EXHIBIT 5
---------
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]
2
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 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
--------------------------------------
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
--1--
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 million required above (except that 2 out of 3 Board
members may approve capital calls
--2--
("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 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
--3--
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 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
--4--
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.
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
--5--
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.
--6--
