the Transactions are less
than $190,000,000, Xxxxxx will contribute 13.15% of
such costs and the amount of the Acquisition Facility
will be 86.85% of such costs.
Use of Proceeds: All proceeds of the Acquisition Facility, along with the
Equity, will be used to finance the acquisition of all
of the Class A shares and options in JQH Hotels and to
pay any transaction costs, including the Origination Fee
with respect to each of the Lendco Line and the
Acquisition Facility, not paid or reimbursed on the
Closing Date by JQH Hotels.
Recourse: The obligations of Holdco under the Acquisition
Facility will be fully recourse to Holdco.
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0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx x Xxx Xxxx, Xxx Xxxx 00000 | Phone -
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XXX Acquisition, LLC
June 14, 2005
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Term: 6 months from the Closing Date; provided, however,
that the portion (the "Origination Fee Portion") of
the Acquisition Facility representing an advance for
the payment of the Origination Fee to iStar under
each of the Lendco Line and the Acquisition Facility
shall not be due in 6 months but shall have a 5-year
term from the Closing Date.
Origination Fee: 10% of the amount of the Acquisition Facility,
calculated for this purpose on the amount of the
Acquisition Facility minus the amount of the Origination
Fee on both the Lendco Line and the Acquisition
Facility. The Origination Fee with respect to the
Acquisition Facility will be payable on the Closing
Date.
Interest Rate/Payments: 10% per annum, accruing monthly. Payments of interest
will be made monthly on the first day of each calendar
month and calculated on the outstanding balance from
time to time and on a basis of actual days elapsed and a
360-day year. In the event that Operating Partnership
Distribution Restrictions/Limitations prohibit or limit
distributions from the Operating Partnership, such
interest will accrue and compound on a monthly basis and
will be due upon the maturity of the Acquisition
Facility.
Mandatory Principal
Payments Prior To
Maturity: None, except to the extent of any proceeds from the
refinancing of the Acquisition Facility or distributions
of cash from the Operating Partnership prior to the
maturity of the Acquisition Facility, which amounts are
not utilized to pay for any cash costs of the
Transactions. All available cash received by Holdco
shall be used to satisfy the Acquisition Facility prior
any other application, including without limitation,
distributions to the equity holders of Holdco.
Participation Interest: iStar will receive an ongoing interest (such interest,
which may be an equity interest in Holdco or other
entity formed by Xxxxxx for the purpose of holding
Xxxxxx'x economic interests in the Transactions, to be
structured in a form satisfactory to iStar), so long as
Holdco, Eilian or any of their respective affiliates own
a direct or indirect interest in the Operating
Partnership, or the assets owned by the Operating
Partnership (all of such assets or interests are
referred to herein as the "Xxxxxxx Assets"), in the
amount of 10% of all distributions (in cash, securities,
in kind or otherwise) from or with respect to the
Xxxxxxx Assets or consideration (in cash, securities, in
kind or otherwise) on account of the sale, transfer or
other conveyance of any Xxxxxxx Assets received by
Xxxxxx and/or his affiliates in excess of a return of
Equity plus a yield of 10% per annum, compounded
monthly, on the outstanding amount of Equity from time
to time. This additional interest is intended to apply
to all returns realized by Xxxxxx and/or his affiliates
at any time from all aspects of the transactions
described herein in excess of a 10% per annum,
compounded monthly, internal rate of return on Equity.
For this purpose, Equity shall include any subsequent
cash equity contributions by Xxxxxx or any of his
affiliates to Holdco, for further contribution to the
Operating Partnership or Lendco. In the event that
Xxxxxx or his affiliates acquire any assets pursuant to
the Rights of First Refusal without contributing any
cash equity, then such asset shall be included in the
Xxxxxxx Assets for the
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XXX Acquisition, LLC
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purpose of determining the Participation Interest. This
Participation Interest is an ongoing interest that will
survive the repayment of the Acquisition Facility and
the Lendco Line.
Collateral: Senior perfected security interest in all of the
equity of Holdco and JQH Inc. in Atrium GP, LLC, the
general partner of the Operating Partnership. In the
event that all or any portion of the Origination Fee
Portion is outstanding after the balance of the
Acquisition Facility is repaid, the obligation to
repay the Origination Fee Portion will be secured by
all of the direct equity interests owned by Xxxxxx in
Holdco or any of its affiliates or any other entity
(if not an affiliate of Holdco) having an interest in
or resulting from the Transactions.
Decision Making: At iStar's option, so long as the Acquisition
Facility is outstanding, iStar may designate one
person to sit on the boards of directors (or other
governing bodies) of the Operating Partnership and
Holdco. (This right is not intended to be
duplicative of iStar's similar right as long as the
Lendco Line is outstanding.) After the Acquisition
Facility and the Lendco Line are satisfied in full,
and provided that the Participation Interest
continues to be in effect, so long as Eilian either
has observation rights (at least two observers) or
controls, directly or indirectly, Holdco and/or the
Operating Partnership, iStar will be entitled to
observation rights at all meetings of the boards of
directors (or other governing bodies) of the
Operating Partnership and Holdco.
REIT Election: At iStar's option, Holdco and/or Eilian will make, or
cause to be made, one or more elections, under the
Internal Revenue Code, with respect to the Operating
Partnership and/or Holdco such that either or both of
such entities will be taxable as a REIT, except as
may be prohibited by the Operating Partnership
Partnership Agreement. Alternatively, the Operating
Partnership will lease all of its hotel assets to
"Taxable REIT Subsidiaries," and operate such assets
in a manner such that all income received by iStar
will be deemed to be REIT eligible income under the
Internal Revenue Code. This provision will survive
the repayment of the Acquisition Facility. The
efficacy of the structure of the transaction for
income tax purposes must be acceptable to iStar in
its sole discretion.
Transfers of Interest: iStar may freely transfer all or any portion, or any
component, of its interest in the Acquisition Facility,
provided that, as long as there exists no default under
the Acquisition Facility, iStar will maintain an
interest in, and control over, the Acquisition Facility.
In the event of a default by Xxxxxx under the
Acquisition Facility, iStar will commit to retain a
controlling interest in the Acquisition Facility for not
less than three months following such default. Holdco
may not transfer its interest in the Operating
Partnership and Xxxxxx may not transfer his interest in
Holdco without xXxxx's written consent, unless in
connection with such transfer the principal amount of
the Acquisition Facility and any accrued interest
thereon is satisfied in full at the time of such
transfer.
Certain Rights of iStar shall have the right to provide to Holdco, Eilian
iStar: and the Operating Partnership all or any portion of any
third-party financing incurred in connection with (i)
the acquisition of any hotel or other properties (other
than acquisitions by Eilian wholly unrelated to the
transactions
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XXX Acquisition, LLC
June 14, 2005
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and entities described herein), (ii) any refinancings
(including without limitation the refinancing of the
Mortgage Debt, and other than refinancings of debt
wholly unrelated to the transactions and entities
described herein) and (iii) the exercise of any right of
first refusal by Xxxxxx or his affiliates with regard to
any properties owned by the Xxxxxxx Borrowers, provided
that with respect to (iii) above, iStar's commitment for
such financing would be required no later than 10 days
prior to the exercise date for the then applicable right
of first refusal, and provided that with respect to (i),
(ii) and (iii) above, any such financings shall be on
market terms and conditions.
Break-up Fee: In the event that the Eilian, Holdco or any of their
respective affiliates, closes any one or more other
transactions which are substantially similar to, or
have substantially the same economic effect as, the
Transactions, and Holdco does not close on the
Acquisition Facility, iStar shall be paid a break-up
fee in the amount of 10% of the amount of the
Acquisition Facility, payable upon closing of the
other transactions, and iStar shall be granted the
Participation Interest, it being agreed that xXxxx's
damages for not entering into the Acquisition
Facility would be difficult or impossible to
ascertain, and such payment and granting to iStar
shall not constitute a penalty, but shall constitute
agreed upon and liquidated damages.
This Letter Agreement represents iStar's commitment, and your agreement to
the terms contained herein, for the financing of the Transactions, as described
herein. Each of the parties hereto intends this commitment to be binding. The
terms contained herein reflect all of the material terms for the financing by
iStar of the Transactions and have been approved by iStar's Investment Committee
and Board of Directors. Consummation of the transactions described herein is
conditioned upon the execution and delivery of definitive agreements
satisfactory to iStar setting forth the terms herein.
The conditions precedent to the closing of the Transactions are set forth
in the Transaction Agreement and a certain Agreement and Plan of Merger (the
"Merger Agreement"), dated the date hereof, by and among JQH, Inc, Holdco, and
JQH Merger Corporation. The obligations of iStar to close the Lendco Line and
the Acquisition Facility will be subject to the satisfaction or written waiver
by iStar of the conditions for closing, for the benefit of Holdco, Eilian or any
of their respective affiliates, under the Transaction Agreement and the Merger
Agreement. The determination that such conditions have been satisfied or should
be waived will be made jointly by Xxxxxx, Xxxxxx and their respective
affiliates, on the one hand, and iStar, on the other hand.
All of iStar's third party expenses of due diligence, negotiations and
documentation, whether or not the transactions are actually closed, and all
third party expenses incurred by iStar in connection with closing the
transactions shall be paid or reimbursed to iStar by Xxxxxx or Xxxxxx; provided,
however, that if iStar breaches its obligations hereunder and solely as a result
of such breach the Transactions do not close, neither Xxxxxx nor Holdco will be
liable for iStar's expenses. iStar's expenses shall be paid or reimbursed by
Xxxxxx or iStar upon the earlier to occur of the consummation of the
Transactions or the failure of the Transactions to close as evidenced by the
termination of the Merger Agreement. Any Break-up Fee or other consideration
received by Xxxxxx, Eilian or any of their respective affiliates in the event
that the Transactions do not close shall be applied first to the payment of all
third-party expenses of Xxxxxx and iStar in connection with the transactions
described herein, and the balance shall be allocated and paid 75% to Eilian or
his affiliates and 25% to iStar.
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Letter Agreement shall be brought against any of
the parties only in the Courts of the State of New York, and the United States
District Court for the Southern District of New York, and each of the parties
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XXX Acquisition, LLC
June 14, 2005
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consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
This Letter Agreement is confidential; except as required by applicable
law, or with iStar's consent, neither its existence nor the terms thereof may be
disclosed by Xxxxxx or Holdco to any person or entity other than Xxxxxx'x or
Xxxxxx's financial advisors, accountants, attorneys or prospective investors.
This Letter Agreement will be executed and delivered by Xxxxxx and Xxxxxx
simultaneous with the execution of the Transaction Agreement and the Merger
Agreement, which are anticipated to occur on June 14, 2005.
Very truly yours,
/s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
Executive Vice President
AGREED AND ACCEPTED:
XXXXXXXX X. XXXXXX, on his own behalf and
On behalf of JQH ACQUISITION, LLC
By: /s/ Xxxxxxxx Xxxxxx
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Xxxxxxxx Xxxxxx
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