The loan made byindependent directors. Given the REIT, includingrelationship between the Real Estate Loan Participation, was repaid in full on December 16, 2021,Company and Axar, the Board appointed a special committee to review the retention of Axar and the Trusts received cash interest paymentsSubadvisor Agreement, which subsequently also approved the retention of Axar and the terms of the Subadvisor Agreement. Both the Trust Committee and the special committee concluded that Axar had the appropriate experience and performance record that would assist Cornerstone in performing its investment advisory obligations for the Company, that the retention of Axar would provide back-office operational efficiencies to Cornerstone and that the financial terms were at least as favorable to Cornerstone as the terms that would be available from other unaffiliated subadvisors.
Under the terms of the Subadvisor Agreement, Axar agreed to provide the following services with respect to the Real Estate Loan Participation in the aggregate amount of $2.4 million, representing all interest payableInvestment Assets:
advise Cornerstone with respect to the Trustsallocation and investment of the Investment Assets on a non-discretionary basis, including providing advice concerning portfolio allocation among investment strategies;
oversee other subcontractors or external managers engaged by Cornerstone to provide advice with respect to the Investment Assets;
provide quarterly investment performance reports to and meet on a quarterly basis with the Trust Committee;
as requested by Cornerstone from time to time, perform the tasks and responsibilities delegated by the Trust Committee to Cornerstone under the Real Estate Loan Participation.Company’s investment policy statement; and
as requested by Cornerstone, assist Cornerstone in performing its duties by providing general back office and administrative support to Cornerstone and, at Cornerstone’s reasonable request, the trustee of the Trusts.
Under the Subadvisor Agreement, Axar was entitled to a quarterly fee equal to 0.0125% of the value of the Investment Assets through December 31, 2021 and, thereafter, a quarterly fee equal to 0.025% of the value of the Investment Assets. In each case, the value of the Investment Assets was determined by the trustee of the Trusts. The Subadvisor Agreement also included customary confidentiality and indemnification provisions. Mr. Axelrod also serves at the discretion of the Trusts have no ongoingas a director of a children’s retailer in which such trusts hold an equity interest, for which he receives annual director fees from that company of $80,000. Mr. Axelrod also serves as director of a Nevada company in this investment.
Hotel Fund Loan Agreementwhich the Trusts hold an equity interest, for which he receives annual director fees from that company of $75,000. In addition, he and an additional Axar employee serve as directors of the Shoe Retailer, for which each of them receives annual director fees from the Shoe Retailer of $100,000.
On May 17, 2021, the Trusts entered into the Hotel Fund Loan Agreement, which was amended and restated on October 12, 2021 and subsequently amended on December 13, 2021, March 7, 2022 and April 19, 2022. Pursuant2022, Axar, at the request of the Company’s Trust Committee, agreed to terminate the Hotel Fund LoanSubadvisor Agreement, effective on that date. In connection with the Trusts provided a $33.2 million mezzanine loantermination, Axar also agreed to the Hotel Fund on May 19, 2021 as part of a $162.2 million loan facility originated by an unaffiliated loan fund. The participation by the Trusts was based on the recommendation ofwaive all fees payable to Axar under the Subadvisor Agreement for the period from January 1, 2022 through April 19, 2022, which would have been $219,000. During 2021, Axar received fees of $384,000 under the Subadvisor Agreement. As part
Nomination and Director Voting Agreement
The Company is a party to the DVA with the Axar Group, GP Holdings, and Robert B. Hellman, Jr., as trustee under the Voting and Investment Trust Agreement for the benefit of ACII (collectively with GP Holdings, the “ACII Entities”). Under the DVA, and subject to certain conditions and exceptions, the Axar Group is prohibited from acquiring additional shares of the same transaction, funds and other accounts affiliated with or managed byCompany’s Common Stock. On April 13, 2021, the Axar loaned $10.0 million toGroup, the Hotel Fund on the same terms as the trusts’ loans, representing the balance of the $43.2 million mezzanine loan,ACII Entities and the Trusts and funds and accounts affiliated with Axar each received an origination fee equal to 4% of their respective loan amounts. Axar does not own, directly or indirectly, any equity or debt securities of the Hotel Fund other than through its participation in the mezzanine loan. The principal amount of these loans is payable on October 12, 2023, subject to acceleration under the circumstances described in the Hotel Fund Loan Agreement, and bear interest at an adjustable rate equal to one-month LIBOR plusCompany entered into a spread. On February 15, 2022, the administrative agent for the lenders under the Hotel Fund Loan Agreement delivered a reservation of rights letter to the Hotel Fund with respect to the Hotel Fund’s apparent failure to comply with several covenants in the Hotel Fund Loan Agreement, none of which related to payment of amounts due to the lenders. As of June 30, 2022, the interest rate was 19.07%. In April 2022 in connection with an amendment of the Hotel Fund Loan Agreementagreement (the “Waiver”) pursuant to which the Axar agreedGroup was permitted to provide an additional $4.5 million loan discretionary subfacility toacquire some or all of the Hotel Fund (the Trusts didshares of the Company’s Common Stock held by ACII and its affiliates in a single privately negotiated transaction and not participate in this subfacility), Axar and the Trusts agreed to have the interest payable on the mezzanine loan in April, May and June 2022 paid in kind.open market. The terms of the subfacility are generally the same as the existing loan and are secured pari passuWaiver were approved by the same collateral. An additionalConflicts Committee of the Company’s Board. The waiver was subject to the following conditions:
any such purchase be consummated on or before May 31, 2021;
the Company, the Axar Group and the ACII Entities have entered into a further amendment to extend the capitalizationDVA to clarify that the standstill period through September 2022, is currently being negotiated. The prior amendments have also provided forapplicable to the Hotel Fund's cooperation in a sale processAxar Group will expire on December 31, 2023;
Axar will vote or direct the voting of its real estate properties, the appointment of a chief administrative officer and the appointment of an independent financial advisor. Through June 30, 2022, the Trusts have received cash interest in the aggregate amount of $7.7 million on this loan from an interest and expense reserve account established for that purpose, and additional interest in the form of an additional $1.6 million in principalall shares of the loan, collectively representing all interest payableCompany’s Common Stock it beneficially owns in favor of amendments to the Trusts under the Hotel Fund Loan Agreement. The Hotel Fund owns its properties in subsidiaries, certain of which are subject to underlying financing arrangements. One of these financing arrangements is currently in default. The Hotel Fund is currently in the process of having its properties marketed for sale, either through brokers or through auction process, or is considering such steps or alternative steps (such as a refinancing in certain cases).
Holdco Loan Assignment
On September 27, 2021, the Trusts entered into the Holdco Loan Assignment with Holdco and the Initial Lender pursuant to which the Initial Lender agreed to assign to the Trusts all of its rights, duties and obligations under the Holdco Loan Agreement. The Initial Lender had previously declared Holdco in default under the termsArticle VIII of the Holdco Loan Agreement. At the closingCertificate of Incorporation relating to amendments of the transactions contemplated by the Holdco Loan Assignment on October 6, 2021, the Trusts paid the Initial Lender $28.7 million in cash, which equaled the then outstanding principal balanceCompany’s Bylaws and Article X of the loan under the Holdco Loan Agreement. The Company was not affiliatedCertificate of Incorporation with either Holdcorespect to any amendment or the Initial Lender and Axar has represented to Cornerstone that it did not control and was not an affiliate of either Holdco or the Initial Lender. Also on September 27, 2021, the Trusts and Holdco entered into the Amended Holdco Loan Agreement pursuant to which, among other changes, the defaults asserted by the Initial Lender were waived and the interest rate on the Holdco Loan was increased from 10%, all of which had been payable in kind by increasing the principal balance of the loan, to 15%, of which 10% continued to be payable in kind and 5% was payable in cash. In addition, the Amended Holdco Loan Agreement accelerated the maturity of the Holdco Loan to the earliest of the first anniversary of the closing (subject to a six month extension at the request of Holdco with the consent of the Trusts) and the occurrence of certain other events described further below. As of June 30, 2022, the interest rate on the Holdco Loan remained at 15%. Through June 30, 2022, Trusts have received cash interest in the aggregate amount of $1.6 million on the Holdco Loan and additional interest in the form of an increase in the principal balance of the Holdco Loan in the amount of $2.2 million, representing all interest payable to the Trusts under the Amended Loan Agreement.