<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
REGISTRATION NO. 333-33547
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PRIME GROUP REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENT)
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 917-1500
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
MICHAEL W. RESCHKE
CHAIRMAN OF THE BOARD
PRIME GROUP REALTY TRUST
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 917-1500
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
WAYNE D. BOBERG, ESQ. J. GREGORY MILMOE, ESQ.
BRIAN T. BLACK, ESQ. SKADDEN, ARPS, SLATE,
WINSTON & STRAWN MEAGHER & FLOM LLP
35 WEST WACKER DRIVE 919 THIRD AVENUE
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10022
(312) 558-5600 (212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES BEING TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(2)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible Preferred
Shares of Beneficial
Interest, $.01 par
value per share........ 2,105,000 $21.00 $44,205,000 $13,396
- --------------------------------------------------------------------------------
Common Shares of Benefi-
cial Interest, $.01 par
value per share........ 14,237,000(4) $21.00 $298,977,000 $90,600
- --------------------------------------------------------------------------------
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Rule 457(a) under the Securities Act of 1933.
(3) The Registrant paid $99,319 of the total registration fee of $103,996 in
connection with the initial filing of this Registration Statement on
August 13, 1997. The Registrant has paid $4,677, representing the balance
of the total registration fee, in connection with the filing of Amendment
No. 2 on October 24, 1997.
(4) Includes an aggregate of 1,857,000 Common Shares that the Underwriters
have the option to purchase from the Company to cover over-allotments, if
any.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee................................................ $ 103,996
NASD fee............................................................ 30,500
NYSE listing fee.................................................... *
Blue Sky fees and expenses.......................................... *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Miscellaneous....................................................... *
----------
Total............................................................. $4,500,000
==========
</TABLE>
- --------
* To be completed by amendment.
ITEM 31. SALES TO SPECIAL PARTIES
See response to Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth certain information as to all securities sold by
the Company within the last three years that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). As to all such
transactions, an exemption is claimed under Section 4(2) of the Securities
Act.
On July 21, 1997, the Company issued 100 Common Shares of beneficial
interest to Mr. Reschke for $10 per share, or an aggregate consideration of
$1,000. Such Common Shares were purchased solely for investment purposes to
facilitate the organization of the Company. Upon completion of the Offering,
all of the shares so acquired by Mr. Reschke will be redeemed by the Company
for an aggregate redemption price of $1,000.
Simultaneously with the completion of the Offering, the Company will cause
the Operating Partnership to issue 12,380,000 Common Units to the Limited
Partners in exchange for their respective interests in the Properties and the
office and industrial development, leasing and property management business to
be contributed to the Company. Simultaneously with the completion of the
Offering, the Company will grant options to purchase a total of 1,113,000
Common Shares under its Share Incentive Plan to key executives and the
Company's independent trustees.
ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Declaration of Trust and Bylaws authorize the Company to indemnify its
present and former trustees and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a proceeding to the
maximum extent permitted from time to time under Maryland law. The MGCL, as
applicable to Maryland REITs, currently provides that indemnification of a
person who is a party, or threatened to be made a party, to legal proceedings
by reason of the fact that such a person is or was a trustee, officer,
employee or agent of a corporation or other firm at the request of a
corporation, or is or was serving as a trustee, officer, employee or agent of
a corporation or other firm at the request of a corporation, against
judgments, fines, penalties, amounts paid in settlement and reasonable
expenses, is mandatory in certain circumstances and permissive in others,
subject to authorization by the board of trustees, a committee of the board of
trustees consisting of two or more trustees not parties to the proceeding (if
there does not exist a majority vote quorum of the board of trustees
consisting of trustees not parties to the proceeding), special legal counsel
appointed by the board of trustees or such committee of the board of trustees,
or by the shareholders, so long as it is not established that the act or
omission of such person was material to the matter giving rise to the
proceedings and
II-1
<PAGE>
was committed in bad faith, was the result of active and deliberate dishonesty,
involved such person receiving an improper personal benefit in money, property
or services, or, in the case of criminal proceedings, such person had reason to
believe that his or her act or omission was unlawful.
The Company's officers and trustees are also indemnified pursuant to the
Partnership Agreement and their respective employment agreements, which
agreements are filed as exhibits hereto.
The Company intends to purchase an insurance policy which purports to insure
the officers and trustees of the Company against certain liabilities incurred
by them in the discharge of their functions as such officers and trustees,
except for liabilities resulting from their own malfeasance.
ITEM 34. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED
Not Applicable
ITEM 35. FINANCIAL STATEMENT AND EXHIBITS.
(a) Financial Statements
Prime Group Realty Trust
Pro Forma Condensed Consolidated Financial Information (unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1997
Pro Forma Condensed Consolidated Statements of Operations for the six
months ended June 30, 1997 and for the year ended December 31, 1996
Financial Statements:
Report of Independent Auditors
Balance Sheet as of July 21, 1997 and Notes to Balance Sheet
Prime Properties
<TABLE>
<S> <C>
Report of Independent Auditors
Combined Balance Sheets as of June 30, 1997 and December 31, 1996 and
1995
Combined Statements of Operations for the six months ended June 30, 1997
and 1996 (unaudited) and the three years ended December 31, 1996, 1995,
and 1994
Combined Statements of Changes in Partners' Deficit for the six months
ended June 30, 1997 and for the three years ended December 31, 1996,
1995, and 1994
Combined Statements of Cash Flows for the six months ended June 30, 1997
and 1996 (unaudited) and the three years ended December 31, 1996, 1995,
and 1994
Notes to Combined Financial Statements
</TABLE>
Prime Industrial Contribution Properties
<TABLE>
<S> <C>
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to June 30, 1997 and for the period from March 1, 1996
to December 31, 1996
Notes to Combined Statements of Revenue and Certain Expenses
IBD Properties
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to June 30, 1997 and for the year ended December 31,1996
Notes to Combined Statements of Revenue and Certain Expenses
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
NAC Properties
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to
June 30, 1997 and for the year ended December 31, 1996
Notes to Combined Statements of Revenue and Certain Expenses
Citibank Office Plaza
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to June 30, 1997 and for the year ended December 31, 1996
Notes to Statements of Revenue and Certain Expenses
Salt Creek Office Center
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to June 30, 1997 and for the year ended December 31,
1996
Notes to Combined Statements of Revenue and Certain Expenses
280 Superior Boulevard
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to June 30, 1997 and for the year ended December 31, 1996
Notes to Statements of Revenue and Certain Expenses
475 Superior Avenue
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to June 30, 1997 and for the year ended December 31, 1996
Notes to Statements of Revenue and Certain Expenses
</TABLE>
All other schedules are omitted because the required information is not
applicable or the information required has been disclosed in the financial
statements and related notes included in the Prospectus.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Form of Articles of Amendment and Restatement of Declaration of
Trust of Prime Group Realty Trust
3.2* Form of Amended and Restated Bylaws of Prime Group Realty Trust
3.3+ Original Declaration of Trust of Prime Group Realty Trust
3.4+ Form of Original Bylaws of Prime Group Realty Trust
3.5+ Original Certificate of Limited Partnership of Prime Group Realty,
L.P.
3.6 Form of Amended and Restated Agreement of Limited Partnership of
Prime Group Realty, L.P.
4.1 Form of Common Share certificate
4.2* Form of Convertible Preferred Share certificate
5.1+ Form of Opinion of Miles & Stockbridge regarding the validity of the
Convertible Preferred Shares and the Common Shares being registered
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
8.1+ Form of Opinion of Winston & Strawn regarding tax matters
10.1 Form of Indemnification Agreement
10.2* Form of Right of First Offer Agreement
10.3+ Form of Share Incentive Plan
10.4 Form of Employment Agreement by and between the Company and Michael
W. Reschke
10.5 Form of Employment Agreement by and between the Company and Richard
S. Curto
10.6 Form of Employment Agreement by and between the Company and W.
Michael Karnes
10.7 Form of Employment Agreement by and between the Company and Robert
J. Rudnik
10.8 Form of Employment Agreement by and between the Company and Jeffrey
A. Patterson
10.9 Form of Employment Agreement by and between the Company and Kevork
M. Derderian
10.10+ Form of Employment Agreement by and between the Company and Edward
S. Hadesman
10.11 Contribution Agreement dated as of October 20, 1997 by and among the
Prime Group, Inc., Prime Group Realty, L.P., Prime Group Realty
Trust, Narco River Business Center, Narco Tower Road Associates,
Olympian Office Center, Tri-State Industrial Park Joint Venture,
Carol Stream Industrial Park Joint Venture, Narco Enterprises, Inc.,
The Nardi Group Ltd., Narco Construction Inc., Nardi & Co., Nardi
Asset Management, Inc. and Nardi Architectural, Inc.
10.12+ Option to Purchase Partnership Interests dated as of June 17, 1994
by and between KILICO Realty Corporation, and The Prime Group, Inc.;
as amended by that certain First Amendment to Option Purchase
Partnership Interests dated as of January 21, 1997 by and between
KILICO Realty Corporation and The Prime Group, Inc.; as further
amended by that certain Second Amendment to Option to Purchase
Partnership Interests dated as of July 15, 1997 by and between
KILICO Realty Corporation and The Prime Group, Inc.
10.13* Form of Option Agreement Regarding 300 N. LaSalle
10.14* Form of Registration Rights Agreement
10.15+ Contribution Agreement dated as of July 8, 1997 by and among LaSalle
National Trust, N.A., not personally, but solely as Trustee under
Trust Agreement dated June 15, 1982 and known as Trust No. 10-40113-
09, LaSalle National Trust, N.A., not personally, but solely as
Trustee under Trust Agreement dated September 7, 1994 and known as
Trust No. 11-9051, LaSalle National Trust, N.A., not personally, but
solely as Trustee under Trust Agreement dated March 30, 1984 and
known as Trust No. 11-107825, LaSalle National Trust, N.A., not
personally, but solely as Trustee under Trust Agreement dated August
1, 1986 and known as Trust No. 11-1358, LaSalle National Trust,
N.A., not personally, but solely as Trustee under Trust Agreement
dated August 1, 1986 and known as Trust No. 11-1357, LaSalle
National Trust N.A., not personally, but solely as Trustee under
Trust Agreement dated January 17, 1974 and known as Trust No. 286-
34, LaSalle National Trust, N.A., not personally, but solely
as Trustee under Trust Agreement dated October 15, 1995 and known as
Trust No. 11-9869, LaSalle National Trust, N.A., not personally, but
solely as Trustee under Trust Agreement dated December 1, 1987 and
known as Trust No. 11-2868, 310 ERA Limited Partnership, MacArthur
Drive Properties, CLE Limited Partnership, 500 Lindberg Limited
Partnership, 515 Huehl Limited Partnership, 555 Huehl Limited
Partnership, Sky Harbor Associates, 1001 Technology Way, LLC, The
Grandville Road Limited Partnership, Industrial Building and
Development Company and The Prime Group, Inc.; as amended by the
First Amendment to the Contribution Agreement dated as of August 12,
1997, by and between The Prime Group, Inc., an Illinois corporation,
and LaSalle National Trust, NA, t/u/t 10-40113-09 dated June 15,
1982; LaSalle National Trust, NA, t/u/t 11-9051 dated September 7,
1994; LaSalle National Trust, NA, t/u/t 11-107825 dated March 30,
1984; LaSalle National Trust, NA, t/u/t 11-1358 dated August 1,
1986; LaSalle National Trust, NA, t/u/t 11-1357 dated August 1,
1986; LaSalle National Trust, NA, t/u/t 286-34 dated January 17,
1974; LaSalle National Trust, NA, t/u/t 11-9869 dated October 15,
1995; and LaSalle National Trust, NA, t/u/t 11-2868 dated December
1, 1987
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16* Form of Management Contract
10.17* Form of Formation Agreement
10.18 Asset Purchase Agreement by and among Continental Offices, Ltd.,
Continental Offices Ltd. Realty and Prime Group Realty, L.P.
10.19* Form of Non-Compete Agreement by and among Prime Group Realty
Trust, The Prime Group, Inc. and Michael W. Reschke
10.20+ Option Agreement dated as of August 4, 1997 by and between
Lumbermens Mutual Casualty Company and The Prime Group, Inc.
10.21+ Amended and Restated Agreement dated as of July 15, 1997 by and
among Kemper Investors Life Insurance Company, Federal Kemper Life
Assurance Company, KILICO Realty Corporation, FKLA Realty
Corporation, KR 77 Fitness Center, Inc., 77 West Wacker Limited
Partnership, K/77 Investors Limited Partnership, The Prime Group,
Inc., Prime Group Limited Partnership and Prime 77 Fitness Center,
Inc.
10.22+ Agreement dated as of July 18, 1997 by and among The Prime Group,
Inc., KILICO Realty Corporation, KFC Portfolio Corp. and Kemper
Investors Life Insurance Company
10.23* Form of Series A Convertible Preferred Securities Agreement by and
between Security Capital Preferred Growth Incorporated and Prime
Group Realty Trust
10.24* Form of Tax Indemnification Agreement by and between Prime Group
Realty Trust and IBD Contributors
10.25* Form of Tax Indemnification Agreement by and between The Prime
Group, Inc. and Prime Group Realty Trust relating to the IBD
Properties
10.26* Form of Tax Indemnification Agreement by and between Prime Group
Realty Trust and the NAC General Partner
10.27* Form of Tax Indemnification Agreement by and between The Prime
Group, Inc. and Prime Group Realty Trust relating to the NAC
Properties
10.28+ Agreement to Contribute dated as of August 12, 1997 by and between
Tucker B. Magid and The Prime Group, Inc.
10.29+ Agreement to Contribute dated as of August 12, 1997 by and between
Frances S. Shubert and The Prime Group, Inc.
10.30* Subscription Agreement by and between Prime Group Realty, L.P. and
Primestone
10.31* Form of Credit Facility
12.1+ Statements re computation of ratios
15.1* Letter regarding unaudited interim financial information
23.1* Consent of Miles & Stockbridge (included in Exhibit 5.1)
23.2* Consent of Winston & Strawn (included in Exhibit 8.1)
23.3+ Consent of Ernst & Young LLP
23.4+ Consent of Rosen Consulting Group
23.5.1+ Consent to be named Trustee of James R. Thompson
23.5.2+ Consent to be named Trustee of Christopher J. Nassetta
23.5.3+ Consent to be named Trustee of Jacque M. Ducharme
23.5.4+ Consent to be named Trustee of Stephen J. Nardi
23.5.5+ Consent to be named Trustee of Thomas J. Saylak
24.1+ Powers of attorney (included on signature page in Part II of the
initial filing)
27.1+ Financial Data Schedule
99.1+ Report of Rosen Consulting Group
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
II-5
<PAGE>
ITEM 36. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the provisions described under Item 33 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
amendment no. 3 to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on November 5, 1997.
Prime Group Realty Trust
/s/ Richard S. Curto
By: __________________________________
Richard S. Curto
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment no. 3 to registration statement has been signed below on November 5,
1997 by the following persons in the capacities indicated.
SIGNATURE TITLE
Michael W. Reschke* Chairman of the Board,
- ------------------------------------- Trustee
Michael W. Reschke
/s/ Richard S. Curto President and Chief Executive
- ------------------------------------- Officer (principal executive
Richard S. Curto officer), Trustee
W. Michael Karnes* Executive Vice President and
- ------------------------------------- Chief Financial Officer
W. Michael Karnes (principal financial and
accounting officer)
/s/ Richard S. Curto
*By: ________________________________
Richard S. Curto, Attorney-in-
Fact
II-7
<PAGE>
EXHIBIT 3.1
FORM OF ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PRIME GROUP REALTY TRUST
Prime Group Realty Trust, a Maryland real estate investment trust (the "Trust"),
certifies as follows:
FIRST: the Trust desires to amend and restate its Declaration of Trust as
currently in effect as hereinafter provided.
SECOND: the following provisions are all the provisions of the Declaration
of Trust as currently in effect.
1. The Trust.
1.1. Name. The name of the trust (the "Trust") is Prime Group Realty Trust.
So far as may be practicable, the business of the Trust shall be conducted and
transacted under that name. Under circumstances in which the Trustees determine
that the use of the name "Prime Group Realty Trust" is not practicable, they may
use any other designation or name for the Trust.
1.2. Formation. The Trust is a real estate investment trust (a "REIT")
within the meaning under Title 8 of the Corporations and Associations Article of
the Annotated Code of Maryland (the "Maryland REIT law"). The Trust shall not be
deemed to be a general partnership, limited partnership, joint venture, joint
stock company or a corporation (but nothing herein shall preclude the Trust from
being treated for tax purposes as an association under the Internal Revenue Code
of 1986, as amended (the "Code")).
1.3. Purposes and Powers. The Trust is organized as a real estate
investment trust under the Maryland REIT law for the purpose of engaging in any
activity permitted to real estate investment trusts generally by the Maryland
REIT law and shall have all further powers consistent with law and appropriate
to attain its purposes, including, without limitation or obligation, engaging in
business as a REIT under the Code.
1.4. Resident Agent and Principal Office. The name and address of the
Trust's initial resident agent in the State of Maryland is The Corporation Trust
Inc., 32 South Street, 2nd Floor, Baltimore, Maryland 21202, which is a resident
of the State of Maryland. The address of the Trust's principal office is 77 West
<PAGE>
Wacker Drive, Suite 3900, Chicago, Illinois 60601. The Trust may have such other
offices and places of business within or outside the State of Maryland as the
Board of Trustees may from time to time determine.
1.5. Definitions. For purposes of this Declaration of Trust, the following
terms shall have the meanings indicated:
"Beneficial Ownership" shall mean ownership of Equity Shares or
options to acquire Equity Shares by a Person who would be treated as an owner of
such Equity Shares under Section 542(a)(2) of the Code either directly or
constructively through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code but without regard to Section 856(h)(3) of
the Code. The terms "Beneficial Owner," "Beneficially Owns," "Beneficially Own"
and "Beneficially Owned" shall have the correlative meanings.
"Beneficiary" shall mean a beneficiary of the Trust as determined in
accordance with the provisions of Section 4.9 hereof.
"Business Day" shall mean any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions in New
York City, New York are authorized or required by law, regulation or executive
order to close.
"Call Date" shall mean the date specified in the notice to holders
required under Section 3.3.3(d) hereof as the Call Date.
"Change of Control" shall have the meaning set forth in Section
3.3.4(a) hereof.
"Closing Date of the Initial Public Offering" shall mean the time and
date of payment for and delivery of Common Shares issued pursuant to the Initial
Public Offering, excluding the Common Shares issuable upon exercise of the over-
allotment option granted in connection with the Initial Public Offering.
"Common Shares" shall have the meaning set forth in Section 3.1
hereof.
"Constituent Person" shall have the meaning set forth in Section
3.3.4(e) hereof.
"Constructive Ownership" shall mean ownership of Equity Shares or
options to acquire Equity Shares by a Person who would be treated as an owner of
such Equity Shares either directly or indirectly through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Owns," "Constructively Own" and
"Constructively Owned" shall have correlative meanings.
-2-
<PAGE>
"Conversion Date" shall have the meaning set forth in Section 3.3.4(a)
hereof.
"Conversion Price" shall mean the conversion price per Common Share
for which the Convertible Preferred Shares are convertible, as such Conversion
Price may be adjusted pursuant to Section 3.3.4 hereof. The initial conversion
price shall be $__________./1/
"Convertible Preferred Shares" shall have the meaning set forth in
Section 3.1 hereof.
"Current Market Price" of publicly traded Common Shares or any other
class of shares of beneficial interest or other security of the Trust or any
other issuer for any day shall mean the last reported sales price, regular way
on such day, or, if no sale takes place on such day, the average of the reported
closing bid and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange ("NYSE") or, if such security is not
listed or admitted for trading on the NYSE, on the principal national securities
exchange on which such security is listed or admitted for trading or, if not
listed or admitted for trading on any national securities exchange, on the
NASDAQ Stock Market ("NASDAQ") or, if such security is not quoted on such
National Market System, the average of the closing bid and asked prices on such
day in the over-the-counter market as reported by NASDAQ or, if bid and asked
prices for such security on such day shall not have been reported through
NASDAQ, the average of the bid and asked prices on such day as furnished by any
NYSE member firm regularly making a market in such security selected for such
purpose by the Board of Trustees.
"Dividend Payment Date" shall mean (i) for any Dividend Period with
respect to which the Trust pays a dividend on the Common Shares, the date on
which such dividend is paid, or (ii) for any Dividend Period with respect to
which the Trust does not pay a dividend on the Common Shares, a date to be set
by the Board of Trustees, which date shall not be later than the 45th calendar
day after the end of the applicable Dividend Period.
"Dividend Periods" shall mean quarterly dividend periods commencing on
January 1, April 1, July I and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend Period
with respect to any Convertible Preferred Shares (other than the initial
Dividend Period, which shall commence on the Issue Date for such Convertible
Preferred Shares and end on and include the last day of the calendar quarter
immediately following such Issue Date, and other than the Dividend
- -------------
/1/ Initial public offering price of the Trust's common stock.
-3-
<PAGE>
Period during which any Convertible Preferred Shares shall be redeemed pursuant
to Section 3.3.3 hereof or converted pursuant to Section 3.3.4 hereof, which
shall end on and include the Call Date with respect to the Convertible Preferred
Shares being redeemed).
"Equity Shares" shall mean either Common Shares or Preferred Shares
(other than Convertible Preferred Shares), or a combination of both. The term
"Equity Shares" shall include all Common Shares or Preferred Shares (other than
Convertible Preferred Shares) that are held as Excess Shares in accordance with
the provisions of Section 4.2 hereof.
"Excess Shares" shall have the meaning set forth in Section 4.2
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Expiration Time" shall have the meaning set forth in Section
3.3.4(d)(iv) hereof.
"Fair Market Value" shall mean (except in Section 3.3.3(e) hereof) as
of any day the average of the daily Current Market Prices of a Common Share on
the five (5) consecutive Trading Days selected by the Trust commencing not more
than 20 Trading Days before, and ending not later than, the earlier of the day
in question and the day before the "ex date," with respect to the issuance or
distribution requiring such computation. The term "ex date," when used with
respect to any issuance or distribution, means the first day on which the Common
Shares trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other class
or series of shares of beneficial interest of the Trust now or hereafter issued
and outstanding over which the Convertible Preferred Shares have preference or
priority in both (i) the payment of dividends and (ii) the distribution of
assets on any liquidation, dissolution or winding up of the Trust.
"Funds from Operations" shall mean net income (loss) (computed in
accordance with generally accepted accounting principles) excluding gains (or
losses) from debt restructuring, and distributions in excess of earnings
allocated to other Operating Partnership interests or minority interests (as
reflected in the financial statements of the Trust) plus
depreciation/amortization of assets unique to the real estate industry, all
computed in a manner consistent with the revised definition of Funds From
Operations adopted by the National Association of Real Estate Investment Trusts,
in its White Paper
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dated March 1995, as such definitions may be modified from time to time, as
determined by the Trust in good faith.
"Initial Public Offering" shall mean the sale of Common Shares
pursuant to the Trust's first effective registration statement for such Common
Shares filed under the Securities Act.
"Issue Date" shall mean the date on which the Convertible Preferred
Shares are issued.
"Junior Shares" shall mean the Common Shares and any other class or
series of shares of beneficial interest of the Trust now or hereafter issued and
outstanding over which the Convertible Preferred Shares have preference or
priority in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Trust.
"Market Price" on any date shall mean the average of the Closing Price
for the five (5) consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported on the NYSE or, if the Equity
Shares are not listed or admitted for trading on the NYSE, on the principal
national securities exchange on which the Equity Shares are listed or admitted
for trading or, if not listed or admitted for trading on any national securities
exchange, on NASDAQ or, if the Equity Shares are not quoted on such National
Market System, the average of the closing bid and asked prices on such day in
the over-the-counter market as reported by NASDAQ or, if bid and asked prices
for the Equity Shares on such day shall not have been reported through NASDAQ,
the average of the bid and asked prices on such day as furnished by any NYSE
member firm regularly making a market in the Equity Shares selected for such
purpose by the Board of Trustees.
"Non-Electing Share" shall have the meaning set forth in Section
3.3.4(e) hereof.
"Operating Partnership" shall mean Prime Group Realty, L.P., a
Delaware limited partnership.
"Ownership Limit" shall initially mean 9.9%, in number of shares or
value, of the outstanding Equity Shares, and after any adjustment as set forth
in Section 4.6 hereof, shall mean such greater percentage of the outstanding
Equity Shares as so adjusted. The number and value of shares of the outstanding
Equity Shares of the Trust shall be determined by the Trustees in good faith,
which determination shall be conclusive for all purposes hereof.
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"Parity Shares" shall have the meaning set forth in Section 3.3.7(b)
hereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section 4.9(e) hereof.
"Person" shall mean an individual, corporation, partnership, estate,
trust, a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity and also includes a "group" as that term is used for purposes of
Section 13(d)(3) of the Exchange Act and shall include any successor (by merger
or otherwise) of such entity or group; but does not include an underwriter which
participated in any public offering registered under the Securities Act of any
shares of the Trust for a period of 90 days following the purchase by such
underwriter of the Equity Shares; provided, that the restrictions contained in
Section 4.1 hereof will not be violated following the distribution by such
underwriter of such shares.
"Preferred Shares" shall have the meaning set forth in Section 3.1
hereof.
"Prohibited Transferee" shall mean, with respect to any purported
Transfer, any Person who, but for the provisions of Section 4.1 hereof, would
own record title to Equity Shares.
"Purchased Shares" shall have the meaning set forth in Section
3.3.4(d)(iv) hereof.
"REIT Termination Event" shall mean the earliest to occur of:
(i) the filing of a federal income tax return by the Trust for any
taxable year on which the Trust does not elect to be taxed as a real estate
investment trust;
(ii) the approval by the shareholders of the Trust of a proposal for
the Trust to cease to qualify as a real estate investment trust;
(iii) a determination by the Board of Trustees of the Trust, based on
the advice of counsel, that the Trust has ceased to qualify as a real
estate investment trust; or
(iv) a "determination" within the meaning of Section 1313(a) of the
Code that the Trust has ceased to qualify as a real estate investment
trust.
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"Restriction Termination Date" shall mean the first day on which the
Board of Trustees of the Trust determines that it is no longer in the best
interests of the Trust to attempt to, or continue to, qualify as a REIT.
"Securities" and "Security" shall have the meanings set forth in
Section 3.3.4(d)(iii) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Trust in its accounting ledgers
of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Trustees, the
allocation of funds to be so paid on any series or class of shares of beneficial
interest of the Trust; provided, however, that if any funds for any class or
series of Junior Shares or any class or series of shares of beneficial interest
ranking on a parity with the Convertible Preferred Shares as to the payment of
dividends are placed in a separate account of the Trust or delivered to a
disbursing, paying or other similar agent, then "set apart for payment" with
respect to the Convertible Preferred Shares shall mean placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
"Share Trust" shall mean any separate trust created pursuant to
Section 4.2 hereof and administered in accordance with the terms of Section 4.9
hereof, for the exclusive benefit of any Beneficiary.
"Share Trustee" shall mean any person or entity unaffiliated with both
the Trust and any Prohibited Transferee, such Share Trustee to be designated by
the Trust to act as trustee of any Share Trust, or any successor trustee
thereof.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which such
securities are listed or admitted, or if not listed or admitted for trading on
any national securities exchange, on the National Market System of NASDAQ, or if
such securities are not quoted on such National Market System, in the securities
market in which the securities are traded.
"Transaction" shall have the meaning set forth in Section 3.3.4(e)
hereof.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Equity Shares (including
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(i) the granting of any option or entering into any agreement for the sale,
transfer or other disposition of Equity Shares or (ii) the sale, transfer,
assignment or other disposition of any securities or rights convertible into or
exchangeable for Equity Shares), whether by operation of law or otherwise. The
terms "Transfers" and "Transferred" shall have the correlative meanings.
"Transfer Agent" shall mean the Trust, or such other agent or agents
of the Trust as may be designated by the Board of Trustees or their designee as
the transfer agent, registrar and dividend disbursing agent for the Convertible
Preferred Shares.
"Voting Preferred Shares" shall have the meaning set forth in Section
3.3.6 hereof.
"Weighted Average Trading Price" shall mean, for any period, the
number obtained by dividing (i) the sum of the products, for each sale of Common
Shares on each Trading Day in such period, of (a) the sale price per Common
Share and (b) the number of Common Shares sold by (ii) the total number of
Common Shares sold during such period.
2. Board of Trustees.
-----------------
2.1. Powers.
(a) Subject to the limitations herein or in the Bylaws of the Company
(the "Bylaws"), (i) the business and affairs of the Trust shall be managed under
the direction of the Board of Trustees and (ii) the Board of Trustees shall have
full, exclusive and absolute power, control and authority over the property of
the Trust and over the business of the Trust. The Board of Trustees may take
any actions as in its sole judgment and discretion are necessary or desirable to
conduct the business of the Trust. This Declaration of Trust shall be construed
with a presumption in favor of the grant of power and authority to the Board of
Trustees. Any construction of this Declaration of Trust or determination made
in good faith by the Board of Trustees concerning its powers and authority
hereunder shall be conclusive. The enumeration and definition of particular
powers of the Board of Trustees included in this Declaration of Trust or in the
Bylaws shall in no way be construed or deemed by inference or otherwise in any
manner to exclude or limit the powers conferred upon the Board of Trustees under
the general laws of the State of Maryland or any other applicable laws.
(b) Except as otherwise provided in the Bylaws, the Board of Trustees,
without any action by the shareholders of the Trust, shall have and may
exercise, on behalf of the Trust, without limitation, the power to adopt, amend
and repeal Bylaws; to elect
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officers in the manner prescribed in the Bylaws; to solicit proxies from holders
of shares of beneficial interest of the Trust; and to do any other acts and
deliver any other documents necessary or appropriate to the foregoing powers.
(c) It shall be the duty of the Board of Trustees to ensure that the
Trust satisfies the requirements for qualification as a REIT under the Code,
including, but not limited to, the ownership of outstanding shares of its
beneficial interest, the nature of its assets, the sources of its income and the
amount and timing of its distributions to its shareholders. The Board of
Trustees shall take no action to disqualify the Trust as a REIT or to otherwise
revoke the Trust's election to be taxed as a REIT without the affirmative vote
of two-thirds of the shares of beneficial interest entitled to vote on such
matter at a meeting of the shareholders.
2.2. Classification and Number.
(a) The Trustees of the Trust (the "Trustees") shall be classified,
with respect to the terms for which they severally hold office, into three
classes, as nearly equal in number as possible, one class ("Class I") to hold
office initially for a term expiring at the first annual meeting of
shareholders, another class ("Class II") to hold office initially for a term
expiring at the second annual meeting of shareholders and another class ("Class
III") to hold office initially for a term expiring at the third annual meeting
of shareholders, with the Trustees of each class to hold office until their
successors are duly elected and qualified. At each annual meeting of
shareholders, the successors to the class of Trustees whose term expires at such
meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders held in the third year following the year of their
election. Shareholder votes to elect Trustees shall be conducted in the manner
provided in the Bylaws.
(b) The number of Trustees shall be seven (7), which number may be
increased or decreased pursuant to the Bylaws and increased pursuant to Section
3.3.8 hereof, but shall not be less than three (3). The name and class of the
Trustees serving at the time of adoption of this amendment and restatement and
who shall serve until their successors are duly elected and qualified are:
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Name Class
- ---- -----
Michael W. Reschke Class ___
Richard S. Curto Class ___
Stephen J. Nardi Class ___
James R. Thompson Class ___
Christopher J. Nassetta Class ___
Thomas J. Saylak Class ___
Jacque M. Ducharme Class ___
It shall not be necessary to list in this Declaration of Trust the names and
addresses of any Trustees hereinafter elected.
(c) If a vacancy in the Board of Trustees shall occur or be created
(whether arising through death, retirement, resignation or removal or through an
increase in the number of Trustees), the vacancy shall be filled by the
affirmative vote of a majority of the remaining Trustees, at any regular meeting
or any special meeting called for that purpose, even though less than a quorum
of the Board of Trustees may exist.
2.3. Resignation or Removal. Any Trustee may resign by written notice to
the Board, effective upon execution and delivery to the Trust of such written
notice or upon any future date specified in the notice. Subject to the rights
of holders of one or more classes or series of Preferred Shares to elect one or
more Trustees, a Trustee may be removed at any time, with cause only, at a
meeting of the shareholders, by the affirmative vote of the holders of not less
than two-thirds of the shares of beneficial interest then outstanding and
entitled to vote generally in the election of Trustees.
2.4. Performance of Duties as a Trustee. A Trustee shall perform his or
her duties as a Trustee: (i) in good faith, (ii) in a manner he or she
reasonably believes to be in the best interest of the Trust and (iii) with the
care that an ordinarily prudent person in a like position would use under
similar circumstances. In performing his or her duties, a Trustee is entitled to
rely on any information, opinion, report or statement, including any financial
statement or other financial data, prepared or presented by, (i) an officer or
employee of the Trust whom the Trustee reasonably believes to be reliable and
competent in the matters presented, (ii) a lawyer, certified public accountant
or other person, as to matters which the Trustee reasonably believes to be
within the person's professional competence, or (iii) a committee
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of the Board of Trustees on which the Trustee does not serve, as to matters
within its designated authority, if the Trustee reasonably believes the
committee to merit confidence.
3. Shares of Beneficial Interest.
-----------------------------
3.1. Authorized Shares and Par Value. The beneficial interest in the Trust
shall be divided into shares (the "Shares"). The total number of shares of
beneficial interest which the Trust has authority to issue is 195,000,000
shares, consisting of (i) 30,000,000 preferred shares having a par value of
$0.01 per share (the "Preferred Shares"), amounting to an aggregate par value of
$300,000, of which 2,000,000 shares shall be designated as 7.0% Series A
Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest (the
"Convertible Preferred Shares"), (ii) 65,000,000 excess shares having a par
value of $0.01 per share (the "Excess Shares"), amounting to an aggregate par
value of $650,000, and (iii) 100,000,000 common shares having a par value of
$0.01 per share (the "Common Shares"), amounting to an aggregate par value of
$1,000,000. The aggregate par value of all the shares that the Trust shall have
authority to issue is $1,950,000. In addition, the Trustees may amend this
Declaration of Trust to create and authorize from time to time additional types,
series or classes of securities or to increase or decrease the aggregate number
of shares of any class that the Trust is authorized to issue, without any action
of the shareholders of the Trust.
3.2. Common Shares.
(a) Voting Rights. Subject to the voting rights of the Convertible
Preferred Shares, any additional Preferred Shares and the Excess Shares, holders
of Common Shares shall be entitled to vote on all matters (for which holders of
Common Shares shall be entitled to vote thereon) at all meetings of the
shareholders of the Trust and shall be entitled to one vote for each Common
Share entitled to vote at such meeting. Holders of Common Shares may not engage
in cumulative voting in the election of Trustees.
(b) Rights Upon Liquidation. Subject to the preferential rights upon
liquidation of the Convertible Preferred Shares, any additional Preferred Shares
and the Excess Shares, holders of Common Shares shall be entitled to share
ratably in the assets of the Trust legally available for distribution to the
shareholders in the event of the liquidation, dissolution or winding-up of the
Trust after payment of, or adequate provision for, all known debts and
liabilities of the Trust.
(c) General Nature of Common Shares. Holders of Common Shares shall
have no conversion, sinking fund, redemption,
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exchange, preference, appraisal (except as provided by Maryland law) or
preemptive rights.
3.3. Convertible Preferred Shares.
3.3.1. Dividends.
(a) Subject to the preferential rights of the holders of any Preferred
Shares that rank senior in the payment of dividends to the Convertible Preferred
Shares, the holders of Convertible Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Trustees, out of funds legally
available for the payment of dividends, cumulative preferential dividends
payable in cash in an amount per share equal to the greater of (i) (x) an annual
rate equal to the product of the Issue Price multiplied by 0.07 for Dividend
Periods ending before November __, 1998 and (y) an annual rate equal to the
product of the Issue Price multiplied by 0.075 for Dividend Periods ending
after November __, 1998 or (ii) the regular cash dividends (determined on each
Dividend Payment Date) on the Common Shares, or portion thereof, into which a
Convertible Preferred Share is convertible. The dividends referred to in clause
(ii) of the preceding sentence shall equal the number of Common Shares, or
portion thereof, into which a Convertible Preferred Share will be convertible on
or after the Conversion Date, multiplied by the most current quarterly dividend
on a Common Share on or before the applicable Dividend Payment Date. If the
Trust pays a regular cash dividend on the Common Shares with respect to a
Dividend Period after the date on which the Dividend Payment Date is declared
pursuant to clause (ii) of the definition of Dividend Payment Date and the
dividend calculated pursuant to clause (ii) of this paragraph (a) with respect
to such Dividend Period is greater than the dividend previously declared on the
Convertible Preferred Shares with respect to such Dividend Period, the Trust
shall pay an additional dividend to the holders of the Convertible Preferred
Shares on the date on which the dividend on the Common Shares is paid, in an
amount equal to the difference between (y) the dividend calculated pursuant to
clause (ii) of this paragraph (a) and (z) the amount of dividends previously
declared on the Convertible Preferred Shares with respect to such Dividend
Period. The dividends shall begin to accrue and shall be fully cumulative from
the first day of the applicable Dividend Period, whether or not in any Dividend
Period or Periods there shall be funds of the Trust legally available for the
payment of such dividends, and shall be payable quarterly, when, as and if
declared by the Board of Trustees, in arrears on Dividend Payment Dates. Each
such dividend shall be payable in arrears to the holders of record of
Convertible Preferred Shares as they appear in the records of the Trust at the
close of business on such record dates, not less than 10 nor more than 50 days
preceding such Dividend Payment Dates thereof, as shall be fixed by the Board of
Trustees. Accrued and unpaid dividends for any past Dividend
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Periods may be declared and paid at any time and for such interim periods,
without reference to any regular Dividend Payment Date, to holders of record on
such date, not less than 10 nor more than 50 days preceding the payment date
thereof, as may be fixed by the Board of Trustees. Any dividend payment made on
Convertible Preferred Shares shall first be credited against the earliest
accrued but unpaid dividend due with respect to Convertible Preferred Shares
which remains payable.
(b) The amount of dividends referred to in clause (i) of Section
3.3.1(a) payable for each full Dividend Period on the Convertible Preferred
Shares, other than the Dividend Period commencing October 1, 1998, shall be
computed by dividing the annual dividend rate by four. For the Dividend Period
commencing October 1, 1998, the amount of dividends through November __, 1998 on
the Convertible Preferred Shares shall be computed by dividing Issue Price times
0.07 by 365 and multiplying the result by the number of days from October 1,
1998 through November __, 1998 and dividends from November __, 1998 through
December 31, 1998 on the Convertible Preferred Shares shall be computed by
dividing the Issue Price times 0.075 by 365 and multiplying the result by the
number of days from November __, 1998 through December 31, 1998. The initial
Dividend Period for the Convertible Preferred Shares will include a partial
dividend for the period from the Issue Date until the last day of the calendar
quarter immediately following such Issue Date. The amount of dividends payable
for such period, or any other period shorter than a full Dividend Period, on the
Convertible Preferred Shares shall be computed by dividing the number of days in
such period by 365 and multiplying the result by the product of the annual
dividend rate multiplied by the Issue Price. Holders of Convertible Preferred
Shares shall not be entitled to any dividends, whether payable in cash, property
or shares, in excess of cumulative dividends, as herein provided, on the
Convertible Preferred Shares. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the
Convertible Preferred Shares which may be in arrears.
(c) So long as any Convertible Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall be
declared or paid or set apart for payment on any class or series of Parity
Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Convertible Preferred Shares
for all Dividend Periods terminating on or prior to the dividend payment date on
such class or series of Parity Shares. When dividends are not paid in full or a
sum sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon Convertible Preferred Shares and all dividends declared upon any
other class or series of Parity Shares shall be declared ratably in
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proportion to the respective amounts of dividends accumulated and unpaid on the
Convertible Preferred Shares and accumulated and unpaid on such Parity Shares.
(d) So long as any Convertible Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Fully Junior
Shares) shall be declared or paid or set apart for payment or other distribution
shall be declared or made or set apart for payment upon Junior Shares, nor shall
any Junior Shares be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Shares made for purposes of
an employee incentive or benefit plan of the Trust or any subsidiary) for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any Junior Shares) by the Trust, directly or indirectly
(except by conversion into or exchange for Fully Junior Shares), unless in each
case (i) the full cumulative dividends on all outstanding Convertible Preferred
Shares and any other Parity Shares of the Trust shall have been or
contemporaneously are declared and paid or declared and set apart for payment
for all past Dividend Periods with respect to the Convertible Preferred Shares
and all past dividend periods with respect to such Parity Shares and (ii)
sufficient funds shall have been or contemporaneously are declared and paid or
declared and set apart for the payment of the dividend for the current Dividend
Period with respect to the Convertible Preferred Shares and the current dividend
period with respect to such Parity Shares.
(e) No distributions on Convertible Preferred Shares shall be declared
by the Board of Trustees or paid or set apart for payment by the Trust at such
time as the terms and provisions of any agreement of the Trust, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
3.3.2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Trust, whether voluntary or involuntary, subject to the prior preferences and
other rights of any series of shares of beneficial interest ranking senior to
the Convertible Preferred Shares upon liquidation, dissolution or winding up of
the Trust, before any payment or distribution of the assets of the Trust
(whether capital or surplus) shall be made to or set apart for the holders of
Junior Shares, the holders of the Convertible Preferred Shares shall be entitled
to receive ________ Dollars and _________
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Cents ($_______)/2/ (the "Liquidation Preference") per Convertible Preferred
Share plus an amount equal to all dividends (whether or not earned or declared)
accrued and unpaid thereon to the date of final distribution to such holders;
but such holders shall not be entitled to any further payment; provided, that
the dividend payable with respect to the Dividend Period containing the date of
final distribution shall be equal to the greater of (i) the dividend provided in
Section 3.3.1(a)(i) hereof or (ii) the dividend determined pursuant to Section
3.3.1(a)(ii) hereof for the preceding Dividend Period. If, upon any
liquidation, dissolution or winding up of the Trust, the assets of the Trust, or
proceeds thereof, distributable among the holders of the Convertible Preferred
Shares shall be insufficient to pay in full the preferential amount aforesaid
and liquidating payments on any other shares of any class or series of Parity
Shares, then such assets, or the proceeds thereof, shall be distributed among
the holders of Convertible Preferred Shares and any such other Parity Shares
ratably in accordance with the respective amounts that would be payable on such
Convertible Preferred Shares and any such other Parity Shares if all amounts
payable thereon were paid in full. For the purposes of this Section 3.3.2, (i) a
consolidation or merger of the Trust with one or more corporations, real estate
investment trusts or other entities, (ii) a sale, lease or conveyance of all or
substantially all of the Trust's property or business or (iii) a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Trust.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of beneficial interest ranking on a parity with or
prior to the Convertible Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the Trust, after
payment shall have been made in full to the holders of the Convertible Preferred
Shares, as provided in this Section 3.3.2, the holders of Convertible Preferred
Shares shall have no other claim to the remaining assets of the Trust and any
other series or class or classes of Junior Shares shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Convertible Preferred Shares shall not be entitled to share therein.
3.3.3. Redemption at the Option of the Trust.
(a) Except as provided in Section 3.3.3(e) below, the Convertible
Preferred Shares shall not be redeemable by the Trust prior to November __,
2007. On and after November __, 2007, the
- --------------------
/2/ Will be equal to issue price.
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Trust, at its option, may redeem the Convertible Preferred Shares, in whole at
any time or from time to time in part out of funds legally available therefor at
a redemption price payable in cash equal to 100% of the Liquidation Preference
per Convertible Preferred Share (plus all accumulated, accrued and unpaid
dividends as provided below).
(b) Upon any redemption of Convertible Preferred Shares pursuant to
this Section 3.3.3, the Trust shall pay all accrued and unpaid dividends, if
any, thereon to the Call Date, without interest. If the Call Date falls after a
dividend payment record date and prior to the corresponding Dividend Payment
Date, then each holder of Convertible Preferred Shares at the close of business
on such dividend payment record date shall be entitled to the dividend payable
on such shares on the corresponding Dividend Payment Date notwithstanding any
redemption of such shares before such Dividend Payment Date. Except as provided
above, the Trust shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on Convertible Preferred Shares called for
redemption.
(c) If full cumulative dividends on the Convertible Preferred Shares
and any other class or series of Parity Shares have not been declared and paid
or declared and set apart for payment, the Convertible Preferred Shares may not
be redeemed under this Section 3.3.3 in part and the Trust may not purchase or
acquire Convertible Preferred Shares, otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of Convertible Preferred
Shares.
(d) Notice of the redemption of any Convertible Preferred Shares under
this Section 3.3.3 (other than paragraph (e)) shall be mailed by first-class
mail to each holder of record of Convertible Preferred Shares to be redeemed at
the address of each such holder as shown on the Trust's records, not less than
30 nor more than 90 days prior to the Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the mailing
thereof, to any particular holder, shall affect the sufficiency of the notice or
the validity of the proceedings for redemption with respect to the other
holders. Each such mailed notice shall state, as appropriate: (1) the Call Date;
(2) the number of Convertible Preferred Shares to be redeemed and, if fewer than
all the shares held by such holder are to be redeemed, the number of such shares
to be redeemed from such holder; (3) the redemption price; (4) the place or
places at which certificates for such shares are to be surrendered; (5) the
then-current Conversion Price; and (6) that dividends on the shares to be
redeemed shall cease to accrue on such Call Date except as otherwise provided
herein. Notice having been mailed as aforesaid, from and after the Call Date
(unless the Trust shall fail to make available an amount of cash necessary to
effect such redemption),
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<PAGE>
(i) except as otherwise provided herein, dividends on the Convertible Preferred
Shares so called for redemption shall cease to accrue, (ii) such shares shall no
longer be deemed to be outstanding and (iii) all rights of the holders thereof
as holders of Convertible Preferred Shares shall cease (except the rights to
convert and to receive the cash payable upon such redemption, without interest
thereon, upon surrender and endorsement of their certificates if so required and
to receive any dividends payable thereon). The Trust's obligation to provide
cash in accordance with the preceding sentence shall be deemed fulfilled if, on
or before the Call Date, the Trust shall deposit with a bank or trust company
(which may be an affiliate of the Trust) that has an office in the Borough of
Manhattan, City of New York, and that has, or is an affiliate of a bank or trust
company that has, capital and surplus of at least $50,000,000, necessary for
such redemption, in trust, with irrevocable instructions that such cash be
applied to the redemption of the Convertible Preferred Shares so called for
redemption. No interest shall accrue for the benefit of the holders of
Convertible Preferred Shares to be redeemed on any cash so set aside by the
Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of
two years from the Call Date shall revert to the general funds of the Trust,
after which reversion the holders of such shares so called for redemption shall
look only to the general funds of the Trust for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates for any such shares so redeemed (properly endorsed or
assigned for transfer, if the Trust shall so require and if the notice shall so
state), such shares shall be exchanged for any cash (without interest thereon)
for which such shares have been redeemed. If fewer than all the outstanding
Convertible Preferred Shares are to be redeemed, shares to be redeemed shall be
selected by the Trust from outstanding Convertible Preferred Shares not
previously called for redemption pro rata (as nearly as may be), by lot or by
any other method determined by the Trust in its sole discretion to be equitable.
If fewer than all the Convertible Preferred Shares represented by any
certificate are redeemed, then new certificates representing the unredeemed
shares shall be issued without cost to the holder thereof.
(e) Notwithstanding anything herein to the contrary, beginning on
_____________________, 1998/3/ and ending on _____________________, 1998/4/, the
Trust, at its option, may redeem all, but not less than all, of the Convertible
Preferred Shares at
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/3/ Seven months from Issue Date
/4/ Ten months from Issue Date
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<PAGE>
a premium (the "Special Redemption Price") calculated to result in a total
internal rate of return to the holder (including the receipt of dividends and
calculated on an annual compounded basis as if the holder had owned the shares
since the Issue Date) of 20.0%. The Special Redemption Price may be paid, at
the Trust's option, in any combination of (i) cash and (ii) Common Shares valued
at Fair Market Value; provided, that the cash portion of the Special Redemption
Price shall equal at least 75% of the Special Redemption Price. For purposes of
this Section 3.3.3(e), Fair Market Value shall mean the Weighted Average Trading
Price for the Common Shares for the 20 Trading Days preceding the date of the
special redemption (the "Special Redemption Call Date").
Notice of the redemption of any Convertible Preferred Shares under
this Section 3.3.3(e) shall be mailed by first-class mail to each holder of
record of Convertible Preferred Shares to be redeemed at the address of each
such holder as shown on the Trust's records, not less than 30 nor more than 90
days prior to the Special Redemption Call Date. Neither the failure to mail any
notice required by this paragraph (e), nor any defect therein or in the mailing
thereof, to any particular holder, shall affect the sufficiency of the notice or
the validity of the proceedings for redemption with respect to the other
holders. Each such mailed notice shall state, as appropriate: (1) the Special
Redemption Call Date; (2) the Special Redemption Price (including the amount of
the Special Redemption Price consisting of cash and the amount of the Special
Redemption Price consisting of Common Shares, together with calculations
supporting the determination of the number Common Shares constituting a portion
of the Special Redemption Price); (3) the place or places at which certificates
for such shares are to be surrendered; and (4) that dividends on the shares to
be redeemed shall cease to accrue on such Call Date except as otherwise provided
herein. Notice having been mailed as aforesaid, from and after the Special
Redemption Call Date (unless the Trust shall fail to make available an amount of
cash necessary to effect such redemption), (i) except as otherwise provided
herein, dividends on the Convertible Preferred Shares so called for redemption
shall cease to accrue, (ii) such shares shall no longer be deemed to be
outstanding and (iii) all rights of the holders thereof as holders of
Convertible Preferred Shares shall cease (except the right to receive the
Special Redemption Price, without interest thereon, upon surrender and
endorsement of their certificates if so required). The Trust's obligation to
provide cash and Common Shares in accordance with the preceding sentence shall
be deemed fulfilled if, on or before the Special Redemption Call Date, the Trust
shall deposit with a bank or trust company (which may be an affiliate of the
Trust) that has an office in the Borough of Manhattan, City of New York, and
that has, or is an affiliate of a bank or trust company that has, capital and
surplus of at least $50,000,000, necessary for such redemption, in trust, with
irrevocable instructions that such cash and/or Common Shares be
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applied to the redemption of the Convertible Preferred Shares so called for
redemption. No interest shall accrue for the benefit of the holders of
Convertible Preferred Shares to be redeemed on any cash so set aside by the
Trust. Subject to applicable escheat laws, any such cash or Common Shares
unclaimed at the end of two years from the Special Redemption Call Date shall
revert to the general funds of the Trust, after which reversion the holders of
such shares so called for redemption shall look only to the general funds of the
Trust for the payment of such cash or Common Shares.
As promptly as practicable after the surrender in accordance with such
notice of the certificates for any such shares so redeemed (properly endorsed or
assigned for transfer, if the Trust shall so require and if the notice shall so
state), such shares shall be exchanged for any cash (without interest thereon)
and Common Shares for which such shares have been redeemed.
3.3.4. Conversion. Holders of Convertible Preferred Shares shall
have the right to convert all or a portion of such shares into Common Shares, as
follows:
(a) Subject to and upon compliance with the provisions of this Section
3.3.4, a holder of Convertible Preferred Shares shall have the right, at
his or her option, upon the earliest to occur of (i) September __,
1998/5/, (ii) the first day on which a Change of Control occurs, (iii) the
occurrence of a REIT Termination Event or (iv) such date as determined by
the Trust (the "Conversion Date"), to convert all or any portion of such
shares (or such shares as determined by the Trust if pursuant to clause
(iv) above) into the number of fully paid and non-assessable Common Shares
obtained by dividing the aggregate Liquidation Preference of such shares
(inclusive of accrued but unpaid dividends) by the Conversion Price (as in
effect at the time and on the date provided for in the last paragraph of
paragraph (b) of this Section 3.3.4) by surrendering such shares to be
converted, such surrender to be made in the manner provided in paragraph
(b) of this Section 3.3.4; provided, however, that the right to convert
shares called for redemption pursuant to Section 3.3.3 hereof shall
terminate at the close of business on the fifth Business Day prior to the
Call Date fixed for such redemption, unless the Trust shall default in
making payment of the cash payable upon such redemption under Section
3.3.3.
"Change of Control" means each occurrence of any of the following: (i)
the acquisition, directly or indirectly, by any individual or entity or group
(as such term is used in Section 13(d)(3) of the Exchange Act) of beneficial
ownership (as defined
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/5/ Ten months from the Issue Date.
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<PAGE>
in Rule 13d-3 under the Exchange Act, except that such individual or entity
shall be deemed to have beneficial ownership of all shares that any such
individual or entity has the right to acquire, whether such right is exercisable
immediately or only after passage of time) of more than 25% of the Trust's
outstanding shares of beneficial interest with voting power, under ordinary
circumstances, to elect Trustees of the Trust; (ii) other than with respect to
the election, resignation or replacement of any trustee designated, appointed or
elected by the holders of the Convertible Preferred Shares (each a "Preferred
Trustee"), during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Trustees (together with any
new trustees whose election by such Board of Trustees or whose nomination for
election by the shareholders of the Trust was approved by a vote of 66-2/3% of
the Trustees (excluding Preferred Trustees) then still in office who were either
Trustees at the beginning of such period, or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Trustees then in office; and (iii) (A) the Trust
consolidating with or merging into another entity or conveying, transferring or
leasing all or substantially all of its assets (including, but not limited to,
real property investments) to any individual or entity or (B) any corporation
consolidating with or merging into the Trust, which in either event (A) or (B)
is pursuant to a transaction in which the outstanding voting shares of
beneficial interest of the Trust are reclassified or changed into or exchanged
for cash, securities or other property; provided, however, that the events
described in clause (iii) above shall not be deemed to be a Change of Control
(a) if the sole purpose of such event is that the Trust is seeking to change its
domicile or to change its form of organization from a trust to a corporation or
(b) if the holders of the exchanged securities of the Trust immediately after
such transaction beneficially own at least a majority of the securities of the
merged or consolidated entity normally entitled to vote in elections of
trustees.
(b) In order to exercise the conversion right, the holder of each
Convertible Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Trust or in
blank, at the office of the Transfer Agent, accompanied by written notice
to the Trust that the holder thereof irrevocably elects to convert such
Convertible Preferred Shares. Unless the shares issuable on conversion are
to be issued in the same name as the name in which such Convertible
Preferred Share is registered, each share surrendered for conversion shall
be accompanied by instruments of transfer, in form satisfactory to the
Trust, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or
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<PAGE>
similar tax (or evidence reasonably satisfactory to the Trust demonstrating
that such taxes have been paid).
Holders of Convertible Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Convertible
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a Call
Date during such period, such Convertible Preferred Shares being entitled
to such dividend on the Dividend Payment Date) must be accompanied by
payment of an amount equal to the dividend payable on such shares on such
Dividend Payment Date. A holder of Convertible Preferred Shares on a
dividend payment record date who (or whose transferee) tenders any such
shares for conversion into Common Shares on the corresponding Dividend
Payment Date will receive the dividend payable by the Trust on such
Convertible Preferred Shares on such date, and the converting holder need
not include payment of the amount of such dividend upon surrender of
Convertible Preferred Shares for conversion. Except as provided above, the
Trust shall make no payment or allowance for unpaid dividends, whether or
not in arrears, on converted shares or for dividends on the Common Shares
issued upon such conversion.
As promptly as practicable after the surrender of certificates for
Convertible Preferred Shares as aforesaid, the Trust shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full Common Shares issuable
upon the conversion of such shares in accordance with provisions of this
Section 3.3.4, and any fractional interest in respect of a Common Share
arising upon such conversion shall be settled as provided in paragraph (c)
of this Section 3.3.4.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Convertible Preferred Shares shall have been surrendered and such notice
shall have been received by the Trust as aforesaid (and if applicable,
payment of an amount equal to the dividend payable on such shares shall
have been received by the Trust as described above), and the person or
persons in whose name or names any certificate or certificates for Common
Shares shall be issuable upon such conversion shall be deemed to have
become the holder or
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<PAGE>
holders of record of the shares represented thereby at such time on such
date and such conversion shall be at the Conversion Price in effect at such
time on such date unless the share transfer books of the Trust shall be
closed on that date, in which event such person or persons shall be deemed
to have become such holder or holders of record at the close of business on
the next succeeding day on which such share transfer books are open, but
such conversion shall be at the Conversion Price in effect on the date on
which such shares shall have been surrendered and such notice received by
the Trust.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Convertible Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Convertible Preferred Share, the
Trust shall pay to the holder of such share an amount in cash based upon
the Current Market Price of the Common Shares on the Trading Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number of
full Common Shares issuable upon conversion thereof shall be computed on
the basis of the aggregate number of Convertible Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Trust shall after the Issue Date (A) pay a dividend
or make a distribution on its capital shares in Common Shares, (B)
subdivide its outstanding Common Shares into a greater number of
shares, (C) combine its outstanding Common Shares into a smaller
number of shares or (D) issue any shares of beneficial interest by
reclassification of its Common Shares, the Conversion Price in effect
at the opening of business on the day following the date fixed for the
determination of shareholders entitled to receive such dividend or
distribution or at the opening of business on the Business Day next
following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be
adjusted so that the holder of any Convertible Preferred Share
thereafter surrendered for conversion shall be entitled to receive the
number of Common Shares that such holder would have owned or have been
entitled to receive after the happening of any of the events described
above as if such Convertible Preferred Shares had been converted
immediately prior to the record date in the case of a dividend or
distribution or the effective date in the
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<PAGE>
case of a subdivision, combination or reclassification. An adjustment
made pursuant to this subparagraph (i) shall become effective
immediately after the opening of business on the Business Day next
following the record date (except as provided in paragraph (h) below)
in the case of a dividend or distribution and shall become effective
immediately after the opening of business on the Business Day next
following the effective date in the case of a subdivision, combination
or reclassification.
(ii) If the Trust shall issue after the Issue Date rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Shares at a price per share
less than 94% (100% if a stand-by underwriter is used and charges the
Trust a commission) of the Fair Market Value per Common Share on the
record date for the determination of shareholders entitled to receive
such rights, options or warrants, then the Conversion Price in effect
at the opening of business on the Business Day next following such
record date shall be adjusted to equal the price determined by
multiplying (A) the Conversion Price in effect immediately prior to
the opening of business on the Business Day next following the date
fixed for such determination by (B) a fraction, the numerator of which
shall be the sum of (x) the number of Common Shares outstanding on the
close of business on the date fixed for such determination and (y) the
number of shares that the aggregate proceeds to the Trust from the
exercise of such rights, options or warrants for Common Shares would
purchase at 94% of such Fair Market Value (or 100% in the case of a
stand-by underwriting), and the denominator of which shall be the sum
of (x) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (y) the number
of additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the day
next following such record date (except as provided in paragraph (h)
below). In determining whether any rights, options or warrants
entitle the holders of Common Shares to subscribe for or purchase
Common Shares at less than 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), there shall be taken into
account any consideration received by the Trust upon issuance and upon
exercise of such rights, options or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Trustees.
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(iii) If the Trust shall distribute to all holders of its Common
Shares any securities of the Trust (other than Common Shares) or
evidence of its indebtedness or assets (excluding cumulative cash
dividends or distributions paid with respect to the Common Shares
after December 31, 1996 which are not in excess of the following: the
sum of (A) the Trust's cumulative undistributed Funds from Operations
at December 31, 1996, plus (B) the cumulative amount of Funds from
Operations, as determined by the Board of Trustees, after December 31,
1996, minus (C) the cumulative amount of dividends accrued or paid in
respect of the Convertible Preferred Shares or any other class or
series of preferred shares of beneficial interest of the Trust after
the Issue Date) or rights, options or warrants to subscribe for or
purchase any of its securities (excluding those rights, options and
warrants issued to all holders of Common Shares entitling them for a
period expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common Shares,
which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in
this subparagraph (iii) collectively called the "Securities" and
individually a "Security"), then in each such case the Conversion
Price shall be adjusted so that it shall equal the price determined by
multiplying (x) the Conversion Price in effect immediately prior to
the close of business on the date fixed for the determination of
shareholders entitled to receive such distribution by (y) a fraction,
the numerator of which shall be the Fair Market Value per Common Share
on the record date mentioned below less the then fair market value (as
determined by the Board of Trustees, whose determination shall be
conclusive), of the portion of the Securities or assets or evidences
of indebtedness so distributed or of such rights, options or warrants
applicable to one Common Share, and the denominator of which shall be
the Fair Market Value per Common Share on the record date mentioned
below. Such adjustment shall become effective immediately at the
opening of business on the Business Day next following (except as
provided in paragraph (h) below) the record date for the determination
of shareholders entitled to receive such distribution. For the
purposes of this subparagraph (iii), the distribution of a Security,
which is distributed not only to the holders of the Common Shares on
the date fixed for the determination of shareholders entitled to such
distribution of such Security, but also is distributed with each
Common Share delivered to a Person converting a Convertible Preferred
Share after such determination date, shall not require an
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<PAGE>
adjustment of the Conversion Price pursuant to this subparagraph
(iii); provided, that on the date, if any, on which a person
converting a Convertible Preferred Share would no longer be entitled
to receive such Security with a Common Share (other than as a result
of the termination of all such Securities), a distribution of such
Securities shall be deemed to have occurred and the Conversion Price
shall be adjusted as provided in this subparagraph (iii) (and such day
shall be deemed to be "the date fixed for the determination of the
shareholders entitled to receive such distribution" and "the record
date" within the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Trust) made by the Trust or any
subsidiary of the Trust for all or any portion of the Common Shares
shall expire and such tender or exchange offer shall involve the
payment by the Trust or such subsidiary of consideration per Common
Share having a fair market value (as determined in good faith by the
Board of Trustees, whose determination shall be conclusive and
described in a resolution of the Board of Trustees), at the last time
(the "Expiration Time") tenders or exchanges may be made pursuant to
such tender or exchange offer, that exceeds the Current Market Price
per Common Share on the Trading Day next succeeding the Expiration
Time, the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph (iv) by a fraction of
which the numerator shall be the number of Common Shares outstanding
(including any tendered or exchanged shares) at the Expiration Time,
multiplied by the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, and the denominator shall be
the sum of (A) the fair market value (determined as aforesaid) of the
aggregate consideration payable to shareholders based upon the
acceptance (up to any maximum specified in the terms of the tender or
exchange offer) of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up
to any maximum, being referred to as the "Purchased Shares") and (B)
the product of the number of Common Shares outstanding (less any
Purchased Shares) at the Expiration Time and the Current Market Price
per Common Share on the Trading Day next succeeding the Expiration
Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
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<PAGE>
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or decrease
of at least 1% in such price; provided, however, that any adjustments
that by reason of this subparagraph (v) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment until made; and provided, further, that any adjustment
shall be required and made in accordance with the provisions of this
Section 3.3.4 (other than this subparagraph (v)) not later than such
time as may be required in order to preserve the tax-free nature of a
distribution to the holders of Common Shares. Notwithstanding any
other provisions of this Section 3.3.4, the Trust shall not be
required to make any adjustment of the Conversion Price for the
issuance of any Common Shares pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of the
Trust and the investment of additional optional amounts in Common
Shares under such plan. All calculations under this Section 3.3.4
shall be made to the nearest cent (with $0.005 being rounded upward)
or to the nearest one-tenth of a share (with 0.05 of a share being
rounded upward), as the case may be. Anything in this paragraph (d)
to the contrary notwithstanding, the Trust shall be entitled, to the
extent permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as it in
its discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Trust to its shareholders shall not
be taxable.
(e) If the Trust shall be a party to any transaction (including,
without limitation, a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all of its Common Shares, sale of all
or substantially all of the Trust's assets or recapitalization of the
Common Shares and excluding any transaction as to which subparagraph (d)(i)
of this Section 3.3.4 applies) (each of the foregoing being referred to
herein as a "Transaction"), in each case as a result of which all or
substantially all of the Common Shares are converted into the right to
receive shares, securities or other property (including cash or any
combination thereof), each Convertible Preferred Share which is not
redeemed or converted into the right to receive shares, securities or other
property prior to such Transaction shall thereafter be convertible into the
kind and amount of shares, securities and other property (including cash or
any
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<PAGE>
combination thereof) receivable upon the consummation of such Transaction
by a holder of that number of Common Shares into which one Convertible
Preferred Share was convertible immediately prior to such Transaction,
assuming such holder of Common Shares (i) is not a Person with which the
Trust consolidated or into which the Trust merged or which merged into the
Trust or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (ii)
failed to exercise his rights of election, if any, as to the kind or amount
of shares, securities and other property (including cash) receivable upon
such Transaction (provided that if the kind or amount of shares, securities
and other property (including cash) receivable upon such Transaction is not
the same for each Common Share held immediately prior to such Transaction
by other than a Constituent Person or an affiliate thereof and in respect
of which such rights of election shall not have been exercised ("Non-
Electing Share"), then for the purpose of this paragraph (e) the kind and
amount of shares, securities and other property (including cash) receivable
upon such Transaction by each Non-Electing Share shall be deemed to be the
kind and amount so receivable per share by a plurality of the Non-Electing
Shares). The Trust shall not be a party to any Transaction unless the terms
of such Transaction are consistent with the provisions of this paragraph
(e), and it shall not consent or agree to the occurrence of any Transaction
until the Trust has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the holders of
the Convertible Preferred Shares that will contain provisions enabling the
holders of the Convertible Preferred Shares that remain outstanding after
such Transaction to convert into the consideration received by holders of
Common Shares at the Conversion Price in effect immediately prior to such
Transaction. The provisions of this paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Trust shall declare a dividend (or any other
distribution) on its Common Shares (other than cash dividends or
distributions paid with respect to the Common Shares after December
31, 1996 not in excess of the sum of the Trust's cumulative
undistributed Funds from Operations at December 31, 1996, plus the
cumulative amount of Funds from Operations, as determined by the Board
of Trustees, after December 31, 1996, minus the cumulative amount of
dividends accrued or paid in respect of the Convertible Preferred
Shares or any other class or series of preferred shares of beneficial
interest of the Trust after the Issue Date);
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(ii) the Trust shall authorize the granting to all holders of
Common Shares of rights, options or warrants to subscribe for or
purchase any shares of any class or any other rights, options or
warrants;
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section
3.3.4 applies) or any consolidation or merger to which the Trust is a
party (other than a merger in which the Trust is the surviving entity)
and for which approval of any shareholders of the Trust is required,
or a statutory share exchange, or a self tender offer by the Trust for
all or substantially all of its outstanding Common Shares or the sale
or transfer of all or substantially all of the assets of the Trust as
an entirety; or
(iv) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Trust;
then the Trust shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of Convertible Preferred Shares at their
addresses as shown on the records of the Trust, as promptly as possible,
but at least 10 days prior to the applicable date hereinafter specified, a
notice stating (A) the date on which a record is to be taken for the
purpose of such dividend, distribution or granting of rights, options or
warrants, or, if a record is not to be taken, the date as of which the
holders of Common Shares of record to be entitled to such dividend,
distribution or rights, options or warrants are to be determined or (B) the
date on which such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their
Common Shares for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, statutory share exchange,
sale, transfer, liquidation, dissolution or winding up. Failure to give or
receive such notice or any defect therein shall not affect the legality or
validity of the proceedings described in this Section 3.3.4.
(g) Whenever the Conversion Price is adjusted as herein provided, the
Trust shall promptly file with the Transfer Agent an officer's certificate
setting forth the Conversion Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment which certificate
shall be conclusive evidence of the correctness of such adjustment absent
manifest error. Promptly after delivery of such certificate, the Trust
shall prepare a notice
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of such adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the effective date of such adjustment and shall mail
such notice of such adjustment of the Conversion Price to the holder of
each Convertible Preferred Share at such holder's last address as shown on
the records of the Trust.
(h) In any case in which paragraph (d) of this Section 3.3.4 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Trust may defer until the occurrence of such
event (A) issuing to the holder of any Convertible Preferred Share
converted after such record date and before the occurrence of such event
the additional Common Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares issuable
upon such conversion before giving effect to such adjustment and (B) paying
to such holder any amount of cash in lieu of any fraction pursuant to
paragraph (c) of this Section 3.3.4.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of beneficial interest of the Trust in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 3.3.4. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 3.3.4, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
(j) If the Trust shall take any action affecting the Common Shares,
other than action described in this Section 3.3.4, that in the opinion of
the Board of Trustees would materially and adversely affect the conversion
rights of the holders of the Convertible Preferred Shares, the Conversion
Price for the Convertible Preferred Shares may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as the Board of
Trustees, in its sole discretion, may determine to be equitable in the
circumstances.
(k) The Trust covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting
conversion of the Convertible Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Convertible
Preferred Shares not theretofore converted. For purposes of this paragraph
(k), the number of Common Shares that shall be deliverable upon the
conversion of all outstanding Convertible Preferred Shares shall be
computed as if at the time of
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computation all such outstanding shares were held by a single holder.
The Trust covenants that any Common Shares issued upon conversion
of the Convertible Preferred Shares shall be validly issued, fully paid and
non-assessable. Before taking any action that would cause an adjustment
reducing the Conversion Price below the then-par value of the Common Shares
deliverable upon conversion of the Convertible Preferred Shares, the Trust
will take any action that, in the opinion of its counsel, may be necessary
in order that the Trust may validly and legally issue fully paid and
(subject to any customary qualification based upon the nature of a real
estate investment trust) non-assessable Common Shares at such adjusted
Conversion Price.
The Trust shall endeavor to list the Common Shares required to be
delivered upon conversion of the Convertible Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon which
the outstanding Common Shares are listed at the time of such delivery.
The Trust shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance
of any securities that the Trust shall be obligated to deliver upon
conversion of the Convertible Preferred Shares. The certificates
evidencing such securities shall bear such legends restricting transfer
thereof in the absence of registration under applicable securities laws or
an exemption therefrom as the Trust may in good faith deem appropriate.
(l) The Trust will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of Common
Shares or other securities or property on conversion of the Convertible
Preferred Shares pursuant hereto; provided, however, that the Trust shall
not be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of Common Shares or other
securities or property in a name other than that of the holder of the
Convertible Preferred Shares to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery
has paid to the Trust the amount of any such tax or established, to the
reasonable satisfaction of the Trust, that such tax has been paid.
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3.3.5. Fixed Charge Coverage; Limitation on Issuance of Additional
Preferred Shares and Indebtedness.
(a) Without the written consent of the holders of two-thirds of the
issued and outstanding shares of Convertible Preferred Shares, none of the
Trust, the Operating Partnership or any of their subsidiaries may issue any
additional preferred securities of any such entity or incur any indebtedness
(other than trade payables or accrued expenses incurred in the ordinary course
of business) if, immediately following such issuance and after giving effect to
such issuance and the application of the net proceeds therefrom, such entity
would be reasonably expected to not satisfy one or both of the following ratios:
(i) Total Debt and Liquidation Value of non-convertible
Preferred Shares of Beneficial Interest to Total Market Capitalization of
less than .65 to 1.0, or
(ii) Consolidated EBITDA to Consolidated Fixed Charges of at
least 1.4 to 1.0.
(b) In the event that the Trust fails to satisfy one or both of the
ratios in Section 3.3.5(a)(i) and (ii) above for two consecutive quarters, the
holders of Convertible Preferred Shares shall have the right to require that the
Trust, to the extent that the Trust shall have funds legally available therefor,
repurchase any or all of each holder's Convertible Preferred Shares at a
repurchase price payable in cash in an amount equal to 100% of the Liquidation
Preference thereof, plus accrued and unpaid dividends whether or not declared,
if any (the "Repurchase Payment"), to the date of repurchase or the date payment
is made available (the "Repurchase Date"), pursuant to the offer described in
paragraph (c) below (the "Repurchase Offer").
(c) Within 15 days following the second consecutive quarter that the
Trust fails to satisfy one or both of the ratios in Section 3.3.5(a)(i) and (ii)
above, the Trust shall mail by first class mail or overnight courier a notice to
all holders of Convertible Preferred Shares stating (i) that the Trust failed to
satisfy one or both of the tests (naming the test(s) failed), (ii) that the
holders of Convertible Preferred Shares have the right to require the Trust to
repurchase any or all Convertible Preferred Shares then held by such holder in
cash, (iii) the date of repurchase (which shall be a Business Day, no earlier
than 120 days and no later than 150 days from the date such notice is mailed, or
such later date as may be necessary to comply with the requirements of the
Exchange Act), (iv) the repurchase price for the repurchase and (v) the
instructions determined by the Trust, consistent with this paragraph (c), that
the holder must follow in order to have its Convertible Preferred Shares
repurchased.
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(d) On the Repurchase Date, the Trust will, to the extent lawful,
accept for payment Convertible Preferred Shares or portions thereof tendered
pursuant to the Repurchase Offer and promptly mail by first class mail or
overnight courier or by wire transfer of immediately available funds to the
holder of Convertible Preferred Shares, as directed by such holder, payment in
an amount equal to the Repurchase Payment in respect of all Convertible
Preferred Shares or portions thereof so tendered.
(e) Notwithstanding anything else herein, to the extent they are
applicable to any Repurchase Offer, the Trust will comply with any federal and
state securities laws, rules and regulations and all time periods and
requirements shall be adjusted accordingly.
(f) "Total Debt" means the sum of (without duplication) any
indebtedness, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures, or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases), except any such balance that constitutes an accrued
expense or trade payable, if and to the extent such indebtedness would appear as
a liability upon a balance sheet of such entity prepared on a consolidated basis
in accordance with Generally Accepted Accounting Principles ("GAAP"), and also
includes, to the extent not otherwise included, the guarantee of items which
would be included within this definition.
(g) "Total Market Capitalization" means the sum of: (a) the Fair
Market Value of the outstanding Common Shares, assuming (i) the full exchange of
outstanding partnership units (in each case not held by the Trust) of the
Operating Partnership for Common Shares and (ii) the conversion of the
outstanding shares of Convertible Preferred Shares into Common Shares; (b) the
aggregate Liquidation Preference of any outstanding preferred shares of
beneficial interest other than the Convertible Preferred Shares; and (c) the
Total Debt of the Trust.
(h) "Consolidated EBITDA" for any period means the consolidated net
income of the Trust (before extraordinary income or gains) as reported in the
Trust's financial statements filed with the Securities and Exchange Commission
increased by the sum of the following (without duplication):
a. all income and state franchise taxes paid or accrued according to
GAAP for such period (other than income taxes attributable to
extraordinary, unusual or non-recurring gains or losses except to
the extent that such gains were not included in Consolidated
EBITDA),
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b. all interest expense paid or accrued in accordance with GAAP for
such period (including financing fees and amortization of
deferred financing fees and amortization of original issue
discount),
c. depreciation and depletion reflected in such reported net income,
d. amortization reflected in such reported net income, including,
without limitation, amortization of capitalized debt issuance
costs (only to the extent that such amounts have not been
previously included in the amount of Consolidated EBITDA pursuant
to clause (b) above), goodwill, other intangibles and management
fees, and
e. any other non-cash charges or discretionary prepayment penalties,
to the extent deducted from consolidated net income (including,
but not limited to, income allocated to minority interests).
(i) "Consolidated Fixed Charges" for any period means the sum of:
a. all interest expense paid or accrued in accordance with GAAP for
such period (including financing fees and amortization of
deferred financing fees and amortization of original issue
discount),
b. preferred shares of beneficial interest dividend requirements for
such period, whether or not declared or paid, and
c. regularly scheduled amortization of principal during such period
(other than any balloon payments at maturity).
(j) Notwithstanding the provisions of this Section 3.3.5, in no event
shall the Trust be required to repurchase any Convertible Preferred Shares at
any time that such repurchase is prohibited by this Declaration of Trust or the
Trust's debt instruments.
3.3.6. Shares To Be Retired. All Convertible Preferred Shares which
shall have been issued and reacquired in any manner by the Trust shall be
restored to the status of authorized but unissued preferred shares of beneficial
interest, without discretion as to class or series, and subject to applicable
limitations set forth in this Declaration of Trust may thereafter be reissued as
shares of any series of preferred shares of beneficial interest.
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3.3.7. Ranking. Any class or series of shares of beneficial interest
of the Trust shall be deemed to rank:
(a) prior to the Convertible Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to
the holders of Convertible Preferred Shares;
(b) on a parity with the Convertible Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof shall
be different from those of the Convertible Preferred Shares, if the holders
of such class or series and the Convertible Preferred Shares shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective
amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Parity
Shares");
(c) junior to the Convertible Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Junior Shares; and
(d) junior to the Convertible Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
3.3.8. Voting Rights. If and whenever (i) two consecutive quarterly
dividends payable on the Convertible Preferred Shares or any series or class of
Parity Shares shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, or (ii) for two consecutive quarterly
dividend periods the Trust fails to pay dividends on the Common Shares in an
amount per share at least equal to $______ (subject to adjustment consistent
with any adjustment of the Conversion Price pursuant to Section 3.3.4(d) hereof)
the number of Trustees then constituting the Board of Trustees shall be
increased by one (unless the then current Board of Trustees consists of more
than 10 Trustees in which case it shall be increased by two) and the holders of
Convertible Preferred Shares, together with the holders of shares of every other
series of Parity Shares (any such other series, the "Voting Preferred Shares"),
voting as a single class regardless of series, shall be entitled to elect the
one or
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two additional Trustees to serve on the Board of Trustees at any annual meeting
of shareholders or special meeting held in place thereof, or at a special
meeting of the holders of the Convertible Preferred Shares and the Voting
Preferred Shares called as hereinafter provided. Whenever all arrears in
dividends on the Convertible Preferred Shares and the Voting Preferred Shares
then outstanding shall have been paid and dividends thereon for the current
quarterly dividend period shall have been paid or declared and set apart for
payment, or the Trust has paid dividends on the Common Shares in an amount per
share at least equal to $____________ (subject to adjustment consistent with any
adjustment of the Conversion Price pursuant to Section 3.3.4(d)) for two
consecutive quarters, then the right of the holders of the Convertible Preferred
Shares and the Voting Preferred Shares to elect such additional Trustee(s) shall
cease (but subject always to the same provision for the vesting of such voting
rights in the case of any similar future arrearage in quarterly dividends), and
the terms of office of all persons elected as Trustees by the holders of the
Convertible Preferred Shares and the Voting Preferred Shares shall forthwith
terminate and the number of the Board of Trustees shall be reduced accordingly.
At any time after such voting power shall have been so vested in the holders of
Convertible Preferred Shares and the Voting Preferred Shares, the Secretary of
the Trust may, and upon the written request of any holder of Convertible
Preferred Shares (addressed to the Secretary at the principal office of the
Trust) shall, call a special meeting of the holders of the Convertible Preferred
Shares and of the Voting Preferred Shares for the election of the Trustees to be
elected by them as herein provided, such call to be made by notice similar to
that provided in the Bylaws for a special meeting of the shareholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
any such request, then any holder of Convertible Preferred Shares may call such
meeting, upon the notice above provided, and for that purpose shall have access
to the records of the Trust. The Trustees elected at any such special meeting
shall hold office until the next annual meeting of the shareholders or special
meeting held in lieu thereof if such office shall not have previously terminated
as above provided. If any vacancy shall occur among the Trustees elected by the
holders of the Convertible Preferred Shares and the Voting Preferred Shares, a
successor shall be elected by the Board of Trustees, upon the nomination of the
then-remaining Trustee elected by the holders of the Convertible Preferred
Shares and the Voting Preferred Shares or the successor of such remaining
Trustee, to serve until the next annual meeting of the shareholders or special
meeting held in place thereof if such office shall not have previously
terminated as provided above.
So long as any Convertible Preferred Shares are outstanding, in
addition to any other vote or consent of
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shareholders required by law or by this Declaration of Trust, the affirmative
vote of at least 66-2/3% of the votes entitled to be cast by the holders of the
Convertible Preferred Shares given in person or by proxy, either in writing
without a meeting or by vote at any meeting called for the purpose, shall be
necessary for effecting or validating:
Any amendment, alteration or repeal of any of the provisions of this
Declaration of Trust that materially and adversely affects the voting powers,
rights or preferences of the holders of the Convertible Preferred Shares;
provided, however, that the amendment of the provisions of this Declaration of
Trust so as to authorize or create, or to increase the authorized amount of, any
Fully Junior Shares, Junior Shares that are not senior in any respect to the
Convertible Preferred Shares or any Parity Shares shall not be deemed to
materially adversely affect the voting powers, rights or preferences of the
holders of Convertible Preferred Shares; or
A share exchange that affects the Convertible Preferred Shares, a
consolidation with, or merger of the Trust into, another entity, or a
consolidation with, or merger of another entity into, the Trust, unless in each
such case each Convertible Preferred Share (i) shall remain outstanding without
a material and adverse change to its terms and rights or (ii) shall be converted
into or exchanged for convertible preferred shares of the surviving entity
having preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and term or conditions of redemption
thereof identical to that of a Convertible Preferred Share (except for changes
that do not materially and adversely affect the holders of the Convertible
Preferred Shares);
provided, however, that no such vote of the holders of Convertible Preferred
Shares shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect, or when the issuance of any such prior
shares or convertible security is to be made, as the case may be, provision is
made for the redemption of all Convertible Preferred Shares at the time
outstanding to the extent such redemption is authorized by Section 3.3.3 hereof.
For purposes of the foregoing provisions of this Section 3.3.8, each
Convertible Preferred Share shall have one (1) vote per share, except that when
any other series of Preferred Shares shall have the right to vote with the
Convertible Preferred Shares as a single class on any matter, then the
Convertible Preferred Shares and such other series shall have with respect to
such matters one (1) vote per $_____ (or less pursuant to Section 3.3.2(a)
hereof) of the stated Liquidation Preference. Except as otherwise required by
applicable law or as set forth herein, the Convertible Preferred Shares shall
not have any relative, participating, optional or
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other special voting rights and powers other than as set forth herein, and the
consent of the holders thereof shall not be required for the taking of any Trust
action.
3.3.9. Record Holders. The Trust and the Transfer Agent may deem and
treat the record holder of any Convertible Preferred Shares as the true and
lawful owner thereof for all purposes, and neither the Trust nor the Transfer
Agent shall be affected by any notice to the contrary.
3.4. Additional Preferred Shares. The Trustees shall have power from time
to time to classify or reclassify unissued additional Preferred Shares in one or
more series and to establish for each series the terms, preferences, conversion
or other rights, voting powers, restrictions, distribution limitations,
qualifications and redemption terms and conditions, and to set or change the
number of shares in each series, and, in such event, the Trust shall file for
record with the State Department of Assessments and Taxation of the State of
Maryland (the "SDAT") articles supplementary to this Declaration of Trust in
substance and form as prescribed by Maryland law.
3.5. Authorization by Board of Share Issuance. The Board of Trustees may
authorize the issuance from time to time of Shares of any class or series,
whether now or hereafter authorized, or securities or rights convertible into
Shares of any class or series, whether now or hereafter authorized, for such
consideration (whether in cash, property, past or future services, obligation
for future payment or otherwise) as the Board of Trustees may deem advisable (or
without consideration in the case of a Share split or Share dividend), subject
to such restrictions or limitations, if any, as may be set forth herein or in
the Bylaws, and all Shares so issued will be fully paid and non-assessable.
Notwithstanding any other provision herein, no determination shall be made by
the Board of Trustees nor shall any transaction be entered into by the Trust
which would cause any Shares or other beneficial interest in the Trust not to
constitute "transferable shares" or "transferable certificates of beneficial
interest" under Section 856(a)(2) of the Code or which would cause any
distribution to constitute a preferential dividend as described in Section
562(c) of the Code.
3.6. Dividends and Distributions. Subject to the dividend rights and the
preferential rights upon liquidation of the Convertible Preferred Shares, any
additional Preferred Shares and the Excess Shares, holders of Common Shares will
participate equally in dividends payable to holders of Common Shares when and as
authorized and declared by the Board of Trustees and in net assets available for
distribution to holders of Common Shares upon liquidation or dissolution. The
Board of Trustees may from time to time authorize and declare to shareholders
such dividends or distributions, in cash or other assets of the Trust or in
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securities of the Trust or from any other source as the Board of Trustees in its
discretion shall determine. The Board of Trustees shall endeavor to declare and
pay such dividends and distributions as shall be necessary for the Trust to
qualify as a REIT under the Code; however, shareholders shall have no right to
any dividend or distribution unless and until authorized and declared by the
Board of Trustees. The exercise of the powers and rights of the Board of
Trustees pursuant to this Section 3.6 shall be subject to the provisions of any
class or series of Shares at the time outstanding.
3.7. General Nature of Shares. All Shares shall be personal property
entitling the shareholders only to those rights provided in this Declaration of
Trust. The shareholders shall have no interest in the property of the Trust and
shall have no right to compel any partition, division, dividend or distribution
of the Trust or of the property of the Trust. The death of a shareholder shall
not terminate the Trust. The Trust is entitled to treat as shareholders only
those persons in whose names Shares are registered as holders of Shares on the
beneficial interest ledger of the Trust.
3.8. Fractional Shares. The Trust may, without the consent or approval of
any shareholder, issue fractional Shares, eliminate a fraction of a Share by
rounding up or down to a full Share, arrange for the disposition of a fraction
of a Share by the person entitled to it, or pay cash for the fair value of a
fraction of a Share.
3.9. Declaration of Trust and Bylaws. All shareholders are subject to the
provisions of this Declaration of Trust and the Bylaws.
4. Restrictions on Transfer, Acquisition and Redemption of Equity Shares;
Exchange for Excess Shares.
4.1. Restrictions on Ownership and Transfer.
(a) Except as provided in Section 4.7 hereof, from and after the
Closing Date of the Initial Public Offering and prior to the Restriction
Termination Date, no Person shall Beneficially Own or Constructively Own Equity
Shares in excess of the Ownership Limit.
(b) Except as provided in Section 4.7 hereof, from and after the
Closing Date of the Initial Public Offering and prior to the Restriction
Termination Date, any Transfer that, if effective, would result in any Person
Beneficially Owning or Constructively Owning Equity Shares in excess of the
Ownership Limit shall be void ab initio as to the Transfer of such Equity Shares
which would be otherwise Beneficially Owned or Constructively Owned by such
Person
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in excess of the Ownership Limit, and such Person shall acquire no rights in
such Equity Shares.
(c) Except as provided in Section 4.7 hereof, from and after the
Closing Date of the Initial Public Offering and prior to the Restriction
Termination Date, any Transfer that, if effective, would result in the Equity
Shares being Beneficially Owned or Constructively Owned by less than 100 Persons
(determined without reference to any rules of attribution) shall be void ab
initio as to the Transfer of such shares of Equity Shares which would be
otherwise Beneficially Owned or Constructively Owned by the transferee, and the
intended transferee shall acquire no rights in such Equity Shares; provided,
however, that this Section 4.1(c) shall not apply to the Transfer of Equity
Shares from the Trust to the underwriters of the Initial Public Offering.
(d) Except as provided in Section 4.7 hereof, from and after the
Closing Date of the Initial Public Offering and prior to the Restriction
Termination Date, any Transfer that, if effective, would result in the Trust
being "closely held" within the meaning of Section 856(h) of the Code shall be
void ab initio as to the Transfer of the shares of Equity Shares which would
cause the Trust to be "closely held" within the meaning of Section 856(h) of the
Code or any successor statute, and the intended transferee shall acquire no
rights in such Equity Shares.
(e) Except as provided in Sections 4.6, 4.7 and 4.8 hereof, from and
after the Closing Date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer that, if effective, would cause the
Trust to Constructively Own 10% or more of the ownership interests in a tenant
of the Trust's real property, within the meaning of Section 856(d)(2)(B) of the
Code, shall be void ab initio as to the Transfer of that number of Equity Shares
which would cause the Trust to Constructively Own 10% or more of the ownership
interests in a tenant of the Trust's real property, within the meaning of
Section 856(d)(2)(B) of the Code, and the intended transferee shall acquire no
rights in such excess Equity Shares.
4.2 Conversion to Excess Shares and Transfer to Share Trust.
(a) If, notwithstanding the other provisions contained in this Section
4, at any time from and after the Closing Date of the Initial Public Offering
and prior to the Restriction Termination Date, there is a purported Transfer,
change in the capital structure of the Trust or other event such that any Person
would Beneficially Own or Constructively Own Equity Shares in excess of the
applicable Ownership Limit, then, subject to Section 4.8 hereof, such Equity
Shares in excess of such Ownership Limit (rounded up to the nearest whole share)
shall be automatically converted into an equal number of "Excess Shares" and, in
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accordance with the provisions of this Section 4, be transferred automatically,
by operation of law, to a Share Trust to be held in accordance with this Section
4. Such conversion and transfer shall be effective as of the close of Business
Day prior to the date of the purported Transfer, change in capital structure of
the Trust or other event.
(b) If, notwithstanding the other provisions contained in this Section
4, at any time from and after the Closing Date of the Initial Public Offering
and prior to the Restriction Termination Date, there is a purported Transfer,
change in the capital structure of the Trust or other event which, if effective,
would (i) result in the Equity Shares being beneficially owned by fewer than 100
Persons (determined without reference to rules of attribution), (ii) cause the
Trust to become "closely held" within the meaning of Section 856(h) of the Code
or any successor statute or (iii) cause the Trust to Constructively Own 10% or
more of the ownership interests in a tenant of the Trust's real property, within
the meaning of Section 856(d)(2)(B) of the Code, then such number of Equity
Shares (rounded up to the nearest whole share) being transferred which would
cause the Trust to be "closely held" within the meaning of Section 856(h) of the
Code or any successor statute shall be automatically converted into an equal
number of "Excess Shares" and, in accordance with the provisions of this Section
4, be transferred automatically, by operation of law, to a Share Trust to be
held in accordance with this Section 4. Such conversion and transfer shall be
effective as of the close of business on the Business Day prior to the date of
the purported Transfer, change in capital structure or other event.
4.3. Remedies For Breach. If the Trustees or their designee shall at any
time determine in good faith that a Transfer has taken place in violation of
Section 4.1 hereof, or that a Person intends to acquire or has attempted to
acquire Beneficial Ownership or Constructive Ownership of any Shares of the
Trust in violation of Section 4.1, the Trustees or their designee shall take
such action as they deem advisable to refuse to give effect to or to prevent
such Transfer, including, but not limited to, refusing to give effect to such
Transfer on the books of the Trust, directing the Trust's transfer agent and/or
registrar to refuse to give effect to such Transfer on the books of the Trust or
instituting proceedings to enjoin such Transfer; provided, however, that any
Transfer or attempted Transfer in violation of Section 4.1 shall automatically
result in the conversion and transfer described in Sections 4.2(a) and 4.2(b)
hereof irrespective of any action (or non-action) by the Trustees or their
designee.
4.4. Notice to Trust of Restricted Transfer. Any Person who acquires or
attempts to acquire shares in violation of Section 4.1 hereof, or any Person who
is a transferee such that Excess Shares result under Section 4.2 hereof, shall
immediately give written
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notice of such event and shall provide to the Trust such other information as
the Trust may request in order to determine the effect, if any, of such Transfer
or attempted Transfer on the Trust's status as a REIT.
4.5. Owners Required to Provide Information for Trust. From and after the
Closing Date of the Initial Public Offering and prior to the Restriction
Termination Date:
(a) Every Beneficial Owner or Constructive Owner of more than 5.0% (or
such lower percentage as required pursuant to regulations under the Code) of the
number or value of outstanding Equity Shares of the Trust shall, within 30 days
after January 1 of each year, give a written statement or affidavit to the Trust
stating the name and address of such Beneficial Owner or Constructive Owner, the
number of Equity Shares Beneficially Owned or Constructively Owned, and a
description of how such Equity Shares are held. Each such Beneficial Owner
shall provide to the Trust such additional information as the Trust may
reasonably request in order to determine the effect, if any, of such Beneficial
Ownership or Constructive Ownership on the Trust's status as a REIT or to ensure
compliance with the Ownership Limit.
(b) Each Person who is a Beneficial Owner or Constructive Owner of
Equity Shares and each Person (including the shareholder of record) who is
holding Equity Shares for a Beneficial Owner or Constructive Owner shall provide
to the Trust a written statement or affidavit stating such information as the
Trust may reasonably request in order to determine the Trust's status as a REIT
or to ensure compliance with the Ownership Limit.
4.6. Increase in Ownership Limit. The Board of Trustees may from time to
time in its discretion increase the Ownership Limit; provided, however, that no
amendment to this Declaration of Trust to increase the Ownership Limit shall be
effective without the prior affirmative vote of not less than two-thirds of the
Shares then outstanding and entitled to vote.
4.7. Exceptions to Ownership Limit. The Ownership Limit shall not apply to
the acquisition of Equity Shares by an underwriter that participates in a public
offering of such shares for a period of 90 days following the purchase by such
underwriter of such shares; provided, that the restrictions contained in Section
4.1 hereof will not be violated following the distribution by such underwriter
of such shares. In addition, the Board of Trustees, upon receipt of a ruling
from the Internal Revenue Service or an opinion of counsel satisfactory to it,
in each case to the effect that the restrictions contained in Section 4.1 hereof
will not be violated and that REIT status will not otherwise be lost, and upon
such other conditions as the Trustees may direct, may in its discretion,
notwithstanding Section 4.6 hereof, exempt a Person
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from the Ownership Limit if such Person is not an individual for purposes of
Section 542(a)(2) of the Code; provided, however, that (i) the Board of Trustees
must obtain such representations and undertakings from such Person as are
reasonably necessary to ascertain that no Person's Beneficial Ownership or
Constructive Ownership of Equity Shares will violate the Ownership Limit and
(ii) such Person agrees that any violation or attempted violation by such Person
will result in a transfer to the Share Trust of Equity Shares pursuant to
Section 4.2 hereof.
4.8. Settlements on a National Securities Exchange. Notwithstanding any
provision contained herein to the contrary, nothing in this Section 4 shall
preclude the settlement of any transaction entered into through the facilities
of the NYSE. The fact that the settlement occurs shall not negate the effect of
any other provision of this Section 4, and any transferee in such a transaction
and the Shares so transferred shall be subject to all of the provisions and
limitations set forth in this Section 4.
4.9. Excess Shares and Share Trust.
(a) Share Trust. Any Equity Shares transferred to a Share Trust and
designated Excess Shares pursuant to Section 4.2 hereof shall be held for the
exclusive benefit of the Beneficiary. The Trust shall name a Beneficiary of each
Share Trust within five days after discovery of the existence thereof. Any
designation of Equity Shares as Excess Shares and transfer to a Share Trust
pursuant to Section 4.2 shall be effective as of the close of business on the
Business Day prior to the date of the purported Transfer, change in capital
structure or other event that results in the transfer to the Share Trust.
Excess Shares shall remain issued and outstanding Equity Shares of the Trust and
shall be entitled to the same rights and privileges on identical terms and
conditions as are all other issued and outstanding Equity Shares of the same
class and series. When transferred to a Permitted Transferee in accordance with
the provisions of Section 4.9(e) hereof, such Excess Shares shall be
automatically reconverted into Equity Shares.
(b) Dividend Rights. The Share Trustee shall be entitled to receive
all dividends and distributions as may be declared by the Board of Trustees on
such Equity Shares and shall hold such dividends or distributions in trust for
the benefit of the Beneficiary. The Prohibited Transferee with respect to
Excess Shares shall repay to the Share Trust the amount of any dividends or
distributions received by it that (i) are attributable to any Equity Shares
designated Excess Shares and (ii) the record date for which was on or after the
date that such shares became Excess Shares. The Trust shall take all measures
that it determines reasonably necessary to recover the amount of any such
dividend or distribution paid to a Prohibited Transferee, including, if
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necessary, withholding any portion of future dividends or distributions payable
on Equity Shares Beneficially Owned or Constructively Owned by the Person who,
but for the provisions of Section 4.1 hereof, would Constructively Own or
Beneficially Own the Excess Shares; and, as soon as reasonably practicable
following the Trust's receipt or withholding thereof, shall pay over to the
Share Trust for the benefit of the Beneficiary the dividends so received or
withheld, as the case may be.
(c) Rights Upon Liquidation for Excess Shares. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any other
distribution of all or substantially all of the assets of, the Trust, each
holder of Excess Shares shall be entitled to receive, ratably with each other
holder of Equity Shares of the same class or series, that portion of the assets
of the Trust available for distribution to the holders of such class and series
of Equity Shares. The Share Trust shall distribute to the Prohibited Transferee
the amounts received upon such liquidation, dissolution, winding up or
distribution; provided, however, that the Prohibited Transferee shall not be
entitled to receive amounts pursuant to this Section 4.9(c) in excess of, (i) in
the case of a purported Transfer in which the Prohibited Transferee gave value
for Equity Shares and which Transfer resulted in the transfer of the shares to
the Share Trust, the price per share, if any, such Prohibited Transferee paid
for the Equity Shares and, (ii) in the case of a purported Transfer in which the
Prohibited Transfer did not give value for such shares (e.g., if the shares were
received through a gift or devise) and which purported Transfer resulted in the
transfer of shares to the Share Trust, the price per share equal to the Market
Price on the date of such purported Transfer. Any remaining amount in such
Share Trust shall be distributed to the Beneficiary.
(d) Voting Rights for Excess Shares. The Share Trustee shall be
entitled to vote all Excess Shares, which Excess Shares shall have the same
voting rights as the underlying Equity Shares. Any vote by a Prohibited
Transferee as a holder of Equity Shares prior to the discovery by the Trust that
the Equity Shares are Excess Shares shall, subject to applicable law, be
rescinded and shall be void ab initio with respect to such Excess Shares and the
Prohibited Transferee shall be deemed to have given, as of the close of business
on the Business Day prior to the date of the purported Transfer that results in
the transfer to the Share Trust of Equity Shares under Section 4.2 hereof, an
irrevocable proxy to the Share Trustee, coupled with an interest, to vote the
Excess Shares in the manner in which the Share Trustee, in its sole and absolute
discretion, desires.
(e) Designation of Permitted Transferee. The Share Trustee shall have
the exclusive and absolute right, at any time after the 90-day period referred
to in Section 4.9(g) hereof, to
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designate a Permitted Transferee of any and all Excess Shares. In an orderly
fashion so as not to materially adversely affect the Market Price of the Excess
Shares, the Share Trustee shall designate any Person as Permitted Transferee;
provided, however, that (i) the Permitted Transferee so designated purchases for
valuable consideration (whether in a public or private sale), at a price as set
forth in Section 4.9(g), the Excess Shares and (ii) the Permitted Transferee so
designated may acquire such Excess Shares without such acquisition resulting in
a transfer to a Share Trust and the redesignation of such Equity Shares so
acquired as Excess Shares under Section 4.2 hereof. Upon the designation by the
Share Trustee of a Permitted Transferee in accordance with the provisions of
this Section 4.9(e), (i) the Share Trustee shall, upon receipt of consideration
therefor, cause to be transferred to the Permitted Transferee that number of
Excess Shares acquired by the Permitted Transferee, (ii) the Share Trustee shall
cause to be recorded on the books of the Trust that the Permitted Transferee is
the holder of record of such number of Equity Shares, (iii) such number of
Excess Shares shall be automatically reconverted into an equal number of Equity
Shares and (iv) the Share Trustee shall distribute to the Beneficiary any and
all amounts held with respect to the Excess Shares after making the payment to
the Prohibited Transferee pursuant to Section 4.9(f) hereof.
(f) Compensation to Record Holder of Equity Shares that Become Excess
Shares. Any Prohibited Transferee shall be entitled (following discovery of the
Excess Shares and subsequent designation of the Permitted Transferee in
accordance with Section 4.9(e) hereof or following the acceptance of the offer
to purchase such shares in accordance with Section 4.9(g) hereof) to receive
from the Share Trustee following the sale or other disposition of such Excess
Shares the lesser of (i) in the case of (a) a purported Transfer in which the
Prohibited Transferee gave value for Equity Shares and which Transfer resulted
in the transfer of the shares to the Share Trust, the price per share such
Prohibited Transferee paid for the Equity Shares or (b) a Transfer in which the
Prohibited Transferee did not give value for such shares (e.g., if the shares
were received through a gift or devise) and which Transfer resulted in the
transfer of shares to the Share Trust, the Market Price on the date of such
Transfer and (ii) the price per share received by the Share Trustee from the
sale or other disposition of such Excess Shares in accordance with Section
4.9(e) or 4.9(g). Any amounts received by the Share Trustee in respect of such
Excess Shares and in excess of such amounts to be paid the Prohibited Transferee
pursuant to this Section 4.9(f) shall be distributed to the Beneficiary in
accordance with the provisions of Section 4.9(e). Each Beneficiary and
Prohibited Transferee waive any and all claims that they may have against the
Share Trustee and the Share Trust arising out of the disposition of Excess
Shares, except for claims arising out of the gross negligence or willful
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misconduct of, or any failure to make payments in accordance with this Section
4.9 by, such Share Trustee or the Trust.
(g) Purchase Right in Excess Shares. Excess Shares shall be deemed to
have been offered for sale by the Share Trustee to the Trust, or its designee,
at a price per share equal to the lesser of (i) the price per share in the
transaction that created such Excess Shares (or, in the case of devise or gift,
the Market Price at the time of such devise or gift) and (ii) the Market Price
on the date the Trust, or its designee, accepts such offer. The Trust shall
have the right to accept such offer for a period of 90 days after the later of
(i) the date of the purported Transfer which resulted in such Excess Shares and
(ii) the date the Trust determines in good faith that a Transfer resulting in
Excess Shares has occurred, if the Trust does not receive a notice of such
Transfer pursuant to Section 4.4 hereof.
4.10. Remedies Not Limited. Other than with respect to Section 4.8
hereof, nothing contained in this Section 4 shall limit the authority of the
Trustees to take such other action as they deem necessary or advisable to
protect the Trust and the interest of the shareholders by preservation of the
Trust's status as a REIT and to ensure compliance with the Ownership Limit.
4.11. Ambiguities. In the case of an ambiguity in the application of any
of the provisions of this Section 4, the Trustees shall have the power to
determine the application of the provisions of this Section 4 with respect to
any situation based on the facts known to the Trustees.
4.12. Legend.
Each certificate for Common Shares and for Preferred Shares (other
than Convertible Preferred Shares) shall bear the following legend:
"The Common Shares or Preferred Shares represented by this certificate
are subject to restrictions on transfer for the purpose of the Trust's
maintenance of its status as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code"). Subject to
certain further restrictions and except as provided in the Trust's
Declaration of Trust, no Person may (i) Beneficially or Constructively
Own Equity Shares in excess of 9.9% (or such other percentage as may
be determined by the Board of Trustees) of the number of outstanding
Equity Shares, (ii) Beneficially Own Equity Shares that would result
in the Equity Shares
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being Beneficially Owned by fewer than 100 Persons (determined without
reference to any rules of attribution), (iii) Beneficially Own Equity
Shares that would result in the Trust being "closely held" under
Section 856(h) of the Code, or (iv) Constructively Own Equity Shares
that would cause the Trust to Constructively Own 10% or more of the
ownership interests in a tenant of the Trust's real property, within
the meaning of Section 856(d)(2)(B) of the Code. Any Person who
attempts to Beneficially or Constructively Own Equity Shares in excess
of the above limitations must immediately notify the Trust in writing
of such proposed or attempted Transfer. If any restrictions above are
violated, the Equity Shares represented hereby will be converted
automatically into Excess Shares which will be transferred
automatically, by operation of law, to a Share Trust to be held for
the exclusive benefit of a Beneficiary to be named by the Trust. In
addition, upon the occurrence of certain events, attempted Transfers
in violation of the restrictions described above may be void ab
initio. All capitalized terms in this legend have the meanings
defined in the Trust's Declaration of Trust, as the same may be
further amended from time to time, a copy of which, including the
restrictions on Transfer, will be sent without charge to each
shareholder who so requests. Such requests must be made to the
Secretary of the Trust at its principal office."
4.13. Severability. If any provision of this Section 4 or any application
of any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction over the issue, the validity and enforceability of the
remaining provisions shall not be affected and other applications of such
provision shall be affected only to the extent necessary to comply with the
determination of such court.
5. Shareholders.
5.1. Meetings. There shall be an annual meeting of the shareholders, to be
held on proper notice at such time (after the delivery of the annual report) and
convenient location as shall be determined by or in the manner prescribed in the
Bylaws, for the election of the Trustees, if required, and for the transaction
of
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any other business within the powers of the Trust. Except as otherwise provided
in this Declaration of Trust, special meetings of shareholders may be called in
the manner provided in the Bylaws. If there are no Trustees, the officers of the
Trust shall promptly call a special meeting of the shareholders entitled to vote
for the election of successor Trustees. Any meeting may be adjourned and
reconvened as the Trustees determine or as provided in the Bylaws.
5.2. Voting Rights. Subject to the provisions of any class or series of
Shares then outstanding, the shareholders shall be entitled to vote only on the
following matters: (a) termination of REIT status as provided in Section 2.1(c)
hereof; (b) election of Trustees as provided in Section 2.2(a) hereof and the
removal of Trustees as provided in Section 2.3 hereof; (c) amendment of this
Declaration of Trust as provided in Section 7 hereof; (d) termination of the
Trust as provided in Section 9.2 hereof; (e) merger or consolidation of the
Trust, or the sale or disposition of all or substantially all of the property of
the Trust, as provided in Section 8 hereof; (f) any matter for which a vote of
shareholders is required by a national securities exchange on which the Shares
are traded; and (g) such other matters with respect to which a vote of the
shareholders is required by applicable law or the Board of Trustees has adopted
a resolution declaring that a proposed action is advisable and directing that
the matter be submitted to the shareholders for approval or ratification.
Except with respect to the foregoing matters, no action taken by the
shareholders at any meeting shall in any way bind the Board of Trustees.
5.3. Preemptive and Appraisal Rights. Except as may be provided by the
Board of Trustees in setting the terms of any class or series of Shares pursuant
to Section 3.5 hereof, no holder of Shares shall, as such holder: (a) have any
preemptive or preferential right to purchase or subscribe for any additional
Shares or any other security of the Trust which it may issue or sell or (b)
except as expressly required by Maryland law, have any right to require the
Trust to pay it the fair value of its Shares in an appraisal or similar
proceeding.
6. Liability Limitation and Indemnification.
6.1. Limitation of Shareholder Liability. No shareholder shall be
personally liable for any debt, claim, demand, judgment or obligation of any
kind of, against or with respect to the Trust by reason of its being a
shareholder, nor shall any shareholder be subject to any personal liability
whatsoever, in tort, contract or otherwise, to any Person in connection with the
property of the Trust or the affairs of the Trust.
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6.2. Limitation of Trustee and Officer Liability. To the maximum extent
that Maryland law in effect from time to time permits limitation of the
liability of trustees and officers of a real estate investment trust, no Trustee
or officer of the Trust shall be liable to the Trust or to any shareholder for
money damages. Neither the amendment nor repeal of this Section 6.2, nor the
adoption or amendment of any other provision of this Declaration of Trust
inconsistent with this Section 6.2, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption. In the absence
of any Maryland statute limiting the liability of trustees and officers of a
Maryland real estate investment trust for money damages in a suit by or on
behalf of the Trust or by any shareholder, no Trustee or officer of the Trust
shall be liable to the Trust or to any shareholder for money damages except to
the extent that (i) the Trustee or officer actually received an improper benefit
or profit in money, property or services, in which case the liability shall not
exceed the amount of the benefit or profit in money, property or services
actually received; or (ii) a judgment or other final adjudication adverse to the
Trustee or officer is entered in a proceeding based on a finding in the
proceeding that the Trustee's or officer's action or failure to act was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
6.3. Express Exculpatory Clauses in Instruments. Neither the shareholders
nor the Trustees, officers, employees or agents of the Trust shall be liable
under any written instrument creating an obligation of the Trust, and all
Persons shall look solely to the property of the Trust for the payment of any
claim under or for the performance of that instrument. The omission of the
foregoing exculpatory language from any instrument shall not affect the validity
or enforceability of such instrument and shall not render any shareholder,
Trustee, officer, employee or agent liable thereunder to any third party, nor
shall the Trustees or any officer, employee or agent of the Trust be liable to
anyone for such omission.
6.4. Indemnification and Advancement for Expenses. The Trust shall
indemnify, to the fullest extent permitted by Maryland law, as applicable from
time to time, all persons who at any time were or are trustees or officers of
the Trust for any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) relating to any
action alleged to have been taken or omitted in such capacity as a trustee or an
officer. The Trust shall pay or reimburse all reasonable expenses incurred by a
present or former trustee or officer of the Trust in connection with any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) in which the present or former
trustee or officer
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is a party, in advance of the final disposition of the proceeding, to the
fullest extent permitted by, and in accordance with the applicable requirements
of, Maryland law, as applicable from time to time. The Trust may indemnify any
other persons permitted but not required to be indemnified by Maryland law, as
applicable from time to time, if and to the extent indemnification is authorized
and determined to be appropriate, in each case in accordance with applicable
law, by the Board of Trustees, the majority of the shareholders of the Trust
entitled to vote thereon or special legal counsel appointed by the Board of
Trustees. No amendment of this amendment and restatement or repeal of any of its
provisions shall limit or eliminate any of the benefits provided to trustees and
officers under this Section 6.4 in respect of any act or omission that occurred
prior to such amendment or repeal.
7. Amendments.
7.1. General. The Trust reserves the right from time to time to make any
amendment to this Declaration of Trust, now or hereafter authorized by law,
including any amendment altering the terms or contract rights, as expressly set
forth in this Declaration of Trust, of any Shares. All rights and powers
conferred by this Declaration of Trust on shareholders, Trustees and officers
are granted subject to this reservation. All references to this Declaration of
Trust shall include all amendments thereto.
7.2. By Trustees. The Trustees by a two-thirds vote may amend this
Declaration of Trust from time to time, in the manner provided by Maryland REIT
law, without any action by the shareholders, to qualify as a REIT under the Code
or under Maryland REIT law.
7.3. By Shareholders. Other than amendments pursuant to Section 7.2
hereof, any amendment to this Declaration of Trust shall be valid only if
approved by the affirmative vote of at least a majority of all the votes
entitled to be cast on the matter, except that any amendment to Section 2.1(c),
2.2(a) or 2.3, Section 3.1, Section 4.6 or Section 7.3 of this Declaration of
Trust shall be valid only if approved by the affirmative vote of two-thirds of
all the votes entitled to be cast on the matter.
8. Merger, Consolidation or Sale of the Property of the Trust.
Subject to the provisions of any class or series of Shares at the time
outstanding, the Trust may (a) merge with or into another entity, (b)
consolidate with one or more other entities into a new entity or (c) sell,
lease, exchange or otherwise transfer all or substantially all of the property
of the Trust. Any such action must be approved by the Board of Trustees and,
after notice to all
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shareholders entitled to vote on the matter, by the affirmative vote of a
majority of all the votes entitled to be cast on the matter.
9. Duration and Termination of Trust.
9.1. Duration of Trust. The Trust shall continue perpetually unless
terminated pursuant to Section 9.2 hereof or pursuant to any applicable
provision of Maryland REIT law.
9.2. Termination of Trust.
(a) Subject to the provisions of any class or series of Shares at
the time outstanding, the Trust may be terminated at any meeting of shareholders
called for that purpose by the affirmative vote of the holders of not less than
two-thirds of the Shares then outstanding and entitled to vote thereon. Upon the
termination of the Trust:
(i) The Trust shall carry on no business except for the purpose
of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration of Trust
shall continue, including the powers to fulfill or discharge the Trust's
contracts, collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining property of the Trust to
one or more Persons at public or private sale for consideration which may
consist in whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities and do all other acts appropriate to liquidate
its business; and
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and agreements as
they deem necessary for their protection, the Trustees may distribute the
remaining property of the Trust, in cash or in kind or partly each, among the
shareholders according to their respective rights, so that after payment in full
or the setting apart for payment of such preferential amounts, if any, to which
the holders of any Shares (other than Common Shares) at the time outstanding
shall be entitled, the remaining property of the Trust available for payment and
distribution to shareholders shall, subject to any participating or similar
rights of Shares (other than Common Shares) at the time outstanding, be
distributed ratably among the holders of Common Shares at the time outstanding.
(b) After termination of the Trust, the liquidation of its business
and the distribution to the shareholders as herein
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provided, a majority of the Trustees shall execute and file with the Trust's
records a document certifying that the Trust has been duly terminated, and
thereupon the Trustees shall be discharged from all liabilities and duties
hereunder, and the rights and interests of all shareholders shall cease.
10. Miscellaneous.
10.1. Governing Law. The rights of all parties and the validity,
construction and effect of every provision of this Declaration of Trust shall be
subject to and construed according to the laws of the State of Maryland without
regard to conflicts of laws provisions thereof.
10.2 Reliance by Third Parties. Any certificate shall be final and
conclusive as to any Person dealing with the Trust if executed by an individual
who, according to the records of the Trust or of any recording office in which
this Declaration of Trust may be recorded, appears to be the Secretary or an
Assistant Secretary of the Trust or a Trustee, and if certifying to: (a) the
number or identity of Trustees, officers of the Trust or shareholders; (b) the
due authorization of the execution of any document; (c) the action or vote
taken, and the existence of a quorum, at a meeting of the Board of Trustees or
shareholders; (d) a copy of this Declaration of Trust or of the Bylaws as a true
and complete copy as then in force; (e) an amendment to this Declaration of
Trust; (f) the termination of the Trust; or (g) the existence of any fact which
relates to the affairs of the Trust. No purchaser, lender, transfer agent or
other Person shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made on behalf of the Trust by the Trustees or by
any officer, employee or agent of the Trust.
10.3. Severability.
(a) The provisions of this Declaration of Trust are severable, and if
the Board of Trustees shall determine, with the advice of counsel, that any one
or more of such provisions (the "Conflicting Provisions") are in conflict with
the REIT provisions of the Code, the Maryland REIT law or other applicable
federal or state laws, the Conflicting Provisions shall be deemed never to have
constituted a part of this Declaration of Trust, even without any amendment of
this Declaration of Trust pursuant to Section 7 hereof; provided, however, that
such determination by the Board of Trustees shall not affect or impair any of
the remaining provisions of this Declaration of Trust or render invalid or
improper any action taken or omitted prior to such determination. No Trustee
shall be liable for making or failing to make such a determination.
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(b) If any provision of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such holding shall not in any
manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Declaration of Trust in any
jurisdiction.
10.4. Construction. In this Declaration of Trust, unless the context
otherwise requires, words used in the singular or in the plural include both the
plural and singular and words denoting any gender include all genders. The
title and headings of different parts are inserted for convenience and shall not
affect the meaning, construction or effect of this Declaration of Trust.
10.5. Recordation. This Declaration of Trust and any amendment hereto
shall be filed for record with the SDAT and may also be filed or recorded in
such other places as the Trustees deem appropriate, but failure to file for
record this Declaration of Trust or any amendment hereto in any office other
than in the State of Maryland shall not affect or impair the validity or
effectiveness of this Declaration of Trust or any amendment hereto. A restated
Declaration of Trust shall, upon filing, be conclusive evidence of all
amendments contained therein and may thereafter be referred to in lieu of the
original Declaration of Trust and the various amendments thereto.
THIRD: the amendment and restatement of the Declaration of Trust was
approved and advised by the Board of Trustees and approved by the sole
shareholder of the Trust in accordance with the Maryland REIT law.
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IN WITNESS WHEREOF, these Articles of Amendment and Restatement have been signed
on this ____ day of ___________, 1997, by the undersigned President of the Trust
who acknowledges that these Articles of Amendment and Restatement are the act of
the Trust and that, to the best of his knowledge, information and belief, the
matters and facts set forth herein are true in all material respects and that
the statement is made under the penalties for perjury.
PRIME GROUP REALTY TRUST
By: [Seal]
------------------------
Name: Richard S. Curto
Title: President
ATTEST:
By:
---------------------------
Name: Robert J. Rudnik
Title: Secretary
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Exhibit 3.6
FORM OF
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIME GROUP REALTY, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1
DEFINED TERMS....................................................................... 1
Section 1.1 Definitions.............................................................. 1
ARTICLE 2
ORGANIZATIONAL MATTERS.............................................................. 16
Section 2.1 Organization............................................................. 16
Section 2.2 Name..................................................................... 16
Section 2.3 Resident Agent; Principal Office......................................... 16
Section 2.4 Power of Attorney........................................................ 16
Section 2.5 Term..................................................................... 17
Section 2.6 Filings.................................................................. 18
ARTICLE 3
PURPOSE............................................................................. 18
Section 3.1 Purpose and Business..................................................... 18
Section 3.2 Powers................................................................... 19
Section 3.3 Representations and Warranties by the Parties............................ 19
ARTICLE 4
CAPITAL CONTRIBUTIONS............................................................... 21
Section 4.1 Capital Contributions of the Partners.................................... 21
Section 4.2 Loans by Third Parties................................................... 21
Section 4.3 Additional Funding and Capital Contributions............................. 21
Section 4.4 Share Incentive Plan..................................................... 23
Section 4.5 Other Contribution Provisions............................................ 23
Section 4.6 Purchase of Shares by the Managing General Partner....................... 23
Section 4.7 No Interest on Capital Contributions..................................... 23
ARTICLE 5
DISTRIBUTIONS....................................................................... 24
Section 5.1 Requirement and Characterization of Distributions........................ 24
Section 5.2 Distributions in Kind.................................................... 24
Section 5.3 Distributions Upon Liquidation........................................... 24
Section 5.4 Distributions to Reflect Issuance of Additional Partnership Interests.... 24
Section 5.5 Distributions to Limited Partners Exercising Exchange Rights............. 24
ARTICLE 6
ALLOCATIONS......................................................................... 25
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss.............. 25
Section 6.2 General Allocations...................................................... 25
Section 6.3 Additional Allocation Provisions......................................... 26
Section 6.4 Tax Allocations.......................................................... 28
ARTICLE 7
MANAGEMENT AND OPERATION OF BUSINESS................................................ 30
Section 7.1 Management............................................................... 30
Section 7.2 Certificate of Limited Partnership....................................... 34
Section 7.3 Restrictions on Managing General Partner's Authority..................... 34
Section 7.4 Reimbursement of the Managing General Partner............................ 37
Section 7.5 Contracts with Affiliates................................................ 38
</TABLE>
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<TABLE>
<S> <C>
Section 7.6 Indemnification.......................................................... 38
Section 7.7 Liability of the General Partners........................................ 40
Section 7.8 Other Matters Concerning the Managing General Partner.................... 41
Section 7.9 Title to Partnership Assets.............................................. 42
Section 7.10 Reliance by Third Parties................................................ 42
ARTICLE 8
RIGHTS AND OBLIGATIONS OF
LIMITED PARTNERS AND GENERAL PARTNERS............................................... 43
Section 8.1 Limitation of Liability.................................................. 43
Section 8.2 No Participation in Management of Business............................... 43
Section 8.3 Outside Activities of Partners........................................... 43
Section 8.4 Return of Capital........................................................ 44
Section 8.5 Rights of Partners Relating to the Partnership........................... 44
Section 8.6 Grant of Rights.......................................................... 45
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS.............................................. 45
Section 9.1 Records and Accounting................................................... 45
Section 9.2 Fiscal Year.............................................................. 45
Section 9.3 Reports.................................................................. 46
ARTICLE 10
TAX MATTERS......................................................................... 46
Section 10.1 Preparation of Tax Returns............................................... 46
Section 10.2 Tax Elections............................................................ 46
Section 10.3 Tax Matters Partner...................................................... 46
Section 10.4 Organizational and Start-Up Expenses..................................... 48
Section 10.5 Withholding.............................................................. 48
Section 10.6 Limitation to Preserve REIT Status....................................... 48
ARTICLE 11
TRANSFERS AND WITHDRAWALS........................................................... 49
Section 11.1 Transfer................................................................. 49
Section 11.2 Transfer of General Partner's Partnership Interest....................... 50
Section 11.3 Limited Partners' Rights to Transfer..................................... 52
Section 11.4 Substituted Limited Partners............................................. 53
Section 11.5 Assignees................................................................ 53
Section 11.6 General Provisions....................................................... 54
ARTICLE 12
ADMISSION OF PARTNERS............................................................... 56
Section 12.1 Admission of Successor Managing General Partner.......................... 56
Section 12.2 Admission of Additional Limited Partners................................. 56
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership............ 57
ARTICLE 13
DISSOLUTION AND LIQUIDATION......................................................... 57
Section 13.1 Dissolution.............................................................. 57
Section 13.2 Winding Up............................................................... 58
</TABLE>
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<TABLE>
<S> <C>
Section 13.3 Compliance with Timing Requirements of Regulations; Deficit Capital Account.... 59
Section 13.4 Deemed Contribution and Interest Distribution.................................. 59
Section 13.5 Rights of Partners............................................................. 60
Section 13.6 Notice of Dissolution.......................................................... 60
Section 13.7 Cancellation of Certificate of Limited Partnership............................. 60
Section 13.8 Reasonable Time for Winding-Up................................................. 60
Section 13.9 Waiver of Partition............................................................ 60
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS.............................................. 60
Section 14.1 Amendments..................................................................... 60
Section 14.2 Action by the Partners......................................................... 61
ARTICLE 15
REPRESENTATIONS AND WARRANTIES.......................................................... 62
Section 15.1 Representations and Warranties of Prime........................................ 62
Section 15.2 Survival of Representations and Warranties..................................... 62
Section 15.3 Indemnification................................................................ 62
Section 15.4 Limitations on Indemnification Obligations..................................... 62
Section 15.5 Remedies....................................................................... 63
Section 15.6 Limitation of Liability........................................................ 63
Section 15.7 Subrogation.................................................................... 64
ARTICLE 16
GENERAL PROVISIONS........................................................................ 64
Section 16.1 Addresses and Notice........................................................... 64
Section 16.2 Titles and Captions............................................................ 64
Section 16.3 Pronouns and Plurals........................................................... 64
Section 16.4 Further Action................................................................. 64
Section 16.5 Binding Effect................................................................. 64
Section 16.6 Creditors...................................................................... 64
Section 16.7 Waiver......................................................................... 64
Section 16.8 Counterparts................................................................... 65
Section 16.9 Applicable Law................................................................. 65
Section 16.10 Invalidity of Provisions....................................................... 65
Section 16.11 Entire Agreement............................................................... 65
Section 16.12 No Rights as Shareholders...................................................... 65
</TABLE>
Exhibits
Exhibit A Schedule of Partners, Number of Units, Capital Contributions
and Capital Accounts (Section 1.1)
Exhibit B Schedule for Contributed Assets and Assumed Contracts and
Liabilities (Section 1.1)
Exhibit C Rights Terms (Section 8.6)
Exhibit D Form of Assignment and Assumption Agreement
Exhibit E Form of Common Unit Certificate (Section 1.1)
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<PAGE>
Exhibit F Limited Partner Ownership of Interests in Tenants (Section
3.3.C(1))
Exhibit G Limited Partner Ownership of Interests in General Partner
(Section 3.3.C(2))
Exhibit H Representations and Warranties of the General Partner
(Section 15.1)
Exhibit I Schedule of Contributors (Section 1.1)
Exhibit J Schedule of Property Partnerships (Section 1.1)
iv
<PAGE>
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PRIME GROUP
REALTY, L.P. (the "Partnership"), dated as of November __, 1997, is entered into
by and among Prime Group Realty Trust, a Maryland real estate investment trust
(the "Company"), and The Nardi Group, L.L.C., a Delaware limited liability
company, as the General Partners and the Persons whose names are set forth on
Exhibit A hereof, as the Limited Partners, together with any other Persons who
become Partners in the Partnership as provided herein.
WHEREAS, the limited partnership was formed on March 19, 1997 and an
original agreement of limited partnership was entered into with the Company as
general partner;
WHEREAS, the Company proposes to effect a public offering of its common
shares of beneficial interest, to acquire and cause the Partnership to acquire
direct and indirect interests in certain office and industrial properties and
other assets, to cause the Partnership to enter into certain financing
transactions, and to contribute the remaining net proceeds from the public
offering to the Partnership;
WHEREAS, the Partnership will issue Partnership Interests to the Company,
the other General Partner, the Limited Partners and other persons in accordance
with the foregoing transactions;
WHEREAS, upon the completion of the foregoing transactions, the Partnership
shall return the original capital contributions made by the Company and any
ongoing interest in the Partnership of the Company shall be based on its
contributions as contemplated below;
WHEREAS, by virtue of their respective execution of this Agreement the
Company hereby consents to the amendment and restatement of the original
agreement of limited partnership;
NOW, THEREFORE, BE IT RESOLVED, that for good and adequate consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINED TERMS
Section 1.1 Definitions.
-----------
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time, and any successor to such statute.
"Additional Funds" shall have the meaning set forth in Section 4.3.A
---------------- -------------
hereof.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 12.2 hereof and who is shown as such on
the books and records of the Partnership.
<PAGE>
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Partnership taxable year, after giving effect to the following
adjustments:
(a) decrease such deficit by any amounts which such Partner is obligated
to restore pursuant to this Agreement or is deemed to be obligated to restore
pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence
of each of Regulations Sections 1.704-2(i)(5) and 1.704-2(g); and
(b) increase such deficit by the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
"Adjustment Date" means, with respect to any Capital Contribution, the
close of business on the Business Day last preceding the date of the Capital
Contribution; provided, that if such Capital Contribution is being made by the
Managing General Partner in respect of the proceeds from the issuance of Shares
(or the issuance of the Managing General Partner's securities exercisable for,
convertible into or exchangeable for Shares), then the Adjustment Date shall be
as of the close of business on the day of the issuance of such securities.
"Administrative Expenses" shall mean (i) all administrative and operating
costs and expenses incurred by the Partnership, (ii) all administrative,
operating and other costs and expenses incurred by the Property Partnerships,
which expenses are being assumed by the Partnership pursuant to Section 7.4.B
hereof, (iii) those administrative costs and expenses of the Managing General
Partner, including salaries paid to officers of the Managing General Partner,
and accounting and legal expenses undertaken by the Managing General Partner on
behalf or for the benefit of the Partnership, and (iv) to the extent not
included in clause (iii) above, REIT Expenses.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such Person.
"Agreed Value" means (a) in the case of any Contributed Property set forth
in Exhibit B hereof, the Agreed Value of such property as set forth in Exhibit B
hereof; (b) in the case of any Contributed Property not set forth in Exhibit B
hereof, as of the relevant Adjustment Date, the fair market value of such
property or other consideration as determined by the Managing General Partner,
reduced by any liabilities either assumed by the Partnership upon such
contribution or to which such property is subject when contributed; and (c) in
the case of any property distributed to a Partner by the Partnership, the fair
market value of such property as determined by the Managing General Partner at
the time such property is distributed, reduced by any indebtedness either
assumed by such Partner upon such distribution or to which such property is
subject at the time of the distribution as determined under Section 752 of the
Code and the Regulations thereunder.
2
<PAGE>
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended, modified, supplemented or restated from time
to time.
"Appraisal" means with respect to any assets, the opinion of an independent
third party experienced in the valuation of similar assets, selected by the
Managing General Partner in good faith; such opinion may be in the form of an
opinion by such independent third party that the value for such asset as set by
the Managing General Partner is fair, from a financial point of view, to the
Partnership.
"Assignee" means a Person to whom one or more Units have been transferred
in a manner permitted under this Agreement, but who has not become a Substituted
Limited Partner, and who has the rights set forth in Section 11.5 hereof.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Chicago, Illinois and New York, New York are
authorized or required by law to be closed.
"Capital Account" means, with respect to any Partner, the Capital Account
maintained for such Partner in accordance with the following provisions:
(a) To each Partner's Capital Account there shall be added such Partner's
Capital Contributions, such Partner's share of Net Income and any items in the
nature of income or gain which are specially allocated to such Partner pursuant
to Section 6.3 hereof, and the amount of any Partnership liabilities assumed by
such Partner or which are secured by any property distributed to such Partner.
(b) From each Partner's Capital Account there shall be subtracted the
amount of cash and the Gross Asset Value of any property distributed to such
Partner pursuant to any provision of this Agreement, such Partner's distributive
share of Net Losses and any items in the nature of expenses or losses which are
specially allocated to such Partner pursuant to Section 6.3 hereof, and the
amount of any liabilities of such Partner assumed by the Partnership or which
are secured by any property contributed by such Partner to the Partnership.
(c) In the event any interest in the Partnership is transferred in
accordance with the terms of this Agreement (which does not result in a
termination of the Partnership for federal income tax purposes), the transferee
shall succeed to the Capital Account of the transferor to the extent it relates
to the transferred interest.
(d) In determining the amount of any liability for purposes of subsections
(a) and (b) hereof, there shall be taken into account Code section 752(c) and
any other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the Managing General
Partner shall determine that it is prudent to modify the manner in which the
3
<PAGE>
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partners, or the Limited Partners) are computed in order to comply with
such Regulations, the Managing General Partner may make such modification. The
Managing General Partner also shall (i) make any adjustments that are necessary
or appropriate to comply with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii)
make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Sections 1.704-
1(b) or 1.704-2 or Section 514(c)(9).
"Capital Contribution" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any property (other than money), net
of any liability to which such property is subject or which is secured by such
property, contributed to the Partnership by such Partner.
"Cash Purchase Price" shall have the meaning set forth in Paragraph 4 of
------------------- -----------
Exhibit C attached hereto.
- ---------
"Certificate" means the Certificate of Limited Partnership relating to the
Partnership filed in the office of the Secretary of State of Delaware on March
19, 1997, as amended or restated from time to time in accordance with the terms
hereof and the Act.
"Charter" means the Declaration of Trust of the Managing General Partner
filed with the Maryland State Department of Assessments and Taxation on July 21,
1997, as amended or restated from time to time.
"Claim" shall have the meaning set forth in Section 15.4(b) herein.
----- ---------------
"Code" means the Internal Revenue Code of 1986, as amended from time to
time or any successor statute thereto, as interpreted by the applicable
regulations thereunder. Any reference herein to a specific section or sections
of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"Common Shares" means the common shares of beneficial interest, par value
$.01 per share, of the Managing General Partner.
"Common Unit" means, with respect to any class of Partnership Interest, a
fractional, undivided share of such class of Partnership Interest issued
pursuant to Sections 4.1 and 4.3 hereof. The ownership of Common Units may be
evidenced by a certificate for units substantially in the form of Exhibit E
hereof (including the restricted legends thereon) or as the Managing General
Partner may determine with respect to any class of Common Units issued from time
to time under Sections 4.1 and 4.3 hereof.
"Consent" means the consent to, approval of, or vote on a proposed action
by a Partner given in accordance with Article 14 hereof.
4
<PAGE>
"Consent of the Limited Partners" means the Consent of a Majority in
Interest of the Limited Partners, which Consent shall be obtained prior to the
taking of any action for which it is required by this Agreement and may be given
or withheld by a Majority in Interest of the Limited Partners, unless otherwise
expressly provided herein, in their sole and absolute discretion.
"Consent of the Partners" means the Consent of Partners holding Units that
in the aggregate are equal to or greater than 50% of the aggregate Units of all
Partners, which Consent shall be obtained prior to the taking of any action for
which it is required by this Agreement and may be given or withheld by such
Partners, in their sole and absolute discretion.
"Constructively Own" means ownership under the constructive ownership rules
------------------
described in Exhibit C hereof.
---------
"Contributed Property" means (i) with respect to Prime or the Contributors,
each property or other asset as set forth on Exhibit B hereof, and (ii) with
respect to any other Partners, each property or other asset as set forth in such
Partner's respective contribution agreement.
"Contributors" shall mean the parties identified as such on Exhibit I
------------ ---------
attached hereto.
"Convertible Preferred Distribution" means an amount equal to the quarterly
dividend payable in respect of one Series A Cumulative Convertible Preferred
Shares of the Managing General Partner pursuant to Section __ of the Managing
General Partner's Declaration of Trust.
"Convertible Preferred Distribution Shortfall" shall have the meaning set
--------------------------------------------
forth in Section 5.1(i).
--------------
"Convertible Preferred Shares" means the Series A Cumulative Convertible
Preferred Shares of beneficial interest, par value $.01 per share, of the
Managing General Partner.
"Convertible Preferred Unit Redemption Amount" means, with respect to any
Convertible Preferred Unit, the amount payable by the Managing General Partner
on account of the redemption of one Convertible Preferred Share pursuant to
Section __ of the Managing General Partner's Declaration of Trust, using the
amount, if any, of Convertible Preferred Distribution Shortfall as the amount of
accrued and unpaid dividends thereon.
"Convertible Preferred Units" shall mean the Units designated as Series A
Cumulative Convertible Preferred Units under this Agreement, received by the
Managing General Partner in exchange for a portion of its capital contribution,
having the rights described in this Agreement. The initial number of
Convertible Preferred Units outstanding is as set forth on Exhibit A.
"Debt" means, as to any Person, as of any date of determination, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (b) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (c) all indebtedness for borrowed
money or for the
5
<PAGE>
deferred purchase price of property or services secured by any lien on any
property owned by such Person, to the extent attributable to such Person's
interest in such property, even though such Person has not assumed or become
liable for the payment thereof; and (d) lease obligations of such Person which,
in accordance with generally accepted accounting principles, should be
capitalized.
"Depreciation" means, for each Partnership taxable year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Managing General
Partner.
"Effective Date" means the date of closing of the initial public offering
of Common Shares upon which date contributions set forth on Exhibit A hereof
shall become effective.
"Exchange Exercise Notice" shall have the meaning set forth in Paragraph 2
------------------------ -----------
of Exhibit C attached hereto.
---------
"Fair Market Value" means, with respect to any share of beneficial interest
of the Managing General Partner, the average of the daily market price for the
ten (10) consecutive trading days immediately preceding the date with respect to
which "Fair Market Value" must be determined hereunder or, if such date is not a
Business Day, the immediately preceding Business Day. The market price for each
such trading day shall be: (a) if such shares are listed or admitted to trading
on any securities exchange or the NASDAQ National Market, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, (b) if such shares are
not listed or admitted to trading on any securities exchange or the NASDAQ
National Market, the last reported sale price on such day or, if no sale takes
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reliable quotation source designated by the Managing General
Partner or (c) if such shares are not listed or admitted to trading on any
securities exchange or the NASDAQ National Market and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the Managing General Partner, or if there shall be no bid
and asked prices on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than 10 days prior to the date
in question) for which prices have been so reported; provided, that if there are
no bid and asked prices reported during the 10 days prior to the date in
question, the Fair Market Value of such shares shall be determined by the
Managing General Partner acting in good faith on the basis of such quotations
furnished by a professional market maker making a market in such shares and
other information as it considers, in its reasonable judgment, appropriate. In
the event such shares include rights that a holder of such shares would be
entitled to receive, then the Fair Market Value of such rights shall be
determined by the Managing General Partner acting in good faith on the basis of
such
6
<PAGE>
quotations and other information as it considers, in its reasonable judgment,
appropriate; and provided further, that in connection with determining the
deemed value of the Partnership Interests for purposes of determining the number
of additional Units issuable upon a Capital Contribution funded by an
underwritten public offering of shares of beneficial interest of the Managing
General Partner (including upon exercise of any over-allotment option granted to
the Underwriters in connection with such public offering), the Fair Market Value
of such shares shall be the public offering price per share of such class of
beneficial interest sold.
"Funding Debt" means the incurrence of any Debt by or on behalf of the
Managing General Partner for the purpose of providing funds to the Partnership.
"General Partner Interest" means a Partnership Interest held by the
Managing General Partner or any other General Partner. A General Partner
Interest shall be expressed as a number of Units.
"General Partners" shall mean collectively, Prime Group Realty Trust, a
Maryland real estate investment trust, and The Nardi Group, L.L.C., a Delaware
limited liability company, and their successors or assigns, if any.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Partner to
the Partnership shall be the gross fair market value of such asset, as
determined by the contributing Partner and the Managing General Partner (as set
forth on Exhibit A hereof, as such Exhibit may be amended from time to time);
provided, that if the contributing Partner is the Managing General Partner then,
except with respect to the Managing General Partner's initial Capital
Contribution which shall be determined as set forth on Exhibit A hereof, or
capital contributions of cash, Shares or other shares of beneficial interest of
the Managing General Partner, the determination of the fair market value of the
contributed asset shall be determined by (i) the price paid by the Managing
General Partner if the asset is acquired by the Managing General Partner
contemporaneously with its contribution to the Partnership or (ii) by Appraisal
if otherwise acquired by the Managing General Partner.
(b) As of the times listed below, the Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective gross fair market values, as
determined by the Managing General Partner using such reasonable method of
valuation as it may adopt; provided, however, that for such purpose, the net
value of all of the Partnership assets, in the aggregate, shall be equal to the
fair market value of all classes of Partnership Interests then outstanding,
regardless of the method of valuation adopted by the Managing General Partner:
(i) the acquisition of an additional interest in the Partnership by a
new or existing Partner in exchange for more than a de minimis Capital
Contribution, if the Managing General Partner reasonably determines that such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
7
<PAGE>
(ii) the distribution by the Partnership to a Partner of more than a
de minimis amount of Partnership property as consideration for an interest in
the Partnership if the Managing General Partner reasonably determines that such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(iii) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g); and
(iv) at such other times as the Managing General Partner shall
reasonably determine necessary or advisable in order to comply with Regulations
Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed to a Partner
shall be the gross fair market value of such asset on the date of distribution
as determined by the distributee and the Managing General Partner or, if the
distributee and the Managing General Partner cannot agree on such a
determination, by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to
the extent that the Managing General Partner reasonably determines that an
adjustment pursuant to subparagraph (b) is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (d).
(e) If the Gross Asset Value of a Partnership asset has been determined or
adjusted pursuant to subparagraph (a), (b) or (d) above, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Net Income and Net Losses.
"Holder" means either the Partner or Assignee owning a Unit.
------
"Immediate Family" means with respect to any natural Person, such natural
Person's estate or heirs or current spouse or former spouse, parents, parents-
in-law, children, siblings and grandchildren and any trust or estate, all of the
beneficiaries of which consist of such Person or such Person's spouse, former
spouse, parents, parents-in-law, children, siblings or grandchildren; provided,
further that "Immediate Family", means, with respect to a trust, the trust's
beneficiary's estate or heirs or current spouse or former spouse, parents,
parents-in-law, children, siblings and grandchildren.
"Incapacity" or "Incapacitated" means, (a) as to any individual Partner, if
any, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him or her incompetent to manage his or her Person or
his or her estate; (b) as to any corporation or limited liability company, as
the case may be, which is a Partner, the filing of a certificate of dissolution,
or its equivalent, for the corporation or limited liability company, as the case
may be, or the revocation
8
<PAGE>
of its charter unless reinstated; (c) as to any partnership which is a Partner,
the dissolution and commencement of winding up of the partnership; (d) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership; (e) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee); or (f) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (s) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (t) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (u) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (v) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (t) above, (w) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (x) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within 120 days after the commencement thereof, (y) the
appointment without the Partner's consent or acquiescence of a trustee, receiver
or liquidator has not been vacated or stayed within 90 days of such appointment,
or (z) an appointment referred to in clause (y) above is not vacated within 90
days after the expiration of any such stay.
"Indemnification Claim" shall have the meaning set forth in Section 15.5(b)
--------------------- ---------------
hereof.
"Indemnification Date" shall have the meaning set forth in Section 15.5(c)
-------------------- ---------------
hereof.
"Indemnification Notice" shall have the meaning set forth in Section
---------------------- -------
15.5(b) hereof.
- -------
"Indemnitee" means (a) any Person subject to a claim or demand or made or
threatened to be made a party to, or involved or threatened to be involved in,
an action, suit or proceeding by reason of his or her status as (i) a General
Partner or (ii) a director, officer, employee or agent of the Partnership or a
General Partner, and (b) such other Persons (including Affiliates of a General
Partner or the Partnership) as the Managing General Partner may designate from
time to time, in its sole and absolute discretion.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States, and any successor agency of the United States
federal government.
"Limited Partner" means any Person named as a Limited Partner in Exhibit A
hereof, as such Exhibit may be amended from time to time, or any Substituted
Limited Partner or Additional Limited Partner, in such Person's capacity as a
Limited Partner in the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner representing part of the Partnership Interests of all Limited Partners
and includes any and all benefits to which the holder of such a Partnership
Interest may be entitled as provided in this Agreement, together with
9
<PAGE>
all obligations of such Person to comply with the terms and provisions of this
Agreement. A Limited Partner Interest shall be expressed as a number of Units.
"Liquidating Events" shall have the meaning set forth in Section 13.1
------------------ ------------
hereof.
"Liquidator" shall have the meaning set forth in Section 13.2.A hereof.
---------- --------------
"Lock-Up Agreements" means the Lock-Up Agreements, dated the date hereof,
between each of the Limited Partners, respectively, and the Underwriters.
"Majority in Interest of the Limited Partners" means Limited Partners
(other than the Managing General Partner and any Limited Partner 50% or more of
whose equity is owned, directly or indirectly, by the Managing General Partner)
holding Units that in the aggregate are greater than fifty percent (50%) of the
aggregate Units of all Limited Partners (other than the Managing General Partner
and any Limited Partner 50% or more of whose equity is owned, directly or
indirectly, by the Managing General Partner).
"Managing General Partner" means the Company or its successors as managing
------------------------
general partner of the Partnership.
"Managing General Partner Loan" shall have the meaning set forth in Section
----------------------------- -------
4.3.B hereof.
- -----
"Managing General Partner Payment" shall have the meaning set forth in
--------------------------------
Section 10.6 hereof.
- ------------
"Net Cash Flow" means, with respect to the applicable period of measurement
(i.e., any period beginning on the first day of the fiscal year, quarter or
other period commencing immediately after the last day of the fiscal year,
quarter or other applicable period for purposes of the most recent calculation
of Net Cash Flow for or with respect to which a distribution has been made, and
ending on the last day of the fiscal year, quarter or other applicable period
immediately preceding the date of the calculation) the excess, if any, as of
such date, of (a) the gross cash receipts of the Partnership for such period
from all sources whatsoever, including, without limitation, the following:
(i) all rents, revenues, income and proceeds derived by the Partnership
from its operations, including, without limitation, distributions received by
the Partnership from any Person in which the Partnership has an interest; (ii)
all proceeds and revenues received by the Partnership on account of any sales of
property of the Partnership or as a refinancing of or payments of principal,
interest, costs, fees, penalties or otherwise on account of any borrowings or
loans made by the Partnership or financings or refinancings of any property of
the Partnership; (iii) the amount of any insurance proceeds and condemnation
awards received by the Partnership; (iv) all Capital Contributions or loans
received by the Partnership from its Partners; (v) any reduction in the cash
amounts previously reserved by the Partnership and described in subsection
(b)(ix) below, if the Managing General Partner determines that such amounts are
no longer needed; and (vi) the proceeds of liquidation of the Partnership's
property in accordance with this Agreement,
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<PAGE>
over (b) the sum of:
(i) all operating costs and expenses of the Partnership and capital
expenditures paid during such period (without deduction, however, for any
capital expenditures, charges for Depreciation or other expenses not paid in
cash or expenditures from reserves described in (ix) below); (ii) to the extent
not included in any other clause of this subparagraph (b), all costs and
expenses expended or paid during such period in connection with the sale or
other disposition, or financing or refinancing, of property of the Partnership
or the recovery of insurance or condemnation proceeds; (iii) to the extent not
included in any other clause of this subparagraph (b), all fees provided for
under this Agreement and paid by the Partnership during such period (other than
fees paid from reserves described in subsection (b)(iv) below); (iv) to the
extent not included in any other clause of this subparagraph (b), all debt
service, including principal and interest, paid during such period on all
indebtedness of the Partnership; (v) all capital contributions, advances,
reimbursements or similar payments made to any Person in which the Partnership
has an interest; (vi) all loans made by the Partnership in accordance with the
terms of this Agreement; (vii) to the extent not included in any other clause of
this subparagraph (b), all reimbursements to the Managing General Partner or its
Affiliates during such period, including Administrative Expenses (exclusive of
REIT Expenses) to the extent not paid or payable by the Managing General Partner
pursuant to the third sentence of Section 7.4.B; (viii) any distributions
pursuant to the proviso of the second sentence of Section 5.1 hereof; and (ix)
any increases in reserves reasonably determined by the Managing General Partner
to be necessary for working capital, capital improvements, payments of periodic
expenditures, debt service or other purposes for the Partnership or any Person
in which the Partnership has an interest.
"Net Income" or "Net Loss" shall mean, for each fiscal year or other
applicable period, an amount equal to the Partnership's net income or loss for
such year or period as determined for federal income tax purposes by the
Managing General Partner, determined in accordance with Section 703(a) of the
Code (for this purpose, all items of income, gain, loss or deduction required to
be stated separately pursuant to Section 703(a) of the Code shall be included in
taxable income or loss), adjusted as follows: (i) by including as an item of
gross income any tax-exempt income received by the Partnership and not otherwise
taken into account in computing Net Income or Net Loss; (ii) by treating as a
deductible expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code and not otherwise taken into account in computing Net
Income or Net Loss, including amounts paid or incurred to organize the
Partnership (unless an election is made pursuant to Section 709(b) of the Code)
or to promote the sale of interests in the Partnership; (iii) by treating
deductions for any losses incurred in connection with the sale or exchange of
Partnership property which are disallowed pursuant to Sections 267(a)(1) or
707(b) of the Code as expenditures described in Section 705(a)(2)(B) of the
Code; (iv) by taking into account Depreciation in lieu of depreciation,
depletion, amortization, and other cost recovery deductions taken into account
in computing taxable income or loss; (v) by computing gain or loss resulting
from any disposition of Partnership property with respect to which gain or loss
is recognized for federal income tax purposes by reference to the Gross Asset
Value of such property rather than its adjusted tax basis; (vi) in the event of
an adjustment of the Gross Asset Value of any Partnership asset which requires
that the Capital Accounts of the Partnership be adjusted pursuant to Sections
1.704-1(b)(2)(iv)(e), (f) and (m) of the Regulations, by taking into account the
amount of such adjustment as additional Net Income or Net Loss pursuant to
Article VI; and (vii) subject to the immediately preceding clause
11
<PAGE>
(vi), by excluding the Partnership items of income, gain, loss or deduction that
are specially allocated pursuant to Section 6.3.
"New Securities" means (a) any rights, options, warrants or convertible or
exchangeable securities having the right to subscribe for or purchase Common
Shares or other shares of beneficial interest of the Managing General Partner,
excluding grants under any Share Incentive Plan or (b) any Debt issued by the
Managing General Partner that provides any of the rights described in clause (a)
hereof.
"Nonrecourse Deductions" shall have the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" shall have the meaning set forth in Regulations
---------------------
Section 1.752-1(a)(2).
"Notice of Breach" shall have the meaning set forth in Section 15.2 hereof.
---------------- ------------
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partners and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" shall have the meaning set forth in Regulations
------------------------
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" shall have the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means, an ownership interest in the Partnership of
either a Limited Partner or a General Partner and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. There may be one or more classes of
Partnership Interests as provided in Section 4.3 hereof. A Partnership Interest
within a class of Partnership Interests shall be expressed as a number of units
of such class. In the event that the Partnership has more than one class of
Partnership Interests, the Partnership Interest of a Partner with respect to all
classes of Partnership Interests shall be expressed as the sum of each
Partnership Interest owned by such Partner for each class of Partnership
Interests, weighting each such
12
<PAGE>
Partnership Interest for each class based on the relative aggregate fair market
value of each class. Unless otherwise expressly provided for by the Managing
General Partner at the time of the original issuance of any Partnership
Interests, all Partnership Interests (whether of a Limited Partner or a General
Partner) shall be of the same class.
"Partnership Minimum Gain" shall have the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Payment Date" means the payment date established by the
Managing General Partner for the distribution of Net Cash Flow pursuant to
Section 5.1 hereof, which payment date shall be the same as the payment date
established by the Managing General Partner for a distribution to its
shareholders of some or all of its portion of such distribution.
"Partnership Year" means the fiscal year of the Partnership, which shall be
----------------
the calendar year.
"Permitted Debt Allocation Method" shall mean each of the following methods
of allocating the Partnership's excess nonrecourse liabilities for purposes of
Regulations Section 1.752-3(a)(3) in any Partnership taxable year:
(a) Excess nonrecourse liabilities shall be allocated in accordance with
the Partners' respective Partnership Interests as of the beginning of such
Partnership taxable year, not taking into account how the Partners will share
taxable income under Code Section 704(c);
(b) Excess nonrecourse liabilities shall be allocated in accordance with
how the Partners will share future Profits, taking into account as well how the
Partners will share taxable income under Code Section 704(c); one such method
will consist of aggregating as of the end of the immediately preceding
Partnership taxable year, the excess, computed for each Partner under Code
Section 704(c), of the Gross Asset Value of each Property on the relevant
Adjustment Date, over the adjusted tax basis of such Property on such Adjusted
Date ("net built-in gain"), less any such built-in gain that has been taken into
account pursuant to the allocation rule within Section 6.4, and any portion of
such built-in gain that was taken into account in making an allocation of
Nonrecourse Liabilities under Regulations Section 1.752-3(a)(2) allocating
excess nonrecourse liabilities of the Partnership shall be allocated for the
relevant Partnership taxable year based upon each Partner's relative percentage
of such net built-in gain; or
(c) Excess nonrecourse liabilities shall be allocated in accordance with
how it is reasonably expected that items of deduction attributable to such
excess Nonrecourse Liabilities will be allocated,
(d) In each case, as determined by the Managing General Partner in
accordance with Regulations Section 1.752-3 and Revenue Ruling 95-41, 1995-1
C.B. 132.
13
<PAGE>
"Person" means an individual or a corporation, partnership, limited
liability company, trust, unincorporated organization, association or other
entity.
"Pledge" shall have the meaning set forth in Section 11.3.A hereof.
------ --------------
"Preferred Shares" means the preferred shares of beneficial interest, par
value $.01 per share, of the Managing General Partner.
"Preferred Unit" means, with respect to any preferred class of Partnership
Interest, a fractional, undivided share of such class of Partnership Interest
issued pursuant to Section 4.1 and 4.3 hereof. The ownership of Preferred Units
may be evidenced by a certificate for preferred units substantially in the form
of Exhibit E hereof (including the restricted legends thereon) or as the
Managing General Partner may determine with respect to any class of Preferred
Units issued from time to time under Sections 4.1 and 4.3 hereof.
"Prime" means The Prime Group, Inc., an Illinois corporation and its
-----
affiliates.
"Primestone Transfer Events" means a Put Event or Change in Control Event,
each as defined in that certain partnership agreement dated the date hereof by
and among BRE/Primestone Investment Management L.L.C, BRE/Primestone Investment
L.L.C. and the Prime Partners (as defined in such partnership agreement).
"Properties" means such interests in real property and personal property
including without limitation, fee interests, interests in ground leases,
interests in joint ventures, interests in mortgages, and Debt instruments as the
Partnership may hold from time to time.
"Property Partnerships" shall mean the partnerships identified as such on
---------------------
Exhibit J attached hereto.
- ---------
"Put Option Agreement" shall mean that certain Put Option Agreement dated
as of ______________, 1997, between The Nardi Group, L.L.C. and
_________________.
"Qualified REIT Subsidiary" means any Subsidiary of the Managing General
Partner that is a "qualified REIT subsidiary" within the meaning of Section
856(i) of the Code.
"Qualified Transferee" means an "Accredited Investor" as defined in Rule
--------------------
501 promulgated under the Securities Act.
"Recapture Gain" shall have the meaning set forth in Section 6.4.D hereof.
-------------- -------------
"Regulations" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"Regulatory Allocations" shall have the meaning set forth in Section
---------------------- -------
6.3.A(8) hereof.
- --------
14
<PAGE>
"REIT" means a real estate investment trust under Sections 856 through 860
----
of the Code.
"REIT Expenses" shall mean (i) costs and expenses relating to the formation
and continuity of existence of the Managing General Partner and its
subsidiaries, if any, (which subsidiaries shall, for purposes of this definition
be included within the definition of Managing General Partner), including taxes,
fees and assessments associated therewith and any and all costs, expenses or
fees payable to any director, officer or trustee of the Managing General Partner
or such subsidiaries (including, without limitation, any costs of
indemnification), (ii) costs and expenses relating to any offer or registration
of securities by the Managing General Partner and all statements, reports, fees
and expenses incidental thereto, including, without limitation, underwriting
discounts and selling commissions applicable to any such offer of securities and
any costs and expenses associated with any claims made by any holder of such
securities or any underwriter or placement agent therefor, (iii) costs and
expenses associated with the preparation and filing of any periodic reports by
the Managing General Partner under federal, state or local laws or regulations,
including filings with the SEC, (iv) costs and expenses associated with
compliance by the Managing General Partner with laws, rules and regulations
promulgated by any regulatory body, including the SEC, and (v) all other
operating or administrative costs of the Managing General Partner incurred in
the ordinary course of its business.
"REIT Requirements" shall have the meaning set forth in Section 5.1 hereof.
----------------- -----------
"SEC" means the United States Securities and Exchange Commission and any
successor agency of the United States federal government.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Specified Exchange Date" means the day of receipt by the Managing General
-----------------------
Partner of an Exchange Exercise Notice.
"Share" means either a Common Share or a Preferred Share, as the case may
-----
be.
"Share Incentive Plan" means any share incentive plan of the Managing
--------------------
General Partner.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (a) the voting power of the voting equity
securities or (b) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Subsidiary Partnership" means any partnership that is a Subsidiary of the
----------------------
Partnership.
15
<PAGE>
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4 hereof.
"Surviving Partnership" shall have the meaning set forth in Section 11.2.C
--------------------- --------------
hereof.
"Tax Items" shall have the meaning set forth in Section 6.4.A hereof.
--------- -------------
"Tenant" means any tenant from which the Managing General Partner derives
rent either directly or indirectly through partnerships, including the
Partnership.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Underwriter" means any of Prudential Securities Incorporated, Friedman,
Billings, Ramsey & Co., Inc., Smith Barney Inc. and Morgan Keegan & Company,
Inc.
"Underwriting Agreement" means that certain Underwriting Agreement, dated
as of _________, 1997 among the Company, [Prime] and the [Underwriters].
"Unit" means either a Common Unit or a Preferred Unit, as the case may be.
----
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization. The Partnership is a limited partnership
formed pursuant to the provisions of the Act and upon the terms and conditions
set forth in this Agreement. Except as expressly provided herein, the rights
and obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
Section 2.2 Name. The name of the Partnership is Prime Group Realty,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the Managing General Partner, including the name of the
Managing General Partner or any Affiliate thereof. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The Managing General Partner in its
sole and absolute discretion may change the name of the Partnership at any time
and from time to time and shall notify the Partners of such change in the next
regular communication to the Partners.
Section 2.3 Resident Agent; Principal Office. The name and address of
the resident agent of the Partnership in the State of Delaware is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The address of the principal office of the
Partnership in the State of Delaware is Prime Group Realty, L.P., c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The
16
<PAGE>
principal office of the Partnership is located at 77 West Wacker Drive, Suite
3900, Chicago, Illinois 60601, or such other place as the Managing General
Partner may from time to time designate by notice to the Limited Partners. The
Managing General Partner, in its sole and absolute discretion, may change the
resident agent and appoint successor resident agents. The Partnership may
maintain offices at such other place or places within or outside the State of
Delaware as the Managing General Partner deems advisable.
Section 2.4 Power of Attorney.
-----------------
A. Each Partner and each Assignee constitutes and appoints the Managing
General Partner, any Liquidator, and authorized officers and attorneys-in-fact
of each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full power
and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate and all
amendments or restatements thereof) that the Managing General Partner or the
Liquidator deems appropriate or necessary to form, qualify or continue the
existence or qualification of the Partnership as a limited partnership (or a
partnership in which the Partners have limited liability) in the State of
Delaware and in all other jurisdictions in which the Partnership may conduct
business or own property; (b) all instruments that the Managing General Partner
or any Liquidator deems appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement in accordance with its
terms; (c) all conveyances and other instruments or documents that the Managing
General Partner or any Liquidator deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms of this
Agreement, including, without limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to, or other events described in, Articles 11, 12 and 13
hereof or the Capital Contribution of any Partner; and (e) all certificates,
documents and other instruments relating to the determination of the rights,
preferences and privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or necessary,
in the sole and absolute discretion of the Managing General Partner or any
Liquidator, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of the Managing General Partner or any
Liquidator, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the Managing General
Partner or any Liquidator to amend this Agreement except in accordance with
Article 14 hereof or as may be otherwise expressly provided for in this
Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the Managing General Partner and
any Liquidator to act as contemplated by this
17
<PAGE>
Agreement in any filing or other action by it on behalf of the Partnership, and
it shall survive and not be affected by the subsequent Incapacity of any Partner
or Assignee and the transfer of all or any portion of such Partner's or
Assignee's Units and shall extend to such Partner's or Assignee's heirs,
successors, assigns and personal representatives. Each such Partner or Assignee
hereby agrees to be bound by any representation made by the Managing General
Partner or any Liquidator, acting in good faith pursuant to such power of
attorney; and each such Partner or Assignee hereby waives any and all defenses
which may be available to contest, negate or disaffirm the action of the
Managing General Partner or any Liquidator, taken in good faith under such power
of attorney. Each Partner or Assignee shall execute and deliver to the Managing
General Partner or any Liquidator, within 15 days after receipt of the Managing
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the Managing General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
Section 2.5 Term. The term of the Partnership commenced on March 19,
1997 upon the filing of the Certificate in accordance with the Act and shall
continue until December 31, 2050 unless it is dissolved sooner pursuant to the
provisions of Article 13 hereof or as otherwise provided by law.
Section 2.6 Filings. A. The Managing General Partner shall take any
and all other actions reasonably necessary to perfect and maintain the status of
the Partnership as a limited partnership under the laws of the State of
Delaware. The Managing General Partner shall cause amendments to the
Certificate to be filed whenever required by the Act. Such amendments may be
executed by the Managing General Partner only.
B. The Managing General Partner shall execute and cause to be filed
original or amended Certificates and shall take any and all other actions as may
be reasonably necessary to perfect and maintain the status of the Partnership as
a limited partnership or similar type of entity under the laws of any other
states or jurisdictions in which the Partnership engages in business.
C. Upon the dissolution of the Partnership, the Managing General Partner
(or, in the event there is no remaining Managing General Partner, the Person
responsible for winding up and dissolution of the Partnership pursuant to
Article 13 hereof) shall promptly execute and cause to be filed certificates of
dissolution in accordance with the Act and the laws of any other states or
jurisdictions in which the Partnership has filed certificates.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the
business to be conducted by the Partnership is (A) to acquire and own real
property, to acquire, lease, own, mortgage or otherwise encumber personal
property, fixtures and real property, to operate, manage, lease (or, to the
extent determined by the Managing General Partner to be appropriate, cause the
operation, management and leasing by independent contractors including a Partner
or its Affiliates)
18
<PAGE>
any Property owned by the Partnership, (B) to develop real property and to
construct improvements on real property, (C) to enter into any partnership,
joint venture or other similar arrangement to engage in any of the foregoing or
to own interests in any entity engaged, directly or indirectly, in any of the
foregoing, (D) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act and (E) otherwise deal in and
with the business and assets of the Partnership, and to do anything necessary or
incidental to the foregoing; provided, however, that such business shall be
limited to and conducted in such manner to permit the Managing General Partner
at all times to be classified as a REIT for federal income tax purposes, unless
the Managing General Partner has determined to cease to qualify as a REIT. In
connection with the foregoing, and without limiting the Managing General
Partner's right in its sole discretion to cease qualifying as a REIT, the
Partners acknowledge that the Managing General Partner's status as a REIT inures
to the benefit of all the Partners and not solely to the Managing General
Partner. The Managing General Partner shall also be empowered to do any and all
acts and things necessary or prudent to ensure that the Partnership will not be
classified as a "publicly traded partnership" for purposes of Section 7704 of
the Code, including but not limited to, imposing restrictions on transfers and
restrictions on redemptions; provided, however, that no restrictions shall be
made on The Nardi Group, L.L.C. pursuant to this Section 3.1 except to the
extent set forth in the Put Option Agreement.
Section 3.2 Powers. The Partnership is empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership,
including, without limitation, full power and authority, directly or through its
ownership interest in other entities, to enter into, perform and carry out
contracts of any kind, borrow money and issue evidences of indebtedness, whether
or not secured by mortgage, deed of trust, pledge or other lien, acquire and
develop real property, and manage, lease, sell, transfer and dispose of real
property; provided, that the Partnership shall not take, or shall refrain from
taking, any action which, in the judgment of the Managing General Partner, in
its sole and absolute discretion, (i) could adversely affect the ability of the
Managing General Partner to continue to qualify as a REIT, (ii) could subject
the Managing General Partner to any additional taxes under Section 857 or
Section 4981 of the Code or any successor or newly enacted provisions of the
Code imposing other additional taxes or enacted provisions of the Code imposing
other additional taxes or penalties on the Managing General Partner or (iii)
could violate any law or regulation of any governmental body or agency having
jurisdiction over the Managing General Partner or its securities, unless any
such action (or inaction) under clauses (i), (ii) or (iii) of this proviso shall
have been specifically consented to by the Managing General Partner in writing.
Section 3.3 Representations and Warranties by the Parties.
---------------------------------------------
In addition to the representations and warranties included in Article 15
and elsewhere in this Agreement:
A. Each Partner represents and warrants to each other Partner that (1)
such Partner has the power and authority to enter into this Agreement and
perform such Partner's obligations hereunder, (2) the execution and delivery of
this Agreement by such Partner and the performance by such Partner of all
transactions contemplated by this Agreement to be performed by such Partner
19
<PAGE>
have been duly authorized by all necessary action, including without limitation,
that of its general partner(s), committee(s), trustee(s), beneficiaries,
directors and/or shareholder(s), as the case may be, as required, (3) the
consummation of such transactions shall not result in a breach or violation of,
or a default under, its certificate of limited partnership, partnership
agreement, trust agreement, limited liability company operating agreement,
charter, certificate or articles of incorporation or by-laws, as the case may
be, any agreement by which such Partner or any of such Partner's properties or
any of its partners, beneficiaries, trustees or shareholders, as the case may
be, is or are bound, or any statute, regulation, order or other law to which
such Partner or any of its partners, trustees, beneficiaries or shareholders, as
the case may be, is or are subject, (4) such Partner is neither a "foreign
person" within the meaning of Section 1445(f) of the Code nor a "foreign
partner" within the meaning of Section 1446(e) of the Code, and (5) this
Agreement has been duly executed and delivered by such Partner and is binding
upon, and enforceable against, such Partner in accordance with its terms.
B. Each Partner represents, warrants and agrees that it has acquired and
continues to hold its interest in the Partnership for its own account for
investment only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances. Each Partner further represents and
warrants that it is a sophisticated investor, able and accustomed to handling
sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds it has invested in the Partnership in what it
understands to be a highly speculative and illiquid investment.
C. Each Partner further represents, warrants and agrees as follows:
(1) Except as provided in Exhibit F hereof, it does not and will not,
without the prior written consent of the Managing General Partner, actually own
or Constructively Own (a) with respect to any Tenant that is a corporation, any
stock of such Tenant and (b) with respect to any Tenant that is not a
corporation, any interests in either the assets or net profits of such Tenant;
provided, however, that each Partner may own or Constructively Own with one or
more other Partners (x) with respect to any Tenant that is a corporation, stock
of such Tenant possessing less than ten percent (10%) of the total combined
voting power of all classes of stock entitled to vote and less than ten percent
(10%) of the total number of shares of all classes of stock of such Tenant and
(y) with respect to any Tenant that is not a corporation, interests in such
Tenant representing less than ten percent (10%) of the assets and ten percent
(10%) of the net profits of such Tenant, so long as such actual or Constructive
Ownership otherwise permitted under clause (x) or (y) above would not cause the
Managing General Partner to receive amounts described in Section 856 (d)(2)(B)
of the Code.
(2) Except as provided in Exhibit G hereof, it does not, and agrees
that it will not without the prior written consent of the Managing General
Partner, actually own or Constructively Own, any shares in the Managing General
Partner, other than any Common Shares or other shares of beneficial interest of
the Managing General Partner such Partner may acquire (a) as a result of an
exchange pursuant to Section 8.6 hereof or (b) upon the exercise of options
granted or delivery
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of Shares pursuant to any Share Incentive Plan, in each case subject to the
ownership limitations set forth in the Managing General Partner's Charter.
(3) Upon request of the Managing General Partner, it will disclose to
the Managing General Partner the amount of Common Shares or other shares of
beneficial interest of the Managing General Partner that it actually owns or
Constructively Owns.
(4) It understands that if, for any reason, (a) the representations,
warranties or agreements set forth in subparagraph C(1) or (2) of this Section
3.3 are violated or (b) the Partnership's actual or Constructive Ownership of
the Common Shares or other shares of beneficial interest of the Managing General
Partner violates the limitations set forth in the Charter, then (x) some or all
of the exchange rights of the Partners may become non-exercisable, and (y) some
or all of the Shares owned by the Partners may be automatically transferred to a
trust for the benefit of the Managing General Partner, as provided in the
Charter.
D. The representations and warranties contained in Sections 3.3.A, 3.3.B
and 3.3.C hereof shall survive the execution and delivery of this Agreement by
each Partner and the dissolution and winding up of the Partnership.
E. Each Partner hereby acknowledges that no representations as to
potential profit, cash flows, funds from operations or yield, if any, in respect
of the Partnership or the Managing General Partner have been made by any Partner
or any employee or representative or Affiliate of any Partner, and that
projections and any other information, including, without limitation, financial
and descriptive information and documentation, which may have been in any manner
submitted to such Partner shall not constitute any representation or warranty of
any kind or nature, express or implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners. At the time of their
respective execution of this Agreement, the Partners shall make Capital
Contributions as set forth in Exhibit A hereof. The Partners shall own Units of
the class and in the amounts set forth in Exhibit A hereof, which shall be
adjusted from time to time by the Managing General Partner to the extent
necessary to accurately reflect exchanges, Capital Contributions, the issuance
of additional Units or similar events having an effect on a Partner's number of
Units. Except as required by law or as otherwise provided in Sections 4.3, 4.4
and 10.5 hereof, no Partner shall be required or permitted to make any
additional Capital Contributions or loans to the Partnership.
Section 4.2 Loans by Third Parties. Subject to Section 4.3 hereof, the
Partnership may incur Debt, or enter into other similar credit, guarantee,
financing or refinancing arrangements for any purpose (including, without
limitation, in connection with any further acquisition of Properties) with any
Person that is not the Managing General Partner upon such terms as the Managing
General Partner determines to be appropriate; provided, that the Partnership
shall not incur any Debt that is recourse to any General Partner, except to the
extent otherwise agreed to by such General Partner
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in the sole discretion of such General Partner, or to any Limited Partner,
except to the extent otherwise agreed to by such Limited Partner in the sole
discretion of such Limited Partner.
Section 4.3 Additional Funding and Capital Contributions.
--------------------------------------------
A. General. The Managing General Partner may, at any time and from time
to time, determine that the Partnership requires additional funds ("Additional
Funds") for the acquisition of additional Properties or for such other
Partnership purposes as the Managing General Partner may determine. Additional
Funds may be raised by the Partnership, at the election of the Managing General
Partner, in any manner provided in, and in accordance with, the terms of this
Article 4. No Person shall have any preemptive, preferential or similar right
or rights to subscribe for or acquire any Partnership Interest, except as set
forth in this Section 4.3.
B. Managing General Partner Loans. The Managing General Partner may
enter into a Funding Debt, including, without limitation, a Funding Debt that is
convertible into Common Shares, and lend to the Partnership the net proceeds
received by the Partnership from such Funding Debt (a "Managing General Partner
Loan"); provided, however, that the Managing General Partner shall not be
obligated to lend the net proceeds of any Funding Debt to the Partnership in a
manner that would be inconsistent with the Managing General Partner's ability to
remain qualified as a REIT or would trigger any indemnity obligation on the part
of the Managing General Partner or the Partnership. If the Managing General
Partner enters into such a Funding Debt, the Managing General Partner Loan will
consist of the net proceeds from such Funding Debt and will be on comparable
terms and conditions, including interest rate, repayment schedule and costs and
expenses, as shall be applicable with respect to or incurred in connection with
such Funding Debt.
C. Issuance of Additional Partnership Interests. The Managing General
Partner may raise all or any portion of the Additional Funds by accepting
additional Capital Contributions, including, without limitation, the issuance of
Units for property or interests in property. In connection with any such
additional Capital Contributions (of cash or property), the Managing General
Partner is hereby authorized to cause the Partnership from time to time to issue
to Partners (including the Managing General Partner) or other Persons
(including, without limitation, in connection with the contribution of property
to the Partnership) additional Units or other Partnership Interests in one or
more classes, or one or more series of any of such classes, with such
designations, preferences and relative participating, optional or other special
rights, powers, and duties, including rights, powers, and duties senior to then
existing Partnership Interests, all as shall be determined by the Managing
General Partner in its sole and absolute discretion subject to Delaware law, and
as may be set forth by amendment to this Agreement to reflect the foregoing,
including without limitation, (1) the allocations of items of Partnership
income, gain, loss, deduction, and credit to such class or series of Partnership
Interests; (2) the right of each such class or series of Partnership Interests
to share in Partnership distributions; (3) the rights of each such class or
series of Partnership Interests upon dissolution and liquidation of the
Partnership; and (4) the right to vote, including, without limitation, the
approval rights set forth in Section 11.2.A hereof; provided, that no such
additional Units or other Partnership Interests shall be issued to the Managing
General Partner unless either (a) the additional Partnership Interests are
issued in connection with the grant, award, or issuance of shares of the
Managing General Partner pursuant to Section 4.3.D below,
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which shares have designations, preferences, and other rights (except voting
rights) such that the economic interests attributable to such shares are
substantially similar to the designations, preferences and other rights of the
additional Partnership Interests issued to the Managing General Partner in
accordance with this Section 4.3.C, or (b) the additional Partnership Interests
are issued to all Partners holding Partnership Interests in the same class in
proportion to their respective Partnership Interests in such class; provided,
however, that any Limited Partner Interests acquired by the Managing General
Partner, whether pursuant to exercise by a Limited Partner of its exchange
rights, or otherwise, shall be automatically converted into a General Partner
Interest comprised of an identical number of Units of the same class. In the
event that the Partnership issues additional Partnership Interests pursuant to
this Section 4.3.C, the Managing General Partner shall make such revisions to
this Agreement (including but not limited to the revisions described in Section
5.4, Section 6.2.B, and Section 8.6 hereof) as it determines are necessary to
reflect the issuance of such additional Partnership Interests.
D. Issuance of Shares or Other Securities by the Managing General
Partner. The Managing General Partner shall not issue any additional Shares
(other than Shares issued pursuant to Section 8.6 hereof or pursuant to a
dividend or distribution (including any share split) of Shares to all of its
shareholders), Convertible Preferred Shares, other shares of beneficial interest
of the Managing General Partner or New Securities unless the Managing General
Partner shall make a Capital Contribution of the net proceeds from the issuance
of such additional Shares, other shares of beneficial interest or New
Securities, as the case may be, and from the exercise of the rights contained in
such additional New Securities, as the case may be and receive Units from the
Partnership with rights, preferences and terms corresponding to such Shares,
other shares of beneficial interest or New Securities, as the case may be;
provided further, that in the case of Convertible Preferred Shares or other
securities senior or junior to the Common Shares as to dividends and
distributions on liquidation, the Managing General Partner shall contribute to
the Partnership the proceeds or consideration (including any property or other
non-cash assets) received for such securities and from any subsequent exercise,
exchange or conversion thereof (if applicable), and receive from the Partnership
Convertible Preferred Units or other interests in the Partnership in
consideration therefor with the same terms and conditions, including dividend,
dividend priority and liquidation preference, as are applicable to such
securities.
Section 4.4 Share Incentive Plan. If at any time or from time to time
the Managing General Partner sells or issues Shares pursuant to any Share
Incentive Plan, the Managing General Partner shall contribute the net proceeds
therefrom to the Partnership as an additional Capital Contribution and shall
receive the number of Common Units corresponding to the number of Shares
delivered by the Managing General Partner to such exercising party multiplied by
a fraction the numerator of which is one and the denominator of which is the
Exchange Factor (as defined in Exhibit C hereto) in effect on the date of such
contribution.
Section 4.5 Other Contribution Provisions. In the event that any
Partner is admitted to the Partnership and is given a Capital Account in
exchange for services rendered to the Partnership, such transaction shall be
treated by the Partnership and the affected Partner as if the Partnership had
compensated such Partner in cash, and the Partner had contributed such cash to
the capital of the Partnership. In addition, with the written consent of the
Managing General Partner (which may be
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granted or denied in its sole discretion), one or more Partners may enter into
agreements or other instruments with the Partnership which have the effect of
providing a guarantee of certain obligations of the Partnership or one or more
of its Subsidiaries.
Section 4.6 Purchase of Shares by the Managing General Partner. In the
event the Managing General Partner exercises its rights under the Charter to
purchase Shares, then the Managing General Partner shall cause the Partnership
to purchase from it a number of Units of the appropriate class equal to the
number of Shares so purchased multiplied by a fraction the numerator of which is
one and the denominator of which is the Exchange Factor (as defined in Exhibit C
hereto) in effect on the date of such contribution, on the same terms that the
Managing General Partner purchased such Shares.
Section 4.7 No Interest on Capital Contributions. No interest or
additional share of Net Income shall be paid or credited to the Partners on
their Capital Accounts, or on any undistributed Net Income of funds left on
deposit with the Partnership; provided, however, that nothing contained herein
shall be construed to prevent or prohibit the payment of interest on account of
loans made by the Partners to the Partnership. Any loans made to the
Partnership by a Partner shall not increase its Capital Contribution or interest
in the Net Income, Net Loss or Net Cash Flow of the Partnership, but shall be a
debt due from the Partnership and repaid accordingly.
Section 4.8 Conversion of Convertible Preferred Units.
-----------------------------------------
A. If at any time holders of the Managing General Partner's Convertible
Preferred Shares shall exercise their rights under the Managing General
Partner's Declaration of Trust to convert any Convertible Preferred Shares to
Common Shares, in whole or in part (including any fractions thereof), then,
simultaneously with such conversion, an equal number of Convertible Preferred
Units shall be automatically converted into the number of Common Units equal to
the product of (x) the number of Common Shares into which the Convertible
Preferred Shares are converted, multiplied by (y) a fraction the numerator of
which is one and the denominator of which is the Exchange Factor in effect on
such date.
B. If at any time the Managing General Partner's Convertible Preferred
Shares are to be redeemed pursuant to the Managing General Partner's Declaration
of Trust or purchased by the Managing General Partner, the Partnership shall
redeem an equal number of Convertible Preferred Units by payment to the Managing
General Partner of the Convertible Preferred Unit Redemption Amount or purchase
price to be paid by the Managing General Partner immediately prior to or
concurrently with such redemption or purchase. If at any time Convertible
Preferred Shares are to be redeemed pursuant to the Managing General Partner's
Declaration of Trust or purchased by the Managing General Partner, the
Partnership shall redeem an equal number of Convertible Preferred Units by
payment of the Convertible Preferred Unit Redemption Amount therefor or purchase
price paid by the Managing General Partner immediately prior to or concurrently
with such redemption or purchase.
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C. The Managing General Partner shall amend Exhibit A as applicable to
reflect each conversion of Convertible Preferred Units, and the issuance of
additional Common Units in connection therewith and each redemption of
Convertible Preferred Units.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. Except
as set forth in Section 13.2 hereof, the Managing General Partner shall cause
the Partnership to distribute from time to time, but not less frequently than
quarterly, all, or such portion as the Managing General Partner may in its
discretion determine, of Net Cash Flow generated by the Partnership during such
quarter to the Partners who are Partners on the Partnership Payment Date with
respect to such quarter, and in the following priority:
(i) First, to the extent that the amount of cash already distributed
to the Managing General Partner for all prior quarters pursuant to clause (ii)
below (other than the immediately preceding quarter) was less than the
Convertible Preferred Distribution for each of the outstanding Convertible
Preferred Units for all such quarters, and such deficiency was not previously
distributed pursuant to this subsection (i) or paid as part of a Convertible
Preferred Unit Redemption Amount (a "Convertible Preferred Distribution
Shortfall"), Net Cash Flow shall be distributed to the Managing General Partner
in an amount equal to such Convertible Preferred Distribution Shortfall for all
such prior quarters.
(ii) Second, Net Cash Flow shall be distributed to the Managing
General Partner in an amount equal to the Convertible Preferred Distribution for
the immediately preceding quarter for each outstanding Convertible Preferred
Unit then held by the Managing General Partner.
(iii) Third, Net Cash Flow shall be distributed to the holders of
Common Units, pro rata in accordance with their respective Common Units.
Unless otherwise expressly provided for herein or in an agreement at the
time a new class of Partnership Interests is created in accordance with Article
4 hereof, no Partnership Interest shall be entitled to a distribution in
preference to any other Partnership Interest; provided, however, that
notwithstanding any other provision in this Agreement, from time to time and at
such times as the Managing General Partner shall determine, and prior to any
determination or distribution of Net Cash Flow pursuant to this Section 5.1,
there shall be distributed to the Managing General Partner from the revenues,
proceeds or other funds of the Partnership, an amount equal to any REIT Expenses
(other than those described in clause (ii) of the definition of REIT Expenses),
to the extent not paid or payable by the Managing General Partner from cash
distributions which it receives directly from any Property Partnerships on
account of any interest in the Property Partnership which it holds directly (as
opposed to through the Partnership). The Managing General Partner shall take
such reasonable efforts, as determined by it in its sole and absolute discretion
and consistent with its qualification as a REIT, to cause the Partnership to
distribute sufficient amounts to enable the Managing General Partner to pay
shareholder dividends that will (X) satisfy the requirements for
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qualifying as a REIT under the Code and Regulations ("REIT Requirements") and
(Y) avoid any federal income or excise tax liability of the Managing General
Partner.
Section 5.2 Distributions in Kind. No right is given to any Partner to
demand and receive property or cash. The Managing General Partner may
determine, in its sole and absolute discretion, to make a distribution in kind
to the Partners of Partnership assets, and such assets shall be distributed in
such a fashion as to ensure that such assets are distributed and allocated in
accordance with Articles 5, 6 and 10 hereof based on the fair market value of
such assets on the date of such distribution.
Section 5.3 Distributions Upon Liquidation. Proceeds from a Terminating
Capital Transaction shall be distributed to the Partners in accordance with
Section 13.2 hereof.
Section 5.4 Distributions to Reflect Issuance of Additional Partnership
Interests. In the event that the Partnership issues additional Partnership
Interests to a General Partner or any Additional Limited Partner pursuant to
Section 4.3 or 4.4 hereof, the Managing General Partner shall make such
revisions to this Article 5 as it determines are necessary to reflect the
issuance of such additional Partnership Interests, including making preferential
distributions to certain classes of Partnership Interests.
Section 5.5 Distributions to Limited Partners Exercising Exchange
Rights. With respect to any Limited Partner(s) from whom the Managing General
Partner receives an Exercise Notice to exercise Rights in accordance with
Section 8.6 hereof for which the Managing General Partner elects to pay the Cash
Purchase Price pursuant to Exhibit C, the Managing General Partner shall cause
the Partnership to distribute to such Limited Partner(s), with respect to the
Units for which the Cash Purchase Price is paid, (i) on the Partnership Payment
Date, if any, thereafter occurring during the quarter in which the Cash Purchase
Price is paid, an amount equal to a full pro rata share of any Net Cash Flow to
which such Limited Partner would have been entitled to receive pursuant to
Section 5.1 had such Limited Partner held such Units on the Partnership Payment
Date occurring in such quarter and (ii) on the Partnership Payment Date, if any,
occurring during the next succeeding quarter after such Exercise Notice is
received, an amount equal to the Net Cash Flow to which such Limited Partner
would have been entitled to receive pursuant to Section 5.1 had such Limited
Partner held such Units on the Partnership Payment Date, multiplied by a
fraction, the numerator of which is the number of days in the preceding quarter
(based on three 30-day months) that the Limited Partner held such Units and the
denominator of which is 90.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss.
Net Income and Net Loss of the Partnership shall be determined and allocated
with respect to each Partnership taxable year of the Partnership as of the end
of each such year. Subject to the other provisions of this Article 6, an
allocation to a Partner of a share of Net Income or Net Loss shall be treated as
an allocation of the same share of each item of income, gain, loss or deduction
that is taken into account in computing Net Income or Net Loss.
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Section 6.2 General Allocations.
-------------------
A. In General. Except as otherwise provided in this Article 6, Net
Income and Net Loss shall be allocated to each class of Partners holding the
same class of Partnership Interests, in accordance with the relative aggregate
Partnership Interests of each such class, and, within each class, pro rata to
the Partners holding the same class of Partnership Interests in accordance with
their respective Partnership Interest in such class.
B. Allocations to Reflect Issuance of Additional Partnership Interests.
In the event that the Partnership issues additional Partnership Interests to a
General Partner or any Additional Limited Partner pursuant to Section 4.3 or 4.4
hereof, the Managing General Partner shall make such revisions to this Section
6.2 as it determines are necessary to reflect the terms of the issuance of such
additional Partnership Interests, including making preferential allocations to
certain classes of Partnership Interests.
C. Terminating Capital Event Allocation. In any Partnership taxable year
in which a Terminating Capital Event occurs, any Net Income or Net Loss (or
remaining Partnership items of income, gain, loss and deduction thereof),
computed by including the Net Income or Net Loss resulting from such Terminating
Capital Event, shall be allocated among the Partners, to the extent possible,
until each Partner has a Capital Account balance equal to the pro rata portion,
based on the Partnership Interest held by each Partner, of the net positive sum
of the Capital Account balances for all Partners (determined after taking into
account the allocations required under Section 6.3 hereof, but prior to taking
into account any distributions made with respect to such Partnership taxable
year).
D. Guaranteed Payments. To the extent that the Managing General Partner
receives any reimbursement of REIT Expenses pursuant to Section 5.1 the Managing
General Partner shall be allocated items of income and gain equal to the amount
of such payment.
E. Allocations with Respect to Transferred Interests. Unless otherwise
required by the Code and/or the Regulations or as agreed to and by the Managing
General Partner, in its sole and absolute discretion, any Net Income or Net Loss
allocable to a Partnership Interest which has been transferred during any year
shall be allocated among the Persons who were holders of such Partnership
Interest during such year in the manner described in Section 11.6 below.
Section 6.3 Additional Allocation Provisions.
--------------------------------
Notwithstanding the foregoing provisions of this Article 6 the following
special allocations shall be made in the following order and priority:
A. Regulatory Allocations.
----------------------
(1) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2
hereof, or any other provision of
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this Article 6, if there is a net decrease in Partnership Minimum Gain during
any Partnership taxable year, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
Partnership taxable years) in an amount equal to such Partner's share of the net
decrease in Partnership Minimum Gain, as determined under Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be allocated shall be determined in accordance
with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
6.3.A(1) is intended to qualify as a "minimum gain chargeback" within the
meaning of Regulation Section 1.704-2(f) which shall be controlling in the event
of a conflict between such Regulation and this Section 6.3.A(1).
(2) Partner Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(i)(4), and notwithstanding the provisions of Section
6.2 hereof, or any other provision of this Article 6 (except Section 6.3.A(1)
hereof), if there is a net decrease in Partner Minimum Gain attributable to a
Partner Nonrecourse Debt during any Partnership taxable year, each Partner who
has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year (and, if
necessary, subsequent Partnership taxable years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each General
Partner and Limited Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and
1.704-2(j)(2). This Section 6.3.A(2) is intended to qualify as a "chargeback of
partner nonrecourse debt minimum gain" within the meaning of Regulation Section
1.704-2(i) which shall be controlling in the event of a conflict between such
Regulation and this Section 6.3.A(2).
(3) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any
Nonrecourse Deductions for any Partnership taxable year generally shall be
allocated to the Partners in accordance with their Partnership Interests;
provided, however, that the Managing General Partner may allocate Nonrecourse
Deductions in a different manner so long as such allocation is reasonably
consistent with allocations of some other significant Partnership item
attributable to the Property securing the relevant Nonrecourse Liability that
have substantial economic effect in accordance with Regulations Section 1.702-
2(e)(2). Any Partner Nonrecourse Deductions for any Partnership taxable year
shall be specially allocated to the Partner(s) who bears the economic risk of
loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable, in accordance with Regulations Sections
1.704-2(b)(4) and 1.704-2(i).
(4) Qualified Income Offset. If any Partner unexpectedly receives an
adjustment, allocation or distribution described in Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be
allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to the
Partner in an amount and manner sufficient to eliminate, to the extent required
by such Regulations, the Adjusted Capital Account Deficit of the Partner as
quickly as possible; provided, that an allocation pursuant to this Section
6.3.A(4) shall be made if and only to the extent that such Partner would have an
Adjusted Capital Account Deficit after all other allocations
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provided in this Article 6 have been tentatively made as if this Section
6.3.A(4) were not in the Agreement. It is intended that this Section 6.3.A(4)
qualify and be construed as a "qualified income offset" within the meaning of
Regulations 1.704-1(b)(2)(ii)(d), which shall be controlling in the event of a
conflict between such Regulations and this Section 6.3.A(4).
(5) Gross Income Allocation. In the event any Partner has a deficit
Capital Account at the end of any Partnership taxable year which is in excess of
the sum of (a) the amount (if any) such Partner is obligated to restore to the
Partnership, and (b) the amount such Partner is deemed to be obligated to
restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
Partner shall be specially allocated items of Partnership income and gain, pro
rata, in proportion to the amount of such excess Capital Account deficit, as
quickly as possible until no Partner has such an excess Capital Account deficit;
provided, that an allocation pursuant to this Section 6.3.A(5) shall be made if
and only to the extent that such Partner would have an excess Capital Account
deficit after all other allocations provided in this Article 6 have been
tentatively made as if this Section 6.3.A(5) and Section 6.3.A(4) hereof were
not in the Agreement.
(6) Limitation on Allocation of Loss. No items of loss or deduction
will be allocated to any Partner to the extent that any such allocation would
cause the Partner to have an, or increase the amount of an existing, Adjusted
Capital Account Deficit at the end of any Partnership taxable year. All items
of loss or deduction in excess of the limitation set forth in this Section
6.3.A(6) will be allocated among such other Partners, which do not have
Adjusted Capital Account Deficit balances, pro rata, in proportion to their
Partnership Interests, until no Partner may be allocated any such items of loss
or deduction without having or increasing an Adjusted Capital Account Deficit.
Thereafter, any remaining items of loss or deduction will be allocated to the
Managing General Partner.
(7) Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken
into account in determining Capital Accounts as the result of a distribution to
a Partner in complete liquidation of his interest in the Partnership, the amount
of such adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Partners in accordance with their interests in the Partnership in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to whom
such distribution was made in the event that Regulations Section 1.704-
1(b)(2)(iv)(m)(4) applies.
(8) Curative Allocation. The allocations set forth in Sections
6.3.A(1), (2), (3), (4), (5), (6) and (7) hereof (the "Regulatory Allocations")
are intended to comply with certain regulatory requirements, including the
requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the
provisions of Sections 6.1 and 6.2 hereof, the Regulatory Allocations shall be
taken into account in allocating other items of income, gain, loss and deduction
among the Partners so that, to the extent possible, the net amount of such
allocations of other items and the Regulatory
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Allocations to each Partner shall be equal to the net amount that would have
been allocated to each such Partner if the Regulatory Allocations had not
occurred.
B. Nonrecourse Liability Allocation. For purposes of Regulations Section
1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the amount of Partnership Minimum Gain, shall be
allocated in each Partnership taxable year in accordance with a Permitted Debt
Allocation Method.
C. Distributions of Proceeds from Nonrecourse Liabilities. To the extent
permitted by Sections 1.704-2(h)(3) and 1.704-2(i)(6) of the Regulations, the
Partners shall endeavor to treat distributions of Net Cash Flow as having been
made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse Debt
only to the extent that such distribution would not cause or increase an
Adjusted Capital Account Deficit for any Partner.
D. Interpretation. The foregoing provisions of this Section 6.3 are
intended to comply with Treasury Regulation Sections 1.704-1(b) and 1.704-2 and
shall be interpreted consistently with this intention. Any terms used in such
provisions that are not specifically defined in this Agreement shall have the
meaning, if any, given such terms in the Regulations cited above.
Section 6.4 Tax Allocations.
---------------
A. In General. Except as otherwise provided in this Section 6.4, for
income tax purposes each item of income, gain, loss and deduction (collectively,
"Tax Items") shall be allocated among the Partners in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated pursuant
to Sections 6.2 and 6.3 hereof.
B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding
Section 6.4.A hereof, Tax Items with respect to Partnership property that is
contributed to the Partnership by a Partner shall be shared among the Partners
for income tax purposes pursuant to Regulations promulgated under Section 704(c)
of the Code, so as to take into account the variation, if any, between the
adjusted tax basis of the property to the Partnership and its initial Gross
Asset Value. With respect to Partnership property that is initially contributed
to the Partnership upon its formation pursuant to Section 4.1 hereof, such
variation between basis and initial Gross Asset Value shall be taken into
account under the "traditional method" as described in Regulations Section
1.704-3(b). With respect to properties subsequently contributed to the
Partnership, the Partnership shall account for such variation under any method
approved under Section 704(c) of the Code and the applicable regulations as
chosen by the Managing General Partner. In the event the Gross Asset Value of
any Partnership asset is adjusted pursuant to subparagraph (b) of the definition
of Gross Asset Value (provided in Article 1 of this Agreement), subsequent
allocations of Tax Items with respect to such asset shall take account of the
variation, if any, between the adjusted basis of such asset and its Gross Asset
Value in the same manner as under Section 704(c) of the Code and the applicable
regulations consistent with the requirements of Regulations Section 1.704-
1(b)(2)(iv)(g) using any method approved under 704(c) of the Code and the
applicable regulations as chosen by the Managing General Partner.
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C. Alternative Minimum Tax. If any taxable item of income or gain is
computed differently from the taxable item of income or gain which results for
purposes of the alternative minimum tax, then to the extent possible, without
changing the overall allocations of items for purposes of either the Partners'
Capital Accounts or the regular federal income tax (i) each Partner will be
allocated items of taxable income or gain for alternative minimum tax purposes
taking into account the prior allocations of originating tax preferences or
alternative minimum tax adjustments to such Partner (and its predecessors) and
(ii) other Partnership items of income or gain for alternative minimum tax
purposes of the same character that would have been recognized, but for the
originating tax preferences or alternative minimum tax adjustments, will be
allocated away from those Partners that are allocated amounts pursuant to clause
(i) so that, to the extent possible, the other Partners are allocated the same
amount, and type, of alternative minimum tax income and gain that would have
been allocated to them had the originating tax preferences or alternative
minimum tax adjustments not occurred.
D. Recapture Gain. If any portion of gain recognized from the
disposition of property by the Partnership represents the "recapture" of
previously allocated deductions by virtue of the application of Code Section
1245 or 1250 ("Recapture Gain"), such Recapture Gain will be allocated as
follows:
First, to the Partners, pro rata, in proportion to the lesser of each
Partner's (i) allocable share of the total gain recognized from the disposition
of such Partnership property and (ii) share of depreciation or amortization with
respect to such property (as determined under Regulations Sections 1.1245-
1(e)(2) and (3)), until each such Partner has been allocated Recapture Gain
equal to such lesser amount; and
Second, the balance of Recapture Gain will be allocated among the Partners
whose allocable shares of total gain exceed their shares of depreciation or
amortization with respect to such property (as determined under Regulations
Section 1.1245-1(e)(2) and (3)), in proportion to their shares of total gain
(including Recapture Gain) from the disposition of such property;
provided, however, that no Partner will be allocated Recapture Gain under this
Section 6.4.D in excess of the total gain allocated to such Partner from such
disposition.
ARTICLE 7
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management.
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A. Except as otherwise expressly provided in this Agreement or as
required by applicable law, all management powers over the business and affairs
of the Partnership are fully, exclusively and completely vested in the Managing
General Partner, and no other Partner shall have any right to transact business
for, participate in the management or decisions of, or exercise control or
management power over the business and affairs of, the Partnership. The
Managing General Partner may not be removed by the other Partners with or
without cause, except with the consent of the Managing General Partner. In
addition to the powers now or hereafter granted a general partner
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of a limited partnership under the Act and other applicable law or which are
granted to the Managing General Partner under any other provision of this
Agreement, the Managing General Partner, subject to the other provisions hereof
including Section 7.3, shall have full power and authority to do all things
deemed necessary or desirable by it to conduct the business of the Partnership,
to exercise all powers set forth in Section 3.2 hereof and to effectuate the
purposes set forth in Section 3.1 hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of money
(including, without limitation, making prepayments on loans and borrowing money
to permit the Partnership to make distributions to its Partners in such amounts
as will permit the Managing General Partner (so long as the Managing General
Partner has determined to qualify as a REIT) to avoid the payment of any federal
income tax (including, for this purpose, any excise tax pursuant to Section 4981
of the Code) and to make distributions to its shareholders sufficient to permit
the Managing General Partner to maintain REIT status), the assumption or
guarantee of, or other contracting for, indebtedness and other liabilities, the
issuance of evidences of indebtedness (including the securing of same by
mortgage, deed of trust or other lien or encumbrance on all or any of the
Partnership's assets) and the incurring of any obligations it deems necessary
for the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having jurisdiction
over the business or assets of the Partnership, the registration of any class of
securities of the Partnership under the Securities Exchange Act of 1934, as
amended, and the listing of any debt securities of the Partnership on any
exchange;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership or the merger or
other combination of the Partnership with or into another entity;
(4) the mortgage, pledge, encumbrance or hypothecation of all or any
assets of the Partnership, and the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose consistent with
the terms of this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct or the operations of the Managing
General Partner or the Partnership, the lending of funds to other Persons
(including, without limitation, the Managing General Partner (if necessary to
permit the financing or capitalization of a subsidiary of the Managing General
Partner or the Partnership) and any Subsidiaries of the Partnership) and the
repayment of obligations of the Partnership, any of its Subsidiaries and any
other Person in which it has an equity investment;
(5) the negotiation, execution, and performance of any contracts,
leases, conveyances or other instruments that the Managing General Partner
considers useful or necessary to the conduct of the Partnership's operations or
the implementation of the Managing General Partner's powers under this
Agreement;
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(6) the distribution of Partnership Net Cash Flow or other Partnership
assets in accordance with this Agreement;
(7) the selection and dismissal of employees of the Partnership
(including, without limitation, employees having titles such as "president,"
"vice president," "secretary" and "treasurer"), and agents, outside attorneys,
accountants, consultants and contractors of the Partnership, the determination
of their compensation and other terms of employment or hiring, including waivers
of conflicts of interest and the payment of their expenses and compensation out
of the Partnership's assets;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(9) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general partnerships, joint
ventures or other relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the contributions of property
to, any Subsidiary and any other Person in which the Partnership has an equity
investment from time to time); provided, that as long as the Managing General
Partner has determined to continue to qualify as a REIT, the Partnership may not
engage in any such formation, acquisition or contribution that would cause the
Managing General Partner to fail to qualify as a REIT;
(10) the control of any matters affecting the rights and obligations
of the Partnership, including the conduct of litigation and the incurring of
legal expense and the settlement of claims and litigation, and the
indemnification of any Person against liabilities and contingencies to the
extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Person (including, without
limitation, contributing or loaning Partnership funds to, incurring indebtedness
on behalf of, or guarantying the obligations of any such Persons);
(12) subject to the other provisions in this Agreement, the
determination of the fair market value of any Partnership property distributed
in kind using such reasonable method of valuation as it may adopt; provided,
that such methods are otherwise consistent with requirements of this Agreement;
(13) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or improvements owned
by the Partnership or any Subsidiary of the Partnership or by any other Person
in which the Partnership has made a direct or indirect equity investment;
(14) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(15) the collection and receipt of revenues and income of the
Partnership;
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(16) the exercise, directly or indirectly through any attorney-in-fact
acting under a general or limited power of attorney, of any right, including the
right to vote, appurtenant to any asset or investment held by the Partnership;
(17) the exercise of any of the powers of the Managing General Partner
enumerated in this Agreement on behalf of or in connection with any Subsidiary
of the Partnership or any other Person in which the Partnership has a direct or
indirect interest, or jointly with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the Managing General Partner
enumerated in this Agreement on behalf of any Person, pursuant to contractual or
other arrangements between the Partnership and such Person;
(19) the making, execution and delivery of any and all deeds, leases,
notes, deeds to secure debt, mortgages, deeds of trust, security agreements,
conveyances, contracts, guarantees, warranties, indemnities, waivers, releases
or legal instruments or other agreements in writing necessary or appropriate in
the judgment of the Managing General Partner for the accomplishment of any of
the powers of the Managing General Partner enumerated in or granted by this
Agreement;
(20) the amendment and restatement of Exhibit A to reflect accurately
at all times the Capital Contributions and Units ownership of the Partners as
the same are adjusted from time to time to the extent necessary to reflect
redemptions, conversions, Capital Contributions, the issuance of Units
(including Convertible Preferred Units), the admission of any Additional Limited
Partner or any Substituted Limited Partner or otherwise, which amendment and
restatement, notwithstanding anything in this Agreement to the contrary, shall
not be deemed an amendment of this Agreement, as long as the matter or event
being reflected in Exhibit A otherwise is authorized by this Agreement;
(21) the maintenance of the Partnership's books and records; and
(22) the preparation and delivery, or causing to be prepared and
delivered by the Partnership's accountants, all financial and other reports with
respect to the operations of the Partnership, and the preparation and filing of
all Federal and state tax returns and reports.
B. Each of the Partners agrees that the Managing General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provisions of this Agreement
(except as provided in Section 7.3 hereof), the Act or any applicable law, rule
or regulation; provided, that the Partners agree that the Partnership shall not
take, or refrain from taking, any action which, in the judgment of the Managing
General Partner, in its sole and absolute discretion, (A) could adversely affect
the ability of the Managing General Partner to continue to qualify as a REIT,
(B) could subject the Managing General Partner to any taxes under Section 857 or
Section 4981 of the Code, or (C) could violate any law or regulation of any
governmental body or agency having jurisdiction over the Managing General
Partner or its securities, unless any such action (or inaction) under (A), (B)
or (C) above shall have been
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specifically consented to by the Managing General Partner in writing. The
execution, delivery or performance by the Managing General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not constitute a breach by the Managing General Partner of any duty that the
Managing General Partner may owe the Partnership, any other General Partner or
the Limited Partners or any other Persons under this Agreement or of any duty
stated or implied by law or equity.
Except as otherwise provided in this Agreement, no Partner shall have any
authority to act for, bind, commit or assume any obligation or responsibility on
behalf of the Partnership, its properties or any other Partner. No Partner, in
its capacity as a Partner under this Agreement, shall be responsible or liable
for any indebtedness or obligation of another Partner, nor shall the Partnership
be responsible or liable for any indebtedness or obligation of any Partner,
incurred either before or after the execution and delivery of this Agreement by
such Partner, except as to those responsibilities, liabilities, indebtedness or
obligations incurred pursuant to and as limited by the terms of this Agreement
and the Act.
C. At all times from and after the date hereof, the Managing General
Partner may cause the Partnership to obtain and maintain (1) casualty, liability
and other insurance on the properties of the Partnership and (2) liability
insurance for the Indemnitees hereunder.
D. At all times from and after the date hereof, the Managing General
Partner may cause the Partnership to establish and maintain working capital and
other reserves in such amounts as the Managing General Partner, in its sole and
absolute discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement, the Managing General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner (including the Managing General Partner) of any
action taken by the Managing General Partner. The Managing General Partner, any
other General Partner and the Partnership shall not have liability to a Limited
Partner under any circumstances as a result of an income tax liability incurred
by such Limited Partner as a result of an action (or inaction) by the Managing
General Partner pursuant to its authority under this Agreement, except as may be
otherwise provided in any separate agreement between the Managing General
Partner and any Limited Partner; provided, that any such separate agreement
which subjects a General Partner to liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the Managing General Partner
pursuant to its authority under this Agreement, must be approved by such General
Partner. The Partners expressly acknowledge that, in any action undertaken by
the Managing General Partner in accordance with the terms of this Agreement, the
Managing General Partner is acting for the benefit of the Partnership, any other
General Partners, the Limited Partners, itself, and the Managing General
Partner's shareholders, collectively.
F. Except as otherwise provided herein, to the extent the duties of the
Managing General Partner require expenditures of funds to be paid to third
parties, the Managing General Partner shall not have any obligations hereunder
except to the extent that Partnership funds are reasonably available to it for
the performance of such duties, and nothing herein contained shall be deemed to
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authorize or require the Managing General Partner, in its capacity as such, to
expend its individual funds for payment to third parties or to undertake any
individual liability or obligation on behalf of the Partnership.
Section 7.2 Certificate of Limited Partnership. To the extent that such
action is determined by the Managing General Partner to be reasonable and
necessary or appropriate, the Managing General Partner shall file amendments to
and restatements of the Certificate and do all the things to maintain the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) under the laws of the State of Delaware and to
maintain the Partnership's qualification to do business as a foreign limited
partnership in each other state, the District of Columbia or other jurisdiction,
in which the Partnership may elect to do business or own property. Subject to
the terms of Section 8.5.A(4) hereof, the Managing General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate
or any amendment thereto to any Limited Partner. The Managing General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware, and any other state, or the District of Columbia or other
jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3 Restrictions on Managing General Partner's Authority.
----------------------------------------------------
A. The Managing General Partner may not take any action in contravention
of this Agreement, including, without limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as otherwise
provided in this Agreement;
(3) admit a Person as a Partner, except as otherwise provided in this
Agreement;
(4) perform any act that would subject a Limited Partner to liability
as a general partner in any jurisdiction or any other liability except as
provided herein or under the Act; or
(5) enter into any contract, mortgage, loan or other agreement that
prohibits or restricts, or has the effect of prohibiting or restricting, the
ability of a Partner to exercise in full its rights under Section 8.6 hereof,
except with the written consent of such Partner.
B. The Managing General Partner shall not, without the prior Consent of
the Partners, undertake, on behalf of the Partnership, any of the following
actions or enter into any transaction which would have the effect of such
transactions:
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(1) except as provided in Sections 7.1(A) and 7.3.D hereof, amend,
modify or terminate this Agreement other than to reflect the admission,
substitution, termination or withdrawal of partners pursuant to Article 12
hereof;
(2) make a general assignment for the benefit of creditors or appoint
or acquiesce in the appointment of a custodian, receiver or trustee for all or
any part of the assets of the Partnership; or
(3) institute any proceeding for bankruptcy on behalf of the
Partnership;
(4) approve or acquiesce to the transfer of the Partnership Interest
of the Managing General Partner to any Person other than the Partnership;
(5) admit into the Partnership any additional or substitute General
Partners; or
(6) as provided in Section 7.9, take title to any property of the
Partnership other than in the name of the Partnership or a Property Partnership.
C. If the aggregate Limited Partner Interests of all Limited Partners
represents 10.0% or more of the aggregate Partnership Interests, the Managing
General Partner shall not, without the prior Consent of the Limited Partners,
undertake, on behalf of the Partnership, to dissolve the Partnership.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, but subject to
Section 7.3.E hereof, the Managing General Partner shall have the power, without
the Consent of the Limited Partners, to amend this Agreement as may be required
to facilitate or implement any of the following purposes:
(1) to add to the obligations of the Managing General Partner or
surrender any right or power granted to the Managing General Partner or any
Affiliate of the Managing General Partner for the benefit of the other Partners;
(2) to reflect the issuance of additional Partnership Interests
pursuant to Sections 4.3.C and 4.4 hereof or the admission, substitution,
termination, or withdrawal of Partners in accordance with this Agreement;
(3) to reflect a change that is of an inconsequential nature and does
not adversely affect the Partners in any material respect, or to cure any
ambiguity in, correct or supplement any provision in, or make other changes with
respect to matters arising under, this Agreement that will not be inconsistent
with law or with the provisions of this Agreement;
(4) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a federal or state
agency or contained in federal or state law;
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(5) to reflect such changes as are reasonably necessary for the
Managing General Partner to maintain its status as a REIT, including changes
which may be necessitated due to a change in applicable law (or an authoritative
interpretation thereof) or a ruling of the IRS; and
(6) to modify, as set forth in the definition of "Capital Account,"
the manner in which Capital Accounts are computed.
The Managing General Partner will provide notice to the other Partners when any
action under this Section 7.3.D is taken.
E. Notwithstanding Sections 7.3.B, 7.3.C, and 7.3.D hereof, this
Agreement shall not be amended, and no action may be taken by the Managing
General Partner, without the Consent of each Partner adversely affected if such
amendment or action would (1) convert a Limited Partner's interest in the
Partnership into a general partner's interest (except as the result of the
Managing General Partner acquiring such interest), (2) modify the limited
liability of a Limited Partner, (3) alter rights of the Partner to receive
distributions pursuant to Article 5 or Section 13.2.A(4) hereof, or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.3
and Section 7.3.D(2) hereof), (4) alter or modify the rights set forth in
Section 8.6 hereof, and related definitions herein, (5) reduce the percentage of
Partners required to consent to any matter in this Agreement or (6) amend this
Section 7.3.E. Further, no amendment may alter the restrictions on the Managing
General Partner's authority set forth elsewhere in this Section 7.3 without the
Consent specified in such section. In addition, notwithstanding Sections 7.3.B,
7.3.C and 7.3.D hereof, Section 11.2 hereof shall not be amended, and no action
in contravention of Section 11.2 hereof shall be taken, without the Consent of
the Limited Partners.
F. Notwithstanding Section 7.3.B, no General Partner may, without the
prior written consent of each of the other General Partners, undertake, except
as set forth in the Put Option Agreement, any of the following actions or enter
into any transaction which would have the effect of such transactions:
(1) approve or acquiesce to the transfer of all or any portion of the
General Partner Interest (whether by sale, statutory merger or consolidation,
liquidation or otherwise) of such General Partner to any Person other than the
Partnership; or
(2) admit into the Partnership any additional or substitute General
Partners; or
(3) withdraw from the Partnership or assign all or any part of its
General Partner Interest in the Partnership.
Section 7.4 Reimbursement of the Managing General Partner.
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A. Except as provided in this Section 7.4 and elsewhere in this Agreement
(including the provisions of Articles 5 and 6 hereof regarding distributions,
payments and allocations to which it may be entitled), the Managing General
Partner shall not be compensated for its services as general partner of the
Partnership.
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B. Subject to Article 15 hereof, the Partnership shall assume and pay
when due, or reimburse the Managing General Partner for, on a monthly basis, or
such other basis as the Managing General Partner may determine in its sole and
absolute discretion, all costs and expenses it incurs. The Partnership shall
also assume, and pay when due, all Administrative Expenses other than REIT
Expenses, but only to the extent not paid or payable by the Managing General
Partner from cash distributions received by the Managing General Partner
directly from any Property Partnership. The Managing General Partner shall use
any cash distributions which it receives directly from any Property Partnerships
on account of any interest in the Property Partnership which it holds directly
(as opposed to through the Partnership) to pay REIT Expenses. The Partners
acknowledge that the Managing General Partner's sole business is the ownership
of interests in and operation of the Partnership and that such expenses are
incurred for the benefit of the Partnership; provided, that the Managing General
Partner shall not be reimbursed for expenses it incurs relating to the
organization of the Partnership and the Managing General Partner or the initial
public offering or subsequent public offerings of Common Shares, other shares of
beneficial interest or Funding Debt by the Managing General Partner, but shall
be reimbursed for expenses it incurs with respect to any other issuance of
additional Partnership Interests pursuant to the provisions hereof. Any amounts
paid pursuant to this Section 7.4 shall be in addition to, but not duplicative
of, any amounts paid to the Managing General Partner as indemnification pursuant
to Section 7.6 hereof.
C. Any reimbursements to the Managing General Partner pursuant to this
Section 7.4 which constitute gross income of the Managing General Partner shall
be reported as distributions for purposes of computing the Partners' Capital
Accounts, and shall not be reported as guaranteed payments within the meaning of
Section 707(c) of the Code.
Section 7.5 Contracts with Affiliates.
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A. The Partnership may lend or contribute to Persons in which the
Partnership has an equity investment, and such Persons may borrow funds from the
Partnership, on terms and conditions established in the sole and absolute
discretion of the Managing General Partner. The foregoing authority shall not
create any right or benefit in favor of any Person.
B. The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law.
C. The Managing General Partner, in its sole and absolute discretion and
without the approval of the Partners, may propose and adopt on behalf of the
Partnership employee benefit plans funded by the Partnership for the benefit of
employees of the Managing General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership, the Managing General
Partner, or any of the Partnership's Subsidiaries. The Managing General Partner
also is expressly authorized to cause the Partnership to issue to it Units
corresponding to Shares issued by the Managing General Partner pursuant to its
Share Incentive Plan or any similar or successor plan and to repurchase such
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Units from the Managing General Partner to the extent necessary to permit the
Managing General Partner to repurchase such Shares in accordance with such plan.
D. The Managing General Partner is expressly authorized to enter into, in
the name and on behalf of the Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various Affiliates of
the Partnership and the Managing General Partner, on such terms as the Managing
General Partner, in its sole and absolute discretion, believes are advisable.
E. Except as expressly permitted by this Agreement, no General Partner
nor any Affiliate of a General Partner shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, unless the Managing General Partner determines in good faith that
such transactions are fair and reasonable.
Section 7.6 Indemnification.
---------------
A. The Partnership shall indemnify an Indemnitee from and against any and
all losses, claims, damages, liabilities, joint or several, expenses (including
reasonable legal fees and expenses), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, that relate to the operations
of the Partnership as set forth in this Agreement in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established that: (1) the act or omission of the Indemnitee was material to the
matter giving rise to the claim, demand, action, suit or proceeding and either
was committed in bad faith by the Indemnitee or was the result of active and
deliberate dishonesty of the Indemnitee; (2) the Indemnitee actually received an
improper personal benefit in money, property or services; or (3) in the case of
any criminal proceeding, the Indemnitee had reasonable cause to believe that the
act or omission was unlawful. Without limitation, the foregoing indemnity shall
extend to any liability of any Indemnitee, pursuant to a loan guaranty or
otherwise, for any indebtedness of the Partnership or any Subsidiary of the
Partnership (including, without limitation, any indebtedness which the
Partnership or any Subsidiary of the Partnership has assumed or taken subject
to), and the Managing General Partner is hereby authorized and empowered, on
behalf of the Partnership, to enter into one or more indemnity agreements
consistent with the provisions of this Section 7.6 in favor of any Indemnitee
having or potentially having liability for any such indebtedness. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.6.A. Any indemnification pursuant to this Section
7.6 shall be made only out of the assets of the Partnership, and neither the
General Partners nor any Limited Partner shall have any obligation to contribute
to the capital of the Partnership or otherwise provide funds, to enable the
Partnership to fund its obligations under this Section 7.6.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (1) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in subparagraph A of this Section 7.6 has been met and (2) a written
undertaking by or
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on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.6 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in a
capacity which affords such Person the rights of an Indemnitee.
D. The Partnership may purchase and maintain insurance, on behalf of the
Indemnitees and such other Persons as the Managing General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by any such Person in connection with the Partnership's
activities, regardless of whether the Partnership would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.
E. For purposes of this Section 7.6, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
of the Managing General Partner or the Partnership whenever the performance by
it of its duties to the Partnership also imposes duties on, or otherwise
involves services by, it to such plan or participants or beneficiaries of such
plan; excise taxes assessed on an Indemnitee with respect to an employee benefit
plan pursuant to applicable law shall constitute fines within the meaning of
this Section 7.6; and actions taken or omitted by the Indemnitee with respect to
an employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject the Limited Partners or any of
the General Partners to personal liability by reason of the indemnification
provisions set forth in this Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.6 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the Indemnitee would
otherwise be entitled to indemnification.
H. The provisions of this Section 7.6 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.6 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.6 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
I. If and to the extent any reimbursements to the Managing General
Partner pursuant to this Section 7.6 constitute gross income of the Managing
General Partner (as opposed to the repayment of advances made by the Managing
General Partner on behalf of the Partnership) such amounts shall constitute
guaranteed payments within the meaning of Section 707(c) of the Code,
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shall be treated consistently therewith by the Partnership and all Partners, and
shall not be treated as distributions for purposes of computing the Partners'
Capital Accounts.
J. Any indemnification hereunder is subject to, and limited by, the
provisions of Section 17-108 of the Act.
K. In the event the Partnership is made a party to any litigation or
otherwise incurs any loss or expense as a result of or in connection with any
Partner's personal obligations or liabilities unrelated to Partnership business,
such Partner shall indemnify and reimburse the Partnership for all such loss and
expense incurred, including legal fees, and the Partnership Interest of such
Partner may be charged therefor. The liability of a Partner under this Section
7.6.K shall not be limited to such Partner's Partnership Interest, and shall be
enforceable against such Partner personally.
Section 7.7 Liability of the General Partners.
---------------------------------
A. Notwithstanding anything to the contrary set forth in this Agreement,
to the maximum extent that Maryland law or Delaware law, as the case may be, in
effect from time to time permits limitation of the liability of trustees and
officers of a real estate investment trust or limited liability company, as the
case may be, no trustee or officer of a General Partner shall be liable to the
Partnership or any Partner for money damages. Neither the amendment nor repeal
of this Section, nor the adoption or amendment of any other provision of this
Agreement inconsistent with this Section, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption. In
the absence of any Maryland statute or Delaware statute, as the case may be,
limiting the liability of trustees and officers of a Maryland real estate
investment trust or a Delaware limited liability company, as the case may be,
for money damages in a suit by or on behalf of the Partnership or by any
Partner, no trustee or officer of a General Partner shall be liable to the
Partnership or to any Partner for money damages except to the extent that (i)
the trustee or officer actually received an improper benefit or profit in money,
property or services, in which case the liability shall not exceed the amount of
the benefit or profit in money, property or services actually received; or (ii)
a judgment or other final adjudication adverse to the trustee or officer is
entered in a proceeding based on a finding in the proceeding that, the trustee's
or officer's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
B. The Limited Partners and the General Partners expressly acknowledge
that, as stated in Section 7.1.E, the Managing General Partner is acting for the
benefit of the Partnership, itself, the Limited Partners, the other General
Partners and the Managing General Partner's shareholders collectively, and that
the Managing General Partner is under no obligation to give priority to the
separate interests of the Limited Partners, the other General Partners or the
Managing General Partner's shareholders (including, without limitation, the tax
consequences to the Limited Partners, the General Partners or Assignees or to
shareholders) in deciding whether to cause the Partnership to take (or decline
to take) any actions and that the Managing General Partner shall not be liable
to the Partnership or to any General Partner or Limited Partner for monetary
damages for losses
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sustained, liabilities incurred, or benefits not derived by General Partners or
Limited Partners in connection with such decisions.
C. Subject to its obligations and duties as Managing General Partner set
forth in Section 7.1.A hereof, the Managing General Partner may exercise any of
the powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents.
D. Any amendment, modification or repeal of this Section 7.7 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of the Managing General Partner and any of its
officers, directors, agents and employees to the Partnership and the Limited
Partners under this Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.8 Other Matters Concerning the Managing General Partner.
-----------------------------------------------------
A. The Managing General Partner may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture,
or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties.
B. The Managing General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the opinion of such Persons as to matters which such
Managing General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
C. The Managing General Partner shall have the right, in respect of any
of its powers or obligations hereunder, to act through any of its duly
authorized officers and a duly appointed attorney or attorneys-in-fact. Each
such attorney shall, to the extent provided by the Managing General Partner in
the power of attorney, have full power and authority to do and perform all and
every act and duty which is permitted or required to be done by the Managing
General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or any non-
mandatory provision of the Act, any action of the Managing General Partner on
behalf of the Partnership or any decision of the Managing General Partner to
refrain from acting on behalf of the Partnership, undertaken in the good faith
belief that such action or omission is necessary or advisable in order (1) to
protect the ability of the Managing General Partner to continue to qualify as a
REIT or (2) to avoid the Managing General Partner incurring any taxes under
Section 857 or Section 4981 of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Partners.
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Section 7.9 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partners,
individually or collectively, shall have any ownership interest in such
Partnership assets or any portion thereof. Subject to Section 7.5, title to any
or all of the Partnership assets may be held in the name of the Partnership, the
Managing General Partner or one or more nominees, as the Managing General
Partner may determine, including Affiliates of the Managing General Partner.
The Managing General Partner hereby declares and warrants that any Partnership
assets for which legal title is held in the name of the Managing General Partner
or any nominee or Affiliate of the Managing General Partner shall be deemed held
by the Managing General Partner or such nominee or Affiliate for the use and
benefit of the Partnership in accordance with the provisions of this Agreement;
provided, however, that the Managing General Partner shall use its best efforts
to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held. Any such title holder shall perform any and all of its respective
functions to the extent and upon such terms and conditions as may be determined
from time to time by the Managing General Partner.
Section 7.10 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the Managing General Partner has full power and
authority to encumber, sell or otherwise use in any manner any and all assets of
the Partnership and to enter into any contracts on behalf of the Partnership,
and such Person shall be entitled to deal with the Managing General Partner as
if it were the Partnership's sole party in interest, both legally and
beneficially. Each Partner hereby waives any and all defenses or other remedies
which may be available against such Person to contest, negate or disaffirm any
action of the Managing General Partner in connection with any such dealing. In
no event shall any Person dealing with the Managing General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the Managing General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the Managing General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (A) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (B) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (C)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF
LIMITED PARTNERS AND GENERAL PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement or
under the Act.
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Section 8.2 No Participation in Management of Business. No Limited
Partner, General Partner or Assignee (other than the Managing General Partner,
any of its Affiliates or any officer, director, employee, general partner, agent
or trustee of the Managing General Partner, the Partnership or any of their
Affiliates, in their capacity as such) shall take part in the operations,
management or control (within the meaning of the Act) of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. The transaction of any
such business by the Managing General Partner, any of its Affiliates or any
officer, director, employee, general partner, agent or trustee of the Managing
General Partner, the Partnership or any of their Affiliates, in their capacity
as such, shall not affect, impair or eliminate the limitations on the liability
of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Partners. Subject to any agreements
entered into by a Partner or its Affiliate with the Managing General Partner,
Partnership or a Subsidiary, any Partner and any officer, director, employee,
agent, trustee, Affiliate or shareholder of, or partner in, any Partner shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities in direct competition with the Partnership or that are enhanced by
the activities of the Partnership. Neither the Partnership nor any Partners
shall have any rights by virtue of this Agreement in any business ventures of
any Partner or Assignee. Subject to such agreements, none of the Partners nor
any other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby in any business ventures of any
other Person, other than the Partners benefitting from the business conducted by
the Partnership in accordance with this Agreement, and such other Person shall
have no obligation pursuant to this Agreement to offer any interest in any such
business ventures to the Partnership, any Partner or any such other Person, even
if such opportunity is of a character which, if presented to the Partnership,
any Partner or such other Person, could be taken or pursued by such other
Person.
Section 8.4 Return of Capital. Except pursuant to the exchange rights
set forth in Section 8.6, no Partner shall be entitled to the withdrawal or
return of his or her Capital Contribution, except to the extent of distributions
made pursuant to this Agreement or upon termination of the Partnership as
provided herein. No Limited Partner or Assignee shall have priority over any
other Limited Partner or Assignee either as to the return of Capital
Contributions, or, except as otherwise expressly provided in this Agreement, as
to profits, losses, distributions or credits.
Section 8.5 Rights of Partners Relating to the Partnership.
----------------------------------------------
A. In addition to other rights provided by this Agreement or by the Act,
and except as limited by Section 8.5.B hereof, each Partner shall have the
right, for a purpose reasonably related to such Partner's interest as a partner
in the Partnership, upon written demand with a statement of the purpose of such
demand and at the Partnership's expense:
(1) to obtain a copy of the most recent annual and quarterly reports
filed with the SEC by the Managing General Partner pursuant to the Securities
Exchange Act, and each communication sent to the shareholders of the Managing
General Partner;
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(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership taxable year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of any written powers of
attorney pursuant to which this Agreement, the Certificate and all amendments
thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services contributed by
each Partner and which each Partner has agreed to contribute in the future, and
the date on which each became a Partner.
B. Notwithstanding any other provision of this Section 8.5, the Managing
General Partner may keep confidential from the Limited Partners, for such period
of time as the Managing General Partner determines in its sole and absolute
discretion to be reasonable, any information that (1) the Managing General
Partner believes to be in the nature of trade secrets or other information the
disclosure of which the Managing General Partner in good faith believes is not
in the best interests of the Partnership or could damage the Partnership or (2)
the Partnership or the Managing General Partner is required by law or by
agreements with unaffiliated third parties to keep confidential.
Section 8.6 Grant of Rights.
---------------
A. The Managing General Partner does hereby grant to the Limited Partners
and the Limited Partners do hereby accept the right, but not the obligations
(hereinafter such right sometimes referred to as the "Rights"), to exchange all
or a portion of their Units on the terms and subject to the conditions and
restrictions contained in Exhibit C. The Rights granted hereunder may be
exercised by any one or more of the Limited Partners, on the terms and subject
to the conditions and restrictions contained in Exhibit C, upon delivery to the
Managing General Partner of an Exchange Exercise Notice in the form of Schedule
1 to Exhibit C, which notice shall specify the Units to be exchanged by such
Limited Partner. Once delivered, the Exchange Exercise Notice shall be
irrevocable, subject to payment by the Managing General Partner of the Purchase
Price in respect of such Units in accordance with the terms hereof.
B. The terms and provisions applicable to the Rights shall be as set
forth in Exhibit C.
---------
C. Any Units acquired by the Managing General Partner pursuant to an
exercise by any Limited Partner of the Rights shall be deemed to be acquired by
and reallocated or reissued to the Managing General Partner. The Managing
General Partner shall amend Exhibit A hereto to reflect each such exchange and
reallocation or reissuance of Units and each corresponding recalculation of the
Units of the Partners.
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ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
----------------------
A. The Managing General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3 hereof. Any
records maintained by or on behalf of the Partnership in the regular course of
its business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device; provided,
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles, consistently applied.
B. The Managing General Partner shall provide Stephen J. Nardi and any
other duly authorized representatives of any other General Partners the right at
any reasonable time during normal business hours to visit and inspect any of the
properties of the Partnership and to examine and take copies or extracts from
its books of record and accounts.
Section 9.2 Fiscal Year. The fiscal year of the Partnership shall be
-----------
the calendar year.
Section 9.3 Reports.
-------
A. As soon as practicable, but in no event later than 105 days after the
close of each Partnership Year, or such earlier date as they are filed with the
SEC, the Managing General Partner shall cause to be mailed to each Partner as of
the close of the Partnership Year, an annual report containing financial
statements of the Partnership, or of the Managing General Partner if such
statements are prepared solely on a consolidated basis with the Managing General
Partner, for such Partnership Year, presented in accordance with generally
accepted accounting principles, consistently applied, such statements to be
audited by a nationally recognized firm of independent public accountants
selected by the Managing General Partner.
B. As soon as practicable, but in no event later than 45 days after the
close of each calendar quarter (except the last calendar quarter of each year),
or such earlier date as they are filed with the SEC, the Managing General
Partner shall cause to be mailed to each Partner as of the last day of the
calendar quarter, a report containing unaudited financial statements of the
Partnership, or of the Managing General Partner, if such statements are prepared
solely on a consolidated basis with the Managing General Partner, presented in
accordance with the applicable law or regulation, or as the Managing General
Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
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Section 10.1 Preparation of Tax Returns. The Managing General Partner
shall arrange for the preparation and timely filing of all tax returns of the
Partnership and shall use all reasonable efforts to furnish, within 90 days of
the close of each taxable year, the tax information reasonably required by
Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
Managing General Partner shall, in its sole and absolute discretion, determine
whether to make any available election pursuant to the Code, including the
election under Section 754 of the Code; provided, however, the Managing General
Partner may file an election on behalf of the Partnership pursuant to Section
754 of the Code to adjust the basis of the Partnership property in the case of a
transfer of a Partnership Interest, including transfers made in connection with
the exercise of Rights, made in accordance with the provisions of this
Agreement. The Managing General Partner shall have the right to seek to revoke
any such election (including without limitation, any election under Section 754
of the Code) upon the Managing General Partner's determination in its sole and
absolute discretion that such revocation is the best interests of the Partners.
Section 10.3 Tax Matters Partner.
-------------------
A. The Managing General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6223(c) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address and profit interest of each of the
Partners and Assignees; provided, however, that such information is provided to
the Partnership by the Partners and Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such agreement shall
bind all Partners, except that such settlement agreement shall not bind any
Partner (a) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a settlement agreement on
behalf of such Partner or (b) who is a "notice partner" (as defined in Section
6231 of the Code) or a member of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment at
the Partnership level of any item required to be taken into account by a Partner
for tax purposes (a "final adjustment") is mailed to the tax matters partner, to
seek judicial review of such final adjustment, including the filing of a
petition for readjustment with the Tax Court or the United States Claims Court,
or the filing of a complaint for refund with the District Court of the United
States for the district in which the Partnership's principal place of business
is located;
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(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS at
any time and, if any part of such request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for judicial review with respect to
such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken into
account by a Partner for tax purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the Managing
General Partner set forth in Section 7.6 hereof shall be fully applicable to the
tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees)
shall be borne by the Partnership. Nothing herein shall be construed to
restrict the Partnership from engaging an accounting firm or law firm to assist
the tax matters partner in discharging its duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable.
Section 10.4 Organizational and Start-Up Expenses. The Partnership shall
elect to deduct expenses, if any, incurred by it in organizing the Partnership
ratably over a 60-month period as provided in Sections 709(b) and 195(b) of the
Code.
Section 10.5 Withholding. Each Partner hereby authorizes the Partnership
to withhold from or pay on behalf of or with respect to such Partner any amount
of federal, state, local, or foreign taxes that the Managing General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the
Code. Any amount paid on behalf of or with respect to a Partner shall
constitute a loan by the Partnership to such Partner, which loan shall be repaid
by such Partner within 15 days after notice from the Managing General Partner
that such payment must be made unless (A) the Partnership withholds such payment
from a distribution which would otherwise be made to the Partner or (B) the
Managing General Partner determines, in its sole and absolute discretion, that
such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Partner. Any amounts
withheld pursuant to the foregoing clauses (A) or (B) shall be treated as having
been distributed to such
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Partner. Each Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Partner's Partnership Interest to secure
such Partner's obligation to pay to the Partnership any amounts required to be
paid pursuant to this Section 10.5. In the event that a Partner fails to pay
any amounts owed to the Partnership pursuant to this Section 10.5 when due, the
Managing General Partner may, in its sole and absolute discretion, elect to make
the payment to the Partnership on behalf of such defaulting Partner, and in such
event shall be deemed to have loaned such amount to such defaulting Partner and
shall succeed to all rights and remedies of the Partnership as against such
defaulting Partner (including, without limitation, the right to receive
distributions and the holding of a security interest in such Partner's
Partnership Interest). Any amounts payable by a Partner hereunder shall bear
interest at the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus two percentage points (but not higher than the maximum lawful rate) from
the date such amount is due (i.e., 15 days after demand) until such amount is
paid in full. Each Partner shall take such actions as the Partnership or the
Managing General Partner shall request in order to perfect or enforce the
security interest created under this Section 10.5.
Section 10.6 Limitation to Preserve REIT Status. To the extent that any
amount paid or credited to the Managing General Partner or its officers,
directors, employees or agents pursuant to Section 7.4 or 7.6 hereof would
constitute gross income to the Managing General Partner for purposes of Sections
856 (c) (2) or 856 (c) (3) of the Code (a "Managing General Partner Payment")
then, notwithstanding any other provision of this Agreement, the amount of such
Managing General Partner Payments for any Partnership taxable year shall not
exceed the lesser of:
(A) an amount equal to the excess, if any, of (1) _____% of the Managing
General Partner's total gross income (but not including the amount of any
Managing General Partner Payments) for the Partnership taxable year which is
described in subsections (A) through (H) of Section 856 (c) (2) of the Code over
(2) the amount of gross income (within the meaning of Section 856(c) (2) of the
Code) derived by the Managing General Partner from sources other than those
described in subsections (A) through (H) of Section 856(c) (2) of the Code (but
not including the amount of any Managing General Partner Payments); or
(B) an amount equal to the excess, if any, of (1) __% of the Managing
General Partner's total gross income (but not including the amount of any
Managing General Partner Payments) for the Partnership taxable year which is
described in subsections (A) through (I) of Section 856 (c) (3) of the Code over
(2) the amount of gross income (within the meaning of Section 856 (c) (3) of the
Code) derived by the Managing General Partner from sources other than those
described in subsections (A) through (I) of Section 856 (c) (3) of the Code (but
not including the amount of any Managing General Partner Payments);
provided, however, that Managing General Partner Payments in excess of the
amounts set forth in subparagraphs (A) and (B) above may be made if the Managing
General Partner, as a condition precedent, obtains an opinion of tax counsel
that the receipt of such excess amounts would not adversely affect the Managing
General Partner's ability to qualify as a REIT. To the extent Managing General
Partner Payments may not be made in a year due to the foregoing limitations,
such Managing General Partner Payments shall carry over and be treated as
arising in the following
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year; provided, however, that such amounts shall not carry over for more than
five years, and if not paid within such five year period, shall expire; provided
further, that (a) as Managing General Partner Payments are made, such payments
shall be applied first to carry over amounts outstanding, if any and (b) with
respect to carry over amounts for more than one Partnership taxable year, such
payments shall be applied to the earliest Partnership taxable year first.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
--------
A. The term "transfer," when used in this Article 11 with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
General Partner purports to assign its General Partner Interest to another
Person or by which a Limited Partner purports to assign its Limited Partner
Interest to another Person, and includes a sale, assignment, gift (outright or
in trust), pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise. The term "transfer" when used in this Article
11 does not include any exchange for Shares pursuant to Section 8.6 hereof. No
part of the interest of a Limited Partner shall be subject to the claims of any
creditor, any spouse for alimony or support, or to legal process, and may not be
voluntarily or involuntarily alienated or encumbered, except as may be
specifically provided for in this Agreement.
B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interest.
--------------------------------------------------
A. Except as may be provided in the Put Option Agreement, no General
Partner may withdraw from the Partnership or transfer or assign all or any
portion of its General Partner Interest in the Partnership (whether by sale,
statutory merger or consolidation, liquidation or otherwise) without the Consent
of the Partners, which may be given or withheld by each Partner in its sole and
absolute discretion, and only upon the admission of a successor General Partner
pursuant to Section 12.1 hereof; provided, that, as provided in Section 7.3.G,
neither the Managing General Partner nor any other General Partner may withdraw
from the Partnership or assign all or any part of its General Partner Interest
in the Partnership without the prior consent of all other General Partners,
except as may be provided in the Put Option Agreement. Upon any transfer of a
General Partner Interest in accordance with the provisions of this Section 11.2,
the transferee shall become a substitute General Partner for all purposes
herein, and shall be vested with the powers and rights of the transferor General
Partner, and shall be liable for all obligations and responsible for all duties
of the transferor General Partner, once such transferee has executed such
instruments as may be necessary to effectuate such admission and to confirm the
agreement of such transferee to be bound by all the terms and provisions of this
Agreement with respect to the General Partner Interest so acquired. It is a
condition to any transfer otherwise permitted hereunder that the transferee
assumes, by operation of law or express agreement, all of the obligations of the
transferor General Partner under this
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Agreement with respect to such transferred General Partner Interest, and no such
transfer (other than pursuant to (i) a statutory merger or consolidation wherein
all obligations and liabilities of the transferor General Partner are assumed by
a successor corporation by operation of law or (ii) the Put Option Agreement,
which shall remove The Nardi Group, L.L.C. from all obligations hereunder) shall
relieve the transferor General Partner of its obligations under this Agreement
without the Consent of the Partners, in their reasonable discretion. In the
event the Managing General Partner withdraws from the Partnership, in violation
of this Agreement or otherwise, or otherwise dissolves or terminates, or upon
the Incapacity of the Managing General Partner, all of the remaining Partners
may elect to continue the Partnership business by selecting a substitute
Managing General Partner in accordance with the Act. Notwithstanding anything
contained herein to the contrary, neither the Limited Partners nor the other
General Partners shall have any right whatsoever to remove the Managing General
Partner from the Partnership.
B. Neither the Managing General Partner nor the Partnership shall engage
in any merger, consolidation or other combination with or into another person,
sale of all or substantially all of its assets or any reclassification,
recapitalization or change of its outstanding equity interests (each, a
"Termination Transaction"), unless (1) if the holders of the Shares approve the
Termination Transaction, the Managing General Partner will not consummate such
Termination Transaction unless (i) the Managing General Partner first conducts a
vote of holders of Units (including the Managing General Partner) on the matter,
(ii) the Managing General Partner votes the Units held by it in the same
proportion as the holders of the Shares voted on the matter at the shareholder
vote and (iii) the result of such vote of the holders of the Units (including
the proportionate vote of the Units of the Managing General Partner) is that had
such vote been a vote of holders of Shares, the Termination Transaction would
have been approved (provided, however, that this Section 11.2.B(1) shall not be
interpreted to enable or require the Managing General Partner to engage in a
Termination Transaction which requires the approval of the holders of the Shares
if the Managing General Partner did not receive such required approval) and (2)
(x) such Termination Transaction has been approved by a Consent of the Limited
Partners or (y) except as otherwise provided in Section 11.2.C hereof, in
connection with such Termination Transaction all Limited Partners either will
receive or will have the right to elect to receive for each Common Unit an
amount of cash, securities, or other property equal to the product of the number
of Common Shares into which the Common Units held by such Limited Partner are
exchangeable and the greatest amount of cash, securities or other property paid
to a holder of one Common Share in consideration of one Common Share pursuant to
the terms of the Termination Transaction; provided, that if, in connection with
the Termination Transaction, a purchase, tender or exchange offer shall have
been made to and accepted by the holders of a majority of the outstanding
Shares, each holder of Units shall receive, or shall have the right to elect to
receive, the greatest amount of cash, securities, or other property which such
holder would have received had it exercised its Exchange Rights (as set forth in
Section 8.6 hereof) and received Shares in exchange for its Units immediately
prior to the expiration of such purchase, tender or exchange offer and had
thereupon accepted such purchase, tender or exchange offer and then such
Termination Transaction shall have been consummated.
C. A Managing General Partner may merge, or otherwise combine its assets,
with another entity without satisfying the requirements of Section 11.2.B hereof
if: (1) immediately after such merger or other combination, substantially all of
the assets directly or indirectly owned by the
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surviving entity, other than Units held by such Managing General Partner, are
owned directly or indirectly by the Partnership or another limited partnership
or limited liability company which is the survivor of a merger, consolidation or
combination of assets with the Partnership (in each case, the "Surviving
Partnership"); (2) the Limited Partners own a Partnership Interest of the
Surviving Partnership based on the relative fair market value of the net assets
of the Partnership (as determined pursuant to Section 11.2.D hereof) and the
other net assets of the Surviving Partnership (as determined pursuant to Section
11.2.D hereof) immediately prior to the consummation of such transaction; (3)
the rights, preferences and privileges of the Limited Partners in the Surviving
Partnership are at least as favorable as those in effect immediately prior to
the consummation of such transaction and as those generally applicable to
limited partners or non-managing members of the Surviving Partnership holding a
comparable class of interest; and (4) such rights of the Limited Partners
include the right to exchange their interests in the Surviving Partnership for
at least one of: (a) the consideration available to such Limited Partners
pursuant to Section 11.2.B hereof or (b) if the ultimate controlling person of
the Surviving Partnership has publicly traded common equity securities, such
common equity securities, with an exchange ratio based on the relative fair
market value of such securities (as determined pursuant to Section 11.2.D
hereof) and the Shares.
D. In connection with any transaction permitted by Section 11.2.B or
11.2.C hereof, the relative fair market values shall be reasonably determined by
the Managing General Partner as of the time of such transaction and, to the
extent applicable, shall be no less favorable to the Limited Partners than the
relative values reflected in the terms of such transaction.
Section 11.3 Limited Partners' Rights to Transfer.
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A. In addition to the restrictions set forth in the Lock-Up Agreements,
no Limited Partner shall, for a period of one year from the date hereof,
transfer all or any portion of its Partnership Interest to any transferee
without the consent of the Managing General Partner, which consent may be
withheld in the Managing General Partner's sole and absolute discretion;
provided, however, Primestone Investment Partners, L.P., a Delaware limited
partnership, may, at any time, without such consents, transfer its Partnership
Interest upon the occurrence of a Primestone Transfer Event; and provided
further that any Limited Partner may, at any time, without such consents, (1)
transfer all or any portion of its Partnership Interest to the Managing General
Partner, (2) transfer all or any portion of its Partnership Interest to an
Affiliate or to an Immediate Family member, subject to the provisions of Section
11.6 hereof, or to such Limited Partner's shareholders, members, partners or
beneficiaries, as the case may be, (3) transfer all or any portion of its
Partnership Interest to a trust for the benefit of a charitable beneficiary or
to a charitable foundation, subject to the provisions of Section 11.6 hereof and
(4) subject to the provisions of Section 11.6 hereof, pledge or transfer (a
"Pledge") all or any portion of its Partnership Interest to a lender, which is
not an Affiliate of such Limited Partner, as collateral or security for a bona
fide loan or other extension of credit, and transfer such pledged Partnership
Interest to such lender in connection with the exercise of remedies under such
loan or extension or credit. After the first anniversary of the date hereof,
each Limited Partner or Assignee (resulting from a transfer made pursuant to
clauses (1)-(4) of the proviso of the preceding sentence) shall have the right
to transfer all or any portion of its Partnership Interest to a Qualified
Transferee, subject to the provisions of Section 11.6 hereof (in addition to the
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right of each such Limited Partner or Assignee to continue to make any such
transfer permitted by clauses (1)-(4) of the proviso of the immediately
preceding sentence).
It is a condition to any transfer otherwise permitted hereunder that the
transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the Managing General Partner, in its
reasonable discretion; provided, however, that such transfer shall relieve the
transferor Partner from any future obligations under this Agreement from and
after the date of the transfer. Notwithstanding the foregoing, any transferee
of any transferred Partnership Interest shall be subject to any and all
ownership limitations contained in the Charter and the representations in
Section 3.3.D hereof. Any transferee, whether or not admitted as a Substituted
Limited Partner, shall take subject to the obligations of the transferor
hereunder. Unless admitted as a Substitute Limited Partner, no transferee,
whether by a voluntary transfer, by operation of law or otherwise, shall have
rights hereunder, other than the rights of an Assignee as provided in Section
11.5 hereof.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator, or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but no
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate, and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The Managing General Partner may prohibit any transfer otherwise
permitted under this Section 11.3 by a Limited Partner of his or her Units if,
in the opinion of legal counsel to the Partnership, such transfer would require
the filing of a registration statement under the Securities Act by the
Partnership or would otherwise violate any federal or state securities laws or
regulations applicable to the Partnership or the Unit.
Section 11.4 Substituted Limited Partners.
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A. No Limited Partner shall have the right to substitute a transferee as
a Limited Partner in place of such Limited Partner (including any transferee
permitted by Section 11.3 hereof). The Managing General Partner shall, however,
have the right to consent to the admission of a permitted transferee of the
interest of a Limited Partner as a Substituted Limited Partner, pursuant to this
Section 11.4 hereof, which consent may be given or withheld by the Managing
General Partner in its sole and absolute discretion. The Managing General
Partner's failure or refusal to permit a transferee of any such interests to
become a Substituted Limited Partner shall not give rise to any cause of action
against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement. The admission of any transferee as a
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Substituted Limited Partner shall be subject to (i) the transferee executing and
delivering to the Partnership an acceptance of all of the terms and conditions
of this Agreement (including without limitation, the provisions of Section 2.4
hereof and such other documents or instruments as may be required to effect the
admission, each in form and substance satisfactory to the Managing General
Partner), (ii) the acknowledgment by such transferee that each of the
representations and warranties set forth in Section 3.3.D hereof are true and
correct with respect to such transferee as of the date of the transfer of the
Partnership Interest to such transferee and (iii) if requested by the Managing
General Partner, an opinion of counsel to the transferee that favorably covers
the matters set forth in clauses (i) through (xii) of Section 11.6.E.
C. Upon the admission of a Substituted Limited Partner, the Managing
General Partner shall amend Exhibit A to reflect the name, address, and number
of Units of such Substituted Limited Partner and to eliminate or adjust, if
necessary, the name, address and interest of the predecessor of such Substituted
Limited Partner.
Section 11.5 Assignees. If the Managing General Partner, in its sole and
absolute discretion, does not consent to the admission of any permitted
transferee under Section 11.3 hereof as a Substituted Limited Partner, as
described in Section 11.4 hereof, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be entitled to all
the rights of an assignee of a limited partner interest under the Act, including
the right to receive distributions from the Partnership and the share of Net
Income, Net Losses, gain and loss attributable to the Units assigned to such
transferee, the rights to transfer the Units provided in this Article 11, and
the exchange rights provided in Section 8.6 hereof, but shall not be deemed to
be a holder of Units for any other purpose under this Agreement, and shall not
be entitled to effect a Consent of the Partners or Consent of the Limited
Partners with respect to such Units on any matter presented to the Limited
Partners for approval (such Consent of the Partners or Consent of the Limited
Partners remaining with the transferor Limited Partner). In the event any such
transferee desires to make a further assignment of any such Units, such
transferee shall be subject to all the provisions of this Article 11 to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of Units.
Section 11.6 General Provisions.
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A. No Limited Partner may withdraw from the Partnership other than as a
result of (1) a permitted transfer of all of such Limited Partner's Units in
accordance with this Article 11 and the transferee(s) of such Units being
admitted to the Partnership as a Substituted Limited Partner(s) or (2) pursuant
to the exercise of its exchange rights of all of such Limited Partner's Units
under Section 8.6 hereof.
B. Any Limited Partner who shall transfer all of such Limited Partner's
Units in a transfer permitted pursuant to this Article 11 where such transferee
was admitted as a Substituted Limited Partner or pursuant to the exercise of its
exchange rights of all of such Limited Partner's Units under Section 8.6 hereof
shall cease to be a Limited Partner.
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C. If any Partnership Interest is transferred, assigned or exchanged
during any quarterly segment of the Partnership's taxable year in compliance
with the provisions of this Article 11 or transferred or exchanged pursuant to
Section 8.6 hereof on any day other than the first day of a Partnership taxable
year, then Net Income, Net Losses, each item thereof and all other items
attributable to such Partnership Interest for such Partnership taxable year
shall be divided and allocated between the transferor Partner and the transferee
Partner by taking into account their varying interests during the Partnership
taxable year in accordance with Section 706(d) of the Code, using the interim
closing of the books method. Except as otherwise required by Section 706(d) of
the Code, solely for purposes of making such allocations, each of such items for
the calendar month in which the transfer, assignment or exchange occurs shall be
allocated to the Person who is a Partner as of midnight on the last day of said
month and none of such items for the calendar month in which an exchange occurs
will be allocated to the transferring, assigning or exchanging Partner. All
distributions of Net Cash Flow attributable to such Partnership Interest with
respect to which the Partnership Payment Date is before the date of such
transfer, assignment or exchange shall be made to the transferor Partner, and
all distributions of Net Cash Flow thereafter, in the case of a transfer or
assignment, shall be made to the transferee Partner, or in the case of an
exchange, the Managing General Partner.
D. No transfer of any Units may be made to a lender to the Partnership or
any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability, without the consent of the Managing General Partner, in
its sole and absolute discretion; provided, that as a condition to such consent,
the lender will be required to enter into an arrangement with the Partnership
and the Managing General Partner to exchange for Shares any Units in which a
security interest is held simultaneously with the time at which such lender
would be deemed to be a partner in the Partnership for purposes of allocating
liabilities to such lender under Section 752 of the Code.
E. In addition to any other restrictions on transfer herein contained,
including without limitation the provisions of this Article 11, in no event may
any transfer or assignment of a Partnership Interest by any Partner be made (1)
to any person or entity who lacks the legal right, power or capacity to own a
Partnership Interest; (2) in violation of applicable law; (3) of any component
portion of a Partnership Interest, such as the Capital Account, or rights to
distributions, separate and apart from all other components of a Partnership
Interest; (4) if in the opinion of legal counsel for the Partnership such
transfer would cause a termination of the Partnership for federal or state
income tax purposes (except as a result of the exchange for Shares of all Units
held by all Partners or pursuant to a Termination Transaction expressly
permitted under Section 11.2 hereof); (5) if in the opinion of legal counsel for
the Partnership such transfer would cause the Partnership to cease to be
classified as a partnership for federal or state income tax purposes (except as
a result of the exchange for Shares of all Units held by all Limited Partners);
(6) if such transfer would cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code); (7) if such transfer would, in the opinion of
counsel to the Partnership, cause any portion of the assets of the Partnership
to constitute assets of any employee benefit plan pursuant to Department of
Labor Regulations Section 2510.2-101; (8) if such transfer requires the
registration of such Partnership Interest pursuant to any applicable federal or
state
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securities laws; (9) if such transfer is effectuated through an "established
securities market" or a "secondary market" (or the substantial equivalent
thereof) within the meaning of Section 7704 of the Code or such transfer causes
there to be more than 100 Partners for purposes of Code Section 7704 or
otherwise causes the Partnership to become a "Publicly Traded Partnership," as
such term is defined in Sections 469(k)(2) or 7704(b) of the Code; (10) if such
transfer subjects the Partnership to be regulated under the Investment Company
Act of 1940, the Investment Advisors Act of 1940 or the Employee Retirement
Income Security Act of 1974, each as amended; (11) if the transferee or assignee
of such Partnership Interest is unable to make the representations set forth in
Section 3.3.D hereof or such transfer could otherwise adversely affect the
ability of the Managing General Partner to remain qualified as a REIT; or (12)
if in the opinion of legal counsel for the Partnership such transfer would
adversely affect the ability of the Managing General Partner to continue to
qualify as a REIT or subject the Managing General Partner to any additional
taxes under Section 857 or Section 4981 of the Code.
F. The Managing General Partner shall monitor the transfers of interests
in the Partnership to determine (1) if such interests are being traded on an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code and (2)
whether additional transfers of interests would result in the Partnership being
unable to qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704-1 (or such other guidance subsequently published by
the IRS setting forth safe harbors under which interests will not be treated as
"readily tradable on a secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code) (the "Safe Harbors"). The
Managing General Partner shall take all steps reasonably necessary or
appropriate to prevent any trading of interests or any recognition by the
Partnership of transfers made on such markets and, except as otherwise provided
herein, to insure that at least one of the Safe Harbors is met.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor Managing General Partner. A
successor to all of the Managing General Partner's General Partner Interest
pursuant to Section 11.2 hereof who is proposed to be admitted as a successor
Managing General Partner shall be admitted to the Partnership as the Managing
General Partner, effective upon such transfer. Any such transferee shall carry
on the business of the Partnership without dissolution. In each case, the
admission shall be subject to the successor Managing General Partner executing
and delivering to the Partnership an acceptance of all of the terms and
conditions of this Agreement and such other documents or instruments as may be
required to effect the admission. In the case of such admission on any day
other than the first day of a Partnership taxable year, all items attributable
to the General Partner Interest for such Partnership taxable year shall be
allocated between the transferring Managing General Partner and such successor
as provided in Article 11 hereof.
Section 12.2 Admission of Additional Limited Partners.
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A. After the admission to the Partnership of the Limited Partners on the
date hereof, a Person who makes a Capital Contribution to the Partnership in
accordance with this Agreement shall
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be admitted to the Partnership as an Additional Limited Partner subject to (i)
the transferee executing and delivering to the Partnership an acceptance of all
of the terms and conditions of this Agreement (including without limitation, the
provisions of Section 2.4 hereof and such other documents or instruments as may
be required to effect the admission, each in form and substance satisfactory to
the Managing General Partner), (ii) the acknowledgment by such transferee that
each of the representations and warranties set forth in Section 3.3.D hereof are
true and correct with respect to such transferee as of the date of the transfer
of the Partnership Interest to such transferee and (iii) if requested by the
Managing General Partner, an opinion of counsel to the transferee that favorably
covers the matters set forth in clauses (i) through (xii) of Section 11.6.E.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the Managing General Partner, which consent may be given or withheld in the
Managing General Partner's sole and absolute discretion. The admission of any
Person as an Additional Limited Partner shall become effective on the date upon
which the name of such Person is recorded on the books and records of the
Partnership, following the receipt of the Capital Contribution in respect of
such Limited Partner, the documents set forth in paragraph A of this Section
12.2 and the consent of the Managing General Partner to such admission. If any
Additional Limited Partner is admitted to the Partnership on any day other than
the first day of a Partnership taxable year, then Net Income, Net Losses, each
item thereof and all other items allocable among Partners and Assignees for such
Partnership taxable year shall be allocated among such Limited Partner and all
other Partners and Assignees by taking into account their varying interests
during the Partnership taxable year in accordance with Section 706(d) of the
Code, using the interim closing books method. Solely for purposes of making
such allocations, each of such items for the calendar month in which an
admission of an Additional Limited Partner occurs shall be allocated among all
the Partners and Assignees including such Additional Limited Partner. All
distributions of Net Cash Flow with respect to which the Partnership Payment
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner (other than in its capacity
as an Assignee) and except as otherwise agreed to by the Additional Limited
Partners and the Managing General Partner, and all distributions of Net Cash
Flow thereafter shall be made to all Partners and Assignees including such
Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership. For the admission to the Partnership of any Partner, the Managing
General Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A
hereof) and, if required by law, shall prepare and file an amendment to the
Certificate and may for this purpose exercise the power of attorney granted
pursuant to Section 2.4 hereof.
ARTICLE 13
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor Managing General Partner in accordance with the
terms of this Agreement. Upon the withdrawal
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of the Managing General Partner, any successor Managing General Partner
(selected as described in Section 13.1.B hereof) shall continue the business of
the Partnership. The Partnership shall dissolve, and its affairs shall be wound
up, upon the first to occur of any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
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B. an event of withdrawal of the Managing General Partner, as defined in
the Act, unless, within 90 days after the withdrawal, all of the remaining
Partners agree in writing, in their sole and absolute discretion, to continue
the business of the Partnership and to the appointment, effective as of the date
of withdrawal, of a substitute Managing General Partner;
C. subject to the provisions of Section 7.3.C hereof, an election to
dissolve the Partnership made by the Managing General Partner;
D. entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Act;
E. the sale of all or substantially all of the assets and properties of
the Partnership unless the Managing General Partner, with the Consent of the
Limited Partners (which consent may not be unreasonably withheld), elects to
continue the Partnership business for the purpose of the receipt and the
collection of indebtedness or the collection of any other consideration to be
received in exchange for the assets of the Partnership (which activities shall
be deemed to be part of the winding up of the affairs of the Partnership);
F. the Incapacity of the Managing General Partner, unless all of the
remaining Partners in their sole and absolute discretion agree in writing to
continue the business of the Partnership and to the appointment, effective as of
a date prior to the date of such Incapacity, of a substitute Managing General
Partner; or
G. the exchange for Shares of all Units (other than those of the Managing
General Partner).
Section 13.2 Winding Up.
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A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and of the
Partners. No Partner shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Partnership's business
and affairs. The Managing General Partner (or, in the event there is no
remaining Managing General Partner, any Person elected by a Majority in Interest
of the Limited Partners) (the "Liquidator") shall be responsible for overseeing
the winding up and dissolution of the Partnership and shall take full account of
the Partnership's liabilities and assets, and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which
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may, to the extent determined by the Managing General Partner, include shares of
beneficial interest of the Managing General Partner) shall be applied and
distributed in the following order:
(1) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the Managing General Partner, including any Convertible
Preferred Distribution Shortfall;
(3) Third, to the payment and discharge of all of the Partnership's
debts and liabilities to the other Partners; and
(4) The balance, if any, to the General Partners and Limited Partners
in accordance with their positive Capital Account balances, determined after
taking into account all Capital Account adjustments for the Partnership taxable
year during which the liquidation occurs (other than those made as a result of
the liquidating distribution set forth in this Section 13.2.A(4)).
The Managing General Partner shall not receive any additional compensation for
any services performed pursuant to this Article 13 other than reimbursement of
its expenses as provided in Section 7.4 hereof.
B. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of Regulations; Deficit
Capital Account. In the event the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article 13 to the General Partners and Limited Partners who
have positive Capital Accounts in compliance with Regulations Section 1.704-
1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital Account
(after giving effect to all contributions, distributions and allocations for the
taxable years, including the year during which such liquidation occurs), such
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered
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a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the discretion of the Liquidator or the Managing General
Partner, a pro rata portion of the distributions that would otherwise be made to
the General Partners and Limited Partners pursuant to this Article 13 may be:
A. distributed to a trust established for the benefit of the General
Partners and Limited Partners for the purposes of liquidating Partnership
assets, collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the Managing
General Partner arising out of or in connection with the Partnership. The
assets of any such trust shall be distributed to the General Partners and
Limited Partners from time to time, in the reasonable discretion of the
Liquidator, in the same proportions and the amount distributed to such trust by
the Partnership would otherwise have been distributed to the General Partners
and Limited Partners pursuant to this Agreement; or
B. withheld to provide a reasonable reserve for Partnership liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Partnership; provided, that such withheld
amounts shall be distributed to the General Partners and Limited Partners as
soon as practicable.
Section 13.4 Deemed Contribution and Interest Distribution.
Notwithstanding any other provision of this Article 13, in the event the
Partnership is liquidated within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's property
shall not be liquidated, the Partnership's liabilities shall not be paid or
discharged, and the Partnership's affairs shall not be wound up. Instead, the
Partnership shall be deemed to have contributed the Partnership property in kind
to a new partnership which shall be deemed to have assumed and taken such
property subject to all Partnership liabilities. Immediately thereafter, the
General Partners and Limited Partners shall be deemed to have been distributed
interests in such new partnership consisting of their Partnership Interests.
Section 13.5 Rights of Partners. Except as otherwise provided in this
Agreement, each Partner shall look solely to the assets of the Partnership for
the return of such Partner's Capital Contribution and shall have no right or
power to demand or receive property from the Managing General Partner. No
Partner shall have priority over any other Partner as to the return of such
Partner's Capital Contributions, distributions or allocations.
Section 13.6 Notice of Dissolution. In the event a Liquidating Event
occurs, the Managing General Partner shall, within 30 days thereafter, provide
written notice thereof to each of the Partners and to all other parties with
whom the Partnership regularly conducts business (as determined in the
discretion of the Managing General Partner) and shall publish notice thereof in
a newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the discretion of the Managing
General Partner).
Section 13.7 Cancellation of Certificate of Limited Partnership. Upon
the completion of the liquidation of the Partnership cash and property as
provided in Section 13.2 hereof, the Partnership shall be terminated and the
Certificate and all qualifications of the Partnership as a
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foreign limited partnership in jurisdictions other than the State of Delaware
shall be canceled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation; provided, however, that such winding up shall
be completed not later than 90 days after the end of the Partnership taxable
year in which the Liquidating Event occurred.
Section 13.9 Waiver of Partition. Each Partner hereby waives any right
-------------------
to partition of the Partnership property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
Section 14.1 Amendments.
----------
A. The actions requiring consent or approval of the Partners or of the
Limited Partners pursuant to this Agreement, including Section 7.3 hereof, or
otherwise pursuant to applicable law, are subject to the procedures in this
Article 14.
B. Amendments to this Agreement requiring the consent or approval of
Limited Partners may be proposed by the Managing General Partner, by any other
General Partner or by any Limited Partner or Limited Partners holding, in the
aggregate, 10% or more of the Partnership Interests. Following such proposal,
the Managing General Partner shall submit any proposed amendment to the
Partners. The Managing General Partner shall seek the written consent or
approval of the Partners or of the Limited Partners, as applicable, on the
proposed amendment or shall call a meeting to vote thereon and to transact any
other business that it may deem appropriate. For purposes of obtaining a
written consent, the Managing General Partner may require a response within a
reasonable specified time, but not less than 15 days, and failure to respond in
such time period shall constitute a consent which is consistent with the
Managing General Partner's recommendation (if so recommended) with respect to
the proposal; provided, that an action shall become effective at such time as
requisite consents are received even if prior to such specified time.
Section 14.2 Action by the Partners.
----------------------
A. Meetings of the Partners may be called by the Managing General Partner
and shall be called upon the receipt by the Managing General Partner of a
written request by Partners holding 25 percent or more of the Partnership
Interests held by all Partners other than the Managing General Partner. The
call shall state the nature of the business to be transacted. Notice of any
such meeting shall be given to all Partners not less than seven days nor more
than 30 days prior to the date of such meeting. Partners may vote in person or
by proxy at such meeting. Whenever the vote of the Partnership Interests of the
Partners, or the Consent of the Partners or Consent of the Limited Partners is
permitted or required under this Agreement, such vote or Consent may be given at
a
62
<PAGE>
meeting of Partners or may be given in accordance with the procedure prescribed
in Section 14.1 hereof.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by the percentage as is expressly required by this
Agreement for the action in question. Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of
such percentage of the Partners (expressly required by this Agreement). Such
consent shall be filed with the Managing General Partner. An action so taken
shall be deemed to have been taken at a meeting held on the effective date so
certified.
C. Each Partner may authorize any Person or Persons to act for such
Partner by proxy on all matters in which a Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Partner or such Partner's attorney-
in-fact. No proxy shall be valid after the expiration of 11 months from the
date thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the Partner executing it at any time prior to the
time the holder of the proxy votes or otherwise acts pursuant to the proxy.
D. Each meeting of Partners shall be conducted by the Managing General
Partner or such other Person as the Managing General Partner may appoint
pursuant to such rules for the conduct of the meeting as the Managing General
Partner or such other Person deems appropriate.
ARTICLE 15
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 15.1 Representations and Warranties of Prime. Prime represents
and warrants to the Partnership and the Managing General Partner the matters set
forth in Exhibit H.
Section 15.2 Survival of Representations and Warranties. All
representations and warranties in this Article 15 and in attached Exhibit H
shall survive formation of the Partnership; provided, however, that no claim for
a breach of any representation or warranty contained in this Article 15 or
attached Exhibit H may be maintained by the Partnership or the Managing General
Partner unless the Partnership or the Managing General Partner shall have
delivered a written notice ("Notice of Breach") specifying the details of such
claimed breach to Prime on or before the first to occur of (a) one (1) year
after the date on which the independent directors of the Managing General
Partner knew of such breach, or (b) the second (2nd) anniversary of the date on
which the initial public offering of the Company is completed. The time period
set forth above shall be extended and shall not lapse with respect to Prime if,
prior to the expiration of such time period, there has been delivered to Prime a
Notice of Breach and the indemnification obligation with respect thereto remains
unsatisfied, or there is pending a dispute with respect to such obligation,
until such dispute is finally resolved or satisfied in accordance with Section
15.5; provided, however, the time period shall be so extended only with respect
to the matters specifically set forth in such Notice of Breach.
63
<PAGE>
Section 15.3 Indemnification.
---------------
A. Prime shall be obligated with respect to all indemnification
obligations arising from its representations and warranties to indemnify and
hold harmless the Partnership (or the Managing General Partner, to the extent a
loss, cost, damage or expense is suffered or incurred directly by the Managing
General Partner (as opposed to indirectly in connection with any loss, cost,
damage or expense of the Partnership)) against and from all liability, demands,
claims, actions or causes of action, assessments, losses, fines, penalties,
costs, damages and expenses (including, without limitation, reasonable
attorneys' and accountants' fees and expenses) sustained or incurred by the
Partnership (or the Managing General Partner, if applicable) as a result of or
arising out of (i) any inaccuracy in any representation or warranty or (ii) any
liability of the Partnership or the Managing General Partner arising from any
inaccuracy in any representation or warranty under the Underwriting Agreement.
B. Notwithstanding anything herein to the contrary, any right or claim
for indemnification pursuant to this Section 15.3 arising out of an inaccuracy
of the representation and warranty made by Prime in item (h) of Exhibit H shall
first be satisfied by recourse to any applicable title insurance before the
Partnership or the Managing General Partner shall be entitled to recovery from
Prime.
Section 15.4 Limitations on Indemnification Obligations.
------------------------------------------
A. The Partnership and the Managing General Partner shall not be entitled
to indemnification under Section 15.3 hereof unless a Notice of Breach has been
delivered by the Partnership or the Managing General Partner within the time
period specified in Section 15.2 hereof.
B. If a claim for indemnification is asserted by the Partnership or the
Managing General Partner against a Partner, such Partner shall have the right,
at its own expense, to participate in the defense of any claim, action or
proceeding ("Claim") asserted against the Partnership or the Managing General
Partner which resulted in the claim for indemnification, and if such right is
exercised, the parties shall cooperate in the defense of such action or
proceeding.
C. Indemnification of the Partnership and the Managing General Partner
pursuant to Section 15.3 hereof and the remedies in respect thereof as set forth
in Section 15.5 hereof shall be the exclusive remedy of the Partnership and the
Managing General Partner for any breach of any representation or warranty
contained herein, and the only legal action which may be asserted against Prime
under this Article 15 shall be any action asserted pursuant to Section 15.5
hereof.
Section 15.5 Remedies.
--------
A. Each indemnification obligation of Prime under this Agreement shall be
payable by Prime, subject to any limitations contained in a separate agreement
between Prime and the Partnership.
64
<PAGE>
B. In the event the Partnership asserts, within the time period set forth
in Section 15.2 hereof, that Prime has an indemnification obligation to the
Partnership under this Article 15, the Managing General Partner shall deliver
written notice (the "Indemnification Notice") to Prime describing in reasonable
detail the circumstances giving rise to such obligation and the amount of the
Indemnification obligation (an "Indemnification Claim"). In the event Prime
objects to any such Indemnification Claim and provides a written response to the
Partnership within thirty (30) days after delivery of the Indemnification
Notice, which response describes in reasonable detail Prime's objection to such
Indemnification Claim (whether as to the facts giving rise thereto, the amount
thereof, or otherwise) and, if applicable, providing a recalculation of the
amount thereof, Prime and the Managing General Partner shall meet within ten
(10) days to discuss and negotiate in good faith the Indemnification Claim and
Prime's objection thereto. In the event that no resolution or compromise is
reached within thirty (30) days of such meeting, the dispute regarding the
Indemnification Claim shall be submitted to and determined by the U.S. District
Court, Northern District of Illinois or, if such court does not have
jurisdiction over such dispute, such dispute shall be submitted to and
determined by the Circuit Court of Cook County, Cook County, Illinois.
Section 15.6 Limitation of Liability. Notwithstanding anything contained
in this Article 15 (except as contemplated by Section 15.7.B in the event of a
Transfer or exercise of Rights), the aggregate amount of liability of Prime to
the Partnership pursuant to this Article 15 shall be $_______________[NUMBER OF
UNITS RECEIVED TIMES IPO PRICE; DOLLAR FIGURE TO BE INSERTED AT CLOSING].
Section 15.7 Subrogation. In the event that Prime has paid an
indemnification obligation pursuant to this Article 15, and a third party is or
may have liability to the Partnership with respect to the matter which resulted
in the indemnification obligation, Prime shall be subrogated to the rights of
the Partnership against or with respect to such party. Neither the Partnership
nor the Managing General Partner shall have any affirmative obligation or shall
be obligated to incur any cost or expense, as a result of any such subrogation
of rights to Prime.
ARTICLE 16
GENERAL PROVISIONS
Section 16.1 Addresses and Notice. Any notice, demand, request or report
required or permitted to be given or made to a Partner or Assignee under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by certified first class United States mail, nationally
recognized overnight delivery service or facsimile transmission to the Partner
or Assignee at the address set forth in Exhibit A hereof or such other address
as the Partners shall notify the Managing General Partner in writing.
Section 16.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
65
<PAGE>
Section 16.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 16.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 16.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 16.6 Creditors. Other than as expressly set forth herein with
respect to Indemnitees, none of the provisions of this Agreement shall be for
the benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 16.7 Waiver. No failure or delay by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon any breach thereof
shall constitute waiver of any such breach or any other covenant, duty,
agreement or condition.
Section 16.8 Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
Section 16.9 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 16.10 Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
Section 16.11 Entire Agreement. This Agreement contains the entire
understanding and agreement among the Partners with respect to the subject
matter hereof and supersedes any other prior written or oral understandings or
agreements among them with respect thereto; provided, however, that the Partners
agree and acknowledge that the Managing General Partner and the Contributors
have signed a separate Tax Indemnity Agreement (the "TIA"), dated as of _______,
1997. To the extent there is or arises a conflict between a provision of the
TIA and this Agreement, the TIA shall supersede this Agreement.
Section 16.12 No Rights as Shareholders. Nothing contained in this
Agreement shall be construed as conferring upon the holders of Units any rights
whatsoever as shareholders of the Managing General Partner, including without
limitation any right to receive dividends or other distributions made to
shareholders of the Managing General Partner or to vote or to consent or to
66
<PAGE>
receive notice as shareholders in respect of any meeting of shareholders for the
election of directors of the Managing General Partner or any other matter.
[SIGNATURE PAGE FOLLOWS]
67
<PAGE>
IN WITNESS WHEREOF, the parties hereof have executed this Agreement as of
the date first written above.
MANAGING GENERAL PARTNER:
------------------------
PRIME GROUP REALTY TRUST
By:______________________
Name:
Title:
68
<PAGE>
GENERAL PARTNER:
---------------
THE NARDI GROUP, L.L.C.
By:______________________
Name:
Title:
69
<PAGE>
LIMITED PARTNERS:
----------------
EDWARD S. HADESMAN
TRUST DATED MAY 22, 1992
By:______________________
Name: Edward S. Hadesman
Title: Trustee
GRANDVILLE/NORTHWESTERN
MANAGEMENT CORPORATION,
an Illinois corporation
By:______________________
Name: Edward S. Hadesman
Title: President
CAROLYN B. HADESMAN
TRUST DATED MAY 21, 1992
By:______________________
Name: Carolyn B. Hadesman
Title: Trustee
LISA HADESMAN 1991 TRUST
By:______________________
Name: Edward S. Hadesman
Title: Trustee
CYNTHIA HADESMAN 1991 TRUST
By:______________________
Name: Edward S. Hadesman
Title: Trustee
70
<PAGE>
TUCKER B. MAGID
_________________________
FRANCES S. SHUBERT
_________________________
GRANDVILLE ROAD PROPERTY, INC.,
an Illinois corporation
By:______________________
Name:
Title:
SKY HARBOR ASSOCIATES,
an Illinois limited partnership
By:______________________
Name: Edward S. Hadesman
Title: Managing General Partner
71
<PAGE>
EXHIBIT 4.1
Temporary Certificate--Exchangeable for Definitive Engraved Certificate
When Ready for Delivery
NUMBER SHARES
PG
SEE RESTRICTIVE LEGEND ON
REVERSE OF CERTIFICATE SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NEW YORK AND CUSIP 74158J 10 3
CHICAGO, ILLINOIS
PRIME GROUP
REALTY TRUST
ORGANIZED UNDER THE LAWS OF THE STATE OF MARYLAND
COMMON SHARES
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF BENEFICIAL INTEREST,
$0.01 PAR VALUE PER SHARE, OF
PRIME GROUP REALTY TRUST
transferable only on the books of the Trust by the holder hereof in person or by
duly authorized attorney upon the surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Declaration of Trust of
the Trust and any amendments thereto. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness this facsimile seal of the Trust and facsimile signature of its
duly authorized officers.
Dated:
CERTIFICATE OF STOCK
/s/ Michael W. Reschke /s/ Robert J. Rudnik
CHAIRMAN OF THE BOARD EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
/s/ Richard S. Curto
PRESIDENT AND CHIEF COUNTERSIGNED AND REGISTERED
EXECUTIVE OFFICER LASALLE NATIONAL BANK
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[SEAL OF PRIME GROUP REALTY TRUST A MARYLAND TRUST]
<PAGE>
PRIME GROUP REALTY TRUST
The Trust is authorized to issue more than one class of stock. The
Declaration of Trust on file in the office of the State Department of
Assessments and Taxation of the State of Maryland sets forth a full statement of
(a) all of the designations, preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemptions, and other relative rights of the shares of each class of shares
authorized to be issued and (b) the authority of the Board of Trustees to issue
any preferred or special class in series, the differences in the relative rights
and preferences between the shares of each series of the extent they have been
set and the authority of the Board of Trustees to set the relative rights and
preferences of subsequent series of preferred shares.
The Common Shares represented by this certificate are subject to
restrictions on transfer for the purpose of the Trust's maintenance of its
status as a real estate investment trust under the Internal Revenue Code of
1986, as amended (the "Code"). Subject to certain further restrictions and
except as provided in the Trust's Declaration of Trust, no Person may (i)
Beneficially or Constructively Own Common Shares in excess of 9.9% (or such
other percentage as may be determined by the Board of Trustees) of the number of
outstanding Common Shares, (ii) Beneficially Own Common Shares that would result
in the Common Shares being Beneficially Owned by fewer than 100 Persons
(determined without reference to any rules of attribution), (iii) Beneficially
Own Common Shares that would result in the Trust being "closely held" under
Section 856(h) of the Code or (iv) Constructively Own Common Shares that would
cause the Trust to Constructively Own 10% or more of the ownership interests in
a tenant of the Trust's real property, within the meaning of Section
856(d)(2)(B) of the Code. Any Person who attempts to Beneficially or
Constructively Own Common Shares in excess of the above limitations must
immediately notify the Trust in writing of such proposed or attempted Transfer.
If any restrictions above are violated, the Common Shares represented hereby
will be converted automatically into Excess Shares which will be transferred
automatically, by operation of law, to a Share Trust to be held for the
exclusive benefit of a Beneficiary to be named by the Trust. In addition, upon
the occurrence of certain events, attempted Transfers in violation of the
restrictions described above may be void ab initio. All capitalized terms in
this legend have the meanings defined in the Trust's Declaration of Trust, as
the same may be further amended from time to time, a copy of which, including
the restrictions of Transfer, will be sent without charge to each shareholder
who so requests. Such requests must be made to he Secretary of the Trust at its
principal office.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common
TEN ENT--as tenants by the entireties
JT TEN --as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- .............Custodian..............
(Cust) (Minor)
under Uniform Gifts to Minors
Act................................
(State)
UNIF TRF MIN ACT -- ...........Custodian (until age ...)
(Cust)
.............under Uniform Transfers
(Minor)
to Minors Act.......................
(State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
FOR VALUE RECEIVED, __________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
|____________________________________|
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________ Common Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
_______________________________________________________________________ Attorney
to transfer the said Common Shares on the books of the within named Trust with
full power of substitution in the premises.
Dated ___________________________
X _______________________________________
X _______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
___________________________________________________
AMERICAN BANK NOTE COMPANY NOV 4, 1997 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 053384bk
(562) 989-2333
(FAX) (562) 426-7450 Proof ____ REV 2
___________________________________________________
<PAGE>
EXHIBIT 10.1
FORM OF INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT between Prime Group Realty Trust, a Maryland
real estate investment trust (the "Trust"), and ________________, an officer
and/or trustee of the Trust (the "Indemnitee"), dated as of _____________, 1997.
WHEREAS, the Indemnitee has agreed to serve as an officer and/or
trustee of the Trust; and
WHEREAS, the Articles of Amendment and Restatement of the Declaration
of Trust (the "Declaration of Trust") and the Amended and Restated Bylaws of the
Trust (the "Bylaws") provide for certain indemnification of the officers and
trustees of the Trust;
NOW, THEREFORE, in consideration of the Indemnitee's agreement to
serve as an officer and/or trustee of the Trust and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Trust has agreed to the covenants set forth herein for the purpose of further
securing to the Indemnitee the indemnification provided by the Declaration of
Trust.
Section 1. In the event that the Indemnitee was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that the Indemnitee or a
person of whom the Indemnitee is the legal representative is or was a trustee,
officer or employee of the Trust or a nominee for any such office or is or was
serving at the request of the Trust as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such actual or threatened proceeding is alleged action in an
official capacity as a director, officer, employee or agent or a nominee for any
such office or in any other capacity while serving as a director, officer,
employee or agent, the Indemnitee shall be indemnified and held harmless by the
Trust to the fullest extent authorized by the General Corporation Law of
Maryland (the "GCL") as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Trust to provide broader indemnification rights than said law permitted the
Trust to provide prior to such amendment), against all expense, liability and
loss (including, without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by the Indemnitee in connection therewith and
such indemnification shall continue as to the Indemnitee if the Indemnitee
ceases to be a
<PAGE>
director, officer, employee, agent or a nominee for any such office and shall
inure to the benefit of the Indemnitee's heirs, executors and administrators;
provided, however, that except as provided in Section 2 of this Indemnification
Agreement with respect to proceedings seeking to enforce rights to
indemnification, the Trust shall indemnify the Indemnitee in connection with a
proceeding (or part hereof) initiated by the Indemnitee only if such proceeding
(or part thereof) was authorized by the Board of Trustees of the Trust.
Section 2. If a claim under Section 1 of this Indemnification
Agreement is not paid in full by the Trust within 30 days after a written claim
has been received by the Trust, the Indemnitee may at any time thereafter bring
suit against the Trust to recover the unpaid amount of the claim and, if
successful in whole or in part, the Indemnitee shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any actual or threatened proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Trust) that the Indemnitee has not met the standards of conduct
which make it permissible under the GCL for the Trust to indemnify the
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Trust. Neither the failure of the Trust (including its Board of
Trustees, independent legal counsel or shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in the GCL, nor an actual determination
by the Trust (including its Board of Trustees, independent legal counsel or
shareholders) that the Indemnitee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct.
Section 3. Following any "change in control" of the Trust of the type
required to be reported under Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended, any determination as to entitlement
to indemnification shall be made by independent legal counsel selected by the
Indemnitee, which such independent legal counsel shall be retained by the Board
of Trustees on behalf of the Trust.
Section 4. The right to indemnification and the payment of expenses
incurred in defending any actual or threatened proceeding in advance of its
final disposition conferred in this Indemnification Agreement shall not be
exclusive of any other right which the Indemnitee may have or hereafter acquire
under any statute, provision of the Declaration of Trust, Bylaws, agreement,
vote of shareholders or disinterested trustees or otherwise.
-2-
<PAGE>
Section 5. In the event that the Trust maintains insurance to protect
itself and any trustee of officer of the Trust against any expense, liability or
loss, such insurance shall cover the Indemnitee to at least the same extent as
any other trustee or officer of the Trust.
Section 6. The right to indemnification conferred by this
Indemnification Agreement shall include the right to be paid by the Trust the
expenses incurred in defending any actual or threatened proceeding in advance of
this final disposition; provided, however, that if the GCL requires, the payment
of such expenses incurred by the Indemnitee in the Indemnitee's capacity as a
trustee or officer (and not in any other capacity in which service was or is
rendered by the Indemnitee while a trustee or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of any actual or threatened proceeding, shall be made only upon
delivery to the Trust of an undertaking by or on behalf of the Indemnitee, to
repay all amounts so advanced if it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified under this Indemnification
Agreement or otherwise.
Section 7. This Indemnification Agreement may not be changed,
modified or amended except in writing signed by the parties hereto.
IN WITNESS WHEREOF, the Trust and the Indemnitee have executed this
Indemnification Agreement in duplicate on the day and year first above written.
PRIME GROUP REALTY TRUST
By:___________________________________
Name:_________________________________
Title:________________________________
______________________________________
-3-
<PAGE>
Exhibit 10.4
FORM OF
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 1997 by and among Prime Group Realty Trust, a Maryland
real estate investment trust ("PGRT"), Prime Group Realty, L.P., a Delaware
limited partnership and the operating partnership for PGRT ("Prime") (Prime and
PGRT are hereinafter sometimes collectively referred to as "Employer"), and
Michael W. Reschke, an individual domiciled in the State of Illinois
("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of office and industrial
real estate facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
development of office properties and the management thereof.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Chairman of the Board of Employer on the terms
and conditions provided in this Agreement. Executive shall conduct, operate,
manage and promote the business and business concept of Employer. The Board of
Directors of Employer may from time to time further define and clarify
Executive's duties and services hereunder as Chairman of the Board of Employer.
Executive agrees to devote Executive's sufficient time, attention, energy and
skill to perform Executive's duties as Chairman of the Board of Employer.
Executive shall have no obligation to devote full-time to Executive's duties, it
being expressly understood that Executive has other professional and managerial
duties and responsibilities to companies other than Employer. Further, during
the Employment Term, Employer agrees to recommend Executive to be elected as a
member of the Board of Trustees of PGRT (the "Board") and the Board of Directors
of Prime.
<PAGE>
2. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date the Registration Statement on Form S-11, as amended (No.
333-33547; the "Registration Statement") of PGRT, the general partner of Prime,
is declared effective (the "Effective Date") and expire on ___________, 2000
[three year term], provided, however, this Agreement shall automatically extend
for one year terms following the Initial Term (each a "Renewal Term", together
with the Initial Term, the "Employment Term"), unless prior to six (6) months,
in the case of a non-renewal by Employer, or prior to thirty (30) days, in the
case of a non-renewal by Executive, before the end of the Initial Term or any
Renewal Term, as applicable, either party shall give the other written notice of
its intention to terminate this Agreement.
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than One
Hundred Fifty Thousand Dollars ($150,000) ("Base Compensation"), payable in
accordance with the general policies and procedures for payment of salaries to
its executive personnel maintained, from time to time, by Employer (but no less
frequently than monthly), subject to withholding for applicable federal, state,
and local taxes. Increases in Base Compensation, if any, shall be determined by
the Compensation Committee (the "Committee") of the Board based on periodic
reviews of Executive's performance conducted on at least an annual basis.
(b) Bonus. In addition to Base Compensation, the Board and the
Committee, in their sole and absolute discretion, may, but in no event shall be
obligated to, authorize the payment of a cash bonus (a "Performance Bonus
Distribution") to Executive based upon achievement of such corporate and
individual performance goals and objectives as may be established or determined
by the Board or the Committee from time to time.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in the
medical and dental benefit plan to be established by Employer (which may include
contributions by Executive) and in any other retirement, pension, insurance,
health or other benefit plan or program that has been or is hereafter adopted by
Employer (or in which Employer participates), as such plans and programs may be
amended or modified from time to time by Employer, according to the terms of
such plan or program with all the benefits, rights and privileges as are enjoyed
by any other executive officers of Employer. Employer expects to have in place a
life insurance program in which Executive will be entitled to participate. If
the participation of Executive would adversely affect the qualification of a
plan intended to be qualified under Section 401(a) of the Internal Revenue Code
as the same may be amended from time to time (the "Code"), Employer shall have
the right to exclude Executive from that plan in return for Executive's
participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and
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procedures, as such policies and procedures may be amended or modified from time
to time by Employer, for all reasonable and necessary expenses incurred by
Executive in the performance of Executive's duties hereunder, including expenses
for business entertainment and meals (whether in or out of town) and gas for
business travel, but excluding automobile insurance.
4. Share Options. PGRT has established a share incentive plan (the "Share
Incentive Plan") that will become effective prior to the completion of the
initial public offering of shares of beneficial interests of PGRT contemplated
by the Registration Statement. The Share Incentive Plan initially provides,
among other things, for the issuance from time to time to certain officers,
directors and other employees of PGRT and Employer, including Executive, of
share options. On the Effective Date, pursuant to the Share Incentive Plan,
PGRT shall grant to Executive 175,000 share options ("Options") that will have
such terms and conditions as are set forth in the Share Incentive Plan and the
Share Option Agreement to be entered into between PGRT and Executive. Such
Options granted to Executive shall vest immediately upon the death or disability
of Executive or upon termination of this Agreement and Executive's employment
for any reason other than a termination for cause by Employer. In the case of a
termination for cause, all unvested Options shall be forfeited by Executive, but
Executive shall have the right to exercise within the time period provided for
in the Share Incentive Plan all Options vested prior to such termination for
cause.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, (B) be paid a pro rata portion of any bonus otherwise payable to
Executive for or with respect to the calendar year in which such termination
occurs in accordance with Section 3(b) hereof up to the effective date of such
termination and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs, (C) be entitled to the benefits set forth in Sections 3(c)
and 3(d) hereof up to the effective date of such termination and (D) receive the
Termination Compensation specified in Section 5(e) hereof. For purposes of
calculating Executive's pro rata portion of any bonus pursuant to clause (B) in
the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata (based on the number of days in the year) portion of
which Executive shall be entitled to receive, shall be deemed to be 50% of
Executive's then current annual Base Compensation. For purposes of this
Agreement, the "effective date of termination" shall mean the last day on which
Executive is employed with Employer which may be later than the date of the
delivery of any applicable notice of termination.
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to
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this Section 5(a)(ii), Executive shall (A) be paid Executive's Base Compensation
in accordance with Section 3(a) hereof up to the effective date of such
termination, and, to the extent not previously paid, Executive shall be entitled
to any bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs and (B) be entitled to the benefits set forth in Sections
3(c) and 3(d) hereof up to the effective date of such termination. For purposes
of this Section 5(a)(ii), "cause" shall mean (1) a finding by the Board that
Executive has materially harmed Employer, its business, assets or employees
through an act of dishonesty, material conflict of interest, gross misconduct or
willful malfeasance, (2) Executive's conviction of (or pleading nolo contendere
to) a felony, (3) Executive's failure to perform (which shall not include
inability to perform due to disability) in any material respects Executive's
material duties under this Agreement after written notice specifying the failure
and a reasonable opportunity to cure (it being understood that if Executive's
failure to perform is not of a type requiring a single action to fully cure,
then Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion), (4) the breach by
Executive of any of Executive's material obligations hereunder (other than those
covered by clause (3) above) and the failure of Executive to cure such breach
within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (5)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental disability, or
other incapacity, Executive shall fail during any four (4) consecutive months to
perform the duties required by this Agreement, Employer may, upon thirty (30)
days' written notice to Executive, either terminate this Agreement or suspend
Executive's right to any Base Compensation or Performance Bonus Distributions
without terminating this Agreement. In any such event, Executive shall (A) be
paid Executive's Base Compensation in accordance with Section 3(a) hereof up to
the effective date of such termination, (B) be paid a pro rata portion of any
bonus otherwise payable to Executive for or with respect to the calendar year in
which such termination occurs in accordance with Section 3(b) hereof up to the
first day of such four (4) month period and, to the extent not previously paid,
Executive shall be entitled to all bonuses payable to Executive in accordance
with Section 3(b) hereof for or with respect to any calendar years prior to the
calendar year in which such termination occurs and (C) be entitled to the
benefits set forth in Sections 3(c) (or the after-tax cash equivalent) and 3(d)
hereof up to the effective date of such termination. For purposes of calculating
Executive's pro rata portion of any bonus pursuant to clause (B) in the previous
sentence, if the termination takes place prior to receipt by Executive of any
Performance Bonus Distribution, the Performance Bonus Distribution, a pro rata
portion of which Executive shall be entitled to receive, shall be deemed to be
50% of Executive's then current annual Base Compensation. In the event Employer
elects to suspend Executive's right to Base Compensation and Performance Bonus
Distributions, at such time as Executive is able to resume the duties required
under this Agreement, Executive shall be entitled to receive Base Compensation
and Performance Bonus Distributions from the date Executive commences the
performance of such duties following the disability in accordance with the terms
and
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provisions of this Agreement. This Section 5(a)(iii) shall not limit the
entitlement of Executive, Executive's estate or beneficiaries to any disability
or other benefits available to Executive under any disability insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of this Agreement, the "date of disability" shall mean the first
day of the consecutive period during which Executive fails to perform the duties
required by this Agreement due to illness, physical or mental disability or
other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of Employer and a resulting "diminution
event", each as defined below, but in no event later than two years after the
change of control event. Executive shall continue to perform, at the election of
Employer, Executive's duties under this Agreement for an additional thirty (30)
days following notice of termination. In such event, Executive shall (A) be paid
Executive's Base Compensation up to the effective date of such termination, (B)
be paid a pro rata portion of any bonus otherwise payable to Executive for or
with respect to the calendar year in which such termination occurs in accordance
with Section 3(b) hereof up to the effective date of such termination and, to
the extent not previously paid, Executive shall be entitled to all bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs, (C) be entitled to the benefits set forth in Sections 3(c) and 3(d)
hereof up to the effective date of such termination and (D) receive the
Termination Compensation specified in Section 5(e) hereof. For purposes of
calculating Executive's pro rata portion of any bonus pursuant to clause (B) in
the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation. For purposes of this Agreement, in the event Employer defaults in
its obligation under Section 9 hereof and, as a consequence thereof, Executive's
employment with Employer (or Employer's successor or assign) terminates, such
termination shall be deemed to be a termination under this Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest and excluding a trustee or other fiduciary holding
securities under an employee benefit plan of Employer), becomes the beneficial
owner of shares of beneficial interests or limited partnership interests, as
applicable, of Employer having at least fifty percent (50%) of the total number
of votes that may be cast for the election of directors of Employer; (2) the
merger or other business combination of Employer, sale of all or substantially
all of Employer's assets or combination of the foregoing transactions (a
"Transaction"), other than a Transaction immediately following which the
shareholders of Employer immediately prior to the Transaction continue to have a
majority of the voting power in the resulting entity (excluding for this purpose
any shareholder, other than The Prime Group, Inc. and its affiliates, owning
directly or indirectly more than ten percent (10%) of the shares of the other
company involved in the Transaction); or (3) within any twenty-four (24) month
period beginning
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on or after the date hereof, the persons who were directors of Employer
immediately before the beginning of such period (the "Incumbent Directors")
shall cease to constitute at least a majority of the Board or a majority of the
board of directors of any successor to Employer, provided that, any director who
was not a director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the Board by, or on the recommendation
of or with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually or by prior operation of this
provision, unless such election, recommendation or approval was the result of an
actual or threatened election contest of the type contemplated by Regulation
14a-11 promulgated under the Exchange Act or any successor provision; and (B) a
"diminution event" shall mean any material diminution in (1) the duties and
responsibilities of Executive (other than a mere title change unless the new
title is not Chairman of the Board) or (2) the compensation package for
Executive.
(ii) Without Good Reason. Executive may terminate this Agreement and
Executive's employment at any time for any reason or for no reason at all upon
thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform Executive's duties under this Agreement if Employer so
elects. In connection with the termination of Executive's employment pursuant
to this Section 5(b)(ii), Executive shall (A) be paid Executive's Base
Compensation in accordance with Section 3(a) hereof up to the effective date of
such termination, and, to the extent not previously paid, Executive shall be
entitled to all bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such termination occurs and (B) be entitled to the benefits set forth in
Sections 3(c) and 3(d) hereof up to the effective date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the date of such death, (B) be paid a pro rata portion
of any bonus otherwise payable to Executive for or with respect to the calendar
year in which such death occurs in accordance with Section 3(b) hereof up to the
effective date of such death and, to the extent not previously paid, Executive
shall be entitled to all bonuses payable to Executive in accordance with Section
3(b) hereof for or with respect to any calendar years prior to the calendar year
in which such death occurs and (C) be entitled to the benefits set forth in
Sections 3(c) (or the after-tax cash equivalent) and 3(d) hereof up to the date
of such death. This Section 5(c) shall not limit the entitlement of Executive,
Executive's estate or beneficiaries under any insurance or other benefits plan
or policy which is maintained by Employer for Executive's benefit. For purposes
of calculating Executive's pro rata portion of any bonus pursuant to clause (B)
in the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation.
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(d) Removal as Director. Notwithstanding any other provision of this
Agreement, if Executive shall be removed from office as a director of Employer
at any time during the Employment Term, then Executive may notify Employer in
writing of Executive's election to terminate this Agreement with good reason
upon written notice to Employer and such notice shall be effective immediately
upon receipt by Employer. In such event, Executive shall (A) be paid
Executive's Base Compensation in accordance with Section 3(a) hereof up to the
effective date of such termination, (B) be paid a pro rata portion of any bonus
otherwise payable to Executive for or with respect to the calendar year in which
such termination occurs in accordance with Section 3(b) hereof up to the
effective date of such termination and, to the extent not previously paid,
Executive shall be entitled to all bonuses payable to Executive in accordance
with Section 3(b) hereof for or with respect to any calendar years prior to the
calendar year in which such termination occurs, (B) be entitled to the benefits
set forth in Sections 3(c) (or the after-tax cash equivalent) and 3(d) hereof up
to the effective date of such termination and (C) be entitled to the Termination
Compensation specified in Section 5(e) hereof.
(e) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i), 5(b)(i) or 5(d) hereof, Employer shall
pay to Executive, within thirty (30) days of termination, an amount in one lump
sum ("Termination Compensation") equal to (i) in the case of a termination
pursuant to Section 5(a)(i) or 5(d) hereof, Executive's annual Base Compensation
as of the effective date of such termination, or (ii) in the case of a
termination pursuant to Section 5(b)(i) hereof, two times (A) the average annual
Base Compensation paid or payable to Executive for or with respect to the two
full calendar years immediately preceding the calendar year in which the date of
termination occurs, plus (B) the average annual Performance Bonus Distribution
paid or payable to Executive for or with respect to the two full calendar years
immediately preceding the calendar year in which the date of termination occurs.
For purposes of calculating Employee's Termination Compensation pursuant to
clause (ii) above, if the termination takes place prior to December 31, 1999,
the Termination Compensation for any applicable calendar year in which the
termination takes place shall be determined as follows:
(1) if the termination takes place on or prior to December 31,
1998, the full Termination Compensation described in clause (d)(ii) above shall
be deemed to be 350% of Executive's Base Compensation for the 1998 calendar
year; or
(2) if the termination takes place after December 31, 1998 but on
or prior to December 31, 1999, the Performance Bonus Distribution component of
the Termination Compensation calculation described in clause (d)(ii) above shall
be deemed to be two times the average of (A) the amount of the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the 1998
calendar year pursuant to Section 3(b) hereof and (B) the greater of (1) 75% of
Executive's Base Compensation for the 1998 calendar year or (2) 133% of the
Performance Bonus Distribution paid to Executive or to which Executive is
entitled for the 1998 calendar year pursuant to Section 3(b) hereof.
6. Prior Agreements. This Agreement, together with the Stock Incentive
Plan, supersedes and is in lieu of any and all other employment arrangements
between Executive and
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Employer or its predecessor or any subsidiary and any and all such employment
agreements and arrangements are hereby terminated and deemed of no further force
or effect.
7. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
8. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement
giving Executive the right to terminate this Agreement, in which case Executive
shall be entitled to receive the compensation specified in Section 5(b)(i)
hereof. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
9. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
courier or by certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Michael W. Reschke
_________________________
_________________________
With a copy to:
--------------
________________________
________________________
________________________
Attn: ____________________
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(b) if to Employer, to:
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
--------------
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Any notice, claim, demand, request or other communication given as provided in
this Section 9, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 9.
10. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
11. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
12. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful
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or may be lawfully performed under then applicable laws. In the event that any
part of any Contractual Provision of this Agreement is determined by a court of
competent jurisdiction to be overly broad thereby making the Contractual
Provision unenforceable, the parties hereto agree, and it is their desire, that
such court shall substitute a judicially enforceable limitation in its place,
and that the Contractual Provision, as so modified, shall be binding upon the
parties as if originally set forth herein.
13. Indemnification by Executive. Executive shall indemnify Employer for
any and all damages, costs and expenses resulting from any material harm to
Employer, its business, assets or employees through an act of dishonesty,
material conflict of interest, gross misconduct or willful malfeasance by
Executive. Executive also shall indemnify Employer for any and all damages,
costs and expenses resulting from Executive's acts of omission constituting
reckless disregard of Executive's duties to Employer following notice thereof by
Employer after it becomes aware of such conduct and Executive's failure to so
cure within thirty (30) days.
14. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
PRIME GROUP REALTY TRUST
By:__________________________________
Title:________________________________
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust,
its General Partner
By:____________________________
Title:___________________________
EXECUTIVE:
_______________________________________
Michael W. Reschke
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Exhibit 10.5
FORM OF
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 1997 by and among Prime Group Realty Trust, a Maryland
real estate investment trust ("PGRT"), Prime Group Realty, L.P., a Delaware
limited partnership and the operating partnership for PGRT ("Prime") (Prime and
PGRT are hereinafter sometimes collectively referred to as "Employer"), and
Richard S. Curto, an individual domiciled in the State of Illinois
("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of office and industrial
real estate facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
development of office properties and the management thereof.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the President and Chief Executive Officer of
Employer on the terms and conditions provided in this Agreement. Executive
shall conduct, operate, manage and promote the business and business concept of
Employer. The Chairman of the Board of Employer may from time to time further
define and clarify Executive's duties and services hereunder as President and
Chief Executive Officer of Employer. Executive agrees to devote Executive's
best efforts and substantially all of Executive's business time, attention,
energy and skill to perform Executive's duties as President and Chief Executive
Officer of Employer. Further, during the Employment Term, Employer agrees to
recommend Executive to be elected as a member of the Board of Trustees of PGRT
(the "Board") and Board of Directors of Prime.
<PAGE>
2. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date the Registration Statement on Form S-11, as amended (No.
333-33547; the "Registration Statement") of PGRT, the general partner of Prime,
is declared effective (the "Effective Date") and expire on ___________, 2000
[three year term], provided, however, this Agreement shall automatically extend
for one year terms following the Initial Term (each a "Renewal Term", together
with the Initial Term, the "Employment Term"), unless prior to six (6) months,
in the case of a non-renewal by Employer, or prior to thirty (30) days, in the
case of a non-renewal by Executive, before the end of the Initial Term or any
Renewal Term, as applicable, either party shall give the other written notice of
its intention to terminate this Agreement.
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than Two
Hundred Seventy-Five Thousand Dollars ($275,000) ("Base Compensation"), payable
in accordance with the general policies and procedures for payment of salaries
to its executive personnel maintained, from time to time, by Employer (but no
less frequently than monthly), subject to withholding for applicable federal,
state, and local taxes. Increases in Base Compensation, if any, shall be
determined by the Compensation Committee (the "Committee") of the Board based on
periodic reviews of Executive's performance conducted on at least an annual
basis.
(b) Bonus. In addition to Base Compensation, the Board and the
Committee, in their sole and absolute discretion, may, but in no event shall be
obligated to, authorize the payment of a cash bonus (a "Performance Bonus
Distribution") to Executive based upon achievement of such corporate and
individual performance goals and objectives as may be established or determined
by the Board or the Committee from time to time.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in the
medical and dental benefit plan to be established by Employer (which may include
contributions by Executive) and in any other retirement, pension, insurance,
health or other benefit plan or program that has been or is hereafter adopted by
Employer (or in which Employer participates), as such plans and programs may be
amended or modified from time to time by Employer, according to the terms of
such plan or program with all the benefits, rights and privileges as are enjoyed
by any other executive officers of Employer. Employer expects to have in place a
life insurance program in which Executive will be entitled to participate. If
the participation of Executive would adversely affect the qualification of a
plan intended to be qualified under Section 401(a) of the Internal Revenue Code
as the same may be amended from time to time (the "Code"), Employer shall have
the right to exclude Executive from that plan in return for Executive's
participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and
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procedures, as such policies and procedures may be amended or modified from time
to time by Employer, for all reasonable and necessary expenses incurred by
Executive in the performance of Executive's duties hereunder, including expenses
for business entertainment and meals (whether in or out of town) and gas for
business travel, but excluding automobile insurance.
(e) Vacations. During the Employment Term, Executive shall be entitled
to vacation in accordance with Employer's practices, as such practices may be
amended or modified from time to time by Employer, provided that Executive shall
be entitled to at least three (3) weeks paid vacation in each full calendar
year. Executive may accrue unused vacation time if not used in any calendar year
or years, however, the maximum cumulative amount of vacation time that Executive
may accrue and carry over to the next year is two (2) weeks. Executive shall be
entitled to a payment for any vacation time which has accrued but has not been
used as of the date of the termination of Executive's employment with Employer,
unless Executive's employment is terminated pursuant to Section 5(a)(ii) hereof.
4. Share Options. PGRT has established a share incentive plan (the "Share
Incentive Plan") that will become effective prior to the completion of the
initial public offering of shares of beneficial interests of PGRT contemplated
by the Registration Statement. The Share Incentive Plan initially provides,
among other things, for the issuance from time to time to certain officers,
directors and other employees of PGRT and Employer, including Executive, of
share options. On the Effective Date, pursuant to the Share Incentive Plan,
PGRT shall grant to Executive 175,000 share options ("Options") that will have
such terms and conditions as are set forth in the Share Incentive Plan and the
Share Option Agreement to be entered into between PGRT and Executive. Such
Options granted to Executive shall vest immediately upon the death or disability
of Executive or upon termination of this Agreement and Executive's employment
for any reason other than a termination for cause by Employer. In the case of a
termination for cause, all unvested Options shall be forfeited by Executive, but
Executive shall have the right to exercise within the time period provided for
in the Share Incentive Plan all Options vested prior to such termination for
cause.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, (B) be paid a pro rata portion of any bonus otherwise payable to
Executive for or with respect to the calendar year in which such termination
occurs in accordance with Section 3(b) hereof up to the effective date of such
termination and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs, (C) be entitled to the benefits set forth in Sections 3(c),
3(d) and 3(e) hereof up to the effective date of such termination and (D)
receive the Termination Compensation specified in Section 5(d) hereof. For
purposes of calculating Executive's pro rata portion of any bonus pursuant to
clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus
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Distribution, a pro rata (based on the number of days in the year) portion of
which Executive shall be entitled to receive, shall be deemed to be 50% of
Executive's then current annual Base Compensation. For purposes of this
Agreement, the "effective date of termination" shall mean the last day on which
Executive is employed with Employer which may be later than the date of the
delivery of any applicable notice of termination.
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, and, to the
extent not previously paid, Executive shall be entitled to any bonuses payable
to Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(B) be entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof
up to the effective date of such termination. For purposes of this Section
5(a)(ii), "cause" shall mean (1) a finding by the Board that Executive has
materially harmed Employer, its business, assets or employees through an act of
dishonesty, material conflict of interest, gross misconduct or willful
malfeasance, (2) Executive's conviction of (or pleading nolo contendere to) a
felony, (3) Executive's failure to perform (which shall not include inability to
perform due to disability) in any material respects Executive's material duties
under this Agreement after written notice specifying the failure and a
reasonable opportunity to cure (it being understood that if Executive's failure
to perform is not of a type requiring a single action to fully cure, then
Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion), (4) the breach by
Executive of any of Executive's material obligations hereunder (other than those
covered by clause (3) above) and the failure of Executive to cure such breach
within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (5)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four (4)
consecutive months to perform the duties required by this Agreement, Employer
may, upon thirty (30) days' written notice to Executive, either terminate this
Agreement or suspend Executive's right to any Base Compensation or Performance
Bonus Distributions without terminating this Agreement. In any such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, (B) be paid a
pro rata portion of any bonus otherwise payable to Executive for or with respect
to the calendar year in which such termination occurs in accordance with Section
3(b) hereof up to the first day of such four (4) month period and, to the extent
not previously paid, Executive shall be entitled to all bonuses payable to
Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination
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occurs, (C) be entitled to the benefits set forth in Sections 3(c) (or the
after-tax cash equivalent), 3(d) and 3(e) hereof up to the effective date of
such termination and (D) be entitled to the Termination Compensation specified
in Section 5(d) hereof. For purposes of calculating Executive's pro rata
portion of any bonus pursuant to clause (B) in the previous sentence, if the
termination takes place prior to receipt by Executive of any Performance Bonus
Distribution, the Performance Bonus Distribution, a pro rata portion of which
Executive shall be entitled to receive, shall be deemed to be 50% of Executive's
then current annual Base Compensation. In the event Employer elects to suspend
Executive's right to Base Compensation and Performance Bonus Distributions, at
such time as Executive is able to resume the duties required under this
Agreement, Executive shall be entitled to receive Base Compensation and
Performance Bonus Distributions from the date Executive commences the
performance of such duties following the disability in accordance with the terms
and provisions of this Agreement. This Section 5(a)(iii) shall not limit the
entitlement of Executive, Executive's estate or beneficiaries to any disability
or other benefits available to Executive under any disability insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of this Agreement, the "date of disability" shall mean the first
day of the consecutive period during which Executive fails to perform the duties
required by this Agreement due to illness, physical or mental disability or
other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of Employer and a resulting "diminution
event", each as defined below, but in no event later than two years after the
change of control event. Executive shall continue to perform, at the election of
Employer, Executive's duties under this Agreement for an additional thirty (30)
days following notice of termination. In such event, Executive shall (A) be paid
Executive's Base Compensation up to the effective date of such termination, (B)
be paid a pro rata portion of any bonus otherwise payable to Executive for or
with respect to the calendar year in which such termination occurs in accordance
with Section 3(b) hereof up to the effective date of such termination and, to
the extent not previously paid, Executive shall be entitled to all bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs, (C) be entitled to the benefits set forth in Sections 3(c), 3(d) and
3(e) hereof up to the effective date of such termination and (D) receive the
Termination Compensation specified in Section 5(d) hereof. For purposes of
calculating Executive's pro rata portion of any bonus pursuant to clause (B) in
the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation. For purposes of this Agreement, in the event Employer defaults in
its obligation under Section 9 hereof and, as a consequence thereof, Executive's
employment with Employer (or Employer's successor or assign) terminates, such
termination shall be deemed to be a termination under this Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any
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group in which The Prime Group, Inc. or any of its affiliates has a significant
interest and excluding a trustee or other fiduciary holding securities under an
employee benefit plan of Employer), becomes the beneficial owner of shares of
beneficial interests or limited partnership interests, as applicable, of
Employer having at least fifty percent (50%) of the total number of votes that
may be cast for the election of directors of Employer; (2) the merger or other
business combination of Employer, sale of all or substantially all of Employer's
assets or combination of the foregoing transactions (a "Transaction"), other
than a Transaction immediately following which the shareholders of Employer
immediately prior to the Transaction continue to have a majority of the voting
power in the resulting entity (excluding for this purpose any shareholder, other
than The Prime Group, Inc. and its affiliates, owning directly or indirectly
more than ten percent (10%) of the shares of the other company involved in the
Transaction); or (3) within any twenty-four (24) month period beginning on or
after the date hereof, the persons who were directors of Employer immediately
before the beginning of such period (the "Incumbent Directors") shall cease to
constitute at least a majority of the Board or a majority of the board of
directors of any successor to Employer, provided that, any director who was not
a director as of the date hereof shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually or by prior operation of this provision,
unless such election, recommendation or approval was the result of an actual or
threatened election contest of the type contemplated by Regulation 14a-11
promulgated under the Exchange Act or any successor provision; and (B) a
"diminution event" shall mean any material diminution in (1) the duties and
responsibilities of Executive (other than a mere title change unless the new
title is not Chief Executive Officer or President) or (2) the compensation
package for Executive.
(ii) Without Good Reason. Executive may terminate this Agreement
and Executive's employment at any time for any reason or for no reason at all
upon thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform Executive's duties under this Agreement if Employer so
elects. In connection with the termination of Executive's employment pursuant to
this Section 5(b)(ii), Executive shall (A) be paid Executive's Base Compensation
in accordance with Section 3(a) hereof up to the effective date of such
termination, and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs and (B) be entitled to the benefits set forth in Sections
3(c), 3(d) and 3(e) hereof up to the effective date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the date of such death, (B) be paid a pro rata portion
of any bonus otherwise payable to Executive for or with respect to the calendar
year in which such death occurs in accordance with Section 3(b) hereof up to the
effective date of such death and, to the extent not previously paid, Executive
shall be entitled to all bonuses payable to Executive in accordance with Section
3(b) hereof for or with respect to any calendar years prior to the calendar year
in which such death occurs and (C) be entitled to the benefits set forth in
Sections 3(c) (or the after-tax cash equivalent), 3(d) and 3(e) hereof up to the
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date of such death. This Section 5(c) shall not limit the entitlement of
Executive, Executive's estate or beneficiaries under any insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of calculating Executive's pro rata portion of any bonus pursuant
to clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i), 5(a)(iii) or 5(b)(i) hereof, Employer
shall pay to Executive, within thirty (30) days of termination, an amount in one
lump sum ("Termination Compensation") equal to (i) in the case of a termination
pursuant to Section 5(a)(i) or 5(a)(iii) hereof, Executive's annual Base
Compensation as of the effective date of such termination, or (ii) in the case
of a termination pursuant to Section 5(b)(i) hereof, two times (A) the average
annual Base Compensation paid or payable to Executive for or with respect to the
two full calendar years immediately preceding the calendar year in which the
date of termination occurs, plus (B) the average annual Performance Bonus
Distribution paid or payable to Executive for or with respect to the two full
calendar years immediately preceding the calendar year in which the date of
termination occurs. For purposes of calculating Employee's Termination
Compensation pursuant to clause (ii) above, if the termination takes place prior
to December 31, 1999, the Termination Compensation for any applicable calendar
year in which the termination takes place shall be determined as follows:
(1) if the termination takes place on or prior to December 31,
1998, the full Termination Compensation described in clause (d)(ii) above shall
be deemed to be 350% of Executive's Base Compensation for the 1998 calendar
year; or
(2) if the termination takes place after December 31, 1998 but on
or prior to December 31, 1999, the Performance Bonus Distribution component of
the Termination Compensation calculation described in clause (d)(ii) above shall
be deemed to be two times the average of (A) the amount of the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the 1998
calendar year pursuant to Section 3(b) hereof and (B) the greater of (1) 75% of
Executive's Base Compensation for the 1998 calendar year or (2) 133% of the
Performance Bonus Distribution paid to Executive or to which Executive is
entitled for the 1998 calendar year pursuant to Section 3(b) hereof.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that Executive is
not personally subject to any agreement, order or decree which restricts
Executive's acceptance of this Agreement and the performance of Executive's
duties with Employer hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and, in the
event of the termination of this Agreement pursuant to the provisions of Section
5(a)(ii) or 5(b)(ii) hereof, for a period of two
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years thereafter, Executive shall not, directly or indirectly, in any capacity
whatsoever, either on Executive's own behalf or on behalf of any other person or
entity with whom Executive may be employed or associated, own any interest in,
participate or engage in the day-to-day supervision, management, development,
marketing or operation of any office or industrial real estate facilities or
such other business as Employer may be engaged in during the Employment Term
(the "Business") which is competitive with any of Employer's facilities. For
purposes hereof, a facility will be deemed competitive with one of Employer's
facilities if such facility is located within ten (10) miles of a facility
owned, operated or managed by Employer or within ten (10) miles of a facility
which Employer is developing or with respect to which Employer has signed a
letter of intent or term sheet or binding contract for the acquisition,
development or management thereof dated on or prior to the date of such
termination. Furthermore, for a period of two years after any applicable Section
5 termination event, Executive shall not, directly or indirectly, solicit,
attempt to hire or hire any employee or client of Employer or solicit or attempt
to lease space to or lease space to any tenant of Employer. Notwithstanding the
foregoing, nothing herein shall prohibit Executive from owning 5% or less of any
securities of a competitor engaged in the same Business if such securities are
listed on a nationally recognized securities exchange or traded over-the-counter
on the National Association of Securities Dealers Automated Quotation System or
otherwise.
(c) Non-Disclosure. During the Employment Term and for a period of two
years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
information which derives independent economic value, actual or potential, with
respect to Employer from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and is the subject of efforts to maintain its secrecy
that are reasonable under the circumstances, including, but not limited to,
trade secrets, customer lists, sales records and other proprietary commercial
information. Said term, however, shall not include general "know-how"
information acquired by Executive prior to or during the course of Executive's
service which could have been obtained by him from public sources without the
expenditure of significant time, effort and expense which does not relate to
Employer.
(d) Business Opportunities. During the Employment Term, Executive
agrees to bring to Employer any and all business opportunities which come to
Executive's attention for the acquisition, development, management, leasing or
marketing of real estate for industrial or office use. In the event that
Employer elects not to participate or take advantage of any such business
opportunity, upon termination of Executive's employment with Employer for any
reason, Executive shall be free to pursue such business opportunity, provided
that such business opportunity does not cause any tenant to relocate from a
facility owned and/or operated by Employer, PGRT or any of their respective
subsidiaries.
(e) Return of Documents. Upon termination of Executive's services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer
8
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lists, sales materials, tapes, keys, credit cards and other tangible property of
Employer within Executive's possession or under Executive's control.
(f) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(g) Acknowledgment. Executive acknowledges that Executive will be
directly and materially involved as a senior executive in all important policy
and operational decisions of Employer. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Employer and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of Section 6
are fair and reasonable, are minimally necessary to protect Employer, its other
partners and the public from the unfair competition of Executive who, as a
result of Executive's performance of services on behalf of Employer, will have
had unlimited access to the most confidential and important information of
Employer, its business and future plans. Executive furthermore acknowledges that
no unreasonable harm or injury will be suffered by him from enforcement of the
covenants contained herein and that Executive will be able to earn a reasonable
livelihood following termination of Executive's services notwithstanding
enforcement of the covenants contained herein.
7. Prior Agreements. This Agreement, together with the Stock Incentive
Plan, supersedes and is in lieu of any and all other employment arrangements
between Executive and Employer or its predecessor or any subsidiary and any and
all such employment agreements and arrangements are hereby terminated and deemed
of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement
giving Executive the right to terminate this Agreement, in which case Executive
shall be entitled to receive the compensation specified in Section 5(b)(i)
hereof. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
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unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
courier or by certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Richard S. Curto
_________________________
_________________________
With a copy to:
--------------
________________________
________________________
________________________
Attn: ____________________
(b) if to Employer, to:
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
--------------
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
10
<PAGE>
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any Contractual Provision of this Agreement is determined by a
court of competent jurisdiction to be overly broad thereby making the
Contractual Provision unenforceable, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and that the Contractual Provision, as so modified, shall be binding
upon the parties as if originally set forth herein.
14. Indemnification by Executive. Executive shall indemnify Employer for
any and all damages, costs and expenses resulting from any material harm to
Employer, its business, assets or employees through an act of dishonesty,
material conflict of interest, gross misconduct or willful malfeasance by
Executive. Executive also shall indemnify Employer for any and all damages,
costs and expenses resulting from Executive's acts of omission constituting
reckless disregard of Executive's duties to Employer following notice thereof by
Employer after it becomes aware of such conduct and Executive's failure to so
cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
PRIME GROUP REALTY TRUST
By:__________________________________
Title:________________________________
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust,
its General Partner
By:____________________________
Title:___________________________
EXECUTIVE:
_______________________________________
Richard S. Curto
Document Number: EXHBT10.5
October 30, 1997
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Exhibit 10.6
FORM OF
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 1997 by and among Prime Group Realty Trust, a Maryland
real estate investment trust ("PGRT"), Prime Group Realty, L.P., a Delaware
limited partnership and the operating partnership for PGRT ("Prime") (Prime and
PGRT are hereinafter sometimes collectively referred to as "Employer"), and W.
Michael Karnes, an individual domiciled in the State of Illinois ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of office and industrial
real estate facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
development of office properties and the management thereof.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Executive Vice President and Chief Financial
Officer of Employer on the terms and conditions provided in this Agreement.
Executive shall conduct, operate, manage and promote the business and business
concept of Employer. The Chief Executive Officer or the President of Employer
may from time to time further define and clarify Executive's duties and services
hereunder as Executive Vice President and Chief Financial Officer of Employer.
Executive agrees to devote Executive's best efforts and substantially all of
Executive's business time, attention, energy and skill to perform Executive's
duties as Executive Vice President and Chief Financial Officer of Employer.
2. Term. The term of this Agreement shall commence on the date the
Registration Statement on Form S-11, as amended (No. 333-33547; the
"Registration Statement") of PGRT, the
<PAGE>
general partner of Prime, is declared effective (the "Effective Date") and
expire on ___________, 2000 [three year term] (the "Employment Term").
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than Two
Hundred Thousand Dollars ($200,000) ("Base Compensation"), payable in accordance
with the general policies and procedures for payment of salaries to its
executive personnel maintained, from time to time, by Employer (but no less
frequently than monthly), subject to withholding for applicable federal, state,
and local taxes. Increases in Base Compensation, if any, shall be determined by
the Compensation Committee (the "Committee") of the Board of Trustees of PGRT
(the "Board"), based on periodic reviews of Executive's performance conducted on
at least an annual basis.
(b) Bonus. In addition to Base Compensation, the Board and the
Committee, in their sole and absolute discretion, may, but in no event shall be
obligated to, authorize the payment of a cash bonus (a "Performance Bonus
Distribution") to Executive based upon achievement of such corporate and
individual performance goals and objectives as may be established or determined
by the Board or the Committee from time to time.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in the
medical and dental benefit plan to be established by Employer (which may include
contributions by Executive) and in any other retirement, pension, insurance,
health or other benefit plan or program that has been or is hereafter adopted by
Employer (or in which Employer participates), as such plans and programs may be
amended or modified from time to time by Employer, according to the terms of
such plan or program with all the benefits, rights and privileges as are enjoyed
by any other executive officers of Employer. Employer expects to have in place a
life insurance program in which Executive will be entitled to participate. If
the participation of Executive would adversely affect the qualification of a
plan intended to be qualified under Section 401(a) of the Internal Revenue Code
as the same may be amended from time to time (the "Code"), Employer shall have
the right to exclude Executive from that plan in return for Executive's
participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies and procedures may
be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder, including expenses for business entertainment and meals
(whether in or out of town) and gas for business travel, but excluding
automobile insurance.
(e) Vacations. During the Employment Term, Executive shall be entitled
to vacation in accordance with Employer's practices, as such practices may be
amended or modified
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from time to time by Employer, provided that Executive shall be entitled to at
least three (3) weeks paid vacation in each full calendar year. Executive may
accrue unused vacation time if not used in any calendar year or years, however,
the maximum cumulative amount of vacation time that Executive may accrue and
carry over to the next year is two (2) weeks. Executive shall be entitled to a
payment for any vacation time which has accrued but has not been used as of the
date of the termination of Executive's employment with Employer, unless
Executive's employment is terminated pursuant to Section 5(a)(ii) hereof.
4. Share Options and Grants. PGRT has established a share incentive plan
(the "Share Incentive Plan") that will become effective prior to the completion
of the initial public offering of shares of beneficial interests of PGRT
contemplated by the Registration Statement. The Share Incentive Plan initially
provides, among other things, for the issuance from time to time to certain
officers, directors and other employees of PGRT and Employer, including
Executive, of share options. On the Effective Date, pursuant to the Share
Incentive Plan, PGRT shall grant to Executive 70,000 share options ("Options")
that will have such terms and conditions as are set forth in the Share Incentive
Plan and the Share Option Agreement to be entered into between PGRT and
Executive. Such Options granted to Executive shall vest immediately upon the
death or disability of Executive or upon termination of this Agreement and
Executive's employment for any reason other than a termination for cause by
Employer. In the case of a termination for cause, all unvested Options shall be
forfeited by Executive, but Executive shall have the right to exercise within
the time period provided for in the Stock Incentive Plan all Options vested
prior to such termination for cause. In addition, on the Effective Date, PGRT
shall grant to Executive 10,000 shares of beneficial interests of PGRT.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, (B) be paid a pro rata portion of any bonus otherwise payable to
Executive for or with respect to the calendar year in which such termination
occurs in accordance with Section 3(b) hereof up to the effective date of such
termination and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs, (C) be entitled to the benefits set forth in Sections 3(c),
3(d) and 3(e) hereof up to the effective date of such termination and (D)
receive the Termination Compensation specified in Section 5(d) hereof. For
purposes of calculating Executive's pro rata portion of any bonus pursuant to
clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution, a pro rata (based on the number of days in the year) portion
of which Executive shall be entitled to receive, shall be deemed to be 50% of
Executive's then current annual Base Compensation. For purposes of this
Agreement, the "effective date of termination" shall mean the last day on which
Executive is employed with Employer which may be later than the date of the
delivery of any applicable notice of termination.
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(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, and, to the
extent not previously paid, Executive shall be entitled to any bonuses payable
to Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(B) be entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof
up to the effective date of such termination. For purposes of this Section
5(a)(ii), "cause" shall mean (1) a finding by the Board that Executive has
materially harmed Employer, its business, assets or employees through an act of
dishonesty, material conflict of interest, gross misconduct or willful
malfeasance, (2) Executive's conviction of (or pleading nolo contendere to) a
felony, (3) Executive's failure to perform (which shall not include inability to
perform due to disability) in any material respects Executive's material duties
under this Agreement after written notice specifying the failure and a
reasonable opportunity to cure (it being understood that if Executive's failure
to perform is not of a type requiring a single action to fully cure, then
Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion), (4) the breach by
Executive of any of Executive's material obligations hereunder (other than those
covered by clause (3) above) and the failure of Executive to cure such breach
within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (5)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four (4)
consecutive months to perform the duties required by this Agreement, Employer
may, upon thirty (30) days' written notice to Executive, either terminate this
Agreement or suspend Executive's right to any Base Compensation or Performance
Bonus Distributions without terminating this Agreement. In any such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, (B) be paid a
pro rata portion of any bonus otherwise payable to Executive for or with respect
to the calendar year in which such termination occurs in accordance with Section
3(b) hereof up to the first day of such four (4) month period and, to the extent
not previously paid, Executive shall be entitled to all bonuses payable to
Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(C) be entitled to the benefits set forth in Sections 3(c) (or the after-tax
cash equivalent), 3(d) and 3(e) hereof up to the effective date of such
termination. For purposes of calculating Executive's pro rata portion of any
bonus pursuant to clause (B) in the previous sentence, if the termination takes
place prior to receipt by Executive of any Performance Bonus Distribution, the
Performance Bonus Distribution, a pro rata portion of which Executive shall be
entitled to receive, shall be deemed to be 50% of Executive's then current
annual Base Compensation. In the event
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Employer elects to suspend Executive's right to Base Compensation and
Performance Bonus Distributions, at such time as Executive is able to resume the
duties required under this Agreement, Executive shall be entitled to receive
Base Compensation and Performance Bonus Distributions from the date Executive
commences the performance of such duties following the disability in accordance
with the terms and provisions of this Agreement. This Section 5(a)(iii) shall
not limit the entitlement of Executive, Executive's estate or beneficiaries to
any disability or other benefits available to Executive under any disability
insurance or other benefits plan or policy which is maintained by Employer for
Executive's benefit. For purposes of this Agreement, the "date of disability"
shall mean the first day of the consecutive period during which Executive fails
to perform the duties required by this Agreement due to illness, physical or
mental disability or other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following (x) any "change of control" of Employer and a resulting "diminution
event", each as defined below, but in no event later than two years after the
change of control event or (y) any relocation of Executive's office to a
location outside of the Chicago metropolitan area. Executive shall continue to
perform, at the election of Employer, Executive's duties under this Agreement
for an additional thirty (30) days following notice of termination. In such
event, Executive shall (A) be paid Executive's Base Compensation up to the
effective date of such termination, (B) be paid a pro rata portion of any bonus
otherwise payable to Executive for or with respect to the calendar year in which
such termination occurs in accordance with Section 3(b) hereof up to the
effective date of such termination and, to the extent not previously paid,
Executive shall be entitled to all bonuses payable to Executive in accordance
with Section 3(b) hereof for or with respect to any calendar years prior to the
calendar year in which such termination occurs, (C) be entitled to the benefits
set forth in Sections 3(c), 3(d) and 3(e) hereof up to the effective date of
such termination and (D) receive the Termination Compensation specified in
Section 5(d) hereof. For purposes of calculating Executive's pro rata portion of
any bonus pursuant to clause (B) in the previous sentence, if the termination
takes place prior to receipt by Executive of any Performance Bonus Distribution,
the Performance Bonus Distribution, a pro rata portion of which Executive shall
be entitled to receive, shall be deemed to be 50% of Executive's then current
annual Base Compensation. For purposes of this Agreement, in the event Employer
defaults in its obligation under Section 9 hereof and, as a consequence thereof,
Executive's employment with Employer (or Employer's successor or assign)
terminates, such termination shall be deemed to be a termination under this
Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest and excluding a trustee or other fiduciary holding
securities under an employee benefit plan of Employer), becomes the beneficial
owner of shares of beneficial interests or limited partnership interests, as
applicable, of Employer having at least fifty percent (50%) of the total number
of votes that may be cast for the election of directors of Employer; (2) the
merger or other business combination of Employer, sale
5
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of all or substantially all of Employer's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction immediately following
which the shareholders of Employer immediately prior to the Transaction continue
to have a majority of the voting power in the resulting entity (excluding for
this purpose any shareholder, other than The Prime Group, Inc. and its
affiliates, owning directly or indirectly more than ten percent (10%) of the
shares of the other company involved in the Transaction); or (3) within any
twenty-four (24) month period beginning on or after the date hereof, the persons
who were directors of Employer immediately before the beginning of such period
(the "Incumbent Directors") shall cease to constitute at least a majority of the
Board or a majority of the board of directors of any successor to Employer,
provided that, any director who was not a director as of the date hereof shall
be deemed to be an Incumbent Director if such director was elected to the Board
by, or on the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually or by
prior operation of this provision, unless such election, recommendation or
approval was the result of an actual or threatened election contest of the type
contemplated by Regulation 14a-11 promulgated under the Exchange Act or any
successor provision; and (B) a "diminution event" shall mean any material
diminution in (1) the duties and responsibilities of Executive (other than a
mere title change) or (2) the compensation package for Executive.
(ii) Without Good Reason. Executive may terminate this Agreement
and Executive's employment at any time for any reason or for no reason at all
upon thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform Executive's duties under this Agreement if Employer so
elects. In connection with the termination of Executive's employment pursuant to
this Section 5(b)(ii), Executive shall (A) be paid Executive's Base Compensation
in accordance with Section 3(a) hereof up to the effective date of such
termination, and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs and (B) be entitled to the benefits set forth in Sections
3(c), 3(d) and 3(e) hereof up to the effective date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the date of such death, (B) be paid a pro rata portion
of any bonus otherwise payable to Executive for or with respect to the calendar
year in which such death occurs in accordance with Section 3(b) hereof up to the
effective date of such death and, to the extent not previously paid, Executive
shall be entitled to all bonuses payable to Executive in accordance with Section
3(b) hereof for or with respect to any calendar years prior to the calendar year
in which such death occurs and (C) be entitled to the benefits set forth in
Sections 3(c) (or the after-tax cash equivalent), 3(d) and 3(e) hereof up to the
date of such death. This Section 5(c) shall not limit the entitlement of
Executive, Executive's estate or beneficiaries under any insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of calculating Executive's pro rata portion of any bonus pursuant
to clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution, a pro
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rata portion of which Executive shall be entitled to receive, shall be deemed to
be 50% of Executive's then current annual Base Compensation.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i) or 5(b)(i) hereof, Employer shall pay to
Executive, within thirty (30) days of termination, an amount in one lump sum
("Termination Compensation") equal to the greater of (i) one hundred percent
(100%) of Executive's then current annual Base Compensation and (ii) one hundred
percent (100%) of the remaining aggregate Base Compensation payable to Executive
over the remainder of the Employment Term.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that Executive is
not personally subject to any agreement, order or decree which restricts
Executive's acceptance of this Agreement and the performance of Executive's
duties with Employer hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and, in the
event of the termination of this Agreement pursuant to the provisions of Section
5(a)(ii) or 5(b)(ii) hereof, for a period of two years thereafter, Executive
shall not, directly or indirectly, in any capacity whatsoever, either on
Executive's own behalf or on behalf of any other person or entity with whom
Executive may be employed or associated, own any interest in, participate or
engage in the day-to-day supervision, management, development, marketing or
operation of any office or industrial real estate facilities or such other
business as Employer may be engaged in during the Employment Term (the
"Business") which is competitive with any of Employer's facilities. For
purposes hereof, a facility will be deemed competitive with one of Employer's
facilities if such facility is located within ten (10) miles of a facility
owned, operated or managed by Employer or within ten (10) miles of a facility
which Employer is developing or with respect to which Employer has signed a
letter of intent or term sheet or binding contract for the acquisition,
development or management thereof dated on or prior to the date of such
termination. Furthermore, for a period of two years after any applicable
Section 5 termination event, Executive shall not, directly or indirectly,
solicit, attempt to hire or hire any employee or client of Employer or solicit
or attempt to lease space to or lease space to any tenant of Employer.
Notwithstanding the foregoing, nothing herein shall prohibit Executive from
owning 5% or less of any securities of a competitor engaged in the same Business
if such securities are listed on a nationally recognized securities exchange or
traded over-the-counter on the National Association of Securities Dealers
Automated Quotation System or otherwise.
(c) Non-Disclosure. During the Employment Term and for a period of two
years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
information which derives independent economic value, actual or potential, with
respect to Employer from not being generally known to, and not being readily
ascertainable by proper means
7
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by, other persons who can obtain economic value from its disclosure or use and
is the subject of efforts to maintain its secrecy that are reasonable under the
circumstances, including, but not limited to, trade secrets, customer lists,
sales records and other proprietary commercial information. Said term, however,
shall not include general "know-how" information acquired by Executive prior to
or during the course of Executive's service which could have been obtained by
him from public sources without the expenditure of significant time, effort and
expense which does not relate to Employer.
(d) Business Opportunities. During the Employment Term, Executive
agrees to bring to Employer any and all business opportunities which come to
Executive's attention for the acquisition, development, management, leasing or
marketing of real estate for industrial or office use. In the event that
Employer elects not to participate or take advantage of any such business
opportunity, upon termination of Executive's employment with Employer for any
reason, Executive shall be free to pursue such business opportunity, provided
that such business opportunity does not cause any tenant to relocate from a
facility owned and/or operated by Employer, PGRT or any of their respective
subsidiaries.
(e) Return of Documents. Upon termination of Executive's services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and other
tangible property of Employer within Executive's possession or under Executive's
control.
(f) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(g) Acknowledgment. Executive acknowledges that Executive will be
directly and materially involved as a senior executive in all important policy
and operational decisions of Employer. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Employer and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of Section 6
are fair and reasonable, are minimally necessary to protect Employer, its other
partners and the public from the unfair competition of Executive who, as a
result of Executive's performance of services on behalf of Employer, will have
had unlimited access to the most confidential and important information of
Employer, its business and future plans. Executive furthermore acknowledges that
no unreasonable harm or injury will be suffered by him from enforcement of the
covenants contained herein and that Executive will be able to earn a reasonable
livelihood following termination of Executive's services notwithstanding
enforcement of the covenants contained herein.
7. Prior Agreements. This Agreement, together with the Stock Incentive
Plan, supersedes and is in lieu of any and all other employment arrangements
between Executive and
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Employer or its predecessor or any subsidiary and any and all such employment
agreements and arrangements are hereby terminated and deemed of no further force
or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement
giving Executive the right to terminate this Agreement, in which case Executive
shall be entitled to receive the compensation specified in Section 5(b)(i)
hereof. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
courier or by certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
W. Michael Karnes
_________________________
_________________________
With a copy to:
--------------
________________________
________________________
________________________
Attn: ____________________
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(b) if to Employer, to:
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
--------------
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any
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Contractual Provision of this Agreement is determined by a court of competent
jurisdiction to be overly broad thereby making the Contractual Provision
unenforceable, the parties hereto agree, and it is their desire, that such court
shall substitute a judicially enforceable limitation in its place, and that the
Contractual Provision, as so modified, shall be binding upon the parties as if
originally set forth herein.
14. Indemnification by Executive. Executive shall indemnify Employer for
any and all damages, costs and expenses resulting from any material harm to
Employer, its business, assets or employees through an act of dishonesty,
material conflict of interest, gross misconduct or willful malfeasance by
Executive. Executive also shall indemnify Employer for any and all damages,
costs and expenses resulting from Executive's acts of omission constituting
reckless disregard of Executive's duties to Employer following notice thereof by
Employer after it becomes aware of such conduct and Executive's failure to so
cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
PRIME GROUP REALTY TRUST
By:__________________________________
Title:________________________________
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust,
its General Partner
By:____________________________
Title:___________________________
EXECUTIVE:
_______________________________________
W. Michael Karnes
Document Number: EXHBT10.6
October 30, 1997
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Exhibit 10.7
FORM OF
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 1997 by and among Prime Group Realty Trust, a Maryland
real estate investment trust ("PGRT"), Prime Group Realty, L.P., a Delaware
limited partnership and the operating partnership for PGRT ("Prime") (Prime and
PGRT are hereinafter sometimes collectively referred to as "Employer"), and
Robert J. Rudnik, an individual domiciled in the State of Illinois
("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of office and industrial
real estate facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
development of office properties and the management thereof.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Executive Vice President and General Counsel of
Employer on the terms and conditions provided in this Agreement. Executive
shall conduct, operate, manage and promote the business and business concept of
Employer. The Chief Executive Officer or the President of Employer may from
time to time further define and clarify Executive's duties and services
hereunder as Executive Vice President and General Counsel of Employer.
Executive agrees to devote Executive's best efforts and substantially all of
Executive's business time, attention, energy and skill to perform Executive's
duties as Executive Vice President and General Counsel of Employer.
2. Term. The term of this Agreement shall commence on the date the
Registration Statement on Form S-11, as amended (No. 333-33547; the
"Registration Statement") of PGRT, the
<PAGE>
general partner of Prime, is declared effective (the "Effective Date") and
expire on ___________, 2000 [three year term] (the "Employment Term").
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than One
Hundred Fifty Thousand Dollars ($150,000) ("Base Compensation"), payable in
accordance with the general policies and procedures for payment of salaries to
its executive personnel maintained, from time to time, by Employer (but no less
frequently than monthly), subject to withholding for applicable federal, state,
and local taxes. Increases in Base Compensation, if any, shall be determined by
the Compensation Committee (the "Committee") of the Board of Trustees of PGRT
(the "Board"), based on periodic reviews of Executive's performance conducted on
at least an annual basis.
(b) Bonus. In addition to Base Compensation, the Board and the
Committee, in their sole and absolute discretion, may, but in no event shall be
obligated to, authorize the payment of a cash bonus (a "Performance Bonus
Distribution") to Executive based upon achievement of such corporate and
individual performance goals and objectives as may be established or determined
by the Board or the Committee from time to time.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in the
medical and dental benefit plan to be established by Employer (which may include
contributions by Executive) and in any other retirement, pension, insurance,
health or other benefit plan or program that has been or is hereafter adopted by
Employer (or in which Employer participates), as such plans and programs may be
amended or modified from time to time by Employer, according to the terms of
such plan or program with all the benefits, rights and privileges as are enjoyed
by any other executive officers of Employer. Employer expects to have in place a
life insurance program in which Executive will be entitled to participate. If
the participation of Executive would adversely affect the qualification of a
plan intended to be qualified under Section 401(a) of the Internal Revenue Code
as the same may be amended from time to time (the "Code"), Employer shall have
the right to exclude Executive from that plan in return for Executive's
participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies and procedures may
be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder, including expenses for business entertainment and meals
(whether in or out of town) and gas for business travel, but excluding
automobile insurance.
(e) Vacations. During the Employment Term, Executive shall be entitled
to vacation in accordance with Employer's practices, as such practices may be
amended or modified
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from time to time by Employer, provided that Executive shall be entitled to at
least three (3) weeks paid vacation in each full calendar year. Executive may
accrue unused vacation time if not used in any calendar year or years, however,
the maximum cumulative amount of vacation time that Executive may accrue and
carry over to the next year is two (2) weeks. Executive shall be entitled to a
payment for any vacation time which has accrued but has not been used as of the
date of the termination of Executive's employment with Employer, unless
Executive's employment is terminated pursuant to Section 5(a)(ii) hereof.
4. Share Options. PGRT has established a share incentive plan (the "Share
Incentive Plan") that will become effective prior to the completion of the
initial public offering of shares of beneficial interests of PGRT contemplated
by the Registration Statement. The Share Incentive Plan initially provides,
among other things, for the issuance from time to time to certain officers,
directors and other employees of PGRT and Employer, including Executive, of
share options. On the Effective Date, pursuant to the Share Incentive Plan,
PGRT shall grant to Executive 85,000 share options ("Options") that will have
such terms and conditions as are set forth in the Share Incentive Plan and the
Share Option Agreement to be entered into between PGRT and Executive. Such
Options granted to Executive shall vest immediately upon the death or disability
of Executive or upon termination of this Agreement and Executive's employment
for any reason other than a termination for cause by Employer. In the case of a
termination for cause, all unvested Options shall be forfeited by Executive, but
Executive shall have the right to exercise within the time period provided for
in the Share Incentive Plan all Options vested prior to such termination for
cause.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, (B) be paid a pro rata portion of any bonus otherwise payable to
Executive for or with respect to the calendar year in which such termination
occurs in accordance with Section 3(b) hereof up to the effective date of such
termination and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs, (C) be entitled to the benefits set forth in Sections 3(c),
3(d) and 3(e) hereof up to the effective date of such termination and (D)
receive the Termination Compensation specified in Section 5(d) hereof. For
purposes of calculating Executive's pro rata portion of any bonus pursuant to
clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution, a pro rata (based on the number of days in the year) portion
of which Executive shall be entitled to receive, shall be deemed to be 50% of
Executive's then current annual Base Compensation. For purposes of this
Agreement, the "effective date of termination" shall mean the last day on which
Executive is employed with Employer which may be later than the date of the
delivery of any applicable notice of termination.
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(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, and, to the
extent not previously paid, Executive shall be entitled to any bonuses payable
to Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(B) be entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof
up to the effective date of such termination. For purposes of this Section
5(a)(ii), "cause" shall mean (1) a finding by the Board that Executive has
materially harmed Employer, its business, assets or employees through an act of
dishonesty, material conflict of interest, gross misconduct or willful
malfeasance, (2) Executive's conviction of (or pleading nolo contendere to) a
felony, (3) Executive's failure to perform (which shall not include inability to
perform due to disability) in any material respects Executive's material duties
under this Agreement after written notice specifying the failure and a
reasonable opportunity to cure (it being understood that if Executive's failure
to perform is not of a type requiring a single action to fully cure, then
Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion), (4) the breach by
Executive of any of Executive's material obligations hereunder (other than those
covered by clause (3) above) and the failure of Executive to cure such breach
within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (5)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four (4)
consecutive months to perform the duties required by this Agreement, Employer
may, upon thirty (30) days' written notice to Executive, either terminate this
Agreement or suspend Executive's right to any Base Compensation or Performance
Bonus Distributions without terminating this Agreement. In any such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, (B) be paid a
pro rata portion of any bonus otherwise payable to Executive for or with respect
to the calendar year in which such termination occurs in accordance with Section
3(b) hereof up to the first day of such four (4) month period and, to the extent
not previously paid, Executive shall be entitled to all bonuses payable to
Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(C) be entitled to the benefits set forth in Sections 3(c) (or the after-tax
cash equivalent), 3(d) and 3(e) hereof up to the effective date of such
termination. For purposes of calculating Executive's pro rata portion of any
bonus pursuant to clause (B) in the previous sentence, if the termination takes
place prior to receipt by Executive of any Performance Bonus Distribution, the
Performance Bonus Distribution, a pro rata portion of which Executive shall be
entitled to receive, shall be deemed to be 50% of Executive's then current
annual Base Compensation. In the event
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Employer elects to suspend Executive's right to Base Compensation and
Performance Bonus Distributions, at such time as Executive is able to resume the
duties required under this Agreement, Executive shall be entitled to receive
Base Compensation and Performance Bonus Distributions from the date Executive
commences the performance of such duties following the disability in accordance
with the terms and provisions of this Agreement. This Section 5(a)(iii) shall
not limit the entitlement of Executive, Executive's estate or beneficiaries to
any disability or other benefits available to Executive under any disability
insurance or other benefits plan or policy which is maintained by Employer for
Executive's benefit. For purposes of this Agreement, the "date of disability"
shall mean the first day of the consecutive period during which Executive fails
to perform the duties required by this Agreement due to illness, physical or
mental disability or other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of Employer and a resulting "diminution
event", each as defined below, but in no event later than two years after the
change of control event. Executive shall continue to perform, at the election of
Employer, Executive's duties under this Agreement for an additional thirty (30)
days following notice of termination. In such event, Executive shall (A) be paid
Executive's Base Compensation up to the effective date of such termination, (B)
be paid a pro rata portion of any bonus otherwise payable to Executive for or
with respect to the calendar year in which such termination occurs in accordance
with Section 3(b) hereof up to the effective date of such termination and, to
the extent not previously paid, Executive shall be entitled to all bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs, (C) be entitled to the benefits set forth in Sections 3(c), 3(d) and
3(e) hereof up to the effective date of such termination and (D) receive the
Termination Compensation specified in Section 5(d) hereof. For purposes of
calculating Executive's pro rata portion of any bonus pursuant to clause (B) in
the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation. For purposes of this Agreement, in the event Employer defaults in
its obligation under Section 9 hereof and, as a consequence thereof, Executive's
employment with Employer (or Employer's successor or assign) terminates, such
termination shall be deemed to be a termination under this Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest and excluding a trustee or other fiduciary holding
securities under an employee benefit plan of Employer), becomes the beneficial
owner of shares of beneficial interests or limited partnership interests, as
applicable, of Employer having at least fifty percent (50%) of the total number
of votes that may be cast for the election of directors of Employer; (2) the
merger or other business combination of Employer, sale of all or substantially
all of Employer's assets or combination of the foregoing transactions (a
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"Transaction"), other than a Transaction immediately following which the
shareholders of Employer immediately prior to the Transaction continue to have a
majority of the voting power in the resulting entity (excluding for this purpose
any shareholder, other than The Prime Group, Inc. and its affiliates, owning
directly or indirectly more than ten percent (10%) of the shares of the other
company involved in the Transaction); or (3) within any twenty-four (24) month
period beginning on or after the date hereof, the persons who were directors of
Employer immediately before the beginning of such period (the "Incumbent
Directors") shall cease to constitute at least a majority of the Board or a
majority of the board of directors of any successor to Employer, provided that,
any director who was not a director as of the date hereof shall be deemed to be
an Incumbent Director if such director was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of this provision, unless such election, recommendation or approval was the
result of an actual or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any successor provision;
and (B) a "diminution event" shall mean any material diminution in (1) the
duties and responsibilities of Executive (other than a mere title change) or (2)
the compensation package for Executive.
(ii) Without Good Reason. Executive may terminate this Agreement
and Executive's employment at any time for any reason or for no reason at all
upon thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform Executive's duties under this Agreement if Employer so
elects. In connection with the termination of Executive's employment pursuant to
this Section 5(b)(ii), Executive shall (A) be paid Executive's Base Compensation
in accordance with Section 3(a) hereof up to the effective date of such
termination, and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs and (B) be entitled to the benefits set forth in Sections
3(c), 3(d) and 3(e) hereof up to the effective date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the date of such death, (B) be paid a pro rata portion
of any bonus otherwise payable to Executive for or with respect to the calendar
year in which such death occurs in accordance with Section 3(b) hereof up to the
effective date of such death and, to the extent not previously paid, Executive
shall be entitled to all bonuses payable to Executive in accordance with Section
3(b) hereof for or with respect to any calendar years prior to the calendar year
in which such death occurs and (C) be entitled to the benefits set forth in
Sections 3(c) (or the after-tax cash equivalent), 3(d) and 3(e) hereof up to the
date of such death. This Section 5(c) shall not limit the entitlement of
Executive, Executive's estate or beneficiaries under any insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of calculating Executive's pro rata portion of any bonus pursuant
to clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation.
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(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i) or 5(b)(i) hereof, Employer shall pay to
Executive, within thirty (30) days of termination, an amount in one lump sum
("Termination Compensation") equal to (i) in the case of a termination pursuant
to Section 5(a)(i) hereof, the greater of (A) fifty percent (50%) of Executive's
then current annual Base Compensation and (B) fifty percent (50%) of the
remaining aggregate Base Compensation payable to Executive over the remainder of
the Employment Term or (ii) in the case of a termination pursuant to Section
5(b)(i) hereof, the greater of (A) one hundred percent (100%) of Executive's
then current annual Base Compensation and (B) one hundred percent (100%) of the
remaining aggregate Base Compensation payable to Executive over the remainder of
the Employment Term.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that Executive is
not personally subject to any agreement, order or decree which restricts
Executive's acceptance of this Agreement and the performance of Executive's
duties with Employer hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and, in the
event of the termination of this Agreement pursuant to the provisions of Section
5(a)(ii) or 5(b)(ii) hereof, for a period of two years thereafter, Executive
shall not, directly or indirectly, in any capacity whatsoever, either on
Executive's own behalf or on behalf of any other person or entity with whom
Executive may be employed or associated, own any interest in, participate or
engage in the day-to-day supervision, management, development, marketing or
operation of any office or industrial real estate facilities or such other
business as Employer may be engaged in during the Employment Term (the
"Business") which is competitive with any of Employer's facilities. For
purposes hereof, a facility will be deemed competitive with one of Employer's
facilities if such facility is located within ten (10) miles of a facility
owned, operated or managed by Employer or within ten (10) miles of a facility
which Employer is developing or with respect to which Employer has signed a
letter of intent or term sheet or binding contract for the acquisition,
development or management thereof dated on or prior to the date of such
termination. Furthermore, for a period of two years after any applicable
Section 5 termination event, Executive shall not, directly or indirectly,
solicit, attempt to hire or hire any employee or client of Employer or solicit
or attempt to lease space to or lease space to any tenant of Employer.
Notwithstanding the foregoing, nothing herein shall prohibit Executive from
owning 5% or less of any securities of a competitor engaged in the same Business
if such securities are listed on a nationally recognized securities exchange or
traded over-the-counter on the National Association of Securities Dealers
Automated Quotation System or otherwise.
(c) Non-Disclosure. During the Employment Term and for a period of two
years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
information which derives independent economic value, actual or potential, with
respect to
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Employer from not being generally known to, and not being readily ascertainable
by proper means by, other persons who can obtain economic value from its
disclosure or use and is the subject of efforts to maintain its secrecy that are
reasonable under the circumstances, including, but not limited to, trade
secrets, customer lists, sales records and other proprietary commercial
information. Said term, however, shall not include general "know-how"
information acquired by Executive prior to or during the course of Executive's
service which could have been obtained by him from public sources without the
expenditure of significant time, effort and expense which does not relate to
Employer.
(d) Business Opportunities. During the Employment Term, Executive
agrees to bring to Employer any and all business opportunities which come to
Executive's attention for the acquisition, development, management, leasing or
marketing of real estate for industrial or office use. In the event that
Employer elects not to participate or take advantage of any such business
opportunity, upon termination of Executive's employment with Employer for any
reason, Executive shall be free to pursue such business opportunity, provided
that such business opportunity does not cause any tenant to relocate from a
facility owned and/or operated by Employer, PGRT or any of their respective
subsidiaries.
(e) Return of Documents. Upon termination of Executive's services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and other
tangible property of Employer within Executive's possession or under Executive's
control.
(f) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(g) Acknowledgment. Executive acknowledges that Executive will be
directly and materially involved as a senior executive in all important policy
and operational decisions of Employer. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Employer and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of Section 6
are fair and reasonable, are minimally necessary to protect Employer, its other
partners and the public from the unfair competition of Executive who, as a
result of Executive's performance of services on behalf of Employer, will have
had unlimited access to the most confidential and important information of
Employer, its business and future plans. Executive furthermore acknowledges that
no unreasonable harm or injury will be suffered by him from enforcement of the
covenants contained herein and that Executive will be able to earn a reasonable
livelihood following termination of Executive's services notwithstanding
enforcement of the covenants contained herein.
7. Prior Agreements. This Agreement, together with the Stock Incentive
Plan, supersedes and is in lieu of any and all other employment arrangements
between Executive and
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Employer or its predecessor or any subsidiary and any and all such employment
agreements and arrangements are hereby terminated and deemed of no further force
or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement
giving Executive the right to terminate this Agreement, in which case Executive
shall be entitled to receive the compensation specified in Section 5(b)(i)
hereof. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
courier or by certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Robert J. Rudnik
_________________________
_________________________
With a copy to:
--------------
________________________
________________________
________________________
Attn: ____________________
(b) if to Employer, to:
Prime Group Realty Trust
Suite 3900
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77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
--------------
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any Contractual Provision of this Agreement is determined by a
court of competent jurisdiction to be overly broad thereby making the
Contractual Provision unenforceable, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and
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that the Contractual Provision, as so modified, shall be binding upon the
parties as if originally set forth herein.
14. Indemnification by Executive. Executive shall indemnify Employer for
any and all damages, costs and expenses resulting from any material harm to
Employer, its business, assets or employees through an act of dishonesty,
material conflict of interest, gross misconduct or willful malfeasance by
Executive. Executive also shall indemnify Employer for any and all damages,
costs and expenses resulting from Executive's acts of omission constituting
reckless disregard of Executive's duties to Employer following notice thereof by
Employer after it becomes aware of such conduct and Executive's failure to so
cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
PRIME GROUP REALTY TRUST
By:__________________________________
Title:________________________________
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust,
its General Partner
By:____________________________
Title:___________________________
EXECUTIVE:
_______________________________________
Robert J. Rudnik
Document Number: EXHBT10.7
October 30, 1997
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Exhibit 10.8
FORM OF
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 1997 by and among Prime Group Realty Trust, a Maryland
real estate investment trust ("PGRT"), Prime Group Realty, L.P., a Delaware
limited partnership and the operating partnership for PGRT ("Prime") (Prime and
PGRT are hereinafter sometimes collectively referred to as "Employer"), and
Jeffrey A. Patterson, an individual domiciled in the State of Illinois
("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of office and industrial
real estate facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
development of office properties and the management thereof.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Executive Vice President and Chief Investment
Officer of Employer on the terms and conditions provided in this Agreement.
Executive shall conduct, operate, manage and promote the business and business
concept of Employer. The Chief Executive Officer or the President of Employer
may from time to time further define and clarify Executive's duties and services
hereunder as Executive Vice President and Chief Investment Officer of Employer.
Executive agrees to devote Executive's best efforts and substantially all of
Executive's business time, attention, energy and skill to perform Executive's
duties as Executive Vice President and Chief Investment Officer of Employer.
<PAGE>
2. Term. The term of this Agreement shall commence on the date the
Registration Statement on Form S-11, as amended (No. 333-33547; the
"Registration Statement") of PGRT, the general partner of Prime, is declared
effective (the "Effective Date") and expire on ___________, 2000 [three year
term] (the "Employment Term").
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than Two
Hundred Thousand Dollars ($200,000) ("Base Compensation"), payable in accordance
with the general policies and procedures for payment of salaries to its
executive personnel maintained, from time to time, by Employer (but no less
frequently than monthly), subject to withholding for applicable federal, state,
and local taxes. Increases in Base Compensation, if any, shall be determined by
the Compensation Committee (the "Committee") of the Board of Trustees of PGRT
(the "Board"), based on periodic reviews of Executive's performance conducted on
at least an annual basis.
(b) Bonus. In addition to Base Compensation, the Board and the
Committee, in their sole and absolute discretion, may, but in no event shall be
obligated to, authorize the payment of a cash bonus (a "Performance Bonus
Distribution") to Executive based upon achievement of such corporate and
individual performance goals and objectives as may be established or determined
by the Board or the Committee from time to time.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in the
medical and dental benefit plan to be established by Employer (which may include
contributions by Executive) and in any other retirement, pension, insurance,
health or other benefit plan or program that has been or is hereafter adopted by
Employer (or in which Employer participates), as such plans and programs may be
amended or modified from time to time by Employer, according to the terms of
such plan or program with all the benefits, rights and privileges as are enjoyed
by any other executive officers of Employer. Employer expects to have in place a
life insurance program in which Executive will be entitled to participate. If
the participation of Executive would adversely affect the qualification of a
plan intended to be qualified under Section 401(a) of the Internal Revenue Code
as the same may be amended from time to time (the "Code"), Employer shall have
the right to exclude Executive from that plan in return for Executive's
participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies and procedures may
be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder, including expenses for business entertainment and meals
(whether in or out of town) and gas for business travel, but excluding
automobile insurance.
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(e) Vacations. During the Employment Term, Executive shall be entitled
to vacation in accordance with Employer's practices, as such practices may be
amended or modified from time to time by Employer, provided that Executive shall
be entitled to at least three (3) weeks paid vacation in each full calendar
year. Executive may accrue unused vacation time if not used in any calendar year
or years, however, the maximum cumulative amount of vacation time that Executive
may accrue and carry over to the next year is two (2) weeks. Executive shall be
entitled to a payment for any vacation time which has accrued but has not been
used as of the date of the termination of Executive's employment with Employer,
unless Executive's employment is terminated pursuant to Section 5(a)(ii) hereof.
4. Share Options and Grants. PGRT has established a share incentive plan
(the "Share Incentive Plan") that will become effective prior to the completion
of the initial public offering of shares of beneficial interests of PGRT
contemplated by the Registration Statement. The Share Incentive Plan initially
provides, among other things, for the issuance from time to time to certain
officers, directors and other employees of PGRT and Employer, including
Executive, of share options. On the Effective Date, pursuant to the Share
Incentive Plan, PGRT shall grant to Executive 85,000 share options ("Options")
that will have such terms and conditions as are set forth in the Share Incentive
Plan and the Share Option Agreement to be entered into between PGRT and
Executive. Such Options granted to Executive shall vest immediately upon the
death or disability of Executive or upon termination of this Agreement and
Executive's employment for any reason other than a termination for cause by
Employer. In the case of a termination for cause, all unvested Options shall be
forfeited by Executive, but Executive shall have the right to exercise within
the time period provided for in the Share Incentive Plan all Options vested
prior to such termination for cause. In addition, on the Effective Date, PGRT
Executive shall be entitled to receive 110,000 shares of beneficial interests of
PGRT in exchange for certain assets contributed by Executive to Prime as set
forth in that term sheet between Prime and Executive dated August 12, 1997.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, (B) be paid a pro rata portion of any bonus otherwise payable to
Executive for or with respect to the calendar year in which such termination
occurs in accordance with Section 3(b) hereof up to the effective date of such
termination and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs, (C) be entitled to the benefits set forth in Sections 3(c),
3(d) and 3(e) hereof up to the effective date of such termination and (D)
receive the Termination Compensation specified in Section 5(d) hereof. For
purposes of calculating Executive's pro rata portion of any bonus pursuant to
clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution, a pro rata (based on the number of days in the year) portion
of which Executive shall be entitled to receive, shall be deemed to be 50% of
Executive's then current annual Base
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Compensation. For purposes of this Agreement, the "effective date of
termination" shall mean the last day on which Executive is employed with
Employer which may be later than the date of the delivery of any applicable
notice of termination.
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, and, to the
extent not previously paid, Executive shall be entitled to any bonuses payable
to Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(B) be entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof
up to the effective date of such termination. For purposes of this Section
5(a)(ii), "cause" shall mean (1) a finding by the Board that Executive has
materially harmed Employer, its business, assets or employees through an act of
dishonesty, material conflict of interest, gross misconduct or willful
malfeasance, (2) Executive's conviction of (or pleading nolo contendere to) a
felony, (3) Executive's failure to perform (which shall not include inability to
perform due to disability) in any material respects Executive's material duties
under this Agreement after written notice specifying the failure and a
reasonable opportunity to cure (it being understood that if Executive's failure
to perform is not of a type requiring a single action to fully cure, then
Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion), (4) the breach by
Executive of any of Executive's material obligations hereunder (other than those
covered by clause (3) above) and the failure of Executive to cure such breach
within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (5)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four (4)
consecutive months to perform the duties required by this Agreement, Employer
may, upon thirty (30) days' written notice to Executive, either terminate this
Agreement or suspend Executive's right to any Base Compensation or Performance
Bonus Distributions without terminating this Agreement. In any such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, (B) be paid a
pro rata portion of any bonus otherwise payable to Executive for or with respect
to the calendar year in which such termination occurs in accordance with Section
3(b) hereof up to the first day of such four (4) month period and, to the extent
not previously paid, Executive shall be entitled to all bonuses payable to
Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(C) be entitled to the benefits set forth in Sections 3(c) (or the after-tax
cash equivalent), 3(d) and 3(e) hereof up to the effective date of such
termination. For purposes of calculating
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Executive's pro rata portion of any bonus pursuant to clause (B) in the previous
sentence, if the termination takes place prior to receipt by Executive of any
Performance Bonus Distribution, the Performance Bonus Distribution, a pro rata
portion of which Executive shall be entitled to receive, shall be deemed to be
50% of Executive's then current annual Base Compensation. In the event Employer
elects to suspend Executive's right to Base Compensation and Performance Bonus
Distributions, at such time as Executive is able to resume the duties required
under this Agreement, Executive shall be entitled to receive Base Compensation
and Performance Bonus Distributions from the date Executive commences the
performance of such duties following the disability in accordance with the terms
and provisions of this Agreement. This Section 5(a)(iii) shall not limit the
entitlement of Executive, Executive's estate or beneficiaries to any disability
or other benefits available to Executive under any disability insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of this Agreement, the "date of disability" shall mean the first
day of the consecutive period during which Executive fails to perform the duties
required by this Agreement due to illness, physical or mental disability or
other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of Employer and a resulting "diminution
event", each as defined below, but in no event later than two years after the
change of control event. Executive shall continue to perform, at the election of
Employer, Executive's duties under this Agreement for an additional thirty (30)
days following notice of termination. In such event, Executive shall (A) be paid
Executive's Base Compensation up to the effective date of such termination, (B)
be paid a pro rata portion of any bonus otherwise payable to Executive for or
with respect to the calendar year in which such termination occurs in accordance
with Section 3(b) hereof up to the effective date of such termination and, to
the extent not previously paid, Executive shall be entitled to all bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs, (C) be entitled to the benefits set forth in Sections 3(c), 3(d) and
3(e) hereof up to the effective date of such termination and (D) receive the
Termination Compensation specified in Section 5(d) hereof. For purposes of
calculating Executive's pro rata portion of any bonus pursuant to clause (B) in
the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation. For purposes of this Agreement, in the event Employer defaults in
its obligation under Section 9 hereof and, as a consequence thereof, Executive's
employment with Employer (or Employer's successor or assign) terminates, such
termination shall be deemed to be a termination under this Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest and excluding a trustee or other fiduciary holding
securities under an employee benefit plan of Employer), becomes
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the beneficial owner of shares of beneficial interests or limited partnership
interests, as applicable, of Employer having at least fifty percent (50%) of the
total number of votes that may be cast for the election of directors of
Employer; (2) the merger or other business combination of Employer, sale of all
or substantially all of Employer's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction immediately following
which the shareholders of Employer immediately prior to the Transaction continue
to have a majority of the voting power in the resulting entity (excluding for
this purpose any shareholder, other than The Prime Group, Inc. and its
affiliates, owning directly or indirectly more than ten percent (10%) of the
shares of the other company involved in the Transaction); or (3) within any
twenty-four (24) month period beginning on or after the date hereof, the persons
who were directors of Employer immediately before the beginning of such period
(the "Incumbent Directors") shall cease to constitute at least a majority of the
Board or a majority of the board of directors of any successor to Employer,
provided that, any director who was not a director as of the date hereof shall
be deemed to be an Incumbent Director if such director was elected to the Board
by, or on the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually or by
prior operation of this provision, unless such election, recommendation or
approval was the result of an actual or threatened election contest of the type
contemplated by Regulation 14a-11 promulgated under the Exchange Act or any
successor provision; and (B) a "diminution event" shall mean any material
diminution in (1) the duties and responsibilities of Executive (other than a
mere title change) or (2) the compensation package for Executive.
(ii) Without Good Reason. Executive may terminate this Agreement
and Executive's employment at any time for any reason or for no reason at all
upon thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform Executive's duties under this Agreement if Employer so
elects. In connection with the termination of Executive's employment pursuant to
this Section 5(b)(ii), Executive shall (A) be paid Executive's Base Compensation
in accordance with Section 3(a) hereof up to the effective date of such
termination, and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs and (B) be entitled to the benefits set forth in Sections
3(c), 3(d) and 3(e) hereof up to the effective date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the date of such death, (B) be paid a pro rata portion
of any bonus otherwise payable to Executive for or with respect to the calendar
year in which such death occurs in accordance with Section 3(b) hereof up to the
effective date of such death and, to the extent not previously paid, Executive
shall be entitled to all bonuses payable to Executive in accordance with Section
3(b) hereof for or with respect to any calendar years prior to the calendar year
in which such death occurs and (C) be entitled to the benefits set forth in
Sections 3(c) (or the after-tax cash equivalent), 3(d) and 3(e) hereof up to the
date of such death. This Section 5(c) shall not limit the entitlement of
Executive, Executive's estate or beneficiaries under any insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of calculating Executive's pro rata portion of any
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bonus pursuant to clause (B) in the previous sentence, if the termination takes
place prior to receipt by Executive of any Performance Bonus Distribution, the
Performance Bonus Distribution, a pro rata portion of which Executive shall be
entitled to receive, shall be deemed to be 50% of Executive's then current
annual Base Compensation.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i) or 5(b)(i) hereof, Employer shall pay to
Executive, within thirty (30) days of termination, an amount in one lump sum
("Termination Compensation") equal to the greater of (i) one hundred percent
(100%) of Executive's then current annual Base Compensation and (ii) one hundred
percent (100%) of the remaining aggregate Base Compensation payable to Executive
over the remainder of the Employment Term.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that Executive is
not personally subject to any agreement, order or decree which restricts
Executive's acceptance of this Agreement and the performance of Executive's
duties with Employer hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and, in the
event of the termination of this Agreement pursuant to the provisions of Section
5(a)(ii) or 5(b)(ii) hereof, for a period of two years thereafter, Executive
shall not, directly or indirectly, in any capacity whatsoever, either on
Executive's own behalf or on behalf of any other person or entity with whom
Executive may be employed or associated, own any interest in, participate or
engage in the day-to-day supervision, management, development, marketing or
operation of any office or industrial real estate facilities or such other
business as Employer may be engaged in during the Employment Term (the
"Business") which is competitive with any of Employer's facilities. For
purposes hereof, a facility will be deemed competitive with one of Employer's
facilities if such facility is located within ten (10) miles of a facility
owned, operated or managed by Employer or within ten (10) miles of a facility
which Employer is developing or with respect to which Employer has signed a
letter of intent or term sheet or binding contract for the acquisition,
development or management thereof dated on or prior to the date of such
termination. Furthermore, for a period of two years after any applicable
Section 5 termination event, Executive shall not, directly or indirectly,
solicit, attempt to hire or hire any employee or client of Employer or solicit
or attempt to lease space to or lease space to any tenant of Employer.
Notwithstanding the foregoing, nothing herein shall prohibit Executive from
owning 5% or less of any securities of a competitor engaged in the same Business
if such securities are listed on a nationally recognized securities exchange or
traded over-the-counter on the National Association of Securities Dealers
Automated Quotation System or otherwise.
(c) Non-Disclosure. During the Employment Term and for a period of two
years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
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information which derives independent economic value, actual or potential, with
respect to Employer from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and is the subject of efforts to maintain its secrecy
that are reasonable under the circumstances, including, but not limited to,
trade secrets, customer lists, sales records and other proprietary commercial
information. Said term, however, shall not include general "know-how"
information acquired by Executive prior to or during the course of Executive's
service which could have been obtained by him from public sources without the
expenditure of significant time, effort and expense which does not relate to
Employer.
(d) Business Opportunities. During the Employment Term, Executive
agrees to bring to Employer any and all business opportunities which come to
Executive's attention for the acquisition, development, management, leasing or
marketing of real estate for industrial or office use. In the event that
Employer elects not to participate or take advantage of any such business
opportunity, upon termination of Executive's employment with Employer for any
reason, Executive shall be free to pursue such business opportunity, provided
that such business opportunity does not cause any tenant to relocate from a
facility owned and/or operated by Employer, PGRT or any of their respective
subsidiaries.
(e) Return of Documents. Upon termination of Executive's services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and other
tangible property of Employer within Executive's possession or under Executive's
control.
(f) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(g) Acknowledgment. Executive acknowledges that Executive will be
directly and materially involved as a senior executive in all important policy
and operational decisions of Employer. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Employer and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of Section 6
are fair and reasonable, are minimally necessary to protect Employer, its other
partners and the public from the unfair competition of Executive who, as a
result of Executive's performance of services on behalf of Employer, will have
had unlimited access to the most confidential and important information of
Employer, its business and future plans. Executive furthermore acknowledges that
no unreasonable harm or injury will be suffered by him from enforcement of the
covenants contained herein and that Executive will be able to earn a reasonable
livelihood following termination of Executive's services notwithstanding
enforcement of the covenants contained herein.
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7. Prior Agreements. This Agreement, together with the Stock Incentive
Plan, supersedes and is in lieu of any and all other employment arrangements
between Executive and Employer or its predecessor or any subsidiary and any and
all such employment agreements and arrangements are hereby terminated and deemed
of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement
giving Executive the right to terminate this Agreement, in which case Executive
shall be entitled to receive the compensation specified in Section 5(b)(i)
hereof. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
courier or by certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Jeffrey A. Patterson
-------------------------
-------------------------
With a copy to:
--------------
------------------------
------------------------
------------------------
Attn:
------------------
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(b) if to Employer, to:
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
--------------
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any
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Contractual Provision of this Agreement is determined by a court of competent
jurisdiction to be overly broad thereby making the Contractual Provision
unenforceable, the parties hereto agree, and it is their desire, that such court
shall substitute a judicially enforceable limitation in its place, and that the
Contractual Provision, as so modified, shall be binding upon the parties as if
originally set forth herein.
14. Indemnification by Executive. Executive shall indemnify Employer for
any and all damages, costs and expenses resulting from any material harm to
Employer, its business, assets or employees through an act of dishonesty,
material conflict of interest, gross misconduct or willful malfeasance by
Executive. Executive also shall indemnify Employer for any and all damages,
costs and expenses resulting from Executive's acts of omission constituting
reckless disregard of Executive's duties to Employer following notice thereof by
Employer after it becomes aware of such conduct and Executive's failure to so
cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
PRIME GROUP REALTY TRUST
By:__________________________________
Title:________________________________
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust,
its General Partner
By:____________________________
Title:___________________________
EXECUTIVE:
_______________________________________
Jeffrey A. Patterson
Document Number: EXHBT10.8
October 30, 1997
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Exhibit 10.9
FORM OF
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 1997 by and between Prime Group Realty, L.P., a
Delaware limited partnership ("Employer"), and Kevork M. Derderian, an
individual domiciled in the State of Illinois ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of office and industrial
real estate facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
development of office properties and the management thereof.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the President of Employer's Office Division on the
terms and conditions provided in this Agreement. Executive shall conduct,
operate, manage and promote the business and business concept of Employer. The
Chief Executive Officer or the President of Employer may from time to time
further define and clarify Executive's duties and services hereunder as
President of Employer's Office Division, which principal duties will include the
development, management, leasing, marketing and acquisition of office
properties. Executive agrees to devote Executive's best efforts and
substantially all of Executive's business time, attention, energy and skill to
perform Executive's duties as President of Employer's Office Division.
2. Term. The term of this Agreement shall commence on the date The
Registration Statement on Form S-11, as amended (No. 333-33547; the
"Registration Statement") of Prime Group
<PAGE>
Realty Trust ("PGRT"), the general partner of Employer, is declared effective
(the "Effective Date") and expire on ___________, 2000 [three year term] (the
"Employment Term").
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than Two
Hundred Thousand Dollars ($200,000) ("Base Compensation"), payable in accordance
with the general policies and procedures for payment of salaries to its
executive personnel maintained, from time to time, by Employer (but no less
frequently than monthly), subject to withholding for applicable federal, state,
and local taxes. Increases in Base Compensation, if any, shall be determined by
the Compensation Committee (the "Committee") of the Board of Trustees of PGRT
(the "Board") based on periodic reviews of Executive's performance conducted on
at least an annual basis.
(b) Bonus. In addition to Base Compensation, Executive shall have the
right to receive, and Employer agrees to distribute to Executive, a performance
bonus distribution for each calendar year during the Employment Term, commencing
on January 1, 1998, in such amounts as determined by the two point formula
delineated hereinbelow (collectively, a yearly "Performance Bonus
Distribution"); provided, however, that the aggregate Performance Bonus
Distribution for any calendar year distributable in accordance with the
provisions of this Section 3(b) shall in no event exceed 100% of the Base
Compensation for such calendar year. The amount of the Performance Bonus
Distribution for each calendar year distributable to Executive hereunder shall
be determined by the Committee based upon the achievement of Employer's annual
business plan approved by the Board for such calendar year, as reflected in the
audited financial statements of Employer prepared in accordance with generally
accepted accounting principles and auditing standards and practices,
consistently applied ("GAAP"). Prior to issuance of the final audited financial
statements for each calendar year, Executive shall have the right to review and
approve or challenge any calculation or determination of the amount of the
Performance Bonus Distribution distributable for such calendar year. Any amount
of Performance Bonus Distribution required to be distributed to Executive for
any calendar year during the Employment Term shall be distributed by Employer to
Executive during the pay period of Employer following finalization of the audit
for such calendar year and final review and approval of the bonus calculation by
the Committee and, in all events, on or before April 15 of the year immediately
following the end of the calendar year for which such Performance Bonus
Distribution is attributable.
The two point formula to determine a Performance Bonus Distribution
for any calendar year during the Employment Term shall be as follows:
(i) Funds From Operations. Executive's Performance Bonus
Distribution in an amount of up to seventy-five percent (75%) of Executive's
Base Compensation for any given calendar year shall be based on Employer's Funds
From Operations publicly announced by Employer ("FFO") such calendar year in
relation to projected budget for FFO disclosed to shareholders of PGRT set forth
in Employer's Board approved annual business plan for such calendar year
("Public FFO") as follows:
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(A) If FFO is less than Public FFO, Executive shall not be
entitled to any Performance Bonus Distribution under this Section 3(b)(i).
(B) If FFO is one hundred and three percent (103%) or more of
Public FFO, Executive shall be entitled to a Performance Bonus Distribution
under this Section 3(b)(i) equal to seventy-five percent (75%) of Executive's
Base Compensation for such calendar year.
(C) If FFO is equal to Public FFO but less than one hundred and
three percent (103%) of Public FFO, Executive shall be entitled to a Performance
Bonus Distribution under this Section 3(b)(i) equal to thirty seven and one-half
percent (37.5%) of Executive's Base Compensation for such calendar year.
(D) If FFO is greater than Public FFO but less than one hundred
and three percent (103%) of Public FFO, then a pro rata adjustment shall be made
to the Performance Bonus Distribution to which Executive is entitled under this
Section 3(b)(i) for such calendar year.
(ii) Discretionary. Executive's Performance Bonus Distribution in
an amount of up to twenty-five percent (25%) of Executive's Base Compensation
for any given calendar year shall be determined at the sole discretion of the
Board or the Committee based upon achievement of such corporate or individual
performance goals and objectives as may be established or determined by the
Board or the Committee from time to time.
Within ninety (90) days after the Effective Date, Employer and Executive shall
negotiate in good faith a revised Performance Bonus Distribution formula which
more accurately measures the performance by Executive of Executive's duties and
responsibilities related to Employer's Office Division for which Executive has
direct authority and oversight.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in the
medical and dental benefit plan to be established by Employer (which may include
contributions by Executive) and in any other retirement, pension, insurance,
health or other benefit plan or program that has been or is hereafter adopted by
Employer (or in which Employer participates), as such plans and programs may be
amended or modified from time to time by Employer, according to the terms of
such plan or program with all the benefits, rights and privileges as are enjoyed
by any other executive officers of Employer. Employer expects to have in place a
life insurance program in which Executive will be entitled to participate. If
the participation of Executive would adversely affect the qualification of a
plan intended to be qualified under Section 401(a) of the Internal Revenue Code
as the same may be amended from time to time (the "Code"), Employer shall have
the right to exclude Executive from that plan in return for Executive's
participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
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(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies and procedures may
be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder, including expenses for business entertainment and meals
(whether in or out of town) and gas for business travel, but excluding
automobile insurance. Subject to the policies and procedures referred to in the
previous sentence, Employer agrees to reimburse Executive for membership dues
for the following organizations (i) NACORE, (ii) ULI and (iii) U.S. Green
Building - Council and for travel and related expenses incurred by Executive to
attend the annual conventions and board and council meetings of such
organizations.
(e) Vacations. During the Employment Term, Executive shall be entitled
to vacation in accordance with Employer's practices, as such practices may be
amended or modified from time to time by Employer, provided that Executive shall
be entitled to at least four (4) weeks paid vacation in each full calendar year.
Executive may accrue unused vacation time if not used in any calendar year or
years, however, the maximum cumulative amount of vacation time that Executive
may accrue and carry over to the next year is two (2) weeks. Executive shall be
entitled to a payment for any vacation time which has accrued but has not been
used as of the date of the termination of Executive's employment with Employer,
unless Executive's employment is terminated pursuant to Section 5(a)(ii) hereof.
4. Stock Options. The general partner of Employer, PGRT has established a
stock incentive plan (the "Stock Incentive Plan") that will become effective
prior to the completion of the initial public offering of shares of common stock
of PGRT (the "Common Stock") contemplated by the Registration Statement. The
Stock Incentive Plan initially provides, among other things, for the issuance
from time to time to certain officers, directors and other employees of PGRT and
Employer, including Executive, of stock options. On the Effective Date,
pursuant to the Stock Incentive Plan, PGRT shall grant to Executive 70,000 stock
options ("Options") that will have such terms and conditions as are set forth in
the Stock Incentive Plan and the Stock Option Agreement to be entered into
between PGRT and Executive. Such Options granted to Executive shall vest
immediately upon the death or disability of Executive or upon termination of
this Agreement and Executive's employment for any reason other than a
termination for cause by Employer. In the case of a termination for cause, all
unvested Options shall be forfeited by Executive, but Executive shall have the
right to exercise within the time period provided for in the Stock Incentive
Plan all Options vested prior to such termination for cause.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, (B) be paid a pro rata portion of any bonus otherwise payable to
Executive for or with respect to the calendar year in which such termination
occurs in accordance with Section 3(b) hereof up to the effective date of such
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termination and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs, (C) be entitled to the benefits set forth in Sections 3(c),
3(d), 3(e) and 3(f) hereof up to the effective date of such termination and (D)
receive the Termination Compensation specified in Section 5(d) hereof. For
purposes of calculating Executive's pro rata portion of any bonus pursuant to
clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution, a pro rata (based on the number of days in the year) portion
of which Executive shall be entitled to receive, shall be deemed to be 50% of
Executive's then current annual Base Compensation. For purposes of this
Agreement, the "effective date of termination" shall mean the last day on which
Executive is employed with Employer which may be later than the date of the
delivery of any applicable notice of termination.
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, and, to the
extent not previously paid, Executive shall be entitled to any bonuses payable
to Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(B) be entitled to the benefits set forth in Sections 3(c), 3(d), 3(e) and 3(f)
hereof up to the effective date of such termination. For purposes of this
Section 5(a)(ii), "cause" shall mean (1) a finding by the Board that Executive
has materially harmed Employer, its business, assets or employees through an act
of dishonesty, material conflict of interest, gross misconduct or willful
malfeasance, (2) Executive's conviction of (or pleading nolo contendere to) a
felony, (3) Executive's failure to perform (which shall not include inability to
perform due to disability) in any material respects Executive's material duties
under this Agreement after written notice specifying the failure and a
reasonable opportunity to cure (it being understood that if Executive's failure
to perform is not of a type requiring a single action to fully cure, then
Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion), (4) the breach by
Executive of any of Executive's material obligations hereunder (other than those
covered by clause (3) above) and the failure of Executive to cure such breach
within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (5)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four (4)
consecutive months to perform the duties required by this Agreement, Employer
may, upon thirty (30) days' written notice to Executive, either terminate this
Agreement or suspend Executive's right to any Base Compensation or Performance
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Bonus Distributions without terminating this Agreement. In any such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, (B) be paid a
pro rata portion of any bonus otherwise payable to Executive for or with respect
to the calendar year in which such termination occurs in accordance with Section
3(b) hereof up to the first day of such four (4) month period and, to the extent
not previously paid, Executive shall be entitled to all bonuses payable to
Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(C) be entitled to the benefits set forth in Sections 3(c) hereof (or the after-
tax cash equivalent) up to the effective date of such termination, and be
entitled to the benefits set forth in Sections 3(d), 3(e), and 3(f) hereof up to
the date of such termination. For purposes of calculating Executive's pro rata
portion of any bonus pursuant to clause (B) in the previous sentence, if the
termination takes place prior to receipt by Executive of any Performance Bonus
Distribution, the Performance Bonus Distribution, a pro rata portion of which
Executive shall be entitled to receive, shall be deemed to be 50% of Executive's
then current annual Base Compensation. In the event Employer elects to suspend
Executive's right to Base Compensation and Performance Bonus Distributions, at
such time as Executive is able to resume the duties required under this
Agreement, Executive shall be entitled to receive Base Compensation and
Performance Bonus Distributions from the date Executive commences the
performance of such duties following the disability in accordance with the terms
and provisions of this Agreement. This Section 5(a)(iii) shall not limit the
entitlement of Executive, Executive's estate or beneficiaries to any disability
or other benefits available to Executive under any disability insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of this Agreement, the "date of disability" shall mean the first
day of the consecutive period during which Executive fails to perform the duties
required by this Agreement due to illness, physical or mental disability or
other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of PGRT and a resulting "diminution event",
each as defined below, but in no event later than two years after the change of
control event. Executive shall continue to perform, at the election of Employer,
Executive's duties under this Agreement for an additional thirty (30) days
following notice of termination. In such event, Executive shall (A) be paid
Executive's Base Compensation up to the effective date of such termination, (B)
be paid a pro rata portion of any bonus otherwise payable to Executive for or
with respect to the calendar year in which such termination occurs in accordance
with Section 3(b) hereof up to the effective date of such termination and, to
the extent not previously paid, Executive shall be entitled to all bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs, (C) be entitled to the benefits set forth in Sections 3(c), 3(d), 3(e)
and 3(f) hereof up to the effective date of such termination and (D) receive the
Termination Compensation specified in Section 5(d) hereof. For purposes of
calculating Executive's pro rata portion of any bonus pursuant to clause (B) in
the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation. For purposes of this Agreement, in the event
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Employer defaults in its obligation under Section 9 hereof and, as a consequence
thereof, Executive's employment with Employer (or Employer's successor or
assign) terminates, such termination shall be deemed to be a termination under
this Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of PGRT
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest and excluding a trustee or other fiduciary holding
securities under an employee benefit plan of PGRT), becomes the beneficial owner
of shares of beneficial interests of PGRT having at least fifty percent (50%) of
the total number of votes that may be cast for the election of trustees of PGRT;
(2) the merger or other business combination of PGRT or Employer, sale of all or
substantially all of PGRT's or Employer's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction immediately following
which the shareholders of PGRT immediately prior to the Transaction continue to
have a majority of the voting power in the resulting entity (excluding for this
purpose any shareholder, other than The Prime Group, Inc. and its affiliates,
owning directly or indirectly more than ten percent (10%) of the shares of the
other company involved in the Transaction); or (3) within any twenty-four (24)
month period beginning on or after the date hereof, the persons who were
trustees of PGRT immediately before the beginning of such period (the "Incumbent
Trustees") shall cease to constitute at least a majority of the Board or a
majority of the board of trustees of any successor to PGRT, provided that, any
trustee who was not a trustee as of the date hereof shall be deemed to be an
Incumbent Trustee if such trustee was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds of the trustees
who then qualified as Incumbent Trustees either actually or by prior operation
of this provision, unless such election, recommendation or approval was the
result of an actual or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any successor provision;
and (B) a "diminution event" shall mean any material diminution in (1) the
duties and responsibilities of Executive (other than a mere title change, unless
the new title is not President) or (2) the compensation package for Executive.
(ii) Without Good Reason. Executive may terminate this Agreement
and Executive's employment at any time for any reason or for no reason at all
upon thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform Executive's duties under this Agreement if Employer so
elects. In connection with the termination of Executive's employment pursuant to
this Section 5(b)(ii), Executive shall (A) be paid Executive's Base Compensation
in accordance with Section 3(a) hereof up to the effective date of such
termination, and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs and (B) be entitled to the benefits set forth in Sections
3(c), 3(d), 3(e) and 3(f) hereof up to the effective date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be
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paid Executive's Base Compensation in accordance with Section 3(a) hereof up to
the date of such death, (B) be paid a pro rata portion of any bonus otherwise
payable to Executive for or with respect to the calendar year in which such
death occurs in accordance with Section 3(b) hereof up to the effective date of
such death and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
death occurs and (C) be entitled to the benefits set forth in Sections 3(c) (or
the after-tax cash equivalent), 3(d), 3(e) and 3(f) hereof up to the date of
such death. This Section 5(c) shall not limit the entitlement of Executive,
Executive's estate or beneficiaries under any insurance or other benefits plan
or policy which is maintained by Employer for Executive's benefit. For purposes
of calculating Executive's pro rata portion of any bonus pursuant to clause (B)
in the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i) or 5(b)(i) hereof, Employer shall pay to
Executive, within thirty (30) days of termination, an amount in one lump sum
("Termination Compensation") equal to (i) in the case of a termination pursuant
to Section 5(a)(i) hereof, the product of (A) the sum of (1) Executive's then
current annual Base Compensation and (2) Executive's last annualized Performance
Bonus Distribution times (B) a fraction, the numerator of which is the number of
days between such date of termination and expiration of the Employment Term (but
in no event less than 365) and the denominator of which is 365 or (ii) in the
case of a termination pursuant to Section 5(b)(i) hereof, two times the sum of
(A) Executive's then current annual Base Compensation and (B) Executive's last
annualized Performance Bonus Distribution. For purposes of calculating
Executive's Termination Compensation, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution component of the Termination Compensation calculation shall
be deemed to be 50% of Executive's then current annual Base Compensation.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that Executive is
not personally subject to any agreement, order or decree which restricts
Executive's acceptance of this Agreement and the performance of Executive's
duties with Employer hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term, and for a
period of two years after any applicable Section 5 termination event, Executive
shall not, directly or indirectly, attempt to hire or hire any employee or
client of Employer or solicit or attempt to lease space to or lease space to any
tenant of Employer. Notwithstanding the foregoing, nothing herein shall
prohibit Executive from owning 5% or less of any securities of a competitor
engaged in the same Business if such securities are listed on a nationally
recognized securities exchange or traded over-the-counter on the National
Association of Securities Dealers Automated Quotation System or otherwise.
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(c) Non-Disclosure. During the Employment Term and for a period of two
years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
information which derives independent economic value, actual or potential, with
respect to Employer from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and is the subject of efforts to maintain its secrecy
that are reasonable under the circumstances, including, but not limited to,
trade secrets, customer lists, sales records and other proprietary commercial
information. Said term, however, shall not include general "know-how"
information acquired by Executive prior to or during the course of Executive's
service which could have been obtained by him from public sources without the
expenditure of significant time, effort and expense which does not relate to
Employer.
(d) Business Opportunities. During the Employment Term, Executive
agrees to bring to Employer any and all business opportunities which come to
Executive's attention for the acquisition, development, management, leasing or
marketing of real estate for industrial or office use. In the event that
Employer elects not to participate or take advantage of any such business
opportunity, upon termination of Executive's employment with Employer for any
reason, Executive shall be free to pursue such business opportunity, provided
that such business opportunity does not cause any tenant to relocate from a
facility owned and/or operated by Employer, PGRT or any of their respective
subsidiaries.
(e) Return of Documents. Upon termination of Executive's services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and other
tangible property of Employer within Executive's possession or under Executive's
control.
(f) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(g) Acknowledgment. Executive acknowledges that Executive will be
directly and materially involved as a senior executive in all important policy
and operational decisions of Employer. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Employer and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of Section 6
are fair and reasonable, are minimally necessary to protect Employer, its other
partners and the public from the unfair competition of Executive who, as a
result of Executive's performance of services on behalf of Employer, will have
had unlimited access to the most confidential and important information of
Employer, its business and future plans. Executive furthermore acknowledges that
no unreasonable
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harm or injury will be suffered by him from enforcement of the covenants
contained herein and that Executive will be able to earn a reasonable livelihood
following termination of Executive's services notwithstanding enforcement of the
covenants contained herein.
7. Prior Agreements. This Agreement, together with the Stock Incentive
Plan, supersedes and is in lieu of any and all other employment arrangements
between Executive and Employer or its predecessor or any subsidiary and any and
all such employment agreements and arrangements are hereby terminated and deemed
of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement
giving Executive the right to terminate this Agreement, in which case Executive
shall be entitled to receive the compensation specified in Section 5(b)(i)
hereof. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
courier or by certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Kevork M. Derderian
_________________________
_________________________
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With a copy to:
--------------
________________________
________________________
________________________
Attn: ____________________
(b) if to Employer, to:
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
--------------
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
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13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any Contractual Provision of this Agreement is determined by a
court of competent jurisdiction to be overly broad thereby making the
Contractual Provision unenforceable, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and that the Contractual Provision, as so modified, shall be binding
upon the parties as if originally set forth herein.
14. Indemnification by Executive. Executive shall indemnify Employer for
any and all damages, costs and expenses resulting from any material harm to
Employer, its business, assets or employees through an act of dishonesty,
material conflict of interest, gross misconduct or willful malfeasance by
Executive. Executive also shall indemnify Employer for any and all damages,
costs and expenses resulting from Executive's acts of omission constituting
reckless disregard of Executive's duties to Employer following notice thereof by
Employer after it becomes aware of such conduct and Executive's failure to so
cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
PRIME GROUP REALTY L.P.
By: Prime Group Realty Trust,
its General Partner
By:____________________________
Title:___________________________
EXECUTIVE:
_______________________________________
Kevork M. Derderian
Document Number: EXHBT10.9
October 30, 1997
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Exhibit 10.11
CONTRIBUTION AGREEMENT
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THIS CONTRIBUTION AGREEMENT ("Agreement") is made this 20th day of October,
1997, in Chicago, Illinois, by and between the parties set forth on Schedule 1
attached hereto and made a part hereof (individually, a "Contributor" and
collectively, "Contributors"), and THE PRIME GROUP, INC., an Illinois
corporation ("Company"), PRIME GROUP REALTY, L.P., a Delaware limited
partnership ("Partnership") and PRIME GROUP REALTY TRUST, a Maryland real estate
investment trust ("REIT").
R E C I T A L S:
A. Land Trusts (as hereinafter defined) are the fee owners of the Real
Property (as hereinafter defined) and the Beneficiaries (as hereinafter defined)
are the owners of the Personal Property, Contracts and Licenses (as such terms
are hereinafter defined) and the Nardi Entities (as hereinafter defined) are the
owners of the Business Assets (as hereinafter defined). The Real Property,
Personal Property, Contracts, Licenses and Business Assets are sometimes
collectively referred to herein as the "Property").
B. Prior to the Closing Date (as hereinafter defined), Company will
assign all of its right, title and interest in and to this Agreement to the
Partnership.
C. Contributors desire to contribute the Property or cause the Property
to be contributed to the Partnership, and the Company desires to cause
Partnership to accept the contribution of the Property from the Contributors
upon and subject to the terms and conditions hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, agreements, covenants and conditions
herein contained, and other good and valuable consideration, Contributors and
Company agree as follows:
ARTICLE 1
DEFINITIONS
1.01 Definitions. When used herein, the following terms shall have the
respective meanings set forth opposite each such term:
Agreement: This Agreement including the Exhibits and Schedules attached
hereto which are incorporated herein and made a part hereof.
<PAGE>
Business Assets: The assets of the Nardi Entities, including, but not
limited to, items described on Schedule 2 attached hereto and made a part
hereof.
Closing Date: The date which is three (3) business days following pricing
of the IPO; provided, however, that if Closing has not occurred by December 31,
1997, Company may by written notice to Contributors delivered on or before
December 29, 1997, extend the last day on which the Closing may occur to March
31, 1998 so long as the Company certifies to the Contributors in such notice
that (a) the Company intends to proceed in good faith towards the consummation
of the IPO and the date on which the Company anticipates the IPO will be priced,
and (b) in furtherance of the Company's good faith effort to consummate the IPO,
the Company has elected to extend the Closing Date. Company shall deliver
written notice to Contributors of its intent to price the IPO at least five (5)
business days prior to the intended pricing date and shall thereafter notify
Contributors of any changes in its intent to price or a change in the estimated
date of Closing.
Contracts: All written: (i) insurance, service, maintenance, operating,
repair and other contracts and commitments (excluding the recorded documents
evidencing the Permitted Title Exceptions) in any way relating to the Property
or any part thereof which shall survive the closing hereunder; (ii) equipment
leases of equipment located on the Property; and (iii) guaranties and warranties
in effect with respect to the Property or any portion thereof, which shall
survive the closing hereunder. A true, correct and complete list of the
foregoing are attached as Exhibit D hereto.
Contribution Price: $96,378,588, being the consideration payable by the
Partnership to Contributors for the contribution of the Property to the
Partnership and all other covenants and warranties contained herein, as further
described in Article 3.
Deeds: Those certain Trustee's Deeds (in recordable form) delivered by the
Land Trusts of the Real Property described in Exhibit A attached hereto and made
a part hereof to the Partnership, subject only to the permitted exceptions
applicable to such Real Property.
Employee Benefit Plan: All written employee benefit plans or programs,
welfare benefits plans, retirement plans, excess benefit plans, plans maintained
to provide workers' compensation or unemployment benefits and pay practices
which Contributors have funded or been obligated to fund for their past or
present employees, independent contractors or either of their beneficiaries or
dependents.
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Environmental Laws: As defined in Section 12.01(u).
Environmental Study: As defined in Section 11.01(f).
Escrowee: First American Title Insurance Company, Chicago, Illinois
Governmental Approvals: Certificates of occupancy, licenses, permits,
authorizations and approvals required by law or by any Governmental Authority
having jurisdiction in respect of the Property, or any portion thereof,
occupancy thereof, or any present use thereof.
Government Authority: Any federal, state or local governmental body or
agency having jurisdiction in respect of the Property, or any portion thereof,
occupancy thereof, or any present use thereof.
Hazardous Materials: As defined in Section 12.01(u).
Intangible Personal Property: All logos, designs, tradenames, except the
names "Nardi" and/or "Narco" or derivatives thereof when used alone or in
combination with other names subject to the terms and conditions of the
Employment and Non-Competition Agreement by and among the parties hereto,
trademarks, service marks, copyrights and other intellectual property used by
Contributors in connection with the ownership and operation of the Property or
any part thereof, together with the goodwill of the business appurtenant
thereto.
IPO: The initial public offering of the stock of Prime Group Realty Trust
as contemplated by Form S-11 Registration Statement dated September 12, 1997, a
draft copy of which has been delivered to Contributors, as same may be amended
from time to time in accordance with the terms hereof.
Land Trusts: Each of the entities described as "Land Trusts" on Schedule 1
attached hereto, if any.
Leases: All leases and tenancies in the Real Property identified and
described in Exhibit F.
Legal Requirements: All laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments and governmental
authorities having jurisdiction of the Property (including, for purposes hereof,
any local Board of Fire Underwriters), and the operation thereof.
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Licenses: All licenses, franchises, certifications, authorizations,
approvals and permits issued or approved by any governmental authority and
relating to the operation, ownership and maintenance of the Property or any part
thereof, including elevator permits, machinery permits, business licenses,
ingress and egress permits and the like, as identified and described in Exhibit
E.
Mortgages: Unless specifically set forth otherwise, collectively, the
mortgages encumbering the Real Property described on Schedule 3 attached hereto,
which shall be repaid by the Partnership.
Nardi Entities: Each of the entities described on Schedule 1-A attached
hereto.
Nardi General Partner Entity: A legal entity designated by Stephen J.
Nardi in a written notice to the Company not less than ten (10) days prior to
Closing.
Nardi Properties: Property contributed to the Partnership by Contributors.
Option Property: The real property legally described on Exhibit A-2
attached hereto.
Permitted Title Exceptions: All of the items as listed and described on
Exhibit C (including the Leases and the Mortgages described on Schedule 3); acts
of Company; rights of persons claiming by, through or under Company; and any
other matters which Company shall approve in writing.
Personal Property: Any and all machinery, equipment, fixtures, furnishings,
and other tangible personal property owned by Contributors situated in or upon
or used in connection with the operation or maintenance of the Real Property or
any part thereof and all replacements, additions or accessories thereto between
the date hereof and the Closing Date, including the items identified and
described on Exhibit B, but excluding personal property owned by the Nardi
Entities which are not Business Assets, if any, described on Schedule 2-A or by
tenants under the Leases and personal property demised by any equipment leases
(if any) described on Exhibit F.
Property: Collectively, the Real Property, the Personal Property, the
Intangible Personal Property, the Business Assets, the Contracts, the Leases and
the Licenses.
Real Property: The Real Property legally described on Exhibit A, Exhibit A-
1 and Exhibit A-2 together with all buildings and improvements thereon or
therein (including all replacements or additions thereto between the date hereof
and the Closing Date); to the extent owned by Contributors (and not a tenant
under a Lease) all systems, facilities, fixtures, machinery, equipment and
conduits to provide fire protection, security, heat, exhaust, ventilation, air
conditioning, electrical power, light, plumbing, refrigeration, gas,
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sewer and water thereto (including all replacements or additions thereto between
the date hereof and the Closing Date); all privileges, rights, easements,
hereditaments, and appurtenances thereto belonging to Contributors; and all
right, title and interest of Contributors in and to all streets, alleys,
passages and other rights-of-way included therein or adjacent thereto (before or
after the vacation thereof).
Surveys: Current as-built surveys for each property compromising the Real
Property prepared by a surveyor licensed by the State of Illinois and certified
to the Company, the Partnership, the REIT, the Contributor which is the
beneficiary of the Land Trust which holds title to the parcel of Real Property
depicted and the Title Insurer prepared in accordance with the standards for
Land Title Surveys of the American Land Title Association and the American
Congress on Surveying and Mapping Class A survey, copies of which have been
delivered to Company prior to the date hereof.
Title Commitments: A separate commitment for an ALTA Form B Owner's Title
Insurance Policy for each real property comprising the Real Property issued by
the Title Insurer in the amount of the allocation of the Contribution Price as
provided in Schedule 10 attached hereto, covering title to the Real Property on
or after the date hereof, showing the respective owner of the Real Property in
fee simple, copies of which have been delivered to Company prior to the date
hereof. Contributors shall request Title Insurer to furnish a creditor's rights
endorsement.
Title Insurer: First American Title Insurance Company, Chicago, IL
Vacant Property: The real property legally described on Exhibit A-1
attached hereto.
ARTICLE 2
CONTRIBUTION AND RECEIPT
2.01 Contribution. Subject to the conditions and on the terms contained in
this Agreement:
(a) Contributors agree to cause the Land Trusts to execute and
deliver the Deeds for the Real Property described on Exhibit A for a
contribution price equal to $96,378,588.
(b) Partnership agrees to acquire from Contributors, and Contributors
agree to contribute to Partnership all of Contributors' right, title and
interest in the Contracts, the Leases, Intangible Personal Property and Licenses
relating to the Real Property described on Exhibit A.
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(c) Partnership agrees to acquire from Contributors, and Contributors
agree to contribute to Partnership the Personal Property relating to the Real
Property described on Exhibit A by good and sufficient bill of sale containing
full warranties of title free and clear of liens, claims, encumbrances and
restrictions of every kind and description except for the Permitted Title
Exceptions to the extent applicable thereto.
(d) Partnership agrees to acquire from the Nardi Entities, and the
Nardi Entities agree to contribute to Partnership the Business Assets by good
and sufficient bill of sale containing full warranties of title free and clear
of liens, claims, encumbrances and restrictions of every kind and description
except for the Permitted Exceptions to the extent applicable thereto.
ARTICLE 3
CONTRIBUTION PRICE
3.01 Contribution Price. The total gross fair market value attributable to
the Property (excluding the Real Property described on Exhibit A-1 which is
covered by the agreements attached hereto as Exhibit K and excluding the Real
Property described in Exhibit A-2 attached hereto for which the Contribution
Price shall be calculated in accordance with Section 3.02(b) of this Agreement)
contributed by Contributors to the Partnership shall be Ninety Four Million
Eight Hundred Seventy Eight Thousand and Five Hundred Eighty Eight No/100
Dollars ($94,878,588).
3.02 Consideration Received by Contributors. (a) Provided that all
conditions precedent to the Partnership's and Contributors' obligations to close
as set forth in this Agreement have been satisfied and fulfilled or waived in
writing by the parties hereto, the Partnership shall at Closing: (i) accept a
contribution of the Property subject to the Mortgages encumbering the Real
Property described on Schedule 3, which shall be repaid by the Partnership
within one (1) business day after the IPO (as herein defined); (ii) pay the sum
of up to 15,863,800, in cash, the exact amount to be designated by Contributors;
plus (ii) admit the Nardi General Partner Entity as a general partner in the
Partnership which shall have general partnership common units equal in value to
the amount calculated by dividing the balance of the Contribution Price (after
deducting items (i) and (ii) above, and plus or minus prorations and other
adjustments required under this Agreement), by the initial public offering price
of the REIT common stock on the IPO Closing Date.
(b) Notwithstanding the foregoing, the Closing on the contribution to the
Partnership of the property commonly known as 130 Rawls Road (the "Rawls Road
Property") and the property commonly known as 300-320 Craig Place ("Craig Place
Property") shall be delayed for each such property until ten (10) days after
such time if ever as Contributors notify the Partnership with respect to either
parcel that such property is one
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hundred percent (100%) leased pursuant to Qualified Leases (as hereinafter
defined) ("Closing Condition") (the Rawls Road Property and the Craig Place
Property are herein referred to collectively as the "Delayed Closing
Properties"). The Contribution Price for each such Delayed Closing Property
shall be an amount equal to: (i) in the case of the Craig Place Property,
$7,528,941, plus an amount, if any, equal to the capital expenditures made by
such Contributors to obtain such Qualified Leases which create incremental
rental income above $4.50 per rentable square foot, and (ii) in the case of the
Rawls Road Property, $2,531, 471 plus an amount, if any, equal to the capital
expenditures made by such Contributors to obtain such Qualified Leases which
create incremental rental income above $3.50 per rentable square foot. Such
Property shall be contributed to the Partnership in exchange for general
partnership common units equal in value to the amount calculated by dividing
such Contribution Price by the initial public offering price of the REIT common
stock on the IPO Closing Date, if the notice of satisfaction of the Closing
Condition for such Property is received by Partnership on or before the date
which is 180 days following the IPO Closing; otherwise, if the notice of
satisfaction of the Closing Condition for such Property is received by
Partnership after the date which is 180 days following the IPO Closing and on or
before the second anniversary of the IPO Closing, then such Delayed Closing
Property shall be contributed to the Partnership in exchange for general
partnership common units equal in value to the amount calculated by dividing the
Contribution Price for such Delayed Closing Property by the average daily
closing price for the REIT common stock for the ten trading days immediately
prior to the Closing Date for such Delayed Closing Property. The Partnership
(a) shall not be obligated to acquire a Property if the Closing Condition for
such Property is not satisfied [or waived] on or before the second anniversary
of the IPO Closing, and (b) shall acquire one of the Delayed Closing Properties
when the Closing Condition precedent for such acquisition is satisfied even if
the Closing Condition precedent for the acquisition of the other Delayed Closing
Property is not then satisfied.
For purposed of this paragraph the term "Qualified Lease" shall mean a
lease in which (i) the space in question is occupied by a third party tenant who
is not controlled by, under common control with, or otherwise related to
(directly or indirectly) Contributors and/or Stephen J. Nardi pursuant to an
arms length triple net lease on terms comparable to the Leases and under a valid
certificate of occupancy, (ii) the lease term is for a minimum of five years
(iii) the tenant is open for business and paying rent, and additional rent
attributable to taxes, insurance, and common area charges in accordance with and
as required under the terms of the lease, and (iv) the tenant shall have
delivered an unqualified tenant estoppel in the form of Schedule 7 attached or
other form reasonably acceptable to the Partnership.
3.03 Formation. (a) The Partnership's general partners will be: (i) the
REIT and the Nardi General Partner Entity. Currently, the REIT is a private
corporation that shall
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become a public entity through an initial public offering of securities (the
"IPO") which IPO the Partnership expects shall occur on or before December 31,
1997.
(b) Consummation of the IPO shall be a condition of the Contributors'
obligations hereunder. Provided that the REIT does, in fact, consummate the IPO,
the following shall be applicable: (i) the Partnership shall provide
Contributors with reasonable advance written notice (the "Registration Notice")
of the REIT's intent to file any amended S-11 Registration Statement (the
"Amended S-11 Statement") with the Securities and Exchange Commission (the
"SEC"); and (ii) the Partnership shall satisfy the non-cash portion of the
Contribution Price by delivery to the Nardi General Partner Entity at Closing
the general partnership interests described herein. Contributors shall have the
right to approve that portion of the Amended S-11 Statement which describes the
Nardi Property (and that portion of any future Amended S-11 Statement which
describes the Property) and agreements referenced herein and agreements entered
into with Contributors and the Nardi General Party Entity. In the event approval
of the Contributors to an amendment to the S-11 Statement is required pursuant
to the terms of this Agreement, such approval shall be deemed to have been given
unless Contributors disapprove such amendment (and state the reasons for such
disapproval) within one (1) Business Day after receipt of such proposed
amendment by the last of Contributors or its legal counsel, Bell, Boyd & Lloyd,
to receive such amendment. Promptly upon filing any Amended S-11 Statement with
the SEC, the Partnership shall furnish a copy of the Amended S-11 Statement to
Contributors. In addition, Company will provide Contributors and their counsel
with copies of all amendments to the S-11 statement prior to filing with the
SEC, although Contributor's approval, except as hereinbefore provided shall not
be required.
3.04 Company, REIT and Partnership Representations, Warranties and
Covenants. To induce Contributors to execute, deliver and perform this
Agreement, the Company, the REIT and the Partnership hereby represent, warrant
and covenant to Contributors on and as of the date hereof and on and as of the
Closing Date to the extent same are true, and to the extent not true, then
describing the circumstances or manner in which such representations and
warranties are not true. For purposes of this Agreement, the term "knowledge"
shall mean the actual knowledge of Richard Curto, Michael W. Reschke and Jeffrey
Patterson. (The Company, the REIT and the Partnership hereby agree to give
Contributors written notice of any information which makes any representation or
warranty untrue within five (5) business days of obtaining such information (and
disclosure of such information shall not be deemed a breach of a representation
or warranty by the Company and/or the REIT, and/or the Partnership or default by
the Company and/or the REIT, and/or the Partnership under this Agreement in the
absence of willful or intentional acts or omissions or gross negligence by the
Company and/or the REIT, and/or the Partnership which resulted in such breach):
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(a) The Partnership will elect the "traditional method" set forth in
Treasury Regulation Section 1.704-3(b) (absent a Final Determination to the
contrary) to allocate tax attributes related to the Property as "Section 704(c)
Property" (as such term is defined in Treasury Regulation Section 1.704-3(a)(3))
or which are in any other way governed by the provisions of Section 704(c) of
the Internal Revenue Code of 1986, as amended ("Section 704(c) allocations") or
any successor section thereto.
(b) The shares of the REIT shall be traded on the New York Stock
Exchange.
(c) As provided in the Tax Indemnity Agreement attached hereto as
Exhibit I, the Partnership shall take such steps as may be necessary to cause an
aggregate amount equal to or greater than $43,000,000 of non-recourse principal
mortgage indebtedness on the Property to be allocated to the Nardi General
Partner Entity for purposes of Section 752 of the Internal Revenue Code of 1986,
as amended, with such figure evidenced by a schedule prepared using the same
methodology as Exhibit M, with the amount apportioned under Treasury Regulation
Section 1.752-3(a)(3) determined using the "Indemnity Debt Allocation Method,"
as such term is defined in the Tax Indemnification Agreement attached hereto as
Exhibit I, provided, however, in the event that one or more of the properties
described on Exhibits A-2 and A-3 attached hereto are not contributed to the
Partnership in the manner provided in this Agreement, the amount of non-recourse
indebtedness set forth in this subparagraph shall be reduced by the amount of
debt shown on Exhibit M for such property(ies) which are not so contributed.
(d) On the Closing Date the Debt to Total Market Capitalization Ratio
(as defined in the S-11 Registration Statement) shall not exceed 40%.
(e) In the event the Closing does not occur by the last day on which
the Closing Date can occur, as such date may be extended pursuant hereto,
because the IPO has not been consummated, but within one year thereafter the
Company undertakes another IPO involving some or all of the properties described
in the Amended S-11 Statement, the Company shall give Contributors written
notice of such new IPO not less than thirty (30) days prior to the proposed
filing of the new S-11 Statement to be filed in connection with such new IPO and
copies of the new S-11 Statement and a draft of a proposed contribution
agreement which the Company contemplates entering into with Contributors.
Contributors shall have fifteen (15) days after receipt of such notice, S-11
Statement and Contribution Agreement in which to elect whether or not to seek
participation in the IPO under the terms of the tendered contribution agreement.
If Contributors elect to seek to participate in the new IPO, Contributors and
the Company shall negotiate diligently and in good faith to reach terms which
are mutually agreeable and execute the new contribution agreement and all other
documents to be executed in connection therewith. If the Contributors shall
fail to respond to such notice within such
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fifteen (15) day period, Contributors shall be deemed to have declined to
participate in such new IPO.
(f) The Company shall take reasonable steps and use its best efforts
to file Amendment No. 2 to the Registration Statement within 10 days of the date
hereof and shall use its reasonable efforts to complete the IPO at a price and
on terms acceptable to the Company on or before December 31, 1997, or on or
before March 31, 1998 if the Closing Date is extended as expressly provided
herein.
(g) Partnership is a partnership for federal income tax purposes, and
is not an entity referred to in Section 721(b) of the Internal Revenue Code of
1954 as amended, (the "Code") or a "publicly traded partnership" within the
meaning of Section 7704 of the Code.
(h) Partnership shall utilize the traditional method of depreciation
allocation under Section 704(c) of the Code.
(i) The REIT is organized as a "real estate investment trust" under
Sections 856 through 860 of the Code. The REIT will elect to be taxed as a
"real estate investment trust" under the Code.
ARTICLE 4
SURVEYS
4.01 Surveys. At the Closing, the REIT shall pay the cost of the Surveys.
In the event the Closing does not occur, Contributors shall pay for the cost of
the Survey. If one or more of the Surveys are dated more than ninety (90) days
prior to the Closing Date, the respective Contributor shall furnish at Closing a
certificate of such Contributor which is the beneficial owner of such affected
portion of the Real Property to Company, the Partnership, the REIT and the Title
Insurer dated within ninety (90) days prior to Closing certifying that there
have been no changes or additions to such Property since the date of the
applicable Survey.
ARTICLE 5
TITLE AND SEARCHES
5.01 Title. At the Closing, the REIT shall pay the cost of the Title
Policy. In the event the Closing does not occur, Contributors shall pay for the
cost of the Title Commitments. On the Closing Date, it shall be a condition of
Closing that the Title Insurer
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issue an owner's title insurance policies or prepaid "marked up" commitment
therefor pursuant to and in accordance with the Title Commitments insuring fee
simple title to the Real Property in the Company as of the Closing Date, subject
only to the Permitted Title Exceptions and such other exceptions as Company may
approve, and providing for full extended coverage over all general title
exceptions contained in such policies and the following special endorsements at
the REIT's sole cost and expense: Zoning Endorsement 3.1 (with parking); and a
contiguity endorsement.
5.02 Searches. Promptly after execution of this Agreement, Company shall
order (and deliver a copy of same to Contributors) searches of the records of
the Secretary of State of Illinois and the U.S. District Court for the Northern
District of Illinois confirming the absence of security interests, judgments,
tax liens and bankruptcy proceedings which affect or could affect Contributors
or the Property or any interest therein to be transferred to Company pursuant
to this Agreement (other than Permitted Title Exceptions [collectively, the
"Initial UCC Searches"]). At Closing, the REIT shall pay the cost of the
Initial UCC Searches. In the event Closing does not occur, Contributors shall
pay the cost of the Initial UCC Searches. Said searches shall be updated at
REIT's sole cost and expense as of the Closing Date confirming the absence of
such security interests, judgments, tax liens or bankruptcy proceedings.
5.03 Defects and Cures. If the items described in Sections 4.01, 5.01 and
5.02 disclose claims, liens, exceptions, conditions or other items (a "Defect")
with respect to a specific parcel of the Real Property (the "Affected Parcel")
which are not Permitted Exceptions and which are unacceptable to the Company as
inconsistent with the intended use of the Affected Parcel after Closing (which
shall be the use on the date hereof), the Company shall give the Contributor of
the Affected Parcel (the "Affected Contributor") written notice thereof on or
before October 31, 1997. Following the giving of such notice, the removal, cure
or insuring over of such a Defect shall be a condition precedent to the
Company's obligation to accept a contribution of the Affected Parcel. If the
Affected Contributor fails to remove, cure or cause the Title Insurer to insure
over the Defect in a manner reasonably satisfactory to the Company within the
earlier of Closing or thirty (30) days after delivery of the Company's notice of
the Defect to the Affected Contributor, then the Company shall, within five (5)
days thereafter, elect by written notice to be received by such Affected
Contributor on or before such fifth (5th) day, to
(a) terminate this Agreement with respect to the Affected Parcel, in which
case the Affected Parcel shall no longer be part of the Real Property which
is to be contributed to the Partnership, the Contribution Price shall be
reduced by the amount allocated to such property on Schedule 10, and the
parties shall have no further rights or obligations hereunder with respect
to such Affected Parcel except for those rights and obligations which
expressly survive any such termination, or
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(b) proceed with the transaction with respect to such Affected Parcel
pursuant to the remaining terms and conditions of this Agreement, in which
event the Company may, prior to Closing, cure, satisfy or insure over any
such Defect which can be cured by the expenditure of money and reduce the
general partnership interests allocated to the Nardi General Partner Entity
by the amount so expended, provided that the total amount of such
reductions shall not exceed (i) Ten Thousand Dollars ($10,000.00) in the
aggregate on title endorsements, attorneys' fees and expenses and other
out-of-pocket costs for clearance purposes with respect to all parcels
comprising the Real Property other than for the Defects enumerated in
clause (ii) immediately following or (ii) One Million Dollars
($1,000,000.00) in the aggregate with respect to all parcels comprising the
Real Property, to remove, bond over or insure over any judgments against
all Contributors or Land Trusts or mechanics' liens (which do not result
from acts or omissions on the part of Company or the Partnership) and which
have attached to and become a lien against any of the parcels of the Real
Property, except that there shall be no such limitation with regard to
clearance of liens and encumbrances voluntarily and intentionally recorded
after the date of the Title Commitments against any of the parcels
constituting the Real Property by or at the direction of any of the
Contributors.
If the Company fails to give the Affected Contributor timely notice of its
election following the Affected Contributor's failure to cure, remove or insure
over a Defect in a timely manner, the Company shall be deemed to have elected
the option contained in subparagraph (b) above. Company shall have the right at
any time to waive any objections that it may have made and, thereby, to preserve
this Agreement in full force and effect.
ARTICLE 6
POSSESSION, PRORATIONS AND CLOSING COSTS
6.01 Possession. Sole and exclusive possession of the Property, subject
to the rights of tenants in possession (as tenants only) pursuant to the Leases
shall be delivered to Company on the Closing Date.
6.02 Prorations. The following items shall be prorated by the parties at
Closing: current rents based upon actual rents actually paid per the Leases,
security deposits, if any (and any interest thereon, if any) and advance rentals
under the Leases; unused decorating or tenant improvement allowances under the
Leases; expenditures required (under the Leases) to complete any tenant
improvement work required of the landlord under the Leases to be completed prior
to the Closing Date and incomplete on the Closing
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Date; special and general real estate taxes and other ad valorem taxes and
assessments for the Property will not be prorated, however, at Closing,
Contributor shall assign to Company any and all monies being held for such real
estate taxes and assessments with respect to any tenants under the Leases which
are paying monthly escrows to the Contributors, state or city taxes, fees,
charges and assessments affecting the Property; utility charges and deposits;
fuels; and all other items of accrued or prepaid income and expenses customarily
prorated on the transfer of industrial or office properties (as the case may be)
in the Chicago, Illinois area as reasonably determined by the parties, however,
in no event shall Contributors have the right to sue any such tenant, shall be
prorated on a cash basis as of the Closing Date on the basis of the most recent
ascertainable amounts of or other reliable information in respect to each such
item of income and expense, and the net credit to Company or Contributors shall
increase or decrease (as the case may be) the Contribution Price payable on the
Closing Date. Real estate taxes for the properties described on Schedule 5
attached hereto and made a part hereof shall not be prorated since the tenants
in occupancy are paying such real estate taxes. Following closing, Company shall
pay to Contributors all rents which Company shall collect which are specifically
allocated to periods preceding the Closing Date, except that all such rents
collected by Company shall first be applied to satisfy all current rents due
Company, and Contributors shall pay to Company all rents received by
Contributors from any tenant of the Property before or after the Closing Date
which are attributable to periods succeeding the Closing Date. As of the
Closing Date, the parties hereto agree that there will be no proration with
respect to any delinquent rents, but the Partnership shall utilize reasonable
efforts following Closing to attempt to collect delinquent rents. In addition
and in lieu of a proration credit, on the Closing Date, Contributors shall
assign to Company any and all monies being held for common area costs and
expenses with respect to any tenants under the Leases which are paying monthly
escrows to the Contributors. Contributors agree to cooperate at no cost to
Contributors with Company in the preparation of the financial statements and
other financial data respecting the ownership and operation of the Property for
calendar year 1996 (if such statements have not been completed by the Closing
Date) and subsequent periods for which such statements and data must be prepared
in order to compute, charge and prorate any tenant items. As soon as reasonably
possible after the preparation of the aforesaid financial statements and data,
Company will render statements for the tenant items to the tenants of the Real
Property under their respective Leases. From time to time as Company receives
payment of the tenant items from the tenants, Company will promptly remit to
Contributor that portion of the tenant items allocable to the Property prior to
the Closing Date.
6.03 Closing Costs. At Closing, Contributors shall pay all state and
county transfer taxes, and the REIT shall pay all other closing costs,
including, without limitation, all title charges and premiums for the title
policy, extended coverage and creditors rights endorsement, survey charges and
fees for the UCC Searches required by Section 5.02, and all local transfer
taxes, cost for zoning 3.1 endorsement and other endorsements
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requested by Company, all recordation and other costs incurred in connection
with any mortgage loans obtained by Company, all escrow fees and all charges for
any New York Style closing, and all attorneys' fees and expenses of the parties.
Company shall also pay an amount not to exceed $1,620,000 imposed by the holders
of the Mortgages described on Schedule 3 in connection with the prepayment of
such Mortgages.
ARTICLE 7
ESCROW
7.01 Escrow. If required by the underwriter in connection with the Closing
of the IPO, then within five (5) days following the date on which the conditions
precedent set forth in Article XIV have been satisfied or waived, the parties,
through their respective attorneys, shall establish an escrow with the Escrowee
through which the transaction contemplated hereby shall be closed. The escrow
instructions shall be in the form customarily used by the Escrowee with such
special provisions added thereto as may be required to conform to the provisions
of this Agreement, including provisions with respect to a related money lender's
escrow from which all or any part of the Contribution Price may be paid. Said
escrow shall be auxiliary to this Agreement, and this Agreement shall not be
merged into nor in any manner superseded by said escrow. The escrow costs and
fees shall be paid by the Company unless there is no Closing, in which case the
escrow costs and fees shall be equally divided between Company and Contributor.
If required by applicable law, the Escrowee shall file with the Internal Revenue
Service the information return (Form 1099B) required by Section 6045(e) of the
Internal Revenue Code and any regulations issued pursuant thereto. Contributor
shall be responsible to give to the Escrowee such information of the Contributor
that the Escrowee needs in order to complete such form.
ARTICLE 8
BROKERAGE
8.01 Brokerage. Contributors hereby represent and warrant to the Company
and the Company hereby represents and warrants to Contributors that it or they,
as the case may be, has or have not dealt with any broker or finder in respect
to the transaction contemplated hereby. Contributors hereby agree to indemnify
Company for any claim for brokerage commission or finder's fee asserted by a
person, firm or corporation claiming to have been engaged by Contributors.
Company hereby agrees to indemnify, defend and hold harmless Contributors for
any claim for brokerage commission or finder's fee asserted by a person, firm or
corporation claiming to have been engaged by Company.
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ARTICLE 9
DESTRUCTION OR DAMAGE
9.01 Destruction or Damage. In the event any parcel constituting a
portion of the Property is damaged or destroyed after the date hereof,
Contributors shall immediately give written notice of such damage or destruction
to the Company. If, subsequent to the date hereof and prior to the Closing
Date, any parcel constituting a portion of the Property is damaged or destroyed
and the cost to repair or restore such parcel (in the reasonable judgment of the
Company) is less than $500,000 per individual property, the Company shall close
and take the parcels which have been damaged as diminished by such events, and
Contributor owning such parcel shall assign and/or pay to the Company at Closing
all insurance proceeds collected or claimed with respect to said loss or damage,
plus any deductible. If, subsequent to the date hereof and prior to the Closing
Date, all or any part of a parcel constituting a portion of the Property is
damaged or destroyed and the cost to repair or restore any such parcel (in the
reasonable judgment of the Company) is greater than $500,000 per individual
property, Contributors shall immediately give Company notice of such occurrence,
and Company may, within ten (10) days after receipt of such notice, elect to (a)
terminate this Agreement as to such parcel, the Contribution Price shall be
reduced by the amount allocated to such property on Schedule 10 and the parties
shall make any other adjustments as agreed upon, or (b) close the transaction
contemplated hereby as scheduled (except that if the Closing Date is less than
fifteen (15) days following Company's receipt of such notice, closing shall be
delayed until Company makes such election), in which event Company shall have
the right to participate in the adjustment and settlement of any insurance claim
relating to said damage, and Contributor shall assign and/or pay to Company at
closing all insurance proceeds collected or claimed with respect to said loss or
damage plus any deductible. Failure to give such notice within such time shall
be conclusive evidence that Company has waived the option to terminate by reason
of the occurrence or occurrences of what it has received notice. In the event
Company elects to terminate this Agreement as to a parcel as provided in this
Section, such parcel shall be excluded from the scope of the "Non Compete"
covenant set forth in the Consulting Agreement of Stephen J. Nardi, and in the
Employment Agreement of Craig Nardi, respectively.
ARTICLE 10
CONDEMNATION
10.01 Condemnation. If, subsequent to the date hereof and prior to
the Closing Date, any proceeding, judicial, administrative or otherwise, which
shall relate to the proposed taking of all or any portion of any parcel of the
Real Property by condemnation or eminent domain or any action in the nature of
eminent domain, or the taking or closing
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of any right of access to the Real Property, is instituted or commenced, which
in any of such cases involves more than $500,000 in value as to such parcel,
Company shall have the right and option to terminate this Agreement only as to
such parcel by giving Contributor written notice to such effect within ten (10)
days after actual receipt of written notification of any such occurrence or
occurrences. Failure to give such notice within such time shall be conclusive
evidence that Company has waived the option to terminate by reason of the
occurrence or occurrences of which it has received notice, and Company shall be
credited, if received, with or be assigned all such Contributors' right to any
proceeds therefrom. Contributors hereby agree to furnish Company written
notification in respect to any such proceedings within ten (10) days of
Contributor's receipt of any such written notification or commencement of the
institution of such proceedings. Should Company be entitled to elect to so
terminate this Agreement as to such parcel and does, in fact, so terminate this
Agreement, in the case of such termination as to such parcel which has been
taken or condemned, the Contribution Price shall be reduced by the amount
allocated to such parcel on Schedule 10, and the parties shall make any other
adjustments as agreed upon. If the Closing Date is less than ten (10) days
following the last day on which Company is entitled to elect to terminate this
Agreement, then the Closing shall be delayed until Company makes such election.
In the event Company elects to terminate this Agreement as to a parcel as
provided in this Section, such parcel shall be excluded from the scope of the
"Non Compete" covenant set forth in the Consulting Agreement of Stephen J. Nardi
and in the Employment Agreement of Craig Nardi.
ARTICLE 11
AFFIRMATIVE COVENANTS OF CONTRIBUTOR
11.01 Affirmative Covenants of Contributor.
(a) Each Contributor, at Contributor's sole cost and expense, shall
maintain or cause to be maintained the parcel of Property it owns as required by
the terms of the Leases thereof, and shall keep and perform or cause to be
performed all obligations of the Property owner or its agents of such parcel
under the Contracts and Licenses and under the Legal Requirements, and all
obligations of the holder of the Mortgages described on Schedule 3 encumbering
such parcel to and including the Closing Date or termination of this Agreement.
Subject to closing and Sections 9.01 and 10.01 hereof, on the Closing Date,
Contributors shall tender possession of the Property to Company in the same
condition the Property was in on the date hereof, except for ordinary wear and
tear, casualty loss and condemnation (provided Company shall not have elected to
terminate this Agreement pursuant to Sections 9.01 or 10.01 as a result of such
casualty loss or condemnation). Notwithstanding anything contained herein to
the contrary, in the event that any Contributor receives written notice from any
Governmental Authority after the date
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hereof, but prior to the Closing that the parcel of the Property (or a portion
thereof) is not in compliance (the "Violation") with applicable municipal and
other governmental laws, ordinances, regulations, codes, licenses, permits and
authorizations, the Contributor thereof shall provide written notice to the
Company of such event and Violation. In addition, the Contributor shall have
the affirmative obligation to utilize reasonable efforts to cure said
Violation(s) prior to the Closing, provided, that the cost to cure all such
Violation(s) with respect to all of the Property does not exceed One Hundred
Thousand and No/100 Dollars ($100,000.00) (the "Cure Limitation"). If the cost
to cure the Violation(s) shall exceed the Cure Limitation and Contributors
provide written notice to the Company that they do not intend to pay amounts in
excess of the Cure Limitation, then in such event, the Company may elect (i) to
terminate this Agreement with respect to any parcel of the Property which is
subject to an uncured Violation, and the Contribution Price shall be reduced by
the amount allocated to such parcel on Schedule 10 and the parties shall make
any other adjustments as agreed upon, whereupon this Agreement shall be null and
void as to such parcel and except as otherwise expressly provided in this
Agreement, neither party shall have any further liability to the other under
this Agreement as to such parcel; or (ii) to take title to the Property subject
to the Violation(s), in which event Contributor will provide Company with a
credit against the Contribution Price due at the Closing in the amount of the
reasonable estimate of the amount to cure such violation so long as the total
amount spent by all Contributors to cure all Violations and the amount of the
credit do not exceed One Hundred Thousand Dollars ($100,000.00).
(b) From the date of Contributors' acceptance hereof to the Closing
Date, Contributor shall maintain or cause to be maintained in full force and
effect liability, casualty and other insurance (without any self insurance) upon
and with respect to the Property against such hazards and in such amounts as
shall be required by the Mortgages or which are in effect as of the date hereof.
(c) From the date of Contributors' acceptance hereof to the Closing
Date or earlier termination of this Agreement, Contributors shall operate and
maintain the Property in the same manner as it has been operated and maintained
heretofore, provided that during said period, without the prior written consent
of Company, Contributors shall not do, suffer or permit, or agree to do, any of
the following:
(i) Enter into any other transaction with respect to or
affecting the Property which would survive the Closing, except for seasonal or
other arms length contracts with third parties in the ordinary course of
Contributors' business;
(ii) Sell (other than transfers of partnership interests in
entities comprising Contributors to or among Stephen J. Nardi and his wife and
children or trusts of any of said individuals, or in connection with the
redemption of partnership interests as contemplated by this Agreement), encumber
or grant any interest in the Property or any
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part thereof in any form or manner whatsoever or otherwise perform or permit any
act which will diminish or otherwise affect Company's interest under this
Agreement or in or to the Property or which will prevent Contributors' full
performance of its obligations here under;
(iii) Enter into, amend, waive any rights under, terminate or
extend any Contract (other than seasonal contracts or other arms length
contracts with third parties in the ordinary course of Contributors' business)
which may be terminated on no more than thirty (30) days' notice or any of the
Leases.
(iv) Amend or waive any rights, or suffer or permit a default
to occur, under the Mortgages, except in connection with obtaining an agreement
relating to prepayment of the Mortgages described on Schedule 3; or
(v) Remove from the Property any of the fixtures thereon or
any of the Personal Property, unless such fixtures and Personal Property are
replaced with like-kind fixtures and personal property.
(d) From the date of Contributor's acceptance hereof to the Closing
Date, Contributor shall permit representatives, agents, employees, lenders,
contractors, appraisers, architects and engineers designated by Company access
to and entry upon the Real Property and the improvements thereon to examine,
inspect, measure and test the Property; provided, however, such entry shall be
upon not less than (1) Business Days' written notice and during business hours
and shall be subject to the rights of the tenants under the Leases, and shall be
made in a manner so as to have minimum interference with tenants' businesses.
Company shall furnish to the Contributor who owns the affected parcel of the
Property certificates of insurance naming Contributor as an additional insured
and otherwise reasonably satisfactory to Contributor from Company's consultants
(environmental or otherwise) and engineer, and Company shall indemnify, defend
and hold such Contributor harmless from and against any and all cost, liability
or expenses incurred by Contributor as a result of injury or damage to the
Property caused by such access and entry and testing.
(e) Contributors shall pay or cause to be paid all expenses relating
to the ownership, operation or maintenance of the Property for the period prior
to the Closing Date, and shall be responsible for all claims by and liabilities
and obligations to third parties arising or incurred as a result of
Contributors' ownership, operation or maintenance of the Property prior to the
Closing and relating to a time period prior to the Closing Date.
(f) Company may order an environmental report to be conducted by an
environmental engineering firm selected by Company (the "Environmental Study")
at any time from the date of Contributors' acceptance hereof to the Closing
Date. Company shall
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pay all costs of the Environmental Study, if any. Contributors agree to
cooperate with Company, or its agents, in arranging for and conducting the
Environmental Study and the Company shall provide copies of such Environmental
Study to Contributors promptly after receipt of such Environmental Study.
(g) Contributors shall notify Company promptly if Contributors
become aware of any Violation or of any transaction or occurrence prior to the
Closing Date which would make any of the representations and warranties of
Contributors contained in Section 12.01 not true in any material respect.
(h) Contributors agree to terminate all employees on or before the
Closing Date, with the termination date to be effective not more than thirty
(30) days after the Closing Date with respect to all employees of Contributors
which Company does not elect to retain. Contributors shall be responsible for
all amounts for salaries, wages, benefits or other amounts due to and payable to
such terminated employees through the effective termination date for such
employees.
11.02 Affirmative Covenants of Company.
(a) Company, at Company's sole cost and expense, shall maintain or
cause to be maintained its assets described in the S-11 Statement as required by
the terms of any leases thereof, and shall keep and perform or cause to be
performed its obligations relating to such Property to and including the Closing
Date or termination of this Agreement. Subject to Closing and on the Closing
Date, Contributors shall tender possession of the assets described in the S-11
Statement in the same condition the Property was in on the date hereof, except
for ordinary wear and tear, casualty loss and condemnation.
(b) From the date of Company's acceptance hereof to the Closing
Date, Company shall maintain or cause to be maintained in full force and effect
liability, casualty and other insurance (without any self insurance) upon and
with respect to its assets described in the S-11 Statement.
(c) From the date of Company's acceptance hereof to the Closing
Date or earlier termination of this Agreement, Company shall operate and
maintain its assets as described in the S-11 Statement in the same manner as it
has been operated and maintained heretofore, provided that during said period,
without the prior written consent of Contributors, Company shall not do, suffer
or permit, or agree to do, any of the following:
(i) Enter into any other transaction with respect to or
affecting its assets as described in the S-11 Statement which would survive the
Closing, except for
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seasonal or other arms length contracts with third parties in the ordinary
course of Company's' business;
(ii) Enter into, amend, waive any rights under, terminate or
extend any material contract (other than seasonal contracts or other arms length
contracts with third parties in the ordinary course of Company's' business)
which may be terminated on no more than thirty (30) days' notice;
(iii) Amend or waive any rights, or suffer or permit a default
to occur, under the mortgages encumbering the Company's assets described in the
S-11 Statement, except in connection with obtaining an agreement relating to
prepayment of such Mortgages; or
(iv) Remove from its assets as described in the S-11 Statement
any of the fixtures thereon or any of the personal property, unless such
fixtures and personal property are replaced with like-kind fixtures and personal
property.
(d) Company shall notify Contributors promptly if Company becomes
aware of any Violation or of any transaction or occurrence prior to the Closing
Date which would make any of the representations and warranties of Company
contained in this Agreement not true in any material respect.
ARTICLE 12
REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS
12.01 Representations and Warranties of Contributors. To induce Company to
execute, deliver and perform this Agreement, each Contributor hereby represents
and warrants to Company with respect to such party's property on and as of the
date hereof and on and as of the Closing Date to the extent same are true, and
to the extent not true, then describing the circumstances or manner in which
such representations and warranties are not true. Notwithstanding anything to
the contrary hereof, for purposes of this Agreement, the term "knowledge" shall
mean the actual knowledge of Stephen J. Nardi without having any duty to inquire
or investigate. (Each Contributor hereby agrees to give Company written notice
of any information which makes any representation or warranty untrue within five
(5) business days of obtaining such information as follows with respect to the
respective portions of the Property owned by it (and disclosure of such
information shall not be deemed a breach of a representation or warranty by such
Contributor or default by such Contributor under this Agreement in the absence
of willful or intentional acts or omissions or gross negligence by such
Contributor which resulted in such breach) as follows:
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(a) To the best of such Contributor's knowledge, all representations
and warranties of Contributor appearing in other Sections of this Agreement are
true and correct in all material respects.
(b) Each entity comprising Contributor and the Nardi Entities is duly
organized and in good standing under the laws of the State of Illinois, and is
duly qualified to do business in the State of Illinois.
(c) Each entity comprising Contributor and the Nardi Entities has
full capacity, right, power and authority to execute, deliver and perform this
Agreement and all documents to be executed by such party pursuant hereto, and
all required action and approvals therefor have been duly taken and obtained.
The individuals signing this Agreement and all other documents executed or to be
executed pursuant hereto on behalf of such party are and shall be duly
authorized to sign the same on such party's behalf and to bind such party
thereto. This Agreement and all documents to be executed pursuant hereto by such
party are and shall be binding upon and enforceable against such party in
accordance with their respective terms.
(d) To the best of such Contributor's knowledge, the information
included in the Exhibits hereto and the documents to be delivered to Company
pursuant to Section 11.01(e) is true, correct and complete in all material
respects, and the same shall not omit any material information.
(e) To the best of such Contributor's knowledge, Exhibit D includes a
true, correct and complete listing of all Contracts and amendments and
modifications thereof. To the best of such Contributor's knowledge, there are no
defaults under any of the Contracts, and the Contracts are in full force and
effect.
(f) To the best of such Contributor's knowledge: Exhibit E is an
accurate description of each of the Licenses, as amended and in effect, and each
of the Licenses is in full force and effect, and neither such Contributor nor
any agent or employee of Contributor has received written notice of any
intention on the part of the issuing authority to cancel, suspend or modify any
of the Licenses or to take any action or institute any proceedings to effect
such a cancellation, suspension or modification.
(g) Exhibit F is a true, correct and complete listing of all of the
Leases. Except as provided in the Leases, none of the Leases contain any option
or right of first refusal to purchase any property demised thereby, to extend
the Lease term, to lease additional space, to cancel or terminate the Lease
prior to the end of its term, or any other extraordinary provisions. To the best
of such Contributor's knowledge, (1) all tenants have accepted and are occupying
the respective leased premises described in such Leases; (2) all Leases are in
full force and effect, and no rights or interests of the landlord
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thereunder have been waived or released; (3) all of landlord's obligations under
the Leases including the obligation to finish or refinish space to the
specifications provided in the Leases, have been satisfied; (4) neither the
landlord nor any tenant is in default under any Lease; and (5) such Contributor
has not received written notice of any circumstances affecting the financial
condition of any tenant of the Property, or otherwise, which would prevent such
tenant from fulfilling and complying with the obligations under its Lease.
(h) To the best of such Contributor's knowledge, the information to
be furnished by Contributor on which the computation of prorations is based
shall be true, correct and complete in all material respects.
(i) [OMITTED].
(j) Such Contributor has good and marketable title to the respective
portion of the Personal Property owned by it and each item thereof free and
clear of liens, security interests, encumbrances, leases and restrictions of
every kind and description, except the Permitted Title Exceptions.
(k) The interest of Contributor in the Contracts, the Leases and
Licenses is free and clear of all encumbrances and has not been assigned to any
other person, except as reflected in the Permitted Title Exceptions.
(l) Contributor has not granted anyone, except tenants in possession
under the Leases, possessory rights in respect to the Real Property or any part
thereof.
(m) To the best of such Contributor's knowledge: (i) the improvements
on the Real Property have been constructed and are presently used and operated
in compliance with all Licenses and all Legal Requirements, and with all
covenants, easements and restrictions affecting the Property, and (ii) all
obligations of such Contributor or the Property with regard to the Legal
Requirements, covenants, easements and restrictions have been and are being
performed in a proper and timely manner.
(n) To the best of such Contributor's knowledge, such Contributor has
not received any written notice from any tenant or Governmental Authority that
any of the improvements on the Real Property are not structurally sound and
weather-tight, nor that any of said improvements, the fixtures therein or
thereon and the Personal Property are not in good condition and working order,
with respect to which such Contributor has not taken steps to remedy the problem
enumerated in such notice.
(o) To the best of such Contributor's knowledge, there are no claims,
causes of action or other litigation or proceedings pending and no written
notice of any threatened proceeding with respect to the ownership or operation
of the Property or any
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part thereof (including disputes with the holder of the Mortgages described on
Schedule 3 or any other mortgagees, Governmental Authority, utilities,
contractors or adjoining land owners) except possible claims for workers'
compensation, personal injury or property damage which are fully insured and as
to which the insurer has accepted defense.
(p) Such Contributor has not actually received any written notice of
any violations of any Legal Requirements with respect to the Property which have
not been corrected.
(q) To the best of such Contributor's knowledge, such Contributor has
not received any written notice that there is any existing, pending,
contemplated, threatened or anticipated (i) condemnation of any part of the Real
Property, (ii) widening, change of grade or limitation on use of streets
abutting the Real Property, (iii) special tax or assessment to be levied against
the Real Property, or (iv) change in the zoning classification of the Real
Property.
(r) To the best of such Contributor's knowledge, such Contributor has
not actually received any written notice from any insurance carrier that there
are defects or inadequacies in the Property which would adversely affect the
insurability of the same or cause the imposition of extraordinary premiums
therefor or create or be likely to create a hazard, excessive maintenance cost
or material operating deficiencies.
(s) Such Contributor has not actually received any written notice
from any tenant or Governmental Authority that all water, sewer, gas, electric,
telephone and drainage facilities and all other utilities and public or quasi-
public improvements upon or adjacent to the Real Property required by law or for
the normal operation of the Property are not installed, are not connected under
valid permits, are not in good working order, are not adequate to service the
Property and are not fully paid for.
(t) To the best of such Contributor's knowledge, such Contributor has
obtained all licenses, permits, easements and rights-of-way, including proof of
dedication, required from a Governmental Authority having jurisdiction over the
Property or from private parties to make use of utilities serving the Property
and to insure ingress and egress to and from the Property.
(u) Except as disclosed in the Environmental Reports described in
Schedule 9 attached hereto, to the best of such Contributor's knowledge, during
Contributor's ownership of the Property, (i) no Hazardous Materials (as defined
below) have been released into the environment, or discharged, placed or
disposed of at, on or under the Property by Contributors or by its agents or
employees; (ii) no underground storage tanks have been located on the Property
by Contributors or by its agents or employees; (iii) the Property has not been
used as a dump for waste material by such
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Contributor or by its agents or employees during its ownership; and (iv) such
Contributor has not received any written notice from any Governmental Authority
or Tenant that the Property and its prior uses does not comply with and at all
times have complied with, any applicable governmental law, regulation or
requirement relating to environmental and occupational health and safety matters
and Hazardous Materials.
The term "Hazardous Materials" shall mean any substance, material,
waste, gas or particulate matter which is regulated by any local governmental
authority, the State of Illinois, or the United States Government, including,
but not limited to, any material or substance which is (i) defined as a
"hazardous waste," "hazardous substance," "extremely hazardous waste," or
"restricted hazardous waste" under any provision of Illinois law, (ii) so called
friable asbestos, (iii) polychlorinated biphenyl, (iv) radioactive material, (v)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. (S) 1251 et seq. (33 U.S.C. (S) 1317), (vi) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. (S) 6901 et seq. (42 U.S.C. (S) 6903), or (vii) defined
as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et
seq. (42 U.S.C. (S) 9601). The term "Environmental Laws" shall mean all
statutes specifically described in the foregoing sentence and all federal, state
and local environmental health and safety statutes, ordinances, codes, rules,
regulations, orders and decrees regulating, relating to or imposing liability or
standards concerning or in connection with Hazardous Materials in effect as of
the date of this Agreement.
Additionally, but not in lieu of Contributor's affirmative
undertakings set forth herein, Contributor agrees to indemnify, defend and hold
harmless Company and its grantees from and against any and all debts, liens,
claims, causes of action, administrative orders and notices, costs (including,
without limitation, response and/or remedial costs), personal injuries, losses,
damages, liabilities, demands, interest, fines, penalties and expenses,
including reasonable attorneys' fees and expenses, consultants' fees and
expenses, court costs and all other out-of-pocket expenses, suffered or incurred
by Company and its grantees as a result of any such representation which is in
any manner materially inaccurate or any such warranty which is in any manner
breached in any material respect.
(v) [OMITTED].
(w) To the best of such Contributor's knowledge and belief, such
Contributor is not in default with respect to any of its obligations under any
plan, agreement or trust, and such Contributor has filed or caused to be filed
all reports with respect to the foregoing required by, and is otherwise in
compliance with, the Employees Retirement
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Income Security Act of 1974, as amended, and all rules and regulations
thereunder with respect thereto.
(x) Schedule 2 is a true, correct and complete list of the Business
Assets of the Nardi Entities, and to the best of Contributor's knowledge such
assets are owned by the Nardi Entities free and clear of all liens and
encumbrances.
Notwithstanding anything contained herein to the contrary, in the
event that the Company gains knowledge prior to the Closing that any
representation or warranty contained in this Agreement is untrue or inaccurate,
Company shall, within five (5) days after gaining such knowledge but in any
event prior to the Closing Date, provide Contributor with written notice of such
and in the event that the Company closes on the acquisition of the Property,
then the Company irrevocably waives any right to claim any damages against
Contributor for the breach of such representation or warranty and Contributor
shall have no liability to the Company resulting therefrom.
EXCEPT AS OTHERWISE SPECIFICALLY AND EXPLICITLY SET FORTH IN THIS
AGREEMENT OR IN ANY DOCUMENT WHICH MAY BE EXECUTED BY CONTRIBUTOR AND DELIVERED
TO THE COMPANY AT CLOSING: (1) THE CONTRIBUTION OF THE PROPERTY AS PROVIDED FOR
HEREIN IS MADE TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW ON AN "AS IS-
WHERE IS" CONDITION AND BASIS WITH ALL FAULTS, (2) THE COMPANY ACKNOWLEDGES THAT
CONTRIBUTOR HAS NOT MADE ANY REPRESENTATIONS TO THE COMPANY WITH RESPECT TO THE
PROPERTY WHICH ARE NOT EXPRESSLY PROVIDED IN THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, WITH REGARD TO THE HABITABILITY, MERCHANTABILITY, PROFITABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES OF COMPANY
13.01 Representations and Warranties of Company. To induce Contributor to
execute, deliver and perform this Agreement, Company hereby represents and
warrants to Contributor on and as of the date hereof and on and as of the
Closing Date to the extent same are true, and to the extent not true, then
describing the circumstances or manner in which such representations and
warranties are not true. For purposes of this Agreement, the term "knowledge"
shall mean the actual knowledge of Richard Curto, Michael W. Reschke and Jeffrey
Patterson. (The Company and the Partnership hereby agree to give Contributors
written notice of any information which makes any representation or warranty
untrue within five (5) business days of obtaining such information (and
disclosure of such information shall not be deemed a breach of a representation
or warranty by the Company
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and/or the Partnership or default by the Company and/or the Partnership under
this Agreement in the absence of willful or intentional acts or omissions or
gross negligence by the Company and/or the Partnership which resulted in such
breach) as follows:
(a) All representations and warranties of Company appearing in other
Sections of this Agreement are true and correct.
(b) Company is a corporation duly organized and in good standing
under the laws of the State of Illinois, and is duly qualified to do business in
and is in good standing under the laws of the State of Illinois.
(c) Company has full capacity, right, power and authority to execute,
deliver and perform this Agreement and all documents to be executed by Company
pursuant hereto, and all required action and approvals therefor have been duly
taken and claimed. The individuals signing this Agreement and all other
documents its executed or to be executed pursuant hereto on behalf of Company
are and shall be duly authorized to sign the same on Company's behalf and to
bind Company thereto. This Agreement and all documents to be executed pursuant
hereto by Company are and shall be binding upon and enforceable against Company
in accordance with their respective terms.
ARTICLE 14
CONDITIONS PRECEDENT AND TERMINATION
14.01 Consent Regarding Mortgage Prepayment Amounts. The obligation
of the parties to close the transaction contemplated is subject to receiving on
or before the Closing Date, with respect to the Mortgages described on Schedule
3 attached hereto which are noted on Schedule 3 as requiring the consent of the
holder of such Mortgage to prepayment, the consent of such mortgage holders to
the prepayment.
14.02 Notice to Tenants. The obligation of the parties to close the
transaction contemplated is subject to the Company receiving from Contributors
on or before the Closing Date, with respect to the tenants described on Exhibit
L attached hereto and made a part hereof, evidence that such tenants have been
notified of the transaction described in this Agreement regarding their
respective right of first refusal and/or option to purchase reasonably
acceptable to the Company and Partnership.
14.03 Truth of Representations and Warranties and Performance of
Obligations. The obligation of a party (the "Closing Party") to close the
transaction contemplated hereby is, at the Closing Party's option, and except as
otherwise provided herein, subject to all representations and warranties of the
other party (the "Other Party") contained in this Agreement being true and
correct in all material respects at and as of the Closing Date (or
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to the extent not true, same shall be disclosed to the Closing Party, and the
Closing Party shall have agreed in writing to such matters within five (5)
business days after receipt of such notice, and elects to nevertheless close).
Upon failure of any condition precedent as set forth in this Section 14.03 a
Closing Party may, by written notice to the Other Party and failure by such
Other Party to cure same within 10 days after such notice, elect at any time
thereafter to terminate this Agreement by written notice to such Other Party in
which event this Agreement shall be null and void, and except as otherwise
provided in this Agreement, the parties shall have no further obligations to the
other hereunder.
14.04 Estoppel Letters. The obligation of Company to close the
transaction contemplated by this Agreement is subject to Company's receipt of:
an estoppel letter addressed to Company dated after the date hereof, which
estoppel letters shall be in the form of Schedule 7 attached hereto or other
form satisfactory to Company from the tenants ("Major Tenants") listed on
Schedule 7-A attached hereto and made a part hereof and tenants (including Major
Tenants) occupying seventy percent (70%) of the aggregate building square
footage contained in the Property. Contributor's failure to obtain such
estoppel letters shall not be a default of Contributor under this Agreement. In
the event Company does not receive estoppel certificates from tenants occupying
seventy percent (70%) of the aggregate building square footage contained in the
Property (including Major Tenants who shall be considered as part of such
seventy percent (70%)) Company may terminate this Agreement, in which event
this Agreement shall terminate, and thereafter neither party shall have any
obligations to the other except as otherwise provided in this Agreement. In the
event Company receives estoppel certificates from at least seventy percent of
the tenants (which shall include the Major Tenants), Contributors shall either
(i) cause Stephen J. Nardi to deliver an estoppel certificate from all tenants
in the form attached as Schedule 7 for all such tenants which have not delivered
such estoppel certificates or (ii) withdraw any parcel of the Property where
there are missing estoppel certificates from this Agreement, whereupon the
Contribution Price shall be reduced by the amount allocated to such parcel on
Schedule 10, and the parties shall make any other adjustments as agreed upon.
At such time, if ever, that any tenant for whom Stephen J. Nardi delivered an
estoppel, delivers to Company a tenant estoppel reasonably acceptable to
Company, such tenant's estoppel letter shall be deemed to have replaced Stephen
J. Nardi's estoppel letter as to such tenant and the applicable Nardi estoppel
certificates shall be returned to Stephen J. Nardi.
14.05 Performance of Company's Obligations. The obligation of
Contributors to close the transaction contemplated hereby is, at Contributors'
option, subject to all obligations of Company which were to have been performed
on or before the Closing Date having been timely and duly performed. If any
condition precedent to closing of Contributors as set forth in this Agreement
has not been fulfilled and satisfied on or before the Closing Date, Contributors
may, by notice to Company, elect at any time thereafter to terminate this
Agreement, provided that Contributors are not in default under this
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Agreement, and if such termination is due to Company's fault Contributors shall
be entitled to receive the sum of $1,000,000 as full and complete liquidated
damages (and not as a penalty or forfeiture), in lieu of any and all other legal
and equitable rights which Contributor may have hereunder, and all other funds
and documents theretofore delivered hereunder or deposited in escrow by either
party shall be forthwith returned to such party. In addition, Company shall
deliver to Contributors upon request copies of any environmental reports and
physical inspection reports relating to the Property.
14.06 Performance of Contributors' Obligations. The obligation of
the Company to close the transaction contemplated hereby is, at the Company's
option, subject to all obligations of Contributors which were to have been
performed on or before the Closing Date having been timely and duly performed.
If any condition precedent to Closing of the Company set forth in this Agreement
has not been fulfilled and satisfied on or before the Closing Date, the Company
may, by notice to Contributors, elect as Company's sole and exclusive remedy
either to: (i) terminate this Agreement, provided that the Company is not
itself in default under this Agreement, and if such termination is due to
Contributors' willful or intentional default (including, but not limited to,
Contributor's decision (or change of mind) such that Contributor decides not to
contribute (or be a general partner of the Partnership) and not attributable to
an innocent misstatement, misrepresentation or breach of warranty or covenant,
Contributors shall pay the Company the sum of $1,000,000.00 as full and complete
liquidated damages (and not as a penalty or a forfeiture); or (ii) except as
otherwise provided in this Agreement, Company may file an action for specific
performance of this Agreement and compel Contributor to comply with
Contributor's obligations under this Agreement.
14.07 IPO Closing. The obligation of the parties to close the
transaction contemplated hereby is subject to the condition that the IPO has
been consummated.
14.08 Put Agreement. If prior to Closing the Securities and Exchange
Commission ("SEC") has informed the Company, the Partnership and/or the REIT
that a Put Agreement in the form of Exhibit L attached hereto may not be given
in connection with the IPO, the Company shall immediately give written notice
thereof to Contributors together with the reasons as given by the SEC, and a
proposed draft of a Put Agreement, if any, which the SEC will approve. Within
two (2) business days after receipt of such written notice, Contributors may, by
written notice to Company, elect as Contributors' sole and exclusive remedy to
terminate this Agreement. In the event such a written notice from the SEC is
received, then in no event shall the Closing occur prior to the expiration of
such two (2) business day period. In the event Contributors fail to elect to
terminate this Agreement within said two (2) business day period, Contributors
shall be deemed to have elected to proceed with the transaction and to accept
the form of Put Agreement, if any, which is allowed by the SEC, and the Closing
shall occur on the first (1st) business day following the expiration of such two
(2) business day period.
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ARTICLE 15
CLOSING
15.01 Time and Place. The transaction contemplated hereby shall close
at 9:00 A.M. in Chicago, Illinois, at the offices of Winston & Strawn on the
Closing Date unless an escrow is required by underwriters, in which case Closing
shall take place at the offices of the Escrowee, or on such other date, time and
place as the parties may mutually agree.
15.02 Contributors' Deliveries. On the Closing Date, Contributors
shall deposit in the escrow for each of the properties comprising the Real
Estate the following:
(i) The Deeds for that portion of the Real Property described on
Exhibit A;
(ii) Assignment of the Contracts, Leases, Intangible Personal Property
and Licenses executed by the applicable Contributor, as provided in Section
2.01(b);
(iii) Separate bill of sale executed by the applicable Contributor
and the Nardi Entities, as the case may be, as provided in Section 2.01(c) and
(d), respectively;
(iv) Agreement regarding Vacant Space executed by Stephen J. Nardi
relating to the 1051 N. Kirk Road, Batavia, Illinois property in the form of
Exhibit N;
(v) Original executed counterparts of all Contracts, Leases and
Licenses assigned to Company pursuant to Section 15.02(ii) above (or, where
originals are unavailable, copies duly certified by the Contributor which is a
party thereto as being true, correct and complete copies of the originals),
together with an Assignment of same;
(vi) Certificate dated as of the Closing Date executed by each
Contributor and the Nardi Entities confirming that the representations and
warranties of such entity are true and correct as of the Closing Date, except as
modified by prior written notice to Company;
(vii) An opinion of counsel regarding authority and enforceability
of this Agreement and all Closing documents reasonably acceptable to Company;
(viii) An ALTA Statement, GAP Undertaking, Broker's Affidavit and
Manager's Affidavit in the form required by the Title Insurer;
(ix) [Omitted]
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(x) Certificate(s) of occupancy issued by the appropriate
governmental authorities authorizing use of each property comprising the Real
Property as the same is presently used to the extent same are in the
Contributors' possession;
(xi) An executed Affidavit in the form attached hereto as Exhibit G
or a qualifying statement from the U.S. Treasury Department that the transaction
is exempt from the withholding tax requirement imposed by Section 1445 of the
Internal Revenue Code and the rules and regulations promulgated thereunder
("Section 1445"). In the event that Contributors fail to deliver either the
Affidavit or the qualifying statement as aforesaid, Contributors agree that
Company may, at closing, deduct and withhold from the proceeds that are due to
Contributor the amount necessary to comply with the withholding tax requirement
imposed by Section 1445. Company shall deposit the amount so withheld in escrow
with the Escrowee pursuant to terms and conditions acceptable to Contributors,
Company and the Escrowee, but in any event, complying with Section 1445;
(xii) [OMITTED];
(xiii) Letters to tenants of the Property in the form of Schedule 8
attached hereto;
(xiv) A payoff letter from the holders of the Mortgages confirming
its agreement to accept prepayment of loans at any time prior to the Closing
Date for a prepayment fee not to exceed $1,620,000 (Company shall not be
responsible to pay any default interest or costs).
(xv) Such other documents, instruments, certifications and
confirmations as may be reasonably required and designated by Company to fully
effect and consummate the transactions contemplated hereby.
15.03 Company's Deliveries. On the Closing Date, Company shall deliver
the following to Contributors:
(i) An ALTA Statement, GAP Undertaking, Affidavit that no property
managers are employed in connection with the Property, and Broker's Affidavit
in form required by the Title Insurer;
(ii) The Contribution Price as provided in Article 3 hereof which
shall, to the extent appropriate, be delivered to the Nardi General Partner
Entity;
(iii) Tax Indemnification Agreement in the form of Exhibit I
attached hereto and made a part hereof;
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(iv) Assumption Agreement relating to Leases and Contracts;
(v) Opinion of Counsel regarding authority and enforceability of
this Agreement, the Tax Indemnification Agreement, the other Closing Documents
and containing the same opinions as given to the underwriters of the IPO in form
reasonably satisfactory to Contributor;
(vi) A supplement to this Agreement and a supplement to the Vacant
Land Agreement by which the Company, the Partnership and the REIT supplement the
representations and warranties made by each such party, respectively, to include
all of the representations and warranties which each such party made to the
underwriters of the IPO in the underwriting agreement which will be entered into
in connection with the IPO;
(vii) A Put Agreement in the form of Exhibit L attached hereto.
(viii) Such other documents, instruments, certifications and
confirmations as may be reasonably required and designated by Contributor to
fully effect and consummate the transaction contemplated hereby.
15.04 Concurrent Deliveries. Contributors and Company shall jointly
deposit (or cause to be deposited) in the escrow or deliver to each other at
closing: (i) an agreed proration statement, (ii) certificates complying with the
provisions of state, county and local law applicable to the determination of
transfer taxes; (iii) consulting agreement and employment agreement in the form
of Exhibit J and Exhibit J-1, respectively, attached hereto and made a part
hereof for Stephen J. Nardi and S. Craig Nardi respectively; and (iv) the
Partnership Agreement in the form of Exhibit O attached hereto and made a part
hereof.
15.05 Closing Documents; Form, Execution and Substance. All closing
documents to be furnished by any party pursuant hereto shall be in form,
execution and substance reasonably satisfactory to the other party and its
counsel.
15.06 New York Style Closing. At the request of the Company or the
Contributors, the transaction shall be closed by means of a so-called New York
Style Closing, with the concurrent delivery of the documents of title, transfer
of interests, delivery of the title policy or marked up Title Commitment
described in Section 5.01 and the payment of the Contribution Price. The
Contributors shall provide any undertaking (the "Gap Undertaking") to the Title
Company necessary for the New York Style Closing to occur. The cost of New York
style closing shall be paid by the Company unless the transaction fails to
close, in which event Contributors and Company shall each pay fifty percent
(50%) of the charges of the Title Company for such New York Style Closing.
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15.07 Concurrent Transactions. All documents or other deliveries required
to be made by Company or Contributors at Closing, and all transactions required
to be consummated concurrently with Closing, shall be deemed to have been
delivered and to have been consummated simultaneously with all other
transactions and all other deliveries, and no delivery shall be deemed to have
been made, and no transaction shall be deemed to have been consummated, until
all deliveries required by Company, and Contributors shall have been made, and
all concurrent or other transactions shall have been consummated.
15.08 Leasing Commissions, Management Fees and Employees. On the
Closing Date, Contributors shall terminate (effective 30 days after Closing) and
satisfy all obligations to all employees employed by Contributors and the Nardi
Entities in the operation of the Property (and whom Company has not retained)
through the effective termination date for such employees, and provide Company
with evidence thereof satisfactory to Company on the Closing Date. Partnership
agrees that it will hire the employees identified on Exhibit H commencing as of
the day following the Closing at the salaries provided on Exhibit H attached
hereto. Contributors agree that all obligations with respect to the termination
of all such employees of Contributors and the Nardi Entities, including
termination benefits, earned prior to the effective termination date of such
employees, and unfunded contributions or termination obligations with respect to
the plans, agreements and trusts described in this Agreement shall be the sole
responsibility and expense of Contributors and/or Nardi Entities, as the case
may be, provided that Contributors and/or the Nardi Entities, as the case may
be, shall not be responsible for any such obligations attributable to the
employment of such employees by Company or its agents subsequent to the Closing
Date. Contributors represent and warrant that no unpaid leasing fee or
commission which is due and payable prior to Closing and which remains unpaid
prior to Closing to any party in connection with any Lease or for extension or
renewal of such Lease for any payment for services, commissions or fees in
connection with the Property performed or incurred prior to the Closing Date,
except as set forth in the Leases or Contracts delivered.
15.09 Other Agreements. At Closing, Contributors and Partnership shall
execute the Vacant Land Agreement in the form of Exhibit K attached hereto.
ARTICLE 16
INDEMNIFICATION
16.01 Contributors' Indemnity. Contributors hereby agree to indemnify,
defend and hold harmless Company and its officers, shareholders, directors,
employees and agents against any and all losses, liabilities, fines and
penalties and damages, or actions or claims in respect thereof, except for
liabilities specifically assumed by the Company pursuant to
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the terms of this Agreement (including, without limitation, amounts paid in
settlement and reasonable cost of investigation, reasonable attorneys' fees and
other legal expenses) resulting from claims (whether or not ultimately
successful) to which the Company or any of its officers, shareholders,
directors, employees and agents may become subject or which the Company or any
of its officers, shareholders, directors, employees and agents may suffer or
incur either directly or indirectly, insofar as such losses, liabilities or
damages (or actions or claims in respect thereto) arising out of, are with
respect to, or are based upon:
(i) the inaccuracy in any material respect of any representation or
warranty, or a breach of any covenant of any Contributor contained herein;
(ii) any obligations, liabilities or charges of the Contributors not
expressly assumed by the Partnership except to the extent that Partnership
receives a credit therefor on the closing statement provided, however, that the
foregoing shall not be construed as an environmental indemnity, it being
intended by the parties that the Contributors' obligations regarding Hazardous
Materials are as set forth in Section 12.01(u) hereof;
(iii) any misrepresentation in, or omission of a material fact
from, any certificate or instrument of transfer or conveyance to be furnished to
the Company by or on behalf of the Contributors under this Agreement;
(iv) [Omitted];
(v) any claim by any person for any leasing fee or commission due
and payable prior to Closing in connection with any Lease;
(vi) [Omitted]; or
(vii) any claim by any employee employed by Contributors in the
operation of the Property whose employment was terminated at closing, or whose
claim arose prior to the Closing Date.
16.02 Company's Indemnity. Company hereby agrees to indemnify, defend and
hold harmless Contributors and their officers, shareholders, directors,
partners, employees and agents against any and all losses, liabilities, fines
and penalties and damages, or actions or claims with respect thereto, except for
liabilities specifically assumed by the Contributors pursuant to the terms of
this Agreement (including, without limitation, amounts paid in settlement and
reasonable cost of investigation, reasonable attorneys' fees and other legal
expenses) resulting from claims (whether or not ultimately successful) to which
the Contributors or any of their officers, shareholders, directors, partners,
employees and agents may become subject or which the Contributors or any of
their officers, directors,
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partners, employees and agents may suffer or incur either directly or
indirectly, insofar as such losses, liabilities or damages (or actions or claims
in respect thereto) arising out of, are with respect to, or are based upon:
(i) the inaccuracy in any material respect of any representation or
warranty, or a breach of any covenant of Company contained herein;
(ii) any obligations, liabilities or charges of Contributors that
are expressly assumed by Company or which Company receives a credit therefor on
the Closing Statement;
(iii) any misrepresentation in, or omission of a material fact
from, any certificate or instrument of transfer or conveyance to be furnished to
Contributors by or on behalf of Company under this Agreement;
(iv) [Omitted]; or
(v) any damage done to the Property, any property of the tenants
under the Leases or personal injury arising out of the Company's investigation
of the Property.
(vi) any damages or liability incurred by Contributors and/or their
officers, directors, partners, employees and agents as a result of the
Partnership's failure to pay off the Mortgages described on Schedule 3-A so long
as the lender which holds such Mortgages has issued pay off letters for such
Mortgages and has agreed to accept pay off of such Mortgages pursuant to such
payoff letters.
ARTICLE 17
NOTICES
17.01 Notices. Any notice, request, demand, instruction or other document
to be given or served hereunder or under any document or instrument executed
pursuant hereto shall be in writing and shall be delivered personally or sent by
United States registered or certified mail, return receipt requested, postage
prepaid or by overnight express courier, postage prepaid and addressed to the
parties at their respective addresses set forth below, and the same shall be
effective upon receipt if delivered personally, on the next business day if
delivered by overnight courier, or two business days after deposit in the mails
if mailed by certified or registered mail. A party may change its address or
addressees for receipt of notices by service of a notice of such change in
accordance herewith.
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If to Company, the
Partnership and/or
the REIT to: c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Jeffrey A. Patterson
With a copy to: c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Robert J. Rudnik, Esq.
With a copy to: Winston & Strawn
35 West Wacker Drive
Suite 4200
Chicago, IL 60601
Attn: Wayne D. Boberg, Esq.
and William J. Ralph, Esq.
If to Contributors, to: c/o The Nardi Group, Ltd.
(or to any one or Chicago Metropolitan Headquarters
more Contributors) 4100 Madison Street
Hillside, IL 60161
Attn: Stephen J. Nardi, President
With a copy to: Bell, Boyd, Lloyd
Three First National Plaza
Suite 3200
Chicago, Illinois 60602
Attn: Thomas C. Homburger, Esq.
and Gregory R. Andre, Esq.
ARTICLE 18
MISCELLANEOUS
18.01 Entire Agreement, Amendments and Waivers. This Agreement and the
Exhibits and Schedules attached hereto contain the entire agreement and
understanding of the parties in respect to the subject matter hereof, and the
same may not be amended,
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modified or discharged nor may any of its terms be waived except by an
instrument in writing signed by both parties.
18.02 Further Assurances. The parties each agree to do, execute,
acknowledge and deliver all such further acts, instruments and assurances and to
take all such further action before or after the closing at no cost to
Contributor as shall be necessary or desirable to fully carry out this Agreement
and to fully consummate and effect the transactions contemplated hereby.
18.03 Survival and Benefit. Except as otherwise provided herein, all
representations, warranties, agreements, obligations and indemnities of the
parties (including, but not limited to, Sections 3, 11, 12, 13, 14 and 16 of
this Agreement) shall, notwithstanding any investigation made by any party
hereto, survive Closing for a period of twelve (12) months and all agreements,
obligations and indemnities of the parties shall, notwithstanding any
investigation made by any party hereto, survive Closing for a period of twelve
(12) months and the same shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties.
18.04 No Third Party Benefits. This Agreement is for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns, and
no third party is intended to or shall have any rights hereunder.
18.05 Income Tax Withholding. Prior to Closing, Contributors shall deliver
to Company evidence reasonably satisfactory to Company (which evidence may
include the indemnity of Stephen J. Nardi) that the sale of the Property to
Company hereunder is not subject to, and does not subject Company to liability
under, Section 902(d) ("Section 902(d)") of the Illinois Income Tax Act (the
"Act"). If said evidence is not so delivered to Company, as aforesaid, then
Contributors shall, or Company may, notify the Illinois Department of Revenue
("Department") of the intended sale and request the Department to make a
determination as to whether the Contributors have an assessed, but unpaid,
amount of tax, penalties, or interest under the Act. Contributors agree that
Company may, at closing, deduct and withhold from the proceeds that are due
Contributors the amount necessary to comply with the withholding requirements
imposed by Section 902(d). Company shall deposit the amount so withheld in
escrow with the Escrowee pursuant to terms and conditions acceptable to
Contributors and Company, but in any event, complying with Section 902(d).
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18.06 Interpretation.
(a) The headings and captions herein are inserted for convenient
reference only and the same shall not limit or construe the paragraphs or
sections to which they apply or otherwise affect the interpretation hereof.
(b) Words importing persons shall include firms, associations,
partnerships (including limited partnerships), trusts, corporations and other
legal entities, including public bodies, as well as natural persons.
(c) The terms "include," "including" and similar terms shall be
construed as if followed by the phrase "without being limited to."
(d) This Agreement and any document or instrument executed pursuant
hereto may be executed in any number of counterparts each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
(e) Whenever under the terms of this Agreement the time for
performance of a covenant or condition falls upon a Saturday, Sunday or holiday,
such time for performance shall be extended to the next business day. Otherwise
all references herein to "days" shall mean calendar days.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois.
(g) Whenever under the terms of this Agreement the consent of a party
is required to be given or obtained, such consent shall not be unreasonably
withheld, conditioned or delayed.
(h) Time is of the essence of this Agreement.
18.07 Company's Investigation and Inspections. Except as otherwise provided
herein, any investigation or inspection conducted by Company, or any agent or
representative of Company, pursuant to this Agreement, in order to verify
independently Contributors' satisfaction of any conditions precedent to
Company's obligations hereunder or to determine whether Contributors' warranties
are true and accurate, shall not affect or constitute a waiver by Company on any
of Contributors' obligations hereunder or Company's reliance thereon. Company
agrees that to the extent it discovers, prior to Closing, information which
renders any of Contributors' representations or warranties untrue, Company will
notify Contributors of such information in writing within five (5) business days
of gaining knowledge and in all events prior to the Closing Date.
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18.08 Assignment. Prior to the Closing Date, the Company shall assign all
of its right, title and interest in and to this Agreement to the Partnership in
addition to the Partnership's present obligations under the covenants,
representations and warranties contained in Section 3.04 hereof. Other than the
foregoing assignments to the Partnership, the Company may not assign this
Agreement and its right, title and interest thereunder. Upon the assignment of
this Agreement to Partnership, the Company will not be released from its
obligations hereunder to the Contributors, which obligations, indemnities,
representations and warranties shall remain in favor of Contributors.
Notwithstanding anything contained herein to the contrary, any and all
references in this Agreement to the Property being contributed and/or conveyed
to the Company shall mean the Contributors contributing and/or conveying to the
Partnership simultaneously with the IPO on the Closing Date. In addition,
Contributors shall have no obligation to contribute and/or convey the Property
to the Company, all of Contributors' obligations hereunder being to contribute
and/or convey the Property to the Partnership.
18.09 Confidentiality. Partnership and Contributors covenant and agree that
all "Confidential Information" (as hereinafter defined) concerning the terms of
this Agreement, as well as the identity of the parties to the transaction
contemplated hereby and all information concerning the Real Property (including
without limitation, all Confidential Information obtained by the Company from
Contributors prior to Closing) shall be kept in strictest confidence by the
parties prior to the Closing. In the event the transaction does not close, the
Company shall return to Contributors all Confidential Information obtained by
Company from Contributor and shall not disclose any Confidential Information
previously obtained.
"Confidential Information" means any information identified in writing as
such by the party as "Confidential subject to the Permitted Disclosures as
hereinafter defined."
After the occurrence of the Closing, the Company or the Partnership and the
Contributors shall make a joint written disclosure concerning the transaction.
Notwithstanding the foregoing, nothing contained herein shall be construed so as
to prohibit the Company, the Partnership or the REIT from making (a) disclosures
to officers, employees, agents, consultants, advisors, attorneys and any other
person or entity who needs to know in order to assist the Partnership in its
acquisition of the Real Property and the underwriters for the securities of the
REIT in connection with the IPO and their counsel and consultants, (b) any
disclosure required by law, including any such disclosure required by any
federal, state or local governmental agency or court of competent jurisdiction,
or pursuant to SEC reporting and registration requirements, or (c) any
disclosure which is reasonably necessary to protect any such party's interest in
any action, suit or proceeding brought by or against such party and relating to
the Real Property or the subject matter of this Agreement (collectively, the
"Permitted Disclosures").
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<PAGE>
18.10 Exhibits and Schedules. Contributors shall deliver Exhibits A, A-1,
A-2, A-3, B, C, D, E and F, and Schedules 1, 1-A, 2, 2-A, 3, 5, 9 and 10 to
Company within seven (7) days after the date hereof, and Company shall deliver
Exhibits H, J, J-1, M, N and O and Schedule 8 to Contributors within seven (7)
days after the date hereof. Stephen J. Nardi (and his counsel) on behalf of
Contributors and the Company (and its counsel) shall review and comment on the
other party's Exhibits and Schedules within seven (7) days following receipt of
such Exhibits and Schedules. The parties shall have seven (7) days thereafter to
agree upon all such Exhibits and Schedules. In the event any one or more of such
Exhibits and/or Schedules are not agreed upon in such seven (7) day period,
either party may upon written notice to the other party terminate this
Agreement. Upon approval by a party, all of the representations and warranties
of a party with respect to such Exhibits and Schedules shall be applicable
thereto as if attached hereto. The delivery of Exhibits and Schedules after the
execution and delivery of this Agreement shall not in any manner affect the
validity of this Agreement.
18.11 Limitation on Liability. Notwithstanding anything to the contrary set
forth in this Agreement, (a) prior to Closing, a party ("Non-Defaulting Party")
shall look solely to the assets of the Land Trusts up to $1,000,000.00 if the
Contributors are the defaulting parties, or the assets of the Company, the
Partnership, and the REIT if the Company, the REIT and/or the Partnerships is
the defaulting party for satisfaction of any monetary claims against the
defaulting party; and (b) after Closing, any monetary claims against the
defaulting party resulting from a breach of such party's representations,
warranties and indemnifications shall be satisfied solely from the common units
in the Partnership of the defaulting party up to an aggregate amount of ten
percent (10%) of such defaulting party's common units in the Partnership. In no
case shall any claim against a defaulting party be asserted against its
beneficiaries, partners, members, shareholders or officers, as the case may be.
[SIGNATURE PAGE FOLLOWS ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
Contributor and Company on the respective dates set forth beneath each of their
signatures and is intended to be effective as of the latest such date.
CONTRIBUTORS:
/s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi [as the beneficial
owner of Property Nos. 1, 24, 25]
MADISON GROUP
By /s/ Stephen J. Nardi
-------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 2]
MADISON GROUP 90
By /s/ Stephen J. Nardi
-------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 3]
MADISON GROUP 200
By /s/ Stephen J. Nardi
-------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 4]
NARCO 350 ASSOCIATES
By /s/ Stephen J. Nardi
-------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 5]
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<PAGE>
NARCO 4300 ASSOCIATES
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 6]
NARCO ELMHURST CENTER
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property Nos. 7,
8, 9, 10 and 11]
NARCO GARY AVENUE ASSOCIATES
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 12]
NARCO-HILLSIDE CENTER FOR INDUSTRY
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property Nos. 13
and 14]
NARCO MANNHEIM I
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 15]
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<PAGE>
Schedule 1
Permitted Exceptions
--------------------
1. Taxes and assessments becoming a lien in the calendar year in which the
Closing occurs but which are not, as of the date of Closing, due and
payable.
2. Existing farm leases and any new farm leases entered into hereafter in
accordance with this Agreement.
3. Matters shown on the survey which do not (i) interfere with the improvements
or use of the Property permitted under present zoning laws, (ii) violate
zoning or building line restrictions or (iii) constitute an encroachment.
4. Title exceptions which (i) would not be violated or prohibited by the
improvements or use of the Property permitted under present zoning laws,
(ii) do not contain reverter or forfeiture provisions or (iii) do not limit
the marketability or insurability of title to the Property.
<PAGE>
RIDER ATTACHED TO AND MADE A PART OF REAL ESTATE SALE
CONTRACT ("CONTRACT") DATED OCTOBER 20, 1997, BY AND AMONG
THE PRIME GROUP, INC. AN ILLINOIS CORPORATION ("COMPANY"),
PRIME GROUP REALTY TRUST, A MARYLAND REAL ESTATE
INVESTMENT TRUST ("REIT"), AND
PRIME GROUP REALTY, L. P., A DELAWARE LIMITED PARTNERSHIP
("PARTNERSHIP")
CAROL STREAM INDUSTRIAL PARK JOINT VENTURE, NARCO PROPERTIES AND NARCO
DEVELOPMENT CO. (COLLECTIVELY, REFERRED TO AS
"CONTRIBUTORS" AND INDIVIDUALLY AS A "CONTRIBUTOR")
WITH RESPECT TO THE PROPERTY LEGALLY DESCRIBED ON EXHIBIT A
ATTACHED HERETO AND MADE A PART HEREOF ("PROPERTY")
R-1. Conflict. In the event of a conflict between the terms of this
typewritten Rider and the printed form contract to which this Rider is
affixed, the terms of this Rider shall be controlling. As used herein,
the term "Contract Date" shall mean and refer to the date on which a
counterpart of this Contract, executed by Contributors, is received by
Partnership.
R-2. Contribution Price. The contribution price (the "Contribution Price") to
be paid by Partnership to Contributors for the Property shall be equal to
the product of: (a) Three and 00/100 Dollars ($3.00), multiplied by (b)
the number equal to the number of gross square feet of such portion of
the Property, minus the number square feet of such portion of the
Property consisting of streets and/or roads; provided, however, the
number of acres acquired by Partnership at any time shall be not less
than two (2) acres and Partnership shall acquire not less than twenty
(20) acres on or before the first anniversary of the date hereof, and
shall acquire not less than an additional twenty (20) acres on or before
each succeeding anniversary of the date hereof through and including the
fifth anniversary of the date hereof. The portion of the Property
selected by the Partnership for each closing hereunder shall consist of
such portion of a parcel or parcels which shall leave any remaining
portion of a parcel commercially useful for development. The Property (or
portion thereof selected by the Partnership) shall be contributed to the
Partnership in exchange for general partner common units equal in value
to the amount calculated by dividing the Contribution Price by the
average daily closing price for the REIT common stock for the ten trading
days immediately prior to the Closing Date for such portion of the
Property.
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<PAGE>
R-3. Survey and Title Commitment. (a) Not less than five (5) days prior to the
Closing Date (as defined in (P)R-5 hereinafter), Partnership shall obtain
an updated version of the Title Commitment previously issued to
Partnership, dated no earlier than thirty (30) days prior to the Closing
Date, in the amount of the Contribution Price, containing no exceptions
to title other than exceptions which are set forth on Schedule 1 attached
hereto and made a part hereof. The Partnership shall also obtain, not
less than five (5) days prior to the Closing Date, a survey updated to a
date no earlier than thirty (30) days prior to the Closing Date (or
obtain from Contributors an affidavit of no change if there have been no
changes since the date of the Survey delivered to Partnership). The
Partnership shall pay for the cost of the title commitment and survey at
Closing.
(b) If the Title Commitment discloses claims, liens, exceptions,
conditions or other items (a "Defect") with respect to a specific parcel
of the Real Property (the "Affected Parcel") which are not Permitted
Exceptions and which are unacceptable to the Company as inconsistent with
the intended use of the Affected Parcel after Closing, the Company shall
give the Contributor of the Affected Parcel (the "Affected Contributor")
written notice thereof within ten days after receipt of such title
commitment. Following the giving of such notice, the removal, cure or
insuring over of such a Defect shall be a condition precedent to the
Company's obligation to accept a contribution of the Affected Parcel. If
the Affected Contributors fail to remove, cure or cause the Title Insurer
to insure over the Defect in a manner reasonably satisfactory to the
Company within twenty (20) days after delivery of the Company's notice of
the Defect to the Affected Contributor, then the Company shall, within
five (5) days thereafter, elect by written notice to be received by such
Affected Contributor on or before such fifth (5th) day, to
(i) terminate this Agreement with respect to the Affected Parcel, in
which case the Affected Parcel shall no longer be part of the Real
Property which is to be contributed to the Partnership and the
parties shall have no further rights or obligations hereunder with
respect to such Affected Parcel except for those rights and
obligations which expressly survive any such termination, or
(ii) proceed with the transaction with respect to such Affected
Parcel pursuant to the remaining terms and conditions of this
Agreement, in which event the Company may, prior to Closing, cure,
satisfy or insure over any such Defect which can be cured by the
expenditure of money and reduce the general partnership interests
allocated to the Nardi general partner by the amount so expended,
provided that the total amount of such reductions shall not exceed
(1) One
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<PAGE>
Thousand Dollars ($1,000.00) in the aggregate on title endorsements,
attorneys' fees and expenses and other out-of-pocket costs for
clearance purposes with respect to all parcels comprising the Real
Property other than for the Defects enumerated in clause (2)
immediately following or (ii) Ten Thousand Dollars ($10,000.00) per
acre, to remove, bond over or insure over any judgments against all
Contributors or Land Trusts or mechanics' liens (which do not result
from acts or omissions on the part of Company or the Partnership)
which have attached to and become a lien against any of the parcels
of the Real Property, except that there shall be no such limitation
with regard to clearance of liens and encumbrances voluntarily and
intentionally recorded after the date of the Title Commitments
against any of the parcels constituting the Real Property by or at
the direction of any of the Contributors.
If the Company fails to give the Affected Contributor timely notice of
its election following the Affected Contributor's failure to cure, remove
or insure over a Defect in a timely manner, the Company shall be deemed
to have elected the option contained in subparagraph (b) above. Company
shall have the right at any time to waive any objections that it may have
made and, thereby, to preserve this Agreement in full force and effect.
(c) At Closing, Contributors shall deliver to Partnership an Affidavit
of Title in customary form covering the Closing Date and showing title in
such Contributors subject only to the Permitted Exceptions.
R-4. Investigations. From time to time prior to the Closing Date, the
Partnership shall have the right to conduct any tests and inspections of
the Property which are reasonably desired by the Partnership, including
environmental testing, and to conduct any studies reasonably desired by
Partnership relative to the feasibility of the proposed purchase and
development of the Property and/or relative to compliance with all
applicable requirements and conditions relative to the purchase,
ownership and development of the Property (such tests, inspections and
studies are collectively referred to as "Investigations"), provided that
Partnership shall deliver to Contributors at least twenty-four (24) hours
advance notice of each entry on the Property, with a description of the
proposed activity, which notice can be verbal, but Partnership agrees to
endeavor to give as much advance notice of each entry as is possible,
with the intent that, if possible, Partnership will deliver such notice
to Contributors in writing at least three (3) days prior to each entry.
Such Investigations must be performed at no cost or expense to
Contributors and with no material change with respect to the condition of
the
3
<PAGE>
Property which could adversely affect the marketability or value thereof.
If any such change occurs, Partnership shall be responsible therefor and
shall immediately advise Contributors of same. Partnership shall promptly
take any and all reasonable remedial measures directed by Contributors,
at Partnership's sole risk and expense, and if Partnership fails to
remedy any such change, Contributors shall have the right, but not the
duty, to arrange for such remedial measures at the sole risk and expense
of Partnership and all amounts paid by Contributors shall be reimbursed
by the Partnership within 5 days after written demand from Contributors.
Partnership shall indemnify, defend and hold Contributors and their
officers, shareholders, directors, partners, employees and agents
harmless against any liability, claim, action, loss, damage, cost or
expense, including without limitation, attorney's fees and expenses,
arising in connection with Partnership's investigation or the presence of
Partnership's representatives on the Property (including agents and
consultants for environmental and soil testing).
Partnership agrees to deliver to Contributors, without charge to
Contributors, as soon as each becomes available to Partnership, copies of
each report, other than financial documentation, from any of the
Investigations. Contributors hereby acknowledge that a reasonable number
of soil borings conducted in accordance with reasonable and customary
care and diligence is not a prohibited activity and shall not be
considered a material change in the condition of the Property which could
adversely affect the marketability or value thereof, provided that
Partnership promptly performs customary site restoration.
R-5. Closing Date. Each closing shall occur on one or more dates, (each a
"Closing Date") designated by Partnership by written notice to
Contributors, which date shall be no earlier than thirty (30) days and no
later than sixty (60) days after Contributors receive said notice from
the Partnership, or on such other date as Contributors and Partnership
shall agree in writing. In all events, the final Closing Date for the
contribution of the then remaining Property shall occur on or before the
fifth anniversary of the date hereof.
R-6. Representations and Warranties.
(1) Representations and Warranties of the Contributors. Each Contributor
warrants and represents, which warranties and representations shall be
true on and as of the date hereof and on and as of each of the applicable
Closing Date(s) to the extent same are true, and to the extent same are
not true, then describing the circumstances or manner in which such
representations and warranties are not true. Notwithstanding anything to
the contrary hereof, for purposes of this Agreement, the term "Knowledge"
shall mean the actual knowledge of Stephen
4
<PAGE>
J. Nardi without having any duty to inquire or investigate. Each
Contributor agrees to give Partnership written notice of any information
which makes any representation or warranty untrue with respect to a
Property 15 days prior to the Closing for such portion of the Property
and disclosure of such information shall not be deemed a breach of a
representation or warranty by Contributors or a default by Contributors
under this Agreement in the absence of willful or intentional acts or
omissions or gross negligence by such Contributors.
(a) Except as set forth hereinafter, such Contributor has not granted
any person, firm or corporation any lease, leasehold estate, possessory
right, option to lease or purchase, or any other interest in the Property
or any part thereof.
(b) To the best of such Contributor's knowledge, such Contributors has
not received any written notice of any pending action in any court or
administrative agency to condemn or acquire, by eminent domain or
otherwise, all or any part of the Property, to zone or rezone the same or
to impose or foreclose any liens or liability for any environmental
violations.
(c) Except as disclosed in the Environmental Reports described in
Schedule 9 attached hereto, to the best of such Contributors's knowledge,
during Contributors's ownership of the Property, (i) no Hazardous
Materials (as defined below) have been released into the environment, or
discharged, placed or disposed of at, on or under the Property by
Contributors or by its agents or employees; (ii) no underground storage
tanks have been located on the Property by Contributors or by its agents
or employees; (iii) the Property has not been used as a dump for waste
material by such Contributor or by its agents or employees during its
ownership; and (iv) such Contributors has not received any written notice
from any Governmental Authority or Tenant that the Property and its prior
uses does not comply with and at all times have complied with, any
applicable governmental law, regulation or requirement relating to
environmental and occupational health and safety matters and Hazardous
Materials.
The term "Hazardous Materials" shall mean any substance, material,
waste, gas or particulate matter which is regulated by any local
governmental authority, the State of Illinois, or the United States
Government, including, but not limited to, any material or substance
which is (i) defined as a "hazardous waste," "hazardous substance,"
"extremely hazardous waste," or "restricted hazardous waste" under any
provision of Illinois law, (ii) so called friable asbestos, (iii)
polychlorinated biphenyl, (iv) radioactive material, (v) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33
U.S.C. (S) 1251 et seq. (33 U.S.C. (S) 1317), (vi) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation
and Recovery Act, 42 U.S.C. (S) 6901 et seq. (42
5
<PAGE>
U.S.C. (S) 6903), or (vii) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. (S) 9601 et seq. (42 U.S.C. (S) 9601). The
term "Environmental Laws" shall mean all statutes specifically described
in the foregoing sentence and all federal, state and local environmental
health and safety statutes, ordinances, codes, rules, regulations, orders
and decrees regulating, relating to or imposing liability or standards
concerning or in connection with Hazardous Materials in effect as of the
date of this Agreement.
Additionally, but not in lieu of Contributors's affirmative
undertakings set forth herein, Contributors agrees to indemnify, defend
and hold harmless Company and its grantees from and against any and all
debts, liens, claims, causes of action, administrative orders and
notices, costs (including, without limitation, response and/or remedial
costs), personal injuries, losses, damages, liabilities, demands,
interest, fines, penalties and expenses, including reasonable attorneys'
fees and expenses, consultants' fees and expenses, court costs and all
other out-of-pocket expenses, suffered or incurred by Company and its
grantees as a result of any such representation which is in any manner
materially inaccurate or any such warranty which is in any manner
breached in any material respect.
(d) To the best of such Contributor's knowledge, such Contributor has
not received any written notice of any action pending, or to the best of
such Contributors's knowledge threatened, in law or in equity, or in any
administrative court or proceeding, which may or might affect the title
to the Property.
(e) To the best of such Contributor's knowledge, such Contributor has
not received any written notice that the Property is not in compliance
with all statutes, laws and ordinances applicable thereto.
(f) To the best of such Contributors's Knowledge, attached as Exhibit
B is a true, correct and complete copy of all contracts relating to any
portion of the Property. To the best of Contributors's knowledge, there
are no defaults under any of the Contracts, and the Contracts are in full
force and effect.
Notwithstanding anything contained herein to the contrary, in the
event that the Partnership gains knowledge prior to the Closing that any
representation or warranty contained in this Agreement is untrue or
inaccurate, Partnership shall, within five (5) business days after
gaining such knowledge but in no event subsequent to the Closing Date,
provide Contributors with written notice of such and in the event that
the Partnership closes on the acquisition of the Property, then the
Partnership irrevocably waives any right to claim any damages against
6
<PAGE>
Contributors for the breach of such representation or warranty and
Contributors shall have no liability to the Partnership resulting
therefrom.
EXCEPT AS OTHERWISE SPECIFICALLY AND EXPLICITLY SET FORTH IN THIS
AGREEMENT OR IN ANY DOCUMENT WHICH MAY BE EXECUTED BY Contributors AND
DELIVERED TO THE PARTNERSHIP AT CLOSING: (1) THE CONVEYANCE OF THE
PROPERTY AS PROVIDED FOR HEREIN IS MADE TO THE MAXIMUM EXTENT PERMITTED
BY APPLICABLE LAW ON AN "AS IS-WHERE IS" CONDITION AND BASIS WITH ALL
FAULTS, (2) THE PARTNERSHIP ACKNOWLEDGES THAT Contributors HAS NOT MADE
ANY REPRESENTATIONS TO THE PARTNERSHIP WITH RESPECT TO THE PROPERTY WHICH
ARE NOT EXPRESSLY PROVIDED IN THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, WITH REGARD TO THE HABITABILITY, MERCHANTABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(2) Representations, Warranties and Covenants of the Company, the
Partnership and the REIT.
(a) The Partnership will elect the "traditional method" set forth in
Treasury Regulation Section 1.704-3(b) (absent a Final Determination to
the contrary) to allocate tax attributes related to the Property as
"Section 704(c) Property" (as such term is defined in Treasury Regulation
Section 1.704-3(a)(3)) or which are in any other way governed by the
provisions of Section 704(c) of the Internal Revenue Code of 1986, as
amended ("Section 704(c) allocations") or any successor section thereto.
(b) Partnership is a partnership for federal income tax purposes, and
is not an entity referred to in Section 721(b) of the Internal Revenue
Code of 1954 as amended, (the "Code") or a "publicly traded partnership"
within the meaning of Section 7704 of the Code.
(c) Partnership shall utilize the traditional method of depreciation
allocation under Section 704(c) of the Code.
(d) Company is a corporation duly organized and in good standing under
the laws of the State of Illinois, and is duly qualified to do business
in and is in good standing under the laws of the State of Illinois.
(e) Company has full capacity, right, power and authority to execute,
deliver and perform this Agreement and all documents to be executed by
Company pursuant hereto, and all required action and approvals therefor
have
7
<PAGE>
been duly taken and claimed. The individuals signing this Agreement and
all other documents its executed or to be executed pursuant hereto on
behalf of Company are and shall be duly authorized to sign the same on
Company's behalf and to bind Company thereto. This Agreement and all
documents to be executed pursuant hereto by Company are and shall be
binding upon and enforceable against Company in accordance with their
respective terms.
(f) The REIT is organized as a "real estate investment trust" under
Sections 856 through 860 of the Code. The REIT will elect to be taxed as
a "real estate investment trust" under the Code.
R-7. TRUTH OF REPRESENTATIONS AND WARRANTIES OF THE PARTIES. The obligation of
each party to close each transaction contemplated hereunder shall be
conditioned upon receipt prior to each Closing of a certification by such
party confirming the truth and accuracy of all of the representations and
warranties made by such part at the IPO Closing, and to the extent not
true and accurate, then describing the circumstances or manner in which
such representations and warranties are not true. The obligation of a
party (the "Closing Party") to close the transaction contemplated hereby
is, at the Closing Party's option, and except as otherwise provided
herein, subject to all representations and warranties of the other party
(the "Other Party") contained in this Agreement being true and correct in
all material respects at and as of the Closing Date (or to the extent not
true, same shall be disclosed to the Closing Party, and the Closing Party
shall have agreed in writing to such matters within five (5) business
days after receipt of such notice, and elects to nevertheless close).
Upon failure of any condition precedent as set forth in this Section, a
Closing Party may, by written notice to the Other Party and failure by
such Other Party to cure same within 10 days after such notice, elect at
any time thereafter to terminate this Agreement by written notice to such
Other Party in which event this Agreement shall be null and void, and
except as otherwise provided in this Agreement, the parties shall have no
further obligations to the other hereunder.
R-8. Operation and Maintenance of Property. Pending the closing, Contributors
will operate and maintain the Property in compliance with applicable law
and in the same manner as the Property has heretofore been operated and
maintained and, without the prior written consent of Partnership or
(except as otherwise provided herein , Contributors will neither: (a)
enter into any contract to sell or lease (except for a farm lease) any
portion of the Property or any agreement relating to the Property, nor
(b) further encumber or grant any interest in the Property, nor (c) enter
into any service contracts (other than seasonal contracts or other arms
8
<PAGE>
length contracts with third parties in the ordinary course of business)
unless same can be terminated on no more than thirty (30) days' notice.
R-9. Zoning Proceedings. Contributors agrees that it will join with
Partnership (and execute such documents and applications as Partnership
shall require) and shall reasonably cooperate with and provide reasonable
assistance to, Partnership in any and all zoning, building, subdivision
and consolidation applications and proceedings (the "Zoning Proceedings")
which Partnership determines are necessary or required to permit the use
of the future improvements located on the Property consistent with the
existing zoning classifications as a business park for office/industrial
warehouse buildings. All such Zoning Proceedings shall be undertaken and
procured at the sole cost and expense of Partnership and Partnership
shall reimburse Contributors for the actual out-of-pocket expenses,
including without limitation, attorneys fees, incurred by Contributors in
cooperating with the Partnership. Partnership may not seek any change in
the existing zoning classification of the Property as an
office/industrial warehouse business park.
R-10. Bulk Sales. At each Closing, Contributor shall deliver to Company
evidence reasonably satisfactory to Company (which evidence may include
the indemnity of Stephen J. Nardi) that the sale of the Property to
Company hereunder is not subject to, and does not subject Company to
liability under, Section 902(d) ("Section 902(d)") of the Illinois Income
Tax Act (the "Act"). If said evidence is not so delivered to Company, as
aforesaid, then Contributor shall, or Company may, notify the Illinois
Department of Revenue ("Department") of the intended sale and request the
Department to make a determination as to whether the Contributor has an
assessed, but unpaid, amount of tax, penalties, or interest under the
Act. Contributor agrees that Company may, at closing, deduct and withhold
from the proceeds that are due Contributor the amount necessary to comply
with the withholding requirements imposed by Section 902(d). Company
shall deposit the amount so withheld in escrow with the Escrowee pursuant
to terms and conditions acceptable to Contributor and Company, but in any
event, complying with Section 902(d).
R-11. FIRPTA. Prior to the closing of the transaction contemplated by the
provisions of this Contract and as a condition of such closing,
Contributors shall deliver to Partnership a certificate with respect to
Contributors's non-foreign status sufficient to comply with the
requirements of Section 1445 of the Internal Revenue Code of the United
States of America and all regulations applicable thereto (all herein
collectively referred to as "FIRPTA"). If Contributors shall fail to
furnish the certifications described above, Partnership, in its sole
discretion, may withhold from the proceeds of sale payable by Partnership
hereunder, an amount sufficient to comply with the requirements of
FIRPTA. Notwithstanding anything to the
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<PAGE>
contrary contained herein, Contributors does hereby covenant and agree
with the Partnership to forever fully protect, defend and save the
Partnership harmless from and against all losses, costs, damages,
attorney's fees and expenses which Partnership may suffer, expend or
incur under, or by reason or in consequence of such Contributors
violation of the provisions of FIRPTA. The provisions of this paragraph
shall survive the closing.
R-12. Broker. Each party hereto warrants (which warranty shall survive the
closing) that neither party has engaged nor dealt with any broker in
connection with this transaction and hereby indemnifies and agrees to
hold the other harmless for a breach of such warranty.
R-13. Architectural Review Committee. At a Closing when Partnership has
acquired all remaining Property in a business park controlled by Stephen
J. Nardi, the affected Contributor shall assign to Partnership all of its
right, if any, as developer pursuant to the recorded covenants for such
business park and cause all members of the Architectural Review Committee
and/or Property Owners Association established for such business park to
resign (other than third parties not related to Contributors, its general
partners or related parties) effective as of Closing. In addition,
Contributors shall turn over to Partnership all books and records
relating to same at Closing.
R-14. Governing Law. This Contract shall be governed and construed in
accordance with the laws of the State of Illinois.
R-15. Entire Agreement. This Contract constitutes the entire agreement and
understanding of the parties hereto and this Contract may not be amended,
modified or supplemented except by an instrument in writing duly executed
by the parties hereto. This Contract supersedes any and all prior written
or oral agreement or understanding between the parties in connection with
this transaction.
R-16. Assignment. This Agreement may not be assigned by either party without
the written consent of the other party.
R-17. Successors and Assigns. The provisions of this Contract shall inure to
the benefit of, and be binding upon, the respective parties and their
respective successors and assigns.
R-18. Survive Closing. All representations and warranties with respect to a
portion of a Property which is acquired shall survive for a period of
twelve (12) months following any Closing of such portion of the Property.
All agreements and
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<PAGE>
obligations of a party hereunder, the performance of which it is
contemplated will occur after Closing, shall survive Closing.
R-19. Default. (a) In the event a Contributor defaults under this Contract, and
such default continues for ten (10) days after written notice of such
default, Partnership, shall be entitled as its sole and exclusive remedy
either to sue Contributors for specific performance in order to enforce
Contributors' obligations under this Agreement or to sue for the
Partnership's (or Company's or the REIT's, as the case may be) actual
damages incurred or suffered on account of such default.
(b) In the event Partnership, Company or REIT defaults under this
Contract, and such default continues for ten (10) days after written
notice of such default, Contributors shall be entitled, as their sole and
exclusive remedy, to sue for an amount equal to its actual damages
incurred or suffered on account of such default.
R-20. Notices. Any notice, request, demand, instruction or other document to be
given or served hereunder or under any document or instrument executed
pursuant hereto shall be in writing and shall be delivered personally or
sent by United States registered or certified mail, return receipt
requested, postage prepaid or by overnight express courier, postage
prepaid and addressed to the parties at their respective addresses set
forth below, and the same shall be effective upon receipt if delivered
personally, on the next business day if delivered by overnight courier,
or two business days after deposit in the mails if mailed by certified or
registered mail. A party may change its address or addressees for receipt
of notices by service of a notice of such change in accordance herewith.
If to Company, the
Partnership and/or
the REIT to: c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Jeffrey A. Patterson
With a copy to: c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Robert J. Rudnik, Esq.
11
<PAGE>
With a copy to: Winston & Strawn
35 West Wacker Drive
Suite 4200
Chicago, IL 60601
Attn: Wayne D. Boberg, Esq.
and William J. Ralph, Esq.
If to Contributors, to: c/o The Nardi Group, Ltd.
(or to any one or Chicago Metropolitan Headquarters
more Contributors) 4100 Madison Street
Hillside, IL 60161
Attn: Stephen J. Nardi, President
With a copy to: Bell, Boyd, Lloyd
Three First National Plaza
Suite 3200
Chicago, Illinois 60602
Attn: Thomas C. Homburger, Esq.
and Gregory R. Andre, Esq.
R-21. Limitation on Liability. Notwithstanding anything to the contrary set
forth in this Agreement: (a) prior to Closing, a party ("Non-Defaulting
Party") shall look solely to the assets of the Land Trusts up to
$1,000,000.00 if the Contributors are the defaulting party, or the assets
of the Company, the Partnership and the REIT, if the Company, the REIT or
the Partnership are the defaulting party, for satisfaction of any
monetary claims against the defaulting party; and (b) after the Closing,
any monetary claims against the defaulting party resulting from a breach
of such party's representations, warranties and indemnifications shall be
satisfied solely from the common units in the Partnership of the
defaulting party up to an aggregate amount of ten percent (10%) of such
defaulting party's common units in the Partnership. In no case shall any
claim against a defaulting party be asserted against its beneficiaries,
partners, members, shareholders or officers, as the case may be.
PARTNERSHIP:
PRIME GROUP REALTY, L.P., a Delaware limited
partnership
By: Prime Group Realty Trust, a Maryland real
estate investment trust
12
<PAGE>
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
REIT:
PRIME GROUP REALTY TRUST, a Maryland real estate
investment trust
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
COMPANY:
THE PRIME GROUP, an Illinois corporation
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
CONTRIBUTORS:
CAROL STREAM INDUSTRIAL PARK JOINT VENTURE, an
Illinois general partnership
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
13
<PAGE>
NARCO PROPERTIES, LTD.
By:
-----------------------------
Name: Stephen J. Nardi
Title: General Partner
NARCO DEVELOPMENT CO.
By:
-----------------------------
Name: Stephen J. Nardi
Title: General Partner
14
<PAGE>
EXHIBIT L
PUT OPTION AGREEMENT
--------------------
THIS PUT OPTION AGREEMENT is made and entered into as of this ____ day of
____, 1997 (this "Agreement") by and between ____________________ (the "NAC
General Partner") and PRIME GROUP REALTY TRUST, a Maryland real estate
investment trust ("PRT") and Prime Group Realty, L.P., a Delaware limited
partnership (the "Operating Partnership").
W I T N E S S E T H :
WHEREAS, the NAC General Partner is a general partner of the Operating
Partnership and owns ____ Common Units of general partnership interest (the "GP
Common Units") in the Operating Partnership;
WHEREAS, PRT is the managing general partner of the Operating Partnership;
WHEREAS, PRT has outstanding common shares of beneficial interest, $.01 par
value (the "Common Shares"), which are listed and traded on the New York Stock
Exchange;
NOW, THEREFORE, in consideration of ten dollars and the mutual
representations, covenants and agreements described in the Agreement and herein
and other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the undersigned hereby agree as follows:
Section 1. Grant of Put Option; Purchase Price.
-----------------------------------
PRT and the Operating Partnership hereby grant to the NAC General Partner
two irrevocable options to put portions of its GP Common Units (individually, a
"Put Option" and, collectively, the "Put Options") to PRT and the Operating
Partnership for cash at a per Common Unit price (the "Per Common Unit Price")
equal to 95% of the average daily closing price for Common Shares for the ten
trading days immediately prior to the Closing (as hereinafter defined) of each
respective Put Option. The aggregate purchase price for the GP Common Units
(the "Purchase Price") for each Put Option shall be an amount equal to the Per
Common Unit Price multiplied by the total number of GP Common Units being put by
the NAC General Partner at the Closing of each respective Put Option. The first
exercise of the Put Option may be for all or less than all of the GP Common
Units then held by the NAC General Partner, but shall be for no less than 50% of
the NAC General Partner's GP Common Units; the second exercise shall be for all,
but not less than all, of the GP Common Units then owned by the NAC General
Partner.
<PAGE>
Section 2. Term of Put Options.
-------------------
The Put Options shall be first exercisable commencing on the date that is
twenty-one months from the date hereof and terminating on the date the NAC
General Partner no longer owns any of the GP Common Units. The Put Options may
be exercised twice by the NAC General Partner. The first exercise shall occur
no earlier than twenty one months from the date hereof and the second exercise
shall occur no earlier than thirty-two months from the date hereof.
Section 3. Exercise of Put Options.
-----------------------
The Put Options may be exercised by the NAC General Partner at any time
prior to their expiration pursuant to Section 2 hereof upon delivery to PRT and
the Operating Partnership by the NAC General Partner of a written notice of the
election by the NAC General Partner to exercise such Put Option.
Section 4. Closing.
-------
Within sixty (60) days of the delivery of the written notice of exercise of
a Put Option pursuant to Section 3 hereof, the Operating Partnership and PRT and
the NAC General Partner shall close (the "Closing") the purchase and sale of the
GP Common Units at the offices of PRT on a mutually agreeable date. At the
Closing, PRT shall deliver to the NAC General Partner the Purchase Price in
immediately available funds and the NAC General Partner shall deliver the GP
Common Units to PRT. The GP Common Units shall be delivered by the NAC General
Partner to PRT free and clear of all liens, claims and encumbrances of any kind.
The NAC General Partner hereby agrees to execute and deliver to PRT at the
Closing such other agreements, instruments, certificates and documents as are
reasonably requested by PRT to effect the transfer of the GP Common Units
pursuant to the Put Option purchase and sale.
Section 5. Amendment, Modification and Waiver.
----------------------------------
This Agreement may not be amended or modified or any provision, right or
obligation hereunder waived except by a writing signed by both parties hereto.
Section 6. Severability.
------------
Any invalidity, illegality or unenforceability of any provision of this
Agreement shall not render invalid, illegal or unenforceable the remaining
provisions hereof.
Section 7. Headings.
--------
The headings contained herein are for convenience of reference only and
shall not be deemed to be a part of this Agreement.
-2-
<PAGE>
Section 8. Governing Law.
-------------
This Agreement shall be governed by and construed under the laws of the
State of Illinois without regard to the principles of conflicts of laws.
Section 9. Assignability.
-------------
This Agreement shall not be assigned by either the NAC General Partner or
PRT and the Operating Partnership without the express written consent of the
other parties hereto.
Section 10. Notices.
-------
All notices hereunder shall be in writing and effective (i) upon receipt,
if delivered in person or (ii) three days after the same shall have been
deposited in the U.S. mail, via registered or certified mail, to the address set
forth on the signature page hereto.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the day and year first above written.
PRIME GROUP REALTY, L.P.
-------------------------------------------
-------------------------------------------
By: Prime Group Realty Trust -------------------------------------------
Its: Managing General Partner
By: By:
------------------------ ------------------------
Its: Its:
------------------------ ------------------------
PRIME GROUP REALTY TRUST
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60603
By:
------------------------
Its:
------------------------
-3-
<PAGE>
SCHEDULE 7
----------
TENANT ESTOPPEL CERTIFICATE
_________________, 1997
Prime Group Realty, L.P.
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: ___________________
Re: Lease Dated: ___________________
Landlord: ___________________
Tenant: ___________________, a(n) _________________
Premises: ___square feet in the building located at
_______________, ______________, Illinois
Gentlemen:
The undersigned, __________________, a(n) ______________("Tenant"), the
tenant under the above-described lease, a copy of which is attached hereto as
Exhibit A, ("Lease") provides this Tenant Estoppel Certificate to you as
conclusive evidence of the matters set forth herein concerning the
above-referenced Lease and the Premises.
As of the date hereof, the undersigned hereby certifies the following:
1. That the Lease supersedes, in all respects, all prior written or oral
agreements between Landlord and Tenant with respect to the Premises
and there are no agreements, understandings, warranties, or
representations between Landlord and Tenant with respect to the Lease
or the Premises except as expressly set forth in the copy of the Lease
(including all amendments thereto, if any) attached hereto as
Exhibit A.
2. That, as of the date hereof, the Lease has not been changed, amended,
modified, supplemented or superseded except as set forth in the copy
of the Lease (including all amendments thereto, if any) attached
hereto as Exhibit A.
<PAGE>
3. That the Lease remains in full force and effect and there are no known
existing defaults by Tenant under the Lease.
4. That the improvements and space required by the Lease to be delivered
to Tenant have been satisfactorily completed and delivered by
Landlord, and have been accepted by the Tenant.
5. That the Premises are currently occupied and open for the use by
Tenant, its customers, employees and invitees.
6. That Tenant's interest in the Lease and the Premises demised therein,
or any part thereof, has not been sublet, transferred or assigned.
7. That all duties of an inducement nature required of the Landlord under
the Lease, as of the date of this certificate, have been fulfilled by
Landlord and Tenant is fully obligated to pay rent and all other
charges coming due under the Lease.
8. That the Commencement Date of the Lease was ___________, 19__ and the
Expiration Date of the Lease is _________________, _____.
9. That the monthly base rent under the Lease of $______ commenced on
_____________, 19__ and the last monthly payment of rent in the amount
of $__________ was made by Tenant on _________________, 1997. No
monthly rental has been prepaid nor has Tenant been given any free
rent, partial rent, rebates, rent rebates or concessions except as
provided in Lease. Tenant has no claims, defenses or offsets against
any rents payable under the Lease.
10. That a security deposit in the amount of $______ has been deposited
with Landlord.
11. That Landlord, to the best of our knowledge, has fully performed all
of its obligations under the Lease, as of the date of this
certificate, and there are no known circumstances existing under which
Landlord may be deemed in default merely upon the service of notice or
passage of time, or both.
12. That Landlord has not given its consent to Tenant (for example, to
sublease or to alter the Premises) to take any action which, pursuant
to the Lease, requires Landlord's consent, except
______________________.
<PAGE>
13. That Tenant has not received any notice of a prior sale, transfer,
assignment, pledge or other hypothecation of the Premises or the Lease
or of the rents provided for therein.
14. That Tenant has not filed, and is not currently the subject of any
filing, voluntary or involuntary, for bankruptcy or reorganization
under any applicable bankruptcy or creditors rights laws.
15. That Tenant is a ________ (corporation], organized, validly existing
and in good standing under the law of __________.
In issuing this Estoppel Certificate, Tenant understands that you will rely
thereon in your acquiring that certain real estate which includes the Premises.
, a(n)
-------------------------------------
-------------------------------------------
By:
----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
<PAGE>
SCHEDULE 7A
-----------
REQUIRED TENANT ESTOPPELS
-------------------------
Dynamic Manufacturing
Spraying Systems
Ameritech
3-D Exhibits
Semblex Corp.
Household Finance
Evans, Inc.
Associates Material
Household Credit Service
Hinshaw Culbertson
FBI
Boston Coach
Echlin, Inc.
Federal Cypress
<PAGE>
NARCO RIVER BUSINESS CENTER
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 16]
NARCO TOWER ROAD ASSOCIATES
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 18]
OLYMPIAN OFFICE CENTER
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 19]
TRI-STATE INDUSTRIAL PARK JOINT
VENTURE
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 22
and 23]
CAROL STREAM INDUSTRIAL PARK JOINT
VENTURE
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 26]
<PAGE>
NARCO ENTERPRISES, INC.
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, as General Partner
[as the beneficial owner of Property No. 27]
Dated: October 20, 1997
THE NARDI ENTITIES:
THE NARDI GROUP LTD.
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, General Partner
NARCO CONSTRUCTION, INC.
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, President
NARDI & CO.
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, General Partner
NARDI ASSET MANAGEMENT, INC.
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, President
<PAGE>
NARDI ARCHITECTURAL, INC.
By /s/ Stephen J. Nardi
---------------------------------------------
Stephen J. Nardi, President
Dated: October 20, 1997
COMPANY:
THE PRIME GROUP, INC., an Illinois corporation
By: /s/ Richard S. Curto
---------------------------------------------
Its: Executive Vice President
---------------------------------------
Dated: October 20, 1997
PARTNERSHIP:
PRIME GROUP REALTY, L.P., a Delaware
limited liability partnership
By: /s/ Richard S. Curto
---------------------------------------------
Its: Chief Executive Officer
---------------------------------------
Dated: October 20, 1997
REIT:
PRIME GROUP REALTY TRUST, a Maryland
real estate investment trust
By: /s/ Richard S. Curto
---------------------------------------------
Its: President
---------------------------------------
Dated: October 20, 1997
<PAGE>
LIST OF EXHIBITS & SCHEDULES
----------------------------
EXHIBIT A - LEGAL DESCRIPTION - REAL PROPERTY
EXHIBIT A-1 - LEGAL DESCRIPTION - VACANT REAL PROPERTY
EXHIBIT A-2 - LEGAL DESCRIPTION - CRAIG AND RAWLS PROPERTIES
EXHIBIT A-3 - LEGAL DESCRIPTION - 2050 HAMMOND DRIVE AND 5600
PROVISO DRIVE
EXHIBIT B - PERSONAL PROPERTY
EXHIBIT C - PERMITTED TITLE EXCEPTIONS
EXHIBIT D - LISTING OF CONTRACTS
EXHIBIT E - SCHEDULE OF LICENSES
EXHIBIT F - SCHEDULE OF LEASES
EXHIBIT G - NON-FOREIGN AFFIDAVIT
EXHIBIT H - LIST OF EMPLOYEES (AND BENEFITS) TO BE HIRED BY
COMPANY
EXHIBIT I - TAX INDEMNIFICATION AGREEMENT
EXHIBIT J - CONSULTING AGREEMENT
EXHIBIT J-1 - EMPLOYMENT AGREEMENT
EXHIBIT K - VACANT LAND AGREEMENT
EXHIBIT L - PUT AGREEMENT
EXHIBIT M - NON RECOURSE DEBT METHODOLOGY
EXHIBIT N - AGREEMENT REGARDING VACANT SPACE (Re: 1051 Kirk Road)
EXHIBIT O - PARTNERSHIP AGREEMENT
SCHEDULE 1 - LIST OF CONTRIBUTORS (INCLUDING PARTIES REQUIRED BY SEC) AND
PROPERTY LOCATIONS
<PAGE>
SCHEDULE 1-A - LIST OF THE NARDI ENTITIES
SCHEDULE 2 - SCHEDULE OF BUSINESS ASSETS
SCHEDULE 2-A - PERSONAL PROPERTY OWNED BY NARDI ENTITIES WHICH ARE NOT
BUSINESS ASSETS
SCHEDULE 3 - DESCRIPTION OF MORTGAGE LOANS TO BE REPAID
SCHEDULE 4 - [INTENTIONALLY OMITTED]
SCHEDULE 5 - REAL ESTATE PROPERTIES WITH NO TAX PRORATION
SCHEDULE 6 - [INTENTIONALLY OMITTED]
SCHEDULE 7 - FORM OF TENANT ESTOPPELS
SCHEDULE 7-A - LIST OF MAJOR TENANTS
SCHEDULE 8 - FORM OF LETTERS TO TENANTS
SCHEDULE 9 - ENVIRONMENTAL DISCLOSURES
SCHEDULE 10 - ALLOCATION OF CONTRIBUTION PRICE
<PAGE>
EXHIBIT G
---------
[LOGO]
CHICAGO TITLE INSURANCE COMPANY
INSTRUCTIONS: Section A and EITHER Section B, C, or D (as applicable)
must be completed and signed on ALL Escrows involving a sale/transfer.
ESCROW NO.:__________
NOTICE REGARDING "FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT,"
SEC. 1445, INTERNAL REVENUE CODE
(A)
Effective January 1, 1985, Section 1445 of the Internal Revenue Code
requires that every Buyer of real property from a foreign Seller withhold ten
percent of the gross purchase price and transmit that sum to the Internal
Revenue Service for application against the Seller's tax liability.
Certain exceptions may apply, such as the purchase by a buyer of property
acquired for use as the buyer's residence and the amount paid is $300,000.00 or
less. Also, the Buyer may rely on an affidavit from the Seller as shown below,
subject to certain limitations.
If withholding is required, and the Buyer fails to make the necessary
withholding, FIRPTA states that the Buyer shall be responsible for the payment.
CHICAGO TITLE INSURANCE COMPANY is not authorized by law to advise you on
this tax matter. We suggest that you consult with your attorney or tax advisor.
This form must be signed and returned by each named Buyer and Seller, or by
an authorized agent for each named Buyer and Seller.
- -------------------------------------- --------------------------------------
(Buyer) (Seller)
- -------------------------------------- --------------------------------------
(Buyer) (Seller)
CERTIFICATION OF NONFOREIGN STATUS
(B) (Individual)
Section 1445 of the Internal Revenue Code provides that a transferee
(buyer) of a U.S. real property interest must withhold tax if the transferor
(seller) is a foreign person. To inform the transferee (buyer) that withholding
of tax is not required upon my disposition of a U.S. real property interest, I,
______________________________________certify the following:
(Name of transferor)
1. I am not a nonresident alien for purposes of U.S. income taxation
2. My U.S. taxpayer identifying number is__________________________; and
(Social Security Number)
3. My home address is____________________________________________________
I understand that this certification may be disclosed to the Internal Revenue
Service by the transferee and that any false statement I have made here could be
punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this certification and
to the best of my knowledge and belief it is true, correct, and complete.
Dated:
--------------------------------------- ---------------------------------
(Signature of Seller)
---------------------------------
<PAGE>
W&S Draft
10/21/97
Exhibit I
---------
TAX INDEMNIFICATION AGREEMENT
TAX INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of [ ________],
1997 between , STEPHEN J. NARDI, an individual ("SJ Nardi"), NARCO ENTERPRISES,
INC., a _______ corporation, and NARDI GROUP LIMITED, a ________ corporation,
(collectively, the "Nardi Indemnitees"), and PRIME GROUP REALTY, L.P., a
Delaware limited partnership ("UpREIT").
WHEREAS, certain of the Nardi Indemnitees (or their predecessors in
interest) had interests in one or more of those certain partnerships set forth
on Exhibit A hereto ("Nardi Partnerships"), which owned the "Nardi Properties"
(as such term is defined in that certain Contribution Agreement, between ______,
dated October __, 1997 (the "Contribution Agreement");
WHEREAS, certain each of the Nardi Indemnitees is a member of a limited
liability company, (the "Nardi LLC"), which has entered into the that certain
Agreement of Limited Partnership of Prime Group Realty, L.P. (the "Partnership
Agreement"), dated the date hereof;
NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions. For purposes of the Agreement, capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to them in the Partnership Agreement or the Contribution Agreement.
Any term defined by reference to an agreement, instrument or other document
shall have the meaning so assigned to it whether or not such document is in
effect. Unless otherwise indicated, references in the Agreement to articles,
Sections, paragraphs, clauses, appendices, schedules and exhibits are to the
same contained in or attached to this Agreement.
For purposes of this Tax Indemnification Agreement, the following
terms shall apply:
(a) The term "After-Tax Basis" shall mean, with respect to any payment
to be received, the amount of such payment supplemented by a further amount so
that, after deduction of the amount of all federal, applicable state and Burr
Ridge income taxes that are required to be paid by the recipient thereof
(assuming that the recipient is taxable at the highest marginal federal,
applicable state and Burr Ridge income tax rates then applicable to the
recipient and taking into account any tax benefits to be realized by such
recipient from the receipt of the
1
<PAGE>
indemnified amount) with respect to the receipt by it of such amounts, the net
amount received is equal to the payment required to be made on an After-Tax
Basis.
(b) The term "Realistic Possibility of Success" shall mean such
circumstances that tax counsel may properly advise reporting such position on a
tax return in accordance with Section 10.34 of 31 C.F.R. part 10, governing
practice before the Internal Revenue Service.
(c) The term "GP Termination Date" shall mean the period beginning
the date hereof and ending on the date on which the Nardi LLC (or its successor)
is no longer a General Partner in the Partnership.
(d) The term "Indemnity Term" shall mean the period beginning on the
GP Termination Date and ending on the tenth anniversary thereof.
(e) The term "Final Determination" shall mean (i) a decision,
judgment, decree or other order by any court of competent jurisdiction, which
decision, judgment, decree or other order has become final after all allowable
appeals by either party to the action have been exhausted or the time for filing
such appeal has expired, or in any case where judicial review shall at the time
be unavailable because the proposed adjustment involves a decrease in net
operating loss carry forward or a business credit carry forward, a decision,
judgment, decree or other order of an administrative official or agency of
competent jurisdiction, which decision, judgment, decree or other order has
become final (i.e., where all administrative appeals have been exhausted by all
parties thereto), (ii) a closing agreement entered into under Section 7121 of
the Code, or any other final settlement agreement entered into in connection
with an administrative or judicial proceeding and with the consent of UpREIT or
as otherwise permitted in Section 6 of the Partnership Agreement, or (iii) the
expiration of the time for instituting a claim for refund, or if such a claim
was filed, the expiration of the time for instituting suit with respect thereto.
(f) The term "Indemnity Debt Allocation Method" shall mean the
allocation of the Partnership's excess nonrecourse liabilities in any UpREIT
taxable year for purposes of Regulations Section 1.752-3(a)(3) based upon each
Partner's relative ownership of Units as of the beginning of such UpREIT taxable
year; provided, that nothing in this Agreement shall be interpreted as
prohibiting the UpREIT from actually using a different debt allocation than that
based upon the Indemnity Debt Allocation Method.
(g) The term "Burr Ridge" shall mean the municipality of the Village
of Burr Ridge, Illinois.
Section 2. Tax Representations. The Nardi Indemnitees jointly and
severally represent, warrant and covenant as follows:
2
<PAGE>
(a) immediately prior to the relevant Adjustment Date, the Nardi
Properties are subject to aggregate Nonrecourse Liabilities, allocable among the
Nardi Properties, as shown on Exhibit B attached hereto;
(b) each Nonrecourse Liability, described in Section 2(a) of this
Agreement, was incurred by the Nardi Partnership or Nardi Indemnitee, which
owned the Nardi Properties to which such Nonrecourse Liability is allocated,
either (i) more than two years prior to the date of the Contribution Agreement,
or (ii) not in anticipation of the transfer of such Nardi Property to UpREIT
(within the meaning of Regulations Section 1.707-5(a)(6));
(c) each Nonrecourse Liability, described in Section 2(a) of this
Agreement, has encumbered such Nardi Properties throughout the period beginning
on the earlier of the date two years prior to the date of the Contribution
Agreement and the date such liability was incurred by the Nardi Partnership or
Nardi Indemnitee, as applicable, and ending on the Adjustment Date in respect of
such Nardi Properties;
(d) each Nonrecourse Liability, described in Section 2(a) of this
Agreement, is nonrecourse for purposes of Regulations Section 1.752-1(a)(2);
(e) immediately prior to the relevant Adjustment Date, each Nardi
Indemnitee's share of Partnership Minimum Gain under Regulations Section 1.704-
2(g)(1) is as shown on Exhibit B attached hereto;
(f) immediately prior to the relevant Adjustment Date, each Nardi
Indemnitee is allocated Nonrecourse Liabilities under Code Section 752 and the
Regulations as shown on Exhibit B attached hereto;
(g) intentionally omitted;
(h) intentionally omitted;
(i) the gross fair market value of any Nardi Property equals the initial
Gross Asset Value of such Property credited to the Capital Account of the
relevant contributing Nardi Partnership or Nardi Indemnitee;
(j) each Nardi Indemnitee will report any payment received by it under
this Agreement as a payment made within Section 707(a) of the Code.
(k) each Nardi Indemnitee has and will have a taxable year that is the
calendar year; and
(l) each Nardi Property constitutes nonresidential real property under
Code Section 168;
<PAGE>
provided, however, that the breach of any of the foregoing representations,
warranties and covenants shall operate only to reduce the UpREIT's indemnity
obligation under this Agreement, and no one shall have any other rights, damages
or recoveries in respect of any such breach.
Section 3. Indemnified Income Inclusions. If any Nardi Indemnitee
shall be required to include in its gross income for federal, applicable state
or Burr Ridge income tax purposes (including by way of either an adjustment
proposed by an examining agent during audit or at a closing conference or the
receipt of a "30-day letter" by a Nardi Indemnitee or a "60-day letter" by the
Tax Matters Partner of the UpREIT proposing an adjustment to the tax returns of
the Nardi Indemnitee or the UpREIT, respectively, and treating the Nardi
Indemnitee's distributive share of taxable items of the UpREIT allocated to the
Nardi Indemnitee under the Partnership Agreement as "required" for this
purpose), with respect to any of its taxable years which begin prior to the end
of the Indemnity Term, any of the following:
(a) UpREIT items of income and gain attributable to such Nardi
Indemnitee's share of the net decrease in Partnership Minimum Gain from Nardi
Properties (to the extent not duplicative with subsection (c));
(b) Gain under Code Section 731 from a deemed distribution under Code
Section 752 from the retirement or refinancing of either the Nonrecourse
Liabilities shown on Exhibit B attached hereto, or the debt which refinances or
replaces such Nonrecourse Liabilities; or
(c) gain from the sale, transfer or disposition of Nardi Properties;
(d) income under Code Section 704(c) in excess of that allocable to such
Nardi Indemnitee under the "traditional method" of Regulations Section 1.704-
3(b),
(such an inclusion being an "Income Inclusion"), UpREIT shall pay to such Nardi
Indemnitee an indemnity with respect to the additional federal, applicable state
and Burr Ridge income tax liability from such Income Inclusion in the amount
determined in Section 4 hereof.
Section 4. Amount of Indemnification.
(a) In the case of any Income Inclusion that is indemnifiable pursuant to
Section 3 of this Agreement, the relevant Nardi Indemnitee (x) shall notify
UpREIT orally and in writing as soon as possible (so as to minimize
indemnifiable costs and expenses incurred under this Agreement prior to such
Income Inclusion), and (y) shall give UpREIT a written certificate setting forth
in reasonable detail (i) the computation of the amount of such Income Inclusion
and (ii) the computation of such amount or amounts that shall equal the sum of
(1) the actual net increase in federal, applicable state and Burr Ridge income
tax (including any interest, penalties, fines, or other additions thereto)
("Inclusion Taxes") actually payable by a Nardi Indemnitee on an After-Tax
Basis, as a result of such Income Inclusion, determined after taking into
account all deductions, credits, or other federal, applicable state and Burr
Ridge income tax benefits then realized and resulting from (a) such Income
Inclusion, (b) the incurrence of the tax liability
<PAGE>
indemnified under this Agreement, or (c) the receipt of any indemnity payment
made under this Agreement (computed in accordance with Sections 3 and 6 of this
Agreement), plus (2) the reasonable costs and expenses incurred by such Nardi
Indemnitee in respect of such Income Inclusion.
(b) Each Nardi Indemnitee agrees to act in good faith to claim any tax
benefits (including filing claims for refunds and amended tax returns) and take
such other actions as may be reasonable to minimize the net amount of any
indemnity payment due from UpREIT hereunder and to maximize the amount of its
tax savings; provided, however, that such Nardi Indemnitee shall not be required
to take any action which, in its good faith judgment, would have any material
adverse business consequences to it. If UpREIT shall disagree with such
computation and so requests in a written notice delivered to such Nardi
Indemnitee within thirty (30) days following UpREIT's receipt of the
certificate, such amount shall be reviewed and determined by an independent
public accounting firm of national recognition selected by SJ Nardi and
reasonably acceptable to UpREIT. The costs of such verification shall be borne
by UpREIT unless such verification shall result in an adjustment in UpREIT's
favor by an amount of more than 5% of the Inclusion Taxes actually due, in
which case such costs shall be borne by such Nardi Indemnitee. Each Nardi
Indemnitee agrees to cooperate with such independent accounting firm and to
supply it with all information reasonably necessary to permit it to accomplish
such review and determination. Such information shall be for the confidential
use of such accountants and shall not be disclosed to UpREIT or any other
person. UpREIT and each Nardi Indemnitee agree that the sole responsibility of
the independent public accounting firm shall be to verify the amount of a
payment pursuant to this Agreement and that matters of interpretation of this
Agreement are not within the scope of the independent accounting firm's
responsibilities.
(c) To the extent that a Nardi Indemnitee recognizes an amount in respect
of an Income Inclusion that is indemnifiable pursuant to Section 3 of this
Agreement for any UpREIT taxable year beginning prior to the Indemnity Term,
UpREIT will pay such Nardi Indemnitee as its indemnity obligation under this
Agreement 100% of the amount described in Section 4(a).
(d) Any payment due to a Nardi Indemnitee pursuant to this Section 4 shall
be paid upon the earlier of the date that (1) the additional federal income tax
in respect of such Income Inclusion is due from the Nardi Indemnitee, or (2) the
Nardi Indemnitee has filed a return that reflects or would reflect such
additional federal income tax; provided, however, that (A) obligations of such
Nardi Indemnitee and UpREIT under this Agreement will first be set off against
each other, and (B) no payment shall be due earlier than completion of the
computation of such indemnity amount as described in Section 4(a).
Section 5. Exclusions.
(a) Notwithstanding the foregoing, UpREIT shall not have any liability for
indemnification under this Agreement (other than for reasonable costs and
expenses incurred by a Nardi Indemnitee in accordance with this Agreement) to
the extent the amount otherwise indemnifiable is payable by such Nardi
Indemnitee as a result of one or more of the following:
<PAGE>
(i) Any Nardi Indemnitee recognizing gain in respect of the Capital
Contribution of Nardi Properties under Code section 707(a)(2), assuming that
each Nonrecourse Liability described in Section 2(a) of this Agreement is a
"qualified liability" within the meaning of Regulations Section 1.707-5(a)(6),
except as a result of either a sale or disposition of such Nardi Property, an
indemnity payment under this Agreement, or the general partner nature of the
Nardi LLC's interest in the Partnership and the put right described in that
certain [Put Agreement], dated the date hereof, between _____ ;
(ii) Any payment of cash to a Contributor under Section 3.02(a)(i)
of the Contribution Agreement;
(iii) Any Nardi Indemnitee's Interest in the UpREIT not being
respected as a partnership interest to the extent, and as provided in, the
Partnership Agreement;
(iv) The allocations of income, gain, loss, deduction and credit set
forth in the Partnership Agreement not being respected under Sections 704(b) and
704(c) of the Code, except as a result of the exercise of discretion by the
Managing General Partner of the UpREIT in respect of (A) an adjustment to the
"Gross Asset Values" of UpREIT assets, as described in clause (b) of the
definition thereof, or (B) the allocation of Nonrecourse Deductions under the
proviso within [Section 6.3.A.(3)] of the Partnership Agreement;
(v) The UpREIT not being the owner of the Nardi Properties for
federal income tax purposes as of the relevant Adjustment Date;
(vi) Immediately after the relevant Adjustment Date, any Nardi
Indemnitee's share of Partnership Minimum Gain under Regulations Section 1.704-
2(g)(1) not being as shown on Exhibit B attached hereto;
(vii) (1) any change in, or amendment to, the Code or any other
federal tax statute, which is effective on or after the relevant Adjustment
Date, (2) any final or temporary regulation, which is enacted or adopted after
the relevant Adjustment Date, or (3) any court decision issued after the
relevant Adjustment Date;
(viii) No Nardi Indemnitee is or will be a tax-exempt entity or
person;
(ix) A determination that any Nardi Indemnitee did not enter the
transactions contemplated by the Partnership Agreement for profit or with a
sufficient business purpose;
(x) A voluntary or involuntary sale, assignment, transfer or other
disposition by any Nardi Indemnitee of any interest in the UpREIT or any part
thereof;
<PAGE>
(xi) The failure of any Nardi Indemnitee to claim or to follow the
proper procedure in claiming in a timely manner any UpREIT item allocated to
such Nardi Indemnitee by the Partnership;
(xii) The failure of any Nardi Indemnitee to take timely action or
follow the proper procedures in reporting his distributive share from the UpREIT
or contesting a claim made by the Internal Revenue Service in accordance with
the Partnership Agreement;
(xiii) The gross negligence or the willful misconduct of any Nardi
Indemnitee or any affiliate thereof;
(xiv) Any breach by any Nardi Indemnitee of any of its
representations, warranties or covenants in Sections [7.1.A. or 8.2 of the
Partnership Agreement (prior to the GP Termination Date), Sections 10.5,
11.3.A., 11.6.A., D or E.,] of the Partnership Agreement, Sections 2 or 6 of
this Agreement, or the Contribution Agreement;
(xv) Any guarantee by any Nardi Indemnitee or a person related to
any Nardi Indemnitee of any Nonrecourse Liability encumbering a Nardi Property
or Nardi Interest or any other debt of the UpREIT or its affiliates;
(xvi) Any Nardi Indemnitee recognizing taxable income under Code
Section 704(c), except to the extent such income results from either a sale or
other disposition of a Nardi Property or income under Code Section 704(c) in
excess of that allocable to such Nardi Indemnitee under the "traditional method"
of Regulations Section 1.704-3(b);
(xvii) Any recapture under Code Section 1245 or 1250 of depreciation
attributable to Nardi Properties that was allocated to any Nardi Indemnitee
after the relevant Adjustment Date.;
(xviii) the sale, transfer or other disposition of any Nardi Property
after the fifth anniversary of the GP Termination Date; provided, however, that
the UpREIT uses its best efforts to cause such sale, transfer or other
disposition to be on a tax-deferred or tax-exempt basis; or
(xix) the sale, transfer or other disposition of all or any portion
of the land described in Exhibit D hereto (the "Land"); provided, however, that
the UpREIT uses its best efforts to cause such sale, transfer or other
disposition of the Land that occurs within the period ending on or prior to the
fifth anniversary of the GP Termination Date, to be on a tax-deferred or tax-
exempt basis.
(b) Further, notwithstanding anything to the contrary within this
Agreement, after taking into account any amounts thereof excluded under Section
5(a), the cumulative Income Inclusions for all Nardi Indemnitees in respect of
Section 3(a), 3(b) and 3(c) that will be indemnifiable by the UpREIT shall not
exceed the following:
<PAGE>
(i) For any Income Inclusion under Section 3(b),the aggregate negative
Capital Accounts of all Nardi Indemnitees as set forth on Exhibit B;
(ii) For any Income Inclusion under Section 3(a), the aggregate
Minimum Gain of all Nardi Indemnitees as set forth on Exhibit B; and
(iii) For any Income Inclusion under Section 3(c), the excess of the
aggregate Gross Asset Value of the Nardi Properties contributed to the UpREIT on
the relevant Adjustment Dates, over the aggregate initial adjusted tax bases of
such Nardi Properties on such relevant Adjustment Dates.
(c) Finally, notwithstanding anything to the contrary within this
Agreement, after taking into account any amounts thereof excluded under Sections
5(a) and 5(b), UpREIT shall not be liable for indemnification under this
Agreement in respect of an Income Inclusion under Section 3(a) or (b), to the
extent of that such Income Inclusion arises from a Final Determination that the
amount of debt of UpREIT allocable to such Nardi Indemnitee for purposes of
Section 752 of the Code and Regulations Section 1.752-3(a)(3) is less than the
amount of debt such Nardi Indemnitee would be allocated if the UpREIT allocated
the Nardi Indemnitees collectively an aggregate amount of debt, using the
Indemnity Debt Allocation Method for purposes of Section 752 of the Code and
Regulations Section 1.752-3(a)(3), of at least $43 million; provided, however,
that UpREIT actually allocates to the Nardi Indemnitee, collectively, on the
UpREIT's federal, applicable state and Burr Ridge income tax returns, at least
such aggregate amount of debt.
Section 6. Contests.
(a) Nothing in this Agreement shall be construed to prevent UpREIT
from contesting, through its Tax Matters Partner in accordance with the
Partnership Agreement as part of the unified audit of the UpREIT, any claim in
respect of any "partnership" item of the UpREIT that, if successful, would
result in an Income Inclusion (a "Partnership Level Issue").
(b) If UpREIT contests a Partnership Level Issue that, if successful,
would result in an Income Inclusion, UpREIT's liability for indemnification
under Section 4 hereof (other than reasonable costs and expenses described in
Section 6(f) of the Agreement) shall, at UpREIT's election, be deferred until
thirty (30) days after a Final Determination of such Nardi Indemnitee's federal
income tax liability in respect of an Income Inclusion.
(c) If any audit or proceeding involving an indemnifiable adjustment
is being conducted in a proceeding involving such Nardi Indemnitee, which cannot
be transferred to the UpREIT as a partnership item (a "Nardi Level Issue"), such
Nardi Indemnitee hereby agrees (i) promptly to notify UpREIT in writing of such
adjustment (and the failure of such Nardi Indemnitee to so notify UpREIT shall
preclude any indemnity hereunder to the extent UpREIT's right to effect its
contest rights hereunder has been precluded by such failure), and (ii) upon
UpREIT's delivery to of a written opinion of nationally recognized tax counsel
reasonably
<PAGE>
acceptable to such Nardi Indemnitee ("Tax Counsel") to the effect that there is
a Realistic Possibility of Success upon contest of such Nardi Level Issue, such
Nardi Indemnitee will contest that adjustment by filing a protest and
administrative appeal and prosecuting the same in good faith; provided, however,
that such Nardi Indemnitee will not be obligated to pursue an administrative
appeal if such Nardi Indemnitee instead pursues relief in Tax Court or a court
having refund jurisdiction.
(d) If, within 30 days following the failure of such administrative
proceedings with respect to a Nardi Level Issue, UpREIT delivers to a Nardi
Indemnitee a written opinion of Tax Counsel to the effect that there is a
Realistic Possibility of Success if the proposed adjustment is presented to a
court for resolution, then such Nardi Indemnitee will contest the proposed
adjustment in good faith in the Tax Court or by paying the tax (and any
applicable interest and penalties) and suing for refund in the Court of Federal
Claims or appropriate Federal District Court. If, within 30 days following a
final adverse decision of such court with respect to such Nardi Level Issue,
UpREIT delivers to such Nardi Indemnitee a written opinion of Tax Counsel to the
effect that it is more likely than not that such decision would be reversed on
appeal, then such Nardi Indemnitee will appeal such decision to the appropriate
Federal Court of Appeals. With respect to any of the above-described
proceedings, such Nardi Indemnitee will keep UpREIT and its counsel informed as
to the progress of such proceedings, give UpREIT and its counsel the opportunity
to review and comment in advance on all written submissions and filings relevant
to indemnifiable issues (after making appropriate redactions to preserve the
confidentiality of the such Nardi Indemnitee return as to other issues), and
consider in good faith any suggestions made by UpREIT or its counsel.
(e) Such Nardi Indemnitee shall present any settlement offer provided
to such Nardi Indemnitee pursuant to a Nardi Level Issue to UpREIT. If UpREIT
recommends acceptance of a settlement offer of a Nardi Level Issue or if the Tax
Matters Partner recommends acceptance of a settlement offer in respect of a
Partnership Level Issue, but such Nardi Indemnitee declines to accept such offer
in writing within 30 days (if such Nardi Indemnitee does not respond within 30
days, such lack of response shall be treated as acceptance of UpREIT's or the
Tax Matters Partner's recommendation, respectively), (1) the obligation of
UpREIT to make indemnity payments as the result of any such contest or
proceedings shall not thereafter exceed the obligation that it would have had if
such contest had been settled or proceeding terminated on the basis recommended
by UpREIT or the Tax Matters Partner, as applicable, and (2) in the case of a
Nardi Level Issue, UpREIT shall have no further liability for costs or other
expenses in respect of such contest.
(f) Notwithstanding the foregoing, such Nardi Indemnitee will have no
obligation to contest any action with respect to a Nardi Level Issue (i) unless
such items could give rise to a federal income tax liability (disregarding other
items in the assessment and considering effects in future years) in excess of $
__________ , (ii) without UpREIT paying when due, reasonable third-party costs
and out-of-pocket expenses including reasonable legal, witness and accounting
fees and other expenses and, in the case of proceedings before the Court of
Federal Claims or Federal District Court, the amount of tax (and any applicable
interest and
<PAGE>
penalties) for which refund is claimed, and (iii) to the extent such Nardi
Indemnitee waives in writing UpREIT's obligation to indemnify such Nardi
Indemnitee for such items, in which case all third-party costs and out-of-pocket
expenses described in clause (ii) thereafter incurred and all taxes would be
paid by such Nardi Indemnitee.
(g) such Nardi Indemnitee shall not settle any such Nardi Level Issue
without UpREIT's consent; provided that such Nardi Indemnitee shall not be
required to contest any proposed adjustment and may settle any such proposed
adjustment if such Nardi Indemnitee shall waive its right to indemnity under
this Agreement with respect to such adjustment and any Income Inclusion that
results from such adjustment and, in the case of proceedings before the Court of
Federal Claims or Federal District Court, shall pay to UpREIT the amount of tax
(and any applicable interest and penalties) previously paid or advanced by
UpREIT with respect to such adjustment or the contest of such adjustment under
Section 6(f), plus interest at ___% computed from the time such amounts were
paid or advanced by UpREIT.
(h) Within thirty (30) days after a Final Determination of the
liability of such Nardi Indemnitee in respect of a Nardi Level Issue, UpREIT and
each Indemnitee agree to pay each other, as applicable, the net amount of (i)
the payment owed by the UpREIT to such Nardi Indemnitee of any indemnification
hereunder, not theretofore paid resulting from the outcome of such contest, and
(ii) in the case of proceedings before the Court of Federal Claims or Federal
District Court, the repayment owed by such Nardi Indemnitee to UpREIT of the
amount of tax (and any applicable interest and penalties) previously paid or
advanced by UpREIT with respect to such adjustment or the contest of such
adjustment under Section 6(f), together with any interest received by or
credited to such Nardi Indemnitee that is attributable to such advance.
Section 7. Tax Savings.
(a) In the event that UpREIT makes an indemnity payment pursuant to
Section 4, if such Nardi Indemnitee shall realize with respect to any year, any
federal, applicable state or Burr Ridge income tax savings that would not have
been realized but for receipt of such payment, the related Income Inclusion or
the event giving rise thereto, (and which tax savings were not taken into
account in calculating UpREIT's indemnity payment to such Nardi Indemnitee),
such Nardi Indemnitee shall pay to UpREIT, on an After-Tax Basis, an amount
equal to the actual net reduction in federal, applicable state and Burr Ridge
income tax actually realized by such Nardi Indemnitee. Each Nardi Indemnitee
agrees to act in good faith to claim any tax benefits or savings (including
filing claims for refunds and amended tax returns) and take such other actions
as may be reasonable to minimize the net amount of any indemnity payment due
from UpREIT hereunder and to maximize the amount of its tax savings; provided,
however, that such Nardi Indemnitee shall not be required to take any action
which, in its good faith judgment, would have any material adverse business
consequences to it.
(b) Any payment due to UpREIT pursuant to this Section 7 shall be paid
within one business day after such Nardi Indemnitee has (1) received (or is
deemed to have received) a refund or (2) has filed a return that reflects or
would reflect such tax saving; provided,
<PAGE>
however, that (A) obligations of such Nardi Indemnitee and UpREIT under this
Agreement will first be set off against each other, and (B) any loss of such tax
savings by such Nardi Indemnitee subsequent to the year of realization by such
Nardi Indemnitee shall be treated as an Income Inclusion that is indemnifiable
pursuant to the provisions of this Agreement.
Section 8. State and Burr Ridge Tax. For purposes of this Agreement,
each Indemnitee will be treated as having an Income Inclusion, realizing any
deductions, credits or other income tax benefits, having the same tax savings
and having the same tax attributes and status for applicable state income and
Burr Ridge tax purposes at the same time, in the same amount and in the same
manner, as such Nardi Indemnitee does for federal income tax purposes.
Section 9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
Section 10. Notices. All notices, demands, declarations, consents,
directions, approvals, instructions, requests and other communications required
or permitted by the terms hereof shall be given in the manner described in
Section ____ of the Partnership Agreement.
Section 11. Successors and Assigns. The terms of this Tax
Indemnification Agreement may not be assigned by any Indemnitee (including,
without limitation, by descent or will), without the written consent of UpREIT.
Section 12. Miscellaneous. This Agreement may be executed in any
number of counterparts, each executed counterpart constituting an original but
all together only one Agreement. Any provision of this Agreement which is
prohibited and unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Neither this Agreement
nor any of the terms hereof may be terminated, amended, supplemented, waived or
modified orally, but only by an instrument in writing signed by the party
against which the enforcement of the termination, amendment, supplement, waiver
or modification is sought.
Section 13. Anticipated Indemnitee Debt Allocation Methodology. UpREIT
acknowledges and agrees with each Indemnitee that the aggregate nonrecourse
indebtedness of UpREIT that is apportioned to the Indemnities collectively under
this Agreement and the Partnership Agreement pursuant to Code Section 752 and
Regulations Sections 1.702-3(a)(2) shall be apportioned among the various
Indemnitees using a method substantially similar to that within the debt
allocation model set forth on Exhibit C hereto.
Section 14. Term. The term of this Agreement shall be from the date
hereof until such time as the applicable statute of limitations under the Code
bars any claim by the Internal
<PAGE>
Revenue Service against a Indemnitee for Inclusion Taxes otherwise indemnifiable
under this Agreement.
Section 15. Exhibits. The parties to this Agreement acknowledge and
agree that future Capital Contributions may be made to the UpREIT pursuant to
Section ___ of the Contribution Agreement, and agree to reasonably cooperate to
update the Exhibits and other factual information referenced or contained in
this Agreement to take such Capital Contributions into account.
Section 16. Assumption of Recourse Liabilities. Prior to the GP
Termination Date, upon 30 days written notice to the Managing General Partner,
the Nardi LLC may agree to indemnify the Managing General Partner for the debt
obligations of the UpREIT that are recourse to the general partners of the
UpREIT under relevant state law, but only to the extent necessary for the Nardi
LLC to be allocated a greater share of recourse liabilities of the UpREIT for
purposes of Regulations Section 1.752-2 to avoid an Income Inclusion; and,
provided, however, that such indemnification shall not be allowed to the extent
it would cause adverse tax consequences to the Managing General Partner, another
partner in the UpREIT or the REIT.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective Officers thereunto duly authorized as of
the day and year first above written.
[UpREIT],
a [Maryland] corporation
By:
----------------------------------------------
Title:
-------------------------------------------
NARCO ENTERPRISES, INC., a _______ corporation
By:
----------------------------------------------
Title:
-------------------------------------------
NARDI GROUP LIMITED, a ________ corporation
By:
----------------------------------------------
Title:
-------------------------------------------
STEVEN J. NARDI
-------------------------------------------------
<PAGE>
Exhibit 10.18
ASSET PURCHASE AGREEMENT
By and Among
CONTINENTAL OFFICES, LTD.,
CONTINENTAL OFFICES LTD. REALTY
and
PRIME GROUP REALTY, L.P.
October 21, 1997
<PAGE>
INDEX
-----
Article Article Heading Page
- ------- --------------- ----
1 Definitions
2 Business and Assets Being Sold and
Purchased
3 Purchase Price and Assumption of Liabilities
4 Closing, Closing Date and Closing Deliveries
5 Financial Statements and Other Prior
Deliveries
6 Pre-Closing Covenants and Deliveries
7 Warranties and Representations of Sellers
8 Warranties and Representations of Purchaser
9 Indemnification
10 Conditions Precedent to the Obligations
of Purchaser
11 Conditions Precedent to the Obligations
of Sellers
12 Certain Employee and Employee Benefit Matters
13 Termination
14 Miscellaneous
<PAGE>
Exhibits
- --------
A Legal Opinion of Seller's Counsel
B Employment Agreement
C Legal Opinion of Purchaser's Counsel
D-1 Leased Real Estate
D-2 Form of Estoppel Letter
Schedules
- ---------
2.1(a)(vi) Assumed Contracts
2.2(a)(vi) Excluded Furniture
3.5 Assumed Construction Contracts
12.1 Employees and Employment Terms
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT made and entered into this 21st day of
October, 1997 (this "Agreement") by and among Continental Offices, Ltd., an
Illinois corporation ("COLR"), Continental Offices Ltd. Realty, an Illinois
corporation ("COLR") (COL and COLR) are hereinafter sometimes referred to
individually as a "Seller" and collectively as the "Sellers"), and Prime Group
Realty, L.P., a Delaware limited partnership ("Purchaser"):
R E C I T A L S :
---------------
Sellers are engaged in, among other things, the business of
constructing, managing and leasing the following commercial and office buildings
and properties: (i) One Financial Place, Chicago, Illinois (property management
only); (ii) Continental Towers, Rolling Meadows, Illinois; (iii) Marquette
Building, Chicago, Illinois; (iv) Roosevelt University suburban campus,
Schaumburg, Illinois and (v) Cumberland Metro Office Park, Chicago, Illinois
(the "Business").
Sellers desire to sell to Purchaser the Business and substantially all
the assets of Sellers owned, used or appropriate for use in the conduct of the
Business, and Purchaser desires to purchase the Business and all such assets,
for the consideration and on the terms and conditions herein provided (such
purchase being herein sometimes referred to as the "Acquisition").
NOW, THEREFORE, in consideration of the warranties, representations,
covenants and agreements hereinafter set forth, the parties hereto hereby
warrant, represent, covenant and agree as follows:
ARTICLE 1
Definitions
-----------
1.1 Each term defined in the first paragraph and Recitals shall have
the meaning set forth above whenever used herein, unless otherwise expressly
provided or unless the context clearly requires otherwise.
1.2 In addition to the terms defined in the first paragraph and
Recitals, whenever used herein, the following terms shall have the meanings set
forth below unless otherwise expressly provided or unless the context clearly
requires otherwise:
"Assets" - See Section 2.1(b).
"Assumed Construction Contracts" - See Section 3.5.
"Assumed Contracts" - See Section 2.1(a)(vi).
"Assumed Liabilities" - See Section 3.3.
"Balance Sheets" - See Section 5.2.
"Balance Sheet Date" - See Section 5.2.
"Benefit Arrangements" - See Section 7.24(g).
"CERCLA" - See Section 7.13(a).
"Closing" - See Section 4.1.
"Closing Date" - See Section 4.1.
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"Construction Contracts" - See Section 3.5.
"Continental Towers" - See Section 11.5.
"CTA" - See Section 11.5.
"Date of the Notice of Claim" - See Section 9.8.
"Disclosure Schedule" shall mean the letter dated even date herewith
delivered to Purchaser by Seller pursuant to Section 5.1(b) of this
Agreement simultaneously with the execution and delivery of this
Agreement.
"Employee Benefit Programs" - See Section 7.24(a).
"Employee Pension Benefit Plans" - See Section 7.24(a).
"Employee Welfare Benefit Plans" - See Section 7.24(a).
"Employment Agreement" - See Section 4.2(f).
"Environmental Laws" - See Section 7.24(e).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated
thereunder.
"ERISA Affiliates" - See Section 7.24(a).
"Excluded Liabilities" - See Section 3.4.
"Financial Statements" - See Section 5.2.
"GECC" - See Section 11.5.
"General Warranty Claims" - See Section 9.2(a).
"Hazardous Material" - See Section 7.13(a).
"Indemnified Party" - See Section 9.5.
"Indemnifying Party" - See Section 9.5.
"IPO" shall mean the initial offering of shares of common stock in
Prime Group Realty Trust, the sole general partner of Purchaser.
"IRS" shall mean the Internal Revenue Service.
"Listed Employees" - See Section 12.1.
"Multi-Employer Plan" - See Section 7.24(a).
"New 401(k) Plan" - See Section 12.5.
"Notice of Claim" - See Section 9.5.
"PBGC" - See Section 7.24(e).
"PCBs" - See Section 7.13(a).
"Pre-Closing Warranty Obligations - See Section 3.5(a).
"Purchase Price" - See Section 3.1(a).
"Purchaser's Welfare Plans" - See Section 12.3.
"Release" - See Section 7.13(a).
"Retained Assets" - See Section 2.2(b).
"Section 1445 Withholding" - See Section 7.22(d).
"Seller Medical Plan" - See Section 7.24(a).
"Seller AD&D Plan" - See Section 7.24(a).
"Seller STD Plan" - See Section 7.24(a).
"Threshold" - See Section 9.2(b).
"Transferred Employee" - See Section 12.1.
-5-
<PAGE>
"Underground Storage Tanks" - See Section 7.13(d).
ARTICLE 2
Business and Assets Being Sold and Purchased
--------------------------------------------
2.1 (a) Subject to and upon the terms and conditions of this
Agreement, and in reliance upon the representations, warranties, covenants and
agreements made in this Agreement by Sellers, at the Closing on the Closing Date
(as those terms are defined in Section 4.1 of this Agreement) Purchaser shall
purchase and accept from Sellers, and Sellers shall sell, transfer, convey,
assign and deliver to Purchaser, the entire right, title and interest of Sellers
in, to and under the Business, and all of the assets, properties and rights
owned or held by Sellers of every nature, kind and description, tangible and
intangible, wheresoever located and whether or not carried or reflected on the
books and records of Sellers (including the Balance Sheets, as that term is
defined in Section 5.2 of this Agreement) which in any way relate to or are used
or appropriate for use in connection with the operation of the Business,
including, without limitation the following, however, excluding the Retained
Assets (as that term is defined in Section 2.2(b) of this Agreement):
(i) all of Sellers' deposits and advances, credits and
prepaid expenses and other prepaid items;
(ii) all of Sellers' accounts, notes, contracts and other
receivables with respect to the Assumed Construction Contracts;
(iii) all of Sellers' right, title and interest (i) under the
real property leases described in the Disclosure Schedule; and (ii) in and
to the leasehold improvements situated on the real property which is the
subject of each such lease;
(iv) all of Sellers' inventories of raw materials, purchased
parts and supplies, including all packaging materials and supplies, and
finished goods with respect to the Business, together with any rights of
Sellers to the warranties, if any, and to the extent assignable, received
from manufacturers and sellers of such raw materials and any related
claims, credits, rights or recovery and set-off with respect thereto;
(v) all of Sellers' tangible assets, machinery, equipment,
transportation equipment, inventories of supplies and spare parts,
vehicles, furniture, office equipment, computer hardware and computer
software with respect to the Business, including any of the foregoing
described in the Disclosure Schedule;
(vi) all of Sellers' right, title and interest in, to or under
those leases, contracts, agreements and commitments with respect to the
Business, which are described on Schedule 2.1(a)(vi) attached hereto (the
"Assumed Contracts");
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(vii) all of Sellers' right, title and interest in and to the
following intellectual property with respect to the Business: trade names,
trademarks, trademark registrations, trademark applications, service marks,
service mark registrations, service mark applications; copyrights,
copyright registrations, copyright applications; patent rights (including,
without limitation, issued patents, applications, divisions, continuations
and continuations-in-part, reissues, patents of addition, utility models
and inventors' certificates); licenses with respect to any of the
foregoing; trade secrets, proprietary manufacturing information and know-
how; inventions, inventors' notes, drawings and designs; customer and
vendor lists and the goodwill associated with any of the foregoing,
including, without limitation, any of the foregoing described in the
Disclosure Schedule;
(viii) any permits and licenses of Sellers with respect to the
Business to the extent any of the same are transferable or assignable to
Purchaser;
(ix) all of Sellers' right, title and interest in choses in
action, claims and causes of action or rights of recovery or set-off of
every kind and character with respect to the Business;
(x) all of Seller's files, papers, documents and records
(other than income tax returns and its corporate seal, minute book or stock
record book) with respect to the Business, and all other miscellaneous
assets of Sellers with respect to the Business wherever located, including,
without limitation, credit, sales and accounting records, price sheets,
catalogues and sales literature, books, processes, formulae, manufacturing
data, advertising material, stationery, office supplies, forms, catalogues,
manuals, correspondence, production records, and any other information
reduced to writing relating to the Business; and
(xi) the Business as a going concern.
(b) The assets, properties, rights, interests and business of Sellers
listed and described in Section 2.1(a) of this Agreement are hereinafter
collectively referred to as the "Assets."
2.2 (a) Anything in this Agreement to the contrary
notwithstanding, Sellers are retaining title to, and possession of, and Sellers
are not selling, assigning, conveying, transferring or delivering to Purchaser
any right, title or interest of Sellers in, to or under any of the following:
(i) all of Sellers' cash on hand, and on deposit in banks (or
in transit);
(ii) all of Sellers' accounts, notes, contracts and
receivables other than those with respect to the Assumed Contracts and all
of Sellers' construction and tenant improvement allowance receivables with
respect to the Assumed Construction Contracts, which shall be handled
pursuant to Section 3.5 of this Agreement;
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(iii) Sellers' corporate seal, minute books and stock record
books, the general ledgers and books or original entry, all income tax
returns and other income tax records, reports, data, files and documents;
(iv) any assets, properties and rights owned or held by
Sellers which do not relate to or are not used or appropriate for use in
connection with the operation of the Business;
(v) personal vehicles and cellular telephones presently used
by members of Mr. Casati's family;
(vi) all of the office furniture identified on Schedule
2.2(a)(vi) attached hereto;
(vii) aircraft Lease dated January 17, 1996 with Continental
Aviation, Inc.;
(viii) land development investments with D.F. Hedg & Company,
Whitehorn Woods and St. Andre (Gibbs farm) located in Valparaiso, Indiana;
(ix) ownership interest in the partnership which owns Regency
Office Plaza, Des Plaines, Illinois;
(x) property management and leasing services for Continental
Office Plaza and Regency Office Plaza, both in Des Plaines, Illinois;
(xi) the trade names "Continental Offices, Ltd." and
"Continental Offices Ltd. Realty", including any trademarks, logos or
designs associated therewith;
(xii) the capital stock of Continental Athletic Club, Inc., a
subsidiary of COL; and
(xiii) Sellers' rights under this Agreement.
(b) The assets, properties, rights and interests of Sellers listed
and described in Section 2.2 (a) of this Agreement are hereinafter collectively
referred to as the "Retained Assets."
ARTICLE 3
Purchase Price and Assumption of Liabilities
--------------------------------------------
3.1 In consideration of and in exchange for the Assets, Purchaser
shall:
(a) pay to Sellers an amount equal to $5,225,129.00 ("Purchase
Price"); and
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(b) assume, perform and in due course pay and discharge the
obligations and liabilities of Sellers which are being assumed by Purchaser
pursuant to Section 3.3 hereof.
3.2 The Purchase Price shall be paid by Purchaser to Sellers at the
Closing on the Closing Date by a certified or cashier's check payable to the
order of Sellers, or at the option of Sellers, by transfer of immediately
available funds for credit to Sellers, at a bank account designated by Sellers
in writing prior to the Closing.
3.3 As additional consideration for the purchase of the Assets,
Purchaser shall, at the Closing on the Closing Date, assume, agree to perform,
and in due course pay and discharge, the following debts, obligations and
liabilities of Sellers (collectively the "Assumed Liabilities"):
(a) The obligations and liabilities of Sellers with respect to the
Business arising after the Closing Date under (i) the leases, contracts,
agreements and commitments set forth in the Disclosure Schedule which Purchaser
specifically agrees to assume; and (ii) any leases, contracts, agreements and
commitments which are not required to be listed in the Disclosure Schedule
pursuant to Section 7.15(a) of this Agreement; and
(b) The obligations and liabilities of Sellers with respect to the
Business for product warranty work with respect to buildings and improvements
constructed by the Business or services performed on or prior to the Closing
Date by the Business to the extent specifically provided in Section 3.5 of this
Agreement.
3.4 Purchaser shall not assume or pay, and Sellers shall continue to
be responsible for, any debt, obligation or liability, of any kind or nature
(fixed or contingent, known or unknown) of Sellers, not expressly assumed by
Purchaser in Section 3.3 of this Agreement (collectively the "Excluded
Liabilities"). Specifically, without limiting the foregoing, Purchaser shall not
assume:
(a) any claim, action, suit or proceeding pending as of the Closing
Date or any subsequent claim, action, suit or proceeding arising out of or
relating to such pending matters or arising out of or relating to any such other
event occurring or, with respect to the manner in which Sellers conducted the
Business, on or prior to the Closing Date;
(b) any liability arising out of or relating to the Retained Assets;
(c) any liability of the Sellers for any federal, state, local or
foreign income taxes for any periods prior to or subsequent to the Closing;
(d) any obligation or liability arising from claims, proceedings or
causes of action resulting from property damage or personal injuries (including
death) caused by buildings or improvements constructed by Sellers prior to the
Closing Date;
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(e) the fees, costs and expenses of any person, firm, corporation or
other entity acting on behalf of, or representing Sellers or their shareholders,
as broker, finder, investment banker, financial advisor or in any similar
capacity; or
(f) any debt, obligation or liability of Sellers to their
shareholders.
3.5 It is possible that on the Closing Date, the Assets may include
contracts ("Construction Contracts") which (i) require COL to construct or
remodel certain office space or related facilities and (ii) have not then been
completely performed by COL. Schedule 3.5 attached hereto identifies those
Construction Contracts to be assumed by Purchaser (the "Assumed Construction
Contracts") and those to be retained by Sellers.
(a) If the Construction Contract is not an Assumed Construction
Contract, COL shall be responsible for completing the work and collecting the
payments from the tenant who has contracted for such work. COL shall reimburse
Purchaser for the costs of any employees of Purchaser who act for COL in
completing the work after the Closing Date. Any profit on such jobs, therefore,
shall be the property of COL.
(b) If the Construction Contract is an Assumed Construction Contract,
Purchaser shall be responsible for completing the work and collecting the
payments required by such Contracts from the tenant. At the Closing, Purchaser
shall assume COL's obligations to subcontractors and suppliers in connection
with such Contracts and shall reimburse COL for all amounts it has paid in
connection with the work (including employee wages and fringes) less all
payments COL has received. Any profit on such jobs, therefore, shall be the
property of Purchaser.
3.6 Sellers shall pay the cost of all transfer, sales, purchase, use,
value added, excise or similar tax imposed under the laws of the United States,
or any state or political subdivision thereof, which arises out of the transfer
of any of the Assets. All prepaid expenses and management and other fees with
respect to the Assumed Contracts (other than Assumed Construction Contracts)
shall be prorated as of the Closing Date.
3.7 Sellers and Purchaser mutually agree to negotiate in good faith
an allocation of the Purchase Price among the Assets transferred to Purchaser
prior to the Closing. Sellers and Purchaser agree that for income tax purposes,
they shall respect the transaction contemplated by this Agreement in accordance
with such allocation agreed to by the parties, and to the extent allowed by law,
all tax returns and reports filed by Sellers and/or Purchaser (and their
respective affiliates) and all reporting positions taken publicly or with any
taxing authority and in any tax audit, review or litigation with respect to the
transactions contemplated hereby shall be consistent with such allocation.
Consistent with the preceding sentence, Purchaser and each Seller shall file IRS
Form 8594 with its respective federal income tax return for the taxable year in
which the Closing occurs, containing the information agreed upon by the parties
pursuant to the immediately preceding sentence. Purchaser and each Seller shall
deliver to the other a copy of the IRS Form 8594 as filed with their respective
federal income tax return within 30 days of the filing of such return.
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ARTICLE 4
Closing, Closing Date and Closing Deliveries
--------------------------------------------
4.1 The term "Closing" as used in this Agreement shall refer to the
actual conveyance, transfer, assignment and delivery of the Assets to Purchaser
in exchange for the consideration payable to Sellers pursuant to this Agreement.
The Closing shall take place at the offices of Winston & Strawn, 35 West Wacker,
Chicago, Illinois 60601, at 10:00 a.m. Chicago time on the date on which the IPO
is completed, subject to satisfaction of the other closing conditions set forth
in Articles 10 and 11 ("Closing Date"), or at such other time and place or on
such other date as Purchaser and Sellers shall agree upon in writing.
4.2 At the Closing on the Closing Date, Sellers shall deliver to
Purchaser:
(a) All such warranty bills of sale, lease assignments, trademark
assignments, copyright assignments, patent assignments, contract assignments and
other documents and instruments of sale, assignment, conveyance and transfer, as
Purchaser or its counsel may deem necessary or desirable;
(b) Certified copies of minutes or unanimous written consents of the
shareholders and Board of Directors of Sellers approving the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated by this Agreement;
(c) A Certificate, dated the Closing Date, executed by the
appropriate officers of each Seller, required by Section 10.1 of this Agreement;
(d) The opinion of Sidley & Austin, counsel for Sellers, dated the
Closing Date, with respect to the matters set forth on Exhibit A attached
hereto;
(e) In each case where the rights of either Seller under any of the
licenses, leases, contracts, agreements or commitments to be conveyed to
Purchaser hereunder are not assignable to Purchaser as provided herein without
the consent of the other party, the consent of each such party to such
assignment;
(f) The employment agreement in the form and substance attached
hereto as Exhibit B (the "Employment Agreement") duly executed by Kevork M.
Derderian; and
(g) Such other documents as Purchaser or its counsel may reasonably
request to carry out the purposes of this Agreement.
4.3 At the Closing on the Closing Date, Purchaser shall deliver to
Sellers:
(a) The payment to be delivered by Purchaser pursuant to Section 3.2
of this Agreement;
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(b) Certified copies of minutes or unanimous written consents of the
general partner of Purchaser approving the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated under
this Agreement;
(c) The opinion of Winston & Strawn, counsel for Purchaser, dated the
Closing Date, with respect to the matters set forth on Exhibit C attached
hereto;
(d) The Employment Agreement duly executed by Purchaser;
(e) The Certificate, dated the Closing Date, executed by the general
partner of Purchaser, required by Section 11.1 of this Agreement;
(f) An assumption agreement executed by Purchaser reflecting the
assumption of the liabilities set forth in Section 3.3 of this Agreement, in
such form as is reasonably satisfactory to Sellers and their counsel; and
(g) Such other documents as Sellers or their counsel may reasonably
request to carry out the purpose of this Agreement.
4.4 Sellers and Purchaser shall, on request, on and after the Closing
Date, cooperate with one another by furnishing any additional information,
executing and delivering any additional documents and/or instruments and doing
any and all such other things as may be reasonably required by the parties or
their counsel to consummate or otherwise implement the transactions contemplated
by this Agreement.
ARTICLE 5
Financial Statements and Other Prior Deliveries
-----------------------------------------------
5.1 Sellers have heretofore delivered to Purchaser:
(a) The audited balance sheets of the Business as of December 31,
1996 and June 30, 1997 and the related audited statements of income for the
twelve and six month periods, respectively, then ended and the reports of Ernst
& Young, Purchaser's independent certified public accountants thereon; and
(b) A disclosure schedule (the "Disclosure Schedule") dated even date
herewith addressed to Purchaser and signed by Sellers, accompanied or preceded
by a copy of each lease, contract, agreement, commitment or plan or other
document or instrument referred to in the Disclosure Schedule.
(c) Copies of the Certificate of Incorporation and By-laws of Sellers
as in effect on the date hereof.
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5.2 The financial statements, including the notes thereto, referred
to in Section 5.1(a) of this Agreement are hereinafter collectively referred to
as the "Financial Statements" and have been initialed by the chief financial
officer of each Seller for identification purposes. The balance sheets of each
Seller as of June 30, 1997, is hereinafter referred to as the "Balance Sheets"
and June 30, 1997 is hereinafter referred to as the "Balance Sheet Date".
ARTICLE 6
Pre-Closing Covenants and Deliveries
------------------------------------
6.1 Sellers shall at all reasonable times prior to the Closing, make
their properties, assets, books and records pertaining to the Business available
for examination, inspection and review by Purchaser and its lenders, agents and
representatives. No such examination, inspection or review by Purchaser or its
lenders, agents or representatives shall in any way affect, diminish or
terminate any of the representations, warranties or covenants of Sellers
expressed in this Agreement.
6.2 Pending the Closing, Sellers shall use their best efforts to
preserve and protect their goodwill, business, rights, properties and assets, to
keep available to them and Purchaser the services of their employees, and to
preserve and protect their relationships with their employees, creditors,
suppliers, distributors, customers and others having business relationships with
them.
6.3 Sellers shall give Purchaser prompt notice of any and all
material adverse changes which may occur between the date hereof and the Closing
Date with respect to either their financial condition, operations, business,
prospects, rights, properties, assets or liabilities, or their relationship with
their employees, creditors, suppliers, distributors, customers or others having
business relationships with them.
6.4 Pending the Closing, Sellers shall:
(a) conduct and carry on the Business only in the ordinary and
regular course;
(b) not merge or consolidate with any other person, firm, corporation
or entity;
(c) not purchase, sell, lease, mortgage, pledge or otherwise acquire
or dispose of any properties or assets in connection with the Business, except
for inventory or assets purchased, sold or otherwise disposed of in the ordinary
and regular course of their Business;
(d) except as set forth on the Disclosure Schedule, not increase or
otherwise change the rate or nature of the compensation (including wages,
salaries, bonuses, and benefits under pension, profit sharing, deferred
compensation and similar plans or programs) which is paid or payable to any
officer, director, employee or consultant, except in the ordinary and regular
course of their business and in accordance with past practices consistently
applied;
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(e) maintain and repair the equipment and machinery used in the
operation of the Business and replace any of it which shall be worn out, lost,
stolen, or destroyed all in accordance with Sellers' customary practices;
(f) not discharge or satisfy any lien, charge or encumbrance, or pay
any obligation or liability, fixed or contingent, other than current liabilities
discharged or satisfied in the ordinary course of business and consistent with
Sellers' past practices;
(g) not cancel any debts or claims owed to Sellers with respect to
the Assets;
(h) not enter into, or become obligated under, any lease, contract,
agreement or commitment in connection with the Business, except for any lease,
contract, agreement or commitment having a term of one year or less and
involving either a payment by or to either Seller of less than $10,000, and
which is entered into in the ordinary and regular course of Sellers' business;
(i) not change, amend, terminate or otherwise modify any lease,
contract, agreement or commitment, except in the ordinary course of business;
(j) maintain in full force and effect policies of insurance of the
same type, character and coverage as the policies currently carried and
described in the Disclosure Schedule;
(k) refrain from doing any act or omitting to do any act, or
permitting any act or omission to act, which will cause a breach of any lease,
agreement, contract, commitment or obligation of Sellers;
(l) furnish to Purchaser within 30 days after the end of a fiscal
quarter an unaudited balance sheet and related unaudited statement of income for
such period;
(m) not solicit or encourage (by way of furnishing information, or
otherwise) any inquiries or proposals for the acquisition of the stock, assets
or business of Sellers;
(n) not incur any obligation or liability (absolute or contingent),
except for current liabilities incurred in the ordinary course of business, and
obligations under contracts entered into in compliance with Section 6.4(j) of
this Agreement;
(o) agree to do any of the items prohibited by Sections 6.4(b), (c),
(d), (f), (g), (h), (i), (m) or (n).
6.5 Pending the Closing Date, Sellers shall proceed with all
reasonable diligence and use their best efforts to obtain the written consent to
the consummation of this Agreement from all necessary persons.
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6.6 With respect to each of the parcels of real estate leased by
Sellers and identified on Exhibit D-1 attached hereto, Seller shall deliver to
the Purchaser at the Closing on the Closing Date an Estoppel Letter in the form
attached hereto as Exhibit D-2 executed by the appropriate lessor.
ARTICLE 7
Warranties and Representations of Sellers
-----------------------------------------
Sellers warrant and represent to Purchaser (which warranties and
representations shall survive the Closing regardless of what examinations,
inspections, audits and other investigations Purchaser has heretofore made, or
may hereafter make, with respect to such warranties and representations) as
follows:
7.1 Each Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Illinois, and is qualified to
transact business as a foreign corporation in each state or jurisdiction where
it owns or leases real property and where the nature of its business requires it
to be so qualified.
7.2 Each Seller has full right and corporate power to enter into, and
perform its obligations under this Agreement; and has taken all requisite
corporate action to authorize the execution, delivery and performance of this
Agreement and the consummation of the sale of the Assets and other transactions
contemplated hereby and thereby; and this Agreement have been duly authorized,
executed and delivered by such Seller and each is binding upon, and enforceable
against, such Seller in accordance with its terms.
7.3 Neither the execution, delivery and performance of this Agreement
by each Seller nor the consummation of the sale of the Assets or any other
transaction contemplated by this Agreement, does or will, after the giving of
notice, or the lapse of time, or otherwise, (a) conflict with, result in a
breach of, or constitute a default under, the Certificate of Incorporation or
By-laws of such Seller, or any foreign, federal, state or local law, statute,
ordinance, rule or regulation, or any court or administrative order or process,
or any lease, contract, agreement, arrangement, commitment or plan to which such
Seller is a party or by which such Seller is bound; or (b) result in the
creation of any mortgage, pledge, lien, claim, charge, encumbrance or other
adverse interest upon any of the Assets; (c) terminate, amend or modify, or give
any party the right to terminate, amend, modify, abandon, or refuse to perform,
any lease, contract, agreement, arrangement, commitment or plan to which such
Seller is a party; or (d) accelerate or modify, or give any party the right to
accelerate or modify, the time within which, or the terms under which, any
duties or obligations are to be performed, or any rights or benefits are to be
received, under any lease, contract, agreement, arrangement, commitment or plan
to which such Seller is a party.
7.4 Neither this Agreement nor the sale of the Assets or any other
transaction contemplated by this Agreement was induced or procured through any
person, firm, corporation or other entity acting on behalf of, or representing
either Seller or any of its shareholders as broker, finder, investment banker,
financial advisor or in any similar capacity.
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7.5 All of the rights, properties and assets utilized or required by
Sellers in connection with owning and operating the Business are (a) either
owned by Sellers or licensed or leased to Sellers under one of the contracts or
agreements conveyed to Purchaser under this Agreement; and (b) included in the
Assets.
7.6 Except as set forth on the Disclosure Schedule, neither Seller
nor, to the best knowledge of such Seller, any of its officers, directors,
shareholders or employees, (a) owns five percent (5%) or more of any class of
securities of, or has an equity interest of five percent (5%) or more in, any
person, firm, corporation or other entity which has any business relationship
(as lessor, supplier, customer or otherwise) with such Seller; (b) owns, or has
any interest in, any right, property or asset which is utilized or required by
such Seller in connection with owning or operating its business, or (c) has any
other business relationship (as lessor, supplier, customer or otherwise) with
such Seller.
7.7 On the Balance Sheet Date, Sellers had, and on the date hereof
Sellers have, good and marketable title to all of the Assets, subject to no
mortgages, pledges, liens, security interests, encumbrances or other charges or
rights of others of any kind or nature, except for any security interests,
mortgages, pledges, liens, charges and encumbrances described in the Disclosure
Schedule.
7.8 All of the buildings, fixtures, leasehold improvements and other
improvements, machinery, equipment, tools and other personal property owned or
used by Sellers have been maintained and repaired in accordance with Sellers'
customary practices.
7.9 All of the inventories which are reflected in the Balance Sheets
were purchased or acquired in the ordinary and regular course of Sellers'
business and in a manner consistent with the regular inventory practices
relating to the Business, and have been or will be used or sold in the ordinary
and regular course of Sellers' business and in a manner consistent with its
regular inventory practices; on the Balance Sheet Date, all of the inventories
which are reflected in the Balance Sheets were in good condition; and all
inventories which have been purchased or acquired by Sellers for the Business
since the Balance Sheet Date were purchased or acquired in the ordinary and
regular course of the Business and in a manner consistent with its regular
inventory practices and have been or will be used or sold in the ordinary and
regular course of its business and in a manner consistent with its regular
inventory practices.
7.10 All of the accounts, notes, contracts and other receivables which
are reflected in the Balance Sheets were acquired by Sellers in the ordinary and
regular course of business; and all of the accounts, notes, contracts and other
receivables which have been or will be acquired by Sellers since the Balance
Sheet Date were or will be acquired in the ordinary and regular course of
business.
7.11 The Disclosure Schedule contains a true and complete list and
brief description of all real property leased or used by Sellers, as lessor,
lessee or otherwise, including all significant structures located thereon. Each
Seller has a valid and enforceable leasehold interest in
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each parcel of real property disclosed in the Disclosure Schedule as being
leased by it and has performed all the obligations required to be performed by
it to the date hereof under the leases relating thereto.
7.12 (a) Except as set forth on the Disclosure Schedule, there is no
action at law or in equity, no arbitration proceeding, and no action,
proceeding, complaint or investigation before or by any federal, foreign, state
or local governmental or regulatory commission, agency or other administrative
or regulatory body or authority, pending or, to the best knowledge of Sellers,
threatened against or affecting either Seller, its operations, business or
affairs, or any of the Assets or Sellers' right to own the Assets or operate the
Business; and neither Seller has any knowledge of any state of facts or
contemplated events which may reasonably be expected to give rise to any such
claim, action, suit, proceeding, complaint or investigation.
(b) Except as set forth on the Disclosure Schedule, neither Seller is
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or other labor organization, nor
has either Seller agreed that any unit of their employees that is not
represented by a labor union or other labor organization is appropriate for
collective bargaining. Except as set forth on the Disclosure Schedule, there is
no labor trouble, dispute, grievance, controversy, strike or request for union
representation pending or threatened against either Seller relating to or
affecting its business or operations, and neither Seller knows of any occurrence
or any events which would give rise to any such labor trouble, dispute,
controversy, strike or request for representation. The Disclosure Letter fairly
and accurately summarizes all material employee policies applicable to employees
of Sellers, or either of them, that are not represented by a labor union or
other labor organization, including but not limited to policies concerning
vacations, payroll practices, leaves of absence, affirmative action, equal
employment opportunity and policies relating to employee counseling, discipline
and discharge.
(c) Sellers are not owning or operating, and have not owned or
operated the Business or the Assets, and are not carrying on or conducting, and
have not carried on or conducted, any of their business or affairs in violation
of any federal, foreign, state or local law, statute, ordinance, rule or
regulation, or any court or administrative order or process.
7.13 (a) Neither Seller has in the conduct of the Business or the
Assets transported, treated, disposed of or released, or allowed or arranged for
any third person to transport, treat, dispose of, or release Hazardous Material
or other waste on, into or at any real property owned, leased or used by either
Seller, or to or at any other location which could reasonably give rise to any
liability under Environmental Laws. For purposes of this Section 7.13, the term
"Hazardous Material" shall mean (a) any "hazardous substance" as defined in the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
Section 9601, et seq.), as amended, and the regulations promulgated pursuant
thereto ("CERCLA"), or any similar state law; (b) any petroleum, including crude
oil or any fraction thereof; (c) natural gas liquids, liquefied natural gas or
synthetic gas usable for fuel; (d) any "hazardous chemical" as defined pursuant
to 29 C.F.R. Part 1910; and (e) any asbestos, polychlorinated biphenyl ("PCB")
or isomer of dioxin, or any material or thing containing or composed of such
substance. For purposes of this Section 7.13, the term "Release"
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shall mean releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or dumping.
(b) Neither Seller has received any written request for information
or notice and has no knowledge of any facts which could give rise to any notice,
that either Seller with respect to the Business or the Assets is a potentially
responsible party under CERCLA or other similar Environmental Law.
(c) There are no pending or threatened, judicial, administrative, or
arbitration proceedings under any Environmental Law to which either Seller with
respect to the Business or Assets is, or to the knowledge of either Seller will
be, named as a party. Neither Seller has entered into or agreed to any consent
decree, order, or settlement or other agreement, or is subject to any judgment,
decree, order or agreement, in any judicial, administrative, arbitration or
other forum, relating to compliance with or liability under any Environmental
Law.
(d) Each Seller, with respect to the Business and the Assets has been
and is currently in compliance with all applicable Environmental Laws, including
without limitation, obtaining and maintaining in effect all permits, licenses or
other authorizations required by applicable Environmental Laws; and has been and
is currently in compliance with all such permits, licenses and authorizations.
(e) For purposes of this Section 7.13, "Environmental Laws" shall
mean any and all federal, state or local laws, statutes, ordinances, codes,
rules, regulations, orders, decrees and directives imposing liability or
standards of conduct for or relating to the protection of health, safety or the
environment including, but not limited to, the following statutes as now written
and amended, and as amended hereafter, including any and all regulations
promulgated thereunder and any and all State and local counterparts: the Federal
Water Pollution Control Act, 33 U.S.C. (S)1251 et seq., the Clean Air Act, 42
U.S.C. (S)7401 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)2601 et
seq., the Solid Waste Disposal Act, 42 U.S.C. (S)6901 et seq., the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C. (S)9601 et
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
(S)11001 et seq., and the Safe Drinking Water Act, 42 U.S.C. (S)300f et seq.
7.14 (a) The Disclosure Schedule sets forth the true and complete
schedule of all tradenames, trademark registrations, trademark applications;
servicemarks, servicemark registrations, servicemark applications; copyrights,
copyright registrations, copyright applications; patent rights (including,
without limitation, issued patents, applications, divisions, continuations and
continuations-in-part, reissues and patents of addition) and any licenses or
sublicenses with respect to the foregoing held by either Seller relating to the
Business. All registrations listed in the Disclosure Schedule are in good
standing, valid, subsisting and in full force and effect in accordance with
their terms. Except as set forth in the Disclosure Schedule, no licenses,
sublicenses, covenants or agreements have been granted or entered into by either
Seller in respect of any of such tradenames, trademarks, servicemarks,
copyrights or patents or any applications therefor.
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(b) No other patents, trademarks, tradenames, service-marks or
copyrights are necessary for the conduct of the Business as presently operated.
(c) Except as set forth on the Disclosure Schedule, there is not now
and has not been during the past six (6) years any infringement, misuse or
misappropriation by either Seller of any valid patent, trademark, tradename,
servicemark, copyright or trade secret which relates to the Business and which
is owned by any third party, and there is not now any existing or, to the
knowledge of Sellers, threatened claim against either Seller of infringement,
misuse or misappropriation of any patent, trademark, tradename, servicemark,
copyright or trade secret.
(d) There is no pending or threatened claim by either Seller against
others for infringement, misuse or misappropriation of any patent, trademark,
tradename, servicemark, copyright or trade secret owned by either Seller.
(e) All applications to register patents, trademarks, tradenames,
servicemarks or copyrights which have been filed by or on behalf of either
Seller, and any registrations maturing therefrom, are owned by such Seller free
and clear of any security interest, lien, encumbrance or any interest of any
nature of any third party.
(f) Except as noted in the Disclosure Schedule, neither the
shareholders of either Seller nor any employee, director or officer of either
Seller owns, directly or indirectly, in whole or in part, any invention, patent,
proprietary right, trademark, servicemark, tradename, brand name or copyright or
application therefor (i) which either Seller is presently using; (ii) the use of
which is necessary for the Business; or (iii) which pertains to the art in which
either Seller is engaged.
7.15 (a) The Disclosure Schedule contains a true and complete
schedule setting forth and describing all personal property leases, real
property leases, and all other contracts, agreements and commitments to which
either Seller is a party, and relating to the Assets or operation of the
Business or affairs of Sellers, except (i) purchase and sale of commitments
entered into in the ordinary either course of business, (ii) leases, contracts,
agreements or commitments which may be terminated by either Seller on thirty
(30) day or less written notice without penalty to such Seller and (iii)
contracts with a term of one year or less and involving payment by or to either
Seller over the remaining term thereof of $5,000 or less.
(b) All leases, contracts, agreements and commitments to be conveyed
to Purchaser under this Agreement are valid, binding and enforceable in
accordance with their terms.
(c) Neither Seller nor to the knowledge of either Seller, any other
person, firm, corporation or entity, is in breach of, or default under, any
lease, contract, agreement or commitment to be conveyed to Purchaser under this
Agreement, and no event or action has occurred, is pending, or to the knowledge
of either Seller, is threatened, which, after the giving of notice, or the lapse
of time, or otherwise, could constitute or result in a breach by either Seller,
or to the knowledge of either Seller, any other person, firm, corporation or
entity, or a default by either Seller, or to the
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knowledge of either Seller, any other person, firm, corporation or entity under
any lease, contract, agreement, or commitment to be conveyed to Purchaser under
this Agreement.
7.16 The Financial Statements were prepared in accordance with
generally accepted accounting principles consistently applied and present fairly
the financial position and results of operations of Sellers at the dates and for
the periods indicated therein.
7.17 On the Balance Sheet Date, neither Seller had any material
liability of any nature (whether accrued, absolute, contingent or otherwise) of
the type which should be reflected in balance sheets (including the notes
thereto) prepared in accordance with generally accepted accounting principles,
which was not fully disclosed, reflected or reserved against in the Balance
Sheets; and except for liabilities which have been incurred since the Balance
Sheet Date in the ordinary and regular course of Sellers' business, since the
Balance Sheet Date, neither Seller has incurred any liability of any nature
(whether accrued, absolute, contingent or otherwise).
7.18 Since the Balance Sheet Date:
(a) The Business has been conducted and carried on only in the
ordinary and regular course;
(b) Except for inventory or assets purchased, sold or otherwise
disposed of in the ordinary and regular course of Sellers' business, neither
Seller has purchased, sold, leased, mortgaged, pledged or otherwise acquired or
disposed of any properties or assets;
(c) Neither Seller has sustained or incurred any loss or damage
(whether or not insured against) on account of fire, flood, accident or other
calamity which has interfered with or affected, or may interfere with or affect,
the operation of the Business;
(d) Except as set forth in the Disclosure Schedule, neither Seller
has made, or become committed to make, any payment, contribution or award under
or into any bonus, pension, profit sharing, deferred compensation or similar
plan, program or trust;
(e) Except as set forth in the Disclosure Schedule, neither Seller
has increased the rate of compensation of any employee;
(f) There has been no material adverse change in or with respect to
the financial condition, operations, the business, prospects, rights,
properties, assets or liabilities of either Seller or its relations with its
employees, creditors, suppliers, distributors, customers, or others having
business relationships with such Seller and no state of facts exists which may
reasonably be expected to give rise to any such material adverse change;
(g) Neither Seller has discharged or satisfied any lien, charge or
encumbrance, or paid any obligation or liability, fixed or contingent, other
than current liabilities discharged or satisfied in the ordinary course of
business and consistent with such Seller's past practices;
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(h) Neither Seller has cancelled any debts or claims owed to it with
respect to the Assets;
(i) Neither Seller has changed any accounting methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates); or
(j) Neither Seller has agreed to do any of the items set forth in
Sections 7.18(b), (d), (e), (g), (h) or (i).
7.19 All policies of insurance which are owned or held by Sellers and
which relate to the Business are in good standing, valid and subsisting, and in
full force and effect in accordance with their terms. Such insurance policies
are adequate and customary for the conduct of the business of Sellers.
7.20 All licenses, franchises, permits and other governmental
authorizations held by Sellers relating to the Business are valid and in effect
on the date hereof and neither Seller has received any notice that any
appropriate governmental authority intends to cancel, terminate or not renew any
of the same. Sellers hold all licenses, permits and other governmental
authorizations necessary for the conduct of the Business as heretofore
conducted.
7.21 The Disclosure Schedule sets forth a complete and correct list of
all pending warranty and product liability claims or causes of action received
by or filed against either Seller. True and complete copies of all written
warranties provided generally to customers of either Seller during the past 5
years have been previously delivered to Purchaser. Neither Seller has knowledge
or has received any notice of any defect in workmanship or materials with
respect to any class of its products.
7.22 (a) Each Seller has filed all federal, foreign, state and local
tax returns, reports and estimates for all years and periods (and portions
thereof) for which any such returns, reports or estimates were due and all such
returns, reports and estimates were prepared in the manner required by
applicable law and all taxes, assessments or other governmental charges shown
thereby to be payable have been paid; and the provision for taxes in the Balance
Sheets is adequate to cover the liability of such Seller to the Balance Sheet
Date for all taxes. Neither Seller has been a member of an affiliated group of
corporations filing a consolidated income tax return within the period of five
years preceding the Balance Sheet Date, nor has either Seller ever made an
election under Section 341(f) of the Code. Since the Balance Sheet Date, neither
Seller has incurred any liability for taxes except those arising from the
operation of its business in the ordinary course. None of the Assets (or portion
thereof) is subject to a "safe harbor lease" under former Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended, is tax exempt use property under
Section 168(h) of the Code, consists of an interest in a partnership for federal
income tax purposes, or was financed directly or indirectly from the proceeds of
any tax exempt state or local government obligation described in Code Section
103(a). Neither Seller has any (or has previously had any) permanent
establishment in any foreign country, or engages (or has previously engaged) in
a trade or business within the meaning of the Code relating to the creation of a
permanent establishment in any foreign
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country. Neither the Code nor any other provision of law requires Purchaser to
withhold any amount in respect of the Purchase Price or the Assumed Liabilities.
(b) Each Seller has withheld amounts from its employees and has filed
all federal, foreign, state and local returns and reports with respect to
employee income tax withholding and social security and unemployment taxes, in
compliance with the tax withholding provisions of the Code and other applicable
federal, foreign, state or local laws.
(c) Neither Seller has waived any statute of limitations in respect
of taxes relating to its Business or agreed to any extension of time with
respect to a tax assessment or deficiency relating to its Business, and the
assessment of any additional taxes relating to the Business for periods for
which returns have been filed is not expected.
(d) Each Seller shall take all actions as may be necessary to comply
with Code Sections 897 and 1445 and any rules, regulations and orders which may
be promulgated thereunder. In the event that either Seller fails to provide to
Purchaser, at or prior to the Closing, either (i) an affidavit in form
acceptable to Purchaser or (ii) evidence satisfactory to Purchaser's counsel
that the transaction contemplated by this Agreement is exempt from any taxes
which may apply by reason of Code Section 897, Purchaser shall have the right to
withhold ten percent (10%) of the Purchase Price (the "Section 1445
Withholding"), and Purchaser shall hold and dispose of the Section 1445
Withholding in accordance with the requirements of that Section. The amount of
the Section 1445 Withholding shall be credited against the Purchase Price
otherwise due and payable hereunder by Purchaser to such Seller at the Closing
and such Seller shall have no recourse against Purchaser therefor.
7.23 Each Seller, with respect to the Business and the Assets has been
and is currently in compliance with all laws relating to the employment of
labor, including without limitation, all applicable federal, foreign, state or
local laws, regulations and ordinances governing wages, hours, collective
bargaining, unemployment insurance, workers' compensation, equal employment
opportunity, payment and withholding of taxes, and plant closings and mass
layoffs.
7.24 (a) Seller maintains the Continental Offices Ltd. 401(k)
Retirement Plan (the "Seller 401(k) Plan"), which is an "employee pension
benefit plan," as defined in Section 3(2) of ERISA. Seller is obligated to make
contributions to the following multi-employer plans as defined in Section 3(37)
of ERISA: (i) Chicago District Council of Carpenters Pension and Welfare Funds;
(ii) Chicago Painters and Decorators Pension and Welfare Funds (District Council
No. 14); (iii) Chicago Painters and Decorators Pension and Welfare Funds
(District Council No. 30); (iv) Laborers Pension and Welfare Funds for Chicago
and Vicinity; and (v) International Union of Operating Engineers Local 399
Health and Welfare Funds and Central Pension Funds (the "Multi-Employer Plans").
Seller maintains the following "employee welfare benefit plans," as defined in
Section 3(1) of ERISA (together referred to as the "Employee Welfare Benefit
Plans"): (i) the Continental Offices Ltd. Group Medical Insurance Plan (the
"Seller Medical Plan"); (ii) the Continental Offices Ltd. Group Life Insurance
Plan (the "Seller Life Insurance Plan"); (iii) the Continental Offices Ltd.
Accidental Death and Dismemberment Insurance Plan (the "Seller AD&D
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Plan"); and (iv) the Continental Offices Ltd. Short-Term Disability Insurance
Plan (the "Seller STD Plan"); and (v) the Continental Offices Group Dental Plan
(the "Seller Dental Plan"). Neither Seller nor any ERISA Affiliate maintains, or
has maintained or caused to be terminated in whole or in part, any employee
pension benefit plan subject to Title IV of ERISA during the five-year period
ending on the Closing Date. For purposes of this Section 7.24, "ERISA Affiliate"
means any person which, together with either Seller, is treated as a single
employer for any purpose under Section 414(b), (c) or (m) of the Code or Section
4001(b)(1) of ERISA.
(b) With respect to the Seller 401(k) Plan and each Employee Welfare
Benefit Plan, to the extent applicable to such plan, each Seller has, or before
the Closing Date will have, delivered or made available to Purchaser true and
complete copies of: (i) the most recent IRS determination letter; (ii) the most
recent Annual Report (Form 5500 Series) and accompanying schedules, as filed
pursuant to applicable law; (iii) the Summary Plan Description (as currently in
effect) distributed to employees; (iv) the most recent trustee reports,
financial statements, actuarial reports and audit reports prepared in connection
therewith; (v) any material written communications distributed to employees that
modify the Summary Plan Description; (vi) any written interpretation of such
Seller 401(k) Plan or Employee Welfare Benefit Plan prepared by or at the
request of the Sellers; and (vii) the most recent documents (including the plan,
related trust and insurance contracts and any amendments thereto) governing the
Seller 401(k) Plan or Employee Welfare Benefit Plan.
(c) In all material respects, the Seller 401(k) Plan complies
currently, and has complied in the past both as to form and operation, with the
terms of such plan and with the applicable provisions of ERISA, the Code and
other applicable federal laws. To the best knowledge of the Seller, all
necessary governmental approvals for the Seller 401(k) Plan have been obtained
and a favorable determination as to the qualification under Section 401(a) of
the Code, of the Seller 401(k) Plan, and each amendment thereto, has been made
by the IRS, and nothing has occurred since the date of such determination or
recognition letter that would adversely affect such qualification or exemption.
(d) To the best knowledge of either Seller, with respect to the
Seller 401(k) Plan and any Multi-Employer Plan: (i) there are no actions, suits
or claims (other than routine, non contested claims for benefits) pending or, to
the knowledge of either Seller, threatened, which could reasonably be expected
to be asserted against Seller in connection therewith or against any
administrator or fiduciary thereof; (ii) no "prohibited transaction" (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) has occurred; and
(iii) nothing done or omitted to be done and no transaction or holding of any
asset under or in connection therewith has or will make either Seller or any
officer or director of Seller subject to any liability under Title I of ERISA or
liable for any tax pursuant to Section 4972, Sections 4975 through 4980,
inclusive, or Section 4980B of the Code.
(e) Except as a result of the Acquisition, neither Seller nor any
ERISA Affiliate has (i) incurred or caused to occur a complete withdrawal
(within the meaning of Section 4203 of ERISA) or a partial withdrawal (within
the meaning of Section 4205 of ERISA) from a Multi-Employer Plan for which a
withdrawal liability has been asserted under Section 4201 of
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ERISA (without regard to subsequent reduction or waiver of such liability under
Section 4207 or 4208 of ERISA), or (ii) been a party to any transaction or
agreement with respect to which the provisions of Section 4204 of ERISA were
applicable.
(f) Except as described in the Disclosure Schedule: (i) no action has
been taken by Seller that would prevent Purchaser from amending or terminating
the Seller 401(k) Plan; and (ii) there has been no amendment thereto, written
interpretation or announcement (whether or not written) by Seller, or change in
employee participation or coverage under the Seller 401(k) Plan that would
increase materially the expense of maintaining such Plan.
7.25 The Financial Statements, the Disclosure Schedule and all other
certificates, documents and instruments furnished by either Seller or any of its
directors, officers or employees in connection with this Agreement, or any other
transaction contemplated by this Agreement, are true and complete in all
material respects, and neither this Agreement, the Disclosure Schedule or the
Financial Statements, nor any other certificate, document or instrument
furnished by either Seller or any of its directors, officers or employees in
connection with this Agreement, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
included herein or therein not misleading in light of the circumstances under
which they were made.
ARTICLE 8
---------
Warranties and Representations of Purchaser
-------------------------------------------
Purchaser warrants and represents to Sellers (which warranties and
representations shall survive the Closing regardless of what examinations,
inspections, and other investigations Sellers have heretofore made, or may
hereafter make, with respect to such warranties and representations) as follows:
8.1 Purchaser is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware.
8.2 Purchaser has full right and power to enter into, and perform its
obligations under this Agreement, and has taken all requisite partnership action
to authorize the execution, delivery and performance of this Agreement and the
Employment Agreement and the consummation of the purchase of the Assets and
other transactions contemplated hereby and thereby; and this Agreement and the
Employment Agreement have been duly executed and delivered by Purchaser and each
is binding upon, and enforceable against, Purchaser in accordance with its
terms.
8.3 Neither the execution, delivery or performance of this Agreement
or the Employment Agreement by Purchaser, nor the consummation of the purchase
of the Assets or any other transaction contemplated by this Agreement, or the
Employment Agreement, does or will, after the giving of notice, or the lapse of
time, or otherwise: (a) conflict with, result in a breach of, or constitute a
default under, the Certificate of Limited Partnership or Partnership Agreement
of Purchaser, or any federal, foreign, state or local law, statute, ordinance,
rule or regulation, or any court or administrative order or process, or any
contract, agreement, commitment or plan to which
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Purchaser is a party or by which Purchaser is bound; or (b) result in the
creation of any mortgage, pledge, lien, claim, charge, encumbrance or other
adverse interest upon any right, property or asset of Purchaser.
8.4 Neither this Agreement nor the purchase of the Assets or any
other transaction contemplated by this Agreement was induced or procured through
any person, firm, corporation or other entity acting on behalf of, or
representing, Purchaser as broker, finder, investment banker, financial advisor
or in any similar capacity.
ARTICLE 9
Indemnification
---------------
9.1 Sellers, jointly and severally, agree to defend, indemnify and
hold Purchaser and its successors and assigns, harmless against any loss, damage
or expense (including reasonable attorneys' fees), together with interest on
cash disbursements in connection therewith at the rate per annum equal to the
prime rate as set forth in the Wall Street Journal under the column which is
captioned "Money Rates" (if the Wall Street Journal stops publishing the Prime
Rate, then the Prime Rate shall mean the rate set forth in the Federal Reserve
Statistical Release H-15(519) entitled "Bank Prime Loan") from the date of each
such cash disbursement and until paid by Sellers, which may arise out of or be
in respect of (a) any breach or violation of this Agreement by Sellers; (b) any
inaccuracy or misrepresentation in or breach of any of the warranties,
representations, covenants or agreements made by Sellers in this Agreement, any
Exhibit, the Disclosure Schedule, Financial Statements or any other certificate,
document, instrument or affidavit furnished by Sellers in accordance with the
provisions of this Agreement, and (c) any and all claims, debts, liabilities,
taxes and other obligations of Sellers, whether accrued, absolute, unknown,
contingent or otherwise, not expressly agreed to be assumed or undertaken by
Purchaser pursuant to Section 3.3 of this Agreement.
9.2 Purchaser's right to indemnification pursuant to Section 9.1 of
this Agreement is subject to the following limitations:
(a) Except for the representations and warranties contained in
Sections 7.1, 7.2, 7.7, 7.13 and 7.22, which shall survive until the termination
of all liabilities arising from the subject matter thereof pursuant to
applicable statutes of limitations, Purchaser shall not be entitled to assert
any right of indemnification pursuant to Section 9.1 of this Agreement for any
loss, damage or expense suffered by Purchaser resulting from any inaccuracy or
misrepresentations made by Sellers in Article 7 of this Agreement ("General
Warranty Claims") after the first anniversary date of the Closing Date, except
that if there shall then be pending any dispute, claim, proceeding or action
under this Agreement with respect to General Warranty Claims, Purchaser shall
continue to have the right to be indemnified with respect to such pending
dispute, claim, proceeding or action.
(b) Purchaser shall not be entitled to indemnification under this
Agreement with respect to General Warranty Claims until the aggregate losses,
damages or expenses suffered by Purchaser, or its successors and assigns, with
respect to General Warranty Claims exceeds $75,000
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(said amount is hereinafter sometimes referred to as the "Threshold"),
whereupon, Purchaser shall be entitled to indemnification hereunder by Sellers
for the aggregate losses, damages or expenses suffered by Purchaser without
regard to the Threshold.
9.3 Sellers' liability to Purchaser, or its successors and assigns,
for indemnification claims other than General Warranty Claims shall not be
subject to the limitations set forth in Section 9.2 of this Agreement.
9.4 Purchaser agrees to defend, indemnify and hold Sellers harmless
against any loss, damage or expense (including reasonable attorneys' fees),
together with interest on cash disbursements in connection therewith at the rate
per annum equal to the prime rate as set forth in the Wall Street Journal under
the column which is captioned "Money Rates" (if the Wall Street Journal stops
publishing the Prime Rate, then the Prime Rate shall mean the rate set forth in
the Federal Reserve Statistical Release H-15(519) entitled "Bank Prime Loan")
from the date of each such cash disbursement and until paid by Purchaser, which
may arise out of or be in respect of (a) any breach or violation of this
Agreement by Purchaser, (b) any inaccuracy or misrepresentation in or breach of
any of the warranties, representations, covenants or agreements made by
Purchaser in this Agreement, any Exhibit, or any certificate, document,
instrument or affidavit furnished by Purchaser in accordance with the provisions
of this Agreement, and (c) any and all debts, liabilities and obligations
assumed by Purchaser pursuant to Section 3.3 of this Agreement.
9.5 Promptly upon obtaining knowledge of any claim, event, statements
of facts or demand which has given rise to, or could reasonably give rise to, a
claim for indemnification hereunder, any party seeking indemnification under
this Article 9 (an "Indemnified Party") shall give written notice of such claim
or demand ("Notice of Claim") to the party from which indemnification is sought
(an "Indemnifying Party"), setting forth the amount of the claim. The
Indemnified Party shall furnish to the Indemnifying Party, in reasonable detail,
such information as it may have with respect to such indemnification claim
(including copies of any summons, complaint or other pleading which may have
been served on it and any written claim, demand, invoice, billing or other
document evidencing or asserting the same). No failure or delay by the
Indemnified Party in the performance of the foregoing shall reduce or otherwise
affect the obligation of any Indemnifying Party to indemnify and hold the
Indemnified Party harmless, except to the extent that such failure or delay
shall have adversely affected the Indemnifying Party's ability to defend
against, settle or satisfy any liability, damage, loss, claim or demand for
which the Indemnified Party is entitled to indemnification hereunder.
9.6 If the claim or demand set forth in the Notice of Claim given by
the Indemnified Party pursuant to Section 9.5 of this Agreement is a claim or
demand asserted by a third party, the Indemnifying Party shall have 15 days
after the Date of the Notice of Claim (as that term is hereinafter defined) to
notify the Indemnified Party in writing of its election to defend such third
party claim or demand on behalf of the Indemnified Party; provided, however,
that the Indemnifying Party shall not settle or compromise such third party
claim without the consent of the Indemnified Party unless such settlement or
compromise requires no more than a momentary payment for which the Indemnified
Party is fully indemnified under this Agreement or involves other matters not
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binding upon the Indemnified Party. If the Indemnifying Party elects to defend
such third party claim or demand, the Indemnified Party shall make available to
the Indemnifying Party and its agents and representatives all records and other
materials which are reasonably required in the defense of such third party claim
or demand and shall otherwise cooperate with, and assist the Indemnifying Party
in the defense of, such third party claim or demand, and so long as the
Indemnifying Party is defending such third party claim or demand in good faith,
the Indemnified Party shall not pay, settle or compromise such third party claim
or demand. If the Indemnifying Party elects to defend such third party claim or
demand, the Indemnified Party shall have the right to participate in the defense
of such third party claim or demand, at its own expense. If the Indemnifying
Party does not elect to defend such third party claim or demand, or does not
defend such third party claim in good faith, the Indemnified Party shall have
the right, in addition to any other right or remedy it may have hereunder, at
the Indemnifying Party's expense, to defend such third party claim or demand;
provided, however, that (a) the Indemnified Party shall not have any obligation
to participate in the defense of, or defend, any such third party claim or
demand; and (b) the Indemnified Party's defense of or its participation in the
defense of any such third party claim or demand shall not in any way diminish or
lessen the obligations of the Indemnifying Party under the agreements of
indemnification set forth in this Article 9.
9.7 Except for third party claims being defended in good faith, the
Indemnifying Party shall satisfy its obligations hereunder in cash within 30
days after the Date of Notice of Claim.
9.8 The term "Date of the Notice of Claim" as used in this Article 9
shall mean the date the Notice of Claims is effective pursuant to Section 14.13
of this Agreement.
ARTICLE 10
Conditions Precedent to the Obligations of Purchaser
----------------------------------------------------
The obligations of Purchaser hereunder (including the obligation of
Purchaser to close the transactions contemplated under this Agreement) are
subject to the following conditions precedent:
10.1 The warranties and representations made by Sellers in this
Agreement to Purchaser shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if such warranties and
representations had been made on and as of the Closing Date, and Sellers shall
have performed and complied with all agreements, covenants and conditions on
their part required to be performed or complied with on or prior to the Closing
Date; and at the Closing, Purchaser shall have received a certificate executed
by an officer of each Seller to the foregoing effect.
10.2 All proceedings to be taken in connection with the consummation
of the transactions contemplated by this Agreement and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Purchaser and
its counsel, and Purchaser and its counsel shall have received copies of such
documents as Purchaser and its counsel may reasonably request in connection with
said transactions.
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10.3 Sellers shall have received all consents, waivers, permits,
approvals, authorizations and orders which may be required (by law, agreement or
otherwise) to be obtained prior to the consummation of the sale contemplated
under this Agreement in order to transfer all of the Assets to Purchaser at
Closing, and such consents, waivers, permits, approvals, authorizations and
orders shall be in full force and effect on the Closing Date.
10.4 No investigation, action, suit or proceeding by any federal,
foreign or state governmental or regulatory commission, agency, body or
authority, and no action, suit or proceeding by any other person, firm,
corporation or entity, shall be pending on the Closing Date which challenges, or
might result in a challenge to, this Agreement or the consummation of such sale,
or which claims, or might give rise to a claim for, damages in a material amount
as a result of the consummation of such sale.
10.5 There shall have been no material adverse change in or with
respect to the financial condition, operations, prospects, rights, properties,
assets or liabilities of Sellers or Sellers' relations with their employees,
creditors, suppliers, distributors, customers, or others having business
relationships with Sellers, and no state of facts shall exist which may
reasonably be expected to give rise to any such material adverse change.
10.6 The IPO shall have been successfully completed.
Purchaser shall have the right to waive any of the foregoing
conditions precedent.
ARTICLE 11
Conditions Precedent to the Obligations of Sellers
--------------------------------------------------
The obligations of Sellers hereunder (including the obligation of
Sellers to close the transactions contemplated under this Agreement) are subject
to the following conditions precedent:
11.1 All warranties and representations made by Purchaser in this
Agreement to Sellers shall be true and correct in all material respects on and
as of the Closing Date with the same effect, as if such warranties and
representations had been made on and as of the Closing Date, and Purchaser shall
have performed and complied with all agreements, covenants and conditions on its
part required to be performed or complied with on or prior to the Closing Date;
and at the Closing, Sellers shall have received a certificate executed by the
general partner of Purchaser to the foregoing effects.
11.2 All proceedings to be taken in connection with the consummation
of the transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Sellers and
their counsel, and Sellers and their counsel shall have received copies of such
documents as Sellers and their counsel may reasonably request in connection with
said transactions.
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<PAGE>
11.3 No investigation, action, suit or proceeding by any federal,
foreign or state governmental or regulatory commission, agency, body or
authority, and no action, suit or proceeding by any other person, firm,
corporation or entity, shall be pending on the Closing Date which challenges, or
might result in a challenge to, this Agreement or the consummation of such sale,
or which claims, or might give rise to a claim for, damages in a material amount
as a result of the consummation of such sale.
11.4 The IPO shall have been successfully completed with the general
partner of Purchaser having raised at least $200,000,000 and having an
acquisition line of credit of $75,000,000.
11.5 Purchaser shall have purchased from General Electric Credit
Corporation ("GECC") for $115,750,000 the loan in the original principal amount
of $152,106,073.00 made by GECC to Sellers secured by a first mortgage on
Continental Towers consisting of 34 acres of land located at 1701 Golf Road in
Rolling Meadows, Illinois ("Continental Towers") duly executed by Continental
Towers Associates - I, an Illinois limited partnership ("CTA").
Sellers shall have the right to waive any of the foregoing conditions
precedent.
ARTICLE 12
Certain Employee and Employee Benefit Matters
---------------------------------------------
12.1 Effective as of the Closing, and except as provided in the next
following sentence, Sellers shall terminate the employment of, and the Purchaser
shall offer employment to, the employees of Sellers who are listed on Schedule
12.1 attached hereto (the "Listed Employees"), on such terms and conditions of
employment that shall be substantially similar to the terms and conditions of
employment that they receive under Seller as of the Closing Date, provided that
Purchaser shall offer base salaries to such Listed Employees at least equivalent
to the base salaries paid by Sellers as of the Closing Date as set forth in
Schedule 12.1, until completion of a review, which is estimated to require 90 to
120 days, of the organizational structure and staffing of the office division of
Purchaser by Mr. Richard Curto, its chief executive officer, with the
consultation of Mr. Derderian. Notwithstanding the foregoing, Purchaser shall
offer employment to such Listed Employees who are employed by Continental
Athletic Club, Inc. on such terms and conditions of employment that shall be
substantially similar to the terms and conditions of employment that they
receive under Seller as of the Closing Date, until such time as Purchaser, in
its sole discretion, shall determine. Schedule 12.1 attached hereto also
includes each Listed Employee's salary, years of service and position. From and
after the Closing Date, Sellers shall permit each Listed Employee to become an
employee of Purchaser and shall not interfere with Purchaser's efforts to employ
any or all of such Listed Employees and shall cooperate with such efforts in any
manner as Purchaser may reasonably request. Up to and including the second
anniversary date of the Closing Date, Sellers agree to refrain from the direct
or indirect solicitation of and employment of any of such Listed Employees;
provided, however, that nothing herein shall prohibit Sellers from (i) hiring
those former employees of Sellers who were never hired by Purchaser or have been
terminated by
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<PAGE>
Purchaser or (ii) performing Sellers' obligations under any of their existing
contracts with their employees. Except as otherwise provided in this Agreement,
Purchaser shall have the right to deal with such Listed Employees who accept
such employment with Purchaser ("Transferred Employee") as employees at will in
the same manner as it would be free to deal with such employees in the absence
of this Agreement. Subject to Purchaser's compliance with this Section 12.1,
Sellers shall, jointly and severally, indemnify and hold Purchaser harmless from
and against any claims for severance pay made by any employee or former employee
of either Seller including but not limited to any Listed Employee under any plan
or agreement sponsored or maintained by either Seller as a result of the sale
contemplated under this Agreement. Purchaser shall be solely responsible for and
shall indemnify and hold Sellers harmless from and against any claims for any
severance payments or benefits that may be due to any Transferred Employee who
ceases to be employed by Purchaser.
12.2 Sellers shall, jointly and severally, be responsible for and
indemnify Purchaser against any claim by any employee or former employee of
either Seller including but not limited to any Listed Employee with respect to
any Employee Welfare Benefit Plan benefits, severance, vacation pay, deferred
compensation or other similar plans or agreements applicable to such employees
due or accrued as of the Closing Date and incurred prior to the Closing Date, or
any such claims that arise as a result of the sale contemplated under this
Agreement. Purchaser shall not be liable or responsible for the payment of any
employee benefits offered by Sellers prior to the Closing Date. Sellers shall
assume and be solely responsible for the satisfaction of all claims for medical,
life insurance, health, accident or disability benefits brought by or in respect
of employees of Sellers under each Employee Welfare Benefit Plan, which claims
relate to events occurring prior to the Closing Date. Sellers shall also be
solely responsible for all worker's compensation claims of any employees of
Sellers which relate to events occurring prior to the Closing Date.
12.3 Effective as of the Closing Date, Purchaser shall establish
employee welfare benefit plans ("Purchaser's Welfare Plans") that are
substantially similar to the Employee Welfare Benefit Plans sponsored and
maintained by the Sellers as of the Closing Date. Notwithstanding anything
herein to the contrary, nothing in this Agreement shall preclude Purchaser from
altering, amending, or terminating any of Purchaser's Welfare Plans, or the
participation of any of its employees in such plans, at any time after the date
that is 120 days after the Closing Date. Effective as of the Closing Date, all
of the Transferred Employees shall be eligible to participate in all of
Purchaser's Welfare Plans without any restriction for preexisting conditions,
except to the extent such restriction applied under the Seller's Employee
Welfare Benefit Plan. Purchaser shall credit each Transferred Employee with any
amounts paid by such Transferred Employee under Seller's Employee Welfare
Benefit Plans prior to the Closing Date towards satisfaction of deductible
amounts and copayments, coinsurance and out-of-pocket maximums under the
corresponding Purchaser's Welfare Plans, but only to the extent such payments
would have been taken into account under Seller's Employee Welfare Benefit
Plans. Purchaser shall assume and be solely responsible for the satisfaction of,
and shall indemnify Sellers against, all claims for benefits brought by or in
respect of the Transferred Employees under Purchaser's Welfare Plans, which
claims accrue or are incurred on or after the Closing Date. Purchaser shall also
be solely responsible for, and shall
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<PAGE>
indemnify Sellers against, all worker's compensation claims of any Transferred
Employees which relate to events occurring on or after the Closing Date.
12.4 Seller shall pay to each Listed Employee the cash equivalent of
any accrued but unused vacation days as of the Closing Date. Purchaser shall
allow any Transferred Employee to take without pay any vacation days that such
Transferred Employee has earned but not used under Seller's vacation policy as
of the Closing Date, but the cash equivalent of which was paid to such
Transferred Employee by Seller, subject to normal scheduling and operational
requirements of such Transferred Employee's department. Each Transferred
Employee shall be credited with all applicable hours and years of service
completed by such Transferred Employee with Seller for purposes of determining
the level of vacation benefits earned under Purchaser's vacation policy.
12.5 Effective as of the Closing Date, and with the assistance and
cooperation of Purchaser both before and after the Closing Date, Sellers will
cause the account balances of the Transferred Employees under the Seller 401(k)
Plan to be spun-off into a new qualified retirement plan (the "New 401(k) Plan")
that is identical, in all substantive respects, to the Seller 401(k) Plan, and
transfer sponsorship of the New 401(k) Plan to Purchasers. Sellers shall,
jointly and severally, be responsible for and indemnify Purchaser against any
claim incurred prior to the Closing Date by any Transferred Employee with
respect to any benefits accrued under the Sellers 401(k) Plan. Purchaser shall
be responsible for and indemnify Sellers for any claim incurred on or after the
Closing Date by any Transferred Employee with respect to the qualification and
operation of the New 401(k) Plan and the receipt of the transfer of assets from
Seller's 401(k) Plan and payments by or on behalf of the New 401(k) Plan. Each
Transferred Employee shall be credited with all applicable hours and years of
service completed by such Transferred Employee with Seller for purposes of
determining eligibility and vesting under the New 401(k) Plan, any successor
plan to the New 401(k) Plan, and any new employee benefit plan qualified under
Section 401(a) of the Code.
12.6 As of the Closing Date, with respect to former and retired
employees of Sellers who had terminated employment or retired on or prior to the
Closing Date, Sellers shall assume and be solely responsible for all liabilities
and obligations in connection with claims for benefits brought by or in respect
of such former or retired employees of Sellers under any Employee Welfare
Benefit Plan with respect to medical, health and life insurance benefits.
12.7 Purchaser and Sellers hereby agree to adopt the alternative
procedure described in Section 5 of the Revenue Procedure 96-60 as promulgated
by the Internal Revenue Service with respect to wage reporting, and F.I.C.A.,
withholding and similar tax and other collections applicable to Sellers'
employees.
12.8 Effective as of the Closing Date, Sellers agree to assign and
Purchaser agrees to assume the collective bargaining agreements covering the
Transferred Employees as listed in the Disclosure Schedule.
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<PAGE>
ARTICLE 13
Termination
-----------
13.1 This Agreement may be terminated at any time prior to the Closing
as follows, and in no other manner:
(a) by mutual consent of Purchaser and Sellers;
(b) by Purchaser or by Sellers, if at or before the Closing any
conditions set forth herein for the benefit of Purchaser or Sellers,
respectively, shall not have been timely met or cannot be timely met;
(c) by Purchaser or by Sellers if the Closing of the transactions
contemplated by this Agreement shall not have occurred on or before November 15,
1997, or such later date as may have been agreed upon in writing by the parties
hereto; or
(d) by Purchaser or by Sellers if any representation or warranty made
herein for the benefit of Purchaser or Sellers, respectively, or in any
certificate, schedule or documents furnished to Sellers or Purchaser,
respectively, pursuant to this Agreement is untrue in any material respect, or
Purchaser or Sellers, respectively, shall have defaulted in any material respect
in the performance of any material obligation under this Agreement.
13.2 Any termination pursuant to this Article 13 shall not limit or
restrict the rights or other remedies of any party hereto.
ARTICLE 14
Miscellaneous
-------------
14.1 Purchaser will pay its own costs and expenses (including
attorneys' fees, accountants' fees and other professional fees and expenses) in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the consummation of the purchase of the Assets and the other
transactions contemplated by this Agreement (except as otherwise specifically
provided for herein); and Sellers will pay their own costs and expenses
(including attorneys' fees, accountants' fees and other professional fees and
expenses) in connection with the negotiation, preparation, execution and
delivery of this Agreement and the consummation of the sale of the Assets and
the other transactions contemplated by this Agreement (except as otherwise
specifically provided for herein).
14.2 The Disclosure Schedule and the Exhibits referenced in this
Agreement are incorporated into this Agreement and together contain the entire
agreement between the parties hereto with respect to the transactions
contemplated hereunder, and supersede all negotiations, representations,
warranties, commitments, offers, contracts and writings prior to the date
hereof. No waiver and no modification or amendment of any provision of this
Agreement shall be effective unless specifically made in writing and duly signed
by the party to be bound thereby.
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<PAGE>
14.3 This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which, together, shall
constitute one and the same instrument.
14.4 The respective rights and obligations of the parties hereto
shall not be assignable without the prior written consent of the other parties;
provided, however, that Purchaser may assign all or part of its rights under
this Agreement and delegate all or part of its obligations under this Agreement
to one or more corporations all or substantially all of the capital stock or
equity interest of which are owned by Purchaser, in which event all the rights
and powers of Purchaser and remedies available to it under this Agreement shall
extend to and be enforceable by each such subsidiary. Any such assignment and
delegation shall not release Purchaser from its obligations under this
Agreement, and further Purchaser guarantees to Sellers the performance by each
such subsidiary of its obligations under this Agreement. In the event of any
such assignment and delegation the term "Purchaser" as used in this Agreement
shall be deemed to refer to each such subsidiary of Purchaser where reference is
made to actions or to be taken with respect to the acquisition of the business
or Assets, and shall be deemed to include both Purchaser and each such
subsidiary where appropriate.
14.5 The parties hereto acknowledge and agree that no filings with
respect to any bulk sales or similar laws have been made, nor are they intended
to be made, nor are such filings a condition precedent to the Closing; and, in
consideration of such waiver by Purchaser, Sellers shall defend and indemnify
Purchaser, and its successors and assigns, against any loss, liability, or
damage resulting or arising from such waiver and failure to comply with the
applicable bulk sales laws.
14.6 If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future law, rule or regulation,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof. The remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement, a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
14.7 The captions of the various Articles of this Agreement have been
inserted only for convenience of reference and shall not be deemed to modify,
explain, enlarge or restrict any of the provisions of this Agreement.
14.8 Risk of loss, damage or destruction to the Assets shall be upon
Sellers until the Closing, and shall thereafter be upon Purchaser.
14.9 The validity, interpretation and effect of this Agreement shall
be governed exclusively by the laws of the State of Illinois, excluding the
"conflict of laws" rules thereof.
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<PAGE>
14.10 All notices to third parties and all other publicity relating
to the transactions contemplated by this Agreement shall be jointly planned,
coordinated, and agreed to by Purchaser and Sellers, except to the extent
disclosures are required by law.
14.11 All amounts expressed in this Agreement and all payments
required by this Agreement are in United States dollars.
14.12 All representations and warranties made by any party in this
Agreement shall be deemed made for the purpose of inducing the other party to
enter into this Agreement and, subject to Section 9.2(a) of this Agreement,
shall survive the Closing.
14.13 (a) All notices, requests, demands and other communications
under this Agreement shall be in writing and delivered in person or sent by
certified mail, postage prepaid, and properly addressed as follows:
To Purchaser:
------------
Prime Group Realty, L.P.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attention: President
With Copy To:
------------
Wayne D. Boberg, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
To Sellers:
----------
Continental Offices, Ltd.
One Financial Place, Suite 2909
440 South LaSalle Street
Chicago, IL 60605
Attention: Kevork Derderian
With Copy To:
------------
Albert Ritchie, Esq.
Sidley & Austin
One First National Plaza
Chicago, IL 60603
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<PAGE>
(b) Either party may from time to time change its address for the
purpose of notices to that party by a similar notice specifying a new address,
but no such change shall be deemed to have been given until it is actually
received by the party sought to be charged with its contents.
(c) All notices and other communications required or permitted under
this Agreement which are addressed as provided in this Section 14.13 if
delivered personally, shall be effective upon delivery; and if delivered by
mail, shall be effective upon deposit in the United States mail, postage
prepaid.
14.14 Unless the context of this Agreement otherwise requires, (a)
words of any gender shall be deemed to include each other gender, (b) words
using the singular or plural number shall also include the plural or singular
number, respectively, and (c) references to "hereof", "herein", "hereby" and
similar terms shall refer to this entire Agreement.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Asset
Purchase Agreement the day and year first above written.
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust,
its General Partner
By: ______________________________
Title: ___________________________
CONTINENTAL OFFICES, LTD.
By:___________________________________
Title:________________________________
CONTINENTAL OFFICES LTD.
REALTY
By:___________________________________
Title:________________________________
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<PAGE>
EXHIBIT B
---------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 1997 by and between Prime Group Realty, L.P., a
Delaware limited partnership ("Employer"), and Kevork M. Derderian, an
individual domiciled in the State of Illinois ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of office and industrial
real estate facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
development of office properties and the management thereof.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the President of Employer's Office Division on the
terms and conditions provided in this Agreement. Executive shall conduct,
operate, manage and promote the business and business concept of Employer. The
Chief Executive Officer or the President of Employer may from time to time
further define and clarify Executive's duties and services hereunder as
President of Employer's Office Division, which principal duties will include the
development, management, leasing, marketing and acquisition of office
properties. Executive agrees to devote Executive's best efforts and
substantially all of Executive's business time, attention, energy and skill to
perform Executive's duties as President of Employer's Office Division.
2. Term. The term of this Agreement shall commence on the date The
Registration Statement on Form S-11, as amended (No. 333-33547; the
"Registration Statement") of Prime Group
<PAGE>
Realty Trust ("PGRT"), the general partner of Employer, is declared effective
(the "Effective Date") and expire on ___________, 2000 [three year term] (the
"Employment Term").
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than Two
Hundred Thousand Dollars ($200,000) ("Base Compensation"), payable in accordance
with the general policies and procedures for payment of salaries to its
executive personnel maintained, from time to time, by Employer (but no less
frequently than monthly), subject to withholding for applicable federal, state,
and local taxes. Increases in Base Compensation, if any, shall be determined by
the Compensation Committee (the "Committee") of the Board of Trustees of PGRT
(the "Board") based on periodic reviews of Executive's performance conducted on
at least an annual basis.
(b) Bonus. In addition to Base Compensation, Executive shall have the
right to receive, and Employer agrees to distribute to Executive, a performance
bonus distribution for each calendar year during the Employment Term, commencing
on January 1, 1998, in such amounts as determined by the two point formula
delineated hereinbelow (collectively, a yearly "Performance Bonus
Distribution"); provided, however, that the aggregate Performance Bonus
Distribution for any calendar year distributable in accordance with the
provisions of this Section 3(b) shall in no event exceed 100% of the Base
Compensation for such calendar year. The amount of the Performance Bonus
Distribution for each calendar year distributable to Executive hereunder shall
be determined by the Committee based upon the achievement of Employer's annual
business plan approved by the Board for such calendar year, as reflected in the
audited financial statements of Employer prepared in accordance with generally
accepted accounting principles and auditing standards and practices,
consistently applied ("GAAP"). Prior to issuance of the final audited financial
statements for each calendar year, Executive shall have the right to review and
approve or challenge any calculation or determination of the amount of the
Performance Bonus Distribution distributable for such calendar year. Any amount
of Performance Bonus Distribution required to be distributed to Executive for
any calendar year during the Employment Term shall be distributed by Employer to
Executive during the pay period of Employer following finalization of the audit
for such calendar year and final review and approval of the bonus calculation by
the Committee and, in all events, on or before April 15 of the year immediately
following the end of the calendar year for which such Performance Bonus
Distribution is attributable.
The two point formula to determine a Performance Bonus Distribution
for any calendar year during the Employment Term shall be as follows:
(i) Funds From Operations. Executive's Performance Bonus Distribution
in an amount of up to seventy-five percent (75%) of Executive's Base
Compensation for any given calendar year shall be based on Employer's Funds From
Operations publicly announced by Employer ("FFO") such calendar year in relation
to projected budget for FFO disclosed to shareholders of PGRT set forth in
Employer's Board approved annual business plan for such calendar year ("Public
FFO") as follows:
2
<PAGE>
(A) If FFO is less than Public FFO, Executive shall not be entitled
to any Performance Bonus Distribution under this Section 3(b)(i).
(B) If FFO is one hundred and three percent (103%) or more of Public
FFO, Executive shall be entitled to a Performance Bonus Distribution under this
Section 3(b)(i) equal to seventy-five percent (75%) of Executive's Base
Compensation for such calendar year.
(C) If FFO is equal to Public FFO but less than one hundred and three
percent (103%) of Public FFO, Executive shall be entitled to a Performance Bonus
Distribution under this Section 3(b)(i) equal to thirty seven and one-half
percent (37.5%) of Executive's Base Compensation for such calendar year.
(D) If FFO is greater than Public FFO but less than one hundred and
three percent (103%) of Public FFO, then a pro rata adjustment shall be made to
the Performance Bonus Distribution to which Executive is entitled under this
Section 3(b)(i) for such calendar year.
(ii) Discretionary. Executive's Performance Bonus Distribution in an
amount of up to twenty-five percent (25%) of Executive's Base Compensation for
any given calendar year shall be determined at the sole discretion of the Board
or the Committee based upon achievement of such corporate or individual
performance goals and objectives as may be established or determined by the
Board or the Committee from time to time.
Within ninety (90) days after the Effective Date, Employer and Executive shall
negotiate in good faith a revised Performance Bonus Distribution formula which
more accurately measures the performance by Executive of Executive's duties and
responsibilities related to Employer's Office Division for which Executive has
direct authority and oversight.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in the
medical and dental benefit plan to be established by Employer (which may include
contributions by Executive) and in any other retirement, pension, insurance,
health or other benefit plan or program that has been or is hereafter adopted by
Employer (or in which Employer participates), as such plans and programs may be
amended or modified from time to time by Employer, according to the terms of
such plan or program with all the benefits, rights and privileges as are enjoyed
by any other executive officers of Employer. Employer expects to have in place a
life insurance program in which Executive will be entitled to participate. If
the participation of Executive would adversely affect the qualification of a
plan intended to be qualified under Section 401(a) of the Internal Revenue Code
as the same may be amended from time to time (the "Code"), Employer shall have
the right to exclude Executive from that plan in return for Executive's
participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
3
<PAGE>
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies and procedures may
be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder, including expenses for business entertainment and meals
(whether in or out of town) and gas for business travel, but excluding
automobile insurance. Subject to the policies and procedures referred to in the
previous sentence, Employer agrees to reimburse Executive for membership dues
for the following organizations (i) NACORE, (ii) ULI and (iii) U.S. Green
Building - Council and for travel and related expenses incurred by Executive to
attend the annual conventions and board and council meetings of such
organizations.
(e) Vacations. During the Employment Term, Executive shall be
entitled to vacation in accordance with Employer's practices, as such practices
may be amended or modified from time to time by Employer, provided that
Executive shall be entitled to at least four (4) weeks paid vacation in each
full calendar year. Executive may accrue unused vacation time if not used in any
calendar year or years, however, the maximum cumulative amount of vacation time
that Executive may accrue and carry over to the next year is two (2) weeks.
Executive shall be entitled to a payment for any vacation time which has accrued
but has not been used as of the date of the termination of Executive's
employment with Employer, unless Executive's employment is terminated pursuant
to Section 5(a)(ii) hereof.
4. Stock Options. The general partner of Employer, PGRT has established a
stock incentive plan (the "Stock Incentive Plan") that will become effective
prior to the completion of the initial public offering of shares of common stock
of PGRT (the "Common Stock") contemplated by the Registration Statement. The
Stock Incentive Plan initially provides, among other things, for the issuance
from time to time to certain officers, directors and other employees of PGRT and
Employer, including Executive, of stock options. On the Effective Date, pursuant
to the Stock Incentive Plan, PGRT shall grant to Executive 70,000 stock options
("Options") that will have such terms and conditions as are set forth in the
Stock Incentive Plan and the Stock Option Agreement to be entered into between
PGRT and Executive. Such Options granted to Executive shall vest immediately
upon the death or disability of Executive or upon termination of this Agreement
and Executive's employment for any reason other than a termination for cause by
Employer. In the case of a termination for cause, all unvested Options shall be
forfeited by Executive, but Executive shall have the right to exercise within
the time period provided for in the Stock Incentive Plan all Options vested
prior to such termination for cause.
5. Termination and Termination Benefits. (a) Termination by Employer. (i)
Without Cause. Employer may terminate this Agreement and Executive's employment
at any time for any reason or for no reason at all upon thirty (30) days' prior
written notice to Executive following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(i),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, (B) be paid a
pro rata portion of any bonus otherwise payable to Executive for or with respect
to the calendar year in which such termination occurs in accordance with Section
3(b) hereof up to the effective date of such
4
<PAGE>
termination and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs, (C) be entitled to the benefits set forth in Sections 3(c),
3(d), 3(e) and 3(f) hereof up to the effective date of such termination and (D)
receive the Termination Compensation specified in Section 5(d) hereof. For
purposes of calculating Executive's pro rata portion of any bonus pursuant to
clause (B) in the previous sentence, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution, a pro rata (based on the number of days in the year) portion
of which Executive shall be entitled to receive, shall be deemed to be 50% of
Executive's then current annual Base Compensation. For purposes of this
Agreement, the "effective date of termination" shall mean the last day on which
Executive is employed with Employer which may be later than the date of the
delivery of any applicable notice of termination.
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, and, to the
extent not previously paid, Executive shall be entitled to any bonuses payable
to Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(B) be entitled to the benefits set forth in Sections 3(c), 3(d), 3(e) and 3(f)
hereof up to the effective date of such termination. For purposes of this
Section 5(a)(ii), "cause" shall mean (1) a finding by the Board that Executive
has materially harmed Employer, its business, assets or employees through an act
of dishonesty, material conflict of interest, gross misconduct or willful
malfeasance, (2) Executive's conviction of (or pleading nolo contendere to) a
felony, (3) Executive's failure to perform (which shall not include inability to
perform due to disability) in any material respects Executive's material duties
under this Agreement after written notice specifying the failure and a
reasonable opportunity to cure (it being understood that if Executive's failure
to perform is not of a type requiring a single action to fully cure, then
Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion), (4) the breach by
Executive of any of Executive's material obligations hereunder (other than those
covered by clause (3) above) and the failure of Executive to cure such breach
within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (5)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental disability, or
other incapacity, Executive shall fail during any four (4) consecutive months to
perform the duties required by this Agreement, Employer may, upon thirty (30)
days' written notice to Executive, either terminate this Agreement or suspend
Executive's right to any Base Compensation or Performance
5
<PAGE>
Bonus Distributions without terminating this Agreement. In any such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof up to the effective date of such termination, (B) be paid a
pro rata portion of any bonus otherwise payable to Executive for or with respect
to the calendar year in which such termination occurs in accordance with Section
3(b) hereof up to the first day of such four (4) month period and, to the extent
not previously paid, Executive shall be entitled to all bonuses payable to
Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such termination occurs and
(C) be entitled to the benefits set forth in Sections 3(c) hereof (or the after-
tax cash equivalent) up to the effective date of such termination, and be
entitled to the benefits set forth in Sections 3(d), 3(e), and 3(f) hereof up to
the date of such termination. For purposes of calculating Executive's pro rata
portion of any bonus pursuant to clause (B) in the previous sentence, if the
termination takes place prior to receipt by Executive of any Performance Bonus
Distribution, the Performance Bonus Distribution, a pro rata portion of which
Executive shall be entitled to receive, shall be deemed to be 50% of Executive's
then current annual Base Compensation. In the event Employer elects to suspend
Executive's right to Base Compensation and Performance Bonus Distributions, at
such time as Executive is able to resume the duties required under this
Agreement, Executive shall be entitled to receive Base Compensation and
Performance Bonus Distributions from the date Executive commences the
performance of such duties following the disability in accordance with the terms
and provisions of this Agreement. This Section 5(a)(iii) shall not limit the
entitlement of Executive, Executive's estate or beneficiaries to any disability
or other benefits available to Executive under any disability insurance or other
benefits plan or policy which is maintained by Employer for Executive's benefit.
For purposes of this Agreement, the "date of disability" shall mean the first
day of the consecutive period during which Executive fails to perform the duties
required by this Agreement due to illness, physical or mental disability or
other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of PGRT and a resulting "diminution event",
each as defined below, but in no event later than two years after the change of
control event. Executive shall continue to perform, at the election of Employer,
Executive's duties under this Agreement for an additional thirty (30) days
following notice of termination. In such event, Executive shall (A) be paid
Executive's Base Compensation up to the effective date of such termination, (B)
be paid a pro rata portion of any bonus otherwise payable to Executive for or
with respect to the calendar year in which such termination occurs in accordance
with Section 3(b) hereof up to the effective date of such termination and, to
the extent not previously paid, Executive shall be entitled to all bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs, (C) be entitled to the benefits set forth in Sections 3(c), 3(d), 3(e)
and 3(f) hereof up to the effective date of such termination and (D) receive the
Termination Compensation specified in Section 5(d) hereof. For purposes of
calculating Executive's pro rata portion of any bonus pursuant to clause (B) in
the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation. For purposes of this Agreement, in the event
6
<PAGE>
Employer defaults in its obligation under Section 9 hereof and, as a consequence
thereof, Executive's employment with Employer (or Employer's successor or
assign) terminates, such termination shall be deemed to be a termination under
this Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of PGRT
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest and excluding a trustee or other fiduciary holding
securities under an employee benefit plan of PGRT), becomes the beneficial owner
of shares of beneficial interests of PGRT having at least fifty percent (50%) of
the total number of votes that may be cast for the election of trustees of PGRT;
(2) the merger or other business combination of PGRT or Employer, sale of all or
substantially all of PGRT's or Employer's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction immediately following
which the shareholders of PGRT immediately prior to the Transaction continue to
have a majority of the voting power in the resulting entity (excluding for this
purpose any shareholder, other than The Prime Group, Inc. and its affiliates,
owning directly or indirectly more than ten percent (10%) of the shares of the
other company involved in the Transaction); or (3) within any twenty-four (24)
month period beginning on or after the date hereof, the persons who were
trustees of PGRT immediately before the beginning of such period (the "Incumbent
Trustees") shall cease to constitute at least a majority of the Board or a
majority of the board of trustees of any successor to PGRT, provided that, any
trustee who was not a trustee as of the date hereof shall be deemed to be an
Incumbent Trustee if such trustee was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds of the trustees
who then qualified as Incumbent Trustees either actually or by prior operation
of this provision, unless such election, recommendation or approval was the
result of an actual or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any successor provision;
and (B) a "diminution event" shall mean any material diminution in (1) the
duties and responsibilities of Executive (other than a mere title change, unless
the new title is not President) or (2) the compensation package for Executive.
(ii) Without Good Reason. Executive may terminate this Agreement and
Executive's employment at any time for any reason or for no reason at all upon
thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform Executive's duties under this Agreement if Employer so
elects. In connection with the termination of Executive's employment pursuant to
this Section 5(b)(ii), Executive shall (A) be paid Executive's Base Compensation
in accordance with Section 3(a) hereof up to the effective date of such
termination, and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
termination occurs and (B) be entitled to the benefits set forth in Sections
3(c), 3(d), 3(e) and 3(f) hereof up to the effective date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be
7
<PAGE>
paid Executive's Base Compensation in accordance with Section 3(a) hereof up to
the date of such death, (B) be paid a pro rata portion of any bonus otherwise
payable to Executive for or with respect to the calendar year in which such
death occurs in accordance with Section 3(b) hereof up to the effective date of
such death and, to the extent not previously paid, Executive shall be entitled
to all bonuses payable to Executive in accordance with Section 3(b) hereof for
or with respect to any calendar years prior to the calendar year in which such
death occurs and (C) be entitled to the benefits set forth in Sections 3(c) (or
the after-tax cash equivalent), 3(d), 3(e) and 3(f) hereof up to the date of
such death. This Section 5(c) shall not limit the entitlement of Executive,
Executive's estate or beneficiaries under any insurance or other benefits plan
or policy which is maintained by Employer for Executive's benefit. For purposes
of calculating Executive's pro rata portion of any bonus pursuant to clause (B)
in the previous sentence, if the termination takes place prior to receipt by
Executive of any Performance Bonus Distribution, the Performance Bonus
Distribution, a pro rata portion of which Executive shall be entitled to
receive, shall be deemed to be 50% of Executive's then current annual Base
Compensation.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i) or 5(b)(i) hereof, Employer shall pay to
Executive, within thirty (30) days of termination, an amount in one lump sum
("Termination Compensation") equal to (i) in the case of a termination pursuant
to Section 5(a)(i) hereof, the product of (A) the sum of (1) Executive's then
current annual Base Compensation and (2) Executive's last annualized Performance
Bonus Distribution times (B) a fraction, the numerator of which is the number of
days between such date of termination and expiration of the Employment Term (but
in no event less than 365) and the denominator of which is 365 or (ii) in the
case of a termination pursuant to Section 5(b)(i) hereof, two times the sum of
(A) Executive's then current annual Base Compensation and (B) Executive's last
annualized Performance Bonus Distribution. For purposes of calculating
Executive's Termination Compensation, if the termination takes place prior to
receipt by Executive of any Performance Bonus Distribution, the Performance
Bonus Distribution component of the Termination Compensation calculation shall
be deemed to be 50% of Executive's then current annual Base Compensation.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that Executive is not
personally subject to any agreement, order or decree which restricts Executive's
acceptance of this Agreement and the performance of Executive's duties with
Employer hereunder.
(b) Non-Competition. In return for the performance of the management duties
described in Section 1 hereof, during the Employment Term, and for a period of
two years after any applicable Section 5 termination event, Executive shall not,
directly or indirectly, attempt to hire or hire any employee or client of
Employer or solicit or attempt to lease space to or lease space to any tenant of
Employer. Notwithstanding the foregoing, nothing herein shall prohibit Executive
from owning 5% or less of any securities of a competitor engaged in the same
Business if such securities are listed on a nationally recognized securities
exchange or traded over-the-counter on the National Association of Securities
Dealers Automated Quotation System or otherwise.
8
<PAGE>
(c) Non-Disclosure. During the Employment Term and for a period of two
years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
information which derives independent economic value, actual or potential, with
respect to Employer from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and is the subject of efforts to maintain its secrecy
that are reasonable under the circumstances, including, but not limited to,
trade secrets, customer lists, sales records and other proprietary commercial
information. Said term, however, shall not include general "know-how"
information acquired by Executive prior to or during the course of Executive's
service which could have been obtained by him from public sources without the
expenditure of significant time, effort and expense which does not relate to
Employer.
(d) Business Opportunities. During the Employment Term, Executive agrees to
bring to Employer any and all business opportunities which come to Executive's
attention for the acquisition, development, management, leasing or marketing of
real estate for industrial or office use. In the event that Employer elects not
to participate or take advantage of any such business opportunity, upon
termination of Executive's employment with Employer for any reason, Executive
shall be free to pursue such business opportunity, provided that such business
opportunity does not cause any tenant to relocate from a facility owned and/or
operated by Employer, PGRT or any of their respective subsidiaries.
(e) Return of Documents. Upon termination of Executive's services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and other
tangible property of Employer within Executive's possession or under Executive's
control.
(f) Equitable Relief. In the event of any breach by Executive of any of the
covenants contained in this Section 6, it is specifically understood and agreed
that Employer shall be entitled, in addition to any other remedy which it may
have, to equitable relief by way of injunction, an accounting or otherwise and
to notify any employer or prospective employer of Executive as to the terms and
conditions hereof.
(g) Acknowledgment. Executive acknowledges that Executive will be directly
and materially involved as a senior executive in all important policy and
operational decisions of Employer. Executive further acknowledges that the scope
of the foregoing restrictions has been specifically bargained between Employer
and Executive, each being fully informed of all relevant facts. Accordingly,
Executive acknowledges that the foregoing restrictions of Section 6 are fair and
reasonable, are minimally necessary to protect Employer, its other partners and
the public from the unfair competition of Executive who, as a result of
Executive's performance of services on behalf of Employer, will have had
unlimited access to the most confidential and important information of Employer,
its business and future plans. Executive furthermore acknowledges that no
unreasonable
9
<PAGE>
harm or injury will be suffered by him from enforcement of the covenants
contained herein and that Executive will be able to earn a reasonable livelihood
following termination of Executive's services notwithstanding enforcement of the
covenants contained herein.
7. Prior Agreements. This Agreement, together with the Stock Incentive
Plan, supersedes and is in lieu of any and all other employment arrangements
between Executive and Employer or its predecessor or any subsidiary and any and
all such employment agreements and arrangements are hereby terminated and deemed
of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement
giving Executive the right to terminate this Agreement, in which case Executive
shall be entitled to receive the compensation specified in Section 5(b)(i)
hereof. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
courier or by certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Kevork M. Derderian
_________________________
_________________________
10
<PAGE>
With a copy to:
--------------
________________________
________________________
________________________
Attn: ____________________
(b) if to Employer, to:
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
--------------
Prime Group Realty Trust
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
11
<PAGE>
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any Contractual Provision of this Agreement is determined by a
court of competent jurisdiction to be overly broad thereby making the
Contractual Provision unenforceable, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and that the Contractual Provision, as so modified, shall be binding
upon the parties as if originally set forth herein.
14. Indemnification by Executive. Executive shall indemnify Employer for
any and all damages, costs and expenses resulting from any material harm to
Employer, its business, assets or employees through an act of dishonesty,
material conflict of interest, gross misconduct or willful malfeasance by
Executive. Executive also shall indemnify Employer for any and all damages,
costs and expenses resulting from Executive's acts of omission constituting
reckless disregard of Executive's duties to Employer following notice thereof by
Employer after it becomes aware of such conduct and Executive's failure to so
cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
PRIME GROUP REALTY L.P.
By: Prime Group Realty Trust,
its General Partner
By:______________________________
Title:___________________________
EXECUTIVE:
______________________________________
Kevork M. Derderian
13
<PAGE>
SCHEDULE 2.1(a)(vi)-ASSUMED CONTRACTS
-------------------------------------
Subcontract Management Agreement made by and between Continental Offices Ltd.,
One Financial Place Partnership and Financial Place Corporation for the
management of One Financial Place dated August 27, 1997
Marquette Building Management Agreement made by and between Continental Offices
Ltd. and John D. and Catherine T. MacArthur Foundation for the management
of the Marquette Building dated August 1, 1994 and (i) Marquette Building
Amendment to Management Agreement dated April 25, 1997
Management Agreement (AUSA/FRE-900344) made by and between Continental Offices
Ltd. and AUSA Life Insurance Company, Inc. for the management of
Cumberland-Metro Business Center dated May 1, 1997
Agreement for Building Engineering Maintenance Services made by and between
Continental Offices Ltd. and Roosevelt University for the provision of
building engineering maintenance services of Roosevelt University--
Schaumburg Campus dated September 30, 1996
Ameritech Optinet Base Rate, 384, DS1 or DS3 Service Confirmation of Service
Order made by and between Continental Offices Ltd. and Ameritech dated
April 15, 1996
Ameritech Optinet Base Rate, 384, DS1 or DS3 Service Confirmation of Service
Order made by and between Continental Offices Ltd. and Ameritech dated July
23, 1997
Service Agreement made by and between Continental Offices Ltd. and Williams
Telecommunications Systems, Inc. dated June 5, 1996
Equipment Lease Agreement made by and between Continental Offices Ltd. and
Allcom, Inc. dated September 9, 1993
Equipment Lease Agreement (No. 702-1612-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated September 5, 1995
Support Agreement for Per Call Basis made by and between Continental Offices
Ltd. and Geac Systems, Inc. dated January 1, 1996
Master Terms of Service (No. 31708) made by and between Continental Offices Ltd.
and SunService Division, Sun Microsystems, Inc. dated February 16, 1997
SunSpectrum Support Program Module made by and between Continental Offices Ltd.
and SunService Division, Sun Microsystems, Inc. dated April 16, 1997
SunSpectrum Support Program Module made by and between Continental Offices Ltd.
and SunService Division, Sun Microsystems, Inc. dated February 16, 1997
Power Supply Maintenance Agreement made by and between Continental Offices Ltd.
and Controlled Power Company dated August 1, 1997
Equipment Lease Agreement (No. 702-1517-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated December 30, 1994
<PAGE>
Equipment Lease Agreement (No. 702-1520-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated December 30, 1994
Equipment Lease Agreement (No. 702-1580-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated December 30, 1994
Equipment Lease Agreement (No. 702-1581-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated December 30, 1994
Equipment Lease Agreement (No. 702-1605-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated February 7, 1995
Equipment Lease Agreement (No. 702-1616-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated June 19, 1995
Equipment Lease Agreement (No. 702-1618-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated July 25, 1995
Equipment Lease Agreement (No. 702-1642-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated November 7, 1995
Equipment Lease Agreement (No. 702-1644-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated December 28, 1995
Equipment Lease Agreement (No. 702-1702-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated February 14, 1996
Equipment Lease Agreement (No. 702-1704-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated June 7, 1996 --
Assigned to Vanguard Financial Service Corp.
Equipment Lease Agreement (No. 702-1706-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated May 28, 1996
Equipment Lease Agreement (No. 702-1707-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated May 28, 1996
Equipment Lease Agreement (No. 702-1711-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated July 22, 1996
Equipment Lease Agreement (No. 702-1712-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated September 23, 1996
Equipment Lease Agreement (No. 702-1714-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated September 21, 1996
Equipment Lease Agreement (No. 702-1717-01) made by and between Continental
Offices Ltd. and D&R Associates Leasing, Inc. dated November 1, 1996
Equipment Lease Agreement (No. 702-1721-01) made by and between Continental
Offices Ltd. Realty and D&R Associates Leasing, Inc. dated
September 3, 1997
<PAGE>
Training and Delivery Agreement made by and between Continental Offices Ltd.
and The Forum Corporation of North America dated March 17, 1997
Training and Delivery Agreement made by and between Continental Offices Ltd.
and The Forum Corporation of North America dated October 14, 1997
Supply/Service Contract made by and between Continental Offices Ltd. and Minolta
Business Systems, Inc. dated January 31, 1997
Lease Agreement (No. 0053730) made by and between Continental Offices Ltd. and
Minolta Business Systems, Inc. dated January 29, 1997
Lease Agreement (No. 2351350) made by and between Continental Offices Ltd. and
Minolta Business Systems, Inc. dated ____________
Lease Agreement (No. 3992250) made by and between Continental Offices Ltd. and
Minolta Business Systems, Inc. dated June 9, 1995
Smart Business Lease made by and between Continental Offices Ltd. and Pitney
Bowes Credit Corporation dated January 31, 1997
Postage Meter Rental Agreement made by and between Continental Offices Ltd. and
Pitney Bowes Credit Corporation dated January 31, 1997
Letter Agreement (Job No. 97-549) made by and between Continental Offices Ltd.
and Real Estate Analysis Corporation dated May 27, 1997
Letter Agreement (Job No. 97-548) made by and between Continental Offices Ltd.
and Real Estate Analysis Corporation dated May 27, 1997
Letter Agreement (Job No. 97-547) made by and between Continental Offices Ltd.
and Real Estate Analysis Corporation dated May 27, 1997
Letter Agreement made by and between Continental Offices Ltd. and Law Offices
of Hynes & Johnson dated August 13, 1997
Letter Agreement made by and between Continental Offices Ltd. and Law Offices
of Hynes & Johnson dated December 8, 1995
Letter Agreement made by and between Continental Offices Ltd. and Law Offices
of Hynes & Johnson dated April 30, 1997
Lease Agreement (No. __) made by and between Continental Offices Ltd. and
Imagetec L.P. dated ________, 1995
Extended Service Plan made by and between Continental Offices Ltd. and Imagetic
L.P. dated June 6, 1997
Master Shared Tenant Services Agreement made by and between Continental Offices
Ltd. and Shared Technologies Inc. dated March 29, 1993
<PAGE>
Sprint Business Sense Term Plan/Usage Agreement made by and between Continental
Offices Ltd. Realty and Sprint Communications Company L.P. dated
October 13, 1997
Lease Agreement (No. 673588) made by and between Continental Offices Ltd. and
Modern Business Systems, Inc. dated April 18, 1995
Lease Agreement (No. 673727) made by and between Continental Offices Ltd. and
Modern Business Systems, Inc. dated September 29, 1994
Copy Maintenance Agreement (No. 118173) made by and between Continental Offices
Ltd. and Modern Business Systems, Inc. dated April 18, 1995
Minolta Lease Agreement (No. 84148759) made by and between Continental Offices
Ltd. and Minolta Leasing Division of Tokai Financial Services, Ind. dated
February 27, 1995
Employer Agreement Pace Vanpool Incentive Program Subscription Shuttle/Feeder
Service made by and between Continental Offices Ltd. and Pace, the
Suburban Bus Division of the RTA dated February 13, 1997
Various Contracts by and between Continental Offices Ltd. and Cellular One
Various Contracts by and between Continental Offices Ltd. and Ameritech
<PAGE>
SCHEDULE 2.2(a)(vi) - EXCLUDED FURNITURE
----------------------------------------
All Rommwebber furniture owned by Continental Offices Ltd.
All furniture located in the office of Richard A. Heise located at One Financial
Place
<PAGE>
SCHEDULE 3.5 - ASSUMED CONSTRUCTION CONTRACTS
---------------------------------------------
Letter Agreement made by and between Continental Offices Ltd. and Motorola dated
September 26, 1997 in the amount of $23,858.42. (Note: This contract might
actually be completed before the 30 day period stated in Section 3.5 of the
Asset Purchase Agreement)
Standard Form of Agreement between Owner and Contractor (AIA Document A101--1987
Edition) made by and between Continental Offices Ltd. and Cincinnati Stock
Exchange dated October 13, 1997 in the amount of $271,927.41
Letter Agreement made by and between Continental Offices Ltd and First Options
of Chicago, Inc. dated September 18, 1997 in the amount of $229,768.31
Letter of Indemnification (for construction) made by and between Continental
Offices Ltd. and Pax Clearing Company dated September 30, 1997 in the
amount not to exceed $3,500.00
Letter of Indemnification (for construction) made by and between Continental
Offices Ltd. and Pax Clearing Company dated July 22, 1997 in the amount not
to exceed $25,000.00
Letter of Indemnification (for construction) made by and between Continental
Offices Ltd. and Prudential Securities Inc. dated October 3, 1997 in the
amount not to exceed $123,000.00
Letter of Intent made by and between Continental Offices Ltd. and Cushman &
Wakefield/Premisys Inc. dated October __, 1997 in the approximate amount of
$900,000.00 (Note: This Letter of Intent is anticipated to be executed in
the ten days following the execution of the Asset Purchase Agreement.)
