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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER: 1-13589
PRIME GROUP REALTY TRUST
(Exact name of registrant as specified in its charter)
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MARYLAND 36-4173047
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 WEST WACKER DRIVE, SUITE 3900, CHICAGO, ILLINOIS 60601
(Address of principal executive offices) (Zip Code)
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(312) 917-1300
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Shares of Beneficial Interest, New York Stock Exchange
$.01 par value per share
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the shares of common stock held by
non-affiliates was approximately $266,090,000 based on the closing price on the
New York Stock Exchange for such shares on March 2, 1998.
The number of the Registrant's shares of common stock outstanding was
12,980,000 as of March 2, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates information by reference from the
definitive Proxy Statement for the Annual Meeting of Stockholders, to be held in
May 1998.
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EXPLANATORY NOTE: Part III of this Form 10-K has been intentionally omitted
because this Amendment No. 1 does not effect any changes to such item. Changes
to Part I and II have been made to reflect adjustments to previously reported
disclosures. Such changes have no effect on the results of operations or the
financial position of the Company. Additionally, the exhibits set forth in Item
14 of Part IV have been amended.
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PART I
ITEM 1. BUSINESS
BACKGROUND AND FORMATION TRANSACTION
Prime Group Realty Trust (the "Company"), a Maryland real estate investment
trust, through its controlling interest in Prime Group Realty, L.P., a Delaware
limited partnership (the "Operating Partnership"), is engaged in the management,
leasing, acquisition, development, redevelopment, construction, marketing,
financing and other activities relating to commercial office and industrial
properties primarily located in the Chicago, Illinois metropolitan area (the
"Chicago Metropolitan Area"). As of December 31, 1997 the Company's portfolio of
properties included 19 office properties (the "Office Properties"), 45
industrial properties (the "Industrial Properties"), one parking facility and
one retail center (collectively the "Properties") containing an aggregate of 9.9
million net rentable square feet.
The Company was incorporated in Maryland in July 1997 and formed to succeed
and expand the office and industrial real estate business of The Prime Group,
Inc., an Illinois corporation ("PGI"). On November 17, 1997, the Company
completed an initial public offering (the "Offering") of 12,380,000 common
shares of beneficial interest (the "Common Shares") and a private placement (the
"Private Placement") of 2,000,000 preferred shares of beneficial interest (the
"Preferred Shares"). The offering price of the Common Shares and the Preferred
Shares was $20.00 per share resulting in gross proceeds of $247.6 million and
$40.0 million, respectively. In addition, a joint venture partnership owned by
PGI, Blackstone, BRE/Primestone Investment L.L.C. and BRE/Primestone Management
Investment L.L.C. purchased 4,569,893 common units of the Operating Partnership
("Common Units") resulting in gross proceeds of $85.0 million. On December 15,
1997, the underwriters of the Offering exercised an over allotment option and,
accordingly, the Company issued an additional 600,000 Common Shares and received
gross proceeds of $12.0 million. The aggregate proceeds to the Company of the
Offering, the Private Placement and the exercise of the over-allotment option,
net of underwriter's discount, advisory fee and offering costs aggregating $27.6
million, were approximately $272.0 million. The Company contributed the net
proceeds of the Offering, the Private Placement and the exercise of the
over-allotment option to the Operating Partnership.
Concurrently with the consummation of the Offering, the Company and the
Operating Partnership, together with the Operating Partnership's limited
partners, including certain partners of PGI, engaged in certain transactions
(the "Formation Transactions") which, among other things, resulted in the
contribution to and the acquisition by the Company and Operating Partnership of
63 of the 66 Properties.
The Formation Transactions included the following:
- PGI contributed to the Operating Partnership (i) its ownership interests
in the property partnerships ("PGI Partnerships") that own certain of the
Properties (the "Predecessor Properties"), (ii) its rights to purchase the
subordinate mortgage encumbering the PGI Partnership that owns the 77 West
Wacker Drive Building from certain third-party lenders and its rights to
acquire certain third parties' ownership interests in the PGI Partnerships
that own certain Predecessor Properties and (iii) substantially all of its
assets and liabilities relating to its office and industrial development,
leasing and management business. In exchange, PGI received 3,465,000
Common Units (with an aggregate value of $69.3 million, assuming the value
of each Common Unit is equal to the initial offering price of a Common
Share). As described below, PGI contributed 3,375,000 of such Common Units
to a joint venture between PGI and certain affiliates of Blackstone Real
Estate Advisors, L.P. and certain of its affiliates ("Blackstone"),
BRE/Primestone Investment L.L.C., a Delaware limited liability company and
BRE/Primestone Management Investment L.L.C., a Delaware limited liability
company (the "Primestone Joint Venture"), resulting in the direct
ownership by PGI of a 0.5% limited partnership interest in the Operating
Partnership as of December 31,
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1997. In addition, Jeffrey A. Patterson, an executive of the Company,
contributed his interest in the assets of the office and industrial
division of PGI. In exchange, Mr. Patterson received 110,000 Common Units,
representing approximately a 0.5% limited partnership interest in the
Operating Partnership as of December 31, 1997.
- Certain individuals (collectively, the "NAC Contributors") contributed six
office and 14 industrial properties to the Operating Partnership. In
exchange, the NAC Contributors received 927,100 common units of general
partnership interest ("GP Common Units"), representing a 3.9% general
partnership interest in the Operating Partnership as of December 31, 1997
(with an aggregate value of $18.5 million, assuming the value of each
Common Unit is equal to the initial public offering price of a Common
Share). In addition, the Operating Partnership paid the NAC Contributors
approximately $14.8 million in cash.
- Certain individuals (collectively, the "IBD Contributors") contributed to
the Operating Partnership their ownership interests in one office property
and six industrial properties in exchange for 922,317 Common Units
representing a 3.9% limited partnership interest in the Operating
Partnership as of December 31, 1997 (with an aggregate value of $18.4
million, assuming the value of each Common Unit is equal to the initial
public offering price of a Common Share). In addition, the Operating
Partnership paid the IBD Contributors approximately $0.9 million in cash,
assumed approximately $6.4 million in debt and provided the IBD
Contributors a note in the amount of $3.9 million (the properties
contributed by the NAC Contributors and IBD Contributors are collectively
the "Contribution Properties).
- PGI, Blackstone, BRE/Primestone Investment L.L.C. and BRE/Primestone
Management Investment L.L.C. formed the Primestone Joint Venture to invest
in Common Units. To capitalize the Primestone Joint Venture, PGI
contributed to the Primestone Joint Venture 3,375,000 of the Common Units
it received in exchange for its contributions to the Operating
Partnership. In addition, Primestone Joint Venture purchased 4,569,893
Common Units from the Operating Partnership at a price per Common Unit
equal to the per share initial public offering price of the Common Shares,
net of an amount equal to the underwriting discounts and commissions
applicable to the Common Shares, simultaneously with the other Formation
Transactions. As a result, the Primestone Joint Venture owns 7,944,893
Common Units, representing a 34.2% limited partnership interest in the
Operating Partnership as of December 31, 1997.
- The Operating Partnership borrowed $83.5 million under three separate
mortgage loans secured by certain of the Contribution Properties (the "New
Mortgage Notes") and assumed $10.4 million in mortgage notes.
- The Operating Partnership repaid third-party lenders approximately $359.9
million (including prepayment fees) of obligations of the entities that
own the Properties (the "Property Partnerships") or indebtedness
encumbering the Properties.
- The Operating Partnership obtained a line of credit (the "Credit
Facility") used to fund future acquisitions and to replace the outstanding
letters of credit which secure the payment of principal and interest on
$74.5 million of tax-exempt bond financing (the "Tax-Exempt Bonds").
- The Operating Partnership paid approximately $40.0 million to acquire four
office properties and one industrial property (collectively, the
"Acquisition Properties") and approximately $5.2 million to acquire the
assets and business of Continental Offices, Ltd. and Continental Offices,
Ltd. Realty (collectively, the "Continental Management Business") from
third parties. The purchase price for the Acquisition Properties and the
Continental Management Business was in each case negotiated in
arm's-length transactions with third parties based on a multiple of the
net operating income of each of the Acquisition Properties and the
Continental Management Business, respectively.
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- The Operating Partnership paid approximately $1.8 million in cash to third
parties for the balance of the ownership interests and subordinate debt
interests relating to certain of the Predecessor Properties.
- The Operating Partnership paid approximately $1.7 million in fees to
obtain the Credit Facility and the New Mortgage Notes.
- The Operating Partnership contributed the Continental Management Business,
the health club facility located in the 77 West Wacker Drive Building and
the office and industrial development, leasing and property management
business to a newly formed company, Prime Group Realty Services, Inc. (the
"Services Company") in exchange for (i) 100% of the non-voting
participating preferred stock of the Services Company (the "Services
Company Preferred Stock") and (ii) a promissory note issued by the
Services Company with an initial principal balance of $4.8 million,
bearing interest at 11% per annum (the "Note"). Messrs. Reschke and Curto
contributed an aggregate of $50,000 for 100% of the Services Company's
voting common stock. The Operating Partnership is expected to receive
approximately 95.0% of the economic benefits of the operations of the
Services Company by virtue of payments on the Note and distributions in
respect of its ownership of the Services Company Preferred Stock.
Upon completion of the Offering and the consummation of the Formation
Transactions, the Company owned 63 properties, which consisted of 16 office
properties, 45 industrial properties, one parking facility and one retail center
containing an aggregate of 8.1 net rentable square feet. Between the closing of
the Offering and December 31, 1997, the Company acquired one additional property
and the first mortgage notes of two additional properties. See "Recent
Developments".
The Company currently is involved in only one industry segment, the
ownership, management and development of real estate. Therefore, all of the
financial statements contained herein relate to this industry segment. See
"Financial Statements and Supplementary Data".
TAX STATUS
The Company has elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended. As a REIT, the Company
generally will not be subject to federal income tax at the corporate level on
income it distributes to its stockholders so long as it distributes at least 95%
of its taxable income (excluding any net capital gain) each year. Since the
Offering the Company believes that it has complied with the tax regulations to
maintain its REIT status. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Even if the Company qualifies as a REIT, the Company may be subject to
certain state and local taxes on its income and property.
BUSINESS AND GROWTH STRATEGIES
The Properties owned by the Company as of December 31, 1997 contain
approximately 9.9 million rentable square feet. The Company currently intends to
invest primarily in the acquisition, development and redevelopment of commercial
real estate properties located in the (i) Chicago Central Business District
("Chicago CBD") office market, (ii) suburban Chicago office market, (iii)
Chicago Metropolitan Area warehouse/distribution market and (iv) Chicago
Metropolitan Area overhead crane/manufacturing market. The Company's primary
business objective is to achieve sustainable long-term growth in cash flow per
share and to enhance the value of its portfolio through the implementation of
effective operating, acquisition, development and financing strategies. The
Company believes that opportunities exist to increase cash flow per share by:
- contractual rent increases in existing leases;
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- leasing all or a portion of the existing vacant space in the Properties;
- acquiring office and industrial properties (or entities that own or
control such properties) at or below replacement cost and at positive
spreads to its cost of capital;
- increasing rental and occupancy rates and decreasing tenant concessions as
vacancy rates in the Company's submarkets generally continue to decline;
- developing office and industrial properties for the benefit of the Company
where such development will result in a favorable risk-adjusted return on
investment;
- expanding its property management, leasing and corporate advisory services
business; and
- using, when available, long-term, tax-exempt bonds (which typically have
lower interest costs) to finance the acquisition and renovation of
existing industrial facilities and the development of new industrial
facilities.
The Company believes that a number of factors will enable it to achieve its
business objectives, including: (a) the opportunity to lease available space at
attractive rental rates because of increasing demand and, with respect to the
Office Properties, the present limited level of new construction in the Chicago
Metropolitan Area; (b) the presence of distressed sellers and inadvertent owners
(through foreclosure or otherwise) of office and industrial properties in the
Company's submarkets, as well as the Company's ability to acquire properties
with Common Units (thereby deferring the seller's taxable gain), all of which
create enhanced acquisition opportunities; and (c) the quality and location of
the Properties.
Management believes that the Company is well-positioned to take advantage of
these opportunities because of its extensive experience in its markets, its
seasoned management team, its significant land holdings and option rights and
its ability to develop, redevelop, lease and efficiently manage office and
industrial properties. In addition, the Company believes that public ownership
and its capital structure will provide the Company with enhanced access to the
public debt and equity capital markets and new opportunities for growth.
OPERATING STRATEGY. The Company will focus on enhancing its cash flow per
share by: (a) maximizing cash flow from its Properties through contractual rent
increases, pro-active leasing programs and effective property management; (b)
managing operating expenses through the use of in-house management, leasing,
marketing, financing, accounting, legal, construction, management and data
processing functions; (c) maintaining and developing long-term relationships
with a diverse tenant group; (d) attracting and retaining motivated employees by
providing financial and other incentives to meet the Company's operating and
financial goals; and (e) continuing to emphasize value-added capital
improvements to enhance the Properties' competitive advantages in their
submarkets.
ACQUISITION STRATEGY. The Company will seek to increase its cash flow per
share by acquiring additional office and industrial properties at prices below
replacement cost, including properties that: (a) may provide attractive initial
yields and significant potential for growth in cash flow from property
operations; (b) are well-located, high quality and competitive in their
respective submarkets; (c) are located in the Company's existing submarkets
and/or in other strategic submarkets where the demand for office and industrial
space exceeds available supply; or (d) have been undermanaged or are otherwise
capable of improved performance through intensive management, marketing and
leasing.
The Company plans to concentrate its acquisition activities in the Chicago
Metropolitan Area and, to a lesser extent, in other midwestern markets. The
Company believes that attractive opportunities exist to acquire office and
industrial properties in these markets at prices below replacement cost. Each
acquisition opportunity will be reviewed to evaluate whether it meets one or
more of the following criteria: (a) potential for higher occupancy levels and/or
rents as well as for lower tenant turnover and/or operating expenses; (b)
ability to generate returns in excess of the Company's weighted average cost of
capital, taking
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into account the estimated costs associated with renovation and tenant turnover
(I.E., tenant improvements and leasing commissions); and (c) a purchase price at
or below estimated replacement cost.
The Company believes it has certain competitive advantages that enhance its
ability to identify and complete acquisitions on a timely and efficient basis,
including: (a) management's significant local market experience with, and
knowledge of, properties, submarkets and potential tenants; (b) management's
long-standing relationships with commercial real estate brokers and
institutional and other owners of commercial real estate in the Chicago
Metropolitan Area; (c) the Company's fully-integrated real estate operations,
which allow it to quickly evaluate and respond to acquisition opportunities; (d)
the Company's ability to access relatively low-cost financing through the
capital markets; and (e) management's reputation as an experienced purchaser of
office and industrial properties with the ability to execute transactions in an
efficient and timely manner. The Company also believes it could add a number of
office and industrial properties to its portfolio without the need for a
significant increase in general and administrative expenses, due to the
Company's expertise and depth of management and the efficiencies created by its
centralized management structure.
The Company believes that many of the owners of commercial real estate
properties located in the Chicago Metropolitan Area have a low tax basis in
their properties and have the corresponding potential for the recognition of
substantial taxable gains as a result of the disposition of such properties.
Management believes that the Company's capital structure and ability to acquire
properties in exchange for Common Units, and thereby defer a seller's potential
taxable gain, will enhance the ability of the Company to consummate transactions
quickly and to structure more competitive acquisitions than other real estate
companies in the market which lack the Company's access to capital and ability
to acquire property with Common Units.
DEVELOPMENT STRATEGY. As opportunities arise and where market conditions
support a favorable risk-adjusted return on investment, the Company intends to
pursue opportunities for growth through the development of new office and
industrial properties. The Company believes that the strength and experience of
its management in the development of office and industrial properties will
provide it with a competitive advantage in evaluating and pursuing opportunities
to develop additional properties. During the next few years, the Company expects
that most of its development activities will be focused on suburban office and
industrial properties in the Chicago Metropolitan Area.
Based on ongoing marketing activities and discussions with prospective
tenants, the Company expects that over the next several years there will be
significant demand from several large tenants that are unable to find large
blocks of contiguous Class A office space in downtown Chicago which may lead to
significant office development opportunities. The Company believes that its
significant land holdings and land option rights will provide it with a distinct
advantage in competing for future development opportunities. The Company owns
approximately 83.4 acres and has rights to acquire approximately 157.2 acres of
developable land, which management believes could be developed with
approximately 1.2 million square feet of additional office space in the Chicago
CBD and approximately 4.4 million square feet of additional industrial space
primarily in the Chicago Metropolitan Area. The Company's option rights include
an option to acquire a development site containing approximately 58,000 square
feet known as 300 N. LaSalle in downtown Chicago which, to the extent the
Company is able to obtain significant preleasing commitments for such a project,
the Company believes it could develop as an office or mixed-use project
containing up to approximately 1.2 million net rentable square feet.
The Services Company's corporate advisory activities with third parties are
expected to give the Company further access to future development opportunities.
The Services Company also will continue to undertake build-to-suit projects for
third parties.
FINANCING STRATEGY. The Company's financing strategy and objectives are
determined by the Company's Board of Trustees. The Company presently intends to
operate with a ratio of debt-to-total market capitalization (defined as the
total debt of the Company as a percentage of the sum of the market value of
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issued and outstanding shares, including the Common Units exchangeable for
Common Shares, plus total debt) in the range of 25.0% to 50.0%. The Company also
intends to operate in a manner that will facilitate its ability to secure an
investment grade rating on future unsecured debt. However, such objectives may
be altered without the consent of the Company's shareholders, and the Company's
organizational documents do not limit the amount or type of indebtedness that
the Company may incur.
The Company intends to use one or more sources of capital for future
acquisitions and development activities. These capital sources may include
undistributed cash flow, borrowings under certain acquisition facilities,
proceeds from the issuance of long-term, tax-exempt bonds and other debt or
equity securities and other bank and/or institutional borrowings.
RECENT DEVELOPMENTS
During the period November 17, 1997 through December 31, 1997, the Company
increased its office portfolio from 16 to 19 properties by acquiring one
suburban Milwaukee, Wisconsin property and the first mortgage notes of one
Chicago CBD property and one suburban Chicago property encompassing in total
approximately 1.8 million square feet for an aggregate purchase price of
approximately $172.2 million consisting of $167.2 million in cash and Common
Units with an aggregate value of $5.1 million (representing a 1.1% limited
partnership interest in the Operating Partnership as of December 31, 1997). In
addition, 801 Technology Way was available for occupancy and included in the
Company's industrial portfolio at December 31, 1997.
Set forth below is a brief description of the property acquired by the
Company during the period November 17, 1997 through December 31, 1997:
2675 N. MAYFAIR. 2675 N. Mayfair is an office building located in
Wauwatosa, Wisconsin. It contains approximately 102,660 net rentable square feet
of office space. As of December 31, 1997, the property was 96.0% leased to 14
tenants.
The Company also acquired the first mortgage notes encumbering the following
properties during the period November 17, 1997 through December 31, 1997:
CONTINENTAL TOWERS. Continental Towers consists of three 12-story office
towers in Rolling Meadows, Illinois that contain approximately 916,000 net
rentable square feet of office space. As of December 31, 1997, the property was
99.1% leased to 71 tenants. The operations of Continental Towers have been
consolidated with those of the company for financial statement purposes.
180 N. LASALLE STREET. 180 N. LaSalle Street is a 39-story office building
in the Chicago CBD that contains approximately 729,000 net rentable square feet
of office space. As of December 31, 1997, the property was 81.4% leased to 95
tenants. The operations of 180 N. LaSalle have been reflected as a note
receivable for financial statement purposes.
On March 25, 1998, the Company issued and sold 2,579,994 Common Shares in a
private placement to institutional investors. The net proceeds to the Company
from the private placement were approximately $49.25 million, and are expected
to be used for additional property acquisitions. The Company has granted certain
registration rights to the institutional investors with respect to the Common
Shares purchased by them in the private placement.
COMPETITION
The Company competes with other owners and developers that may have greater
resources and more experience than the Company. Additionally, the number of
competitive properties in any particular market or submarket in which the
Properties are located could have a material adverse effect on both the
Company's ability to lease space at the Properties or any newly-acquired
property and on the rents charged at the Properties. The Company believes that
the Credit Facility and the Company's access as a public
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company to the capital markets to raise funds during periods when conventional
sources of financing may be unavailable or prohibitively expensive provide the
Company with substantial competitive advantages. Further, the Company believes
that its capital structure and ability to acquire properties in exchange for
Common Units, and thereby defer a seller's potential taxable gain, enhance the
Company's ability to consummate transactions quickly and to structure more
competitive acquisitions than other real estate companies in the market which
lack the Company's access to capital and ability to acquire property with Common
Units. See "Business and Growth Strategies--Acquisition Strategy". The Company
believes that the number of real estate developers has decreased as a result of
the recessionary market conditions and tight credit markets during the early
1990s as well as the reluctance on the part of more conventional financing
sources to fund development and acquisition projects. In addition, the Company
believes that it is one of a limited number of publicly-traded real estate
companies primarily focusing on the office and industrial market in the Chicago
Metropolitan Area.
GOVERNMENT REGULATION
ENVIRONMENTAL MATTERS. All of the Properties were subject to Phase I or
similar environmental assessments by independent environmental consultants in
connection with the formation of the Company. Phase I assessments are intended
to discover information regarding, and to evaluate the environmental condition
of, the surveyed property and surrounding properties. Phase I assessments
generally include an historical review, a public records review, an
investigation of the surveyed site and surrounding properties, and preparation
and issuance of a written report, but do not include soil sampling or subsurface
investigations.
The Company is aware of environmental contamination at certain of the older
Industrial Properties: the Chicago Enterprise Center (the "CEC"), the East
Chicago Enterprise Center (the "ECEC") and the Hammond Enterprise Center (the
"HEC"), which are already in remediation programs sponsored by the appropriate
state environmental agencies. PGI has contractually agreed to retain liability,
and indemnify the Company, for environmental remediation with regard to these
Industrial Properties, which environmental consultants have estimated will cost,
in the aggregate, up to $3.2 million. Based on such estimates, certain of the
Property Partnerships have recorded provisions for environmental remediation
costs totaling $3.2 million.
The Company also is aware of contamination at 455 Academy Drive, one of the
Contribution Properties. The current tenant of the Property, National Service
Industries, has provided the Company with an indemnity for all of the costs of
environmental remediation regarding the Property caused by National Service
Industries either knowingly or unknowingly. The Company also is aware of
contamination at 1301 E. Tower Road, one of the properties contributed by the
NAC Contributors. The Property has been submitted into a remediation program
sponsored by the Illinois Environmental Protection Agency. The Company's
environmental consultants estimate that the remedial action will cost
approximately $200,000.
The Company believes that the other Properties are in compliance in all
material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances. The Company has not been
notified by any governmental authority, and is not otherwise aware, of any
material noncompliance, liability or claim relating to hazardous or toxic
substances in connection with any of its other Properties. None of the Company's
environmental assessments of the Properties has revealed any environmental
liability that, after giving effect to the contractual indemnities described
above, the Company believes would have a material adverse effect on the
Company's financial condition or results of operations taken as a whole, nor is
the Company aware of any such material environmental liability. Nonetheless, it
is possible that the Company's assessments do not reveal all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. Moreover, there can be no assurance that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Properties will not be
affected by tenants, by the condition of land or operations in the vicinity of
the Properties (such as the presence of underground
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storage tanks) or by third parties unrelated to the Company. If compliance with
the various laws and regulations, now existing or hereafter adopted, exceeds the
Company's budgets for such items, the Company's ability to make expected
distributions to shareholders could be adversely affected.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Under the ADA,
all public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. These
requirements became effective in 1992. Compliance with the ADA requirements
could require removal of access barriers, and noncompliance could result in the
imposition of fines by the federal government or an award of damages to private
litigants. Although the Company believes that the Properties are substantially
in compliance with these requirements, the Company may incur additional costs to
comply with the ADA. Although the Company believes that such costs will not have
a material adverse effect on the Company, if required changes involve a greater
amount of expenditures than the Company currently anticipates, the Company's
ability to make expected distributions could be adversely affected.
OTHER REGULATIONS. The Properties are also subject to various federal,
state and local regulatory requirements, such as state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
material compliance with all such regulatory requirements. However, there can be
no assurance that these requirements will not be changed or that new
requirements will not be imposed which would require significant unanticipated
expenditures by the Company and could have an adverse effect on the Company's
funds from operations and expected distributions.
INSURANCE
Management believes that the Properties are covered by adequate
comprehensive liability, rental loss, and all-risk insurance, provided by
reputable companies, with commercially reasonable deductibles, limits and policy
specifications customarily carried for similar properties. There are, however,
certain types of losses which may be either uninsurable or not economically
insurable, such as losses due to floods, riots or acts of war. Should an
uninsured loss occur, the Company could lose both its invested capital in, and
anticipated profits from, the property.
EMPLOYEES
As of December 31, 1997, the Company had 226 full-time employees.
ITEM 2. PROPERTIES
GENERAL
The Company (through the Operating Partnership) owns 19 Office Properties
encompassing an aggregate of approximately 4.1 million net rentable square feet,
45 Industrial Properties encompassing an aggregate of approximately 5.8 million
net rentable square feet, one parking facility with 398 parking spaces and one
retail center. The Properties are owned in fee simple by the respective Property
Partnerships, except for Continental Towers and 180 N. LaSalle. The Company owns
the first mortgage notes of these two properties. Fourteen of the 19 Office
Properties and 38 of the 45 Industrial Properties are located in the Chicago
Metropolitan Area. In the Chicago Metropolitan Area, the most notable Office
Property is the 77 West Wacker Drive Building, a premier 50-story landmark
office tower in downtown Chicago, which contains approximately 944,600 net
rentable square feet. The building has won numerous awards, including, in 1993,
the Sun-Times Real Estate Development of the Year and the Best New Building
Award from Friends of Downtown. Three Office Properties are located in
Knoxville, Tennessee, one Office Property is located in downtown Nashville,
Tennessee, one Office Property is located in the Milwaukee, Wisconsin
metropolitan area, six Industrial Properties are located in the Columbus, Ohio
metropolitan
9
<PAGE>
area, the parking facility is located in Knoxville, Tennessee and the retail
center is located in a suburb of Chicago. As of December 31, 1997, the Office
Properties were approximately 91.9% leased to more than 390 tenants, and the
Industrial Properties were approximately 87.5% leased to more than 65 tenants.
Management has developed or redeveloped, leased and managed 38 of the 45
Industrial Properties (79.5%, in terms of net rentable square feet) and 13 of
the 19 Office Properties (69.3%, in terms of net rentable square feet). In the
course of such development and redevelopment, the Company has acquired
experience across a broad range of development and redevelopment projects. For
example, the Company has developed both Office Properties, such as the 77 West
Wacker Drive Building, and Industrial Properties, such as the Contribution
Properties. The Company also has redeveloped both Office Properties, such as 201
4th Avenue in Nashville, and Industrial Properties, such as the CEC, the ECEC
and the HEC, in the Chicago Metropolitan Area. The Company believes that all of
its Properties are well maintained and, based on recent engineering reports, do
not require significant capital improvements.
In addition to its interests in the Office Properties and Industrial
Properties, the Company owns approximately 83.4 acres and has the rights to
acquire an additional 157.2 acres of developable land including rights to
acquire one development site located in the Chicago CBD containing approximately
58,000 square feet. Management believes that approximately 1.2 million square
feet of additional office space in the Chicago CBD and approximately 4.4 million
square feet of additional industrial space, primarily in the Chicago
Metropolitan Area can be developed on this land. The Company also has an option
to acquire one additional industrial property, 901 Technology Way, in the
Libertyville Business Park, in Libertyville, Illinois, from certain of the IBD
Contributors and a 15-year right of first offer to develop all or any portion of
360 acres of undeveloped office and industrial land in the Huntley Business
Park, in Huntley, Illinois, currently owned and controlled by an affiliate of
PGI, subject to a participation interest in such property held by a third-party
lender.
10
<PAGE>
The Office Properties are leased to tenants either on a net basis with
tenants obligated to pay their proportionate share of real estate taxes,
insurance, utility and operating expenses or on a full service basis, with the
landlord responsible for the payment of taxes, insurance and operating expenses
up to the amount incurred during the tenant's first year of occupancy ("Base
Year") or a negotiated amount approximating the tenant's pro rata share of real
estate taxes, insurance and operating expenses ("Expense Stop"). The tenant pays
its pro rata share of increases in expenses above the Base Year or Expense Stop.
Most of the leases for the Industrial Properties are written on a net basis,
with tenants paying their proportionate share of real estate taxes, insurance,
utility and operating expenses.
PROPERTIES
The following table sets forth certain information relating to each of the
Properties as of December 31, 1997, unless indicated otherwise. Through the
Operating Partnership, the Company owns a 100% interest in all of the Office
Properties and the Industrial Properties, except for Continental Towers and 180
N. LaSalle. The Company owns the first mortgage notes on these properties.
<TABLE>
<CAPTION>
NET PERCENTAGE
YEAR BUILT/ RENTABLE LEASED AS OF
PROPERTY LOCATION RENOVATED SQUARE FEET 12/31/97(%)
- -------------------------------------------- ----------------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES (OWNED):
77 West Wacker Drive...................... Chicago, IL 1992 944,556 96.0
1990 Algonquin Road/2000-2060 Algonquin
Road (Salt Creek Office Center)(1)...... Schaumburg, IL 1979/1986 125,922 92.0
1699 E. Woodfield Road (Citibank Office
Plaza).................................. Schaumburg, IL 1979 105,400 99.3
555 Huehl Road............................ Northbrook, IL 1987 74,000 100.0
201 4th Avenue N.......................... Nashville, TN 1968/1985 250,566 91.0
620 Market Street......................... Knoxville, TN 1988 93,711 91.4
625 Gay Street............................ Knoxville, TN 1988 91,426 90.0
4823 Old Kingston Pike.................... Knoxville, TN 1988 34,638 100.0
2675 N. Mayfair........................... Wauwatosa, WI 1979 102,660 96.0
941-961 Weigel Drive...................... Elmhurst, IL 1989/1994 123,077 100.0
4100 Madison Street....................... Hillside, IL 1978 24,536 58.2
350 N. Mannheim Road...................... Hillside, IL 1977/1987 4,850 --
1600-1700 167th Street.................... Calumet City, IL 1981 65,394 59.5
4343 Commerce Court....................... Lisle, IL 1989 170,708 90.0
1301 E. Tower Road........................ Schaumburg, IL 1992 50,400 100.0
280 Shuman Blvd........................... Naperville, IL 1979 65,001 97.0
2205-2255 Enterprise Drive................ Westchester, IL 1987 129,574 97.0
OFFICE PROPERTIES (FOR WHICH THE COMPANY
OWNS A MORTGAGE NOTE):
Continental Towers (2).................... Rolling Meadows, IL 1977/1981 916,000 99.1
180 N. LaSalle (3)........................ Chicago, IL 1982/1998 729,000 81.4
----------- -----
Office Properties Subtotal................ 4,101,419 91.9
----------- -----
INDUSTRIAL PROPERTIES:
WAREHOUSE/DISTRIBUTION FACILITIES:
425 E. Algonquin Road..................... Arlington Heights, IL 1978 304,506 100.0
1001 Technology Way....................... Libertyville, IL 1996 212,831 100.0
3818 Grandville/1200 Northwestern......... Gurnee, IL 1961/1990 345,232 100.0
306-310 Era Drive......................... Northbrook, IL 1984 36,495 100.0
2160 McGaw Road........................... Obetz, OH 1974 310,100 100.0
4849 Groveport Road....................... Obetz, OH 1968 132,100 100.0
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
YEAR BUILT/ RENTABLE LEASED AS OF
PROPERTY LOCATION RENOVATED SQUARE FEET 12/31/97(%)
- -------------------------------------------- ----------------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
2400 McGaw Road........................... Obetz, OH 1972 86,400 100.0
5160 Blazer Memorial Parkway (4).......... Dublin, OH 1983 85,962 66.8
600 London Road........................... Delaware, OH 1981 52,441 100.0
1401 S. Jefferson......................... Chicago, IL 1965/1985 17,265 100.0
1051 N. Kirk Road......................... Batavia, IL 1990 120,004 100.0
4211 Madison Street....................... Hillside, IL 1977/1992 90,344 100.0
200 E. Fullerton Avenue................... Carol Stream, IL 1968/1995 66,254 100.0
350 Randy Road............................ Carol Stream, IL 1974 25,200 87.5
4248, 4250 and 4300 Madison Street........ Hillside, IL 1980 127,129 100.0
370 Carol Lane............................ Elmhurst, IL 1977/1994 60,290 100.0
388 Carol Lane............................ Elmhurst, IL 1979 40,920 88.4
342-346 Carol Lane........................ Elmhurst, IL 1989 67,935 100.0
343 Carol Lane............................ Elmhurst, IL 1989 30,084 100.0
4160-4190 Madison Street.................. Hillside, IL 1974/1992 79,532 100.0
11039 Gage Avenue......................... Franklin Park, IL 1965/1993 21,935 100.0
11045 Gage Avenue......................... Franklin Park, IL 1970/1992 136,600 100.0
550 Kehoe Blvd............................ Carol Stream, IL 1997 44,575 100.0
475 Superior Avenue....................... Munster, IN 1989 450,000 100.0
801 Technology Way........................ Libertyville, IL 1997 68,824 63.4
OVERHEAD CRANE/MANUFACTURING FACILITIES:
1301 Ridgeview Drive...................... McHenry, IL 1995 217,600 100.0
515 Huehl Road/500 Lindberg............... Northbrook, IL 1988 201,244 100.0
455 Academy Drive......................... Northbrook, IL 1976 105,444 100.0
4411 Marketing Place...................... Groveport, OH 1984 65,804 100.0
Chicago Enterprise Center................... Chicago, IL 1916/1991-1996
13535-A S. Torrence Avenue................ 384,806 37.9
13535-B S. Torrence Avenue................ 239,752 100.0
13535-C S. Torrence Avenue................ 99,333 100.0
13535-D S. Torrence Avenue................ 77,325 100.0
13535-E S. Torrence Avenue................ 57,453 15.3
13535-F S. Torrence Avenue................ 44,800 100.0
13535-G S. Torrence Avenue................ 54,743 --
13535-H S. Torrence Avenue................ 73,612 56.3
East Chicago Enterprise Center.............. East Chicago, IN 1917/1991-1997
Building 2 (4407 Railroad Avenue)......... 169,435 --
Building 3 (4407 Railroad Avenue)......... 291,550 100.0
Building 4 (4407 Railroad Avenue)......... 87,483 98.1
4440 Railroad Avenue (5).................. 40,000 100.0
4635 Railroad Avenue...................... 14,070 --
Hammond Enterprise Center................... Hammond, IN 1920-1952
4507 Columbia Avenue...................... 256,595 98.8
4527 Columbia Avenue (6).................. 16,701 62.8
4531 Columbia Avenue...................... 250,266 74.1
Industrial Properties Subtotal.............. 5,760,974 87.9
----------- -----
Portfolio Total............................. 9,862,393 89.6
----------- -----
----------- -----
OTHER PROPERTIES:
398 Unit Parking Facility................. Knoxville, TN 1981
371-385 N. Gary Avenue (7)................ Carol Stream, IL 1978 11,276
</TABLE>
12
<PAGE>
- ------------------------
(1) This property complex is comprised of 1990 Algonquin Road (a two-story
office building) and 2000-2060 Algonquin Road (seven single-story office
buildings), but is treated as one Office Property.
(2) The Company holds a mortgage note receivable on the property and has
consolidated the underlying property operations.
(3) The Company holds a mortgage note receivable on the property. The operating
results of this property have not been consolidated with the operating
results of the Company.
(4) This property is a mixed use Industrial/Office Property that has been
classified as an Industrial Property.
(5) This property is an office building adjacent to the East Chicago Enterprise
Center.
(6) This property is an office building within the Hammond Enterprise Center.
(7) This is a retail center.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently subject to any material litigation nor, to the
Company's knowledge, is any material litigation threatened against the Company,
other than routine litigation arising in the ordinary course of business, some
of which is expected to be covered by liability insurance and all of which
collectively is not expected to have a material adverse effect on the
consolidated financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
No matters were submitted to a vote of stockholders during the period from
November 17, 1997 (inception) through December 31, 1997.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Shares began trading on the New York Stock Exchange ("NYSE") on
November 12, 1997, under the symbol "PGE". On March 2, 1998, the reported
closing sale price on the NYSE was $20 1/2, and there were approximately 4,100
holders of record of Common Shares. The following table sets forth the high and
low closing sales prices per Common Share reported on the NYSE and the
distribution paid by the Company for the period from November 17, 1997 through
December 31, 1997.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTION
--------- --------- -----------
<S> <C> <C> <C>
December 31, 1997 (from November 17, 1997)...................................... 20 5/16 19 1/2 $.16644(1)
</TABLE>
- ------------------------
(1) The Company paid a distribution of $.16644 per share of Common Stock on
January 23, 1998, to stockholders of record on December 31, 1997. That
distribution was for the period from November 17, 1997 through December 31,
1997 and is equivalent to a quarterly distribution of $.3375 and an annual
distribution of $1.35.
Concurrently with the completion of the Offering and consummation to the
Formation Transactions, the Operating Partnership issued 9,994,310 Common Units
to PGI, the Primestone Joint Venture, the IBD Contributors, the NAC Contributors
and certain members of management of the Company. In addition, the Operating
Partnership issued 256,572 Common Units as partial consideration in the
acquisition of the first mortgage note of 180 N. LaSalle, which was purchased by
the Company subsequent to the Offering. Holders of the Common Units may redeem
part or all of the Common Units for Common Shares on a one-for-one basis, or at
the option of the Company, cash equal to the fair market value of a Common Share
at the time of exchange. This exchange right may not be exercised prior to the
first anniversary of the consummation of the Offering.
Additionally with the completion of the Offering and consummation of the
Formation Transactions, the Company issued 2,000,000 cumulative convertible
preferred shares of beneficial interest, $0.01 par value per share (the
"Convertible Preferred Shares") in a private placement to Security Capital
Preferred Growth Incorporated. Holders of the Convertible Preferred Shares may
convert them to Common Shares on September 17, 1998 or upon the occurrence of
certain events.
The issuance of Common Units and the Convertible Preferred Shares pursuant
to the Formation Transactions constitutes private placements of securities which
are exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected consolidated/combined financial
data for the Company and the Predecessor Properties (in thousands except per
share amounts) and should be read in conjunction with the consolidated/combined
financial statements included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------
COMPANY -
CONSOLIDATED
HISTORICAL PREDECESSOR PROPERTIES--COMBINED HISTORICAL
------------- ---------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1,
1997 THROUGH 1997 THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, NOVEMBER 16, ------------------------------------------
1997 1997 1996 1995 1994 1993
------------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUE:
Rental....................................... $ 7,293 $ 27,947 $ 30,538 $ 33,251 $ 30,352 $ 28,177
Tenant reimbursements........................ 2,041 12,490 14,225 14,382 12,451 10,750
Insurance settlement......................... -- -- -- 7,257 -- --
Other........................................ 496 1,515 3,397 2,715 3,170 1,527
------ ------------- --------- --------- --------- ---------
Total revenue................................ 9,830 41,952 48,160 57,605 45,973 40,454
------ ------------- --------- --------- --------- ---------
EXPENSES:
Property operations.......................... 2,213 8,622 9,767 9,479 8,852 8,452
Real estate taxes............................ 1,765 8,575 9,383 9,445 9,057 7,167
Depreciation and amortization................ 2,478 11,241 12,409 12,646 11,624 11,739
Interest..................................... 1,680 24,613 26,422 27,671 25,985 22,827
Interest--affiliate.......................... -- 9,804 10,795 8,563 7,402 6,335
Property and asset management fee--
affiliate.................................. -- 1,348 1,561 1,496 1,388 1,106
Financing fees............................... -- 1,180 1,232 -- -- --
General and administrative................... 267 2,414 4,927 4,508 3,727 3,657
Provision for environmental remediation
costs...................................... -- 3,205 -- -- -- --
Write-off of deferred tenant costs........... -- -- 3,081 13,373 -- --
------ ------------- --------- --------- --------- ---------
Total expenses............................... 8,403 71,002 79,577 87,181 68,035 61,283
------ ------------- --------- --------- --------- ---------
Income (loss) before minority interest and
extraordinary item......................... 1,427 (29,050) (31,417) (29,576) (22,062) (20,829)
Minority interest............................ (635) 666 894 3,281 5,393 10,531
------ ------------- --------- --------- --------- ---------
Net income (loss) before extraordinary item.. 792 (28,384) (30,523) (26,295) (16,669) (10,298)
Extraordinary (loss) gain on early
extinguishment of debt, net of minority
interests' share in the amount of $1,127... -- 65,990 -- -- -- --
------ ------------- --------- --------- --------- ---------
Net income (loss)............................ 792 $ 37,606 $ (30,523) $ (26,295) $ (16,669) $ (10,298)
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Net income allocated to preferred
shareholders............................... 345
------
Net income available to common
shareholders............................... $ 447
------
------
NET INCOME AVAILABLE PER WEIGHTED AVERAGE
COMMON SHARE OF BENEFICIAL INTEREST-- BASIC
AND DILUTED (1)............................ $ 0.04
------
------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------
COMPANY - PREDECESSOR PROPERTIES--COMBINED
CONSOLIDATED HISTORICAL
HISTORICAL DECEMBER 31,
DECEMBER 31, ------------------------------------------
1997 1996 1995 1994 1993
------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate assets, before accumulated
depreciation..................................... $ 589,279 $ 291,757 $ 289,558 $ 285,687 $ 281,316
Total assets....................................... 741,468 325,230 343,641 356,421 357,158
Mortgages notes and bonds payable.................. 328,044 421,983 405,562 388,309 361,832
Total liabilities.................................. 370,192 447,927 434,993 421,257 397,539
Minority interest.................................. 147,207 (6,905) (6,047) 886 (11,527)
Shareholders' equity (partners' deficit)........... 224,069 (115,792) (85,305) (65,722) (28,854)
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------------------------
COMPANY -
CONSOLIDATED
HISTORICAL PREDECESSOR PROPERTIES--COMBINED HISTORICAL
------------ ---------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1,
1997 THROUGH 1997 THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, NOVEMBER 16, -------------------------------------
1997 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations(2)............................. $ 3,964 $ (14,461) $ (17,367) $ (12,733) $ (12,930)
Cash flows provided by (used in):
Operating activities............................... 6,658 (5,700) (3,165) (1,259) (13,875)
Investing activities............................... (353,816) (2,467) 1,126 (9,176) (6,495)
Financing activities............................... 335,390 6,331 5,733 10,873 15,422
Office Properties:
Square footage..................................... 4,101,419 2,353,759 1,414,897 1,414,897 1,414,897
Occupancy (%)...................................... 91.9 88.0 92.5 95.8 93.7
Industrial Properties:
Square footage..................................... 5,760,974 5,696,355 2,462,430 2,551,624 2,547,388
Occupancy (%)...................................... 87.9 87.9 73.5 72.9 62.3
</TABLE>
- ------------------------
(1) Net income available per weighted-average common share of beneficial
interest--basic and diluted equals net income divided by the 12,593,000
Common Shares. See Note 9 to the Company's consolidated financial statements
for further information.
(2) As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), Funds from Operations represents net income (loss) before
minority interest of holders of Common Units (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. Non-cash adjustments to
Funds from Operations were as follows: in all periods, depreciation and
amortization, for the period from January 1, 1997 through November 16, 1997,
provision for environmental remediation cost, for the years ended December
31, 1996, 1995, 1994, gains on the sale of real estate, for the years ended
December 31, 1996 and 1995, write-off of deferred tenant costs, for the year
ended December 31, 1995, excess proceeds from insurance claims, and for the
year ended December 31, 1994, lease termination fees. Management considers
Funds from Operations an appropriate measure of performance of an office
and/or industrial REIT because industry analysts have accepted it as such.
The Company computes Funds from Operations in accordance with standards
established by the Board of Governors of NAREIT in its March 1995 White
Paper (with the exception that the Company expects to report rental revenues
on a cash basis, rather than a straight-line GAAP basis,
16
<PAGE>
which the Company believes will result in a more accurate presentation of
its actual operating activities), which may differ from the methodology for
calculating Funds from Operations used by certain other office and/or
industrial REITs and, accordingly, may not be comparable to such other
REITs. Further, Funds from Operations does not represent amounts available
for management's discretionary use because of needed capital replacement or
expansion, debt repayment obligations, or other commitments and
uncertainties. Funds from Operations should not be considered as an
alternative for net income as a measure of profitability nor is it
comparable to cash flows provided by operating activities determined in
accordance with GAAP.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the historical
consolidated financial statements of the Company and the combined financial
statements of the Predecessor Properties and related notes thereto included
elsewhere in this Form 10-K.
PGI, through the PGI Partnerships which own the Predecessor Properties,
engaged in the ownership, management, operation, and leasing of commercial
office and industrial properties located in the Chicago Metropolitan Area. On
November 17, 1997, following completion of the Offering and the consummation of
the Formation Transactions, the Company owned 63 properties (including the
Predecessor Properties, the Contribution Properties and the Acquisition
Properties) and succeeded to the office and industrial real estate business of
PGI and certain of its affiliates.
The Company owns all of its interests in the Properties through its
investment in the Operating Partnership. At December 31, 1997 the Company's
portfolio of real estate properties included 19 office properties and 45
industrial properties containing an aggregate of approximately 9.9 million net
rentable square feet.
During the period from November 17, 1997 to December 31, 1997, the Company
acquired one office property and the first mortgage notes of two properties,
encompassing approximately 1.8 million square feet.
Income is derived primarily from rental revenue (including tenant
reimbursements) from owned properties supplemented by interest income on
mortgage notes owned. The Company expects that revenue growth over the next
several years will come from a combination of additional acquisitions and
revenue generated through increased rental and occupancy rates in the current
portfolio.
CAUTIONARY STATEMENTS
The following discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which reflect management's current views with respect to future events and
financial performance. Such forward-looking statements are subject to certain
risks and uncertainties; including, but not limited to, the effects of future
events on the Company's financial performance; the risk that the Company may be
unable to finance its planned acquisition and development activities; risks
related to the industrial and office industry in which the Company's properties
compete, including the potential adverse impact of external factors such as
inflation, consumer confidence, unemployment rates and consumer tastes and
preferences; risks associated with the Company's development activities, such as
the potential for cost overruns, delays and lack of predictability with respect
to the financial returns associated with these development activities; the risk
of potential increase in market interest rates from current rates; and risks
associated with real estate ownership, such as the potential
17
<PAGE>
adverse impact of changes in the local economic climate on the revenues and the
value of the Company's properties.
RESULTS OF OPERATIONS
The following analysis provides a comparison of the property operations for
the years ended December 31, 1997 and 1996. The period from January 1, 1997
through November 16, 1997 records the activity of the Predecessor Properties and
the period from November 17, 1997 through December 31, 1997 records the activity
of the Company.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenue increased $3.6 million, or 7.5%, to $51.8 million for the year
ended December 31, 1997 compared to $48.2 million for the year ended December
31, 1996 primarily due to the addition of the activity of the Acquisition and
Contribution Properties. Rental revenue increased $4.7 million, or 15.4%, to
$35.2 million in 1997 from $30.5 million in 1996. In 1997, rental revenue from
the Office Properties increased $3.2 million, or 13.0%, to $27.9 million from
$24.7 million in 1996. In 1997, rental revenue from the Industrial Properties
increased $1.5 million, or 25.9%, to $7.3 million from $5.8 million in 1996.
Tenant reimbursements increased $0.3 million, or 2.1%, to $14.5 million in 1997
from $14.2 million in 1996. Tenant reimbursements from the Office Properties
remained consistent at $12.1 million for both 1997 and 1996. During 1996 Keck,
Mahin & Cate ("Keck") paid no tenant reimbursements until a final restructuring
agreement was reached in late 1996. During 1997, Keck paid $0.6 million of
tenant reimbursements. Tenant reimbursements from the Industrial Properties
increased $0.3 million, or 14.3%, to $2.4 million in 1997 from $2.1 million in
1996. Other nonrecurring items recorded in 1996 resulted in a net decrease of
$1.4 million, or 41.2%, in all other revenue to $2.0 million in 1997 from $3.4
million in 1996. Included in the historical financials of the Company , related
to the period from November 17, 1997 to December 31, 1997 are rental revenues of
$3.5 million, tenant reimbursements of $0.8 million and $0.4 million of other
revenue related to the contribution and Acquisition Properties.
Total expenses decreased $0.2 million, or 0.3%, to $79.4 million for the
year ended December 31, 1997 compared to $79.6 million for the year ended
December 31, 1996. Property operating expenses increased $1.0 million, or 11.2%,
to $10.8 million in 1997 from $9.8 million in 1996. In 1997, property operating
expenses from the Office Properties increased $1.6 million, or 19.5%, to $9.8
million for the year ended December 31, 1997 compared to $8.2 million for the
year ended December 31, 1996. The property operating expenses from the
Industrial Properties decreased $0.6 million, or 37.5%, to $1.0 million for the
year ended December 31, 1997 compared to $1.6 million for the year ended
December 31, 1996. In 1997, real estate tax expenses increased $1.0 million, or
10.6%, to $10.4 million from $9.4 million in 1996 primarily due to higher
property assessments in 1997. In 1997, total interest expense decreased $1.1
million, or 3.0%, to $36.1 million from $37.2 million in 1996 primarily due to
the paydown of the 77 West Wacker Mortgage note agreement. In 1997, general and
administrative expenses decreased $2.2 million, or 44.5%, to $2.7 million from
$4.9 million in 1996 primarily due to the nonrecurring expenses recorded in the
last six months of 1996. In 1997, the Industrial Properties recorded a provision
for environmental remediation costs of $3.2 million, which represents the
probable costs to be incurred for the clean-up of environmental contamination at
the properties. PGI has contractually agreed to indemnify the Company from any
environmental liabilities the PGI Partnerships may have incurred and has pledged
$1.0 million and approximately 485,000 partnership units in an operating
partnership that can be converted to common shares of a publicly traded real
estate investment trust to cover these costs. Other expenses decreased $2.1
million on a net basis in 1997 from $18.3 million in 1996 compared to $16.2
million in 1997 primarily due to the write-off of deferred tenant costs in 1996.
Included in the historical financials of the Company, related to the period from
November 17, 1997 to December 31, 1997, are property operating expenses of $0.6
million, real estate tax expense of $0.6 million, interest expense of $1.3
million and general and administrative expense of $0.7 million related to the
Contribution Properties and Acquisition Properties.
18
<PAGE>
In 1997, net income allocated to minority interest increased $2.0 million,
or 222.2%, to $1.1 from ($0.9 million) in 1996, primarily due to an
extraordinary gain resulting from early extinguishment of debt.
In 1997, net income of $38.4 million was reported compared to a loss of
$30.5 million in 1996, primarily due to the changes described above and the
extraordinary gain on early extinguishment of debt of $65,990, net of minority
interest, recorded in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenue decreased $9.4 million, or 16.3%, to $48.2 million for the
year ended December 31, 1996 as compared to $57.6 million for the year ended
December 31, 1995. This decrease was primarily due to the realization of a $7.3
million gain in 1995 from a non-recurring insurance settlement payment to the
Company relating to fire damage to one of the Industrial Properties. Total
rental revenue decreased $2.8 million, or 8.4%, to $30.5 million in 1996 from
$33.3 million in 1995. In 1996, rental revenue from Office Properties decreased
$3.8 million, or 13.3%, to $24.7 million from $28.5 million in 1995 primarily
due to the restructuring of Keck's lease. The restructuring resulted in a
decrease in the average percentage of office space leased from 94.7% in 1995 to
94.1% in 1996 leased and a decrease in net rent per leased square foot from
$21.40 in 1995 to 18.74 in 1996. In 1996, rental revenue from Industrial
Properties increased $1.0 million, or 20.8%, to $5.8 million from $4.8 million
in 1995 primarily due to increased average percentage leased (73.2% in 1996 and
67.6% in 1995) and net rent per leased square foot ($3.18 in 1996 and $2.77 in
1995). Tenant reimbursements decreased $0.2 million, or 1.4%, to $14.2 million
in 1996 from $14.4 million in 1995. In 1996, tenant reimbursements from Office
Properties decreased $0.4 million, or 3.2%, to $12.1 million from $12.5 million
in 1995 primarily due to the restructuring of Keck's lease. In 1996, tenant
reimbursements from Industrial Properties increased $0.3 million, or 16.6%, to
$2.1 million from $1.8 million in 1995 primarily due to the increased occupancy
described above. In 1995, one of the Industrial Properties received a final
insurance settlement of $7.3 million related to a fire that destroyed the
Property. No such proceeds were received in 1996. Other revenue increased to
$2.2 million in 1996 from $1.6 million in 1995 primarily due to a $0.6 million
increase in interest income. All other revenue amounts remained comparable
between 1996 and 1995.
Total expenses decreased $7.6 million, or 8.7%, to $79.6 million for the
year ended December 31, 1996 compared to $87.2 million for the year ended
December 31, 1995. This decrease was primarily due to the fact that in 1995 the
Company booked a $13.3 million write-off of deferred tenant costs as part of the
restructuring of the Keck lease and only $3.1 million of such write-offs for
Keck was booked in 1996. Property operating expenses increased $0.3 million, to
$9.8 million in 1996 from $9.5 million in 1995. Property operating expenses from
Office Properties remained constant at $8.2 million in both 1996 and 1995.
Although there was a decline in Office Properties' occupancy in 1996, property
operations were at such a level that a decline in occupancy had a minimal effect
on the overall property operations. In 1996, property operating expenses from
Industrial Properties decreased $0.1 million, or 7.6%, to $1.2 million. In 1996,
depreciation and amortization expense decreased $0.2 million, or 1.6%, to $12.4
million primarily due to the restructuring of Keck's lease. This decrease was
offset by an increase in occupancy and additional tenant improvements at the
Industrial Properties. In 1996, total interest expense increased $1.0 million,
or 2.8%, to $37.2 million primarily due to a $16.4 million increase in
outstanding debt during May 1996. Financing fees increased $1.2 million in 1996
due to a letter of credit facility obtained in 1996 on behalf of the Industrial
Properties. In 1996, general and administrative expenses increased $0.4 million,
or 8.9%, to $4.9 million primarily due to a $0.5 million allowance for
uncollectible tenant receivables due from the restructured lease with Keck
recorded in 1996. All other expenses remained comparable between 1996 and 1995.
In 1996, loss allocated to minority interest decreased $2.4 million, or
74.4%, to $0.9 million from $3.3 million in 1995 primarily due to a reduction of
the minority interest's ownership in the Prime Properties during 1995.
19
<PAGE>
Net loss increased $4.2 million to $30.5 million in 1996 compared to a net
loss of $26.3 million in 1995, primarily due to the changes described above.
LIQUIDITY AND CAPITAL RESOURCES
CREDIT FACILITY. The Company has a Credit Facility of $235.0 million from
BankBoston, N.A. and Prudential Securities Credit Corporation ("PSCC"), which is
secured by first mortgages on certain properties owned by the Operating
Partnership. Subject to compliance by the Company with the applicable loan
covenants, the Credit Facility may be used to provide funds for acquisitions and
development activities and to provide the replacement letters of credit for the
$74.5 million of Tax-Exempt Bonds.
MORTGAGE NOTES. The Company borrowed $83.5 million aggregate principal
amount from PSCC under the Mortgage Notes at the date of the Offering. PSCC
agreed to provide the Mortgage Notes financing for a 90-day term, convertible at
the option of the Company into a seven-year term, subject to certain conditions.
The Mortgage Notes consist of two separate notes secured, respectively, by first
mortgages on all of the IBD Properties and all of the NAC Properties, together
in each case, with certain of the Acquisition Properties. Interest on the
Mortgage Notes accrues at a rate equal to seven-year U.S. Treasury Notes, plus
1.27%. Prior to the expiration of the Mortgage Notes, the Company expects to
refinance the Mortgage Notes with a seven to ten year loan. On March 23, 1998,
the Company refinanced the notes on the IBD Properties with a loan of $29.4
million which matures on March 23, 2008 to refinance one of the notes. Interest
on this loan accrues at a rate of 6.85% and is payable monthly. The Company
expects to refinance the second note during April 1998.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES.
The Company expects to meet its short-term liquidity requirements through
net cash provided by operations. The Properties require periodic investments of
capital for tenant-related capital expenditures and for general capital
improvements. Over the past three years, the Company's recurring tenant
improvements and leasing commissions for the Predecessor Properties averaged
$7.13 per square foot of leased office space and $0.49 per square foot of leased
industrial space per year. The Company's estimated annual cost of recurring
tenant improvements and leasing commissions is approximately $7.2 million based
upon average annual square feet for leases expiring during the years ending
December 31, 1997 through December 31, 2000. The Company's cost of general
capital improvements to the Properties averages approximately $0.8 million
annually based upon an estimate of $0.08 per square foot.
The Company expects to meet its long-term liquidity requirements for the
funding of property development, property acquisitions and other non-recurring
capital improvements through a combination of net cash from operations,
long-term secured and unsecured indebtedness (including the Credit Facility) and
the issuance of additional equity securities. The terms of the Credit Facility
and the Preferred Shares impose restrictions on the Company's ability to incur
indebtedness and issue additional preferred shares.
HISTORICAL CASH FLOWS
Historically, the Predecessor Properties' principal sources of funding for
operations and capital expenditures were from debt financings. PGI incurred net
losses before extraordinary items in each of the last five years. However, after
adding back depreciation and amortization, the Predecessor Properties have
generated positive net operating cash flows for each of the last four years.
The Company and the Predecessor Properties had combined net cash provided by
operating activities of $1.0 million for the year ended December 31, 1997 and
the Predecessor Properties had net cash used in operating activities of $3.2
million and $1.3 million for the years ended December 31, 1996 and 1995,
respectively. The $4.2 million increase in net cash provided by operating
activities for the year ended December 31, 1997 from the year ended December 31,
1996 was primarily due to a $68.9 million increase
20
<PAGE>
in net income, a $1.3 million decrease in tenant receivables from
straight-lining rent, a $0.6 million decrease in gain on sale of real estate, a
$1.3 million increase in depreciation and amortization expense, a $0.9 million
decrease in loss allocated to minority interest, a $7.7 million increase in
accrued real estate taxes and a $9.3 million increase in accounts payable and
accrued expenses, offset by a $0.2 million decrease in interest added to
principal, a $3.1 million decrease in the write-off of deferred tenant costs, a
$66.0 million increase in extraordinary item, a $2.9 million increase in tenant
receivables, a $0.8 million increase in deferred costs, a $10.1 million increase
in other assets, a $1.6 million decrease in accrued interest and a $1.1 million
increase in other liabilities. The $1.9 million increase in net cash used in
operating activities for the year ended December 31, 1996 from the year ended
December 31, 1995 is primarily due to a $12.1 million increase in loss before
minority interest (exclusive of the write-off of deferred tenant costs in 1995
and 1996), offset by a $8.1 million decrease in the adjustment related to the
straight-lining of rent and a $1.6 million increase in interest added to
principal on mortgage note payable-affiliate.
The Company and the Predecessor Properties had combined net cash used in
investing activities of ($356.3 million) for the year ended December 31, 1997
and the Predecessor Properties had net cash provided by (used in) investing
activities of $1.1 million and ($9.2 million) for the years ended December 31,
1996 and 1995, respectively. The $357.4 million increase in net cash used in
investing activities for the year ended December 31, 1997 from the year ended
December 31, 1996 was primarily due to a $1.8 million decrease in proceeds from
the sale of real estate, a $298.8 million increase in real estate expenditures,
a $51.2 million purchase of a mortgage note receivable, a $5.2 million increase
in amounts due from affiliates and a $0.4 million cash contribution to the
Services Company. The $10.3 million increase in net cash provided by investing
activities for the year ended December 31, 1996 from the year ended December 31,
1995 was primarily due to an $8.1 million net repayment of advances to
affiliates, a $1.2 million increase in proceeds from sale of real estate and a
$10.0 million decrease in real estate expenditures.
The Company and the Predecessor Properties had combined net cash provided by
financing activities of $361.7 million for the year ended December 31,1997 and
the Predecessor Properties had net cash provided by financing activities of $5.7
million and $10.9 million for the years ended December 31, 1996 and 1995,
respectively. The $356.0 million increase in net cash provided by financing
activities for the year ended December 31, 1997 from the year ended December 31,
1996 was primarily due to $272.0 million in net proceeds from the Offering,
Private Placement and overallotment, $85.0 million from the sale of Operating
Partnership units, a $242.4 million increase in proceeds from mortgage notes
payable, and a $44.3 million increase in contributions from partners, offset by
a $235.7 increase in the repayment of mortgage notes payable, a $46.1 million
increase in the repayment of mortgage notes payable affiliates, the payment of
$5.0 million of deferred financing costs and debt termination fees and a $0.5
million decrease in due to affiliates. The $5.2 million decrease in net cash
provided by financing activities from the year ended December 31, 1996 from the
year ended December 31, 1995 was primarily due to a $5.4 million decrease in
proceeds from mortgage notes payable, offset by a $0.2 million decrease in
distributions to partners.
FUNDS FROM OPERATIONS
Industry analysts generally consider Funds from Operations, as defined by
the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), an
alternative measure of performance of an equity REIT. Funds from Operations is
defined by NAREIT to mean net income (loss) determined in accordance with GAAP,
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization (other than amortization of deferred financing
costs and depreciation of non-real estate assets) and after adjustment for
unconsolidated partnerships and joint ventures. The Company believes that in
order to facilitate a clear understanding of the combined historical operating
results of the Company, Funds from Operations should be examined in conjunction
with net income (loss) as presented
21
<PAGE>
in the audited Combined Financial Statements and selected financial data
included elsewhere in this Form 10-K. The Company computes Funds from Operations
in accordance with standards established by the Board of Governors of NAREIT in
its March 1995 White Paper (with the exception that the Company expects to
report rental revenues on a cash basis, rather than a straight-line GAAP basis,
which the Company believes will result in a more accurate presentation of its
actual operating activities), which may differ from the methodology for
calculating Funds from Operations used by other certain office and/or industrial
REITs and, accordingly, may not be comparable to such other REITs. As a result
of the Company's reporting rental revenues on a cash basis, contractual rent
increases will cause reported Funds from Operations to increase. Further, Funds
from Operations does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
repayment obligations, or other commitments and uncertainties. Funds from
Operations should not be considered as an alternative to net income (loss), as
an indication of the Company's performance or to cash flows as a measure of
liquidity or the ability to pay dividends or make distributions.
IMPACT OF YEAR 2000
In the year 2000, many existing computer programs that use only two digits
(rather than four) to identify a year in the date field could fail or create
erroneous results if not corrected. This computer flaw is expected to affect
virtually all companies and organizations . The Company cannot quantify the
potential costs and uncertainties associated with this computer program flaw at
this time, but does not anticipate that the effect of this computer program flaw
on the operations of the Company will be significant. However, the Company may
be required to spend time and monetary resources addressing any necessary
computer program changes.
INFLATION
The Company's leases with the majority of its tenants require the tenants to
pay most operating expenses, including real estate taxes and insurance, and
increases in common area maintenance expenses, which reduce the Company's
exposure to increases in costs and operating expenses resulting from inflation.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Regulation S-X
are included in this Report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1 and 2) Financial Statements and Schedules
Prime Group Realty Trust and Predecessor Properties:
<TABLE>
<S> <C>
Report of Independent Auditors.................................................... F-1
Consolidated Balance Sheet of the Company as of December 31, 1997 and Combined
Balance Sheet of the Predecessor Properties as of December 31, 1996............. F-2
Consolidated Statement of Operations of the Company for the period from November
17, 1997 to December 31, 1997 and Combined Statements of Operations of the
Predecessor Properties for the period from January 1, 1997 to November 16, 1997
and for the years ended December 31, 1996 and 1995.............................. F-3
Consolidated Statement of Changes in Shareholders' Equity for the period from
November 17, 1997 to December 31, 1997.......................................... F-4
Combined Statement of Changes in Predecessors' Deficit for the period from January
1, 1997 to November 16, 1997 and for the years ended December 31, 1996 and
1995............................................................................ F-5
Consolidated Statements of Cash Flows of the Company for the period from November
17, 1997 to December 31, 1997 and the Combined Statements of Cash Flows of the
Predecessor Properties for the period from January 1, 1997 to November 16, 1997
and for the years ended December 31, 1996 and 1995.............................. F-6
Notes to Consolidated and Combined Financial Statements........................... F-9
</TABLE>
All schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements and notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
3.1* Articles of Amendment and Restatement of Declaration of Trust of Prime
Group Realty Trust.
3.2* Amended and Restated Bylaws of Prime Group Realty Trust.
3.3* Amended and Restated Agreement of Limited Partnership of Prime Group
Realty, L.P.
10.1* Form of Indemnification Agreement between Prime Group Realty Trust and
each of its trustees.
10.2* Right of First Offer Agreement by and between Prime Group Realty, L.P. and
The Prime Group, Inc..
10.3* Share Incentive Plan.
10.4* Employment Agreement by and between the Company and Michael W. Reschke.
10.5* Employment Agreement by and between the Company and Richard S. Curto.
10.6* Employment Agreement by and between the Company and W. Michael Karnes.
10.7* Employment Agreement by and between the Company and Robert J. Rudnik.
10.8* Employment Agreement by and between the Company and Jeffrey A. Patterson.
10.9* Employment Agreement by and between the Company and Kevork M. Derderian.
10.10* Employment Agreement by and between the Company and Edward S. Hadesman.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
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. as filed as an exhibit to Registration Statement on
Form S-11 (No. 333-33547) and incorporated herein by reference.
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 to 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 if
July 15, 1997 by and between KILICO Realty Corporation and The Prime
Group, Inc as filed as an exhibit to Registration Statement on Form S-11
(No. 333-33547) and incorporated herein by reference.
10.13* Option Agreement Regarding 300 N. LaSalle by and between Prime Group
Realty, L.P. and 300 N. LaSalle, L.L.C.
10.14* Registration Rights Agreement among Prime Group Realty Trust, Prime Group
Realty, L.P., Prime Group Limited Partnership, Primestone Investment
Partners L.P. and the other investors named herein.
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 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;
LaSalle National Trust, NA, t/u/t 11-2868 dated December 1, 1987 as filed
as an exhibit to Registration Statement on Form S-11 (No. 333-33547) and
incorporated herein by reference.
10.16 [Deleted]
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.17* Formation Agreement by and among Prime Group Realty Trust, Prime Group
Realty, L.P., Prime Group Realty Services, Inc., The Prime Group, Inc.,
Prime Group Limited Partnership and Jeffrey A. Patterson.
10.18* Asset Purchase Agreement by and among Continental Offices, Ltd.,
Continental Offices Ltd. Realty and Prime Group Realty, L.P. as filed as
an exhibit to Registration Statement on Form S-11 (No. 333-33547) and
incorporated herein by reference.
10.19* 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. as filed as an exhibit
to Registration Statement on Form S-11 (No. 333-33547) and incorporated
herein by reference.
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 Corporatio, 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. as filed as an exhibit to Registration
Statement on Form S-11 (No. 333-33547) and incorporated herein by
reference.
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 as filed as an exhibit to Registration Statement on Form
S-11 (No. 333-33547) and incorporated herein by reference.
10.23* Series A Convertible Preferred Securities Agreement by and between
Security Capital Preferred Growth Incorporated and Prime Group Realty
Trust.
10.24* Tax Indemnification Agreement by and between Prime Group Realty Trust and
the IBD Contributors.
10.25* Tax Indemnification Agreement by and between Prime Group Realty Trust and
one of its general partners.
10.26^ Credit Facility between Prime Group Realty Trust, BankBoston, N.A. and
Prudential Securities Credit Corporation.
10.27* Underwriting Agreement between Prime Group Realty Trust and Prudential
Securities Incorporated, Friedman, Billings, Ramsey & Co., Inc., Smith
Barney Inc. and Morgan Keegan & Company, Inc., as representatives of the
other underwriters.
10.28* Registration Rights Agreement between Prime Group Realty Trust and certain
holders of Common Units of Prime Group Realty, L.P.
10.29* Environmental Remediation and Indemnification Agreement between Prime
Group Realty, L.P. and The Prime Group, Inc.
10.30^ Registration Rights Agreement between Prime Group Realty Trust and
Security Preferred Growth Incorporated.
10.31^ Tag-Along Agreement among Prime Financing, L.P., Prime Group Limited
Partnership, Prime Group II, L.P., Prime Group III, L.P., Prime Group IV,
L.P., Prime Group V, L.P., The Prime Group, Inc., PG/Primestone, L.L.C.,
and Security Capital Preferred Growth Incorporated.
10.32^ Placement Fee Letter between Prime Group Realty Trust and Prime Group
Realty, L.P. as Placement Agent and Security Capital Markets Group
Incorporated.
10.33^ Indemnification Agreement between Prime Group Realty, L.P. and The Prime
Group, Inc.
12.1* Statements re: computation of ratios.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
19.1* Form of Common Share Certificate.
19.2* Form of Convertible Preferred Share certificate.
22.1* List of subsidiaries.
27.1* Financial Data Schedule.
</TABLE>
- ------------------------
* previously filed
^ filed herewith
(a) Reports on Form 8-K
On December 30, 1997, the Company filed a report on Form 8-K relating to the
acquisition of certain real estate properties. On January 14, 1998, the Company
filed a report on Form 8-K relating to the acquisition of certain real estate
properties. The Company filed the required financial statements and information
under cover of Form 8-K/A on February 27, 1998.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 24, 1998.
<TABLE>
<S> <C>
PRIME GROUP REALTY TRUST
Dated: April 24, 1998 /s/ RICHARD S. CURTO
------------------------------------------
Richard S. Curto
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Dated: April 24, 1998 /s/ WILLIAM M. KARNES
------------------------------------------
William M. Karnes
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ MICHAEL W. RESCHKE Chairman of the Board and
- ------------------------------ Trustee April 24, 1998
Michael W. Reschke
/s/ RICHARD S. CURTO President, Chief Executive
- ------------------------------ Officer and Trustee April 24, 1998
Richard S. Curto
/s/ KATHRYN A. DEANE Vice President and
- ------------------------------ Controller April 24, 1998
Kathryn A. Deane
/s/ STEPHEN J. NARDI Trustee
- ------------------------------ April 24, 1998
Stephen J. Nardi
/s/ JAMES R. THOMPSON Trustee
- ------------------------------ April 24, 1998
James R. Thompson
/s/ JACQUE M. DUCHARME Trustee
- ------------------------------ April 24, 1998
Jacque M. Ducharme
/s/ CHRISTOPHER J. NASSETTA Trustee
- ------------------------------ April 24, 1998
Christopher J. Nassetta
/s/ THOMAS J. SAYLAK Trustee
- ------------------------------ April 24, 1998
Thomas J. Saylak
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Trustees
Prime Group Realty Trust
We have audited the accompanying consolidated balance sheet of Prime Group
Realty Trust (the Company) as of December 31, 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for the period
from November 17, 1997 (date of formation) through December 31, 1997. We have
also audited the accompanying combined balance sheet of Predecessor Properties
(the Predecessor to the Company) as of December 31, 1996, and the related
combined statements of operations, changes in predecessors' deficit, and cash
flows for the period from January 1, 1997 through November 16, 1997, and for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's and Predecessor's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Prime Group
Realty Trust at December 31, 1997, and the consolidated results of its
operations and its cash flows for the period from November 17, 1997 through
December 31, 1997, and the combined financial position of Predecessor Properties
at December 31, 1996 and the combined results of its operations and its cash
flows for the period from January 1, 1997 through November 16, 1997, and for
each of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 27, 1998
F-1
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED BALANCE SHEET OF THE COMPANY AND
COMBINED BALANCE SHEET OF THE PREDECESSOR
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIME GROUP PREDECESSOR
REALTY TRUST PROPERTIES
AT AT
DECEMBER 31 DECEMBER 31
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Real estate at cost:
Land.............................................................................. $ 92,440 $ 23,530
Building and improvements......................................................... 496,839 268,227
-------------- ------------
589,279 291,757
Accumulated depreciation............................................................ (2,338) (44,411)
-------------- ------------
586,941 247,346
Mortgage note receivable............................................................ 56,263 --
Cash and cash equivalents........................................................... 11,969 5,573
Tenant receivables.................................................................. 41,648 41,384
Deferred costs -- Net............................................................... 28,472 26,883
Due from affiliates................................................................. 5,258 2,894
Other............................................................................... 10,917 1,150
-------------- ------------
Total assets........................................................................ $ 741,468 $ 325,230
-------------- ------------
-------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable.............................................................. $ 249,610 $ 235,886
Mortgage notes payable -- Affiliates................................................ 3,984 99,647
Bonds payable....................................................................... 74,450 74,450
Bonds payable -- Affiliates......................................................... -- 12,000
Accrued interest payable............................................................ 1,245 2,538
Accrued real estate taxes........................................................... 17,915 9,944
Accounts payable and accrued expenses............................................... 13,903 4,213
Liabilities for leases assumed...................................................... 5,758 7,157
Dividends declared.................................................................. 2,505 --
Due to affiliates................................................................... -- 708
Other............................................................................... 822 1,384
-------------- ------------
Total liabilities................................................................... 370,192 447,927
Minority interest................................................................... 147,207 (6,905)
Predecessors' net deficit........................................................... -- (115,792)
Shareholders' equity:
Preferred shares, $.01 par value; 30,000,000 shares
authorized, 2,000,000 cumulative convertible preferred shares
issued and outstanding.......................................................... 20 --
Common Shares, $.01 par value; 100,000,000 shares
authorized, 12,980,000 shares issued and outstanding............................ 130 --
Additional paid-in capital........................................................ 225,632 --
Distributions in excess of earnings............................................... (1,713) --
-------------- ------------
Total shareholders' equity.......................................................... 224,069 --
-------------- ------------
Total liabilities and shareholders' equity.......................................... $ 741,468 $ 325,230
-------------- ------------
-------------- ------------
</TABLE>
See accompanying notes.
F-2
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY AND
COMBINED STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIME GROUP
REALTY TRUST -- PREDECESSOR
PERIOD FROM PROPERTIES -- PREDECESSOR PROPERTIES
NOVEMBER 17, 1997 PERIOD FROM YEAR ENDED DECEMBER 31
TO DECEMBER 31, JANUARY 1, 1997 ----------------------
1997 TO NOVEMBER 16, 1997 1996 1995
----------------- -------------------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE
Rental......................................... $ 7,293 $ 27,947 $ 30,538 $ 33,251
Tenant reimbursements.......................... 2,041 12,490 14,225 14,382
Parking........................................ 60 264 320 345
Mortgage note interest......................... 248 -- -- --
Gain on sale of assets......................... -- 286 846 771
Insurance settlement........................... -- -- -- 7,257
Other.......................................... 188 965 2,231 1,599
------ ------- ---------- ----------
Total revenue.................................. 9,830 41,952 48,160 57,605
EXPENSES
Property operations............................ 2,213 8,622 9,767 9,479
Real estate taxes.............................. 1,765 8,575 9,383 9,445
Depreciation and amortization.................. 2,478 11,241 12,409 12,646
Interest....................................... 1,680 24,613 26,422 27,671
Interest -- Affiliates......................... -- 9,804 10,795 8,563
Financing fees................................. -- 1,180 1,232 --
Property and asset management fees --
Affiliates................................... -- 1,348 1,561 1,496
General and administrative..................... 267 2,414 4,927 4,508
Provision for environmental remediation
costs........................................ -- 3,205 -- --
Write-off deferred tenant costs................ -- -- 3,081 13,373
------ ------- ---------- ----------
Total expenses................................. 8,403 71,002 79,577 87,181
------ ------- ---------- ----------
Income (loss) before minority interest and
extraordinary item........................... 1,427 (29,050) (31,417) (29,576)
Minority interest.............................. (635) 666 894 3,281
------ ------- ---------- ----------
Income (loss) before extraordinary gain........ 792 (28,384) (30,523) (26,295)
Extraordinary item; gain on extinguishment of
debt, net of minority interest in the amount
of $1,127.................................... -- 65,990 -- --
------ ------- ---------- ----------
Net income (loss).............................. 792 $ 37,606 $ (30,523) $ (26,295)
------- ---------- ----------
------- ---------- ----------
Net income allocated to preferred
shareholders................................. 345
------
Net income available to common shareholders.... $ 447
------
------
Net income available per weighted-average
common share of beneficial interest -- Basic
and diluted.................................. $ 0.04
------
------
</TABLE>
See accompanying notes.
F-3
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
PERIOD FROM NOVEMBER 17, 1997 TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL DISTRIBUTIONS
PREFERRED COMMON PAID-IN IN EXCESS OF
STOCK STOCK CAPITAL EARNINGS TOTAL
----------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Issuance of 2,000,000 shares
of preferred stock................................. $ 20 $ -- $ 39,580 $ -- $ 39,600
Issuance of 12,980,000 shares
of common stock.................................... -- 130 232,222 -- 232,352
Step-up in basis from the purchase of third-party
owner's interest in predecessor--.................. -- -- 1,430 -- 1,430
Reclassification of predecessor's minority
interest........................................... -- -- (6,564) -- (6,564)
Reclassification of net deficit of predecessor....... -- -- (33,976) -- (33,976)
Additional contribution by predecessor............... -- -- 11,873 -- 11,873
Contribution of net liabilities to service company... -- -- 380 -- 380
Additional paid-in capital allocated to minority
interest........................................... -- -- (19,313) -- (19,313)
Net income........................................... -- -- -- 792 792
Preferred dividends declared
($0.173 per share)................................. -- -- -- (345) (345)
Common dividends declared
($0.166 per share)................................. -- -- -- (2,160) (2,160)
----------- ----- ---------- ------------ ----------
Balance at December 31, 1997......................... $ 20 $ 130 $ 225,632 $ (1,713) $ 224,069
----------- ----- ---------- ------------ ----------
----------- ----- ---------- ------------ ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
COMBINED STATEMENTS OF CHANGES IN PREDECESSORS' DEFICIT
PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 16, 1997
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<S> <C>
Balance at January 1, 1995........................................................ $ (65,722)
Contributions..................................................................... 732
Distributions..................................................................... (179)
Assignment of minority interest................................................... 3,243
Forgiveness of notes payable to minority interest................................. 2,916
Net loss.......................................................................... (26,295)
---------
Balance at December 31, 1995...................................................... (85,305)
Contributions..................................................................... 40
Distributions..................................................................... (4)
Net loss.......................................................................... (30,523)
---------
Balance at December 31, 1996...................................................... (115,792)
Contributions..................................................................... 44,330
Distributions..................................................................... (120)
Net income........................................................................ 37,606
---------
Balance at November 16, 1997...................................................... $ (33,976)
---------
---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR
PRIME GROUP PROPERTIES
REALTY TRUST FROM
FROM JANUARY 1, PREDECESSOR PROPERTIES
NOVEMBER 17, 1997 YEAR ENDED DECEMBER 31
1997 TO NOVEMBER
TO DECEMBER 31, 16, ----------------------
1997 1997 1996 1995
---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $ 792 $ 37,606 $ (30,523) $ (26,295)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of costs for leases assumed (included in
rental revenue)...................................... 142 1,022 1,244 1,539
Decrease (increase) in tenant receivables from
straight-lining rent................................. 180 487 (645) (8,779)
Gain on sale of real estate.......................... -- (286) (846) (771)
Depreciation and amortization........................ 2,478 11,241 12,409 12,646
Interest added to principal on mortgage note payable
affiliate............................................ -- 9,772 10,002 8,427
Standby loan fee-affiliate added to principal on
mortgage note payable affiliate...................... -- 460 522 498
Write-off of deferred tenant costs................... -- -- 3,081 13,373
Minority interest.................................... 635 (666) (894) (3,281)
Extraordinary item................................... -- (65,990) -- --
Changes in operating assets and liabilities:
Decrease (increase) in tenant receivables.......... (15) (916) 1,990 2,326
Increase in deferred costs......................... (48) (1,459) (703) (907)
(Increase) decrease in other assets................ (10,032) 506 566 2,937
(Decrease) increase in accrued interest payable.... (175) (1,118) 316 (1,221)
Increase in accrued real estate taxes.............. 7,556 415 251 5
Increase (decrease) increase in accounts payable
and accrued expenses............................. 7,202 3,498 1,380 (34)
Decrease in liabilities for assumed leases......... (350) (1,049) (1,532) (1,985)
Increase (decrease) in other liabilities........... (1,707) 777 217 263
---------------- -------------- ---------- ----------
Net cash provided by (used in) operating activities.... 6,658 (5,700) (3,165) (1,259)
</TABLE>
F-6
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR
PRIME GROUP PROPERTIES
REALTY TRUST FROM
FROM JANUARY 1, PREDECESSOR PROPERTIES
NOVEMBER 17, 1997 YEAR ENDED DECEMBER 31
1997 TO NOVEMBER
TO DECEMBER 31, 16, ----------------------
1997 1997 1996 1995
---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES
Proceeds from sale of real estate...................... $ -- $ 298 $ 2,110 $ 921
Expenditures for real estate........................... (297,019) (5,659) (3,842) (4,842)
Purchase of mortgage note receivable................... (51,163) -- -- --
Cash contributed to service company.................... (376) -- -- --
Decrease (increase) in due from affiliates............. (5,258) 2,894 2,858 (5,255)
---------------- -------------- ---------- ----------
Net cash (used in) provided by investing activities.... (353,816) (2,467) 1,126 (9,176)
FINANCING ACTIVITIES
Proceeds from the sale of preferred shares............. 39,600 -- -- --
Proceeds from the sale of common shares................ 232,352 -- -- --
Proceeds from sale of operating partnership units...... 85,000 -- -- --
Additions to deferred financing costs.................. (3,328) -- (10) (225)
Proceeds from mortgage notes payable................... 243,198 480 1,239 9,815
Proceeds from mortgage notes payable -- Affiliates..... -- 5,647 5,891 2,693
Repayment of mortgage notes payable.................... (236,537) (119) (83) (384)
Repayment of mortgage notes payable -- Affiliates...... (4,895) (41,367) (1,150) (1,079)
Increase (decrease) in due to affiliates............... -- (708) (226) (347)
Contributions from partners............................ -- 44,330 80 872
Distributions to partners.............................. -- (120) (8) (357)
Distributions to minority interest..................... -- (120) -- --
Debt termination fees.................................. -- (1,692) -- --
Acquisition of partnership interest.................... -- -- -- (115)
---------------- -------------- ---------- ----------
Net cash provided by financing activities.............. 355,390 6,331 5,733 10,873
---------------- -------------- ---------- ----------
Net increase (decrease) in cash and cash equivalents... 8,232 (1,836) 3,694 438
Cash and cash equivalents at beginning of period....... 3,737 5,573 1,879 1,441
---------------- -------------- ---------- ----------
Cash and cash equivalents at end of period............. $ 11,969 $ 3,737 $ 5,573 $ 1,879
---------------- -------------- ---------- ----------
---------------- -------------- ---------- ----------
</TABLE>
F-7
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<S> <C>
Supplemental disclosure of non-cash investing and financing activities:
The following assets and liabilities (Represents the Predecessor Properties,
$12,000 of bonds receivable, $241 of other assets and $368 of other liabilities
contributed by the Predecessor. The bonds receivable have been netted against
the corresponding bonds payable of the Predecessor Properties.) were contributed
by certain minority interest partners to the Company on November 17, 1997:
Real estate, net.................................................................. $ 243,637
Cash and cash equivalents......................................................... 3,737
Tenant receivable................................................................. 41,813
Deferred costs, net............................................................... 25,270
Other assets...................................................................... 885
---------
Total assets...................................................................... 315,342
Mortgage notes payable............................................................ 241,432
Bonds payable..................................................................... 74,450
Accrued interest payable.......................................................... 1,420
Accrued real estate taxes......................................................... 10,359
Accounts payable and accrued expenses............................................. 7,711
Liabilities for leases assumed.................................................... 6,108
Other liabilities................................................................. 2,529
Minority interests................................................................ (6,564)
---------
Total liabilities and minority interests.......................................... 337,445
---------
Predecessor owners' net contribution.............................................. $ (22,103)
---------
---------
</TABLE>
The following represents non-cash activity for the Company during the period
from November 17, 1997 to December 31, 1997:
<TABLE>
<S> <C>
Mortgage note receivable........................................................... $ 5,100
Real estate........................................................................ 48,814
---------
$ 53,914
---------
---------
Debt assumed....................................................................... $ 10,396
Partnership units issued to minority interest...................................... 42,088
Step-up in basis from purchase of third-party owner's interest in predecessor...... 1,430
---------
$ 53,914
---------
---------
</TABLE>
See accompanying notes.
F-8
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
1. FORMATION AND ORGANIZATION OF THE COMPANY
Prime Group Realty Trust (together with its consolidated subsidiaries and
unconsolidated investment subsidiary, the "Company") was organized in Maryland
on July 21, 1997. The Company was formed to continue the business of The Prime
Group, Inc. and certain of its affiliates (collectively "PGI"). The Company will
make an election to qualify as a real estate investment trust ("REIT") for the
period ended December 31, 1997, under the Internal Revenue Code of 1986, as
amended, for Federal income tax purposes. On November 17, 1997, the Company
completed an initial public offering (the "Offering") of 12,380,000 Common
Shares of Beneficial Interest ("Common Shares") at $20.00 per share and the
private placement (the "Private Placement") of 2,000,000 Cumulative Convertible
Preferred Shares of Beneficial Interest ("Preferred Shares") at $20.00 per
share. Net of underwriting discounts and expenses, the Company received
approximately $260,792 in net proceeds from the Offering and Private Placement.
On December 12, 1997, the underwriters of the Offering exercised their
overallotment option to purchase 600,000 Common Shares at $20.00 per share
("Overallotment"). The Company received net proceeds of approximately $11,160 on
December 15, 1997, with respect to the Overallotment.
Upon consummation of the Offering and Private Placement, the Company
contributed the initial net proceeds from the Offering and Private Placement in
exchange for 12,380,000 common units of partnership interest ("Common Units")
and 2,000,000 preferred units of partnership interest ("Preferred Units") in
Prime Group Realty, L.P. (the "Operating Partnership"). The Operating
Partnership also sold 4,569,893 Common Units for $85,000 to Primestone Joint
Venture ("Primestone"--PGI obtained a 60% ownership interest in Primestone in
exchange for the contribution of 3,375,000 of its Common Units received from the
contribution of its interest in the Prime Properties to the Operating
Partnership described below. Primestone has a 34.2% limited partner ownership
interest in the Operating Partnership at December 31, 1997). The Operating
Partnership used such proceeds primarily to repay certain mortgages and other
indebtedness, acquire interests in certain of the properties ("Prime
Properties") owned or controlled by PGI (the "Predecessor") and other
contributors (defined below) and purchase various office and industrial
properties from unaffiliated third parties. The Company contributed the net
proceeds from the Overallotment to the Operating Partnership in exchange for
600,000 Common Units. The Operating Partnership, in turn, used such proceeds
primarily for property acquisitions.
The Company is the managing general partner of the Operating Partnership and
owns all of the Preferred Units and 55.9% of the Common Units issued at December
31, 1997. Each Common Unit entitles the Company to receive distributions from
the Operating Partnership. Distributions declared or paid to holders of Common
Stock are based upon such distributions received by the Company with respect to
its Common Units.
Upon consummation of the Offering, PGI contributed its interest in the Prime
Properties to the Operating Partnership in exchange for 3,465,000 Common Units
(after the contribution of 3,375,000 Common Units to Primestone, PGI has a 0.5%
direct limited partner interest in the Operating Partnership at December 31,
1997), and received approximately $6,487 for the reimbursement of formation
costs advanced by PGI. A senior executive of the Company contributed his
interest in the Prime Properties to the Operating Partnership in exchange for
110,000 Common Units (a 0.5% limited partner interest of the Operating
Partnership at December 31, 1997). In addition, the Operating Partnership was
required to acquire a third-party ownership interest in certain of the Prime
Properties for $1,797, resulting in a step-up in the basis of real estate of
$3,227. Certain individuals (collectively, the "Contributors") contributed their
F-9
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)
ownership interests in various properties, including the related debt, to the
Operating Partnership in exchange for cash of approximately $15,761 and
1,849,417 Common Units (a 3.9% general partner interest of the Operating
Partnership and a 3.9% limited partner interest of the Operating Partnership at
December 31, 1997), valued at $20.00 per unit (total value of $36,988). These
properties, along with other acquired properties are controlled by the Operating
Partnership (the "New Entities") and are described below. PGI, the senior
executive and the Contributors have been reflected as minority interest in the
consolidated financial statements of the Company.
On November 17, 1997, the Operating Partnership acquired the assets and
business of Continental Offices, Ltd. and Continental Offices, Ltd. Realty
("Continental Office Management") and contributed these entities and certain
other assets to a newly formed corporation, Prime Group Realty Services, Inc.
(the "Service Company"). In exchange for its contribution, the Company received
100% of the non-voting preferred stock of the Service Company and a note
receivable in the amount of $4,800 (see Note 11). Certain members of management
of the Company own 100% of the voting common stock. The Service Company was
formed primarily to operate business lines of the Company that are not directly
associated with the collection of rents. The Service Company is subject to
federal, state and local taxes.
Unless the context requires otherwise, all references to the Company herein
mean Prime Group Realty Trust and those entities owned or controlled by Prime
Group Realty Trust, including the Operating Partnership.
The Prime Properties represent a combination of 23 partnerships described
below (PGI Partnerships) that own, operate, and manage office and industrial
properties in the greater Chicagoland area and Tennessee. The Prime Properties
were under common management and ownership of PGI as either the managing general
partner (responsible for the operations of the Prime Properties) or 100% owner.
Prior to the contribution of the Properties, six of the Partnerships had third
party owners (Third Party), whose ownership interests have been reflected as a
minority interest in the combined financial statements of the Predecessor.
The Prime Properties consisted of the following at November 16, 1997:
<TABLE>
<CAPTION>
PARTNERSHIP PROPERTY
- ---------------------------------------------- ----------------------------------------------
<S> <C>
77 West Wacker Limited Partnership (77 West 77 West Wacker Building
Wacker)
Nashville Office Building I, Ltd. Nashville Office Building
Professional Plaza, Ltd. Professional Plaza
Old Kingston Properties, Ltd. Old Kingston
Two Centre Square, Ltd. Two Centre Square
Hammond Enterprise Center Limited Partnership Hammond Enterprise Center
(HEC)
</TABLE>
F-10
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)
<TABLE>
<CAPTION>
PARTNERSHIP PROPERTY
- ---------------------------------------------- ----------------------------------------------
<S> <C>
East Chicago Enterprise Center Limited East Chicago Enterprise Center
Partnership (ECEC)
Kemper/Prime Industrial Partners (KP) Chicago Enterprise Center
Enterprise Center I, L.P. (ECI) Enterprise Center I
Enterprise Center II, L.P. Enterprise Center II
Enterprise Center III, L.P. Enterprise Center III
Enterprise Center IV, L.P. Enterprise Center IV
Enterprise Center V, L.P. Enterprise Center V
Enterprise Center VI, L.P. Enterprise Center VI
Enterprise Center VII, L.P. Enterprise Center VII
Enterprise Center VIII, L.P. Enterprise Center VIII
Enterprise Center IX, L.P. Enterprise Center IX
Enterprise Center X, L.P. Enterprise Center X
Arlington Heights I, L.P. Arlington Heights I
Arlington Heights II, L.P. Arlington Heights II
Arlington Heights III, L.P. Arlington Heights III
Triad Parking Company, Ltd. Triad Parking Facility
77 Fitness Center, Ltd. (1) Executive Sports and Fitness Center
</TABLE>
- ------------------------
(1) The Operating Partnership contributed this entity to the Service Company on
November 17, 1997, including net equipment of $83, cash of $376 and accounts
payable of $839.
F-11
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)
The entity name and related property of the New Entities (the properties
were either contributed or acquired at the Offering date, unless otherwise
noted) operated by the Operating Partnership at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
ENTITY PROPERTY
- ---------------------------------------------- ----------------------------------------------
<S> <C>
1990 Algonquin Road, L.L.C. 1990 Algonquin Road
2010 Algonquin Road, L.L.C. 2010 Algonquin Road
555 Huehl Road, L.L.C. 555 Huehl Road
1669 Woodfield Road, L.L.C. 1669 Woodfield Road
475 Superior Avenue, L.L.C. 475 Superior Avenue
Enterprise Drive, L.L.C. 2205-2255 Enterprise Drive
280 Shuman Blvd., L.L.C. 280 Shuman Blvd.
Continental Towers, L.P. (1) Continental Towers
2675 N. Mayfair Road, L.L.C. (2) 2675 N. Mayfair Road
Prime Columbus Industrial, L.L.C. 2160 McGaw Road, 4849 Groveport Road, 2400
McGaw Road, 5160 Blazer Memorial Parkway, 600
London Road and 4411 Marketing Place
Libertyville Tech Way, L.L.C. 1001 Technology Way
801 Technology Way, L.L.C. 801 Technology Way
3818 Grandville, L.L.C. 3818 Grandville/1200 Northwestern
306 Era Drive, L.L.C. 306-310 Era Drive
1301 Ridgeview Drive, L.L.C. 1301 Ridgeview Drive
515 Huehl Road, L.L.C. 515 Huehl Road/500 Lindberg
455 Academy Drive, L.L.C. 455 Academy Drive
1051 N. Kirk Road, L.L.C. 1051 N. Kirk Road
4211 Madison Street, L.L.C. 4211 Madison Street
200 E. Fullerton, L.L.C. 200 E. Fullerton
350 Randy Road, L.L.C. 350 Randy Road
4300 Madison Street, L.L.C. 4300, 4248, 4250 Madison Street
</TABLE>
F-12
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
1. FORMATION AND ORGANIZATION OF THE COMPANY (CONTINUED)
<TABLE>
<CAPTION>
ENTITY PROPERTY
- ---------------------------------------------- ----------------------------------------------
<S> <C>
370 Carol Lane, L.L.C. 370 Carol Lane
388 Carol Lane, L.L.C. 388 Carol Lane
941 Weigel Drive, L.L.C. 941-961 Weigel Drive
342 Carol Lane, L.L.C. 342-346 Carol Lane
343 Carol Lane, L.L.C. 343 Carol Lane
371 N. Gary Avenue, L.L.C. 371-385 N. Gary Avenue
350 N. Mannheim Road, L.L.C. 350 N. Mannheim Road
1600 167th Street, L.L.C. 1600-1700 167th Street
1301 E. Tower Road, L.L.C. 1301 E. Tower Road
4343 Commerce Court, L.L.C. 4343 Commerce Court
11039 Gage Avenue, L.L.C. 11039 Gage Avenue
11045 Gage Avenue, L.L.C. 11045 Gage Avenue
1401 S. Jefferson, L.L.C. 1401 S. Jefferson
4100 Madison Street, L.L.C. 4100 Madison Street
4160 Madison Street, L.L.C. 4160-4190 Madison Street
550 Kehoe Blvd., L.L.C. 550 Kehoe Blvd.
</TABLE>
- ------------------------
(1) On December 15, 1997, the Company acquired the first mortgage note
encumbering the property for $108,870. The note has a face value of $157,161
at December 31, 1997, has a base interest rate of 6.5% per annum payable
monthly, contingent interest rate of 6.5% per annum, payable from available
cash flow as defined. All unpaid interest is added to principal. The note
matures January 2013. The Company will receive all of the economic benefits
from its interest in the property and therefore, the Company has
consolidated the operations of the property from the acquisition date.
(2) The Company acquired the property on December 30, 1997 for $8,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts of
the Company, the Operating Partnership and the partnerships in which the Company
has majority interest or control. The combined financial statements of the
Predecessor include the accounts of the PGI Partnerships. The
F-13
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments in corporations and partnerships in which the Company does not
have operational control or a majority interest are accounted for on the equity
method of accounting.
Significant intercompany accounts and transactions have been eliminated in
consolidation and combination.
REAL ESTATE
Depreciation is calculated on the straight-line method over the estimated
useful lives of assets, which are as follows:
<TABLE>
<S> <C>
Building and improvements 40-50 years
Tenant improvement Term of related leases
</TABLE>
Development costs, which include fees and costs incurred in developing new
properties, are capitalized as incurred. Upon completion of construction,
development costs are amortized over the useful lives of the respective
properties on a straight-line basis. Interest and other direct costs incurred
during construction periods are capitalized as a component of the building
costs.
Real estate is carried at depreciated cost. Expenditures for ordinary
maintenance and repairs are expensed to operations as incurred. Significant
renovations and improvements which improve and/or extend the useful life of the
asset are capitalized and depreciated over their estimated useful life.
CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
DEFERRED COSTS
Deferred financing costs are amortized on the straight-line method over the
terms of the loans. Deferred leasing costs are amortized on the straight-line
method over the terms of the related lease agreements.
LEASES ASSUMED
In connection with obtaining certain tenant leases 77 West Wacker assumed
liability for the remaining terms of the tenants' existing leases. 77 West
Wacker has recorded a liability for the difference between total remaining costs
for leases assumed and the expected benefits from subleases of the assumed lease
properties. The related incentive to lessee has been capitalized as a deferred
charge and is being amortized
F-14
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to rental revenue over the life of the respective lease. The deferred charge and
related liability are adjusted for changes in the expected benefits from
subleases. During the period from January 1, 1997 to November 16, 1997 and for
the year ended December 31, 1996, 77 West Wacker wrote off $1,049 and $3,893,
respectively, of deferred charges and reduced the related liability due to
changes in the estimated benefits from subleases.
RENTAL REVENUE
Rental revenue is recorded on the straight-line method over the terms of the
related lease agreements. As a result, $180 and $487 of cash was received in
excess of recorded rental revenue during the period from November 17, 1997 to
December 31, 1997 and the period from January 1, 1997 to November 16, 1997,
respectively, and $645 and $8,779 of noncash rent was recorded as rental revenue
during the years ended December 31, 1996 and 1995, respectively, and included in
accounts receivable. As of December 31, 1997 and 1996, the balance of the
accounts receivable relating to the straight-lining of rental revenue is $37,784
and $38,451, respectively.
INTEREST RATE SWAP AGREEMENT
77 West Wacker has entered into an interest rate swap agreement to
effectively convert its variable-rate borrowing into a fixed-rate obligation.
(The agreement was terminated November 16, 1997 -- see Note 5).
EARNINGS PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" which specifies the method of
computation, presentation, and disclosure for earnings per share ("EPS"). SFAS
No. 128 requires the presentation of basic EPS and diluted EPS. Basic EPS is
calculated by dividing net income available to common shareholders by the
weighted average number of shares outstanding during the period. Diluted EPS
includes the potentially dilutive effect, if any, which would occur if
outstanding (i) Common Stock options were exercised, (ii) Common Units were
converted into shares of Common Stock, and (iii) Preferred Shares were converted
into shares of Common Stock.
STOCK BASED COMPENSATION
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recognized for the stock
option grants because the exercise price of the options equals the market price
of the underlying stock at the date of grant.
INCOME TAXES
Commencing with the period ended December 31, 1997, it is the intent of the
Company to qualify as a real estate investment trust (REIT) under the Internal
Revenue Code of 1986, as amended. As a REIT, the Company generally will not be
subject to federal income tax to the extent that is distributes at least 95% of
F-15
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
its REIT taxable income to its shareholders. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT in any taxable year, the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate tax rates.
As of December 31, 1997, for income tax purposes, tenant receivables have a
basis of $3,744, real estate has a gross and net basis of $672,618 and $647,565,
respectively, and deferred costs have a gross and net basis of $43,835 and
$28,472, respectively.
The Partnerships pay no income taxes, and the income or loss from the
Partnerships is included on the respective income tax returns of the Partners.
3. MORTGAGE NOTE RECEIVABLE
On December 16, 1997, the Company acquired the first mortgage note
encumbering the office property known as 180 North LaSalle Street, which is a
39-story office building, located in Chicago, Illinois, that contains 729,000
square feet of rentable space, including 15,000 square feet of retail space and
is approximately 81% leased at December 31, 1997. The first mortgage note, which
has a face value of $63,329 at December 31, 1997 and an interest rate of 8.25%,
was purchased for approximately $51,163 in cash and $5,100 in Common Units
(256,572 Common Units, a 1.1% limited partner interest in the Operating
Partnership at December 31, 1997). Included in the purchase was an option,
exercisable until July 30, 2000, to acquire the existing $85.0 million second
mortgage on the property for 220,000 Common Units (5,000 Common Units per month
during the option period which are non-refundable) of the Operating Partnership
(subject to certain adjustments as defined) and an option to purchase the equity
ownership of the property during the period from January 15, 2004 to February
15, 2004 for a price equal to the greater of the fair market value of the
interest or $2,000. The Company will also provide property management and
leasing services for the property pursuant to a 10-year management and leasing
contract.
4. DEFERRED COSTS
Deferred costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Financing costs....................................................... $ 5,572 $ 6,757
Leasing costs......................................................... 23,182 35,386
---------- ----------
28,754 42,143
Less: Accumulated amortization........................................ (282) (15,260)
---------- ----------
$ 28,472 $ 26,883
---------- ----------
---------- ----------
</TABLE>
F-16
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
5. MORTGAGE NOTES AND BONDS PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
<S> <C> <C>
1997 1996
------------- ----------
Line-of-credit (Line-of-Credit) with various financial institutions, collateralized by
the 77 West Wacker Building with maximum draw of $235,000, bearing interest at rates
ranging from the higher of prime rate or federal funds rate plus 1/2%, to Eurodollar
rate plus 1.2% to 1.5%, per annum (7.23% at December 31, 1997), as defined, with
interest payable monthly and principal due November 2000. The Line-of-Credit has also
been used to provide letters-of-credit totaling $75,848 as of December 31, 1997, on
bonds payable described below........................................................ $ 159,000 $ --
Mortgage note payable to a financial institution, collateralized by 1001 Technology
Way, interest at 8.3% per annum with principal and interest payable monthly through
October 2011......................................................................... 6,412 --
Mortgage notes payable to a financial institution, collateralized by various of the New
Entities, interest at 7.19% per annum with interest payable monthly and principal due
April 30, 1998 (See Notes 16 and 17.)................................................ 83,500 --
Mortgage note payable to a financial institution collateralized by Continental Towers,
interest at prime rate (8.50% at December 31, 1997) per annum with principal and
interest payable monthly through January 1998........................................ 698 --
Mortgage notes payable to various commercial lenders(A)................................ -- 229,361
Mortgage notes payable to various financial institutions, interest at variable rate of
prime plus 1/2% per annum and a fixed rate of 7.375% per annum with principal and
interest payable monthly through October 1998........................................ -- 6,525
------------- ----------
$ 249,610 $ 235,886
------------- ----------
------------- ----------
Bonds payable:
Variable rate taxable and tax-exempt bonds issued by various state and local
government authorities(B),(C)...................................................... $ 74,450 $ 74,450
------------- ----------
------------- ----------
</TABLE>
- ------------------------
(A) 77 West Wacker had entered into a mortgage note agreement (Agreement) with a
consortium of commercial lenders providing a maximum loan of $230,000 (Loan)
and was collateralized by a first mortgage on the 77 West Wacker Building.
The Loan was repaid with proceeds of the Offering and Private Placement.
Under the terms of the Agreement, 77 West Wacker made monthly interest-only
payments. Interest was calculated using certain variable rate indices, as
defined. To reduce the impact of increases in interest rates, 77 West Wacker
also entered into an interest rate swap agreement with affiliates of one of
77 West Wacker's Third Party owners (Counterparties) for the outstanding
principal balance on the Agreement up to a maximum principal amount of
$230,000. Under the terms of the interest rate swap agreement, 77 West
Wacker paid the Counterparties interest monthly at a
F-17
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
5. MORTGAGE NOTES AND BONDS PAYABLE (CONTINUED)
fixed rate of 10% per annum. 77 West Wacker was to receive monthly interest
payments from the Counterparties at the variable rate and was then
responsible for making the monthly interest payments required under the
terms of the Agreement. 77 West Wacker incurred $692 of fees to terminate
the swap agreement, which have been reflected in the extraordinary item --
extinguishment of debt in the period from January 1, 1997 to November 16,
1997.
(B) Permanent financing for the development of certain industrial properties has
been provided by $48,150 of tax exempt industrial development revenue bonds
(Bonds). (See Note 6--on December 13, 1995, and on May 20, 1996, the Bonds
were acquired by independent third party financial institutions from an
affiliate of PGI.) The Bonds mature on June 1, 2022.
Under the terms of the Bond loan agreements, the borrowing partnerships are
to make interest-only payments monthly, calculated using a floating rate
determined by the Remarketing Agent of the Bonds. The rates ranged from
3.35% to 4.75% during 1997, 2.85% to 4.40% during 1996, and 5.25% to 5.51%
during 1995. The rate at both December 31, 1997 and December 31, 1996, was
4.40%.
The maximum annual interest rate on the Bonds is 13%. Under certain
conditions, the interest rate on the Bonds may be converted to a fixed rate
at the request of the borrowing Partnership.
Beginning November 17, 1997, the Bonds were collateralized by letters of
credit totaling $48,918 from the Line-of-Credit. From May 1996 to November
16, 1997, the Bonds were collateralized by letters of credit that required
the borrowing PGI Partnerships to pay financing fees of 1.75% per annum of
the face amount, payable quarterly in advance.
The bondholders may tender bonds on any business day during the variable
interest rate period discussed above and receive principal, plus accrued
interest through the tender date. Upon tender, the remarketing agent shall
immediately remarket the Bonds. In the event the remarketing agent fails to
remarket any Bonds, the borrowing Partnerships are obligated to purchase
those Bonds. The remarketing agent receives a fee of .11% per annum of the
outstanding Bonds balance, payable quarterly in advance.
(C) Permanent financing for the development of certain office properties has
been provided by $26,300 of tax exempt industrial revenue bonds (IRBs). The
IRB's mature on December 1, 2014. Under the terms of the IRB agreements, the
borrowing Partnerships are to make interest-only payments monthly,
calculated using a floating rate determined by the remarketing agent of the
IRBs. The rates ranged from 3.35% to 3.85% during 1997, 3.40% to 4.05%
during 1996, and 3.40% to 4.50% during 1995. The rates at December 31, 1997,
were 3.85% and at December 31, 1996, were 3.50%.
Under certain conditions, the interest rates on the IRBs may be converted to
a fixed rate at the request of the borrowing partnerships.
The IRBs are collateralized by letters of credit totaling $26,930 from the
Line-of-Credit.
Under the terms of the IRB agreements, the bondholders have the option to
require the borrowing Partnerships to purchase any of its IRBs on the 15th
day of any month while the IRBs are outstanding. Upon the exercise of the
bondholders' option to purchase the IRBs, the remarketing agent shall
F-18
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
5. MORTGAGE NOTES AND BONDS PAYABLE (CONTINUED)
immediately remarket the IRBs. In the event the remarketing agent fails to
remarket the IRBs, the borrowing Partnerships are obligated to purchase
those IRBs.
Total interest paid on the mortgage notes payable and bonds payable was
$1,855 and $25,731 for the period from November 17, 1997 to December 31,
1997, and the period from January 1, 1997 to November 16, 1997,
respectively, and $25,643 and $25,490 for the years ended December 31, 1996
and 1995, respectively.
6. MORTGAGE NOTES AND BONDS PAYABLE--AFFILIATES
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Mortgage note payable--Limited partner, collateralized by 801 Technology Way, interest at 7.0%
per annum, with principal and interest due January 2, 1998.................................... $ 3,984 $ --
Mortgage notes payable--Affiliate(A)............................................................ -- 99,357
Mortgage note payable--Affiliate; interest at 9.5% per annum with interest payable quarterly and
principal and accrued interest due on maturity date of March 7, 1998.......................... -- 290
--------- ---------
$ 3,984 $ 99,647
--------- ---------
--------- ---------
Bonds payable--Affiliate:
Variable rate taxable and tax-exempt bonds issued by state and local government authorities(B) $ -- $ 12,000
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(A) 77 West Wacker had entered into a 11% subordinate loan agreement with
affiliates of its Third Party owner for a maximum disbursement amount of
$60,000. A portion of the loan was repaid ($4,895) with proceeds of the
Offering and the Private Placement, and a portion was considered repaid from
the swap agreement between PGI and the Third Party related to the Loan in
Note 5 ($42,584 was recorded as a contribution from PGI in the period from
January 1, 1997 to November 17, 1997) and the remainder was forgiven
($67,847), as of November 16, 1997 and included in the extraordinary item --
extinguishment of debt in the period from January 1, 1997 to November 16,
1997. As of December 31, 1996 and 1995, $56,787 and $50,896, respectively,
has been funded under this agreement, and $40,873 and $30,871, respectively,
of accrued interest and $1,697 and $1,175, respectively, of standby loan
fees, have been added to the principal balance in accordance with the terms
of the agreement. The Third Party owner has provided a guarantee of 77 West
Wacker's first mortgage note payable and charges 77 West Wacker a standby
loan fee, as defined, which is included as a component of interest expense.
Standby loan fees incurred were $460 for the period from January 1, 1997 to
November 16, 1997, and $522 and $498 for the years ended December 31, 1996
and 1995, respectively, (included in general and administrative expenses in
the combined statements of operations of the Predecessor). Under the terms
of the subordinate loan agreement, 77 West Wacker was not required to make
any periodic principal or interest payments prior to the date of
stabilization, as defined; unpaid interest is added to the principal balance
monthly. Subsequent to the date of stabilization, as
F-19
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
6. MORTGAGE NOTES AND BONDS PAYABLE--AFFILIATES (CONTINUED)
defined, monthly payments of interest only are payable to the extent of
available cash flow, as defined, during the operating period, with the
entire outstanding balance due upon maturity.
(B) Permanent financing for the development of certain industrial properties has
been provided by $12,000 of tax exempt bonds which were converted to taxable
debt industrial development revenue bonds (IDBs). The Bonds mature on June
1, 2022. On November 17, 1997, PGI contributed the related bond receivables
held by an affiliate as part of its contribution to the Operating
Partnership. On December 13, 1995, $60,150 of IDBs were acquired by an
affiliate of PGI from the Third Party. On December 13, 1995, $28,300 and on
May 20, 1996, $19,850 of the IDBs were sold to independent third party
financial institutions by the affiliate of PGI.
Under the terms of the IDB loan agreement, the borrowing Partnerships are to
make interest-only payments semi-annually, calculated using a floating rate
determined by the Remarketing Agent of the IDBs. The rates were 5.501%
during 1997, 3.90% to 5.501% during 1996, and 5.25% to 5.51% during 1995.
The maximum annual interest rate on the IDBs is 13%. Under certain
conditions, the interest rate on the IDBs may be converted to a fixed rate
at the request of the respective borrowing Partnership. The bondholders may
tender bonds on any business day during the variable interest rate period
discussed above and receive principal, plus accrued interest through the
tender date. Upon tender, the remarketing agent shall immediately remarket
the IDBs. In the event the remarketing agent fails to remarket any IDBs, the
borrowing Partnership is obligated to purchase those IDBs. The remarketing
agent receives a fee of .11% per annum of the outstanding IDB balance,
payable quarterly in advance.
Included in the extraordinary item -- extinguishment of debt in the period
from January 1, 1997 to November 16, 1997, are $1,000 in loan termination fees
paid to an affiliate of the Third Party and the write-off of unamortized
deferred financing of $165.
In 1995, mortgage notes payable to the Third Party totaling $2,716 and
accrued interest of $200 were forgiven by the Third Party. The notes bore
interest at 8.5%, payable quarterly from available cash flow.
Total interest paid on the mortgage notes payable and bonds payable to
affiliates was $32 for the period from January 1, 1997 to November 16, 1997 and
$1,256 and $3,538 for the years ended December 31, 1996 and 1995, respectively.
No interest was paid for the period from November 17, 1997 to December 31, 1997.
7. FUTURE MINIMUM LEASE INCOME AND PAYMENTS
The Company has entered into lease agreements with lease terms ranging from
one year to twenty years. The leases generally provide for tenants to share in
increases in operating expenses and real estate taxes in excess of specified
base amounts.
Approximately 39% and 57%, 60% and 65%, of the rental revenue for the period
from November 17, 1997 to December 31, 1997, and the period from January 1, 1997
to November 16, 1997, and for the years ended December 31, 1996 and 1995,
respectively, was received from four tenants.
F-20
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
7. FUTURE MINIMUM LEASE INCOME AND PAYMENTS (CONTINUED)
The total future minimum rentals to be received under such noncancelable
operating leases executed through December 31, 1997, exclusive of tenant
reimbursements and contingent rentals, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- -------------------------------------------------------------- ----------
<S> <C>
1998.......................................................... $ 56,322
1999.......................................................... 52,738
2000.......................................................... 47,232
2001.......................................................... 40,373
2002.......................................................... 35,763
Thereafter.................................................... 145,908
----------
$ 378,336
----------
----------
</TABLE>
Future minimum rentals include amounts to be received from the Company
totaling $2,546 and from PGI totaling $3,710.
In addition, as a part of lease agreements entered into with certain tenants
of 77 West Wacker Building, 77 West Wacker assumed the tenants' leases at other
properties and subsequently executed subleases for certain of the assumed lease
space. Net future minimum rental payments due under leases assumed and subleases
executed through December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
- ----------------------------------------------------------------- ---------
<S> <C>
1998............................................................. $ 1,210
1999............................................................. 1,235
2000............................................................. 1,263
2001............................................................. 1,293
2002............................................................. 757
---------
$ 5,758
---------
---------
</TABLE>
During 1995, a tenant of the 77 West Wacker Building experienced financial
difficulties and began negotiations with 77 West Wacker to reduce its leased
space, resulting in an amendment to the tenant's lease agreement. As a result of
the lease amendment, 77 West Wacker wrote-off $13,373 of deferred tenant costs,
representing $10,296 of tenant receivables related to straight-lining of the
tenant's rental revenue, $2,257 of deferred leasing costs, and $820 of tenant
improvements. The same tenant continued to experience financial difficulty and
in 1997 defaulted on certain 1997 rental payments. As a result of the default,
as of December 31, 1996, 77 West Wacker wrote-off $3,081 of deferred tenant
costs, representing $940 of tenant receivables related to straight-lining of the
tenant's rental revenue and $2,141 of deferred leasing costs. In early November
1997, 77 West Wacker reached an agreement with the tenant to terminate the
lease. During the period from January 1, 1997 to November 16, 1997, 77 West
Wacker recognized revenue from this tenant only to the extent cash was received.
F-21
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
8. PREFERRED SHARES
The Company is authorized to issue up to 30,000,000 of non-voting preferred
shares of beneficial interest in one or more series. At December 31, 1997,
2,000,000 Cumulative Convertible Preferred Shares of Beneficial Interest with a
$0.01 par value were outstanding. The Preferred Shares have a liquidation
preference equivalent to $20.00 per share plus the amount equal to any accrued
and unpaid dividends thereon ("Liquidation Preference").
Dividends on the Preferred Shares are payable quarterly at the greater of:
(i) (x) an annual rate equal to the product of the Issue Price ($20.00)
multiplied by 0.07% for Dividend Periods ending before November 17, 1998 (The
Company declared a dividend of $0.173 per Preferred Share on December 31,
1997.), and (y) an annual rate equal to the product of the Issue Price
multiplied by 0.075% for dividend periods ending after November 17, 1998, or
(ii) the regular cash dividends (determined on each dividend payment date) on
the Common Shares, or portion thereof, into which a Preferred Share is
convertible. The amount of dividends referred to in clause (i) above payable for
each full dividend period on the 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 17, 1998, on the Preferred Shares shall be
computed by dividing the product of the Issue Price times 0.07% by 365 and
multiplying the result by the number of days from October 1, 1998 through
November 17, 1998 and dividends from November 18, 1998 through December 31,
1998, on the Preferred Shares shall be computed by dividing the product of the
Issue Price times .075% by 365 and multiplying the result by the number of days
from November 18, 1998 through December 31, 1998. The amount of dividends
referred to in clause (ii) above shall equal the number of Common Shares, or
portion thereof, into which a Preferred Share will be convertible on or after
the conversion date as defined, multiplied by the most current quarterly
dividend on a Common Share on or before the applicable dividend payment date.
The Preferred Shares are convertible into shares of Common Shares, at the
shareholders' option, upon the earliest to occur of: (i) September 17, 1998,
(ii) the first day on which a change of control occurs, as defined, (iii) the
occurrence of a REIT termination event, as defined, or (iv) such date as
determined by the Company (the Conversion Date), to convert all or any portion
of such shares (or such shares as determined by the Company if pursuant to
clause (iv) above) into the number of fully paid and non-assessable Common
Shares obtained by dividing the aggregate Liquidation Preference Amount of such
shares by the conversion price by surrendering such shares to be converted. In
the case of Preferred Shares called for redemption, conversion rights shall
expire at the close of business on the fifth business day prior to the
redemption date fixed for such redemption.
The Company has the right to redeem the Preferred Shares beginning on and
after November 17, 2007, in cash equal to 100% of the Liquidation Preference.
Notwithstanding, anything above to the contrary, beginning on June 17, 1998, and
ending on September 17, 1998, the Company, at its option, may redeem all, but
not less than all, of the Preferred Shares at 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 Company'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 75.0% of the Special Redemption Price.
F-22
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
8. PREFERRED SHARES (CONTINUED)
The holders of the Preferred Shares have the right to elect two additional
members to the Company's Board of Directors if the equivalent of two quarterly
dividends are in arrears. Each of such two directors will be elected to serve
until the earlier of: (1) the election and qualification of such directors'
successor, or (2) payment of the dividend average.
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income available per weighted-average common share of beneficial interest for
the period from November 17, 1997 to December 31, 1997:
<TABLE>
<S> <C>
Numerator:
Net income available to common shareholders................... $ 447
---------
---------
Denominator:
Weighted-average common shares of beneficial interest......... 12,593,000
---------
---------
Net income available per weighted-average common share of
beneficial interest--basic and diluted........................ $ .04
---------
---------
</TABLE>
Options to purchase 1,223,000 Common Shares at $20.00 per share were
outstanding during the period from November 17, 1997 to December 31, 1997 but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
The Company had 10,250,882 Common Units outstanding during the period from
November 17, 1997 to December 31, 1997, of which 9,323,782 may be converted into
Common Shares, after one year from the completion of the Offering at the option
of the Company. The Convertible Common Units, on a one for one basis, were not
included in the computation of diluted earnings per share because the conversion
would be antidilutive.
The Company had 2,000,000 Preferred Shares outstanding during the period
from November 17, 1997 to December 31, 1997 but were not included in the
computation of diluted earnings per share because the conversion would be
antidilutive.
10. EMPLOYEE BENEFIT PLANS
On November 17, 1997 the Company established a Share Incentive Plan (the
"Plan") which permits the grant of stock options, stock appreciation rights,
restricted stock, restricted units and performance units to officers and other
key employees of the Company, its subsidiaries, the Operating Partnership, the
Services Company and Company-owned partnerships. The Plan also permits the grant
of stock options to non-employee Trustees.
Under the Plan, up to 1,850,000 Common Shares may be issued or transferred
to participants. The maximum aggregate number of Common Shares and Share
equivalent units that may be subject to awards granted during any calendar year
to any one participant under the Plan, regardless of the type of awards,
F-23
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
will be 200,000. This limit will apply regardless of whether such compensation
is paid in Common Shares or Share equivalent units.
The effects on unaudited pro forma net income and pro forma earnings per
common share for the period from November 17, 1997 to December 31, 1997of
amortizing to expense the estimated fair value of stock options are not
necessarily representative of the effects on net income to be reported in future
years due to such things as vesting period of the stock options, and the
potential for issuance of additional stock options in future years. For purposes
of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the options' vesting period.
Under the Plan, each person serving as a Trustee on November 17, 1997,
received options to acquire 5,000 shares. Stock options granted to the Trustees
have a term of 10 years and will vest and be exercisable at the rate of 33.3%
per year over three years commencing on the first anniversary of their date of
grant. On November 17, 1997, each of the seven Trustees received options to
acquire 5,000 shares at $20.00 per share (the closing price on the day of the
grant of the options).
The Board administers the Plan and has the authority to determine, among
other things, the individuals to be granted options, the exercise price at which
shares may be acquired, the number of shares subject to options and the vesting
requirements and the exercise period of each option. The Board is granted
discretion to determine the term of each option granted under the Plan to
employees, executives and Trustees, but in no event will the term exceed ten
years and one day from the date of the grant. On November 17, 1997, the Board
granted options to purchase a total of 1,113,000 shares at an exercise price of
$20.00 per share (the closing price on the day of the grant of the options) to
various executives and employees of the Company. Options for the shares granted
under the Plan to executives and employees have a term of 10 years and will be
exercisable and vest in installments as follows: (i) 33.3% of the number of
shares commencing in the first anniversary of the date of grant; (ii) an
additional 33.3% for the shares commencing on the second anniversary of the date
of the grant; and (iii) the remainder of the shares commencing on the third
anniversary of the date of grant.
Under a consulting agreement between the Company and an executive of the
Company, the Board granted options to purchase 75,000 shares at an exercise
price of $20.00 per share. Pursuant to the agreement, the options granted have a
term of 10 years and will be exercisable and vest at the rate of 33.3% per year
over three years commencing on the first anniversary of their date of grant.
The unaudited pro forma information regarding net income and earnings per
share is required by SFAS No. 123, and has been determined as if the Company had
accounted for its options under the fair value method of that statement. The
fair value for the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997; risk free interest rate of 5.41%, dividend yield of 6.7%;
volatility factor of the expected market price of the Company's common stock of
.156; and a weighted-average expected life of the options of ten years. The
unaudited pro forma expense would be $69 ($0.01 per Common Share) for the period
from November 17, 1997 to December 31, 1997.
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility.
F-24
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
Because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion the existing models do not
necessarily provide a reliable single measure of the fair value of the options
granted under the Plan.
A summary of the Company's stock option activity, and related information
for the period from November 17, 1997 through December 31, 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
SUBJECT TO EXERCISE
OPTION PRICE PER SHARE
---------- ---------------
<S> <C> <C>
Initial options granted......................................... 1,223,000 $ 20.00
Options canceled................................................ -- --
---------- ------
Balance at December 31, 1997.................................... 1,223,000 $ 20.00
---------- ------
---------- ------
</TABLE>
At December 31, 1997, no options were exercised and options on 627,000
shares were available for future grant. Exercise prices for options outstanding
at December 31, 1997 were $20.00 per share. The remaining weighted-average
contractual life of these options was 9.88 years. The weighted-average grant
date fair value of all options granted during the period is $1.39.
11. RELATED PARTY TRANSACTIONS
The Company owns 100% of the nonvoting preferred stock of the Service
Company which has an initial carrying value of $425 and has provided a loan in
the amount of $4,800 to the Service Company (included in due from affiliates at
December 31, 1997). The loan bears interest at 11% per annum, with interest
payable monthly and principal due November 2007. During the period from November
17, 1997 to December 31, 1997, the Company recorded interest income of $66
(included in due from affiliates) related to the loan and $19, representing the
Company's share of the Service Company's loss from operations for the same
period. (The net of $47 is included in other income.) No interest income was
received during the period. In addition, the Company has made non-interest
bearing advances to the Service Company, of which approximately $392 is
outstanding at December 31, 1997 and included in due from affiliates.
F-25
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
In connection with the leasing and management of the Prime Properties, PGI
was entitled to payments and fees for services performed. Such amounts incurred
during the period from January 1, 1997 to November 16, 1997, and for the years
ended December 31, 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED DECEMBER
1997 TO 31
NOVEMBER 16, --------------------
1997 1996 1995
------------- --------- ---------
<S> <C> <C> <C>
Property management fee(a).................................. $ 1,238 $ 1,429 $ 1,364
Administration fees(b)...................................... 463 468 730
Construction management(c).................................. -- 102 115
Legal fees(d)............................................... 271 127 77
Leasing fees(e)............................................. 2 19 280
Reimbursables(f)............................................ 252 184 352
Asset management fee(g)..................................... 110 132 132
</TABLE>
- ------------------------
(a) PGI was entitled to a property management fee ranging from 2.5% to 4% of
gross receipts, payable monthly in arrears. Amounts are included in property
and asset management fees to affiliates in the combined financial statements
of the Predecessor.
(b) PGI was entitled to an annual administration fee as defined in the
Partnership agreement. Amounts are included in general and administrative
expenses in the combined financial statements of the Predecessor.
(c) PGI was entitled to a construction management fee equal to 3% of
construction costs.
(d) PGI was reimbursed for reasonable legal and accounting expenses incurred in
connection with the operations of the Partnerships. Amounts are included in
general and administrative expenses in the combined financial statements of
the Predecessor.
(e) PGI was entitled to leasing commissions for all leases signed. The
commissions are equal to 1.5% to 3% of rent, exclusive of tenant
reimbursements, during the base term of the lease; commissions were payable
upon commencement of the respective leases.
(f) PGI was entitled to reimbursement for expenses paid for the benefit of the
Partnerships. Amounts are included in general and administrative expenses in
the combined financial statements of the Predecessor.
(g) PGI was entitled to an annual fee from providing asset management services
to the Partnership which is payable from available cash flows. Amounts are
included in property and asset management fees to affiliates in the combined
financial statements of the Predecessor.
Amounts due to affiliates are for amounts due for advances made by
affiliates. Amounts due from affiliates are for advances made by the Partnership
to affiliates. Amounts due from and due to affiliates bore interest at prime
plus 2% and were payable upon demand. Any unpaid amounts due to affiliates or
F-26
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
amounts due from affiliates as of November 16, 1997, have been reflected as
distributions to or contributions from PGI.
Average balances of amounts due from and due to affiliates for the period
from January 1, 1997 to November 16, 1997, and for the years ended December 31,
1996 and 1995, were summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER
JANUARY 1, 1997 31
TO --------------------
NOVEMBER 16, 1997 1996 1995
----------------- --------- ---------
<S> <C> <C> <C>
Due from affiliates.................................... $ 1,447 $ 4,323 $ 3,251
Due to affiliates...................................... 354 821 1,107
</TABLE>
12. INSURANCE SETTLEMENT
On July 16, 1994, the Enterprise Center I property was destroyed by a fire.
During 1995, ECI received a final insurance settlement of $10,871 related to the
fire. The proceeds settled an insurance receivable of $1,755 recorded at
December 31, 1994, and additional costs of $1,859 incurred in 1995 related to
the cleanup of the property. ECI believes that all material costs of the fire
were incurred prior to December 31, 1995. The remaining proceeds of $7,257 have
been recorded as revenue in the 1995 combined statement of operations.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments (SFAS No. 107) and No. 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments
requires disclosures of the fair value of certain on-and off-balance sheet
financial instruments for which it is practicable to estimate. Fair value is
defined by SFAS No. 107 as the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale.
The following methods and assumptions were used by the Company and the PGI
Partnerships in estimating their fair value disclosures for financial
instruments.
CASH AND CASH EQUIVALENTS
The carrying amount of cash and cash equivalents reported in the
consolidated and combined balance sheets approximates its fair value.
The Company maintains its cash and cash equivalents at financial
institutions. The combined account balances at each institution periodically
exceed FDIC insurance coverage, and as a result, there is a concentration of
credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Management believes that the risk is not significant.
F-27
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
13. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
MORTGAGE NOTES AND BONDS PAYABLE
The carrying amount of the Company's and the PGI Partnerships' variable and
fixed rate borrowings approximates fair value based on the current borrowing
rate for similar types of borrowing arrangements.
The carrying amount of accrued interest in the consolidated and combined
balance sheets approximates fair value.
14. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in legal actions arising during the normal course
of business. Management believes that the ultimate outcome of those actions will
not materially affect the Company's consolidated financial position.
All of the Prime Properties and New Entities were subject to Phase I or
similar environmental assessment by independent environmental consultants which
were intended to discover information regarding, and to evaluate the
environmental condition of, the surveyed property and surrounding properties.
Management is aware of contamination at certain of the industrial properties
included in the Prime Properties, which are already in remediation programs
sponsored by the state in which they are located. The Phase I assessments
estimate that remedial action plans will have a probable cost of approximately
$3,205. During 1997, PGI initiated lawsuits against a former environmental
consultant and a former tenant of one of these properties for damages to cover
the cost of the remedial action plans. However, the outcome of the lawsuits
cannot yet be determined and the actual cost to be incurred by the Company
cannot yet be determined. During 1997, the PGI Partnerships recorded a liability
of $3,205 (included in accounts payable and accrued expenses at December 31,
1997). PGI has contractually agreed to indemnify the Company from any
environmental liabilities the Company may incur.
15. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Operations of the Company are presented as if, at January 1, 1996, (i) the
Company had completed the Offering, the Private Placement, and the Overallotment
and contributed the net proceeds to the Operating Partnership, (ii) PGI and
Contributors had contributed certain of their respective properties and
operations (the Contribution Properties) to the Operating Partnership, (iii) the
Operating partnership had completed the sale of Common Units to Primestone, (iv)
the Operating Partnership acquired various office and industrial properties (the
Acquisition Properties), and Continental Management Business from various third
parties, and (v) the Operating Partnership repaid debt on certain of the
Contribution Properties. The unaudited pro forma Condensed Consolidated
Statements of Operations should be read in conjunction with unaudited Pro Forma
condensed consolidated financial statements and all of the historical financial
statements contained in the Prospectus. In management's opinion, all adjustments
necessary to reflect the effects of the Offering and the Private Placement have
been made.
The unaudited Pro Forma Condensed Consolidated Statements of Operations of
the Company are not necessarily indicative of what the actual results of
operations would have been assuming the Offering, the Private Placement, and the
Overallotment had occurred at the dates indicated above, nor do they purport to
represent the future results of operations of the Company.
F-28
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
15. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Total revenue.................................................... $ 100,465 $ 98,515
------------ ------------
------------ ------------
Net income....................................................... $ 9,328 $ 7,797
------------ ------------
------------ ------------
Earnings per common share........................................ $ 0.50 $ 0.38
------------ ------------
------------ ------------
</TABLE>
16. REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
GROSS AMOUNT CARRIED
COMPANY ACQUISITION AT DECEMBER 31, 1997
---------------------- ---------------------- ---------------------------------
DECEMBER 31, BUILDING BUILDING BUILDING
1997 AND AND AND
------------- IMPROVE- IMPROVE- IMPROVE-
DESCRIPTION ENCUMBRANCES LAND MENTS LAND MENTS LAND MENTS TOTAL
- ------------------ ------------- --------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE
77 W.Wacker Bldg.. $ 159,000 $ 17,637 $ 162,755 $ -- $ -- $ 17,637 $ 162,755 $ 180,392
Nashville Office
Bldg............ 4,800 1,530 7,072 -- -- 1,530 7,072 8,602
Professional
Plaza........... 9,000 -- 7,090 -- -- -- 7,090 7,090
Old Kingston...... 3,500 378 2,808 -- -- 378 2,808 3,186
Two Center
Square.......... 9,000 -- 7,379 -- -- -- 7,379 7,379
Triad Parking
Facility........ -- 507 1,046 -- -- 507 1,046 1,553
Hammond Enterprise
Center.......... -- 26 614 -- -- 26 614 640
Chicago Enterprise
Center.......... -- 775 975 -- -- 775 975 1,750
1990 Algonquin
Road(1)......... -- 1,554 6,393 -- -- 1,554 6,393 7,947
2010 Algonquin
Road(1)......... -- 509 2,044 -- -- 509 2,044 2,553
555 Huehl
Road(1)......... -- 1,291 5,164 -- -- 1,291 5,164 6,455
1669 Woodfield
Road(1)......... -- 1,962 7,853 -- -- 1,962 7,853 9,815
475 Superior
Avenue.......... -- 2,700 10,801 -- -- 2,700 10,801 13,501
2205-2255
Enterprise
Drive(1)........ -- 2,304 9,259 -- -- 2,304 9,259 11,563
280 Shuman Blvd... -- 1,264 5,056 -- -- 1,264 5,056 6,320
Continental
Towers.......... 698 21,831 87,324 -- -- 21,831 87,324 109,155
2675 Mayfair...... -- 1,613 6,450 -- -- 1,613 6,450 8,063
INDUSTRIAL
ECEC.............. -- 27 533 -- -- 27 533 560
EC I.............. 2,900 595 -- -- -- 595 -- 595
EC II............. 5,000 18 2,360 -- -- 18 2,360 2,378
<CAPTION>
DECEMBER 31,
1997
--------------- DATE OF
ACCUMULATED ACQUISITION(A)
DESCRIPTION DEPRECIATION(1) CONTRIBUTION(C)
- ------------------ --------------- ---------------
<S> <C> <C>
OFFICE
77 W.Wacker Bldg.. $ (835) 1997(C)
Nashville Office
Bldg............ (29) 1997(C)
Professional
Plaza........... (71) 1997(C)
Old Kingston...... (25) 1997(C)
Two Center
Square.......... (74) 1997(C)
Triad Parking
Facility........ (5) 1997(C)
Hammond Enterprise
Center.......... (4) 1997(C)
Chicago Enterprise
Center.......... (162) 1997(C)
1990 Algonquin
Road(1)......... (19) 1997(A)
2010 Algonquin
Road(1)......... (6) 1997(A)
555 Huehl
Road(1)......... (27) 1997(A)
1669 Woodfield
Road(1)......... (24) 1997(A)
475 Superior
Avenue.......... (29) 1997(A)
2205-2255
Enterprise
Drive(1)........ (27) 1997(A)
280 Shuman Blvd... (16) 1997(A)
Continental
Towers.......... (126) 1997(A)
2675 Mayfair...... (1) 1997(A)
INDUSTRIAL
ECEC.............. (4) 1997(C)
EC I.............. (4) 1997(C)
EC II............. (14) 1997(C)
</TABLE>
F-29
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
16. REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
GROSS AMOUNT CARRIED
COMPANY ACQUISITION AT DECEMBER 31, 1997
---------------------- ---------------------- ---------------------------------
DECEMBER 31, BUILDING BUILDING BUILDING
1997 AND AND AND
------------- IMPROVE- IMPROVE- IMPROVE-
DESCRIPTION ENCUMBRANCES LAND MENTS LAND MENTS LAND MENTS TOTAL
- ------------------ ------------- --------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EC III............ $ 4,500 $ 20 $ 7,038 $ -- $ -- $ 20 $ 7,038 $ 7,058
EC IV............. 2,600 11 1,217 -- -- 11 1,217 1,228
EC V.............. 5,000 81 2,883 -- -- 81 2,883 2,964
EC VI............. 4,900 101 2,936 -- -- 101 2,936 3,037
EC VII............ 7,200 548 4,968 -- -- 548 4,968 5,516
EC VIII........... 7,000 151 2,493 -- -- 151 2,493 2,644
EC IX............. 4,750 269 1,127 -- -- 269 1,127 1,396
EC X.............. 4,300 275 2,836 -- -- 275 2,836 3,111
Arlington Heights
I............... -- 617 2,638 -- -- 617 2,638 3,255
Arlington Heights
II.............. -- 456 2,062 -- -- 456 2,062 2,518
Arlington Heights
III............. -- 452 1,938 -- -- 452 1,938 2,390
2160 McGraw Rd.... -- 904 3,617 -- -- 904 3,617 4,521
4849 Groveport.... -- 507 2,030 -- -- 507 2,030 2,537
2400 McGraw Rd.... -- 348 1,392 -- -- 348 1,392 1,740
5160 Blazer
Memorial Pkwy... -- 470 1,880 -- -- 470 1,880 2,350
600 London Rd..... -- 223 890 -- -- 223 890 1,113
4411 Marketing
Place........... -- 445 1,780 -- -- 445 1,780 2,225
1001 Technology
Way............. 6,412 1,909 7,637 -- -- 1,909 7,637 9,546
801 Technology
Way............. 3,984 813 3,253 -- -- 813 3,253 4,066
3818
Grandville/1200
Northwestern(1)... -- 2,125 8,505 -- -- 2,125 8,505 10,630
306-310 Era
Drive(1)........ -- 719 2,878 -- -- 719 2,878 3,597
1301 Ridgeview
Drive(1)........ -- 2,287 9,148 -- -- 2,287 9,148 11,435
515 Huehl Road/500
Lindburg(1)..... -- 1,775 7,100 -- -- 1,775 7,100 8,875
455 Academy
Drive(1)........ -- 754 3,018 -- -- 754 3,018 3,772
1051 N. Kirk
Road(1)......... -- 911 3,645 -- -- 911 3,645 4,556
4211 Madison
Street(1)....... -- 690 2,759 -- -- 690 2,759 3,449
200 E.
Fullerton(1).... -- 525 2,100 -- -- 525 2,100 2,625
350 Randy
Road(1)......... -- 267 1,063 -- -- 267 1,063 1,330
4300,4248,4250
Madison
Street(1)....... -- 1,147 4,588 -- -- 1,147 4,588 5,735
370 Carol
Lane(1)......... -- 527 2,107 -- -- 527 2,107 2,634
388 Carol
Lane(1)......... -- 332 1,329 -- -- 332 1,329 1,661
941-961 Wiegel
Drive(1)........ -- 3,268 13,060 -- -- 3,268 13,060 16,328
342-346 Carol
Lane(1)......... -- 600 2,398 -- -- 600 2,398 2,998
343 Carol
Lane(1)......... -- 350 1,398 -- -- 350 1,398 1,748
371-385 N. Gary
Avenue(1)....... -- 218 871 -- -- 218 871 1,089
<CAPTION>
DECEMBER 31,
1997
--------------- DATE OF
ACCUMULATED ACQUISITION(A)
DESCRIPTION DEPRECIATION(1) CONTRIBUTION(C)
- ------------------ --------------- ---------------
<S> <C> <C>
EC III............ $ (41) 1997(C)
EC IV............. (16) 1997(C)
EC V.............. 22 1997(C)
EC VI............. (20) 1997(C)
EC VII............ (51) 1997(C)
EC VIII........... -- 1997(C)
EC IX............. (13) 1997(C)
EC X.............. (44) 1997(C)
Arlington Heights
I............... (28) 1997(C)
Arlington Heights
II.............. (19) 1997(C)
Arlington Heights
III............. (18) 1997(C)
2160 McGraw Rd.... (47) 1997(A)
4849 Groveport.... (26) 1997(A)
2400 McGraw Rd.... (18) 1997(A)
5160 Blazer
Memorial Pkwy... (24) 1997(A)
600 London Rd..... (11) 1997(A)
4411 Marketing
Place........... (23) 1997(A)
1001 Technology
Way............. (40) 1997(A)
801 Technology
Way............. (17) 1997(A)
3818
Grandville/1200
Northwestern(1)... (42) 1997(A)
306-310 Era
Drive(1)........ (15) 1997(A)
1301 Ridgeview
Drive(1)........ (48) 1997(A)
515 Huehl Road/500
Lindburg(1)..... (37) 1997(A)
455 Academy
Drive(1)........ (16) 1997(A)
1051 N. Kirk
Road(1)......... (11) 1997(A)
4211 Madison
Street(1)....... (9) 1997(A)
200 E.
Fullerton(1).... (7) 1997(A)
350 Randy
Road(1)......... (3) 1997(A)
4300,4248,4250
Madison
Street(1)....... (14) 1997(A)
370 Carol
Lane(1)......... (7) 1997(A)
388 Carol
Lane(1)......... (4) 1997(A)
941-961 Wiegel
Drive(1)........ (41) 1997(A)
342-346 Carol
Lane(1)......... (7) 1997(A)
343 Carol
Lane(1)......... (4) 1997(A)
371-385 N. Gary
Avenue(1)....... (3) 1997(A)
</TABLE>
F-30
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
16. REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
GROSS AMOUNT CARRIED
COMPANY ACQUISITION AT DECEMBER 31, 1997
---------------------- ---------------------- ---------------------------------
DECEMBER 31, BUILDING BUILDING BUILDING
1997 AND AND AND
------------- IMPROVE- IMPROVE- IMPROVE-
DESCRIPTION ENCUMBRANCES LAND MENTS LAND MENTS LAND MENTS TOTAL
- ------------------ ------------- --------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
350 N. Mannheim
Road(1)......... $ -- $ 81 $ 325 $ -- $ -- $ 81 $ 325 $ 406
1600-1700 167th
Street(1)....... -- 1,073 4,291 -- -- 1,073 4,291 5,364
1301 E. Tower
Road(1)......... -- 1,005 4,020 -- -- 1,005 4,020 5,025
4343 Commerce
Court(1)........ -- 5,370 21,480 -- -- 5,370 21,480 26,850
11039 Gage
Avenue(1)....... -- 191 767 -- -- 191 767 958
11045 Gage
Avenue(1)....... -- 1,274 5,092 -- -- 1,274 5,092 6,366
1401 S.
Jefferson(1).... -- 171 685 -- -- 171 685 856
4100 Madison
Street(1)....... -- 42 169 -- -- 42 169 211
4160-4190 Madison
Street(1)....... -- 931 3,708 -- -- 931 3,708 4,639
550 Kehoe
Blvd.(1)........ -- 686 2,744 -- -- 686 2,744 3,430
------------- --------- ----------- --------- ----------- --------- ----------- ---------
Total............. $ 244,544 $ 92,440 $ 496,839 $ -- $ -- $ 92,440 $ 496,839 $ 589,279
------------- --------- ----------- --------- ----------- --------- ----------- ---------
------------- --------- ----------- --------- ----------- --------- ----------- ---------
<CAPTION>
DECEMBER 31,
1997
--------------- DATE OF
ACCUMULATED ACQUISITION(A)
DESCRIPTION DEPRECIATION(1) CONTRIBUTION(C)
- ------------------ --------------- ---------------
<S> <C> <C>
350 N. Mannheim
Road(1)......... $ (1) 1997(A)
1600-1700 167th
Street(1)....... (13) 1997(A)
1301 E. Tower
Road(1)......... (13) 1997(A)
4343 Commerce
Court(1)........ (67) 1997(A)
11039 Gage
Avenue(1)....... (2) 1997(A)
11045 Gage
Avenue(1)....... (16) 1997(A)
1401 S.
Jefferson(1).... (2) 1997(A)
4100 Madison
Street(1)....... (4) 1997(A)
4160-4190 Madison
Street(1)....... (11) 1997(A)
550 Kehoe
Blvd.(1)........ (9) 1997(A)
---------------
Total............. $ (2,338)
---------------
---------------
</TABLE>
- ------------------------
(1) These properties are collateral for $83,500 in mortgage notes payable. See
Note 5.
The aggregate gross cost of the properties included above, for federal
income tax purposes, approximated $708,267 as of December 31, 1997.
The following table reconciles the historical cost of the Company from
November 17, 1997 to December 31, 1997.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17,
1997 TO
DECEMBER 31,
1997
------------
<S> <C>
Additions during period -- Contributions, acquisition, improvements, etc............................ $ 589,279
------------
Balance, close of period............................................................................ $ 589,279
------------
------------
</TABLE>
F-31
<PAGE>
PRIME GROUP REALTY TRUST (THE COMPANY)
AND PREDECESSOR PROPERTIES (THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND UNIT AMOUNTS)
16. REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
The following table reconciles the accumulated depreciation from November
17, 1997 to December 31, 1997.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17,
1997 TO
DECEMBER 31,
1997
------------
<S> <C>
Additions during period--Depreciation and amortization for the period............................... $ 2,338
------------
Balance, close of period............................................................................ $ 2,338
------------
------------
</TABLE>
17. SUBSEQUENT EVENTS
On January 14, 1998, the Company purchased 33 North Dearborn, an office
building, located in Chicago, Illinois, for a purchase price of $32,250.
On January 23, 1998, the Company paid distributions of $.173 per Preferred
Share and $.166 per Common Share, to stockholders of record on December 31,
1997.
On January 29, 1998, the Company refinanced a portion of certain mortgage
notes payable ($27,500 of the total face value of $83,500--see Note 5), with a
new mortgage note payable with an initial principal balance of $29,430
(Refinanced Note). The Refinanced Note has a maturity of 10 years, bears
interest at 6.85% per annum and requires monthly principal and interest payments
of $205 with unpaid principal due upon maturity.
On February 20, 1998, the Company purchased Commerce Center, an office
building, located in Arlington Heights, Illinois, for a purchase price of
$28,438.
F-32
<PAGE>
Ex. 10.26
CREDIT AGREEMENT
AMONG
PRIME GROUP REALTY, L.P.
and
PRIME GROUP REALTY TRUST
and
BANKBOSTON, N.A.
and
PRUDENTIAL SECURITIES CREDIT CORPORATION
November 17, 1997
Amended 12/15/97
<PAGE>
TABLE OF CONTENTS
Section 1 DEFINITIONS AND RULES OF INTERPRETATION........................ 1
Section 1.1 Definitions........................................... 1
Section 1.2 Rules of Interpretation............................... 19
Section 2 REVOLVING CREDIT FACILITY...................................... 20
Section 2.1 Commitment to Lend; Limitation on Total Commitment.... 20
Section 2.2 Reduction of Commitment............................... 20
Section 2.3 The Notes............................................. 20
Section 2.4 Interest on Loans..................................... 21
Section 2.5 Requests for Loans.................................... 21
Section 2.6 Conversion Options.................................... 22
Section 2.7 Funds for Loans....................................... 22
Section 2.8. IRB Indebtedness Account.............................. 23
Section 2.9. Letters of Credit..................................... 24
Section 3 REPAYMENT OF THE LOANS......................................... 26
Section 3.1 Maturity.............................................. 26
Section 3.2 Mandatory Repayments of Loan.......................... 26
Section 3.3 Optional Repayments of Loans.......................... 27
Section 4 CERTAIN GENERAL PROVISIONS..................................... 28
Section 4.1 Revolving Credit Facility Fees and Agent's Fee........ 28
Section 4.2 Commitment Fee........................................ 28
Section 4.3 Funds for Payments.................................... 30
Section 4.4 Computations.......................................... 30
Section 4.5 Additional Costs, Etc................................. 30
Section 4.6 Capital Adequacy...................................... 32
Section 4.7 Certificate........................................... 32
Section 4.8 Indemnity............................................. 32
Section 4.9 Interest on Overdue Amounts........................... 32
Section 4.10 Inability to Determine Eurodollar Rate................ 33
Section 4.11 Illegality............................................ 33
Section 4.12 Replacement of Lenders................................ 33
Section 5 COLLATERAL SECURITY; NO LIMITATION ON RECOURSE................. 34
Section 5.1 Collateral Security................................... 34
Section 5.2. No Limitation on Recourse............................. 34
<PAGE>
Section 5.3. Additional Properties................................. 34
Section 5.4. Conditions to Approval of Additional Properties....... 35
Section 5.5. Release of Mortgaged Properties....................... 36
Section 6. REPRESENTATIONS AND WARRANTIES................................. 36
Section 6.1. Authority; Etc........................................ 37
Section 6.2. Governmental Approvals................................ 38
Section 6.3. Title to Properties................................... 38
Section 6.4. Financial Statements.................................. 38
Section 6.5. No Material Changes, Etc.............................. 39
Section 6.6. Franchises, Patents, Copyrights, Etc.................. 39
Section 6.7. Litigation............................................ 39
Section 6.8. No Materially Adverse Contracts, Etc.................. 40
Section 6.9. Compliance With Other Instruments, Laws, Etc.......... 40
Section 6.10. Tax Status............................................ 40
Section 6.11. Event of Default...................................... 40
Section 6.12. Investment Company Act................................ 40
Section 6.13. Absence of Financing Statements, Etc.................. 41
Section 6.14. Setoff, Etc........................................... 41
Section 6.15. Certain Transactions.................................. 41
Section 6.16. Benefit Plans: Multiemployer Plans: Guaranteed Pension
Plans.............................................. 41
Section 6.17. Regulations U and X................................... 41
Section 6.18. Environmental Compliance.............................. 41
Section 6.19. Subsidiaries and Affiliates........................... 43
Section 6.20. Major Leases.......................................... 43
Section 6.21. Loan Documents........................................ 43
Section 6.22. Mortgaged Properties.................................. 43
Section 7. AFFIRMATIVE COVENANTS OF THE BORROWER.......................... 47
Section 7.1. Punctual Payment...................................... 47
Section 7.2. Maintenance of Office................................. 47
Section 7.3. Records and Accounts.................................. 47
Section 7.4. Financial Statements, Certificates and Information.... 47
Section 7.5. Notices............................................... 49
Section 7.6. Existence; Maintenance of REIT Status; Maintenance of
Properties......................................... 50
Section 7.7. Insurance............................................. 51
Section 7.8. Taxes................................................. 51
Section 7.9. Inspection of Properties and Books; Confidential
Information........................................ 52
Section 7.10. Compliance with Laws, Contracts, Licenses, and
Permits............................................ 52
Section 7.11. Use of Proceeds....................................... 52
Section 7.12. Appraisals............................................ 52
Section 7.13. Leases; Lease Approvals............................... 53
Section 7.14. Further Assurance..................................... 53
Section 7.15. Environmental Indemnification......................... 53
<PAGE>
Section 7.16. Response Actions...................................... 54
Section 7.17. Environmental Assessments............................. 54
Section 7.18. Employee Benefit Plans................................ 54
Section 7.19. Required Interest Rate Contracts...................... 55
Section 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER..................... 55
Section 8.1 Restrictions on Indebtedness.......................... 56
Section 8.2. Restrictions on Liens, Etc............................ 56
Section 8.3. Restrictions on Investments........................... 58
Section 8.4. Merger, Consolidation and Disposition of Properties... 58
Section 8.5. Sale and Leaseback.................................... 59
Section 8.6. Compliance with Environmental Laws.................... 59
Section 8.7. Distributions......................................... 59
Section 8.8. Leases................................................ 60
Section 9. FINANCIAL COVENANTS OF THE BORROWER............................ 60
Section 9.1. Collateral Value...................................... 60
Section 9.2. Minimum Debt Service Coverage......................... 60
Section 9.3. Total Liabilities to Total Adjusted Assets............ 61
Section 9.4. Minimum Tangible Net Worth............................ 61
Section 9.5. Total Operating Cash Flow to Interest Expense......... 61
Section 9.6. EBITDA to Fixed Charges............................... 61
Section 10. CONDITIONS TO EFFECTIVENESS.................................... 61
Section 10.1. Loan Documents........................................ 61
Section 10.2. Certified Copies of Organization Documents; Good
Standing Certificates.............................. 61
Section 10.3. By-laws; Resolutions.................................. 62
Section 10.4. Incumbency Certificate; Authorized Signers............ 62
Section 10.5. Opinions of Counsel................................... 62
Section 10.6. Payment of Fees....................................... 62
Section 10.7. Validity of Liens..................................... 62
Section 10.8. Survey................................................ 63
Section 10.9. Title Insurance; Title Exception Documents............ 63
Section 10.10. Leases............................................... 63
Section 10.11. Estoppel and Attornment Agreements................... 63
Section 10.12. Certificates of Insurance............................ 63
Section 10.13. Environmental Reports................................ 63
Section 10.14. Environmental Indemnity.............................. 63
Section 10.15. Appraisals........................................... 64
Section 10.16. Inspecting Engineers' Reports........................ 64
Section 10.17. Initial Letters of Credit............................ 64
Section 10.18. UCC Lien Searches.................................... 64
Section 10.19. Formation Transactions Complete...................... 64
<PAGE>
Section 11. CONDITIONS TO ALL BORROWINGS................................... 64
Section 11.1. Representations True; No Event of Default; Compliance
Certificate........................................ 64
Section 11.2. No Legal Impediment................................... 65
Section 11.3. Governmental Regulation............................... 65
Section 11.4. Proceedings and Documents............................. 65
Section 12. EVENTS OF DEFAULT; ACCELERATION; ETC........................... 65
Section 12.1. Events of Default and Acceleration.................... 65
Section 12.2. Termination of Commitments; Drawing of IRB Letters of
Credit............................................. 68
Section 12.3. Remedies.............................................. 68
Section 12.4. Distribution of Collateral Proceeds................... 69
Section 12.5. Addition of Real Estate Assets to Cure Default........ 69
Section 13. SETOFF......................................................... 70
Section 14. THE AGENT...................................................... 71
Section 14.1. Authorization......................................... 71
Section 14.2. Employees and Agents.................................. 71
Section 14.3. No Liability.......................................... 71
Section 14.4. No Representations.................................... 71
Section 14.5. Payments.............................................. 72
Section 14.6. Holders of Notes...................................... 73
Section 14.7. Indemnity............................................. 73
Section 14.8. Agent as Lender ...................................... 73
Section 14.9. Resignation........................................... 73
Section 14.10. Notification of Defaults and Events of Default....... 74
Section 14.11. Duties in the Case of Enforcement.................... 74
Section 15. EXPENSES....................................................... 74
Section 16. INDEMNIFICATION................................................ 75
Section 17. SURVIVAL OF COVENANTS, ETC..................................... 76
Section 18. ASSIGNMENT; PARTICIPATIONS; ETC................................ 77
Section 18.1. Conditions to ASection gnment by Lenders.............. 77
Section 18.2. Certain Representations and Warranties; Limitations;
Covenants.......................................... 77
Section 18.3. Register.............................................. 78
Section 18.4. New Notes............................................. 78
Section 18.5. Participations........................................ 79
Section 18.6. Pledge by Lender...................................... 79
Section 18.7. No Assignment by Borrower............................. 79
Section 18.8. Disclosure............................................ 80
<PAGE>
Section 19. NOTICES, ETC................................................... 80
Section 20. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE............. 80
Section 21. HEADINGS....................................................... 81
Section 22. COUNTERPARTS................................................... 81
Section 23. ENTIRE AGREEMENT............................................... 81
Section 24. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS................. 81
Section 25. CONSENTS, AMENDMENTS, WAIVERS, ETC............................. 82
Section 26. SEVERABILITY................................................... 82
Section 27. ACKNOWLEDGMENTS................................................ 82
Section 28. PARTNER LIABILITY.............................................. 83
Exhibit A Form of Note
Exhibit B Form of Loan Request
Exhibit C Form of Compliance Certificate
Exhibit D Form of Letter of Credit Request
Exhibit E Opinion Requirements
Exhibit F Form of Assignment and Acceptance
Schedule 1 Lenders; Domestic and Eurodollar Lending Offices
Schedule 1.1 Mortgaged Properties
Schedule 1.2 Commitments and Commitment Percentages
Schedule 1.3 Related Companies, Guarantor Subsidiaries and Permitted
Joint Ventures
Schedule 1.4 Initial Letters of Credit
Schedule 5.3(b) Required Additional Properties
Schedule 6.3 Title to Properties
Schedule 6.7 Litigation
Schedule 6.18 Environmental Reports
Schedule 6.22(d) Engineering Reports
Schedule 6.22(l) Rent Rolls
Schedule 6.22(m) Service Agreements
Schedule 6.22(n) Other Material Agreements
Schedule 8.3(d) Investments
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT is made as of the 17th day of November, 1997, by
and among PRIME GROUP REALTY, L.P., a Delaware limited partnership (the
"Borrower"), PRIME GROUP REALTY TRUST, a Maryland trust (the "Company") and
BANKBOSTON, N.A., a national banking association ("BankBoston"), PRUDENTIAL
SECURITIES CREDIT CORPORATION, a Delaware corporation ("Prudential"), the
other lending institutions which are from time to time listed on Schedule 1,
(collectively, with BankBoston and Prudential, the "Lenders") and BANKBOSTON,
N.A., as agent for itself and such other lending institutions (the "Agent").
WHEREAS, the Borrower has requested and BankBoston and Prudential have
agreed to provide a revolving credit facility, and to attempt to syndicate
such facility to other lending institutions, and Borrower has agreed to
provide real 0property collateral and other collateral to BankBoston,
Prudential and such other lending institutions, as set forth herein;
NOW, THEREFORE, to accomplish these purposes, the Agent, the Borrower
and the Lenders hereby agree as follows:
Section 1. DEFINITIONS AND RULES OF INTERPRETATION
Section 1.1. Definitions. The following terms shall have the meanings
set forth in this Section l or elsewhere in the provisions of this Agreement
referred to below:
Additional Properties. Real Estate Assets which hereafter become
Mortgaged Properties pursuant to Section 5.3.
Affiliated Lenders. Any commercial bank or other commercial lender which
is (i) the parent corporation of any of the Lenders, (ii) a wholly-owned
subsidiary of any of the Lenders or (iii) a wholly-owned subsidiary of the
parent corporation of any of the Lenders.
Agent. BankBoston, N.A. acting as agent for the Lenders or any successor
agent.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent
may designate from time to time in writing to the Borrower.
Agreement. This Credit Agreement, including the Schedules and Exhibits
hereto.
Applicable Margin. As of any date of determination:
(i) 1.20%, if Total Liabilities are less than 30% of Total Adjusted
Assets, or
<PAGE>
(ii) 1.35%, if Total Liabilities are equal to or less than 45% of Total
Adjusted Assets but the condition set forth in clause (i) of this definition
is not satisfied,
(iii) 1.50% if Total Liabilities exceed 45% of Total Adjusted Assets.
Any change in the Applicable Margin caused by a change in the ratio of Total
Liabilities to Total Adjusted Assets shall become effective on the 46th day
following the end of the fiscal quarter at which such ratio was computed as
shown on a Compliance Certificate which reflects such change in said ratio
above or below the 30% level or the 45% level.
Appraisals. Appraisals of the value of the Mortgaged Properties
determined on an "as is" market value basis, prepared in writing
independently and impartially by qualified MAI appraisers selected and
retained by the Agent and paid for by Borrower, the form and substance of
such appraisals and final determination of market value of the Mortgaged
Properties thereunder to be reviewed and subject to approval by the Lead
Lenders based on their respective reviews of such appraisals pursuant to
their internal appraisal review policies and procedures. All appraisals shall
be prepared in accordance with the Uniform Standards of Professional
Appraisal Practice, Supplemental Standards Applicable To Federally Related
Transactions, as further described in Title XI of the "Financial Institutions
Reform, Recovery and Enforcement Act of 1989" ("FIRREA"), and any additional
standards and conditions required for appraisals prepared for the Lead
Lenders.
Appraised Value. The market value of each of the Mortgaged Properties,
determined by the Lead Lenders based upon the most recent Appraisals obtained
pursuant to Section 5.4(b), Section 7.12 or Section 10.14. In determining
Appraised Value the Lead Lenders shall exclude any value associated with any
unimproved land or unoccupied Buildings located on the applicable Mortgaged
Property.
Assignment and Acceptance. See Section 18.
Assignments of Leases and Rents. The assignments of rents and leases
from the Mortgagor to the Agent pursuant to which the Mortgagor shall grant
and assign to the Agent as agent for the Lenders a security interest in and
assignment of the Mortgagor's interest as lessor with respect to all Leases
and rents thereunder of all or any part of the Mortgaged Properties as
security for the Obligations.
BankBoston. As defined in the preamble hereto.
Borrowing Base Value. With respect to each Mortgaged Property, an amount
equal to (i) two times the Net Operating Income for the most recently
completed two fiscal quarters, minus the Reserve Amount for such Mortgaged
Property, divided by (ii) a capitalization rate equal to 0.09 for the West
Wacker Drive Property or 0.10 for any other Mortgaged Property.
2
<PAGE>
Base Rate. The higher of (a) the annual rate of interest announced from
time to time by BankBoston at the Agent's Head Office as its "base rate", and
(b) one half of one percent (1/2%) above the overnight federal funds
effective rate as published by the Board of Governors of the Federal Reserve
System, as in effect from time to time.
Base Rate Loans. Those Loans bearing interest calculated by reference to
the Base Rate.
Borrower. As defined in the preamble hereto.
Borrowing Date. The date on which any Loan is made or is to be made, and
the date on which any Loan is converted or continued in accordance with
Section 2.6.
Buildings. The buildings, structures and other improvements now or
hereafter located on the Mortgaged Properties.
Building Service Equipment. All apparatus, fixtures and articles of
personal property owned by the Mortgagor now or hereafter attached to or used
or procured for use in connection with the operation or maintenance of any
Building located on or included in the Mortgaged Properties, including, but
without limiting the generality of the foregoing, all engines, furnaces,
boilers, stokers, pumps, heaters, tanks, dynamos, motors, generators,
switchboards, electrical equipment, heating, plumbing, lifting and
ventilating apparatus, air-cooling and air-conditioning apparatus, gas and
electric fixtures, elevators, escalators, fittings, and machinery and all
other equipment of every kind and description, used or procured for use in
the operation of the Buildings (except apparatus, fixtures or articles of
personal property belonging to lessees or other occupants of such building or
to persons other than the Mortgagor unless the same be abandoned by any such
lessee or other occupant or person), together with any and all replacements
thereof and additions thereto.
Business Day. Any day on which banking institutions in Boston,
Massachusetts and Chicago, Illinois are open for the transaction of banking
business and, in the case of Eurodollar Rate Loans, also a day which is a
Eurodollar Business Day.
Capitalized Leases. Leases under which the Borrower is the lessee or
obligor, the discounted future rental payment obligations under which are
required to be capitalized on the balance sheet of the Borrower in accordance
with generally accepted accounting principles.
CERCLA. See Section 6.18.
Closing Balance Sheet. The pro-forma consolidated balance sheet of the
Company dated June 30, 1997 and reflecting the closing of the Formation
Transactions contained in the Prospectus Financial Statements and the related
notes thereto.
3
<PAGE>
Code. The Internal Revenue Code of 1986, as amended and in effect from
time to time.
Collateral. All of the properties of the Borrower or of any Guarantor
that are or are intended to be subject to the security interests, liens and
mortgages created by the Security Documents, including, without limitation,
the Mortgaged Properties, the Leases, the Permits and the Service Agreements.
Collateral Value. With respect to each Mortgaged Property an amount
equal to the lesser of its Appraised Value or its Borrowing Base Value.
Commitment. With respect to each Lender, the amount set forth from time
to time on Schedule 1.2 hereto as the amount of such Lender 's commitment to
make Loans to the Borrower.
Commitment Percentage. With respect to each Lender , the percentage set
forth from time to time on Schedule 1.2 hereto as such Lender 's percentage
of the Total Commitment.
Common Shares. All common shares of beneficial interest of the Company,
including, without limitation, those offered pursuant to the Equity
Prospectus.
Common Units. Partnership interests representing the common equity in
the Borrower which interests are not subject to any mandatory redemption or
entitled to any distributions other than distributions based on the dividends
paid on the Common Shares.
Company. As defined in the preamble hereto.
Conversion Request. A notice given by the Borrower to the Agent of its
election to convert or continue a Loan in accordance with Section 2.6.
Default. See Section 12.1.
Delinquent Lender. See Section 14.5(c).
Distribution. The declaration or payment of any dividend or distribution
of cash or cash equivalents to the holders of any of the Equity Interests, or
any distribution or payment to any officer, employee or director of the
Borrower or the Company, other than reasonable employee compensation.
Dollars or $. Dollars in lawful currency of the United States of America.
4
<PAGE>
Domestic Lending Office. Initially, the office of each Lender designated
as such in Schedule 1 hereto; thereafter, such other office of such Lender,
if any, located within the United States that will be making or maintaining
Base Rate Loans.
Drawing. The drawing of any Letter of Credit by the beneficiary thereof
which is paid by the Agent pursuant thereto.
Drawing Date. The date on which a draft under a Letter of Credit is paid
by the Agent.
EBITDA. The Borrower's earnings before interest, taxes, depreciation and
amortization, as determined on a consolidated basis in accordance with
Generally Accepted Accounting Principles, except that rental income shall be
determined on a cash basis.
Effective Date. The date upon which this Agreement shall become
effective pursuant to Section 10.
Eligible Assignee. Any of (a) a commercial bank organized under the laws
of the United States, or any State thereof or the District of Columbia, and
having total assets in excess of $1,000,000,000; (b) a savings and loan
association or savings bank organized under the laws of the United States, or
any State thereof or the District of Columbia, and having a net worth of at
least $100,000,000, calculated in accordance with generally accepted
accounting principles; (c) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation
and Development (the "OECD"), and having total assets in excess of
$1,000,000,000, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is
also a member of the OECD; and (d) the central bank of any country which is a
member of the OECD. Notwithstanding anything to the contrary, the term
Eligible Assignee shall exclude any Person controlling, controlled by or
under common control with, the Borrower or the Company.
Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3 (3) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate, other than a Multiemployer Plan.
Environmental Laws. See Section 6.18(a).
Environmental Reports. Reports addressed to the Agent (or addressed to
the Borrower with an acceptable reliance letter addressed to the Agent)
prepared by environmental engineering firms reasonably acceptable to the Lead
Lenders relating to environmental site assessments and other evaluations of
environmental conditions which may have been conducted with respect to the
Mortgaged Properties described in Schedule 6.18 hereto and conducted with
respect to prospective Additional Properties pursuant to Section 5.3.
5
<PAGE>
Equity Interests. Collectively, all equity ownership interests in the
Borrower or the Company including, without limitation, the Common Shares, the
Preferred Shares, the Common Units and the Preferred Units.
Equity Prospectus. The prospectus dated November 12, 1997 relating to
12,380,000 Common Shares included in the Registration Statement (No.
333-33547) of the Company on Form S-11 as filed with the Securities Exchange
Commission on August 13, 1997, as amended, as the same has been or may be
further amended or supplemented from time to time.
ERISA. The Employee Retirement Income Security Act of 1974, as amended
and in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single employer with
the Borrower under Section 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate
Loan, the maximum rate (expressed as a decimal) at which any of the Lenders
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D) , if such liabilities
were outstanding. The Eurocurrency Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurocurrency Reserve Rate and the Agent shall provide the Borrower with
prompt written notice of any such change.
Eurodollar Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or
such other eurodollar interbank market as may be selected by the Agent in its
sole discretion acting in good faith.
Eurodollar Lending Office. Initially, the office of each Lender
designated as such in Schedule 1 hereto; thereafter, such other office of
such Lender, if any, that shall be making or maintaining Eurodollar Rate
Loans.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate
Loan, the rate per annum equal to the quotient (rounded upwards to the nearest
1/16 of one percent) of (a) the rate at which the Agent is offered Dollar
deposits two Eurodollar Business Days prior to the beginning of such Interest
Period in an interbank eurodollar market where the eurodollar and foreign
currency and exchange operations of the Agent are customarily conducted, for
delivery on the first day of such Interest Period, for the number of days
comprised therein and in an
6
<PAGE>
amount comparable to the amount of the Eurodollar Rate Loan to which such
Interest Period applies, divided by (b) a number equal to 1.00 minus the
Eurocurrency Reserve Rate.
Eurodollar Rate Loans. Loans bearing interest calculated by reference to
the Eurodollar Rate.
Event of Default. See Section 12.1.
Fixed Charges. With respect to any fiscal period of the Borrower, an
amount determined on a consolidated basis equal to the sum of (i) Interest
Expense, (ii) regularly scheduled installments of principal payable with
respect to all Indebtedness of Borrower, (iii) Indebtedness which matured
during such fiscal period and was not refinanced with replacement
Indebtedness plus (iv) all Distributions paid during such period to the
holders of any Preferred Shares or Preferred Units.
Fixed Rate Prepayment Fee. See Section 3.3.
Formation Transactions. The transactions described in the Equity
Prospectus to be consummated on or before the Effective Date pursuant to
which (i) the Common Shares will be sold pursuant to an initial public
offering of such Common Shares and certain Preferred Shares, Common Units and
Preferred Units will be sold or issued in exchange for the contribution of
properties; (ii) the net proceeds thereof received by the Company will be
contributed as capital to the Borrower; (iii) the Borrower will directly or
indirectly acquire all assets reflected on the Closing Balance Sheet, and
(iv) certain Indebtedness secured by Liens on the Mortgaged Properties or
other Real Estate Assets will be repaid and such Liens discharged.
Funds From Operations. With respect to any fiscal period of the
Borrower, an amount equal to the Borrower's Funds From Operations determined
in accordance with the definition approved by the National Association of
Real Estate Investment Trusts, except that rental income shall be determined
on a cash basis.
Generally Accepted Accounting Principles. Principles that are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to
time and (b) consistently applied with past financial statements of the
Borrower adopting the same principles and with the Prospectus Financial
Statements.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower
or any ERISA Affiliate the benefits of which are guaranteed on termination in
full or in part by the PBGC pursuant to Title IV of ERISA, other than a
Multiemployer Plan.
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Guarantor. Each of the Guarantor Subsidiaries.
Guarantor Subsidiaries. The partnerships, limited liability companies
and corporations designated as Guarantor Subsidiaries on Schedule 1.3 hereto
and any other partnerships, limited liability companies or corporations
hereafter approved by the Requisite Lenders which are at least 99% owned by
Borrower and which execute and deliver a Guaranty.
Guaranty. The Unconditional Guaranty of Payment and Performance from
each Guarantor to the Agent pursuant to which such Guarantor has guaranteed
the Obligations.
Hazardous Materials. See Section 6.18(b).
Indebtedness. All obligations, contingent and otherwise, that in
accordance with Generally Accepted Accounting Principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should
be made by footnotes thereto, including in any event the following whether or
not so classified: (a) the Obligations, (b) all debt and similar monetary
obligations for borrowed money, whether direct or indirect; (c) all
liabilities secured by any mortgage, pledge, negative pledge, security
interest, lien, negative lien, charge, or other encumbrance existing on
property owned or acquired subject thereto, whether or not the liability
secured thereby shall have been assumed; (d) all guarantees, endorsements and
other contingent obligations whether direct or indirect in respect of
indebtedness or obligations of others, including any obligation to supply
funds to or in any manner to invest in, directly or indirectly, the debtor,
to purchase indebtedness, or to assure the owner of indebtedness against
loss, through a master lease transaction or an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment
of the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit; and (e) joint
venture and partnership obligations, contingent or otherwise of the type set
forth in (a) through (d) above. Indebtedness shall not be deemed to include
obligations under a purchase and sale agreement or contribution agreement for
the acquisition of assets by Borrower or the Related Companies unless entered
into for the purpose of supporting the Indebtedness of the seller or
contributor.
Indemnity Agreement. The Indemnity Agreement regarding Hazardous
Materials from the Borrower and the Company with respect to the Mortgaged
Properties, and any similar agreements which may be executed with respect to
Additional Properties.
Initial Letters of Credit. The Letters of Credit described on Schedule
1.4 hereto.
Interest Expense. With respect to any fiscal period of the Borrower, an
amount equal to the sum of the following with respect to all Indebtedness of
the Borrower and the Related Companies: (i) total interest expense, accrued
in accordance with Generally Accepted
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Accounting Principles plus (ii) all capitalized interest determined in
accordance with Generally Accepted Accounting Principles, plus (iii) the
amortization of deferred financing costs.
Interest Payment Date. As to any Base Rate Loan or Eurodollar Rate Loan,
the first day of each calendar month.
Interest Period. With respect to each Loan, (a) initially, the period
commencing on the Borrowing Date of such Loan and ending on the last day of
one of the periods set forth below, as selected by the Borrower in a Loan
Request (i) for any Base Rate Loan, the last day of the calendar month; and
(ii) for any Eurodollar Rate Loan, 1, 2 or 3 months; and (b) thereafter, each
period commencing on the last day of the next preceding Interest Period
applicable to such Loan and ending on the last day of one of the periods set
forth above, as selected by the Borrower in a Conversion Request; provided
that all of the foregoing provisions relating to Interest Periods are subject
to the following:
(A) if any Interest Period with respect to a Eurodollar Rate Loan
would otherwise end on a day that is not a Eurodollar Business Day, that
Interest Period shall be extended to the next succeeding Eurodollar Business
Day unless the result of such extension would be to carry such Interest
Period into another calendar month, in which event such Interest Period shall
end on the immediately preceding Eurodollar Business Day;
(B) if any Interest Period with respect to a Base Rate Loan would
end on a day that is not a Business Day, that Interest Period shall end on
the next succeeding Business Day;
(C) if the Borrower shall fail to give notice as provided in
Section 2.6, the Borrower shall be deemed to have requested a conversion of
the affected Eurodollar Rate Loan to a Base Rate Loan on the last day of the
then current Interest Period with respect thereto;
(D) any Interest Period relating to any Eurodollar Rate Loan that
begins on the last Eurodollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last Eurodollar Business
Day of a calendar month; and
(E) the Borrower may not select any Interest Period relating to any
Eurodollar Rate Loan that would extend beyond the Maturity Date.
Interest Rate Contracts. Interest rate swaps, caps or similar agreements
providing for interest rate protection.
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock, partnership or
membership interests or Indebtedness of, or for loans, advances, capital
contributions or transfers of property to, or in respect of any
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guaranties (or other commitments as described under Indebtedness), or
obligations of, any Person or for the acquisition of real property or other
assets. In determining the aggregate amount of Investments outstanding at any
particular time Investments shall be counted at their acquisition cost,
including the value of any Equity Interests issued in exchange for the
contribution of property, subject to the following: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b)
there shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is
paid; (c) there shall be deducted in respect of each such Investment any
amount received as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating distribution) ;
(d) there shall not be deducted in respect of any Investment any amounts
received as earnings on such Investment, whether as dividends, interest or
otherwise, except that accrued interest included as provided in the foregoing
clause (b) may be deducted when paid; and (e) there shall not be deducted
from the aggregate amount of Investments any decrease in the value thereof.
IRB Documents. The Indentures of Trust, Financing Agreements, Loan
Agreements, Bonds, Notes and other documents relating to the IRB Indebtedness.
IRB Indebtedness. The Indebtedness of certain of the Guarantor
Subsidiaries with respect to fourteen (14) issues of industrial development
bonds, the proceeds of which were used to acquire or develop certain of the
Additional Properties listed on Schedule 5.3(b), excluding the Indebtedness
of certain Guarantor Subsidiaries with respect to such Properties in
Arlington Heights, Illinois for so long as the bonds relating thereto are
held by the Borrower or a Related Company.
IRB Indebtedness Account. A deposit account established by the Borrower
with the Agent into which the Borrower will deposit funds as required by
Section 2.8 and which the Agent will debit to reimburse the amount of
Drawings paid under the IRB Letters of Credit.
IRB Letters of Credit. The Letters of Credit issued with respect to the
IRB Indebtedness for the benefit of the respective trustees named in the IRB
Documents and the Letter of Credit expiring on or before April 15, 1998 for
the benefit of Credit Suisse First Boston, which is the issuer of certain
prior letters of credit relating to certain of the IRB Indebtedness.
Lead Lenders. BankBoston and Prudential. If a Lead Lender shall enter
into one or more assignments pursuant to Section 18 which have the effect of
reducing the Commitment of such Lender to less than $20,000,000 (which number
will be proportionately reduced in the event of any reduction in the Total
Commitment pursuant to Section 2.2), then such Lender shall no longer be a
Lead Lender. If by virtue of this immediately preceding sentence there are no
longer any Lead Lenders, then all approvals, consents and other matters which
require the action by the Lead Lenders hereunder shall thereafter require the
specified action by the Requisite Lenders.
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Leases. Leases, licenses and agreements whether written or oral,
relating to the use or occupation of space in or on the Buildings or on the
Mortgaged Properties by persons other than Mortgagor, including but not
limited to the leases listed on Schedule 6.22(1).
Lenders. BankBoston, Prudential and the other lending institutions
listed from time to time on Schedule 1 hereto and any other Person who
becomes an assignee of any rights of a Lender pursuant to Section 18 or a
Person who acquires all or substantially all of the stock or assets of a
Lender .
Letter of Credit. A letter of credit which is one of the Initial Letters
of Credit or is hereafter issued by the Agent for the account of the Borrower
pursuant to Section 2.9.
Letter of Credit Request. See Section 2.9.
Lien. Any lien, encumbrance, mortgage, deed of trust, pledge,
restriction or other security interest. If title to any Real Estate Asset is
held by a Subsidiary of Borrower then any pledge or assignment of Borrower's
stock, partnership interest, limited liability company interest or other
ownership interest in such Subsidiary shall be deemed to be a Lien on the
Real Estate Assets owned by such Subsidiary.
Loan Documents. This Agreement, the Notes, the Guaranties, the Security
Documents, the Indemnity Agreement and any and all other agreements,
documents and instruments now or hereafter evidencing, securing or otherwise
relating to the Loans or the Letters of Credit.
Loan Request. See Section 2.5.
Loans. Loans made or to be made by the Lenders to the Borrower pursuant
to Section 2.
Major Lease. A Lease of (i) 100,000 square feet or more of the gross
leasable area of a Building which is used primarily for industrial or
warehouse purposes or (ii) 25,000 square feet or more of the gross leasable
area of a Building which is used primarily for office purposes, and any
guaranty of the tenant's obligations under any such Lease.
Major Tenants. As to any Major Lease, those tenants that are parties to
that Major Lease and any guarantors of those tenants' obligations thereunder.
Material Adverse Effect. A material adverse effect on (i) any of the
Mortgaged Properties, (ii) the business, results of operations or financial
condition of the Borrower and the Related Companies taken as a whole, (iii)
the ability of the Borrower, the Company or any Guarantor to perform its
obligations under the Loan Documents, or (iv) the validity or enforceability
of any of the Loan Documents or the remedies or material rights of the Agent
or the Lenders thereunder.
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Maturity Date. November 17, 2000, or such earlier date on which the
Loans shall become due and payable pursuant to the terms hereof.
Maximum Principal Amount. Maximum Principal Amount shall mean the least
of the following: (i) the maximum Outstanding Principal Amount which may
exist without causing a violation of Section 9.1; (ii) the maximum
Outstanding Principal Amount which may exist without causing a violation of
Section 9.2; and (iii) the Total Commitment.
Mortgaged Properties. The (a) Real Estate Assets described on Schedule
1.1 hereto and such other Real Estate Assets which may be subsequently
conveyed to the Agent as Additional Properties to secure the Obligations in
accordance with Section 5.3 hereof, excluding from the foregoing any Real
Estate Assets which the Agent may release pursuant to Section 5.5 hereof, as
such Real Estate Assets are more particularly described in the Security
Deeds; (b) the Buildings and Building Service Equipment located thereon and
(to the extent assignable) all Permits relating thereto; and (c) all other
property incident to any of same described in any Security Document or other
Loan Document.
Mortgagor. With respect to each of the Mortgaged Properties, the owner
thereof.
Multiemployer Plan. Any multiemployer plan within the meaning of Section
3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
Net Offering Proceeds. All net cash proceeds received after the date
hereof by the Borrower or the Company as a result of the sale of common,
preferred or other classes of stock of the Company or the issuance of limited
partnership interests in the Borrower after deducting customary costs and
discounts of issuance paid by Company or Borrower in connection therewith.
Net Operating Income. With respect to any fiscal period of the Borrower
and with respect to any one or more of the Real Estate Assets, the total
rental and other operating income from the operation of such Real Estate
Assets after deducting all expenses and other proper charges incurred by the
Borrower in connection with the operation of the Mortgaged Properties during
such fiscal period, including, without limitation, real estate taxes, bad
debt expenses and management fees (which fees shall not be lower than the
market rate for management fees for similar properties in the same general
location and such management fees shall be deducted when computing Net
Operating Income without regard to the extent to which such management fees
are passed through to the tenants), but before payment or provision for Fixed
Charges, income taxes, and depreciation, amortization, and other non-cash
expenses, all as determined in accordance with Generally Accepted Accounting
Principles except that (a) rental income will be determined on a cash basis,
provided, however, that each payment of prepaid rent shall be allocated to
the period for which it applies, (b) adjustments will be made so that each
fiscal
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quarter will include one quarter of annual real estate tax and insurance
expenses, and (c) any non-recurring income or income not directly from the
operation of such Real Estate Asset, such as interest income, shall be
excluded.
Notes. See Section 2.3.
Obligations. All indebtedness, obligations and liabilities of the
Borrower or any Guarantor to any of the Lenders and the Agent, individually
or collectively, under this Agreement or any of the other Loan Documents or
in respect of any of the Loans, the Letters of Credit or the Notes or other
instruments at any time evidencing any thereof, whether existing on the date
of this Agreement or arising or incurred hereafter, direct or indirect, joint
or several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising by contract, operation of law of
otherwise.
Outstanding Principal Amount. The sum of (i) the aggregate amount of
unpaid principal of the Loans as of any date of determination plus (ii) the
aggregate face amount of each Letter of Credit issued under Section 2.9
which has not expired or terminated prior to such date of determination,
excluding from the face amount of any Letter of Credit the amount by which
any Unreimbursed Drawing has reduced the availability thereunder until such
availability is reinstated pursuant to the terms of such Letter of Credit.
PBGC. The Pension Benefit Guaranty Corporation created by Section 4002
of ERISA and any successor entity or entities having similar responsibilities.
Permits. All governmental permits, licenses, and approvals necessary for
the lawful operation and maintenance of the Mortgaged Properties.
Permitted Acquisition. The acquisition by Borrower or any Related
Company of Real Estate Assets which are located in the continental United
States and are leased or intended to be leased primarily for industrial or
office purposes.
Permitted Joint Ventures. Any entity in which Borrower has any direct or
indirect ownership interest, except the Company and the Related Companies and
except Prime Group Realty Services, Inc., including general partnerships,
corporations, trusts and limited liability companies, which own or propose to
develop industrial or office properties provided that neither Borrower or any
Guarantor shall have any recourse liability for the Indebtedness of such
entity. Permitted Joint Ventures existing on the date hereof are set forth in
Schedule 1.3.
Permitted Developments. The construction of any new buildings or the
construction of additions expanding existing buildings or the rehabilitation
of the existing buildings (other than normal refurbishing and tenant fit up
work when one tenant leases space previously occupied by another tenant)
relating to any Real Estate Assets of the Borrower or any of the Related
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Companies and each Permitted Development shall be counted for purposes of
Section 8.3 from the time of commencement of the applicable construction work
until the later of (i) the date that leases for at least 70% of the gross
leasable area of such project have been executed or (ii) the date that a
final certificate of occupancy has been issued with respect to such project,
in the amount of the total projected cost of such project.
Permitted Liens. Liens, security interests and other encumbrances
permitted by Section 8.2.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Pledge Agreements. The Pledge and Security Agreements between each
Guarantor Subsidiary which is a borrower under any IRB Documents and the
Agent pursuant to which certain bonds purchased with the proceeds of Drawings
under the IRB Letters of Credit would be pledged to the Agent until such
bonds are remarketed or redeemed.
Pledged Bonds. Bonds pledged to the Agent pursuant to any Pledge
Agreement.
Preferred Shares. All Preferred Shares of beneficial interest of the
Company including, without limitation, the 2,000,000 shares of Series A
Cumulative Convertible Preferred Shares as described in the Equity Prospectus.
Preferred Units. All partnership interests in the Borrower other than
the Common Units, including, without limitation, the Preferred Units
described in the Equity Prospectus.
Prepayment Date. See Section 3.3.
Prime. The Prime Group, Inc., an Illinois corporation.
Pro Forma Debt Service Charges for the Mortgaged Properties. For any
fiscal quarter of the Borrower, an amount equal to three monthly principal
and interest payments based on a twenty-five (25) year mortgage style
amortization schedule, calculated on the Pro Forma Principal Amount and an
interest rate equal to the greater of (i) the then current weighted average
interest rate per annum on the Loans or (ii) the then current ten (10) year
U.S. Treasury bill yield plus 1.75% per annum.
Pro Forma Principal Amount. (a) With respect to Compliance Certificates
delivered pursuant to Section 7.4(e), the maximum Outstanding Principal
Amount at any time during the applicable fiscal quarter; (b) with respect to
Compliance Certificates delivered pursuant to Section 2.5(a), 2.9(b) or
Section 11.1, the Outstanding Principal Amount after giving effect to the
requested Loan or the issuance of the requested Letter of Credit; (c) with
respect to Compliance
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Certificates delivered pursuant to Section 5.5(a) or Section 8.4(b), the
Outstanding Principal Amount after giving effect to any proposed sale or
transfer including any payments on the Loans or cancellation of Letters of
Credit to be made in connection therewith.
Properties. All Real Estate Assets, Real Estate, and all other assets,
including, without limitation, intangibles and personalty owned by the
Borrower.
Prospectus Financial Statements. The Financial Statements relating to
the Company and relating to certain properties to be acquired by the Borrower
or its Subsidiaries in connection with the Formation Transactions as set
forth in the Equity Prospectus.
Prudential. As defined in the preamble thereto.
Real Estate. All real property at any time owned, leased (as lessee or
sublessee) or operated by the Borrower, any Guarantor, or any of the Related
Companies or any Permitted Joint Venture.
Real Estate Assets. Those fixed and tangible properties consisting of
land, buildings and/or other improvements owned by the Borrower, by any
Guarantor, by any of the Related Companies or by any Permitted Joint Venture
at the relevant time of reference thereto, including without limitation, the
Mortgaged Properties, but excluding all leaseholds other than leaseholds
under ground leases having an unexpired term of at least 30 years.
Record. The grid attached to any Note, or the continuation of such grid,
or any other similar record, including computer records, maintained by any
Lender with respect to any Loan referred to in such Note.
Recourse Indebtedness. All Indebtedness except Indebtedness with respect
to which recourse for payment is contractually limited (except for customary
exclusions) to specific assets encumbered by a lien securing such
Indebtedness.
Register. See Section 18.3.
Related Companies. The entities listed and described on Schedule 1.3
hereto, or thereafter, any entity whose financial statements are consolidated
or combined with the Borrower's pursuant to Generally Accepted Accounting
Principles, or any ERISA Affiliate.
Release. See Section 6.18(c)(iii).
Requisite Lenders. As of any date, the Lenders whose aggregate
Commitments constitute at least sixty-six percent (66%) of the Total
Commitment provided that the Agent must always be among the Requisite Lenders
(except that after an Event of Default all actions by the
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Requisite Lenders with respect to acceleration of the Loans and the
enforcement of the Loan Documents as provided in Section 12 and in Section
14.11 shall be made without regard to whether the Agent is among the
Requisite Lenders) and provided that the Commitments of any Delinquent
Lenders shall be disregarded when determining the Requisite Lenders.
Reserve Amount. With respect to any Real Estate Assets or group of Real
Estate Assets, a normalized annual reserve for capital expenditures, tenant
improvements, replacement reserves and leasing costs at the rate of $0.25 per
year per square foot of gross leasable area contained in all buildings on
such Real Estate Assets. When the Reserve Amount is used in computing an
amount with respect to a fiscal period which is shorter than a year, said
amount shall be appropriately prorated.
Responsible Officer. With respect to the Company, any one of its Chief
Executive Officer, Chief Financial Officer, Treasurer or Executive Vice
Presidents.
Security Deeds. The mortgages and deeds of trust from the Mortgagor to
the Agent pursuant to which the Mortgagor shall convey the Mortgaged
Properties as security for the Obligations.
Security Documents. The Security Deeds, the Assignments of Leases and
Rents, the Pledge Agreements and the UCC-1 financing statements.
Service Agreements. All service agreements between the Borrower and
third parties, whether written or oral, relating to the operation,
maintenance, security, finance or insurance of the Mortgaged Properties.
Subsidiary. Any corporation, partnership, limited liability company,
association, trust, or other business entity of which the designated parent
or other controlling Person shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes)
of the outstanding Voting Interests.
Surveys. Instrument surveys of the Mortgaged Properties dated or updated
to a date not more than six (6) months prior to the date the applicable
property becomes a Mortgaged Property hereunder, which shall show the
location of all Buildings, easements and utility lines on the Mortgaged
Properties, shall be sufficient to remove the survey exception from the Title
Policy, shall show that all Buildings are within the lot lines of the
Mortgaged Properties, shall not show any material encroachments by others,
and shall show whether or not the Mortgaged Properties are located in any
flood hazard district as established by the Federal Emergency Management
Agency or any successor agency or are located in any flood plain, flood
hazard or wetland protection district established under federal, state or
local law and in addition shall meet the then applicable standards of the
Agent.
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Tangible Net Worth. Total Assets minus Total Liabilities minus all
intangibles determined in accordance with Generally Accepted Accounting
Principles.
Title Insurance Company. Chicago Title Insurance Company.
Title Policy. For each Mortgaged Property an ALTA standard form title
insurance policy issued by the Title Insurance Company (with such reinsurance
or co-insurance as the Agent may require, any such reinsurance to be with
direct access endorsements) insuring the priority of the Security Deed and
Assignment of Leases and Rents and that the Mortgagor holds good and clear
record marketable fee simple title to the Mortgaged Property, subject only to
the encumbrances permitted by the Security Deed and which shall not contain
exceptions for mechanics liens, persons in occupancy (other than Leases
listed on Schedule 6.22(1)) or matters which would be shown by a survey
(other than matters approved by the Agent in its reasonable discretion),
shall not insure over any matter except to the extent that any such
affirmative insurance is acceptable to the Agent in its sole discretion
(after consultation with the Lead Lenders), and shall contain such
endorsements and affirmative insurance as the Agent in its reasonable
discretion may require, including but not limited to (a) comprehensive
endorsement, (b) variable rate of interest endorsement, (c) usury
endorsement, (d) revolving credit endorsement, (e) doing business
endorsement, (f) ALTA form 3.1 zoning endorsement, with parking, (g) survey
(same-as) endorsement (h) access endorsement, (i) tie-in endorsement, (j)
first loss endorsement, and (k) tax parcel endorsement, to the extent that
such endorsements are available in the state where the applicable Mortgaged
Property is located.
Total Adjusted Assets. The sum of (i) the assets classified as cash or
cash equivalents on the consolidated balance sheet of Borrower prepared in
accordance with Generally Accepted Accounting Principles as of the end of the
most recent fiscal quarter (including any restricted cash other than tenant
deposits), plus (ii) the product of (a) EBITDA for the most recent two fiscal
quarters, times (b) two, divided by (c) 0.0975. To the extent necessary
EBITDA used to compute Total Adjusted Assets will be computed on a pro forma
basis as though the Formation Transactions had closed, and the Effective Date
had been, as of the first day of the applicable period of two fiscal quarters.
Total Assets. The aggregate book value of all assets of the Borrower and
the Related Companies consolidated and determined in accordance with
Generally Accepted Accounting Principles plus accumulated depreciation and
amortization related to Real Estate Assets.
Total Commitment. The sum of the Commitments of the Lenders, as in
effect from time to time.
Total Liabilities. The sum of the following (without duplication): (i)
all liabilities of the Borrower and the Related Companies consolidated and
determined in accordance with Generally Accepted Accounting Principles
excluding accounts payable incurred in the ordinary course of
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business, (ii) all Indebtedness of the Borrower and the Related Companies
whether or not so classified, including, without limitation, all outstanding
Loans under this Agreement, and (iii) the balance available for drawing under
letters of credit issued for the account of the Borrower or any of the
Related Companies.
Total Operating Cash Flow. With respect to any fiscal period of the
Borrower (i) EBITDA minus (ii) the Reserve Amount with respect to all Real
Estate Assets owned by the Borrower or any of the Related Companies.
Type. As to any Loan its nature as a Base Rate Loan or a Eurodollar Rate
Loan.
Unreimbursed Drawing. Any Drawing other than a Drawing which is
reimbursed by the Agent debiting the IRB Indebtedness Account pursuant to
Section 2.8. If any reimbursement from the IRB Indebtedness Account or any
part thereof is rescinded or must otherwise be restored or returned by the
Agent upon the insolvency, bankruptcy or reorganization of the Borrower or
any Guarantor, the Drawing reimbursed thereby shall be deemed to be an
Unreimbursed Drawing.
Unused Amount. See Section 4.2
Variable Rate Indebtedness. The Loans and all other Indebtedness of the
Borrower which bears interest at a rate which is not fixed through the
maturity of such Indebtedness.
Voting Interests. Stock or similar ownership interests, of any class or
classes (however designated), the holders of which are at the time entitled,
as such holders, (a) to vote for the election of a majority of the directors
(or persons performing similar functions) of the corporation, association,
partnership, trust or other business entity involved, or (b) to control,
manage or conduct the business of the corporation, partnership, association,
trust or other business entity involved.
West Wacker Drive Property. The Mortgaged Property located at 77 West
Wacker Drive, Chicago, Illinois, as more particularly described in the
Security Deed with respect thereto.
Section 1.2. Rules of Interpretation.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time
in accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification
to such law.
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(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by Generally Accepted Accounting Principles applied on a
consistent basis by the accounting entity to which they refer and, except as
otherwise expressly stated, all use of accounting terms with respect to the
Borrower shall reflect the consolidated financial statements of Borrower and
the Related Companies.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by Generally Accepted
Accounting Principles, which terms are defined in the Uniform Commercial Code
as in effect in Massachusetts, have the meanings assigned to them therein.
(h) Reference to a particular "Section" refers to that section of this
Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Agreement as a whole and not to any particular section or
subdivision of this Agreement.
(j) The words "so long as any Loan or Note is outstanding" shall mean so
long as such Loan or Note is not paid in full in cash.
Section 2. REVOLVING CREDIT FACILITY.
Section 2.1. Commitment to Lend; Limitation on Total Commitment. Subject
to the provisions of Section 2.5 and the other terms and conditions set forth
in this Agreement, each of the Lenders severally agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time
between the Effective Date and the Maturity Date upon notice by the Borrower
to the Agent given and approved by the Agent in accordance with Section 2.5,
such sums as are requested by the Borrower up to a maximum aggregate
principal amount outstanding (after giving effect to all amounts requested)
at any one time equal to such Lender's Commitment (minus such Lender's
Commitment Percentage of the face amount of the Letters of Credit
outstanding), provided that the Outstanding Principal Amount (after giving
effect to all amounts requested) shall not at any time exceed the Maximum
Principal Amount. The Loans shall be made pro rata in accordance with each
Lender's Commitment Percentage and the Lenders shall at all times
immediately adjust inter se any inconsistency between each Lender's
outstanding principal amount and each Lender's Commitment. Each request for
a Loan hereunder shall constitute a representation and warranty by the
Borrower that the conditions set forth in Section 10 or Section 11 (whichever
is applicable) have been satisfied on the date of such request and will be
satisfied on the proposed Borrowing Date of the requested Loan, provided that
the making of such
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representation and warranty by Borrower shall not limit the right of any
Lender not to lend upon a determination by the Requisite Lenders that such
conditions have not been satisfied.
Section 2.2. Reduction of Commitment. The Borrower shall have the right
prior to the Maturity Date, upon at least ten (10) Business Days' prior
written notice to the Agent, to reduce by $1,000,000 or an integral multiple
of $100,000 in excess thereof, a portion of the Total Commitment which
exceeds the Outstanding Principal Amount, provided that the Total Commitment
shall not be reduced to less than the sum of $100,000,000 plus the aggregate
face amount of Letters of Credit then outstanding rounded up to the nearest
$1,000,000, whereupon the Commitments of the Lenders shall be reduced pro
rata in accordance with their respective Commitment Percentages by the amount
specified in such notice. Upon the effective date of any such reduction, the
Borrower shall pay to the Agent for the respective accounts of the Lenders
the full amount of any commitment fee then accrued on the amount of the
reduction. No reduction of the Commitments may be reinstated.
Section 2.3. The Notes. The Loans shall be evidenced by separate
promissory notes of the Borrower in substantially the form of Exhibit A
hereto (each a "Note"), and completed with appropriate insertions. A Note
shall be payable to the order of each Lender in a principal amount equal to
such Lender's Commitment. The Borrower irrevocably authorizes each Lender to
make or cause to be made, at or about the time of the Borrowing Date of any
Loan or at the time of receipt of any payment of principal on such Lender's
Note, an appropriate notation on such Lender's Record reflecting the making
of such Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Loans set forth on such Lender's Record shall
(absent manifest error) be prima facie evidence of the principal amount
thereof owing and unpaid to such Lender, but the failure to record, or any
error in so recording, any such amount on the Record shall not limit or
otherwise affect the obligations of the Borrower hereunder or under any Note
to make payments of principal of or interest on any Note when due.
Section 2.4. Interest on Loans.
(a) Each Base Rate Loan shall bear interest for the period commencing
with the Borrowing Date thereof and ending on the last day of the Interest
Period with respect thereto at the Base Rate.
(b) Each Eurodollar Rate Loan shall bear interest for the period
commencing with the Borrowing Date thereof and ending on the last day of the
Interest Period with respect thereto at the rate equal to the Applicable
Margin per annum above the Eurodollar Rate determined for such Interest
Period.
(c) The Borrower unconditionally promises to pay interest on each Loan
in arrears on each Interest Payment Date with respect thereto.
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(d) It is the intention of the parties hereto to conform strictly to the
usury and similar laws relating to interest from time to time in force, and
all agreements among Borrower, Guarantors, the Agent and the Lenders set
forth in the Loan Documents are hereby expressly limited so that in no
contingency or event whatsoever, whether by acceleration of maturity of Loans
or otherwise, shall the amount paid or agreed to be paid as interest
hereunder or under the other Loan Documents exceed the maximum rate or amount
of interest permissible under applicable usury laws or such other laws (the
"Maximum Interest Amount"). In the event, for any reason whatsoever, any
payment by or act of Borrower or any Guarantor pursuant to the terms or
pursuant to any requirements of any of the Loan Documents shall result in or
require payment of interest which would exceed the Maximum Interest Amount,
then ipso facto the obligation of Borrower or such Guarantor, as the case may
be, to pay interest or fees or other amounts shall be reduced to the Maximum
Interest Amount, so that in no event shall Borrower or any Guarantor be
obligated to pay any interest, perform any act, or be bound by any
requirement which would result in payment of interest in excess of a sum
which is lawfully collectible, and all sums in excess of those lawfully
collectible as interest shall, without further agreements or notice between
or by any party to this Agreement or any other Loan Document, be deemed
applied to pay the principal of the Loans immediately upon receipt of such
moneys by Agent or any Lender, with the same force and effect as though
Borrower or any Guarantor had specifically designated such sums to be applied
to principal prepayment. The provisions of this Section 2.4(d) shall control
every other provision of the Loan Documents.
Section 2.5. Requests for Loans. The Borrower shall give to the Agent
written notice in the form of Exhibit B hereto of each Loan requested
hereunder (a "Loan Request") no less than (a) three (3) Business Days prior
to the proposed Borrowing Date of any Base Rate Loan and (b) four (4)
Eurodollar Business Days prior to the proposed Borrowing Date of any
Eurodollar Rate Loan. Each such notice shall specify (i) the principal amount
of the Loan requested, (ii) the proposed Borrowing Date of such Loan, (iii)
the Interest Period for such Loan, (iv) the Type of such Loan, and (v) the
purpose of such Loan, and shall be accompanied by a statement in the form of
Exhibit C hereto signed by a Responsible Officer setting forth in reasonable
detail computations evidencing compliance with the covenants contained in
Section 9 hereof after giving effect to such requested Loan (a "Compliance
Certificate"). Within one (1) Business Day after receipt of a Loan Request,
the Agent shall provide to each of the Lenders by facsimile a copy of such
Loan Request and accompanying Compliance Certificate and each Lender shall,
within 24 hours thereafter, notify the Agent if it believes that any of the
conditions contained in Section 11 of this Agreement has not been met or
waived. If such a notice is given the Requisite Lenders shall promptly
determine whether all of the conditions contained in Section 11 of this
Agreement have been met or waived. If no such notice is given by any Lender
or if following such notice the Requisite Lenders determine that the
conditions contained in Section 11 have been met or waived, each of the
Lenders shall be obligated to fund its Commitment Percentage of the requested
Loans. Each such Loan Request shall be irrevocable and binding on the
Borrower and the Borrower shall be obligated to accept the Loan requested
from the Lenders on the proposed Borrowing Date. Each
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Loan Request shall be in a minimum aggregate amount of $3,000,000 or an
integral multiple of $1,000,000 in excess thereof.
Section 2.6. Conversion Options.
(a) The Borrower may elect from time to time to convert any outstanding
Loan to a Loan of another Type, provided that (i) with respect to any such
conversion of a Eurodollar Rate Loan to a Base Rate Loan, the Borrower shall
give the Agent at least three (3) Business Days, prior written notice of such
election; (ii) with respect to any such conversion of a Eurodollar Rate Loan
into a Base Rate Loan, such conversion shall only be made on the last day of
the Interest Period with respect thereto; (iii) subject to the further
proviso at the end of this section and subject to Section 2.6(b) and Section
2.6(d) hereof with respect to any such conversion of a Base Rate Loan to a
Eurodollar Rate Loan, the Borrower shall give the Agent at least four (4)
Eurodollar Business Days' prior written notice of such election and (iv) no
Loan may be converted into a Eurodollar Rate Loan when any Default or Event
of Default has occurred and is continuing. On the date on which such
conversion is being made, each Lender shall take such action as is necessary
to transfer its Commitment Percentage of such Loans to its Domestic Lending
Office or its Eurodollar Lending Office, as the case may be. All or any part
of outstanding Loans of any Type may be converted as provided herein,
provided further that each Conversion Request relating to the conversion of a
Base Rate Loan to a Eurodollar Rate Loan shall be for an amount equal to
$3,000,000 or an integral multiple of $1,000,000 in excess thereof and shall
be irrevocable by the Borrower.
(b) Any Loans of any Type may be continued as such upon the expiration
of an Interest Period with respect thereto by compliance by the Borrower with
the notice provisions contained in Section 2.6 (a); provided that no
Eurodollar Rate Loan may be continued as such when any Default or Event of
Default has occurred and is continuing but shall be automatically converted
to a Base Rate Loan on the last day of the first Interest Period relating
thereto ending during the continuance of any Default or Event of Default of
which the officers of the Agent active upon the Borrower's account have
actual knowledge.
(c) In the event that the Borrower does not notify the Agent of its
election hereunder with respect to any Loan, such Loan shall be automatically
converted to a Base Rate Loan at the end of the applicable Interest Period.
(d) The Borrower may not request a Eurodollar Rate Loan pursuant to
Section 2.5, elect to convert a Base Rate Loan to a Eurodollar Rate Loan
pursuant to Section 2.5(a) or elect to continue a Eurodollar Rate Loan
pursuant to Section 2.6(b) if, after giving effect thereto, there would be
greater than eight (8) Eurodollar Rate Loans outstanding. Any Loan Request
for a Eurodollar Rate Loan that would create greater than eight (8)
Eurodollar Rate Loans outstanding shall be deemed to be a Loan Request for a
Base Rate Loan.
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Section 2.7. Funds for Loans.
(a) Subject to Section 2.5 and other provisions of this Agreement, not
later than 11:00 a.m. (Boston time) on the proposed Borrowing Date of any
Loans, each of the Lenders will make available to the Agent, at the Agent's
Head office, in immediately available funds, the amount of such Lender's
Commitment Percentage of the amount of the requested Loans. Upon receipt from
each Lender of such amount, and upon receipt of the documents required by
Sections 10 or 11 (whichever is applicable) and the satisfaction of the other
conditions set forth therein, to the extent applicable, the Agent will make
available to the Borrower the aggregate amount of such Loans made available
to the Agent by the Lenders. The failure or refusal of any Lender to make
available to the Agent at the aforesaid time and place on any Borrowing Date
the amount of its Commitment Percentage of the requested Loans shall not
relieve any other Lender from its several obligation hereunder to make
available to the Agent the amount of such other Lender's Commitment
Percentage of any requested Loans but shall not obligate any other Lender or
Agent to fund more than its Commitment Percentage of the requested Loans or
to increase its Commitment Percentage.
(b) The Agent may, unless notified to the contrary by any Lender prior
to a Borrowing Date, assume that such Lender has made available to the Agent
on such Borrowing Date the amount of such Lender's Commitment Percentage of
the Loans to be made on such Borrowing Date, and the Agent may (but it shall
not be required to), in reliance upon such assumption, make available to the
Borrower a corresponding amount. If any Lender makes available to the Agent
such amount on a date after such Borrowing Date, such Lender shall pay to the
Agent on demand an amount equal to the product of (i) the average computed
for the period referred to in clause (iii) below, of the weighted average
interest rate paid by the Agent for federal funds acquired by the Agent
during each day included in such period, times (ii) the amount of such Lender
's Commitment Percentage of such Loans, times (iii) a fraction, the numerator
of which is the number of days or portion thereof that elapsed from and
including such Borrowing Date to the date on which the amount of such Lender
's Commitment Percentage of such Loans shall become immediately available to
the Agent, and the denominator of which is 365.
Section 2.8. IRB Indebtedness Account. On or before each date on which
there is scheduled to be a Drawing under any IRB Letter of Credit pursuant to
the IRB Documents, the Borrower will deposit in the IRB Indebtedness Account
sufficient funds such that there will be available therein on the applicable
Drawing Date the amount needed to reimburse the Agent for the amount of such
Drawing. The Borrower hereby authorizes the Agent to debit the IRB
Indebtedness Account on each Drawing Date as necessary to reimburse the Agent
for each draft paid by the Agent pursuant to any IRB Letter of Credit. All
payments made by the Agent pursuant to any drafts under the IRB Letters of
Credit shall be made from funds of the Agent, but in no event shall any such
payments be made with funds from the IRB Indebtedness Account or with any
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other funds obtained from the Borrower, any Guarantor or any issuer of bonds
with respect to any IRB Indebtedness.
Section 2.9. Letters of Credit.
(a) A portion of the Commitments may be used by Borrower for the
issuance of Letters of Credit by the Agent for the account of the Borrower
subject to the terms and conditions set forth herein, provided that the
aggregate face amount of all Letters of Credit shall not exceed $105,000,000
during the period from the Effective Date until the earlier to occur of (i)
the date that the Letter of Credit for the benefit of Credit Suisse First
Boston is drawn on so as to reduce the amount available thereunder, or is
amended or replaced so as to reduce the face amount thereof, by more than
$15,000,000 or (ii) April 16, 1998, and thereafter shall not exceed
$90,000,000. Each Letter of Credit shall be denominated in dollars and shall
be a either a direct pay IRB Letter of Credit, a direct pay letter of credit
supporting bond related Indebtedness similar to the IRB Letters of Credit or
a standby letter of credit issued to support the obligations of Borrower in
connection with Permitted Developments. Each Letter of Credit shall expire no
later than five (5) Business Days prior to the Maturity Date. Although the
Agent shall be the issuing bank of the Letter of Credit, each Lender hereby
accepts for its own account and risk an undivided interest equal to its
Commitment Percentage in the Agent's obligations represented by each Letter
of Credit issued hereunder, and unconditionally and irrevocably agrees with
the Agent that, upon any Unreimbursed Drawing, such Lender shall promptly pay
to the Agent an amount equal to such Lender's Commitment Percentage of the
amount of such Unreimbursed Drawing. Upon the issuance of each Letter of
Credit hereunder, there shall be reserved from each Lender's Commitment an
amount equal to such Lender's Commitment Percentage of the face amount of
the Letter of Credit. Such reserved amounts shall remain in place and shall
be unavailable for borrowing under Section 2.1 until the date that the Letter
of Credit expires or is terminated.
(b) If the Borrower shall desire the issuance of any Letters of Credit
or the extension or renewal of any outstanding Letters of Credit, it shall
give to the Agent a written notice in the form of Exhibit D hereto of each
Letter of Credit requested hereunder (a "Letter of Credit Request") no less
than ten (10) Business Days prior to the proposed issuance date of the
requested Letter of Credit or prior to the expiration date of any Letter of
Credit to be renewed or extended. Each Letter of Credit Request shall specify
(i) the name and address of the beneficiary of the requested Letter of
Credit, (ii) the face amount of the requested Letter of Credit, (iii) the
proposed issuance date and expiration date of the requested Letter of Credit,
(iv) the proposed form of the requested Letter of Credit, and (v) the
permitted purpose for which the Letter of Credit will be used, and shall be
accompanied by a Compliance Certificate in the form of Exhibit C hereto
signed by a Responsible Officer setting forth in reasonable detail
computations evidencing compliance with the covenants contained in Section 9
hereof after including in the Outstanding Principal Amount the face amount of
the requested Letter of Credit. The Agent may also require that the Borrower
complete its standard letter of credit application form and
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submit the same and the standard application fee together with the Letter of
Credit Request. The Letter of Credit Requests with respect to the Initial
Letters of Credit are hereby approved. Within two (2) Business Days after
receipt of any other Letter of Credit Request, the Agent shall provide to
each of the Lenders by facsimile a copy of such Letter of Credit Request and
accompanying Compliance Certificate and each Lender shall, within 24 hours
thereafter, notify the Agent if it believes that any of the conditions
contained in Section 11 of this Agreement has not been met or waived such
that a Loan in an amount equal to the face amount of the requested Letter of
Credit could be made on the proposed issuance date of such Letter of Credit.
If such a notice is given the Requisite Lenders shall promptly determine
whether all of the conditions contained in Section 11 of this Agreement have
been met or waived. If no such notice is given by any Lender or if following
such notice the Requisite Lenders determine that the conditions contained in
Section 11 have been met or waived, and if the Agent determines, in its
discretion, that it is willing to issue, extend or renew the requested Letter
of Credit, and that it is satisfied with the proposed form thereof, the
Letter of Credit shall be issued, extended or renewed by the Agent and each
of the Lenders shall then be obligated to the Agent with respect to its
Commitment Percentage of the Letter of Credit (as extended or renewed, if
applicable) as provided above in Section 2.9(a).
(c) On or before the issuance date of any Letters of Credit having an
expiration date of one year or less after its issuance date, the Borrower
shall pay to the Agent for its own account an issuance fee equal to
one-eighth percent (.125%) of the face amount of the Letter of Credit. The
issuance fee for any Letter of Credit with a later expiration date will be
determined by the Agent. On or before the date of any extension or renewal of
a Letter of Credit, the Borrower shall pay to the Agent for its own account a
renewal fee for each year of the extension renewal term equal to one-tenth
percent (.10%) of the face amount of the applicable Letter of Credit. The
Borrower shall pay to the Agent for the account of the Lenders a Letter of
Credit fee equal to the then prevailing Applicable Margin per annum of the
face amount of the Letter of Credit, which Letter of Credit fee shall be due
and payable in advance on the issuance date of the Letter of Credit and on
the first day of each calendar quarter for so long as such Letter of Credit
remains outstanding, and shall be prorated for any partial quarter and paid
for the actual number of days between the issuance date and the expiration
date of such Letter of Credit. Promptly after its receipt thereof the Agent
shall distribute such Letter of Credit fee to the Lenders pro-rata in
accordance with their respective Commitment Percentages. Such fees shall be
nonrefundable and shall not be further prorated in the event that the Letter
of Credit terminates prior to its scheduled expiration date. The Borrower
also agrees to reimburse the Agent for all reasonable fees (consistent with
the fee schedule of the Agent's trade services division as then in effect),
costs, expenses and disbursements of the Agent in issuing, effecting payment
under, amending or otherwise administering any Letter of Credit.
(d) Promptly after each Unreimbursed Drawing the Agent shall notify the
Lenders and the Borrower of the amount thereof. The payment of each
Unreimbursed Drawing shall constitute an advance of a Loan which shall bear
interest as a Base Rate Loan from the Drawing Date. On the Drawing Date of
each Unreimbursed Drawing, each Lender shall pay to the Agent
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its Commitment Percentage of the amount of such Unreimbursed Drawing. If the
Agent receives such payment from any Lender on a date after the Drawing Date,
such Lender shall pay to the Agent on demand an amount computed in the same
manner as the amount due to the Agent from a Lender which has made available
funds for loans after the Borrowing Date thereof pursuant to Section 2.7(b).
Each Lender's obligation to pay its Commitment Percentage of each
Unreimbursed Drawing shall not be subject to the satisfaction of the
conditions set forth in Section 11. Within three (3) Business Days after each
Unreimbursed Drawing, the Borrower shall deliver to the Agent a written
explanation of the facts and circumstances relating to such drawing and a
Compliance Certificate and any other information requested by the Agent for
the purpose of allowing the Lenders to determine whether the drawing or
related events have resulted in a Default or Event of Default. The Agent
shall promptly provide copies of such explanation and information to the
Lenders.
(e) The Borrower's obligations under this Section 2.9 shall be absolute
and unconditional under any and all circumstances and irrespective of any
set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Agent, any Lender or any beneficiary of a Letter of
Credit. The Borrower also agrees that the Agent shall not be responsible for,
and the Borrower's reimbursement obligations hereunder shall not be affected
by, among other things, (i) the validity or genuineness of documents or of
any endorsements thereon, even though such documents shall in fact prove to
be invalid, fraudulent or forged, or (ii) any dispute between or among the
Borrower and any beneficiary of any Letter of Credit or any other party to
which such Letter of Credit may be transferred or (iii) any claims whatsoever
of the Borrower against any beneficiary of such Letter of Credit or any such
transferee. The Agent shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except
for errors, omissions, interruptions or delays for which the Agent is liable
under the Uniform Customs and Practices for Documentary Credits. The Borrower
assumes all risks of the acts or omissions of any trustee, paying agent,
tender agent or remarketing agent under the IRB Indebtedness and the Agent
shall not be responsible for any use which may be made of the IRB Letters of
Credit. The Borrower agrees that any action taken or omitted by the Agent
under or in connection with any Letter of Credit or the related drafts or
documents, if done in accordance with the standards of care specified in the
Uniform Customs and Practices for Documentary Credits as the same may be
amended from time to time, shall be binding on the Borrower and shall not
result in any liability of the Agent to the Borrower or to any Guarantor.
Section 3. REPAYMENT OF THE LOANS.
Section 3.1. Maturity. The Borrower unconditionally promises to pay on
the Maturity Date, and there shall become absolutely due and payable on the
Maturity Date, all of the Loans outstanding on such date, together with any
and all accrued and unpaid interest and charges thereon.
Section 3.2. Mandatory Repayments of Loan. If at any time the sum of the
Outstanding Principal Amount exceeds the Maximum Principal Amount, then the
Borrower shall
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immediately pay the amount of such excess to the Agent for the respective
accounts of the Lenders for application to the Loans.
Section 3.3. Optional Repayments of Loans. The Borrower shall have the
right, at its election, to repay the outstanding amount of the Loans, as a
whole or in part, on any Business Day, without penalty or premium; provided
that the full or partial prepayment of the outstanding amount of any
Eurodollar Rate Loans made pursuant to this Section 3.3 may be made only on
the last day of the Interest Period relating thereto, except as set forth
below in this Section 3.3. The Borrower shall give the Agent no later than
10:00 a.m., Boston time, at least three (3) Business Days' prior written
notice of any prepayment pursuant to this Section 3.3 of any Base Rate Loans
and four (4) Eurodollar Business Days, notice of any proposed repayment
pursuant to this Section 3.3 of any Eurodollar Rate Loans, specifying the
proposed date of payment of Loans and the principal amount to be paid. Each
such partial prepayment of the Loans shall be in an integral multiple of
$100,000 and shall be accompanied by the payment of all charges outstanding
on all Loans and of accrued interest on the principal repaid to the date of
payment and shall be applied, in the absence of instruction by the Borrower,
first to the principal of Base Rate Loans and then to the principal of
Eurodollar Rate Loans. Notwithstanding anything contained herein to the
contrary, the Borrower may make a full or partial prepayment of a Eurodollar
Rate Loan on a date other than the last day of the Interest Period relating
thereto, if all optional prepayments (in whole or in part) on such Loans
shall be accompanied by, and the Borrower hereby promises to pay, a
prepayment fee in an amount determined by the Agent in the following manner:
(i) Fixed Rate Prepayment Fee. Borrower acknowledges that prepayment or
acceleration of a Eurodollar Loan during an Interest Period shall result in
the Lenders incurring additional costs, expenses and/or liabilities and that
it is impractical to ascertain the extent of such costs, expenses and/or
liabilities. (For all purposes of this Section, any Loan not being made as a
Eurodollar Rate Loan in accordance with the Loan Request therefor, as a
result of Borrower's cancellation thereof, shall be treated as if such
Eurodollar Rate Loan had been prepaid.) Therefore, on the date a Eurodollar
Rate Loan is prepaid or the date all sums payable hereunder become due and
payable, by acceleration or otherwise ("Prepayment Date"), Borrower will pay
to Agent, for the account of each Lender, (in addition to all other sums
then owing), an amount ("Fixed Rate Prepayment Fee") determined by the Agent
to be the amount, if any, by which (i) the amount of interest which would
have accrued on the prepaid Eurodollar Rate Loan for the remainder of the
Interest Period at the rate applicable to such Eurodollar Rate Loan exceeds
(ii) the amount of interest that would accrue for the same period on any
readily marketable bond or other obligation of the United States of America
designated by the Agent in its sole discretion at or about the time of such
payment, such bond or other obligation of the United States of America to be
in an amount equal (as nearly as may be) to the amount of principal so paid
or not borrowed and to have a maturity comparable to the remainder of such
Interest Period, and the interest to accrue thereon to take account of
amortization of any discount from par or accretion of premium above par at
which the same is selling at the time designation.
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(ii) Upon the written notice to Borrower from Agent, Borrower shall
immediately pay to Agent, for the account of the Lenders, the Fixed Rate
Prepayment Fee. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding on the parties hereto.
(iii) Borrower understands, agrees and acknowledges the following: (i)
no Lender has any obligation to purchase, sell and/or match funds in
connection with the use of the Eurodollar Rate as a basis for calculating the
rate of interest on a Eurodollar Rate Loan; (ii) the Eurodollar Rate is used
merely as a reference in determining such rate; and (iii) Borrower has
accepted the Eurodollar Rate as a reasonable and fair basis for calculating
such rate and a Fixed Rate Prepayment Fee. Borrower further agrees to pay the
Fixed Rate Prepayment Fee, if any, whether or not a Lender elects to
purchase, sell and/or match funds.
Section 4. CERTAIN GENERAL PROVISIONS.
Section 4.1. Revolving Credit Facility Fees and Agent's Fee. The
Borrower agrees to pay to the Lead Lenders and the Agent revolving credit
facility fees and agency fees in the amounts specified in the Fee Agreement
dated October 20, 1997 among the Lead Lenders, the Borrower, the Company and
The Prime Group, Inc. The Lead Lenders shall be responsible for any facility
fees which they may agree to pay to the other Lenders which become a party to
this Agreement. If the Borrower obtains releases of one or more Mortgaged
Properties pursuant to Section 5.5, and simultaneously or thereafter provides
Additional Properties pursuant to Section 5.3 and Section 5.4 to replace the
Collateral Value of the released property, the Borrower shall pay a
substitution fee to the Agent for its own account in the amount of $2,500 per
Additional Property.
Section 4.2. Commitment Fee. The Borrower shall pay to the Agent for the
accounts of the Lenders in accordance with their respective Commitment
Percentages a commitment fee calculated at the rates set forth below per
annum on the daily amount by which the Total Commitment (as it may have been
reduced pursuant to Section 2.2) exceeds the Outstanding Principal Amount
(the "Unused Amount"):
<TABLE><CAPTION>
Unused Amount Fee Rate
- ------------- --------
<S> <C>
less than 1/3 of Total Commitment 15 basis points
at least 1/3 of Total Commitment
but less than 2/3 of Total Commitment 20 basis points
at least 2/3 of Total Commitment 25 basis points
</TABLE>
The commitment fee shall be payable on the basis of the applicable annual
rate quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Maturity Date or any
earlier date on which the Commitments shall terminate.
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Section 4.3. Funds for Payments.
(a) All payments of principal, interest, closing fees, commitment fees
and any other amounts due hereunder (other than as provided in Section 4.1,
Section 4.5 and Section 4.6) or under any of the other Loan Documents, and
all prepayments, shall be made to the Agent, for the respective accounts of
the Lenders, at the Agent's Head Office, in each case in Dollars in
immediately available funds.
(b) All payments by the Borrower hereunder and under any of the other
Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory liens, restrictions or
conditions of any nature now or hereafter imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the Borrower
with respect to any amount payable by it hereunder or under any of the other
Loan Documents, the Borrower shall pay to the Agent, for the account of the
Lenders or (as the case may be) the Agent, on the date on which such amount
is due and payable hereunder or under such other Loan Document, such
additional amount in Dollars as shall be necessary to enable the Lenders or
the Agent to receive the same net amount which the Lenders or the Agent would
have received on such due date had no such obligation been imposed upon the
Borrower. The Borrower will deliver promptly to the Agent certificates or
other valid vouchers for all taxes or other charges deducted from or paid
with respect to payments made by the Borrower hereunder or under such other
Loan Document.
Section 4.4. Computations. All computations of interest on the Loans and
of other fees to the extent applicable shall be based on a 360-day year and
paid for the actual number of days elapsed. Except as otherwise provided in
the definition of the term "Interest Period" with respect to Eurodollar Rate
Loans, whenever a payment hereunder or under any of the other Loan Documents
becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. The outstanding amount of the Loans as
reflected on the Records from time to time shall (absent manifest error) be
considered correct and binding on the Borrower unless within thirty (30)
Business Days after receipt by the Agent or any of the Lenders from Borrower
of any notice by the Borrower of such outstanding amount, the Agent or such
Lender shall notify the Borrower to the contrary.
Section 4.5. Additional Costs, Etc. If any present or future applicable
law which expression, as used herein, includes statutes, rules and
regulations thereunder and interpretations thereof by any competent court or
by any governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon
or otherwise issued to any Lender or the
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Agent by any central bank or other fiscal, monetary or other authority
(whether or not having the force of law), shall:
(a) subject any Lender or the Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Agreement, the other Loan Documents, such Lender's Commitment or the Loans
(other than taxes based upon or measured by the income or profits of such
Lender or the Agent), or
(b) materially change the basis of taxation (except for changes in taxes
on income or profits) of payments to any Lender of the principal of or the
interest on any Loans or any other amounts payable to any Lender under this
Agreement or the other Loan Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held by,
or deposits in or for the account of, or loans by, or commitments of an
office of any Lender, or
(d) impose on any Lender any other conditions or requirements with
respect to this Agreement, the other Loan Documents, the Loans, the
Commitment, or any class of loans or commitments of which any of the Loans or
the Commitment forms a part;
and the result of any of the foregoing is
(i) to increase the cost to such Lender of making, funding, issuing,
renewing, extending or maintaining any of the Loans or such Lender's
Commitment, or
(ii) to reduce the amount of principal, interest or other amount payable
to such Lender or the Agent hereunder on account of the Commitments or any of
the Loans, or
(iii) to require such Lender or the Agent to make any payment or to
forego any interest or other sum payable hereunder, the amount of which
payment or foregone interest or other sum is calculated by reference to the
gross amount of any sum receivable or deemed received by such Lender or the
Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such
Lender or (as the case may be) the Agent at any time and from time to time
and as often as the occasion therefor may arise, pay to such Lender or the
Agent, to the extent permitted by law, such additional amounts as will be
sufficient to compensate such Lender or the Agent for such additional cost,
reduction, payment or foregone interest or other sum.
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Section 4.6. Capital Adequacy. If any present or future law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) or the interpretation thereof by a court or
governmental authority with appropriate jurisdiction affects the amount of
capital required or expected to be maintained by banks or bank holding
companies and any Lender or the Agent determines that the amount of capital
required to be maintained by it is increased by or based upon the existence
of the Loans made or deemed to be made pursuant hereto, then such Lender or
the Agent may notify the Borrower of such fact, and the Borrower shall pay to
such Lender or the Agent from time to time on demand, as an additional fee
payable hereunder, such amount as such Lender or the Agent shall determine in
good faith and certify in a notice to the Borrower to be an amount that will
adequately compensate such Lender or the Agent in light of these
circumstances for its increased costs of maintaining such capital. Each
Lender and the Agent shall allocate such cost increases among its customers
in good faith and on an equitable basis.
Section 4.7. Certificate. A certificate setting forth any additional
amounts payable pursuant to Sections 4.5 or 4.6 and a brief explanation of
such amounts which are due, submitted by any Lender or the Agent to the
Borrower, shall be prima facie evidence that such amounts are due and owing.
Section 4.8. Indemnity. In addition to the other provisions of this
Agreement regarding any such matters, the Borrower agrees to indemnify each
Lender and to hold each Lender harmless from and against any loss, cost or
reasonable expense (including loss of anticipated profits) that such Lender
may sustain or incur as a consequence of (a) a default by the Borrower in
payment of the principal amount of or any interest on any Eurodollar Rate
Loans as and when due and payable, including any such loss or expense caused
by Borrower's breach or other default and arising from interest or fees
payable by such Lender to lenders of funds obtained by it in order to
maintain its Eurodollar Rate Loans, (b) a default by the Borrower in making a
borrowing or conversion after the Borrower has given (or is deemed to have
given) a Loan Request or a Conversion Request, and (c) the making of any
payment of a Eurodollar Rate Loan or the making of any conversion of a
Eurodollar Rate Loan to a Base Rate Loan on a day that is not the last day of
the applicable Interest Period with respect thereto, including interest or
fees payable by such Lender to lenders of funds obtained by it in order to
maintain any such Eurodollar Rate Loan.
Section 4.9. Interest on Overdue Amounts. Overdue principal and (to the
extent permitted by applicable law) interest on the Loans and all other
overdue amounts payable hereunder or under any of the other Loan Documents
shall bear interest compounded monthly and payable on demand at a rate per
annum equal to four percent (4%) above the Base Rate until such amount shall
be paid in full (after as well as before judgment). In addition, the
Borrower shall pay to the Agent a late charge equal to three percent (3%) of
any amount of principal and/or interest and/or charges on the Loans which is
not paid within ten (10) days of the date when due.
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Section 4.10. Inability to Determine Eurodollar Rate. In the event,
prior to the commencement of any Interest Period relating to any Eurodollar
Rate Loan, the Agent shall determine that adequate and reasonable methods do
not exist for ascertaining the Eurodollar Rate that would otherwise determine
the rate of interest to be applicable to any Eurodollar Rate Loan during any
Interest Period, the Agent shall forthwith give notice of such determination
(which shall be conclusive and binding on the Borrower) to the Borrower. In
such event (a) any Loan Request with respect to Eurodollar Rate Loans shall
be automatically withdrawn and shall be deemed a request for Base Rate Loans,
(b) each Eurodollar Rate Loan will automatically, on the last day of the then
current Interest Period thereof, become a Base Rate Loan, and (c) the
obligations of the Lenders to make Eurodollar Rate Loans shall be suspended
until the Agent determines that the circumstances giving rise to such
suspension no longer exist, whereupon the Agent shall so notify the Borrower.
Section 4.11. Illegality. Notwithstanding any other provisions herein,
if any present or future law, regulation, treaty or directive or in the
interpretation or application thereof shall make it unlawful for any Lender
to make or maintain Eurodollar Rate Loans, such Lender shall forthwith give
notice of such circumstances to the Borrower and thereupon (a) the Commitment
of such Lender to make Eurodollar Rate Loans or convert Loans of another Type
to Eurodollar Rate Loans shall forthwith be suspended and (b) the Eurodollar
Rate Loans then outstanding shall be converted automatically to Base Rate
Loans on the last day of each Interest Period applicable to such Eurodollar
Rate Loans or within such earlier period as may be required by law. The
Borrower hereby agrees promptly to pay to the Agent for the account of such
Lender, upon demand, any additional amounts necessary to compensate such
Lender for any reasonable costs incurred by such Lender in making any
conversion in accordance with this Section 4.11, including any interest or
fees payable by such Lender to lenders of funds obtained by it in order to
make or maintain its Eurodollar Rate Loans hereunder.
Section 4.12. Replacement of Lenders. If any of the Lenders shall make a
notice or demand upon the Borrower pursuant to Section 4.5, Section 4.6, or
Section 4.11 based on circumstances or laws which are not generally
applicable to the Lenders organized under the laws of the United States or
any State thereof, the Borrower shall have the right to replace such Lender
with an Eligible Assignee selected by the Borrower and approved by the Agent.
In such event the assignment shall take place on a date set by the Agent at
which time the assigning Lender and the Eligible Assignee shall enter into an
Assignment and Acceptance as contemplated by Section 18.1 (and clause (d)
thereof shall not be applicable) and the assigning Lender shall receive from
the Eligible Assignee or the Borrower a sum equal to the outstanding
principal amount of the Loans owed to the assigning Lender together with
accrued interest thereon plus the accrued commitment fee under Section 4.2
allocated to the assigning Lender.
Section 4.13. U.S. Tax Certificates. Each Lender that is organized under
the laws of any jurisdiction other than the United States of America or any
state or other political subdivision thereof shall deliver to the Agent for
transmission to the Borrower, on the date it becomes a
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Lender, and at such other times as may be necessary in the determination of
the Borrower or the Agent (each in the reasonable exercise of its
discretion), such certificates, documents or other evidence, properly
completed and duly executed by such Lender (including Internal Revenue
Service Form 1001 or Form 4224 or any other certificate or statement of
exemption required by Treasury Regulations Section 1.1441-4(a) or Section
1.1441-6(c) or any successor thereto) to establish that such Lender is not
subject to deduction or withholding of United States federal income tax under
Section 1441 or 1442 of the Internal Revenue Code or otherwise (or under any
comparable provisions of any successor statute) with respect to any payments
to such Lender of principal, interest, fees or other amounts payable under
any of the Loan Documents.
Section 5. COLLATERAL SECURITY; NO LIMITATION ON RECOURSE.
Section 5.1. Collateral Security. The Obligations shall be secured by
(i) a perfected first priority lien and security interest to be held by the
Agent (subject only to Permitted Liens) in the Mortgaged Properties, pursuant
to the terms of the Security Documents, (ii) a perfected first priority lien
and security interest to be held by the Agent in the Leases and rents
pursuant to the Assignments of Leases and Rents, (iii) a first priority
pledge of any pledged bonds purchased with the proceeds of Drawings under any
IRB Letter of Credit pursuant to the Pledge Agreements, and (iv) the
Guaranties.
Section 5.2. No Limitation on Recourse. Notwithstanding the foregoing
Collateral, the Obligations are full recourse obligations of the Borrower
(with recourse to its partners limited to the extent provided in Section 28)
and, to the extent provided in the applicable Guaranty, of the Guarantors,
and all of their respective Real Estate Assets and other properties shall be
available for the indefeasible payment in full in cash and performance of the
Obligations.
Section 5.3. Additional Properties.
(a) Additional Real Estate Assets owned by the Borrower or by a
Guarantor Subsidiary may become Mortgaged Properties with the approval of the
Lead Lenders provided that such Real Estate Assets satisfy the conditions set
forth in Section 5.4. In the event that the Lead Lenders grant such approval
and all of the conditions set forth in Section 5.4 are satisfied, the Agent
shall notify the Borrower and within ten (10) days thereafter the Borrower
and the Company shall execute and deliver an Indemnity Agreement and the
Mortgagor shall execute and deliver to the Agent a Security Deed, an
Assignment of Rents and Leases and UCC-1 Financing Statements, which Security
Documents shall be in substantially the form of the Security Documents
executed and delivered herewith with such changes as the Agent may deem
desirable to address the laws of the State where the Additional Property is
located or the factual circumstances of the Additional Property. Such
Additional Properties shall be deemed to be Mortgaged Properties upon the
recording and filing of such Security Documents and the Agent's receipt of
satisfactory evidence thereof.
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(b) The Lead Lenders hereby approve the Real Estate Assets described on
Schedule 5.3(b) which Borrower agrees to add as Mortgaged Properties
hereunder on or before December 10, 1997. Upon satisfaction of the conditions
set forth in Section 5.4, the Agent shall revise Schedule 1.1 to include such
Additional Properties.
(c) The Agent and the Lead Lenders shall use their best efforts to
complete their review of the documents submitted with respect to each
Additional Property and notify the Borrower as to whether the conditions in
Section 5.4 are satisfied within ten (10) Business Days after receipt of the
last of the items required pursuant to Section 5.4.
Section 5.4. Conditions to Approval of Additional Properties. Prior to
acceptance of any Real Estate Asset to become an Additional Property pursuant
to Section 5.3, such property must satisfy the following conditions, which
may be modified or waived only by the written agreement of the Requisite
Lenders:
(a) If the Additional Property is not owned by the Borrower or an
existing Guarantor Subsidiary, but is owned by a Related Company which is at
least 99% owned by Borrower, such Related Company must become a Guarantor
Subsidiary by delivery to the Agent the following, all in form and substance
satisfactory to the Agent: (i) a Guaranty in substantially the form of the
Guaranty executed and delivered by the Guarantor Subsidiaries prior to the
Effective Date and (ii) good standing certificates, general partner
certificates, secretary certificates, opinions of counsel and such other
documents as may be reasonably requested by the Agent.
(b) An Appraisal of the Additional Property ordered by the Agent and
paid for by the Borrower shall have been approved by the Lead Lenders.
(c) The Agent shall have received all of the items relating to the
Additional Property described in Section 10.8, Section 10.9, Section 10.10,
Section 10.12, Section 10.13, Section 10.14, Section 10.16 and Section 10.18
and such items shall have been approved by the Agent or the Lead Lenders as
required by such Sections.
(d) The Agent shall have received a Certificate executed on behalf of
the Borrower containing the representations and warranties with respect to
the Additional Property as are set forth in Section 6.18 and Section 6.22, to
which there shall be attached a current rent roll for the Additional Property
which shall be deemed to supplement and become a part of Schedule 6.22(l)
hereto.
(e) The Borrower shall have requested estoppel certificates in form
reasonably satisfactory to the Agent from the tenants under all Leases of the
Additional Property, shall have used its best efforts to obtain all such
estoppel certificates and shall have received such estoppel certificates as
the Lead Lenders may, in their discretion, require, and all estoppel
certificates received shall be satisfactory to the Lead Lenders.
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(f) The Agent shall have received updated certificates and other items
relating to the Borrower, the Company and the applicable Guarantor Subsidiary
as described in Section 10.2, Section 10.3 and Section 10.4 and a favorable
opinion addressed to the Lenders and the Agent, in form and substance
satisfactory to the Lenders and the Agent as to the matters described on
Exhibit E relating to the Loan Documents executed by Borrower and/or the
Mortgagor with respect to the Additional Property and relating to the laws of
the state where the Additional Property is located.
Section 5.5. Release of Mortgaged Properties. The Borrower may request
that the Agent release any Mortgaged Property from the lien of the Security
Documents and the Agent shall approve any such request provided that there is
then no continuing Default or Event of Default under this Agreement and the
requested release will not result in any Default or Event of Default under
this Agreement and the Borrower delivers to the Agent a pro-forma Compliance
Certificate reasonably satisfactory to the Agent demonstrating that the
requested release will not result in a violation of any of the covenants in
Section 9. The Borrower may request releases of a portion of a Mortgaged
Property consisting of undeveloped land to be developed by Borrower or sold
provided that in addition to the requirements set forth above, the Borrower
shall also submit such additional information as may be reasonably requested
by the Agent including, without limitation, (i) an updated survey and
endorsements to the Title Policy; (ii) an updated Appraisal of the remaining
portion of the Mortgaged Property and (iii) evidence that the division of the
Mortgaged Property pursuant to the requested release will not result in
violation of any zoning ordinance or other applicable laws and ordinances. If
the Borrower shall request the release of any Mortgaged Property which is
adjacent to any other Mortgaged Property which is not to be simultaneously
released, the Agent may require the establishment of appropriate easements
and maintenance agreements satisfactory to the Agent relating to any shared
utilities, drainage facilities, access drives or walks, parking areas or
other shared facilities.
Section 6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Agent and each of the Lenders as follows, and to the extent
that the following representations and warranties relate to the Company, the
Company represents and warrants to the Agent and each of the Lenders as
follows:
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Section 6.1. Authority; Etc.
(a) Organization; Good Standing. The Company (i) is a Maryland real estate
investment trust duly organized, validly existing and in good standing under the
laws of the State of Maryland, (ii) has all requisite power to own its
properties and conduct its business as now conducted and as presently
contemplated, and (iii) to the extent required by law is in good standing as a
foreign entity and is duly authorized to do business in the States in which the
Mortgaged Properties are located and in each other jurisdiction where such
qualification is necessary except where a failure to be so qualified in such
other jurisdiction would not have a Materially Adverse Effect. The Borrower is a
Delaware limited partnership, and each Guarantor Subsidiary is a limited
partnership or a limited liability company formed under the laws of Illinois,
Tennessee or Delaware, and each such entity is duly organized, validly existing
and in good standing under the laws of the State of its formation, has all
requisite power to own its properties and conduct its business as presently
contemplated and is duly authorized to do business in the States in which the
Mortgaged Properties owned by it are located and in each other jurisdiction
where such qualification is necessary.
(b) Authorization. The execution, delivery and performance of this
Agreement and the other Loan Documents to which the Borrower is to become a
party and the transactions contemplated hereby and thereby (i) are within the
authority of the Borrower, (ii) have been duly authorized by all necessary
proceedings on the part of the Borrower and the Company, (iii) do not conflict
with or result in any breach or contravention of any provision of law, statute,
rule or regulation to which the Borrower or the Company is subject or any
judgment, order, writ, injunction, license or permit applicable to the Borrower
or the Company and (iv) do not conflict with any provision of the Borrower's
partnership agreement or Company's declaration of trust, charter documents or
bylaws, or any material agreement or other material instrument binding upon, the
Borrower or the Company or to which any of their properties are subject. The
execution, delivery and performance of the Guaranty and the other Loan Documents
to which any Guarantor is to become a party and the transactions contemplated
hereby and thereby (i) are within the authority of such Guarantor, (ii) have
been duly authorized by all necessary proceedings on the part of such Guarantor,
(iii) do not conflict with or result in any breach or contravention of any
provision of law, statute, rule or regulation to which such Guarantor is subject
or any judgment, order, writ, injunction, license or permit applicable to such
Guarantor and (iv) do not conflict with any provision of such Guarantor's
charter documents or bylaws, partnership agreement, limited liability company
agreement, declaration of trust, or any agreement or other instrument binding
upon such Guarantor or to which any of such Guarantor's properties are subject.
(c) Enforceability. The execution and delivery of this Agreement and the
other Loan Documents to which the Borrower is or is to become a party will
result in valid and legally binding obligations of the Borrower enforceable
against it in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy,
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insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent that
availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought. The execution and delivery of this Agreement and the Indemnity
Agreement will result in valid and legally binding obligations of the Company
enforceable against it in accordance with the respective terms and provisions
hereof and thereof, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent that
availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought. The execution and delivery of the Guaranty and the other Loan
Documents to which any Guarantor is or is to become a party will result in valid
and legally binding obligations of such Guarantor enforceable against such
Guarantor in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights and except to the extent that availability of
the remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
Section 6.2. Governmental Approvals. The execution, delivery and
performance by the Borrower and each Guarantor of this Agreement and the
other Loan Documents to which the Borrower or such Guarantor is or is to
become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency
or authority other than those already obtained and the filing of the Security
Documents in the appropriate records office with respect thereto.
Section 6.3. Title to Properties.
(a) Based on the Title Policies, the Borrower or one of the Guarantor
Subsidiaries holds good and clear record and marketable fee simple title to the
Mortgaged Properties, subject to no Liens or encumbrances except for the
Permitted Liens.
(b) Except as indicated on Schedule 6.3 hereto, the Borrower or the Related
Companies own all of the properties reflected in the Closing Balance Sheet of
the Company, subject to no Liens except Permitted Liens.
Section 6.4. Financial Statements. The following financial statements
have been furnished to each of the Lenders.
(a) The Prospectus Financial Statements. Such Prospectus Financial
Statements have been prepared in accordance with Generally Accepted Accounting
Principles and fairly present the financial condition of the Borrower and the
Company as at the close of business on
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the Effective Date and the results of operations for the applicable period.
There are no direct or contingent liabilities of the Borrower or the Company as
of such date involving material amounts, known to the officers of the Company
not disclosed in the Closing Balance Sheet of the Company contained in the
Prospectus Financial Statements and the related notes thereto. There are no
material differences between the Closing Balance Sheet and balance sheet of the
Borrower and its subsidiaries prepared on a consolidated basis in accordance
with Generally Accepted Accounting Principles prepared on the same basis and as
of the same date as the Closing Balance Sheet, other than the line item for the
minority interests in the Borrower.
(b) With respect to each Mortgaged Property, a statement prepared by the
Borrower of the rental and other income of the Borrower from the operation of
such Mortgaged Property for each of the previous four (4) fiscal quarters, and
all operating and other costs and expenses incurred by the Borrower in
connection with such Mortgaged Property during such fiscal quarters, certified
by a Responsible Officer of the Company as fairly presenting the results of
operation with respect to such Mortgaged Property for such fiscal period.
Section 6.5. No Material Changes, Etc. The Formation Transactions and
all other events which are the basis for the assumptions used in preparation
of the Closing Balance Sheet have happened or will happen on the Effective
Date. Since the time of preparation of the Closing Balance Sheet, there has
occurred no material adverse change in the financial condition or assets or
business of the Borrower as shown on or reflected on the Closing Balance
Sheet, nor has there been any material increase in the liabilities of the
Borrower or the Company in excess of those shown thereon other than changes
in the ordinary course of business that have not had any Material Adverse
Effect either individually or in the aggregate.
Section 6.6. Franchises, Patents, Copyrights, Etc. The Borrower
possesses all franchises, patents, copyrights, trademarks, trade names,
licenses and permits, and rights in respect of the foregoing, adequate for
the conduct of its business substantially as now conducted without known
conflict with any rights of others, including all Permits except to the
extent the Borrower's failure to possess the same does not have a Material
Adverse Effect.
Section 6.7. Litigation. Except as listed and described on Schedule 6.7
hereto, there are no actions, suits, proceedings or investigations of any
kind pending or, to Borrower's knowledge, threatened against the Borrower,
the Company, any Guarantor or any of the Related Companies before any court,
tribunal or administrative agency or board that, if adversely determined, are
reasonably expected to, either in any case or in the aggregate, have a
Material Adverse Effect or materially impair the right of the Borrower, the
Company, any Guarantor or any of the Related Companies to carry on business
substantially as now conducted by it, or which question the validity of this
Agreement or any of the other Loan Documents, any action taken or to be taken
pursuant hereto or thereto, or any Lien or security interest created or
intended to be created pursuant hereto or thereto, or which will materially
adversely affect the ability of the Borrower
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or any Guarantor to pay and perform the Obligations in the manner contemplated
by this Agreement and the other Loan Documents.
Section 6.8. No Materially Adverse Contracts, Etc. The Borrower is not
subject to any charter, trust or other legal restriction, or any judgment,
decree, order, rule or regulation that has or is expected in the future, in
the judgment of the Company's officers, to have a Material Adverse Effect.
The Borrower is not a party to any contract or agreement that has or is
expected, in the judgment of the Company's officers, to have any Material
Adverse Effect. The Company is not subject to any charter, trust or other
legal restriction, or any judgment, decree, order, rule or regulation that
has or is expected in the future, in the judgment of the Company's officers,
to have a Material Adverse Effect. The Company is not a party to any contract
or agreement that has or is expected, in the judgment of the Company's
officers, to have any Material Adverse Effect.
Section 6.9. Compliance With Other Instruments, Laws, Etc. Neither the
Borrower nor the Company is in violation of any provision of the Borrower's
partnership agreement, the partnership agreement of any of the Guarantor
Subsidiaries or of the Company's declaration of trust, by-laws, or any
agreement or instrument to which it may be subject or by which the Borrower
or any of its properties may be bound or any decree, order, judgment,
statute, license, rule or regulation, in any of the foregoing cases in a
manner that could result in the imposition of substantial penalties or have a
Material Adverse Effect.
Section 6.10. Tax Status. Each of the Guarantor Subsidiaries (a) has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, and (b)
has paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim.
Section 6.11. Event of Default. No Default or Event of Default has
occurred and is continuing.
Section 6.12. Investment Company Act. The Borrower is not an "investment
company", or an "affiliated company" or a "principal underwriter" of an
"investment company", as such terms are defined in the Investment Company Act
of 1940.The Company is not an "investment company", or an "affiliated
company" or a "principal underwriter" of an "investment company", as such
terms are defined in the Investment Company Act of 1940.
Section 6.13. Absence of Financing Statements, Etc. There is no
financing statement, security agreement, chattel mortgage, real estate
mortgage, equipment lease, financing lease, option, encumbrance or other
document existing, filed or recorded with any filing records, registry, or
other public office, that purports to cover, affect or give notice of any
present or possible future
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Lien or encumbrance on, or security interest in, any Collateral, except those in
favor of the Agent or Permitted Liens.
Section 6.14. Setoff, Etc. The Collateral and the Agent's rights with
respect to the Collateral are not subject to any setoff, claims, withholdings
or other defenses. Either the Borrower or a Guarantor is the owner of the
Collateral free from any lien, security interest, encumbrance and any other
claim or demand, except for the Permitted Liens.
Section 6.15. Certain Transactions. Except as disclosed in the Equity
Prospectus, none of the officers or employees of the Borrower, the Company or
any Guarantor are presently a party to any transaction with the Borrower, the
Company or any Guarantor (other than for services as employees, officers and
trustees), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, trustee or such employee or, to the knowledge of the Borrower and
the Company, any corporation, partnership, trust or other entity in which any
officer, trustee or any such employee or natural Person related to such
officer, trustee or employee or other Person in which such officer, trustee
or employee has a direct or indirect beneficial interest has a substantial
interest or is an officer or trustee.
Section 6.16. Benefit Plans: Multiemployer Plans: Guaranteed Pension
Plans. As of the date hereof as to any Employee Benefit Plan, Multiemployer
Plan or Guaranteed Pension Plan, neither the Borrower nor any ERISA Affiliate
maintains or contributes to any Employee Benefit Plan, Multiemployer Plan or
Guaranteed Pension Plan. To the extent that Borrower, the Company or any
ERISA Affiliate hereafter maintains or contributes to any Employee Benefit
Plan or Guaranteed Pension Plan, it shall at all times do so in compliance
with Section 7.18 hereof.
Section 6.17. Regulations U and X. No portion of any Loan is to be used
for the purpose of purchasing or carrying any "margin security" or "margin
stock" as such terms are used in Regulations U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
Section 6.18. Environmental Compliance. The Borrower has delivered to
the Agent the Environmental Reports with respect to the Mortgaged Properties
which are listed on Schedule 6.18. Except as may be set forth in the
Environmental Reports with respect to the Mortgaged Properties, or as
described on Schedule 6.18 or in the Equity Prospectus with respect to the
other Real Estate Assets, Borrower makes the following representations and
warranties:
(a) To the best of Borrower's knowledge, none of the Borrower, any
Guarantor, any of the Related Companies or any operator of the Real Estate or
any portion thereof, or any operations thereon is in violation, or alleged
material violation, of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without limitation,
those arising under the Resource Conservation and Recovery Act ("RCRA"), the
Comprehensive
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Environmental Response, Compensation and Liability Act of 1980 as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"),
the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act, or any state or local statute, regulation, ordinance, order or
decree relating to health, safety or the environment, including, without
limitation, the environmental statutes, regulations, orders and decrees of the
States in which any of the Real Estate may be located (hereinafter collectively
referred to as the "Environmental Laws"), which violation either involves the
Mortgaged Properties or would have a Material Adverse Effect.
(b) None of the Borrower, Prime, the Guarantors or the Related Companies
has received written notice from any third party including, without
limitation any federal, state or local governmental authority with respect to
any of the Mortgaged Properties, or with respect to any other Real Estate if
the same would have a Material Adverse Effect, (i) that it has been
identified by the United States Environmental Protection Agency ("EPA") as a
potentially responsible party under CERCLA with respect to a site listed on
the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that
any hazardous waste, as defined by 42 U.S.C. Section 9601(5), any hazardous
substances as defined by 42 U.S.C. Section 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic substances,
oil or hazardous materials or other chemicals or substances regulated by any
Environmental Laws ("Hazardous Materials") which it has generated,
transported or disposed of have been found at any site at which a federal,
state or local agency or other third party has conducted or has ordered that
the Borrower, any Guarantor or any of the Related Companies conduct a
remedial investigation, removal or other response action pursuant to any
Environmental Law; or (iii) that it is or shall be a named party to any
claim, action, cause of action, complaint, or legal or administrative
proceeding (in each case, contingent or otherwise) arising out of any third
party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Materials.
(c) (i) To the best of Borrower's knowledge no portion of the Real Estate
has been used for the handling, processing, storage or disposal of Hazardous
Materials except in material compliance with applicable Environmental Laws; and
no underground tank or other underground storage receptacle for Hazardous
Materials is located on any portion of the Real Estate except in material
compliance with applicable Environmental Laws; (ii) to the best of Borrower's
knowledge, in the course of any activities conducted by the Borrower, any
Guarantor, any of the Related Companies or the operators of any Real Estate, any
ground or space tenants on any Real Estate, no Hazardous Materials have been
generated or are being used on the Real Estate except in material compliance
with applicable Environmental Laws, which in the case of Real Estate other than
the Mortgaged Properties would have a Material Adverse Effect; (iii) there has
been no present, or to the best of Borrower's knowledge past, releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping (a "Release") or threatened Release of Hazardous
Materials on, upon, into or from the Mortgaged Properties or the other Real
Estate, which Release in the case of Real Estate other
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than the Mortgaged Properties would have a Material Adverse Effect and; (iv)
to the best of Borrower's knowledge, there have been no Releases on, upon,
from or into any real property in the vicinity of any of the Real Estate
which, through soil or groundwater contamination, may have come to be located
on, and which would have a Material Adverse Effect; and (v) notwithstanding
that any representation contained herein may be limited to the knowledge of
the Borrower, any such limitation shall not affect the covenants specified in
Section 7.10 or elsewhere in this Agreement.
Section 6.19. Subsidiaries and Affiliates. The Borrower has no
Subsidiaries except for the Related Companies listed on Schedule 1.3 and does
not have an ownership interest in any entity whose financial statements are
not consolidated with the Borrower's except for the Permitted Joint Ventures
listed on Schedule 1.3. The Company is not a partner in any partnership other
than Borrower and certain of the Related Companies listed on Schedule 1.3
which are limited partnerships in which the Company has a one tenth percent
(0.1%) limited partnership interest, has no Investments in any Person other
than the Borrower and such limited partnerships and is not a member of any
limited liability company. The Company owns no material assets other than its
partnership interest in Borrower and the limited partnership interests
described in this Section 6.19.
Section 6.20. Major Leases. The Borrower has delivered to the Agent
complete copies of the Major Leases and of the other Leases requested by the
Agent.
Section 6.21. Loan Documents. All of the representations and warranties
of the Borrower or any Guarantor made in the other Loan Documents or any
document or instrument delivered or to be delivered to the Agent or the
Lenders pursuant to or in connection with any of such Loan Documents are true
and correct in all material respects.
Section 6.22. Mortgaged Properties. In this Section 6.22 the phrase "to
the Borrower's knowledge" shall mean the actual knowledge of the officers and
employees of the Company or of Prime who have had significant responsibility
for the operation, management and leasing of the applicable Mortgaged
Property. The Borrower makes the following additional representations and
warranties concerning the Mortgaged Properties:
(a) Off-Site Utilities. All water, sewer, electric, gas, telephone and
other utilities are installed to the property lines of the Mortgaged Properties
and, except in the case of drainage facilities, are connected to the Buildings
located thereon and to the Borrower's knowledge are adequate to service the
Buildings in full compliance with applicable law; and to the Borrower's
knowledge the Buildings are properly and legally connected directly to public
water and sewer systems. No easements over land of others not yet obtained are
required for any such utilities, and no drainage of surface or other water
across land of others is required except as disclosed in the Surveys.
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(b) Surveys, Access; Etc. Since the date of the most recent Survey
delivered to the Agent with respect to each Mortgaged Property, there has been
no construction (except interior renovations and improvements) of additional
Buildings or additions to Buildings on such Mortgaged Property, and to the
Borrower's knowledge no takings by eminent domain affecting such Mortgaged
Property or other changes which may have caused such Survey to be no longer
accurate.
(c) Independent Building. The Buildings on each Mortgaged Property (except
as described in documents referred in the Title Policy for the West Wacker Drive
Property with respect to walkways and other common areas shared by such property
with other buildings) are fully independent from any other real estate in all
respects including, without limitation, in respect of structural integrity,
heating, ventilating and air conditioning, plumbing, mechanical and other
operating and mechanical systems, and electrical, sanitation and water systems,
all of which are connected directly to off-site utilities located in public
streets or ways. Each Mortgaged Property consists of one or more lots which are
not assessed for purposes of real estate tax assessment and payment jointly with
any land which is not a part of such Mortgaged Property. The Buildings, all
Building Service Equipment and all paved or landscaped areas related to or used
in connection with the Buildings are located wholly within the perimeter lines
of the lot or lots on which the Mortgaged Properties are located except as
disclosed in the Surveys.
(d) Condition of Building; No Asbestos. Except as set forth in the
engineering reports provided to the Agent and listed on Schedule 6.22(d), to the
Borrower's knowledge there are no material defects in the roof, foundation,
structural elements and masonry walls of the Buildings or their heating,
ventilating and air conditioning, electrical, sprinkler, plumbing or other
mechanical systems or their Building Service Equipment; the Buildings are fully
sprinkled; and no friable asbestos is located in or on the Buildings except as
may be disclosed in the Environmental Reports.
(e) Building Compliance with Law; Permits. The Buildings as presently
constructed and used do not, to the Borrower's knowledge, violate any applicable
federal or state law or governmental regulation, or any local ordinance, order
or regulation, including but not limited to laws, regulations, or ordinances
relating to zoning, building use and occupancy, subdivision control, fire
protection, health and sanitation. To the Borrower's knowledge, all Permits
required for the operation and maintenance of the Mortgaged Properties,
including without limitation, building permits, curb-cut permits, water
connection permits, sewer extension or connection permits and other permits
relating to the use of utilities, and permits required under the Federal Clean
Air Act, as amended, the Federal Clean Water Act, as amended (including, without
limitation a so-called Section 404 Permit"), and by state law or regulations
consistent with the requirements of said Acts, have been validly issued by the
appropriate governmental Persons and are now in full force and effect.
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(f) No Required Real Property Consents, Permits, Etc. The Borrower has
received no notices of, nor has any knowledge of, any Permits, utility
installations and connections (including, without limitation, drainage
facilities, curb cuts and street openings), or private consents required for the
maintenance, operation, servicing and use of the Mortgaged Properties for their
current use which have not been granted, effected, or performed and completed
(as the case may be) or any fees or charges therefor which have not been fully
paid provided, however, that certain Permits may require periodic renewals.
(g) Suits; Judgments. To the Borrower's knowledge, there are no outstanding
notices, suits, orders, decrees or judgments relating to zoning, building use
and occupancy, subdivision control, fire protection, health, sanitation, or
other violations affecting, against, or with respect to, the Mortgaged
Properties or any part thereof, other than suits, orders, decrees or judgments
against tenants or former tenants with respect to defaults by such tenants under
their Leases or evicting or otherwise obtaining possession of the premises
occupied by such tenants.
(h) Insurance. None of the Guarantors, the Company or the Borrower has
received any written notices from any insurer or its agent requiring performance
of any material work with respect to the Mortgaged Properties or canceling or
threatening to cancel any policy of insurance.
(i) Real Property Taxes; Special Assessments. Based on the Title Policies,
there are no unpaid or outstanding real estate or other taxes or assessments on
or against the Mortgaged Properties or any part thereof which are payable by
Borrower or tenants (except only real estate taxes and assessments not yet due
and payable). Except as disclosed on the Title Policies, and to the Borrower's
knowledge there are no betterment assessments or other special assessments
presently pending with respect to any portion of the Mortgaged Properties, and
Borrower has received no notice of any such special assessment being
contemplated.
(j) Historic Status. To the Borrower's knowledge, the Buildings are not
historic structures or landmarks, and the Mortgaged Properties are not within
any historic district pursuant to any federal, state or local law or
governmental regulation.
(k) Domain. To the Borrower's knowledge, there are no pending eminent
domain proceedings against the Mortgaged Properties or any part thereof, and no
such proceedings are presently threatened or contemplated by any taking
authority.
(l) Leases. A rent roll with respect to all Leases of any portion of the
Mortgaged Properties (current as of the date set forth thereon) is accurate and
completely set forth in Schedule 6.22(1) as the same shall be supplemented each
fiscal quarter by a certificate signed by an authorized officer of Borrower. The
Leases reflected on such rent roll constitute the sole and complete agreements
and understandings relating to leasing or licensing of space in the Buildings or
otherwise at the Mortgaged Properties. The Borrower has delivered to the Agent a
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true and complete copy of all Major Leases. There are no occupancies, rights,
privileges or licenses in or to the Buildings or any other part of the Mortgaged
Properties other than pursuant to the Leases reflected on the rent roll set
forth in Schedule 6. 22(1). Except as set forth in Schedule 6.22(1) the Leases
reflected on the Schedule 6.22(1) rent roll are in full force and effect, in
accordance with their respective terms, without any payment default or any other
material default thereunder, nor to the Borrower's knowledge, are there any
defenses, counterclaims, offsets, concessions or rebates available to any tenant
thereunder, and the Mortgagor has not given or made, or received, any notice of
default, or any material claim, which remains uncured or unsatisfied, with
respect to any of the Major Leases and, to the best of the Borrower's knowledge
there is no basis for any such claim or notice of default by any tenant. The
Schedule 6.22(1) rent roll accurately and completely sets forth all rents
payable by tenants, no tenant having paid more than one month's rent in advance.
All tenant improvements or work to be done, furnished or paid for by the
landlord, or credited or allowed to a tenant, for, or in connection with, the
Buildings pursuant to any Lease has been completed and paid for, or provided for
in a manner satisfactory to the Agent, or will be paid for by the Borrower in
the ordinary course of the Borrower's business. No leasing, brokerage or like
commissions, fees or payments are due from the Borrower in respect of the
Leases, or will be paid for by the Borrower in the ordinary course of the
Borrower's business. Except as set forth on the Schedule 6.22(1) rent roll, all
tenants under all Leases are in occupancy and operating the premises covered by
such Leases within the permitted uses under such Leases.
(m) Service Agreements. Except as listed on Schedule 6.22 (m), there are no
Service Agreements relating to the operation and maintenance of the Mortgaged
Properties or any part thereof except Service Agreements which may be terminated
at the owner's option upon not more than 60 days advance notice. To the best of
Borrower's knowledge, no default notices have been given by any party to any
Service Agreement.
(n) Other Material Real Property Agreements; No Options. Except as listed
on Schedule 6.22(n), there are no material agreements pertaining to the
Mortgaged Properties or the operation or maintenance thereof other than as
described in this Agreement (including the Schedules hereto) or otherwise
disclosed in writing to the Agent by the Borrower, and no person or entity has
any right or option to acquire any of the Mortgaged Properties or any portion
thereof or interest therein or lease any portion thereof or additional portion
thereof or provide services thereat.
Section 7. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants
and agrees as follows, and to the extent that the following covenants relate
to the Company, the Company covenants and agrees as follows, so long as any
Loan, Note or Letter of Credit is outstanding or the Lenders have any
obligations to make Loans or issue Letters of Credit:
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Section 7.1. Punctual Payment. The Borrower will unconditionally duly
and punctually pay the principal and interest on the Loans and all other
amounts provided for in the Note, this Agreement, and the other Loan
Documents all in accordance with the terms of the Note, this Agreement and
the other Loan Documents.
Section 7.2. Maintenance of Office. Each of the Borrower and the Company
will maintain its chief executive office in Chicago, Illinois or at such
other place in the United States Of America as the Borrower or the Company
shall designate upon written notice to the Agent to be delivered within
fifteen (15) days of such change, where notices, presentations and demands to
or upon the Borrower or the Company in respect of the Loan Documents may be
given or made.
Section 7.3. Records and Accounts. Each of the Borrower and the Company
will keep true and accurate records and books of account in which full, true
and correct entries will be made in accordance with Generally Accepted
Accounting Principles.
Section 7.4. Financial Statements, Certificates and Information. The
Borrower will deliver to each of the Lenders:
(a) as soon as practicable, but in any event not later than ninety (90)
days after the end of each fiscal year of the Borrower, the audited balance
sheet of the Borrower and of the Company at the end of such year, and the
related audited statement of income, statement of changes in shareholders,
equity and statement of Funds From Operations and taxable income for such year,
each setting forth in comparative form the figures for the previous fiscal year
and all such statements to be in reasonable detail, prepared in accordance with
Generally Accepted Accounting Principles on a consolidated basis including the
Borrower, the Company and the Related Companies, and accompanied by an auditor's
report prepared without qualification by Ernst & Young LLP or by another
independent certified public accountant reasonably acceptable to the Agent;
(b) as soon as practicable, but in any event not later than forty-five (45)
days after the end of each fiscal quarter of the Borrower, copies of the
unaudited balance sheets of the Borrower as at the end of such quarter, and the
related unaudited statement of income, statement of changes in shareholders'
equity and statement of Funds From Operations and estimated taxable income for
the portion of the Borrower's fiscal year then elapsed, all in reasonable detail
and prepared in accordance with Generally Accepted Accounting Principles,
together with a certification by the principal financial or accounting officer
of the Company that the information contained in such financial statements
fairly presents the financial position of the Borrower and of the Company on the
date thereof (subject to year-end adjustments), provided, however, that such
information with respect to the quarter ended September 30, 1997 shall be
delivered by December 29, 1997;
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(c) as soon as practicable, but in any event not later than forty-five
(45) days after the end of each of the fiscal quarters of the Borrower,
copies of a statement of the Net Operating Income for such fiscal quarter for
each Mortgaged Property, and a consolidating statement of the Net Operating
Income for such fiscal quarter for all of the Mortgaged Properties, prepared
on a basis consistent with the statements furnished pursuant to Section 6.4
(b), and certified by a Responsible Officer of the Company;
(d) as soon as practicable, but in any event no later than forty-five (45)
days after the end of each fiscal quarter of the Borrower, the Borrower will
provide the Agent with , a rent roll for each of the Mortgaged Properties, and a
consolidated rent roll for all of the Mortgaged Properties, each dated as of the
end of such fiscal quarter in form reasonably satisfactory to the Agent;
(e) simultaneously with the delivery of the financial statements referred
to in subsections (a) and (b) above, a statement in the form of Exhibit C hereto
signed by a Responsible Officer of the Company and setting forth in reasonable
detail computations evidencing compliance with the covenants contained herein
and (if applicable) reconciliations to reflect changes in Generally Accepted
Accounting Principles since the Effective Date;
(f) as soon as practicable, but in any event not later than ninety (90)
days after the end of each fiscal year of the Company, copies of the Form 10-K
statement filed with the Securities and Exchange Commission ("SEC") for such
fiscal year, and as soon as practicable, but in any event not later than
forty-five (45) days after the end of each fiscal quarter, copies of the Form
10-Q statement filed with the SEC for such fiscal quarter, provided that in
either case if the SEC has granted an extension for the filing of such
statements (or if a later filing is permitted by rule of the SEC with respect to
the fiscal quarter ended September 30. 1997), Borrower shall deliver such
statements to the Agent simultaneously with the filing thereof with the SEC;
(g) promptly following the filing or mailing thereof, copies of all other
material of a financial nature filed with the SEC or sent to the shareholders of
the Company or to the limited partners of the Borrower and copies of all press
releases (except local press releases relating to specific properties) promptly
upon the issuance thereof;
(h) from time to time such other financial data and information (including
accountants' management letters) as the Agent may reasonably request;
Section 7.5. Notices.
(a) Defaults. The Borrower will promptly notify the Agent in writing of the
occurrence of any Default or Event of Default. If any Person shall give any
notice or take any other action in respect of a claimed default (whether or not
constituting a Default or an Event of Default under this Agreement) under any
note, evidence of Indebtedness, indenture or other
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obligation to which or with respect to which the Borrower, the Company, any
Guarantor or any of the Related Companies is a party or obligor, whether as
principal or surety, and if the principal amount thereof exceeds $1,000,000, and
such default would permit the holder of such note or obligation or other
evidence of Indebtedness to accelerate the maturity thereof, the Borrower shall
forthwith give written notice thereof to the Agent and each of the Lenders,
describing the notice or action and the nature of the claimed default.
(b) Environmental Events. The Borrower will promptly notify the Agent in
writing of any of the following events: (i) upon Borrower's obtaining knowledge
of any violation of any Environmental Law regarding a Mortgaged Property or any
Real Estate or Borrower's operations which violation could have a Material
Adverse Effect; (ii) upon Borrower's obtaining knowledge of any potential or
known Release, or threat of Release, of any Hazardous Materials at, from, or
into a Mortgaged Property or any Real Estate which it reports in writing or is
reportable by it in writing to any governmental authority and which is material
in amount or nature or which could materially affect the value of such Mortgaged
Property or which could have a Material Adverse Effect; (iii) upon Borrower's
receipt of any notice of violation of any Environmental Laws or of any Release
or threatened Release of Hazardous Materials, including a notice or claim of
liability or potential responsibility from any third party (including without
limitation any federal, state or local governmental officials) and including
notice of any formal inquiry, proceeding, demand, investigation or other action
with regard to (A) Borrower's or any Person's operation of a Mortgaged Property
or any Real Estate if the same would have a Material Adverse Effect, (3)
contamination on, from or into a Mortgaged Property or any Real Estate if the
same would have a Material Adverse Effect, or (C) investigation or remediation
of off-site locations at which Borrower or any of its predecessors are alleged
to have directly or indirectly disposed of Hazardous Materials; or (iv) upon
Borrower's obtaining knowledge that any expense or loss has been incurred by
such governmental authority in connection with the assessment, containment,
removal or remediation of any Hazardous Materials with respect to which
Borrower, Guarantor or any of the Related Companies may be liable or for which a
lien may be imposed on a Mortgaged Property.
(c) Notification of Liens or other Material Claims. The Borrower will,
immediately upon becoming aware thereof, notify the Agent in writing of any of
any Liens (except Permitted Liens) placed upon or attaching to any Mortgaged
Properties or of any other setoff, claims (including environmental claims),
withholdings or other defenses which could have a Material Adverse Effect.
(d) Notice of Litigation and Judgments. The Borrower will give notice to
the Agent in writing within fifteen (15) days of becoming aware of any
litigation or proceedings threatened in writing or any pending litigation and
proceedings affecting any of the Mortgaged Properties or affecting the Borrower,
the Company, any Guarantor or any of the Related Companies or to which the
Borrower, the Company, any Guarantor or any of the Related Companies is or is to
become a party involving an uninsured claim (or as to which the insurer
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reserves rights) against the Borrower, the Company, any Guarantor or any of the
Related Companies that at the time of giving of notice could reasonably be
expected to have a Materially Adverse Effect, and stating the nature and status
of such litigation or proceedings. The Borrower will give notice to the Agent,
in writing, in form and detail satisfactory to the Agent, within ten (10) days
of any final judgment not covered by insurance against the Borrower, the
Company, any Guarantor or any of the Related Companies in an amount in excess of
$500,000.
(e) Notice of Default under Major Leases. The Borrower will immediately
notify the Agent in writing of the occurrence of any failure of any of the Major
Tenants to materially comply with any of the material terms, covenants,
conditions or agreements under any of the Major Leases.
(f) Notice of Equity Prospectus Amendment. The Company will promptly notify
the Lenders of any further amendment to the Equity Prospectus, which notice
shall include a copy of any such amendment.
(g) Notice of Expected Receipt of Net Offering Proceeds. At least three (3)
Business Days prior to the date on which the Company or the Borrower expects to
receive Net Offering Proceeds, the Borrower or the Company, as applicable will
notify the Agent of the expected amount of Net Offering Proceeds and the
expected date of receipt thereof and shall immediately notify the Agent of any
changes in the information set forth in such notice.
Section 7.6. Existence; Maintenance of REIT Status; Maintenance of
Properties. The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence as a Maryland trust
and its status as a self administered real estate investment trust under the
Code, the existence of Borrower as a Delaware limited partnership and the
existence of each Guarantor Subsidiary. The Borrower will do or cause to be
done all things necessary to preserve and keep in full force all of its
rights and franchises which in the judgment of the Borrower may be necessary
to properly and advantageously conduct the businesses being conducted by it,
the Company or any of the Related Companies. The Borrower (a) will cause all
of the properties used or useful in the conduct of the business of Borrower,
the Company or any of the Related Companies to be maintained and kept in good
condition, repair and working order, subject to ordinary wear and tear, and
supplied with all necessary equipment, (b) will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Borrower may be necessary so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times, and (c) will continue to engage
primarily in the businesses now conducted by it and in related businesses.
Section 7.7. Insurance. The Borrower will maintain insurance on the
Mortgaged Properties as required by the Security Deeds. With respect to other
properties and businesses of Borrower, the Guarantors and the Related
Companies, the Borrower will maintain or cause to be maintained insurance
with financially sound and reputable insurers against such casualties and
contingencies
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in amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent in the judgment of the Company's officers.
Section 7.8. Taxes. The Borrower will pay real estate taxes, other
taxes, assessments and other governmental charges against the Mortgaged
Properties before the same become delinquent, and will duly pay and
discharge, or cause to be paid and discharged, before the same shall become
overdue, all taxes, assessments and other governmental charges imposed upon
it and its other properties, sales and activities, or any part thereof, or
upon the income or profits therefrom, as well as all claims for labor,
materials, or supplies that if unpaid might by law become a lien or charge
upon any of its properties; provided that any such tax, assessment, charge,
levy or claim with respect to properties other than the Mortgaged Properties
need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if the Borrower shall
have set aside on its books adequate reserves with respect thereto; and
provided further that the Borrower will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor. Promptly
after payment of real estate taxes, other taxes, assessments and other
governmental charges against the Mortgaged Properties, Borrower will provide
evidence of such payments to the Agent, in the form of receipted tax bills or
other form reasonably acceptable to the Agent. Notwithstanding anything
contained herein to the contrary, with respect to the Mortgaged Properties,
Borrower, after receipt of notice from the Agent (which notice may be given
by the Agent at any time after the occurrence of an Event of Default) , shall
deposit with Agent, on the first day of each month thereafter, a sum
determined by Agent to be sufficient to provide, in the aggregate, a fund
adequate to pay all real estate taxes, other taxes, assessments and other
governmental charges against the Mortgaged Properties at least ten (10) days
before the same becomes delinquent; and whenever the Agent determines sums
accumulated under such escrow to be insufficient to meet the obligations for
which such deposits were made, the Borrower shall pay, on the demand of the
Agent, any amount required to cover the deficiency therein.
Section 7.9. Inspection of Properties and Books; Confidential
Information. The Borrower shall permit the Lenders, through the Agent or any
of the Lenders' other designated representatives, to visit and inspect any of
the Mortgaged Properties, to examine the books of account of the Borrower,
the Company and the Related Companies (and to make copies thereof and
extracts therefrom) and to discuss the affairs, finances and accounts of the
Borrower with, and to be advised as to the same by, its officers, all at such
reasonable times and intervals as the Agent or any Lender may reasonably
request. Each Lender understands that in the course of its exercise of its
rights set forth herein, the Lender may obtain information relating to
Borrower or the Company or a Property which is of a confidential nature (the
"Confidential Information"). Each Lender agrees that it will not, at any
time, divulge, publish or disclose, or authorize or permit any other person
to divulge, publish or disclose, to any Person, any of the Confidential
Information, provided, however, that the Confidential Information may be
disclosed by any Lender (a) to its officers, attorneys, and accountants, (b)
to any regulator or other governmental
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agency with supervisory authority over the business of such Lender, (c) to any
other Person to the extent required by applicable law or regulation, and (d) to
the extent that such Confidential Information is otherwise publicly available
from sources other than such Lender.
Section 7.10. Compliance with Laws, Contracts, Licenses, and Permits.
The Borrower will comply in all material respects, the Company will comply in
all material respects and the Borrower will cause each Guarantor and all
Related Companies to comply in all material respects, with (a) all applicable
laws and regulations now or hereafter in effect wherever its business is
conducted, including all Environmental Laws, (b) the provisions of all
applicable partnership agreements, charter documents and by-laws, (c) all
agreements and instruments to which it is a party or by which it or any of
its Real Estate Assets may be bound including the Leases, and (d) all
applicable decrees, orders, and judgments.
Section 7.11. Use of Proceeds. Subject to the provisions of Section 2.5
hereof, the proceeds of the Loans shall be used by the Borrower for Permitted
Acquisitions and Permitted Developments, for refinancing other Indebtedness,
and for working capital and other purposes consistent with the covenants
contained herein.
Section 7.12. Appraisals. The Appraised Values of the Mortgaged
Properties, including the Appraised Values of Additional Properties
determined pursuant to Appraisals approved by the Requisite Lenders pursuant
to Section 10.14 and Section 5.4(b), may increase or decrease only upon the
approval by the Lead Lenders of a new or updated Appraisal of such Mortgaged
Property. The Agent shall order a new or updated Appraisal of a Mortgaged
Property (i) promptly following a written request from the Borrower, (ii) in
the discretion of the Agent if the occupied percentage of the gross leasable
area of the Buildings on such Mortgaged Property for two (2) consecutive
fiscal quarters is more than 20 percentage points lower than the occupancy
percentage shown on the rent roll for such Mortgaged Property attached as
Schedule 6.22(l) hereto, (iii) if, in the Agent's opinion, there has been a
substantial adverse change in market conditions; (iv) as may be required by
regulatory requirements applicable to any Lender; and (v) following an Event
of Default, if requested by any Lender. The Borrower shall provide to the
Agent all available information needed to assist in the preparation of an
Appraisal and shall pay to the Agent on demand all reasonable costs of all
such Appraisals.
Section 7.13. Leases; Lease Approvals. The Borrower will not include in
any Leases any purchase option or right of first refusal to purchase any
Mortgaged Property. The Borrower will at all times exercise or enforce its
material rights under the Leases. During the continuance of an Event of
Default, the Agent shall have the right, and the Borrower hereby authorizes
the Agent, to communicate directly with any of the tenants or guarantors for
any purpose contemplated by this Agreement or any of the Security Documents.
Any proposed lease which would be a Major Lease shall be submitted to and
approved by the Lead Lenders prior to execution, along with the most recent
financial statements of such proposed tenant and any guarantor. The Borrower
will not materially adversely amend, terminate, or accept a surrender of any
Major Lease or release
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any Major Tenant or waive the material performance of a Major Lease by a Major
Tenant, in each case without prior approval of the Lead Lenders. The Lead
Lenders shall not unreasonably withhold their approval of any Major Lease or
amendment thereof. If the Lead Lenders fail to respond within five (5) Business
Days after receipt of any proposed Major Lease or amendment of a Major Lease,
the same shall be deemed to be approved.
Section 7.14. Further Assurance. The Borrower will cooperate with the
Agent and the Lenders and execute such further instruments and documents and
perform such further acts as the Agent and the Lenders shall reasonably
request to carry out to their satisfaction the transactions contemplated by
this Agreement and the other Loan Documents and the granting and perfecting
of all liens in the Collateral for the benefit of the Agent as agent for the
Lenders.
Section 7.15. Environmental Indemnification. Each of the Borrower and
the Company, jointly and severally, covenants and agrees that it will
indemnify and hold the Agent and each Lender harmless from and against any
and all claims, expense, damage, loss or liability incurred by the Agent or
any Lender (including all reasonable costs of legal representation incurred
by the Agent or any Lender , but excluding, as applicable, for the Agent or a
Lender any claim, expense, damage, loss or liability as a result of the gross
negligence or willful misconduct of the Agent or such Lender ) relating to
(a) any Release or threatened Release of Hazardous Materials on, upon, into
or from any Mortgaged Property or any Real Estate; (b) any violation of any
Environmental Laws with respect to conditions at any Mortgaged Property or
the operations conducted thereon; or (c) the investigation or remediation of
off-site locations at which the Borrower or its predecessors are alleged to
have directly or indirectly disposed of Hazardous Materials. It is expressly
acknowledged by the Borrower that this covenant of indemnification shall
survive any foreclosure or any modification, release or discharge of any or
all of the Security Documents or the payment of the Loans and shall inure to
the benefit of the Agent and the Lenders, and their successors and assigns.
Section 7.16. Response Actions. The Borrower covenants and agrees that
if any Release or disposal of Hazardous Materials shall occur or shall have
occurred on, upon, into or from any Mortgaged Property, or on, upon, into or
from any other Real Estate if the same would have a Material Adverse Effect,
the Borrower will cause the prompt containment and removal of such Hazardous
Materials and remediation of such Mortgaged Property or Real Estate as
necessary to comply in all material respects with all applicable
Environmental Laws or to preserve the value of such Mortgaged Property.
Section 7.17. Environmental Assessments. The Borrower shall diligently
and continuously comply with all recommendations set forth in the
Environmental Reports, including, without limitation, the completion of the
remediation projects described therein. Upon written request, the Borrower
shall provide the Agent with periodic reports with respect to the progress of
said remediation projects. If the Agent in its good faith judgment, after
discussion with the Borrower and the Lead Lenders, has reason to believe that
the environmental condition of any
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Mortgaged Property has deteriorated, after reasonable notice by
the Agent, whether or not a Default or an Event of Default shall have occurred,
the Agent may, from time to time, for the purpose of assessing and ensuring the
value of such Mortgaged Property, obtain one or more environmental assessments
or audits of such Mortgaged Property prepared by a hydrogeologist, an
independent engineer or other qualified consultant or expert approved by the
Agent to evaluate or confirm (i) whether any Hazardous Materials are present in
the soil or water at such Mortgaged Property in such quantities as to require
remediation or clean-up to prevent or mitigate damage or threats to the public
health, safety or welfare or the environment and (ii) whether the use and
operation of such Mortgaged Property complies in all material respects with all
applicable Environmental Laws. Environmental assessments may include without
limitation detailed visual inspections of such Mortgaged Property including,
without limitation, any and all storage areas, storage tanks, drains, dry wells
and leaching areas, and the taking of soil samples, surface water samples and
ground water samples, as well as such other investigations or analyses as the
Agent deems appropriate. All such environmental assessments shall be at the sole
cost and expense of the Borrower; provided, however, the Agent may not require
environmental assessments at the Borrower's expense, with respect to any
Mortgaged Property, more frequently than annually except (i) during the
continuance of an Event of Default or (ii) upon the occurrence of a Release on,
upon, into or from any Mortgaged Property.
Section 7.18. Employee Benefit Plans.
(a) Representation. The Borrower and its ERISA Affiliates do not currently
maintain or contribute to any Employee Benefit Plan, Guaranteed Pension Plan or
Multiemployer Plan.
(b) Notice. The Borrower will notify the Agent promptly following the
establishment of any Employee Benefit Plan or Guaranteed Pension Plan by the
Borrower or any ERISA Affiliate.
(c) In General. Each Employee Benefit Plan maintained by the Borrower or
any ERISA Affiliate will be operated in compliance in all material respects with
the provisions of ERISA and, to the extent applicable, the Code, including but
not limited to the provisions thereunder respecting prohibited transactions.
(d) Terminability of Welfare Plans. With respect to each Employee
Benefit Plan maintained by the Borrower or an ERISA Affiliate which is an
employee welfare benefit plan within the meaning of Section 3(1) or Section
3(2)(B) of ERISA, the Borrower, or the ERISA Affiliate, as the case may be,
has the right to terminate each such plan at any time (or at any time
subsequent to the expiration of any applicable bargaining agreement) without
liability other than liability to pay claims incurred prior to the date of
termination.
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(e) Multiemployer Plans. Without the consent of the Agent,
the Borrower will not enter into, maintain or contribute to, any
multiemployer Plan.
(f) Unfunded or Underfunded Liabilities. The Borrower will
not, at any time, have accruing unfunded or underfunded liabilities with
respect to any Employee Benefit Plan, Guaranteed Pension Plan or
Multiemployer Plan, or permit any condition to exist under any Multiemployer
Plan that would create a withdrawal liability.
Section 7.19. Required Interest Rate Contracts. The Borrower shall
maintain in effect the Interest Rate Contracts in form and substance
reasonably satisfactory to the Lead Lenders with respect to that portion of
the Variable Rate Indebtedness which exceeds, excluding the IRB Indebtedness,
the principal amount of $125,000,000.
Section 7.20. Equity Interests in the Company. The Company will
comply in all material respects with all applicable rules and regulations of
the Securities Exchange Commission and of relating to its publicly held
Common Shares and Preferred Shares. The Company will continue to have its
Common Shares listed on the New York Stock Exchange or on one of the other
major stock exchanges in the United States, and will comply in all material
respects with all applicable rules of the stock exchange where the Common
Shares are so listed. Immediately upon the receipt of any Net Offering
Proceeds, 100% thereof shall be contributed to the Borrower as an additional
capital contribution with respect to the Company's general partnership
interest in the Borrower.
Section 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower
covenants and agrees as follows, and to the extent that the following
covenants relate to the Company, the Company covenants and agrees as follows,
so long as any Loan, Note or Letter of Credit is outstanding or the Lenders
have any obligation to make any Loans or issue any Letters of Credit:
Section 8.1 Restrictions on Indebtedness. Except with the prior
written consent of the Requisite Lenders, the Borrower will not, the Company
will not, and the Borrower will not permit any Guarantor, any of the Related
Companies or any Permitted Joint Venture to create, incur, assume, guarantee
or become or remain liable, contingently or otherwise, or agree not to do any
of same with respect to any Indebtedness other than:
(a) Indebtedness to the Lenders arising under any of the
Loan Documents;
(b) current liabilities of the Borrower incurred in the
ordinary course of business but not incurred through (i) the borrowing of
money, or (ii) the obtaining of credit except for credit on an open account
basis customarily extended and in fact extended in connection with normal
purchases of goods and services;
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(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies
to the extent that payment therefor shall not at the time be required to be
made in accordance with the provisions of Section 7.8;
(d) Indebtedness in respect of judgments or awards that
have been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which the
Borrower shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary
course of business;
(f) Indebtedness of Borrower, the Company or the Related
Companies to the extent the same does not create a violation of Section 9.3,
Section 9.5 or Section 9.6 provided that the maximum principal amount of
Recourse Indebtedness permitted under this paragraph shall not exceed
$50,000,000 in the aggregate at any time outstanding.
Section 8.2. Restrictions on Liens, Etc. The Borrower will not, and
will not permit Guarantor, any of the Related Companies or any Permitted
Joint Venture to, (a) create or incur or agree not to create or incur or
suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge, charge, restriction or other security interest of any kind upon any
of the Mortgaged Property of any character whether now owned or hereafter
acquired, or upon the rents, income or profits therefrom; (b) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness (not permitted by Section 8.1(c)) or claim or
demand against it that if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over the Security
Documents; or (c) sell, assign, pledge or otherwise transfer any rents,
issues, profits, accounts, contract rights or general intangibles relating to
any of the Mortgaged Premises; provided that the Borrower may create or incur
or suffer to be created or incurred or to exist:
(i) liens to secure taxes, assessments and other
governmental charges in respect of obligations not overdue, the Indebtedness
with respect to which is permitted by Section 8.1(c);
(ii) deposits or pledges made in connection with, or to
secure payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iii) liens in respect of judgments or awards, the
Indebtedness with respect to which is permitted by Section 8.1(d);
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(iv) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties other than the Mortgaged
Properties in existence less than 120 days from the date of creation thereof
in respect of obligations not overdue, the Indebtedness with respect to which
is permitted by Section 8.1(c);
(v) encumbrances consisting of easements, rights of way,
covenants, restrictions on the use of real property and defects and
irregularities in the title thereto; and other minor liens or encumbrances
none of which in the opinion of the Borrower interferes materially with the
use of the property affected in the ordinary conduct of the business of the
Borrower, and which matters (x) do not individually or in the aggregate have
a materially adverse effect on the value of the Mortgaged Property and (xx)
do not make title to such property unmarketable by the conveyancing standards
in effect where such property is located;
(vi) the Leases referenced on Schedule 6.22(l) and any
other Leases permitted by this Agreement or otherwise approved by the Lead
Lenders;
(vii) presently outstanding liens and other encumbrances on
the Mortgaged Properties listed on Schedule B to the Title Policies; and
(viii) liens in favor of the Agent and/or any of the
Lenders granted pursuant to the Security Documents.
(ix) financing statements disclosed by the searches
described in Section 10.18, provided that to the extent that the Lead Lenders
may agree that the Borrower will have a certain time period after the
Effective Date to obtain and file releases or terminations of certain of such
financing statements, the same shall be Permitted Liens only during such time
period as the Lead Lenders may so agree.
Section 8.3. Restrictions on Investments. The Borrower will not, and
will not permit any Guarantor, any of the Related Companies or any Permitted
Joint Venture to make or permit to exist or to remain outstanding any
Investment except Investments in:
(a) marketable direct or guaranteed obligations of the
United States of America that mature within one (1) year from the date of
purchase by the Borrower;
(b) demand deposits, certificates of deposit, repurchase
agreements, bankers acceptances and time deposits of United States banks
having total assets in excess of $1,000,000,000;
(c) securities commonly known as "commercial paper" issued
by a corporation organized and existing under the laws of the United States
of America or any state thereof that at
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the time of purchase have been rated and the ratings for which are not less
than "P 1" if rated by Moody's Investors Services, Inc. , and not less than
"A 1" if rated by Standard and Poor's;
(d) Investments existing or contemplated on the date hereof
and listed on Schedule 8.3(d) hereto;
(e) Investments made in the ordinary course of the
Borrower's business, in (i) any mortgages the acquisition of which is
expressly approved by the Lead Lenders, (ii) mortgages and notes receivable
having an aggregate principal amount, exclusive of any investments in
mortgages which may have been so expressly approved by the Lead Lenders, of
not more than $25,000,000, (iii) Permitted Joint Ventures (to the extent
permitted by Section 8.4(a)), or (iv) Interest Rate Contracts;
(f) Investments in Permitted Acquisitions;
(g) Investments in Permitted Developments which shall not
exceed 20% of Total Adjusted Assets; provided that within said limit any
single development project with a total cost in excess of $30,000,000 shall
only be a Permitted Development after it has been approved by the Requisite
Lenders;
(h) Investments in undeveloped land which shall not exceed
10% of Total Adjusted Assets.
Section 8.4. Merger, Consolidation and Disposition of Properties.
(a) The Borrower will not, and will not permit the Company,
any of the Related Companies or any Permitted Joint Venture to (i) become a
party to any merger or consolidation, or (ii) agree to or effect any property
acquisition or stock acquisition (other than Permitted Acquisitions in
compliance with the other terms of this Agreement) , or (iii) enter into any
joint venture or invest in any Permitted Joint Venture unless prior to such
transaction the Borrower has provided the Lead Lenders with a notice
describing such transaction, the Borrower shall have obtained the prior
consent of the Lead Lenders.
(b) Real Estate Assets may be sold or transferred except
that to the extent the aggregate sales price of all such dispositions during
any fiscal quarter shall exceed $10,000,000, prior to such sale or transfer,
the Borrower shall provide a statement in the form of Exhibit C hereto signed
by a Responsible Officer of the Company and setting forth in reasonable
detail computations evidencing compliance with the financial covenants
contained in Section 9 after giving effect to such proposed transfer and all
liabilities, fixed or contingent, pursuant thereto.
Section 8.5. Sale and Leaseback. The Borrower will not enter into
any arrangement, directly or indirectly, whereby the Borrower shall sell or
transfer any property owned by it in order then
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or thereafter to lease such property or lease other property that the
Borrower intends to use for substantially the same purpose as the property
being sold or transferred. The Borrower will not permit the Company, any of
the Related Companies or any Permitted Joint Venture to enter into any such
arrangement.
Section 8.6. Compliance with Environmental Laws. The Borrower will
not do, and will not permit the Company, any of the Related Companies or any
Permitted Joint Venture to do, any of the following: (a) use any of the Real
Estate or any portion thereof as a facility for the handling, processing,
storage or disposal of Hazardous Materials except for Hazardous Materials
used in the operation of the Real Estate and in material compliance with
applicable law, (b) cause or permit to be located on any of the Real Estate
any underground tank or other underground storage receptacle for Hazardous
Materials except in material compliance with Environmental Laws, (c) generate
any Hazardous Materials on any of the Real Estate except in material
compliance with Environmental Laws, or (d) conduct any activity at any Real
Estate or use any Real Estate in any manner so as to cause a Release
requiring remediation, clean up or other response action under applicable
Environmental Laws.
Section 8.7. Distributions. Borrower shall not permit the total
Distributions by it and the Company during any fiscal year to exceed 90% of
Funds from Operations for such year and shall not permit there to be more
than two consecutive fiscal quarters during which the total Distributions by
Borrower and the Company during each fiscal quarter exceed 100% of Funds from
Operations for such fiscal quarter except that such limitations may be
exceeded to the extent necessary for the Company to maintain its REIT status
provided that the Company provides the Agent with a letter from its
accountants or attorneys setting forth the basis for computation of the
amount of such necessary excess Distributions. No Distribution by the
Borrower to the Company shall be made other than simultaneously with and in
the same amount as the corresponding Distribution by the Company to the
owners of the Common Shares and/or the Preferred Shares. During any period
when Event of Default under Section 12.1(a) or Section 12.1(b) has occurred
and is continuing total Distributions by the Borrower and the Company will
not exceed the minimum amount necessary for the Company to maintain its REIT
status.
Section 8.8. Leases. The Borrower will not (i) enter into any Major
Leases or (ii) materially amend, supplement or otherwise materially modify,
or terminate or cancel, or accept the surrender of, or grant any material
concessions to or waive the material performance of any of the Major Tenants
under the Major Leases, in each case without the prior approval of the Lead
Lenders as provided in Section 7.13.
Section 8.9. Restrictions on the Company. The Company will not:
(a) own any assets, or have any Investments, other than
owning its general partnership interest in the Borrower and its limited
partnership interests described in Section 6.19.
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(b) engage in any business other than its activities as
managing general partner of the Borrower.
(c) directly or indirectly convey, sell, transfer, assign,
pledge or encumber any of its partnership interest in the Borrower.
(d) create, incur, assume, guarantee or become or remain
liable, contingently or otherwise, any Indebtedness, and any recourse against
the Company with respect to the Indebtedness of the Borrower shall be limited
to the same or greater extent as recourse against the Company with respect to
the Obligations as provided in Section 28.
Section 9. FINANCIAL COVENANTS OF THE BORROWER. The Borrower
covenants and agrees as follows, so long as any Loan or Note is outstanding
or any Lender has any obligation to make any Loan:
Section 9.1. Collateral Value. The Borrower will not at any time
permit the Outstanding Principal Amount to exceed sixty percent (60%) of the
total of the Collateral Values of the Mortgaged Properties.
Section 9.2. Minimum Debt Service Coverage. The Borrower will not at
any time permit the Outstanding Principal Amount to exceed an amount such
that: (a) the aggregate of the Net Operating Income for all of the Mortgaged
Properties, divided by (b) Pro Forma Debt Service Charges for the Mortgaged
Properties would be less than 1.5 for any fiscal quarter of Borrower. For
purposes of the foregoing, any Real Estate Asset that became a Mortgaged
Property during the applicable fiscal quarter shall be treated as though it
were a Mortgaged Property for the entire quarter and any Real Estate Asset
which is released by Agent during such fiscal quarter shall be excluded for
the entire quarter.
Section 9.3. Total Liabilities to Total Adjusted Assets. The
Borrower will not at any time permit Total Liabilities at the end of any
fiscal quarter to exceed fifty-five percent (55%) of Total Adjusted Assets.
Section 9.4. Minimum Tangible Net Worth. The Borrower will not at
any time permit the Tangible Net Worth of the Borrower to be less than
$350,000,000 plus 75% of Net Offering Proceeds.
Section 9.5. Total Operating Cash Flow to Interest Expense. The
Borrower will not permit the ratio of its Total Operating Cash Flow to
Interest Expense to be less than 2.0 to 1.0 for any fiscal quarter. For the
fiscal quarter ending December 31, 1997, such covenant will be computed on a
pro forma basis as though the Formation Transactions had closed, and the
Effective Date had been, October 1, 1997.
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Section 9.6. EBITDA to Fixed Charges. The Borrower will not permit
the ratio of its EBITDA to Fixed Charges to be less than 1.75 to 1.0 for any
fiscal quarter. For the fiscal quarter ending December 31, 1997, such
convenant will be computed on a pro forma basis as though the Formation
Transactions had closed, and the Effective Date had been, October 1, 1997.
Section 10. CONDITIONS TO EFFECTIVENESS. This Agreement shall become
effective when each of the following conditions precedent have been satisfied:
Section 10.1. Loan Documents. Each of the Loan Documents shall have
been duly executed and delivered by the respective parties thereto, shall be
in full force and effect and shall be in form and substance satisfactory to
each of the Lenders. Each Lender shall have received a fully executed copy of
each such document prior to or on the Effective Date.
Section 10.2. Certified Copies of Organization Documents; Good
Standing Certificates. The Agent shall have received (i) a Certificate of the
Company to which there shall be attached complete copies of the Borrower's
Limited Partnership Agreement and its Certificate of Limited Partnership,
certified as of a recent date by the Secretary of State of Delaware, (ii)
Certificates of Good Standing for the Borrower from the State of Delaware and
each State in which a Mortgaged Property is located, (iii) a copy of the
Company's Declaration of Trust certified by the Maryland Secretary of State,
(iv) Certificates of Good Standing for the Company from the State of Maryland
and each State in which a Mortgaged Property is located unless the Company's
qualification is not required by the laws of such state, and (v) certificates
of good standing and certified copies of partnership agreements and
certificates of limited partnership with respect to each of the Guarantor
Subsidiaries.
Section 10.3. By-laws; Resolutions. All action on the part of the
Borrower and each Guarantor necessary for the valid execution, delivery and
performance by the Borrower and each Guarantor of this Agreement and the
other Loan Documents to which it is or is to become a party shall have been
duly and effectively taken, and evidence thereof satisfactory to the Agent
shall have been provided to the Agent. The Agent shall have received from the
Company true copies of its by-laws and the resolutions adopted by its Board
of Directors authorizing the transactions described herein, each certified by
its secretary to be true and complete and in effect on the Effective Date.
Section 10.4. Incumbency Certificate; Authorized Signers. The Agent
shall have received from the Company an incumbency certificate, dated as of
the Effective Date, signed by a duly authorized officer of the Company and
giving the name and bearing a specimen signature of each individual who shall
be authorized: (a) to sign, in the name and on behalf of the Company (in its
own capacity and as general partner on behalf of Borrower and on behalf of
each Guarantor Subsidiary which is a partnership), each of the Loan Documents
to which the Borrower or any Guarantor is or is to become a party; (b) to
make Loan Requests and Conversion Requests; and (c) to give notices and to
take other action on behalf of the Borrower under the Loan Documents.
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Section 10.5. Opinions of Counsel. Each of the Lenders and the Agent
shall have received favorable opinions addressed to the Lenders and the Agent
and dated as of the Effective Date, in form and substance satisfactory to the
Lenders and the Agent from Borrower's counsel, as to: (a) the matters
described on Exhibit E and (b) such other opinions with respect to the
Formation Transactions as the Agent may reasonably require. Such opinion may
rely on opinions from other law firms approved by the Agent as to matters of
law applicable in the various states where the Mortgaged Properties are
located.
Section 10.6. Payment of Fees. The Borrower shall have paid to the
Agent and/or the Lead Lenders the fees pursuant to Section 4.1 and Section
2.9(a) and shall have paid all other expenses as provided in Section 15
hereof then outstanding.
Section 10.7. Validity of Liens. The Security Documents shall be
effective to create in favor of the Agent legal, valid and enforceable first
priority, perfected liens and security interests in the Collateral covered
thereby, subject only to the Permitted Liens. All filings, recordings,
deliveries of instruments and other actions or consents necessary or
desirable in the reasonable opinion of the Agent to grant, perfect, protect
and preserve such liens and security interests shall have been duly effected.
The Agent shall have received evidence thereof in form and substance
reasonably satisfactory to the Agent.
Section 10.8. Survey. The Agent shall have received Surveys of the
Mortgaged Properties, bearing dates reasonably acceptable to the Agent, and
in form and substance reasonably acceptable to the Agent.
Section 10.9. Title Insurance; Title Exception Documents. The Agent
shall have received the Title Policies reasonably satisfactory to the Agent,
together with proof of payment of all fees and premiums for such policies.
The Agent shall have received true and accurate copies of all documents
listed as exceptions under such policies.
Section 10.10. Leases. The Agent shall have received true copies of
those Leases which the Agent may request after its review of the applicable
rent roll.
Section 10.11. Estoppel and Attornment Agreements. The Agent shall
have received estoppel certificates and attornment agreements in form
reasonably satisfactory to the Lead Lenders from the three (3) Tenants who
lease and occupy the largest amount gross leasable area of the West Wacker
Drive Property and from any other Major Tenants specifically required by the
Agent.
Section 10.12. Certificates of Insurance. The Agent shall have
received (a) a certificate of insurance as to the insurance maintained by
Borrower on the Mortgaged Properties (including flood insurance if necessary)
from the insurer or an independent insurance broker dated as of the Effective
Date, identifying insurers, types of insurance, insurance limits, and policy
terms;
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(b) certified copies of all policies evidencing such insurance (or
certificates therefor signed by tile insurer or an agent authorized to bind
the insurer); and (c) such further information and certificates from
Borrower, its insurers and insurance brokers as the Agent may reasonably
request.
Section 10.13. Environmental Reports. The Agent shall have received
an Environmental Report with respect to each of the Mortgaged Properties,
dated as of a recent date, from environmental engineers reasonably acceptable
to the Agent which Environmental Reports shall have been approved by the Lead
Lenders.
Section 10.14. Environmental Indemnity. The Agent shall have
received an executed original of the environmental indemnity described in the
Equity Prospectus from The Prime Group, Inc. for the benefit of certain of
the Guarantor Subsidiaries with respect to environmental liabilities relating
to certain of the Mortgaged Properties, together with an agreement from The
Prime Group, Inc. that the Lenders shall be a beneficiary thereunder in the
event of any foreclosure of the applicable Mortgaged Properties, which
indemnity and agreement shall be in form and substance satisfactory to the
Agent and the Lead Lenders.
Section 10.15. Appraisals. The Agent and each of the Lenders shall
have received Appraisals dated as of a recent date in form and substance
satisfactory to the Agent and the Lead Lenders (including satisfaction as to
determination of Appraised Value).
Section 10.16. Inspecting Engineers' Reports. The Agent shall have
received reports, addressed to Agent and the Lenders or accompanied by
reliance letters in favor of the Agent and the Lenders, from third party
inspecting engineers dated as of a date acceptable to the Agent as to the
good structural condition of the Buildings located on the Mortgaged
Properties, which reports shall be in form and substance satisfactory to the
Agent.
Section 10.17. Initial Letters of Credit. The Agent shall have
received with respect to each of the Initial Letters of Credit (i) a Letter
of Credit Request executed by Borrower, and (ii) copies of all legal opinions
and certificates delivered in connection with such replacement of letters of
credit pursuant to the applicable IRB Documents.
Section 10.18. UCC Lien Searches. The Agent shall have received UCC
lien searches of the applicable public records disclosing no conditional
sales contracts, security agreements, chattel mortgages, leases of
personalty, financing statements or other encumbrances which affect any of
the Collateral other than those relating to any liens permitted hereby and by
the Security Documents.
Section 10.19. Formation Transactions Complete. The Lead Lenders
shall have received evidence satisfactory to each of them that all of the
Formation Transactions have been completed on the Effective Date and that the
net proceeds of the sale of the common and preferred shares of
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beneficial interest in the Company were not less than the amount described in
the Equity Prospectus.
Section 11. CONDITIONS TO ALL BORROWINGS. The obligations of the
Lenders to make any Loan, whether on or after the Effective Date, shall also
be subject to the satisfaction of the following conditions precedent:
Section 11.1. Representations True; No Event of Default; Compliance
Certificate. Each of the representations and warranties of the Borrower and
the Company contained in this Agreement, the other Loan Documents or in any
document or instrument delivered pursuant to or in connection with this
Agreement shall be true in all material respects as of the date as of which
they were made and shall also be true in all material respects at and as of
the time of the making of such Loan, with the same effect as if made at and
as of that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Agreement and the other Loan Documents and
changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and except to the extent that such
representations and warranties relate expressly to an earlier date); the
Borrower shall have performed and complied with all terms and conditions
herein required to be performed by it or prior to the Borrowing Date of such
Loan; and no Default or Event of Default shall have occurred and be
continuing on the date of any Loan Request or on the Borrowing Date of such
Loan. Each of the Lenders shall have received a Compliance Certificate of the
Borrower signed by a Responsible Officer to such effect, which certificate
will include, without limitation, computations evidencing compliance with the
covenants contained in Section 9 hereof after giving effect to such requested
Loan.
Section 11.2. No Legal Impediment. No change shall have occurred in
any law or regulations thereunder or interpretations thereof that in the
reasonable opinion of any Lender would make it illegal for such Lender to
make such Loan.
Section 11.3. Governmental Regulation. Each Lender shall have
received such statements in substance and form reasonably satisfactory to
such Lender as such Lender shall require for the purpose of compliance with
any applicable regulations of the Comptroller of the Currency or the Board of
Governors of the Federal Reserve System.
Section 11.4. Proceedings and Documents. All proceedings in
connection with the transactions contemplated by this Agreement, the other
Loan Documents and all other documents incident thereto shall be reasonably
satisfactory in substance and in form to the Agent, and the Lenders shall
have received all information and such counterpart originals or certified or
other copies of such documents as the Agent may reasonably request.
Section 12. EVENTS OF DEFAULT; ACCELERATION; ETC.
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Section 12.1. Events of Default and Acceleration. If any of the
following events ("Events of Default" or, if the giving of notice or the
lapse of time or both is required, then, prior to such notice or lapse of
time, "Defaults") shall occur:
(a) the Borrower shall fail to pay any principal of the
Loans when the same shall become due and payable;
(b) the Borrower shall fail to pay any interest on the
Loans or any other sums due hereunder or under any of the other Loan
Documents within five (5) days after the same shall become due and payable or
the Borrower shall fail to deposit in the IRB Indebtedness Account sufficient
funds as required by Section 2.8;
(c) the Borrower or the Company shall fail to comply with
any of its covenants contained in Section 7.5, the first sentence of Section
7.6, the first sentence of Section 7.7, Section 7.20, Section 8 or Section 9
hereof;
(d) the Borrower, the Company or any Guarantor shall fail
to perform any other term, covenant or agreement contained herein or in any
of the other Loan Documents (other than those specified elsewhere in this
Section 12) for thirty (30) days after written notice of such failure from
Agent to the Borrower, provided, however that if the Borrower fails to give
notice of any Default as required by Section 7.5(a), such thirty (30) day
cure period shall be deemed to have started on the date such notice should
have been given;
(e) any representation or warranty of the Borrower or the
Company in this Agreement or any of the other Loan Documents or in any other
document or instrument delivered pursuant to or in connection with this
Agreement, shall prove to have been false in any material respect upon the
date when made or deemed to have been made or repeated, and shall continue to
be false on the date that the Agent or any Lender takes action based on the
Default relating to such representation or warranty, provided, however, that
with respect to the representations and warranties of the Borrower contained
in Section 6.2, Section 6.3, Section 6.13, Section 6.18 and in paragraphs
(a), (c), (d), (e) and (f) of Section 6.22, if the condition or event making
the representation and warranty false is capable of being cured by the
Borrower, no enforcement action has been commenced against the Borrower or
the applicable Mortgaged Property on account of such condition or event nor
is the applicable Mortgaged Property subject to risk of forfeiture due to
such condition or event, and the Borrower promptly commences the cure thereof
after the Borrower's first obtaining knowledge of such condition or event,
the Borrower shall have a period of thirty (30) days after the date that the
Borrower first obtained knowledge of such condition or event during which the
Borrower may cure such condition or event (or, if such condition or event is
not reasonably capable of being cured within such thirty (30) day period,
such additional period of time as may be reasonably required in order to cure
such condition or event but in any event such period shall not exceed six (6)
months from the date that the Borrower first obtained knowledge of such
condition or event), and no Event of Default shall exist hereunder during
such thirty (30) day or additional period so long as the Borrower
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continuously and diligently pursues the cure of such condition or event and
the other conditions to such cure period have not changed;
(f) the Borrower, the Company, any of the Related Companies
or any Permitted Joint Venture shall fail to pay at maturity, or within any
applicable period of grace, any Recourse Indebtedness, or shall fail to
observe or perform any material term, covenant or agreement contained in any
agreement by which it is bound, evidencing or securing Indebtedness for such
period of time as would permit (assuming the giving of appropriate notice if
required) the holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof, and in any event, such failure
shall continue for thirty (30) days, unless the aggregate amount of all such
defaulted Recourse Indebtedness plus the amount of any unsatisfied judgments
described in paragraph (i) of this Section 12.1 is less than $10,000,000.00;
(g) any of the Borrower, the Company or any Guarantor shall
make an assignment for the benefit of creditors, or admit in writing its
inability to pay or generally fail to pay its debts as they mature or become
due, or shall petition or apply for the appointment of a trustee or other
custodian, liquidator or receiver of any substantial part of its properties
or shall commence any case or other proceeding under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in effect,
or shall take any action to authorize or in furtherance of any of the
foregoing, or if any such petition or application shall be filed or any such
case or other proceeding shall be commenced against any such Person and such
Person shall indicate its approval thereof, consent thereto or acquiescence
therein or any of the events described in this paragraph shall occur with
respect to any other Related Company or any Permitted Joint Venture and such
event shall have a Material Adverse Effect;
(h) a decree or order is entered appointing any such
trustee, custodian, liquidator or receiver or adjudicating the Borrower, the
Company, or any Guarantor bankrupt or insolvent, or approving a petition in
any such case or other proceeding, or a decree or order for relief is entered
in respect of the Borrower, the Company, or any Guarantor in an involuntary
case under federal bankruptcy laws as now or hereafter constituted or any of
the events described in this paragraph shall occur with respect to any other
Related Company or any Permitted Joint Venture and such event shall have a
Material Adverse Effect;
(i) there shall remain in force, undischarged, unsatisfied
and unstayed, for more than thirty days, whether or not consecutive, any
uninsured final judgment against the Borrower that, with other outstanding
uninsured final judgments, undischarged, against the Borrower, the Company or
any of the Related Companies plus the amount of any defaulted Recourse
Indebtedness under paragraph (f) of this Section 12.1, exceeds in the
aggregate $10,000,000.00;
(j) if any of the Loan Documents or any material provision
of any Loan Documents shall be unenforceable, cancelled, terminated, revoked
or rescinded otherwise than in
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accordance with the terms thereof or with the express prior written
agreement, consent or approval of the Agent, or any action at law, suit or in
equity or other legal proceeding to make unenforceable, cancel, revoke or
rescind any of the Loan Documents shall be commenced by or on behalf of the
Borrower, the Company or any Guarantor, or any court or any other
governmental or regulatory authority or agency of competent jurisdiction
shall make a determination that, or issue a judgment, order, decree or ruling
to the effect that, any one or more of the Loan Documents is illegal, invalid
or unenforceable in accordance with the terms thereof;
(k) the Borrower, the Company or any Guarantor shall be
indicted for a federal crime, a punishment for which could include the
forfeiture of any assets of the Borrower;
(l) any "Event of Default," as defined in any of the IRB
Documents shall occur provided that if such Event of Default is caused by the
issuer or other Person other than the Guarantor Subsidiary, the same shall
constitute an Event of Default hereunder only if the maturity of the
applicable IRB Indebtedness is accelerated based thereon;
(m) any "Event of Default", as defined in any of the other
Loan Documents shall occur;
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Requisite Lenders shall, by notice in
writing to the Borrower declare all amounts owing with respect to this
Agreement, the Notes and the other Loan Documents to be, and they shall
thereupon forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby
expressly waived by the Borrower; provided that in the event of any Event of
Default specified in Sections 12.1(g) or 12.1(h), all such amounts
shall become immediately due and payable automatically and without any
requirement of notice from the Agent or action by the Requisite Lenders.
Section 12.2. Termination of Commitments; Drawing of IRB Letters of
Credit. If any one or more Events of Default specified in Section 12.1(g) or
Section 12.1(h) shall occur, any unused portion of the Commitments hereunder
shall forthwith terminate and the Lenders shall be relieved of all
obligations to make Loans to the Borrower. If any other Event of Default
shall have occurred and be continuing, any Lender may by notice to the
Borrower terminate the unused portion of its Commitment hereunder, and upon
such notice being given such unused portion of its Commitment hereunder shall
terminate immediately and such Lender shall be relieved of all further
obligations to make Loans, provided, however, such Lender shall not be
relieved of its obligation to pay its Proportionate Share of Unreimbursed
Drawings under Section 2.9. No termination of such Lender's Commitment
hereunder shall relieve the Borrower of any of the Obligations or any of its
existing obligations to such Lender arising under other agreements or
instruments. At any time after any Commitments have been terminated pursuant
hereto, the Agent may, in its sole discretion, give such notices as may be
permitted under the terms of the IRB Letters of Credit or the related IRB
Documents to cause the bonds relating to the IRB Indebtedness to be
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accelerated or to cause a mandatory tender thereof or to cause the IRB
Letters of Credit to be drawn by the beneficiary thereof or to cause the
applicable IRB Letters of Credit to expire if not drawn within the specified
period after the giving of such notice.
Section 12.3. Remedies. In case any one or more of the Events of
Default shall have occurred, and whether or not the Requisite Lenders shall
have accelerated the maturity of the Loans pursuant to Section 12.1, each
Lender, if owed any amount with respect to the Loans, may, with the consent
of the Requisite Lenders, direct the Agent to proceed to protect and enforce
the rights and remedies of the Agent and the Lenders under this Agreement,
the Notes, the IRB Documents or any of the other Loan Documents by suit in
equity, action at law or other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Agreement
and the other Loan Documents or any instrument pursuant to which the
Obligations are evidenced, including to the full extent permitted by
applicable law the obtaining of the ex parte appointment of a receiver and,
if any amount shall have become due, by declaration or otherwise, to proceed
to enforce the payment thereof or any other legal or equitable right of such
Lender. No remedy herein conferred upon any Lender or the Agent or the
holder of any Note is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or any other provision of law.
Section 12.4. Distribution of Collateral Proceeds. In the event
that, following the occurrence or during the continuance of any Default or
Event of Default, the Agent or any Lender as the case may be, receives any
monies in connection with the enforcement of any of the Security Documents,
or otherwise with respect to the realization upon any of the Collateral, such
monies shall be distributed for application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent in connection with the collection of such monies by
the Agent, for the exercise, protection or enforcement by the Agent of all or
any of the rights, remedies, powers and privileges of the Agent or the
Lenders under this Agreement or any of the other Loan Documents or in respect
of the Collateral or in support of any provision of adequate indemnity to the
Agent against any taxes or liens which by law shall have, or may have,
priority over the rights of the Agent to such monies;
(b) Second, to all other Obligations in such order or
preference as the Requisite Lenders may determine; provided, however, that
distribution in respect of such Obligations shall be made among the Lenders
pro rata in accordance with each Lender's respective Commitment Percentage;
and provided, further, that the Agent may in its discretion make proper
allowance to take into account any Obligations not then due and payable;
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(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Requisite Lenders and the
Agent of all of the obligations, and to the payment of any obligations
required to be paid pursuant to Section 9-504(1)(c) of the Uniform Commercial
Code of the State of New York; and
(d) Fourth, the excess, if any, shall be returned to the
Borrower or to such other Persons as are legally entitled thereto.
Section 12.5. Addition of Real Estate Assets to Cure Default. As an
alternative to the payment of cash to cure a Default under Section 9.1 or
Section 9.2 hereof, the Borrower shall have the right to offer to provide
additional Collateral to the Agent in the form of Additional Properties
pursuant to Section 5.3 and Section 5.4, for the purpose of curing a Default
under Section 9.1 or Section 9.2 hereof, if the Borrower designates such
Collateral for addition within fifteen (15) days after the occurrence of such
Default and the Borrower, the Company or the Mortgagor, as applicable,
executes and delivers to the Agent a Security Deed, an Assignment of Leases
and Rents, an Indemnity Agreement and UCC-1 Financing Statements relating to
the Additional Property together with the Certificates and opinion described
in Section 5.4(d) and Section 5.4(e) within thirty (30) days after the
occurrence of such Default. The Agent and the Lenders shall accept and
approve the addition of such Collateral as a cure for such Default if such
Collateral shall cure the Default and satisfies the due diligence
requirements of the Agent and the Requisite Lenders, including, without
limitation, the conditions set forth in Section 5.4 and those requirements
with respect to the Mortgaged Properties specified in Section 10 hereof,
within ninety (90) days after the occurrence of the subject Default, and at
the time that such due diligence requirements are so satisfied, no other
Defaults or Events of Default are continuing. If any such additional
Collateral is provided to the Agent in accordance with this Section 12.5,
such additional Collateral shall, for all purposes hereof, be deemed to be a
"Mortgaged Property." Until the Agent and Requisite Lenders have acknowledged
in writing the cure of such Default (which written acknowledgment will be
given promptly after such cure has been completed as herein provided), all
consequences of such Default hereunder shall be effective (except as provided
in Section 8.7) and the Agent may exercise all available remedies except that
the maturity of the Loans shall not be accelerated based solely on the
Default which Borrower is diligently attempting to cure hereunder, prior to
the expiration of said ninety (90) day period.
Section 13. SETOFF. Regardless of the adequacy of any Collateral,
during the continuance of any Event of Default, any deposits (general or
specific, time or demand, provisional or final, regardless of currency,
maturity, or the branch of where such deposits are held) or other sums
credited by or due from any of the Lenders to the Borrower and any securities
or other property of the Borrower in the possession of such Lender may WITH
THE PRIOR APPROVAL OF THE AGENT be applied to or set off against the payment
of Obligations and any and all other liabilities, direct, or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, of the Borrower to such Lender. Each of the Lenders agrees with each
other Lender that (a) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such
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Lender, other than Indebtedness evidenced by the Notes held by such Lender,
such amount shall be applied ratably to such other Indebtedness and to the
Indebtedness evidenced by all such Notes held by such Lender, and (b) if such
Lender shall receive from the Borrower, whether by voluntary payment,
exercise of the right of setoff, counterclaim, cross action, enforcement of
the claim evidenced by the Notes held by such Lender by proceedings against
the Borrower at law or in equity or by proof thereof in bankruptcy,
reorganization, liquidation, receivership or similar proceedings, or
otherwise, and shall retain and apply to the payment of the Note or Notes
held by such Lender any amount in excess of its ratable portion of the
payments received by all of the Lenders with respect to the Notes held by all
of the Lenders, such Lender will make such disposition and arrangements with
the other Lenders with respect to such excess, either by way of distribution,
pro tanto assignment of claims, subrogation or otherwise as shall result in
each Lender receiving in respect of the Notes held by it its proportionate
payment as contemplated by this Agreement; provided that if all or any part
of such excess payment is thereafter recovered from such Lender, such
disposition and arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest. Notwithstanding the
foregoing, no Lender shall exercise a right of setoff if such exercise would
limit or prevent the exercise of any other remedy, right to Collateral or
other recourse against the Borrower.
Section 14. THE AGENT.
Section 14.1. Authorization. The Agent is authorized to take such
action on behalf of each of the Lenders and to exercise all such powers as
are hereunder and under any of the other Loan Documents and any related
documents delegated to the Agent, together with such powers as are reasonably
incident thereto, provided that no duties or responsibilities not expressly
assumed herein or therein shall be implied to have been assumed by the Agent.
The relationship between the Agent and the Lenders is and shall be that of
agent and principal only, and nothing contained in this Agreement or any of
the other Loan Documents shall be construed to constitute the Agent as a
trustee for any Lender.
Section 14.2. Employees and Agents. The Agent may exercise its
powers and execute its duties by or through employees or agents and shall be
entitled to take, and to rely on, advice of counsel concerning all matters
pertaining to its rights and duties under this Agreement and the other Loan
Documents. The Agent may utilize the services of such Persons as the Agent in
its sole discretion may reasonably determine, and all reasonable fees and
expenses of any such Persons shall be paid by the Borrower.
Section 14.3. No Liability. Neither the Agent nor any of its
shareholders, directors, officers or employees nor any other Person assisting
them in their duties nor any agent or employee thereof, shall be liable for
any waiver, consent or approval given or any action taken, or omitted to be
taken, in good faith by it or them hereunder or under any of the other Loan
Documents, or in connection herewith or therewith, or be responsible for the
consequences of any oversight or
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error of judgment whatsoever, except that the Agent or such other Person, as
the case may be, may be liable for losses due to its willful misconduct or
gross negligence.
Section 14.4. No Representations. The Agent shall not be responsible
for the execution or validity or enforceability of this Agreement, the Notes,
any of the other Loan Documents or any instrument at any time constituting,
or intended to constitute, collateral security for the Notes, or for the
value of any such collateral security or for the validity, enforceability or
collectability of any such amounts owing with respect to the Notes, or for
any recitals or statements, warranties or representations made herein or in
any of the other Loan Documents or in any certificate or instrument hereafter
furnished to it by or on behalf of the Borrower, or be bound to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
covenants or agreements herein or in any instrument at any time constituting,
or intended to constitute, collateral security for the Notes. The Agent shall
not be bound to ascertain whether any notice, consent, waiver or request
delivered to it by the Borrower or any holder of any of the Notes shall have
been duly authorized or is true, accurate and complete. The Agent has not
made nor does it now make any representations or warranties, express or
implied, nor does it assume any liability to the Lenders, with respect to the
credit worthiness or financial condition of the Borrower. Each Lender
acknowledges that it has, independently and without reliance upon the Agent
or any other Lender , and based upon such information and documents as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender has been independently represented by separate
counsel regarding this Agreement.
Section 14.5. Payments.
(a) A payment by the Borrower to the Agent hereunder or any
of the other Loan Documents for the account of any Lender shall constitute a
payment to such Lender subject to the pro rata rights to repayment based upon
the Commitment Percentage of each Lender. The Agent agrees promptly to
distribute to each Lender such Lender's pro rata share of payments received
by the Agent for the account of the Lenders except as otherwise expressly
provided herein or in any of the other Loan Documents.
(b) If in the opinion of the Agent the distribution of any
amount received by it in such capacity hereunder, under the Notes or under
any of the other Loan Documents might involve it in liability, it may refrain
from making distribution until its right to make distribution shall have been
adjudicated by a court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the
Agent is to be repaid, each Person to whom any such distribution shall have
been made shall either repay to the Agent its proportionate share of the
amount so adjudged to be repaid or shall pay over the same in such manner and
to such Persons as shall be determined by such court.
(c) Notwithstanding anything to the contrary contained in
this Agreement or any of the other Loan Documents, any Lender that fails (i)
to make available to the Agent its pro rata
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share of any Loan or of any Unreimbursed Drawing or (ii) to comply with the
provisions of Section 12.4 or Section 13 with respect to making dispositions
and arrangements with the other Lenders, where such Lender's share of any
payment received, whether by setoff or otherwise, is in excess of its pro
rata share of such payments due and payable to all of the Lenders, in each
case as, when and to the full extent required by the provisions of this
Agreement, or to adjust promptly such Lender's outstanding principal and its
pro rata Commitment Percentage as provided in Section 2.1 hereof, shall be
deemed delinquent (a "Delinquent Lender ") and shall be deemed a Delinquent
Lender until such time as such delinquency is satisfied. A Delinquent Lender
shall be deemed to have assigned any and all payments due to it from the
Borrower, whether on account of outstanding Loans, interest, fees or
otherwise, to the remaining nondelinquent Lenders for application to, and
reduction of, their respective pro rata shares of all outstanding Loans. The
Delinquent Lender hereby authorizes the Agent to distribute such payments to
the nondelinquent Lenders in proportion to their respective pro rata shares
of all outstanding Loans. A Delinquent Lender shall be deemed to have
satisfied in full a delinquency when and if, as a result of application of
the assigned payments to all outstanding Loans of the nondelinquent Lenders,
the Lenders' respective pro rata shares of all outstanding Loans have
returned to those in effect immediately prior to such delinquency and without
giving effect to the nonpayment causing such delinquency.
Section 14.6. Holders of Notes. The Agent may deem and treat the
payee of any Note as the absolute owner or purchaser thereof for all purposes
hereof until it shall have been furnished in writing with a different name by
such payee or by a subsequent holder assignee or transferee.
Section 14.7. Indemnity. The Lenders ratably agree hereby to
indemnify and hold harmless the Agent from and against any and all claims,
actions and suits (whether groundless or otherwise), losses, damages, costs,
expenses (including any expenses for which the Agent has not been reimbursed
by the Borrower as required by Section 15), and liabilities of every nature
and character arising out of or related to this Agreement, the Notes, or any
of the other Loan Documents or the transactions contemplated or evidenced
hereby or thereby, or the Agent's actions taken hereunder or thereunder,
except to the extent that any of the same shall be directly caused by the
Agent's willful misconduct or gross negligence.
Section 14.8. Agent as Lender. In its individual capacity,
BankBoston shall have the same obligations and the same rights, powers and
privileges in respect to its Commitment and the Loans made by it, and as the
holder of any of the Notes as it would have were it not also the Agent. By
issuing the Letters of Credit in its individual capacity BankBoston is bound
to perform its duties and obligations under such Letters of Credit as
provided therein. BankBoston's status as Agent hereunder shall not limit or
restrict its ability to perform such duties and obligations.
Section 14.9. Resignation. The Agent may resign at any time by
giving sixty (60) days, prior written notice thereof to the Lenders and the
Borrower. Upon any such resignation, the
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Requisite Lenders shall have the right to appoint a successor Agent. Unless a
Default or Event of Default shall have occurred and be continuing,
appointment of such successor Agent shall be subject to the reasonable
approval of the Borrower. If no successor Agent shall have been so appointed
by the Requisite Lenders and shall have accepted such appointment within
thirty (30) days after the giving of notice of resignation or removal, or the
Borrower has disapproved or failed to approve a successor agent within such
period, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a financial institution having a rating of
not less than A2/P2 or its equivalent by Standard & Poor's Corporation. Upon
the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations as Agent
hereunder. After any retiring Agent's resignation, the provisions of this
Agreement and the other Loan Documents shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
Section 14.10. Notification of Defaults and Events of Default. Each
Lender hereby agrees that, upon learning of the existence of a Default or an
Event of Default, it shall promptly notify the Agent thereof. The Agent
hereby agrees that upon receipt of any notice under this Section 14.10 it
shall promptly notify the other Lenders of the existence of such Default or
Event of Default.
Section 14.11. Duties in the Case of Enforcement. In case one of
more Events of Default have occurred and shall be continuing, and whether or
not acceleration of the Obligations shall have occurred, the Agent shall, if
(a) so requested by the Requisite Lenders and (b) the Lenders have provided
to the Agent such additional indemnities and assurances against expenses and
liabilities as the Agent may reasonably request, proceed to enforce the
provisions of the Security Documents authorizing the sale or other
disposition of all or any part of the Collateral and exercise all or any such
other legal and equitable and other rights or remedies as it may have in
respect of such Collateral. The Requisite Lenders may direct the Agent in
writing as to the method and the extent of any such sale or other
disposition, the Lenders hereby agreeing to indemnify and hold the Agent
harmless from all liabilities incurred in respect of all actions taken or
omitted in accordance with such directions, provided that the Agent need not
comply with any such direction to the extent that the Agent reasonably
believes the Agent's compliance with such direction to be unlawful or
commercially unreasonable in any applicable jurisdiction. The Agent may take
such steps as it reasonably determines for the taking of possession or title
to any Collateral, including the formation of trusts or corporation with each
Lender having a beneficial interest equal to its pro rata percentage of the
outstanding Loans.
Section 14.12. Mandatory Resignation of Agent. In the event that the
Agent enters into one or more Assignments pursuant to Section 18 having the
effect of reducing the Agent's Commitment to less than $25,000,000 (which
number will be reduced in proportion to any reduction in the Total Commitment
pursuant to Section 2.2) then the Agent shall promptly so notify the Borrower
and the Lenders. Upon the written request of the Borrower or any Lender whose
Commitment exceeds
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that of the Agent, which written request is made within thirty (30) days
after the Agent's notice that its Commitment is below such minimum level, the
Agent shall be obligated to resign pursuant to Section 14.9.
Section 15. EXPENSES. The Borrower agrees to pay (a) the reasonable
costs of producing and reproducing this Agreement, the other Loan Documents
and the other agreements and instruments mentioned herein, (b) any taxes
(including any interest and penalties in respect thereto) payable by the
Agent or any of the Lenders (other than taxes based upon the Agent's or any
Lender's net income), including any recording, mortgage, documentary or
intangibles taxes in connection with the Security Documents and other Loan
Documents, or other taxes payable on or with respect to the transactions
contemplated by this Agreement, including any such taxes payable by the Agent
or any of the Lenders after the Effective Date (the Borrower hereby agreeing
to indemnify the Lenders with respect thereto), (c) all title insurance
premiums, appraisal fees, engineer's, inspector's and surveyor's fees,
recording costs and the reasonable fees, expenses and disbursements of the
Agent's counsel or any local counsel to the Agent incurred in connection with
the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, each closing hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) the
reasonable fees, costs, expenses and disbursements of the Agent incurred in
connection with the preparation, administration or interpretation of the Loan
Documents and other instruments mentioned herein including without
limitation, the reasonable costs incurred by the Agent in connection with its
inspection of the Mortgaged Properties, and the fees and disbursements of the
Agent's counsel and the Borrower's legal counsel in preparing documentation,
(e) the reasonable fees, costs, expenses and disbursements of the Agent
incurred in connection with the syndication and/or participation of the
Loans, (f) all reasonable out-of-pocket expenses (including reasonable
attorneys' fees and costs, which attorneys may be employees of any Lender or
the Agent and the fees and costs of appraisers, engineers, investment
bankers, surveyors or other experts retained by the Agent or any Lender in
connection with any such enforcement proceedings) incurred by any Lender or
the Agent in connection with (i) the enforcement of or preservation of rights
under any of the Loan Documents against the Borrower or the administration
thereof after the occurrence of a Default or Event of Default (including,
without limitation, expenses incurred in any restructuring and/or "workout"
of the Loans), and (ii) any litigation, proceeding or dispute whether arising
hereunder or otherwise, in any way related to the Agent's or the Lender's
relationship with the Borrower, the Company, any Permitted Joint Venture or
any of the Related Companies, (g) all reasonable fees, expenses and
disbursements of the Agent incurred in connection with UCC searches, UCC
filings or mortgage recordings, (h) all reasonable costs incurred by the
Agent in the future in connection with its inspection of the Mortgaged
Properties (which inspections shall occur not more frequently than annually
prior to an Event of Default), and (i) the reasonable fees, costs, expenses
and disbursements of the Agent incurred in connection with the granting of
additional Collateral by the Borrower pursuant to Section 12.5 hereof,
including, without limitation, the costs incurred by the Agent in connection
with its inspection of such additional Collateral, and the fees and
disbursements of the Agent's counsel. The covenants
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of this Section 15 shall survive payment or satisfaction of payment of
amounts owing with respect to the Notes.
Section 16. INDEMNIFICATION. Each of the Borrower and the Company,
jointly and severally, agrees to indemnify and hold harmless the Agent and
the Lenders and the shareholders, directors, agents, officers, subsidiaries,
and affiliates of the Agent and the Lenders from and against any and all
claims, actions or causes of action and suits whether groundless or
otherwise, and from and against any and all Liabilities, losses, settlement
payments, obligations, damages and expenses of every nature and character
arising out of this Agreement or any of the other Loan Documents or the
Formation Transactions or any other transactions contemplated hereby or which
otherwise arise in connection with the financing including, without
limitation unless directly caused by the gross negligence or willful
misconduct of a Lender or the Agent (but such limitation on indemnification
shall only apply to the Agent or Lender being grossly negligent or committing
willful misconduct), (a) any actual or proposed use by the Borrower of the
proceeds of any of the Loans or the Drawings of any Letters of Credit, (b)
any actual or alleged infringement of any patent, copyright, trademark,
service mark or similar right of the Borrower comprised in the Collateral,
(c) the Borrower or any Guarantor entering into or performing this Agreement
or any of the other Loan Documents or (d) any cost, claim liability, damage
or expense in connection with any harm the Borrower may be found to have
caused in the role of a broker, in each case including, without limitation,
the reasonable fees and disbursements of counsel and allocated costs of
internal counsel incurred in connection with any such investigation,
litigation or other proceeding. In litigation, or the preparation therefor,
the Lenders and the Agent shall each be entitled to select their own separate
counsel to the extent that their representation by the same counsel would
present such counsel with a conflict of interest, or would be inappropriate
due to actual or potential differing interests or because there may be
defenses available to certain of such persons that are different from or in
addition to those available to the other persons to be represented by such
counsel and, in addition to the foregoing indemnity, the Borrower agrees to
pay promptly the reasonable fees and expenses of such counsel. In the event
that Agent or any Lender is made a party to any litigation against the
Company or the Borrower relating to or arising from the Formation
Transactions, the Borrower or the Company may, or if requested by the Agent
or the Requisite Lenders shall, assume primary responsibility for the defense
thereof with counsel reasonably satisfactory to the Requisite Lenders,
subject to the right of the Agent and the Lenders to separate counsel to the
extent provided in the preceding sentence. If, and to the extent that the
obligations of the Borrower or the Company under this Section 16 are
unenforceable for any reason, the Borrower and the Company hereby agree to
make the maximum contribution to the payment in satisfaction of such
obligations which is permissible under applicable law. The provisions of this
Section 16 shall survive the repayment of the Loans and the termination of
the obligations of the Lenders hereunder and shall continue in full force and
effect as to the Lenders so long as the possibility of any such claim,
action, cause of action or suit exists.
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Section 17. SURVIVAL OF COVENANTS, ETC. All covenants,
agreements, representations and warranties made herein, in the Notes, in any
of the other Loan Documents or in any documents or other papers delivered by
or on behalf of the Borrower or any Guarantor pursuant hereto shall be deemed
to have been relied upon by the Lenders and the Agent, notwithstanding any
investigation heretofore or hereafter made by it, and shall survive the
making by the Lenders of the Loans, as herein contemplated, and shall
continue in full force and effect so long as any amount due under this
Agreement or the Notes or any of the other Loan Documents remains outstanding
or the Lenders have any obligation to make any Loans. The indemnification
obligations of the Borrower provided herein and the other Loan Documents
shall survive the full repayment of amounts due and the termination of the
obligations of the Lenders hereunder and thereunder to the extent provided
herein and therein. All statements contained in any certificate or other
paper delivered to the Agent or any Lender at any time by or on behalf of the
Borrower pursuant hereto or in connection with the transactions contemplated
hereby shall constitute representations and warranties by the Borrower
hereunder.
Section 18. ASSIGNMENT; PARTICIPATIONS; ETC.
Section 18.1. Conditions to Assignment by Lenders. Except as
provided herein, each Lender may assign to one or more Eligible Assignees all
or a portion of its interests, rights and obligations under this Agreement
(including all or a portion of its Commitment Percentage and Commitment and
the same portion of the Loans at the time owing to it, and the Notes held by
it; provided that (a) the Agent shall have given its prior written consent to
such assignment except that such consent shall not be needed with respect to
an assignment from a Lender to one of its Affiliated Lenders or to another
Lender, (b) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Lender's rights and obligations under this
Agreement, (c) each assignment shall be in an amount of not less than
$10,000,000 that is a whole multiple of $1,000,000, (d) each Lender either
shall assign all of its Commitment and cease to be a Lender hereunder or
shall retain, free of any such assignment, an amount of its Commitment of not
less than $10,000,000 and (e) the parties to such assignment shall execute
and deliver to the Agent, for recording in the Register (as hereinafter
defined), an Assignment and Acceptance, substantially in the form of Exhibit
F hereto (an "Assignment and Acceptance'), together with any Notes subject
to such assignment. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5) Business Days
after the execution thereof, (i) the assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have
the rights and obligations of a Lender hereunder, and (ii) the assigning
Lender shall, to the extent provided in such assignment and upon payment to
the Agent of the registration fee referred to in Section 18.3, be released
from its obligations under this Agreement.
Section 18.2. Certain Representations and Warranties; Limitations;
Covenants. By executing and delivering an Assignment and Acceptance, the
parties to the assignment thereunder confirm to and agree with each other and
the other parties hereto as follows: (a) other than the
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representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, the
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this
Agreement, the other Loan Documents or any other instrument or document
furnished pursuant hereto; (b) the assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any other Person primarily or secondarily liable
in respect of any of the Obligations, or the performance or observance by the
Borrower or any other Person primarily or secondarily liable in respect of
any of the Obligations of any of their obligations under this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto or the validity or enforceability or priority of
any lien or any Collateral; (c) such assignee confirms that it has received a
copy of this Agreement, together with copies of the most recent financial
statements referred to in Section 6.4 and Section 7.4 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (d) such
assignee will, independently and without reliance upon the assigning Lender,
the Agent or any other Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
decisions and Collateral decisions in taking or not taking action under this
Agreement, (e) such assignee represents and warrants that it is an Eligible
Assignee; (f) such assignee appoints and authorizes the Agent to take such
action as "Agent" on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof or thereof, together with such powers as are reasonably
incidental thereto; (g) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender; and (h) such
assignee represents and warrants that it is legally authorized to enter into
such Assignment and Acceptance.
Section 18.3. Register. The Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register or similar list (the
"Register") for the recordation of the names and addresses of the Lenders and
the Commitment Percentages of, and principal amount of the Loans owing to the
Lenders from time to time. The entries in the Register shall be conclusive,
in the absence of manifest error, and the Borrower, the Agent and the Lenders
may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrower and the Lenders at any reasonable time and
from time to time upon reasonable prior notice. Upon each such recordation,
the assigning Lender agrees to pay to the Agent a registration fee in the sum
of $2,500.00. The Agent may amend Schedules 1 and 1.2 hereof to reflect the
recording of any such assignments.
Section 18.4. New Notes. Upon its receipt of an Assignment and
Acceptance executed by the parties to such assignment, together with each
Note subject to such assignment, the Agent shall
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(a) record the information contained therein in the Register, and (b) give
prompt notice thereof to the Borrower and the Lenders (other than the
assigning Lender ). Within five (5) Business Days after receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the order of such
Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained some portion of its Loans hereunder, a new Note to the
order of the assigning Lender in an amount equal to the amount retained by it
hereunder. Such new Notes shall provide that they are replacements for the
surrendered Notes and that they do not constitute a novation, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of the assigned
Notes. Within five (5) days of issuance of any new Notes pursuant to this
Section 18.4, the Borrower shall deliver an opinion of counsel, addressed to
the Lenders and the Agent, relating to the due authorization, execution and
delivery of such new Notes and the legality, validity and binding
non-preferential effect thereof, and that the Obligations evidenced by the
new Notes are secured by the Collateral with the same validity,
enforceability and priority as if given on the Effective Date, in form and
substance satisfactory to the Lenders. The surrendered Notes shall be
cancelled and returned to the Borrower.
Section 18.5. Participations. Each Lender may sell participations to
one or more banks or other entities in a portion of such Lender's rights and
obligations under this Agreement and the other Loan Documents not to exceed
forty-nine percent (49%) of its Commitment Percentage; provided that (a) the
Agent shall have given its prior written consent to such participation,
except that any Lender may sell participations to its Affiliated Lenders
without such consent, (b) each such participation shall be in an amount of
not less than $10,000,000 that is a whole multiple of $1,000,000, (c) any
such sale or participation shall not affect the rights and duties of the
selling Lender hereunder to the Borrower and the Lender shall continue to
exercise all approvals, disapprovals and other functions of a Lender, (d)
the only rights granted to the participant pursuant to such participation
arrangements with respect to waivers, amendments or modifications of the Loan
Documents shall be the rights to approve the vote of the Lender as to
waivers, amendments or modifications that would reduce the principal of or
the interest rate on any Loans, extend the term or increase the amount of the
Commitment of such Lender as it relates to such participant, reduce the
amount of any fees to which such participant is entitled or extend any
regularly scheduled payment date for principal or interest, provided that all
approvals affecting a Loan or this Agreement under this clause (d) shall be
by a fifty-one percent (51%) vote of such Lender's Commitment Percentage,
and (e) no participant shall have the right to grant further participations
or assign its rights, obligations or interests under such participation to
other Persons without the prior written consent of the Agent. The Agent shall
promptly advise the Borrower in writing of any such sale or participation.
Section 18.6. Pledge by Lender. Any Lender may at any time pledge
all or any portion of its interest and rights under this Agreement (including
all or any portion of its Note) to any of the
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twelve Federal Reserve Lenders organized under Section 4 of the Federal
Reserve Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof
shall release the pledgor Lender from its obligations hereunder or under any
of the other Loan Documents.
Section 18.7. No Assignment by Borrower. The Borrower shall not
assign or transfer any of its rights or obligations under any of the Loan
Documents without the prior written consent of each of the Lenders.
Section 18.8. Disclosure. The Borrower agrees that in addition to
disclosures made in accordance with standard banking practices any Lender may
disclose information obtained by such Lender pursuant to this Agreement to
assignees or participants and potential assignees or participants hereunder.
Such Lender shall obtain from each party to whom it discloses such
information, the agreement by such party to comply with the Lenders'
agreements with respect to Confidential Information set forth in Section 7.9.
Section 19. NOTICES, ETC. Except as otherwise expressly provided in
this Agreement, all notices and other communications made or required to be
given pursuant to this Agreement or the Notes shall be in writing and shall
be delivered in hand, mailed by United States registered or certified first
class mail, postage prepaid, sent by overnight courier, or sent by telegraph,
telecopy, telefax or telex and confirmed by delivery via courier or postal
service, addressed as follows:
(a) if to the Borrower, at 77 West Wacker Drive, Suite
3900, Chicago, IL 60601, Attention: Chief Financial Officer or at such other
address for notice as the Borrower shall last have furnished in writing to
the Agent; and
(b) if to the Agent, at 100 Federal Street, Boston,
Massachusetts 02110, Attention: Real Estate Department, and to 115 Perimeter
Center Place, N.E., Suite 500, Atlanta, Georgia 30346, Attn: Lori Y. Litow,
Vice President, or such other address for notice as the Agent shall last have
furnished in writing to the Borrower.
(c) if to any Lender, at such Lender's address set forth
on Schedule 1, hereto, or such other address for notice as such Lender shall
have last furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier
or facsimile to a responsible officer of the party to which it is directed,
at the time of the receipt thereof by such officer or the sending of such
facsimile and (ii) if sent by registered or certified first-class mail,
postage prepaid, on the third Business Day following the mailing thereof.
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Section 20. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE. THIS
AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE STATE OF
NEW YORK AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH STATE (EXCLUDING THE LAWS APPLICABLE TO
CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT BY IT FOR THE
ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR THE STATE OF
NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND BORROWER CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT FOR ANY SUIT BY AGENT OR ANY LENDER
AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY
MAIL AT THE ADDRESS SPECIFIED IN Section 19. THE BORROWER HEREBY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR
ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN
ADDITION TO THE COURTS OF MASSACHUSETTS AND NEW YORK OR ANY FEDERAL COURT
SITTING THEREIN, THE AGENT OR ANY LENDER MAY BRING ACTION(S) FOR ENFORCEMENT
ON A NONEXCLUSIVE BASIS WHERE ANY COLLATERAL EXISTS AND THE BORROWER CONSENTS
TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN
ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED
IN Section 19.
Section 21. HEADINGS. The captions in this Agreement are for
convenience of reference only and shall not define or limit the provisions
hereof.
Section 22. COUNTERPARTS. This Agreement and any amendment hereof
may be executed in several counterparts and by each party on a separate
counterpart, each of which when so executed and delivered shall be an
original, and all of which together shall constitute one instrument. In
proving this Agreement it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom enforcement
is sought.
Section 23. ENTIRE AGREEMENT. The Loan Documents and any other
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except as provided in Section 25.
Section 24. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. THE
BORROWER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION
OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE
NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER
OR THEREUNDER OR THE PERFORMANCE
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OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY
LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN
ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION
TO, ACTUAL DAMAGES. THE BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT
OR ATTORNEY OF THE AGENT OR ANY LENDER HAD REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE AGENT OR SUCH LENDER WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT
THE AGENT AND THE BANKS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE PARTIES BY, AMONG OTHER THINGS,
THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
Section 25. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or
approval required or permitted by this Agreement may be given, and any term
of this Agreement or of any other instrument related hereto or mentioned
herein may be amended, and the performance or observance by the Borrower of
any terms of this Agreement or such other instrument or the continuance of
any Default or Event of Default may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the written consent of the Requisite Lenders, and, in the case of
amendments, with the written consent of the Borrower other than amendments to
schedules made in the ordinary course as contemplated by this Agreement.
Notwithstanding the foregoing, (i) the rate of interest on and the term or
amount of the Notes, (ii) the amount of the Commitments of the Lenders, (iii)
the amount of any fee payable to a Lender hereunder, (iv) any provision
herein or in any of the Loan Documents which expressly requires consent of
all the Lenders, (v) the funding provisions of Section 2.4 and Section 2.5
hereof, and (vi) the rights, duties and obligations of the Agent specified in
Section 14 hereof, may not be amended without the written consent of each
Lender affected thereby, nor may the Agent release any obligor from its
liability with respect to the Obligations, without first obtaining the
written consent of all the Lenders. No waiver shall extend to or affect any
obligation not expressly waived or impair any right consequent thereon. No
course of dealing or delay or omission on the part of the Agent or any Lender
in exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon the Borrower shall entitle
the Borrower to other or further notice or demand in similar or other
circumstances.
Section 26. SEVERABILITY. The provisions of this Agreement are
severable, and if any one clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity
or unenforceability shall affect only such clause or provision, or part
thereof, in such jurisdiction, and shall not in any manner affect such clause
or provision in any other jurisdiction, or any other clause or provision of
this Agreement in any jurisdiction.
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Section 27. ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:
(i) neither the Agent nor any Lender has any fiduciary relationship with, or
fiduciary duty to, the Borrower arising out of or in connection with this
Agreement or any of the other Loan Documents; (ii) the relationship in
connection herewith between the Agent and the Lenders, on the one hand, and
the Borrower, on the other hand, is solely that of debtor and creditor and
(iii) no joint venture or partnership among any of the parties hereto is
created hereby or by the other Loan Documents, or otherwise exists by virtue
of the Facility or the Loans.
Section 28. PARTNER LIABILITY.
Section 28.1. Limited Recourse to Company. Notwithstanding anything
expressed or implied to the contrary contained herein, the Company shall not
be liable hereunder or under any Guaranty or under any legal or equitable
proceeding or by virtue of any statute, regulation or other applicable law
for (i) any payment of principal or interest on, or any other amounts due
under, any of the Loans, or (ii) any reimbursement obligation with respect to
a Drawing under a Letter of Credit, or (iii) to repay any other indebtedness
of Borrower or any Guarantor, provided, however, that nothing herein shall be
construed to prevent the Agent or any Lender from recovering from the
Company, or limit the Agent's or any Lender's recourse against the Company
for any losses, damages or costs (including, without limitation, reasonable
legal expenses), incurred by the Agent or any Lender in connection with the
Company's breach of the Company's own covenants and agreements herein or in
the Indemnity Agreement, or in connection with the Company's fraud,
misappropriation of funds (whether due to the Company's failure to contribute
Net Offering Proceeds to the Borrower, as required by Section 7.20, or its
receipt of Distributions from the Borrower in violation of Section 8.7, or
otherwise) or any misrepresentation made by or on behalf of the Company
hereunder or in connection with the transactions contemplated hereby.
Section 28.2. Limited Recourse to Partners of Borrower other than
the Company. With respect to all partners of the Borrower other than the
Company, no personal deficiency judgment or any other judgment shall be
asserted or enforced against any such partner for payment of any amount
hereunder or for observance or performance of any of the obligations of the
Borrower contained herein, except as expressly set forth in this agreement or
any other agreement or instrument or document as an obligation of such
partner in connection herewith, and provided that the foregoing shall not
affect the liability which any of such other partners may have for any fraud,
misappropriation of funds or intentional misrepresentation made hereunder by
or on behalf of the Borrower or in connection with the transactions
contemplated hereby.
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IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as a sealed instrument as of the date first set forth above.
<TABLE>
<CAPTION>
<S> <C>
WITNESS: BANKBOSTON, N.A.
- ---------------------------------------- By:
----------------------------------------
Lori Y. Litow
Its: Vice Presiden
----------------------------------------
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By: /s/ George D. Morgan
- ---------------------------------------- ----------------------------------------
George D. Morgan
Its: Vice President
----------------------------------------
PRIME GROUP REALTY TRUST
- ---------------------------------------- By:
----------------------------------------
----------------------------------------
Its:
----------------------------------------
PRIME GROUP REALTY, L.P.
By: PRIME GROUP REALTY TRUST,
its general partner
- ---------------------------------------- By:
----------------------------------------
----------------------------------------
Its:
----------------------------------------
</TABLE>
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as a sealed instrument as of the date first set forth above.
<TABLE>
<CAPTION>
<S> <C>
WITNESS: BANKBOSTON, N.A.
/s/Nancy Johns
- ---------------------------------------- By: /s/ Lori Y. Litow
----------------------------------------
Lori Y. Litow
Its: Vice President
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By:
- ---------------------------------------- ----------------------------------------
----------------------------------------
Its:
----------------------------------------
PRIME GROUP REALTY TRUST
/s/Illegible
- ---------------------------------------- By: /s/ W. Michael Karnes
----------------------------------------
W. Michael Karnes
Its: Executive VP
PRIME GROUP REALTY, L.P.
By: PRIME GROUP REALTY TRUST,
its general partner
/s/Illegible
- ---------------------------------------- By: /s/ W. Michael Karnes
----------------------------------------
W. Michael Karnes
Its: Executive VP
</TABLE>
<PAGE>
Exhibit A
FORM OF NOTE
No. ___ [Date]
[Amount]
FOR VALUE RECEIVED, the undersigned, Prime Group Realty, L.P., a
Delaware limited partnership (the "Borrower"), promises to pay to the order
of [Name of Lender] (hereinafter, together with its successors in title and
assigns, called the "Lender") at the head office of BankBoston, N.A., as
Agent (the "Agent") at 100 Federal Street, Boston, Massachusetts 02110, the
principal sum of [Amount in Words][Amount in Numbers] or, if less, the
aggregate unpaid principal amount of all Loans made by the Lender to the
Borrower pursuant to the Credit Agreement dated as of November 17, 1997 among
the Lender, the Borrower, Prime Group Realty Trust, the other lending
institutions named therein and the Agent, as amended from time to time (the
"Credit Agreement"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.
Unless otherwise provided herein, the rules of interpretation set forth in
Section 1.2 of the Credit Agreement shall be applicable to this Note.
The Borrower also promises to pay (a) principal from time to time at
the times provided in the Credit Agreement and (b) interest from the date
hereof on the principal amount from time to time unpaid at the rates and
times set forth in the Credit Agreement and in all cases in accordance with
the terms of the Credit Agreement. Late charges and other charges and default
rate interest shall be paid by Borrower in accordance with the terms of the
Credit Agreement. The entire outstanding principal amount of this Note,
together with all accrued but unpaid interest thereon, shall be due and
payable in full on the Maturity Date. The Lender may endorse the record
relating to this Note with appropriate notations evidencing advances and
payments of principal hereunder as contemplated by the Credit Agreement.
This Note is issued pursuant to, is entitled to the benefits of, and
is subject to the provisions of the Credit Agreement. The principal of this
Note is subject to prepayment in whole or in part in the manner and to the
extent specified in the Credit Agreement. This Note is secured by the
Security Documents. However, the principal of this Note, the interest accrued
on this Note and all other Obligations of the Borrower are full recourse
obligations of the Borrower, and all of its Real Estate Assets, the
Collateral and its other properties shall be available for the payment and
performance of this Note, the interest accrued on this Note, and all of such
other Obligations. The liability of the partners of the Borrower hereunder is
limited as set forth in Section 28 of the Credit Agreement.
In case an Event of Default shall occur and be continuing, the
entire unpaid principal amount of this Note and all of the unpaid interest
accrued thereon may become or be declared due and payable in the manner and
with the effect provided in the Credit Agreement.
The Borrower and all endorsers hereby waive presentment, demand,
protest and notice of any kind in connection with the delivery, acceptance,
performance and enforcement of this Note, and also hereby assent to
extensions of time of payment or forbearance or other indulgences without
notice.
THIS NOTE AND THE OBLIGATIONS OF THE BORROWER HEREUNDER SHALL BE
GOVERNED BY AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
LAW).
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed in its name as an instrument under seal on the date first above
written.
WITNESS: PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust,
its managing general partner
By:
- ----------------------------------- -----------------------------------
<PAGE>
Exhibit B
LOAN REQUEST
Prime Group Realty, L.P.
77 West Wacker Drive, Suite 3900
Chicago, IL 60601
[Date]
BankBoston, N.A., as Agent
100 Federal Street
Boston, MA 02110
Ladies and Gentlemen:
Re: Loan Request under Credit Agreement
dated as of November 17, 1997
Pursuant to Section 2.5 of the Credit Agreement dated as of November
17, 1997, among you, certain other Lenders and us (the "Credit Agreement"),
we hereby request that you make a Loan as follows:
(i) Principal amount requested: $
-----------
(ii) Proposed Borrowing Date:
----------------
(iii) Interest Period:
-------------------------
(iv) Type:
-----------------------------------
(v) Purpose of Loan:
-----------------------------------
This Loan Request is submitted pursuant to, and shall be governed
by, and subject to satisfaction of, the terms, conditions and provisions set
forth in Section 2.5 of the Credit Agreement.
<PAGE>
The undersigned hereby further certifies to you that it is in
compliance with the covenants specified in Section 9 of the Credit Agreement,
and will remain in compliance with such covenants after the making of the
requested Loan, as evidenced by a Compliance Certificate in the form of
Exhibit C to the Credit Agreement of even date herewith delivered to you
simultaneously with this Loan Request.
We also understand that if you grant this request this request
obligates us to accept the requested Loan on such date. All terms defined in
the Credit Agreement and used herein without definition shall have the
meanings set forth in Section 1.1 of the Credit Agreement.
The undersigned hereby certifies to you, in accordance with the
provisions of Section 11.1 of the Credit Agreement, that the representations
and warranties contained in the Credit Agreement and in each document and
instrument delivered pursuant to or in connection therewith were true as of
the date as of which they were made, are also true at and as of the date
hereof, and will also be true at and as of the proposed Borrowing Date of the
Loan requested hereby, in each case except as otherwise permitted pursuant to
the provisions of Section 11.1 of the Credit Agreement, and no Default or
Event of Default has occurred and is continuing.
Very truly yours,
Prime Group Realty, L.P.
By: Prime Group Realty Trust,
Its managing general partner
By:
-------------------------------
-------------------------------
Its:
--------------------------
<PAGE>
Exhibit C
Prime Group Realty, L.P.
77 West Wacker Drive, Suite 3900
Chicago, IL 60601
Compliance Certificate under
Credit Agreement dated as of November 17, 1997
The undersigned, a Responsible Officer of Prime Group Realty Trust,
general partner of Prime Group Realty, L.P. (the "Borrower"), hereby
certifies on behalf of the Borrower as of the date hereof the following:
1. No Defaults. I have read a copy of the Credit Agreement dated as
of November 17, 1997 (the "Credit Agreement") among the Borrower, BankBoston,
N.A., the other lending institutions party thereto, and BankBoston, N.A., as
Agent. Terms used herein and not otherwise defined herein shall have the
meanings set forth in Section 1.1 of the Credit Agreement. No Default is
continuing in the performance or observance of any of the covenants, terms or
provisions of the Credit Agreement or any of the other Loan Documents.
Without limiting the foregoing, the Borrower has not taken any actions which
are prohibited by the negative covenants set forth in Section 8 of the Credit
Agreement. Attached hereto as Appendix I are all relevant calculations needed
to determine whether the Borrower is in compliance with Section 9 and Section
8.3(g) of the Credit Agreement as of the end of the most recently completed
fiscal quarter (except that in the case of Compliance Certificates delivered
pursuant to Section 2.5(a), Section 2.9(b) Section 11.1, Section 5.5(a) or
Section 8.4(b), the calculations determining compliance with Section 9.1,
Section 9.2 and Section 9.3 are based on a Pro Forma Principal Amount (after
giving effect to the proposed transaction) and is in compliance with Section
8.7 of the Credit Agreement for the most recently completed fiscal year.
2. No Material Changes, Etc. Except as disclosed on Appendix II
hereto, since the [date of most recent financial statements furnished to the
Agent and the Lenders], there have occurred no materially adverse changes in
the financial condition or business of the Borrower as shown on or reflected
in the balance sheet of the Borrower as at such date other than (a) changes
in the ordinary course of business that have not had any materially adverse
effect either individually or in the aggregate on the business or financial
condition of the Borrower and (b) changes resulting from the making of the
Loans and the transactions contemplated by the Credit Agreement.
3. No Materially Adverse Contracts, Etc. Neither the Borrower nor
the Company is subject to any charter, corporate, trust, partnership or other
legal restriction, or any judgment, decree, order, rule or regulation that
has or is expected, in the reasonable judgment of the Company's officers, in
the future to have a Materially Adverse Effect. Neither the Borrower nor the
Company is a party to any contract or agreement that has or is expected, in
the reasonable judgment of the Company's officers, to have a Materially
Adverse Effect.
<PAGE>
Prime Group Realty, L.P.
By: Prime Group Realty Trust,
Its managing general partner
By:
-------------------------------
-------------------------------
Its:
--------------------------
Date:
<PAGE>
Appendix I
FINANCIAL COVENANT CALCULATIONS
Note: Unless otherwise indicated all calculations are as of
or for the fiscal quarter ending on such date (the "Fiscal Quarter").
<TABLE>
<CAPTION>
<S> <C>
1. Appraisal Value [Section 9.1]
(a) Pro Forma Principal Amount $_____________
(b) Collateral Value of Mortgaged $_____________
Properties (see attached Schedule
of Collateral Values)
CALCULATIONS: (a)/(b) = ____% which is less than 60%
2. Minimum Debt Service Coverage [Section 9.2]
(a) Net Operating Income for all of the Mortgaged Properties: $_____________
(b) Pro Forma Debt Service Charges for Mortgaged Properties based
on three monthly payments of mortgage style amortization of
the Pro Forma Principal Amount of $_______________ amortized
over 25 years at _______% per annum, being the greater of the
current average interest rate on the Loans or 1.75% above the
current ten year U.S. Treasury bill yield: $_____________
CALCULATIONS: (a)/(b) = _________ which is not less than 1.5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3. Total Liabilities to Total Adjusted Assets [Section 9.3]
(a) Total Liabilities: $_____________
(b) Cash and cash equivalents: $_____________
(c) EBITDA last quarter: $_____________
(d) EBITDA previous quarter: $_____________
(e) Annualized EBITDA [(c) + (d) times 2]: $_____________
(f) Line (e) divided by 0.0975: $_____________
(g) Total Adjusted Assets [(b) + (f)]: $_____________
CALCULATIONS: (a)/(g) = which is less than 55%
---------
4. Minimum Tangible Net Worth [Section 9.4]
(a) Total Assets (GAAP assets plus depreciation
on Real Estate Assets) $_____________
(b) Total Liabilities (same as line 3(a)) $_____________
(c) Intangibles $_____________
(d) Tangible Net Worth [(a)-(b)-(c)] $_____________
(e) Net Offering Proceeds $_____________
(f) $350,000,000 plus .75 times (e) $_____________
COVENANT: Line (d) should exceed line (f)
5. Total Operating Cash Flow to Interest Expense [Section 9.5]
(a) EBITDA (same as line 3(c)) $_____________
(b) Gross leasable area of all Real Estate Assets ______________
(c) Reserve Amount ((c) times $0.25 divided by 4) $_____________
(d) Total Operating Cash Flow [(a) - (c)] $_____________
(e) Interest Expense (includes capitalized interest) $_____________
CALCULATIONS: (d)/(e) = _____ which is not less than 2.0
6. EBITDA to Fixed Charges [Section 9.6]
(a) EBITDA (same as line 3(c)) $_____________
(b) Interest Expense (same as line 5(e)) $_____________
(c) Principal installments and current maturities $_____________
not refinanced
(d) Preferred dividends and distributions $_____________
(e) Fixed Charges (sum of lines (b), (c), and (d)) $_____________
CALCULATIONS: (a)/(e) = ____________which is not less than 1.75
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8. Investments in Permitted Developments [Section 8.3(g)]
Attached hereto is a Schedule of all Permitted Developments
in process as of ________________
(a) Investments in Permitted Developments $_____________
(b) Total Adjusted Assets (same as line 3(g)) $_____________
(c) 20% of Total Adjusted Assets $_____________
COVENANT:
Line (a) should not exceed line (c)
9. Distributions [Section 8.7]
(a) Total Distributions during most recently ended $_____________
fiscal year
(b) Funds From Operations for said fiscal year $_____________
(c) Total Distributions during most recently ended $_____________
fiscal quarter
(d) Funds from Operations for fiscal quarter referenced $_____________
in (c)
(e) Total Distributions during the fiscal quarter preceding $_____________
the fiscal quarter referenced in (c)
(f) Funds from Operations during fiscal quarter referenced $_____________
in (e)
(g) Total Distributions during the fiscal quarter preceding $_____________
the fiscal quarter referenced in (e)
(h) Funds from Operations during fiscal quarter referenced $_____________
in (g)
CALCULATIONS: (a)/(b) = _____% which is less than 90%
(c)/(d) = _____%
(e)/(f) = _____%
(g)/(h) = _____%
</TABLE>
At least one of the three percentages immediately above is less than
100%
<PAGE>
SCHEDULE OF COLLATERAL VALUES
<TABLE>
<CAPTION>
Borrowing
Mortgaged NOI NOI Reserve Cap Base Appraised
Collateral
Property Last Q Previous Q Amount Rate Value Value Value
-------- ------ ---------- ------ ---- ----- ----- -----
<S> <C>
Totals:
</TABLE>
<PAGE>
SCHEDULE OF
PERMITTED DEVELOPMENTS
<TABLE>
<CAPTION>
Scheduled
Project Location Size (sq. ft.) Total Project Cost Start Date Completion Date
- ---------------- -------------- ------------------ ---------- ---------------
<S> <C>
</TABLE>
<PAGE>
APPENDIX II
MATERIAL CHANGES
<PAGE>
Exhibit D
LETTER OF CREDIT REQUEST
Prime Group Realty, L.P.
77 West Wacker Drive, Suite 3900
Chicago, IL 60601
[Date]
BankBoston, N.A., as Agent
100 Federal Street
Boston, MA 02110
Ladies and Gentlemen:
Re: Letter of Credit Request under Credit
Agreement dated as of November 17, 1997
Pursuant to Section 2.9 of the Credit Agreement dated as of November
17, 1997, among you, Prime Group Realty Trust, certain other Lenders and us
(the "Credit Agreement"), we hereby request that you issue
[extend or renew, if applicable] a Letter of Credit as follows:
(i) Name and address of beneficiary:
(ii) Face amount: $
(iii) Proposed Issuance Date:
Proposed Expiration Date:
(iv) Other terms and conditions as set forth in the
proposed form of Letter of Credit attached hereto.
(v) Purpose of Letter of Credit:
<PAGE>
This Letter of Credit Request is submitted pursuant to, and shall be
governed by, and subject to satisfaction of, the terms, conditions and
provisions set forth in Section 2.9 of the Credit Agreement.
The undersigned hereby further certifies to you that it is in
compliance with the covenants specified in Section 9 of the Credit Agreement,
and will remain in compliance with such covenants after the Outstanding
Principal Amount is adjusted to include the face amount of the requested
Letter of Credit, as evidenced by a Compliance Certificate in the form of
Exhibit C to the Credit Agreement of even date herewith delivered to you
simultaneously with this Letter of Credit Request.
We also understand that if you grant this request this request
obligates us to accept the requested Letter of Credit
[or extension or renewal thereof] and pay the issuance fee
[or the renewal fee] and Letter of Credit fee as required by Section 2.9(c).
All terms defined in the Credit Agreement and used herein without definition
shall have the meanings set forth in Section 1.1 of the Credit Agreement.
The undersigned hereby certifies to you, in accordance with the
provisions of Section 11.1 of the Credit Agreement, that the representations and
warranties contained in the Credit Agreement and in each document and instrument
delivered pursuant to or in connection therewith were true as of the date as of
which they were made, are also true at and as of the date hereof, and will also
be true at and as of the proposed issuance date of the Letter of Credit
requested hereby, in each case except as otherwise permitted pursuant to the
provisions of Section 11.1 of the Credit Agreement, and no Default or Event of
Default has occurred and is continuing.
Very truly yours,
Prime Group Realty, L.P.
By: Prime Group Realty Trust,
Its general partner
By:
-------------------------------
-------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT F
FORM OF
ASSIGNMENT AND ACCEPTANCE
Dated
Reference is made to the Credit Agreement, dated as of November 17,
1997 (as amended and in effect from time to time, the "Agreement"), among Prime
Group Realty, L.P., a Delaware limited partnership (the "Borrower"), BankBoston,
N.A., the other Lenders and BankBoston, N.A. as agent (the "Agent") for itself
and the other Lenders. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to such terms in the Agreement.
(the "Assignor") and
- ------------------------------------------------------------
(the "Assignee") agree as follows:
- -------------------------------------------
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a % interest in
and to all the Assignor's rights and obligations under the Agreement as of
the Effective Date (as hereinafter defined).
2. The Assignor (i) represents that as of the date hereof, its
Commitment (without giving effect to assignments thereof which have not yet
become effective) is $__________ and its Commitment Percentage with respect
thereto is %, and the outstanding balance of its Loans (unreduced by any
assignments thereof which have not yet become effective) is $__________; (ii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
the Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Agreement, the other Loan Documents or any other
instrument or document furnished pursuant thereto on the status or value of any
Collateral, other than that it is the legal and beneficial owner of the interest
being assigned by it hereunder and that such interest is free and clear of any
adverse claim; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any of
its Subsidiaries or any other person which may be primarily or secondarily
liable in respect of any of the Obligations or any of their obligations under
the Agreement or the other Loan Documents or any other instrument or document
delivered or executed pursuant thereto; and (v) attaches the Note delivered to
it under the Agreement and requests that the Borrower exchange such Note for new
Notes payable to each of the Assignor and the Assignee as follows:
<PAGE>
Notes Payable to Amount
the Order of: of Note
- ----------------- -------
[Name of Assignor] [($ )]
[Name of Assignee] [($ )]
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (ii) confirms that it
has received a copy of the Agreement, together with copies of the most recent
financial statements delivered pursuant to Sections 6.4 and 7.4 thereof and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance; (iii)
agrees that it will, independently and without reliance upon the Assignor, any
other Lender or the Agent and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
and review and analysis of the granting and perfecting of any purported liens
and the status and value of any Collateral in taking or not taking action under
the Agreement; (iv) confirms that it is an Eligible Assignee; (v) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers as are reasonably incidental thereto pursuant to the terms of the
Agreement and the other Loan Documents; and (vi) agrees that it will perform all
the obligations which by the terms of the Agreement are required to be performed
by it as a Lender in accordance with the terms of the Agreement.
4. The effective date for this Assignment and Acceptance shall be
(the "Effective Date"). Following the execution of this Assignment
and Acceptance, it will be delivered to the Agent for acceptance and
recording in the Register by the Agent. This Assignment and Acceptance may be
executed in several counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, and all of
which together shall constitute one instrument. In proving this Assignment
and Acceptance it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is sought.
5. Upon such acceptance and recording, from and after the Effective
Date, (i) the Assignee shall be a party to the Agreement and, to the extent
provided in this Assignment and Acceptance, have the rights and obligations of a
Lender thereunder, and (ii) the Assignor shall, with respect to that portion of
its interest under the Agreement assigned hereunder relinquish its rights and be
released from its obligations under the Agreement.
6. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments in respect of the interest assigned
hereby (including payments of principal, interest, fees and other amounts) to
the Assignee. The Assignor and Assignee shall make all appropriate adjustments
in payments for periods prior to the Effective Date by the Agent or with respect
to the making of this assignment directly between themselves.
<PAGE>
7. THIS ASSIGNMENT AND ACCEPTANCE IS INTENDED TO TAKE EFFECT AS A
SEALED INSTRUMENT TO BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, intending to be legally bound, each of the
undersigned has caused this Assignment and Acceptance to be executed on its
behalf by its officer thereunto duly authorized, as of the date first above
written.
[NAME OF ASSIGNOR]
By:
-------------------------------
Title:
-----------------------------
[NAME OF ASSIGNEE]
By:
-------------------------------
Title:
----------------------------
<PAGE>
SCHEDULE 1
Lenders; Domestic and Eurodollar Lending Offices
BankBoston, N.A.
100 Federal Street
Boston, MA 02110
(Domestic and Eurodollar)
Prudential Securities Credit Corporation
One New York Plaza
New York, New York 10292
(Domestic and Eurodollar)
<PAGE>
SCHEDULE 1.1
Mortgaged Properties
1. Donnelley Building, 77 West Wacker Drive, Chicago, IL
<PAGE>
SCHEDULE 1.2
Commitments
<TABLE>
<CAPTION>
Commitment
Lender Commitment Percentage
- ------ ---------- ----------
<S> <C> <C>
BankBoston, N.A $112,500,000 50%
Prudential Securities Credit Corporation $112,500,000 50%
Total $225,000,000 100%
</TABLE>
<PAGE>
SCHEDULE 1.3
Guarantor Subsidiaries, Related Companies and Permitted Joint Ventures
Guarantor Subsidiaries
- ----------------------
77 West Wacker Limited Partnership
Enterprise Center I, L.P.
Enterprise Center II, L.P.
Enterprise Center III, L.P.
Enterprise Center IV, L.P.
Enterprise Center V, L.P.
Enterprise Center VI, L.P.
Enterprise Center VII, L.P.
Enterprise Center VIII, L.P.
Enterprise Center IX, L.P.
Enterprise Center X, L.P.
Arlington Heights I, L.P.
Arlington Heights II, L.P.
Arlington Heights III, L.P.
East Chicago Enterprise Center Limited Partnership
Hammond Enterprise Center Limited Partnership
Nashville Office Building I, Ltd.
Old Kingston Properties, Ltd.
Professional Plaza, Ltd.
Centre Square II, Ltd.
Triad Parking Company, Ltd.
Related Companies
- -----------------
Prime Group Realty Trust
Prime Group Realty, L.P.
1990 Algonquin Road, L.L.C.
2010 Algonquin Road, L.L.C.
555 Huehl Road, L.L.C.
1669 Wodfiled Road, L.L.C.
475 Superior Avenue, L.L.C. Enterprise Drive, L.L.C.
Enterprise Drive, L.L.C.
280 Shuman Blvd., L.L.C.
77 West Wacker Limited Partnership
Enterprise Center I, L.P.
Enterprise Center II, L.P.
Enterprise Center III, L.P.
Enterprise Center IV, L.P.
Enterprise Center V, L.P.
Enterprise Center VI, L.P.
<PAGE>
SCHEDULE 1.3 (continued)
Enterprise Center VII, L.P.
Enterprise Center VIII, L.P.
Enterprise Center IX, L.P.
Enterprise Center X, L.P.
Arlington Heights I, L.P.
Arlington Heights II, L.P.
Arlington Heights III, L.P.
East Chicago Enterprise Center Limited Partnership
Hammond Enterprise Center Limited Partnership
Nashville Office Building I, Ltd.
Old Kingston Properties, Ltd.
Professional Plaza, Ltd.
Centre Square II, Ltd.
Triad Parking Company, Ltd.
77 Fitness Center Limited Partnership
Libertyville Tech Way, L.L.C.
3818 Grandville, L.L.C.
306 Era Drive, L.L.C.
1301 Ridgeview Drive, L.L.C.
515 Heuhl Road, L.L.C.
455 Academy Drive, L.L.C.
801 Technology Way, L.L.C.
Prime Columbus Industrial, L.L.C.
Kemper/Prime Industrial Partner
1051 N. Kirk Road, L.L.C.
4211 Madison Street, L.L.C.
200 E. Fullerton L.L.C.
350 Randy Road, L.L.C.
4300 Madison Street, L.L.C.
370 Carol Lane, L.L.C.
388 Carol Lane, L.L.C.
941 Weigel Drive, L.L.C.
342 Carol Lane, L.L.C.
343 Carol Lane, L.L.C.
371 N. Gary Avenue, L.L.C.
350 N. Mannheim Road, L.L.C.
1600 167th Street, L.L.C.
1301 E. Tower Road, L.L.C.
4343 Commerce Court, L.L.C.
11039 Gage Avenue, L.L.C.
11045 Gage Avenue, L.L.C.
1401 S. Jefferson, L.L.C.
4100 Madison Street, L.L.C.
4160 Madison Street, L.L.C.
550 Kehoe Blvd., L.L.C.
<PAGE>
SCHEDULE 1.3 (continued)
Permitted Joint Ventures
None.
<PAGE>
SCHEDULE 1.4
Initial Letters of Credit
<TABLE>
<CAPTION>
Beneficiary IRB Project Face Amount
- ----------- ----------- -----------
<S> <C> <C>
NBD Bank, N. A Enterprise Center I, L.P. $2,939,726
NBD Bank, N. A Enterprise Center II, L.P. $5,068,493
NBD Bank, N. A Enterprise Center III, L.P. $4,561,644
NBD Bank, N. A Enterprise Center IV, L.P. $2,635,616
NBD Bank, N. A Enterprise Center V, L.P. $5,068,493
NBD Bank, N. A Enterprise Center VI, L.P. $4,967,123
Cole Taylor Bank Enterprise Center VII, L.P. $7,298,630
Cole Taylor Bank Enterprise Center VIII, L.P. $7,095,890
Cole Taylor Bank Enterprise Center IX, L.P. $4,815,068
Cole Taylor Bank Enterprise Center X, L.P. $4,358,904
First Tennessee Bank N.A Nashville Office Building I, Ltd. $4,915,069
First Tennessee Bank N.A Old Kingston Properties, Ltd. $3,583,905
First Tennessee Bank N.A Professional Plaza, Ltd. $9,215,754
First Tennessee Bank N.A Centre Square II, Ltd. $9,215,754
Credit Suisse First Boston Tennessee Projects. $27,261,554.88
TOTAL $26,930,482
</TABLE>
<PAGE>
SCHEDULE 5.3 (b)
Required Additional Properties
1. Hilton Parking Garage, Knoxville, TN
2. Chicago Enterprise Ctr., Chicago, IL
3. Arlington Hts. Enterprise Ctr., 425 E. Algonquin Rd., Arlington Heights, IL
4. East Chicago Enterprise Ctr., East Chicago, IN
5. Hammond Enterprise Ctr., Hammond, IN
6. SunTrust Bank Bldg., 201 4th Ave., N., Nashville, TN
7. The Weston, 4823 Kingston Pike, Knoxville, TN
8. Centre Square I, 620 Market St., Knoxville, TN
9. Centre Square II, 625 Gay St., Knoxville, TN
<PAGE>
SCHEDULE 6.3
Title to Properties
R. Dan Culp holds a 0.1% limited partnership interest in Professional Plaza,
Ltd.
<PAGE>
SCHEDULE 6.7
Litigation
(a) Karen McIntosh v. The Prime Group, Inc., Pepper
Construction Company, 77 West Wacker Limited Partnership, and all
unknown owners of 77 West Wacker, Case No. 94 M2 1646, filed on June
9, 1994, in the Circuit Court of Cook County, Illinois, Municipal
Department - Second District. Plaintiff, an employee of a tenant in
the 77 West Wacker Drive Building (the "77 Project"), alleges that
she was struck by a board providing protection to the wood paneling
in the elevator cab in the 77 Project and, as a result thereof,
sustained injuries. Pepper Construction Company ("Pepper")
constructed the protective barrier in the elevator cab. The
plaintiff alleges that The Prime Group, Inc. ("PGI") and 77 West
Wacker Limited Partnership (the "77 Partnership") were negligent in
failing to maintain, inspect and repair the elevator cab in a
reasonable manner and, that her injuries were proximately caused by
such negligence. This matter has been forwarded to the 77
Partnership's insurance carrier. The 77 Partnership's insurance
carrier has tendered the defense of this action to the insurance
carrier for Pepper, which has accepted the tender. It is expected
that any and all damages awarded to the plaintiff against the 77
Partnership or PGI will be fully covered by insurance.
(b) Michael Spiezio v. Schal Associates, Inc., Pepper
Construction, The Prime Group, Inc. and Carrera Marble & Mosaics,
Case No. 92L15284, filed on December 15, 1992, in the Circuit Court
of Cook County, Illinois, County Department, Law Division. Plaintiff
alleges that he was an employee of Carrera Marble & Mosaics
("Carrera"), which performed work and/or supplied materials for or
in connection with the construction of the 77 Project. The plaintiff
alleges that, while working on the 77 Project, the plaintiff
sustained injuries, and is seeking damages therefor. The defense of
this case is being handled by Carrera's insurance carrier. It is
expected that any and all damages awarded to the plaintiff against
the 77 Partnership or PGI will be fully covered by insurance.
(c) Giuseppe Fricano v. Schal Associate, Inc. and 77 West
Wacker Limited Partnership, Case No. 92L14542, filed in the Circuit
Court, Cook County, Illinois on November 20, 1992. The plaintiff in
this action, alleges that he was an employee of GMI Corporation
("GMI"), a subcontractor retained by Schal to perform work in
connection with the construction of the 77 Project, and that he was
injured while performing work on the 77 Project. The 77 Partnership
has tendered defense of this lawsuit to the 77 Partnership's
insurance carrier, which, in turn, tendered defense of the action to
Massachusetts Bay Insurance Company ("MBIC"), the insurance carrier
of GMI, which has accepted the defense of this lawsuit. The defense
of this action is being handled by attorneys retained by MBIC. It is
expected that any and all damages awarded to the plaintiff against
the 77 Partnership will be fully covered by insurance.
(d) Charles O. Dowler v. Schal Associates, Inc., The Prime
Group, Inc., Prime Group Realty, Inc. and 77 West Wacker Limited
Partnership, Case No. 93L07708, filed on June 25, 1993, in the
Circuit Court of Cook County, Illinois, County Department, Law
Division. Plaintiff in this action alleges that he was employed by
PDM Structural Group
<PAGE>
("PDM"), a subcontractor retained by Schal to perform work in
connection with the construction of the 77 Project, and that, on or
about July 2, 1991, the plaintiff was injured while working on the
77 Project. The defense of PGI, Prime Group Realty, Inc. and the 77
Partnership in this action was tendered to the insurance carrier for
Schal, which, in turn, tendered the defense on behalf of Schal, PGI,
Prime Group Realty, Inc. and the 77 Partnership to the insurance
carrier for PDM. The insurance carrier for PDM has accepted tender
of the defense on behalf of all defendants of this action. The
defense of this action is being handled by attorneys retained by
PDM's insurance carrier. It is expected that any and all damages
awarded to the plaintiff against the 77 Partnership, PGI or Prime
Group Realty, Inc. will be fully covered by insurance.
(e) Robert Ochoa v. 77 West Wacker Limited Partnership,
American National Bank as Trustee under Trust Agreement No.
110025-08, The Prime Group, Inc., R.R. Donnelley Building, Schal
Construction Company, Pepper Construction, LaSalle Construction,
Robert Irsay Company and TOR Construction, Case No. 93L010010, filed
on August 17, 1993, in the Circuit Court of Cook County, Illinois,
County Department, Law Division. The plaintiff alleges that he was
an employee of Great Lakes Plumbing Heating Company ("Great Lakes"),
a subcontractor of Schal, and that, on or about May 2, 1992,
plaintiff fell off scaffolding while performing work in connection
with the construction of the 77 Project and, as a result thereof,
sustained injuries. The 77 Partnership has tendered defense of this
action on behalf of the 77 Partnership to the 77 Partnership's
insurance carrier, which, in turn, tendered defense of this action
to the insurance carrier for Schal. The insurance carrier for Schal,
in turn, tendered defense of this action to the insurance carrier
for Great Lakes, which has accepted such tender. The defense of this
action was being handled by attorneys retained by the insurance
carrier for Great Lakes. It is expected that any and all damages
awarded to the plaintiff against the 77 Partnership will be fully
covered by insurance.
(f) Michael Schumacher v. Schal Associates, Inc. and The
Prime Group, Inc., Case No. 94L08011, filed on June 29, 1994, in the
Circuit Court of Cook County, Illinois, County Department, Law
Division. The plaintiff alleges that he was an employee of Riggio
Caulking, Inc., a subcontractor of Schal, and that he was injured on
September 16, 1992 while performing work on or with respect to the
77 Project. This matter has been forwarded to the 77 Partnership's
insurance carrier, which tendered defense of this action to Schal's
insurance carrier. The defense of this action is being handled by
attorneys retained by Schal's insurance carrier. The 77 Partnership
expects that any and all damages awarded to the plaintiff against
the 77 Partnership will be fully covered by insurance.
(g) Terrance Sullivan v. The Prime Group, Inc., Schal
Associates, Inc. n/k/a Schal Bovis, Inc., 77 West Wacker Limited
Partnership, Pitt-Des Moines, Inc. and Tribco Construction Co., Case
No. 94L09311, filed on July 27, 1994, in the Circuit Court of Cook
County, Illinois, County Department, Law Division. The plaintiff,
alleges that he was an employee of Gateway Steel which, in turn, was
a subcontractor of Schal, and that, on August 18, 1990, the
plaintiff was injured while performing work in connection with the
construction of the 77 Project. This matter has been forwarded to
the 77 Partnership's insurance carrier, which tendered defense of
this action to Schal's insurance carrier.
<PAGE>
Schal's insurance carrier subsequently tendered this action to the
insurance carrier for Tribco Construction Co. ("Tribco"). The
defense of this action is being handled by attorneys retained by
Tribco's insurance carrier. It is expected that any and all damages
awarded to the plaintiff against the 77 Partnership will be fully
covered by insurance.
(h) Terrance Sullivan v. The Prime Group, Inc., Schal
Associates, Inc. and n/k/a Schal Bovis, Inc., and PDM Structural
Group, a division of Pitt-Des Moines, Inc., Case No. 95L00481, filed
on January 11, 1995 in the Circuit Court of Cook County, Illinois,
County Department, Law Division. The plaintiff alleges that he was
an employee of Gateway Erectors, which, in turn, was a subcontractor
of Schal, and that, on or about, May 30, 1991, while working at the
77 Project, the plaintiff was injured when the plaintiff was
required to lift a metal re-enforcing bar at the 77 Project. Defense
of this action on behalf of all defendants is being handled by
attorneys retained by the insurance carrier for a subcontractor of
Schal. It is expected that any and all damages awarded to plaintiff
against the 77 Partnership will be fully covered by insurance. This
case is in the discovery stage.
(i) Roger P. Ward d/b/a Roger Ward & Company v. Bank of
Montreal, Kemper Investors Life Insurance Company, 77 West Wacker
Limited Partnership, The Prime Group, Inc., The John Buck Company
and Keck, Mahin & Cate, Case No. 96CH02007284, filed on July 11,
1996, in the Circuit Court of Cook County, Illinois, County
Department, Chancery Division. The plaintiff in this action alleges
that he provided real estate brokerage services in connection with a
sublease between Keck, Mahin & Cate, as sublandlord, and Michael,
Best & Friedrich, as subtenant, for space in the 77 Project.
Plaintiff claims he is entitled to a commission payment of
$117,530.00 for such services, plus interest, fees and costs. The
plaintiff seeks foreclosure and other available relief. Motions to
Dismiss this action, filed by the defendants, have been granted. The
defendants are seeking to recover attorneys' fees and costs. The
plaintiff has indicated that he intends to appeal the granting of
the Motions to Dismiss. The 77 Partnership and PGI are represented
in this matter by Kenneth P. Purcell, Esq. of Winston & Strawn.
(j) McQuay Services v. The Prime Group, Inc., Case No.
97M1-158877, filed on October 29, 1997, in the Circuit Court of Cook
County, Illinois, Municipal Department, First District, Contract.
The plaintiff in this action seeks $10,353.01, plus interest, which
plaintiff alleges is due for a piece of equipment supplied by
plaintiff for the 77 Project. PGI and 77 Partnership claim that the
equipment was defective and, therefore, no amount is owed to
plaintiff. PGI and 77 Partnership intend to defend this action.
(k) Illiana Steel, Inc. Illiana Steel, Inc. ("Illiana"), a
tenant in the building owned by Enterprise Center IV, L.P.
("EC4LP"), has not paid all amounts which EC4LP has determined is
owed under its lease. Illiana has disputed the calculation of
additional rent under the lease and, as a result, has not paid all
of the amounts invoiced by EC4LP. In addition, a dispute exists
between Illiana and EC4LP over whether EC4LP is responsible for
tuckpointing brick on the exterior of the leased premises or for the
repairs of certain cranes in the leased premises. The parties
currently are negotiating a
<PAGE>
settlement of the matter.
(l) David Van Lul, Kathleen Van Lul and Sean Holloway v.
The Prime Group, Inc., Cause No 450049702CT00144, filed on February
19, 1997, in the Superior Court of Lake County, Indiana, Civil
Division, Room Four. In August, 1995, a trailer on the property
owned by EC1LP was blown over by wind, injuring David Van Lul's left
arm, wrist and back, injuring Sean Holloway's spine and extremities
and causing damage to the car owned by Mr. Holloway. The plaintiffs
allege that Prime was negligent and that such negligence caused the
incident. The defense in this action is being handled by EC1LP's
insurance carrier. It is expected that any damages awarded against
PGI in this action will be fully covered by insurance.
(m) John Garcia and Norma Garcia v. Brian Moore, The Prime
Group, Inc. and Deeann B. Auto Sales, Inc., Cause No. 45D019605CT
447, filed on May 6, 1996, in the Lake County Superior Court, Room
1, Hammond, Indiana. The plaintiffs in this action allege that, on
or about May 16, 1994, John Garcia was involved in an automobile
accident with a vehicle driven by Brian Moore, who, at the time, was
employed by PGI and worked through PGI's office in Hammond, Indiana.
PGI has tendered the defense of this action to its insurance
carrier. It is expected that all damages awarded to plaintiffs
against PGI in this action will be fully covered by insurance.
(n) Carol Riepe, Special Administratrix of the estate of
Frank J. Riepe, deceased v. Sterling Steel Services, Ltd., Sterling
Steel, Inc., The Prime Group, Inc. and Whiting Corporation, Case No.
96L02402, filed on March 1, 1996, in the Circuit Court of Cook
County, Illinois County Department, Law Division. The plaintiff in
this action seeks damages allegedly suffered by the plaintiff by
reason of the death of Frank J. Riepe. Mr. Riepe was an employee of
Whiting Corporation ("Whiting"). Whiting was retained by Enterprise
Center X, L.P. ("EC10LP") to perform certain work in the space
leased by Sterling. While working in the space leased by Sterling,
Mr. Riepe fell off scaffolding and died. It is expected that any
damages awarded in this action to plaintiff against PGI or EC10LP
will be fully covered by insurance. The defense of this action on
behalf of PGI and EC10LP is being handled by attorneys retained by
EC10LP's insurance carrier.
(o) Wojciech Chryczyk and Boguska Chryczyk v. The Prime
Group, Inc., Arlington Heights I, L.P., Arlington Heights II, L.P.,
Arlington Heights III, L.P., International Components Corporation,
Lech Construction Company and Belcore Electric Construction Co.,
Case No. 96-L-009297, filed on August 13, 1996, in the Circuit Court
of Cook County, Illinois, County Department, Law Division. This
action was brought by the plaintiffs to recover damages suffered on
account of an incident which occurred on or about April 28, 1995, in
the facility owned by Arlington Heights I, L.P. ("AH1LP"), Arlington
Height II, L.P. ("AH2LP") and Arlington Heights III, L.P. ("AH3LP";
collectively the "AH Partnerships"). On or about such date, Wojciech
Chryczyk, an electrician working in the facility owned by the AH
Partnerships, was severely burned as a result of an electrical
explosion which occurred from an electrical panel in the facility.
Mr. Chryczyk sustained burns over more than sixty percent of his
body and, thus far, has incurred more than $780,000.00 in medical
expenses. Mr. Chryczyk was employed by
<PAGE>
Sigma Electric Company, a subcontractor of Lech Construction
Company, which was retained by International Components Corporation
("ICC"), a tenant in the facility, to perform certain tenant
build-out work for ICC. This action is in the discovery stage. PGI
and the AH Partnerships are represented in this action by attorneys
retained by the insurance carrier for PGI and the AH Partnerships.
It is expected that any damages awarded to plaintiffs against Prime
and the AH Partnership will by fully covered by insurance.
<PAGE>
SCHEDULE 6.18
Environmental Reports
Phase I Environmental Assessment of Carlson Environmental, Inc. dated August
20, 1997 with respect to 77 West Wacker Drive, Chicago, Illinois
Letter from Carlson Environmental, Inc. dated November 11, 1997 to Jennifer
Nijman of Winston & Strawn and Juliette Browne of Verrill & Dana concerning
potential off-site issues with respect to 77 West Wacker Drive, Chicago,
Illinois
<PAGE>
SCHEDULE 6.22(d)
Engineering Reports
Engineer Evaluation of 77 West Wacker Drive
Chicago, Illinois dated November 10, 1997 by
Wiss, Janney, Elstner Associates, Inc.
120 N. LaSalle Street, Suite 2000
Chicago, Illinois 60602
<PAGE>
SCHEDULE 6.22(l)
Rent Rolls
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement is made as of the 15th day of
December, 1997 (the "First Amendment Effective Date"), by and among PRIME GROUP
REALTY, L.P., a Delaware limited partnership (the "Borrower"), PRIME GROUP
REALTY TRUST, a Maryland trust (the "Company") and BANKBOSTON, N.A. a national
banking association ("BankBoston"), PRUDENTIAL SECURITIES CREDIT CORPORATION, a
Delaware corporation ("Prudential"), the other lending institutions which are
from time to time listed on Schedule 1, (collectively, with BankBoston and
Prudential, the "Lenders") and BANKBOSTON, N.A., as agent for itself and such
other lending institutions (the "Agent").
WHEREAS, the parties hereto are parties to the certain Credit Agreement
dated as of November 17, 1997 (the "Existing Agreement"); and
WHEREAS, the parties have agreed to amend the Existing Agreement to provide
for an increase in the Total Commitment from $225,000,000 to $235,000,000 and in
certain other respects.
NOW, THEREFORE, the parties hereby agree that effective upon the date
hereof the Existing Agreement is amended as follows:
1. INCREASE IN TOTAL COMMITMENT. BankBoston hereby increases its
Commitment to the amount shown on the revised Schedule 1.2 attached hereto. The
Borrower shall execute and deliver to BankBoston a Note (the "Additional Note")
in an amount equal to the difference between BankBoston's Commitment as shown on
said revised Schedule 1.2 and the Note dated November 17, 1997 delivered to
BankBoston at the time it became a party to the Credit Agreement. The second
sentence of Section 2.3 is amended to read as follows: "One or more Notes shall
be payable to the order of each Lender and the aggregate principal amount of the
Notes held by each Lender shall be equal to such Lender's Commitment."
2. DEFINITIONS: Section 1.1 of the Existing Agreement is amended to
provide that the following terms shall have the following meanings and, to the
extent that any of the following terms are already defined in the Existing
Agreement, such definitions shall be deemed to be amended and restated by the
following definitions:
Additional Properties. Real Estate Assets which hereafter become Mortgaged
Properties or Assigned Mortgage Properties pursuant to Section 5.3.
Applicable Margin. As of any date of determination:
(i) 1.20%, if Total Liabilities are less than 30% of Total Adjusted
Assets, or
1
<PAGE>
(ii) 1.35%, if Total Liabilities are equal to or less than 45% of Total
Adjusted Assets but the condition set forth in CLAUSE (i) of this definition is
not satisfied,
(iii) 1.50% if Total Liabilities exceed 45% of Total Adjusted Assets.
Any change in the Applicable Margin caused by a change in ratio of Total
Liabilities to Total Adjusted Assets shall become effective on the 46th day
following the end of the fiscal quarter at which such ratio was computed as
shown on a Compliance Certificate which reflects such change in said ratio above
or below the 30% level or the 45% level. Notwithstanding anything to the
contrary in this definition for so long as the Continental Towers Property is an
Assigned Mortgaged Property, the Applicable Margin will be increased to 1.75%
during the period from December 15, 1997 through February 14, 1998 and will be
thereafter further increased to 2.00%.
Appraised Value. The market value of each of the Mortgaged Properties,
determined by the Requisite Lenders based upon the most recent Appraisals
obtained pursuant to Section 5.4(b), Section 7.12 or Section 10.14. In
determining Appraised Value the Requisite Lenders shall exclude any value
associated with any unimproved land or unoccupied Buildings located on the
applicable Mortgaged Property.
Assigned Mortgaged Properties. The Real Estate Assets designated as such
on Schedule 1.1, the Buildings thereon and all other property described in the
Security Deeds relating thereto and any other Real Estate Assets, Buildings
thereon and other property described in the Security Deeds assigned to the Agent
pursuant to Section 5.3(c).
Assigned Notes. The Promissory Notes secured by the Security Deeds on the
Assigned Mortgaged Properties acquired by the Borrower and assigned to the
Agent.
Assigned Note Assignments. The Assignments of Liens and Documents from
Borrower to the Agent pursuant to which the Assigned Notes and all related loan
documents and Security Documents are assigned to the Agent.
Borrowing Base Value. With respect to each Mortgaged Property, an amount
equal to (i) two times the Net Operating Income for the most recently completed
two fiscal quarters, minus the Reserve Amount for such Mortgaged Property,
divided by (ii) a capitalization rate equal to 0.09 for the West Wacker Drive
Property or 0.10 for any other Mortgaged Property, provided however that with
respect to each Assigned Mortgaged Property, the Net Operating Income for
purposes of this definition shall be the lesser of its Net Operating Income
computed pursuant to the definition thereof or the actual amount of interest
paid (but not prepaid) on the applicable Assigned Note during such period.
Collateral Value. With respect to each Mortgaged Property an amount equal
to the lesser of is Appraised Value or its Borrowing Base Value, provided that
the Collateral Value of an Assigned Mortgaged Property shall not exceed the
lesser of (i) the Borrower's net acquisition cost for the Assigned Note and
related documents or (ii) the
2
<PAGE>
outstanding principal amount of the applicable Assigned Note and provided that
effective on March 15, 1998 the Collateral Value of the Continental Towers
Property shall become zero.
Continental Towers Property. The Assigned Mortgaged Property known as
Continental Towers located at or near Golf Road, Rolling Meadows, Illinois.
Mortgaged Properties. The (a) Real Estate Assets described on Schedule 1.1
hereto and such other Real Estate Assets which may be subsequently conveyed to
the Agent as Additional Properties to secure the Obligations in accordance with
Section 5.3 hereof, excluding from the foregoing any Real Estate Assets which
the Agent may release pursuant to Section 5.5 hereof, as such Real Estate Assets
are more particularly described in the Security Deeds; (b) the Buildings and
Building Service Equipment located thereon and (to the extent assignable) all
Permits relating thereto; and (c) all other property incident to any of same
described in any Security Document or other Loan Document. The term Mortgaged
Properties also includes the Assigned Mortgaged Properties.
Real Estate Assets. Those fixed and tangible properties consisting of
land, buildings and/or other improvements owned by the Borrower, by any
Guarantor, by any of the Related Companies or by any Permitted Joint Venture at
the relevant time of reference thereto, including without limitation, the
Mortgaged Properties, but excluding all leaseholds other than leaseholds under
ground leases having an unexpired term of at least 30 years. The term Real
Estate Assets also includes the properties subject to the Security Deeds
relating to the Assigned Mortgaged Properties.
Security Deeds. The mortgages and deeds of trust from the Mortgagor to the
Agent pursuant to which the Mortgagor shall convey the Mortgaged Properties as
security for the Obligations and the mortgages which secure the Assigned Notes
and which are assigned to the Agent pursuant to the Assigned Note Assignments.
Security Documents. The Security Deeds, the Assignments of Leases and
Rents, the Pledge Agreements and the UCC-1 financing statements, the Assigned
Note Assignments and all documents securing the Assigned Notes assigned thereby.
Total Adjusted Assets. The sum of (i) the assets classified as cash or
cash equivalents on the consolidated balance sheet of Borrower prepared in
accordance with Generally Accepted Accounting Principles as of the end of the
most recent fiscal quarter (including any restricted cash other than tenant
deposits), plus (ii) the product of (a) EBITDA for the most recent two fiscal
quarters, times (b) two, divided by (c) 0.0975. EBITDA used to compute Total
Adjusted Assets will be computed on a pro forma basis as though the assets
reflected on the consolidated balance sheet of Borrower prepared in accordance
with Generally Accepted Accounting Principles as of the end of the most recent
fiscal quarter had been owned since the first day of the applicable period of
two fiscal quarters and as though all assets disposed of prior to the date of
such balance sheet had been disposed of prior to the first day of the applicable
period of two fiscal quarters
3
<PAGE>
3. AMENDMENT TO SECTION 5.3. Section 5.3 is hereby amended and restated
to read as follows:
Section 5.3. Additional Properties.
(a) A Real Estate Asset owned by the Borrower or by a Guarantor may
become an additional Mortgaged Property if (i) the Requisite Lenders, in their
sole discretion, approve such Real Estate as being eligible to become a
Mortgaged Property and (ii) all of the conditions set forth in Section 5.4 are
satisfied with respect to such Real Estate Asset. Borrower shall provide the
Agent with a notice of each proposed Additional Property describing such
property, its estimated value and its estimated net operating income together
with a current rent roll and the most current operating statements available
with respect thereto. If the Agent determines that additional information is
needed to sufficiently describe such property, it may request a supplemental
notice from the Borrower containing such additional information. When such
notice is satisfactory to the Agent, it shall send a copy to each Lender and any
Lender which fails to notify the Agent of its objection within five (5) Business
Days after its receipt of such notice shall be deemed to have granted its
approval of the eligibility of such Real Estate Asset to become an Additional
Property. In the event that the Requisite Lenders grant such approval and all
of the conditions set forth in Section 5.4 are satisfied, the Agent shall notify
the Borrower and within ten (10) days thereafter the Borrower and the Company
shall execute and deliver an Indemnity Agreement and the Mortgagor shall execute
and deliver to the Agent a Security Deed, an Assignment of Rents and Leases and
UCC-1 financing statements, which Security Documents shall be in substantially
the form of the Security Documents executed and delivered herewith with such
changes as the Agent may deem desirable to address the laws of the State where
the Additional Property is located or the factual circumstances of the
Additional Property. Such Additional Properties shall be deemed to be Mortgaged
Properties upon the recording and filing of such Security Documents and the
Agent's receipt of satisfactory evidence thereof.
(b) After the Continental Towers Property has been released as an
Assigned Mortgaged Property pursuant to Section 5.5, another Real Estate Asset
may become an Assigned Mortgaged Property if (i) the Requisite Lenders, in their
sole discretion, approve such Real Estate Asset as being eligible to become an
Assigned Mortgaged Property, (ii) the Requisite Lenders, in their sole
discretion, approve the terms and conditions of the proposed Assigned Note and
related documents and (iii) all conditions set forth in Section 5.4 are
satisfied with respect to such Real Estate Asset. If the Requisite Lenders
grant such approvals, then upon satisfaction of the conditions set forth in
Section 5.4 and execution and delivery of the Assigned Note Assignment, the
original of the Assigned Note endorsed to the Agent and all other documents
required by the Agent in connection therewith, the Agent shall revise Schedule
1.1 to include such Additional Property as an Assigned Mortgaged Property. At
any time there shall be no more than one Assigned Mortgaged Property hereunder.
4
<PAGE>
(c) The Agent and the Lead Lenders shall use their best efforts to
complete their review of the documents submitted with respect to each Additional
Property and notify the Borrower as to whether the conditions in Section 5.4 are
satisfied with ten (10) Business Days after receipt of the last of the items
required pursuant to Section 5.4.
4. AMENDMENT TO SECTION 5.5. Section 5.5 is hereby amended and restated
to read as follows:
Section 5.5. Release of Mortgaged Properties. The Borrower may request
that the Agent release any Mortgaged Property from the lien of the Security
Documents and the Agent shall grant such requested release provided that (i) the
requested release is consented to by the Requisite Lenders and (ii) there is
then no continuing Default or Event of Default under this Agreement and the
requested release will not result in any Default or Event of Default under this
Agreement and the Borrower delivers to the Agent a pro-forma Compliance
Certificate reasonably satisfactory to the Agent demonstrating that the
requested release will not result in a violation of any of the covenants in
Section 9. Each Lender agrees to respond to any such request for Requisite
Lender consent within five (5) business days and agrees to not unreasonably
withhold its consent. The Borrower may request releases of a portion of a
Mortgaged Property consisting of undeveloped land to be developed by Borrower or
sold provided that in addition to the requirements set forth above, the Borrower
shall also submit such additional information as may be reasonably requested by
the Agent including, without limitation, (i) an updated survey and endorsements
to the Title Policy; (ii) an updated Appraisal of the remaining portion of the
Mortgaged Property and (iii) evidence that the division of the Mortgaged
Property pursuant to the requested release will not result in violation of any
zoning ordinance or other applicable laws and ordinances. If the Borrower shall
request the release of any Mortgaged Property which is adjacent to any other
Mortgaged Property which is not to be simultaneously released, the Agent may
require the establishment of appropriate easements and maintenance agreements
satisfactory to the Agent relating to any shared utilities, drainage facilities,
access drives or walks, parking areas or other shared facilities.
5. AMENDMENT TO SECTION 8.3 (E). Section 8.3 (e) is hereby amended and
restated to read as follows:
(e) Investments made in the ordinary course of the Borrower's
business, in (i) any mortgages the acquisition of which is expressly approved by
the Requisite Lenders, (ii) mortgages and notes receivable having an aggregate
principal amount, exclusive of any investments in mortgages which may have been
so expressly approved by the Requisite Lenders of not more than $25,000,000,
(iii) Permitted Joint Ventures (to the extent permitted by Section 8.4(a)), or
(iv) Interest Rate Contracts;
6. AMENDMENT TO SECTION 9.1. Section 9.1 is hereby amended and restated
to read as follows:
5
<PAGE>
Section 9.1. Collateral Value. The Borrower will not at any time permit
the Outstanding Principal Amount to exceed the sum of (i) sixty percent (60%) of
the total of the Collateral Values of the Mortgaged Properties other than the
Assigned Mortgaged Properties plus (ii) fifty percent (50%) of the total of the
Collateral Values of the Assigned Mortgaged Properties.
7. UPDATED SCHEDULES TO CREDIT AGREEMENT. The following Schedules to the
Credit Agreement are hereby updated, supplemented or replaced as follows:
(a) Schedule 1.1 is replaced by Schedule 1.1 attached hereto.
(b) Schedule 1.2 is replaced by Schedule 1.2 attached hereto.
(c) Schedule 1.3 is replaced by Schedule 1.3 attached hereto.
(d) Schedule 1.4 is replaced by Schedule 1.4 attached hereto.
(e) Schedule 5.3(b) is hereby deleted.
(f) Schedule 6.18 is replaced by Schedule 6.18 attached hereto.
(g) Schedule 6.22(d) is replaced by Schedule 6.22(d) attached hereto.
(h) Schedule 6.22(l) is supplemented by adding thereto the rent rolls
each of the Additional Properties which have been added to
Schedule 1.1 since the Effective Date of the Existing Agreement.
8. APPROVAL OF INVESTMENTS IN MORTGAGES. Pursuant to Section 8.3(e)(ii)
of the Credit Agreement the Requisite Lenders hereby approve the Borrower's
Investments in the notes receivable and mortgages relating to the Continental
Towers Property and relating to the property at 180 North LaSalle Street,
Chicago, Illinois.
9. REPRESENTATIONS AND WARRANTIES. The Borrower and the Company
represent and warrant that each of the representations and warranties contained
in Section 6 is true, correct and complete in all material respects as of the
date hereof to the same extent as though made on such date and that no Default
or Event of Default has occurred and is continuing on the date hereof. The term
Mortgaged Properties as used in said representations and warranties includes the
Properties listed on Schedule 1.1 attached hereto.
10. EFFECTIVENESS OF LOAN DOCUMENTS. On the First Amendment Effective
Date each Guaranty and each Security Deed shall be amended to reflect the
increase of the Total Commitment and the execution and delivery of the
Additional Notes. All references in the Existing Agreement to said Loan
Documents shall mean and be in reference to said Loan Documents as so amended.
The Borrower hereby confirms that each of the Security
6
<PAGE>
Documents shall continue to secure the payment and performance of all of the
Obligations under the Existing Agreement as amended hereby and the Borrower's
obligations under the Security Documents shall continue to be valid and
enforceable and shall not be impaired or limited by the execution or
effectiveness of this Amendment. Every reference contained in the Loan
Documents to the Credit Agreement shall mean and be a reference to the Existing
Agreement as amended hereby and as the Credit Agreement may be further amended.
Every reference contained in the Loan Documents to the Notes shall be deemed to
include the Additional Notes. Except as specifically amended by this Amendment,
the Existing Agreement and each of the Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.
11. MISCELLANEOUS. This Amendment shall be governed by, interpreted and
construed in accordance with all of the same provisions applicable under the
Existing Agreement including, without limitation, all definitions set forth in
Section 1.1, the rules of interpretation set forth in Section 1.2, the
provisions relating to governing law set forth in Section 20, the provisions
relating to counterparts in Section 22 and the provision relating to
severability in Section 26.
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first set forth above.
WITNESS: BANKBOSTON, N.A.
By: /s/ Lori Y. Litow
- ------------------------------ -------------------------------
LORI Y. LITOW
Its:VICE PRESIDENT
PRUDENTIAL SECURITIES CREDIT
CORPORATION
/s/ Fred Robustelli By: /s/ George D. Morgan
- ------------------------------ -------------------------------
GEORGE D. MORGAN, III
Its:VICE PRESIDENT
PRIME GROUP REALTY TRUST
By: /s/ W. Michael Karnes
- ------------------------------ -------------------------------
W. MICHAEL KARNES
Its:EXECUTIVE VICE PRESIDENT
PRIME GROUP REALTY, L.P.
By: PRIME GROUP REALTY TRUST,
its managing general partner
By: /s/ W. Michael Karnes
- ------------------------------ -------------------------------
W. MICHAEL KARNES
Its:EXECUTIVE VICE PRESIDENT
8
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EXHIBIT 10.30
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of November , 1997 (this
"Agreement"), by and between Prime Group Realty Trust, a Maryland real estate
investment trust (the "Company"), and Security Capital Preferred Growth
Incorporated, a Maryland corporation (the "Investor").
WHEREAS, pursuant to that certain Series A Preferred Securities Purchase
Agreement, dated as of November 11, 1997 (the "Purchase Agreement"), by and
among the Company, Prime Group Realty, L.P., a Delaware limited partnership,
and the Investor, the Investor has agreed to acquire 2 million shares of
Series A Cumulative Convertible Preferred Shares of Beneficial Interest, par
value $.01 per share, of the Company (the "Preferred Shares"), all of which
may be converted into the Company's common shares of beneficial interest, par
value S.01 per share (the "Common Shares"), pursuant to the terms of the
Preferred Shares; and
WHEREAS, in connection with the Purchase Agreement, the Company has
agreed to register for sale by the Investor and certain transferees, the
Preferred Shares and Common Shares received by the Investor upon conversion
of Preferred Shares (collectively, the "Registrable Shares"); and
WHEREAS, the parties hereto desire to enter into this Agreement to
evidence the foregoing agreement of the Company and the mutual covenants of
the parties relating thereto.
NOW, THEREFORE, in consideration of the foregoing and the covenants of
the parties set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, subject to the
terms and conditions set forth herein, the parties hereby agree as follows:
Section (i) Certain Definitions. In this Agreement the following
terms shall have the following respective meanings:
"Accredited Investor" shall have the meaning set forth in Rule 501 of
the General Rules and Regulations promulgated under the Securities Act.
"Affiliate" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
the Person specified.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect at the
<PAGE>
relevant time.
"Holders" shall mean (i) the Investor and (ii) each Person holding
Registrable Shares (which term, for purposes of this definition shall include
Common Shares that may be issued upon conversion of outstanding Preferred
Shares) as a result of a transfer or assignment to that Person of Registrable
Shares other than pursuant to an effective registration statement or Rule 144
under the Securities Act.
"Indemnified Party" shall have the meaning ascribed to it in Section
6(c) of this Agreement.
"Indemnifying Party" shall have the meaning ascribed to it in Section
6(c) of this Agreement.
"Person" shall mean an individual, corporation, partnership, estate,
trust, association, private foundation, joint stock company or other entity.
"Piggyback Notice" shall have the meaning ascribed to it in Section 3(a)
of this Agreement.
"Piggyback Registration" shall have the meaning ascribed to it in
Section 3(a) of this Agreement.
"Preferred Shares" shall have the meaning ascribed to it in the recitals
to this Agreement.
The terms "Register," "Registered" and "Registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act providing for the sale by the Holders of
Registrable Shares in accordance with the method or methods of distribution
designated by the Holders, and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
"Registrable Shares" shall have the meaning ascribed to it in the
recitals to this Agreement, except that as to any particular Registrable
Shares, once issued such securities shall cease to be Registrable Shares when
(a) a registration statement with respect to the sale of such securities
(other than the Company's registration statement on Form S-11 (File No.
333-33547)) shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, or (b) such securities shall have been sold in accordance with
Rule 144 (or any successor provision) under the Securities Act.
"Registration Expenses" shall mean all out-of-pocket expenses (excluding
Selling Expenses) incurred by the Company in complying with Sections 2, 3 and
4 hereof, including, without limitation, the following: (a) all registration,
filing and listing fees; (b) fees and expenses
2
<PAGE>
of compliance with federal and state securities or real estate syndication
laws (including, without limitation, reasonable fees and disbursements of
counsel in connection with state securities and real estate syndication
qualifications of the Registrable Shares under the laws of such jurisdictions
as the Holders may reasonably designate); (c) printing (including, without
limitation, expenses of printing or engraving certificates for the
Registrable Shares in a form eligible for deposit with The Depository Trust
Company and otherwise meeting the requirements of any securities exchange on
which they are listed and of printing registration statements and
prospectuses), messenger, telephone, shipping and delivery expenses; (d) fees
and disbursements of counsel for the Company; (e) fees and disbursements of
all independent public accountants of the Company (including without
limitation the expenses of any annual or special audit and "cold comfort"
letters required by the managing underwriter); (f) Securities Act liability
insurance if the Company so desires; (g) fees and expenses of other Persons
reasonably necessary in connection with the registration, including any
experts, retained by the Company; (h) fees and expenses incurred in
connection with the listing of the Registrable Shares on each securities
exchange on which securities of the same class or series are then listed; and
(i) fees and expenses associated with any filing with the National
Association of Securities Dealers, Inc. required to be made in connection
with the registration statement.
"Registration Request" shall have the meaning ascribed to it in Section
2(a) of this Agreement.
"Rule 144" shall mean Rule 144 promulgated by the Commission under the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same shall
be in effect at the relevant time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to any sale of Registrable
Shares.
Section (ii) Demand Registration.
(a) Upon receipt of a written request (a "Registration Request")
delivered not earlier than 120 days prior to the first anniversary of this
Agreement from Holders holding at least 50% of the aggregate of the number of
Preferred Shares then outstanding, the Company shall (i) promptly give notice
of the Registration Request to all non-requesting Holders and (ii) prepare
and file with the Commission, within 45 days after its receipt of such
Registration Request a registration statement for the purpose of effecting a
Registration of the sale of all Registrable Shares by the requesting Holders
and any other Holder who requests to have his Registrable Shares included in
such registration statement within IO days after receipt of notice by such
Holder of the Registration Request. The Company shall use its reasonable
best efforts to effect such Registration as soon as practicable but not later
than 120 days after its receipt of such Registration Request (including,
without limitation, the execution of an undertaking to file post-effective
amendments and appropriate qualification under applicable state securities
and real estate
3
<PAGE>
syndication laws); and shall keep such Registration continuously effective
until the earlier of (i) the third anniversary of the date hereof, (h) the
date on which all Registrable Shares have been sold pursuant to such
registration statement or Rule 144, and (iii) the date on which, in the
reasonable opinion of counsel to the Holders, all of the Registrable Shares
may be sold in accordance with Rule 144(k); provided, however, that the
Company shall not be obligated to take any action to effect any such
Registration, qualification or compliance pursuant to this Section 2 in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such Registration,
qualification or compliance unless the Company is already subject to service
in such jurisdiction.
Notwithstanding the foregoing, the Company shall have the right (the
"Suspension Right") to defer such filing (or suspend sales under any filed
registration statement or defer the updating of any filed registration
statement and suspend sales thereunder) for a period of not more than 90 days
during any one-year period ending on December 31, if the Company shall
furnish to the Holders a certificate signed by an executive officer or any
trustee of the Company stating that, in the good faith judgment of the
Company, it would be detrimental to the Company and its shareholders to file
such registration statement or amendment thereto at such time (or continue
sales under a filed registration statement) and therefore the Company has
elected to defer the filing of such registration statement (or suspend sales
under a filed registration statement).
(b) The Company shall not be required to effect more than one (1)
Registration pursuant to this Section 2.
Section (i) Piggyback Registrations.
(c) On and after the Conversion Date (as defined in the Company's
Amended and Restated Declaration of Trust), so long as the Investor and its
Affiliates hold at least 25% of the Registrable Shares, if the Company
proposes to register any of its common equity securities or any securities
convertible into its common equity securities under the Securities Act (other
than pursuant to (i) a registration statement filed pursuant to Rule 415
under the Securities Act, (ii) a registration on Form S-4 or any successor
form, or (iii) an offering of securities in connection with an employee
benefit, share dividend, share ownership or dividend reinvestment plan) and
the registration form to be used may be used for the registration of
Registrable Shares, the Company will give prompt written notice to all
holders of Registrable Shares of its intention to effect such a registration
(each a "Piggyback Notice") and, subject to subparagraph 3(c) below, the
Company will include in such registration all Registrable Shares with respect
to which the Company has received written requests for inclusion therein
within ten days after the date of sending the Piggyback Notice (a "Piggyback
Registration"), unless, if the Piggyback Registration is not an underwritten
offering, the Company in its reasonable judgement determines that, or in the
case of an underwritten Piggyback Registration, the managing underwriters
advise the Company in writing that in their opinion, the inclusion of
Registrable Shares would adversely interfere with such offering, affect the
Company's securities in the public markets, or otherwise adversely affect the
Company. Nothing herein shall affect the right of the Company to withdraw
any such
4
<PAGE>
registration in its sole discretion.
(d) If a Piggyback Registration is a primary registration on behalf of
the Company and, if the Piggyback Registration is not an underwritten
offering, the Company in its reasonable judgement determines that, or in the
case of an underwritten Piggyback Registration, the managing underwriters
advise the Company in writing that in their opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in an orderly manner within a price range acceptable to the Company, the
Company will include in such registration (i) first, the securities the
Company proposes to sell and (ii) second, the Registrable Shares requested to
be included in such Registration and any other securities requested to be
included in such registration, pro rata among the holders of Registrable
Shares requesting such registration and the holders of such other securities
on the basis of the number of Shares requested for inclusion in such
registration by each such holder.
(e) If a Piggyback Registration is a secondary registration on behalf
of holders of the Company's securities other than the holders of Registrable
Shares, and, if the Piggyback Registration is not an underwritten offering,
the Company determines that, or in the case of an underwritten Piggyback
Registration, the managing underwriters advise the Company in writing that in
their opinion, the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in
such offering within a price range acceptable to the holders initially
requesting such registration, the Company will include in such registration
the securities requested to be included therein by the holders requesting
such registration and the Registrable Shares requested to be included in such
registration, pro rata among the holders of securities requesting such
registration on the basis of the number of Shares requested for inclusion in
such registration by each such holder.
(f) In the case of an underwritten Piggyback Registration, the Company
will have the right to select the investment banker(s) and manager(s) to
administer the offering. If requested by the underwriters for any
underwritten offerings by Holders, under a registration requested pursuant to
Section 2(a), the Company will enter into a customary underwriting agreement
with such underwriters for such offering, to contain such representations and
warranties by the Company and such other terms which are customarily
contained in agreements of this type. The Holders shall be a party to such
underwriting agreement and may, at their option, require that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of Holders.
The Holders shall not be required to make any representations or warranties
to or agreement with the Company or the underwriters other than
representations, warranties or agreements regarding the Holders and the
Holders' intended method of distribution and any other representation or
warranties required by law.
Section (i) Registration Procedures.
(g) The Company shall promptly notify the Holders of the occurrence
5
<PAGE>
of the following events:
(i) when any registration statement relating to the Registrable
Shares or post-effective amendment thereto filed with the Commission has
become effective;
(ii) the issuance by the Commission of any stop order suspending
the effectiveness of any registration statement relating to the Registrable
Shares;
(iii) the suspension of an effective registration statement by
the Company in accordance with the last paragraph of Section 2(a) hereof;
(iv) the Company's receipt of any notification of the suspension of
the qualification of any Registrable Shares covered by a registration
statement for sale in any jurisdiction; and
(v) the existence of any event, fact or circumstance that results
in a registration statement or prospectus relating to Registrable Shares or
any document incorporated therein by reference containing an untrue statement
of material fact or omitting to state a material fact required to be stated
therein or necessary to make the statements therein not misleading during the
distribution of securities.
The Company agrees to use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of any such registration
statement or any state qualification as promptly as possible. The Investor
agrees by acquisition of the Registrable Shares that upon receipt of any
notice from the Company of the occurrence of any event of the type described
in Section 4(a)(ii), (iii), (iv) or (v) to immediately discontinue its
disposition of Registrable Shares pursuant to any registration statement
relating to such securities until the Investor's receipt of written notice
from the Company that such disposition may be made.
(h) The Company shall provide to the Holders, at no cost to the
Holders, a copy of the registration statement and any amendment thereto used
to effect the Registration of the Registrable Shares, each prospectus
contained in such registration statement or post-effective amendment and any
amendment or supplement thereto and such other documents as the requesting
Holders may reasonably request in order to facilitate the disposition of the
Registrable Shares covered by such registration statement. The Company
consents to the use of each such prospectus and any supplement thereto by the
Holders in connection with the offering and sale of the Registrable Shares
covered by such registration statement or any amendment thereto. The Company
shall also file a sufficient number of copies of the prospectus and any
post-effective amendment or supplement thereto with the New York Stock
Exchange, Inc. (or, if the Common Shares are no longer listed thereon, with
such other securities exchange or market on which the Common Shares are then
listed) so as to enable the Holders to have the benefits of the prospectus
delivery provisions of Rule 153 under the Securities Act.
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(i) The Company agrees to use its reasonable best efforts to cause the
Registrable Shares covered by a registration statement to be registered with
or approved by such state securities authorities as may be necessary to
enable the Holders to consummate the disposition of such shares pursuant to
the plan of distribution set forth in the registration statement; provided,
however, that the Company shall not be obligated to take any action to effect
any such Registration, qualification or compliance pursuant to this Section 4
in any particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such
Registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction.
(j) Subject to the Company's Suspension Right, if any event, fact or
circumstance requiring an amendment to a registration statement relating to
the Registrable Shares or supplement to a prospectus relating to the
Registrable Shares shall exist, immediately upon becoming aware thereof the
Company agrees to notify the Holders and prepare and furnish to the Holders a
post-effective amendment to the registration statement or supplement to the
prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Shares, the prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(k) The Company agrees to use its reasonable best efforts (including
the payment of any listing fees) to obtain the listing of all Registrable
Shares covered by the registration statement on each securities exchange on
which securities of the same class or series are then listed.
(l) The Company agrees to use its reasonable best efforts to comply
with the Securities Act and the Exchange Act in connection with the offer and
sale of Registrable Shares pursuant to a registration statement, and, as soon
as reasonably practicable following the end of any fiscal year during which a
registration statement effecting a Registration of the Registrable Shares
shall have been effective, to make available to its security holders an
earnings statement satisfying the provisions of Section 11 (a) of the
Securities Act.
(m) The Company agrees to cooperate with the selling Holders to
facilitate the timely preparation and delivery of certificates representing
Registrable Shares to be sold pursuant to a Registration and not bearing any
Securities Act legend; and enable certificates for such Registrable Shares to
be issued for such numbers of shares and registered in such names as the
Holders may reasonably request at least two business days prior to any sale
of Registrable Shares.
Section (i) Expenses of Registration. The Company shall pay all
Registration Expenses incurred in connection with the registration,
qualification or compliance pursuant to Sections 2, 3 and 4 hereof. All
Selling Expenses incurred in connection with the sale of Registrable Shares
by any of the Holders shall be borne by the Holder selling such Registrable
Shares. Each Holder shall pay the expenses of its own counsel.
7
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Section (ii) Indemnification.
(n) The Company will indemnify each Holder, each Holder's officers and
directors, and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses,
damages and liabilities (including reasonable legal expenses), arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement or prospectus relating to the
Registrable Shares, or any amendment or supplement thereto, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
provided, however, that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises out
of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with
information furnished in writing to the Company by such Holder or underwriter
for inclusion therein.
8
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(o) Each Holder will indemnify the Company, each of its trustees and
each of its officers who sips the registration statement, each underwriter,
if any, of the Company's securities covered by such registration statement,
and each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (including reasonable legal fees and expenses)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any such registration statement or
prospectus, or any amendment or supplement thereto, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement or prospectus, in reliance upon and in conformity with
information furnished in writing to the Company by such Holder for inclusion
therein.
(p) Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
but the omission to so notify the Indemnifying Party shall not relieve it
from any liability which it may have to the Indemnified Party pursuant to the
provisions of this Section 6 except to the extent of the actual damages
suffered by such delay in notification. The Indemnifying Party shall assume
the defense of such action, including the employment of counsel to be chosen
by the Indemnifying Party to be reasonably satisfactory to the Indemnified
Party, and payment of expenses. The Indemnified Party shall have the right
to employ its own counsel in any such case, but the legal fees and expenses
of such counsel shall be at the expense of the Indemnified Party, unless the
employment of such counsel shall have been authorized in writing by the
Indemnifying Party in connection with the defense of such action, or the
Indemnifying Party shall not have employed counsel to take charge of the
defense of such action or the Indemnified Party shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to the Indemnifying Party (in
which case the Indemnifying Party shall not have the right to direct the
defense of such action on behalf of the Indemnified Party), in any of which
events such fees and expenses shall be borne by the Indemnifying Party. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
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(q) If the indemnification provided for in this Section 6 is
unavailable to a party that would have been an Indemnified Party under this
Section 6 in respect of any expenses, claims, losses, damages and liabilities
referred to herein, then each party that would have been an Indemnifying
Party hereunder shall, in lieu of indemnifying such Indemnified Party,
contribute to the amount paid or payable by such Indemnified Party as a
result of such expenses, claims, losses, damages and liabilities in such
proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and such Indemnified Party on the other in
connection with the statement or omission which resulted in such expenses,
claims, losses, damages and liabilities, as well as any other relevant
equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Indemnifying Party or
such Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and each Holder agree that it would not be just and equitable if
contribution pursuant to this Section were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 6(d).
(r) No person guilty of fraudulent misrepresentation (within the
meaning of Section I I (f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(s) In no event shall any Holder be liable for any expenses, claims,
losses, damages or liabilities pursuant to this Section 6 in excess of the
net proceeds to such Holder of any Registrable Shares sold by such Holder.
Section (i) Information to be Furnished by Holders. Each Holder
shall furnish to the Company such information as the Company may reasonably
request and as shall be required in connection with the Registration and
related proceedings referred to in Section 2 or Section 3 hereof. If any
Holder fails to provide the Company with such information within IO days of
receipt of the Company's request, the Company's obligations under Section 2
or Section 3 hereof, as applicable, with respect to such Holder or the
Registrable Shares owned by such Holder shall be suspended until such Holder
provides such information.
Section (ii) Undertaking to Participate in Underwriting. If the
Holders of at least $20 million of the Registrable Shares shall propose to
sell Registrable Shares in an underwritten public offering, the Company shall
make available members of the management of the Company and its affiliates
for reasonable assistance in selling efforts relating to such offering, to
the extent customary for a public offering (including, without limitation, to
the extent customary, senior management attendance at due diligence meetings
with the underwriters and their counsel and road shows) and shall enter into
underwriting agreements containing usual and customary terms and conditions
reasonably acceptable to the Company for such types of offerings.
Section (iii) Rule 144 Sales.
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(t) The Company covenants that it will file the reports required to be
filed by the Company under the Exchange Act, so as to enable any Holder to
sell Registrable Shares pursuant to Rule 144 under the Securities Act.
(u) In connection with any sale, transfer or other disposition by any
Holder of any Registrable Shares pursuant to Rule 144 under the Securities
Act, the Company shall cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Shares to
be sold and not bearing any Securities Act legend, and enable certificates
for such Registrable Shares to be for such number of shares and registered in
such names as the selling Holder may reasonably request at least two business
days prior to any sale of Registrable Shares.
Section (i) Miscellaneous.
(v) Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Maryland.
(w) Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
(x) Amendment. No supplement, modification, waiver or termination of
this Agreement shall be binding unless executed in writing by the party to be
bound thereby.
(y) Notices, etc. Each notice, demand, request, request for approval,
consent, approval, disapproval, designation or other communication (each of
the foregoing being referred to herein as a notice) required or desired to be
given or made under this Agreement shall be in writing (except as otherwise
provided in this Agreement), and shall be effective and deemed to have been
received (i) when delivered in person, (ii) when sent by fax with receipt
acknowledged, (iii) five (5) days after having been mailed by certified or
registered United States mail, postage prepaid, return receipt requested, or
(iv) the next business day after having been sent by a nationally recognized
overnight mail or courier service, receipt requested. Notices shall be
addressed as follows: (a) if to the Investor, at the Investor's address or
fax number set forth below its signature hereon, or at such other address or
fax number as the Investor shall have furnished to the Company in writing, or
(b) if to any assignee or transferee of an Investor, at such address or fax
number as such assignee or transferee shall have furnished the Company in
writing, or (c) if to the Company, at the address of its principal executive
offices and addressed to the attention of the President, or at such other
address or fax number as the Company shall have furnished to the Investors or
any assignee or transferee. Any notice or other communication required to be
given hereunder to a Holder in connection with a registration may instead be
given to the designated representative of such Holder.
(z) Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by fewer than all of the parties
hereto (provided that each party
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executes one or more counterparts), each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one instrument.
(aa) Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
(bb) Section Titles. Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as set forth in
the text.
(cc) Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns.
(dd) Remedies. The Company and the Investor acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that the Company and each
Holder, in addition to any other remedy to which it may be entitled at law or
in equity, shall be entitled to compel specific performance of the
obligations of another party under this Agreement in accordance with the
terms and conditions of this Agreement in any court of the United States or
any State thereof having jurisdiction.
(ee) Attorneys' Fees. If the Company or any Holder brings an action to
enforce its rights under this Agreement, the prevailing party in the action
shall be entitled to recover its costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred in connection with such
action, including any appeal of such action.
[signature page follows]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PRIME GROUP REALTY TRUST
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SECURITY CAPITAL PREFERRED GROWTH
INCORPORATED
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
13
<PAGE>
EXHIBIT C
TAG-ALONG AGREEMENT
THIS TAG-ALONG AGREEMENT (the "Agreement") dated as of November ,
1997 is among Prime Financing, L.P., Prime Group Limited Partnership, Prime
Group II, L.P., Prime Group III, L.P., Prime Group IV, L.P., Prime Group V,
L.P., The Prime Group, Inc., PG/Primestone, L.L.C., a Delaware limited
liability company (together with their respective controlled Affiliates and
their successors in interest pursuant to Section 4 hereof, the "Other
Holders"), and Security Capital Preferred Growth Incorporated, a Maryland
corporation (together with its successors in interest pursuant to Section 4
hereof, "SCPG").
PRELIMINARY STATEMENT
WHEREAS the Other Holders own Common Units, which interests, subject to
certain conditions, are exchangeable for Common Shares.
WHEREAS SCPG owns the Preferred Shares, which shares, subject to certain
conditions, are convertible into Common Shares.
WHEREAS the Other Holders and SCPG desire to enter into this Agreement
to set forth certain agreements with respect to certain transfers by the
Other Holders of their Common Shares; and
WHEREAS the execution and delivery of this Agreement by the parties
hereto is a condition to the closing of the Series A Preferred Securities
Purchase Agreement, dated as of November 11, 1997, by and among Prime Group
Realty Trust, Prime Group Realty, L.P. and SCPG.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with the first Person and shall include any Person who is an
officer, director or beneficial holder of at least 10% of the then
outstanding capital stock (or other shares of beneficial interest or
partnership interest) of the first Person entitled ordinarily to vote for the
first Person's directors (or, for persons that are not corporations, for
those Persons exercising functions similar to directors of a corporation) and
immediate family members of any such officer, director or holder.
<PAGE>
"Common Shares" means the common shares of beneficial interest,
$.01 par value per share, of Prime Group Realty Trust and Common Share
Equivalents.
"Common Share Equivalents" means any security that is convertible
into or exchangeable for Common Shares or upon the exercise of which Prime
Group Realty Trust is required to issue Common Shares, whether or not such
securities are then convertible, exchangeable or exercisable.
"Common Units" means the common units of limited partner interest
of Prime Group Realty, L.P.
"Extraordinary Transaction" means (a) any merger, consolidation,
recapitalization, other business combination or other similar action for
which approval of the holders of Common Shares is required and has been
obtained, or (b) any other Transfer (whether, pursuant to an exchange or
tender offer or otherwise) involving the sale or disposition of 80% or more
of the then outstanding Common Shares.
"Person" means any corporation, limited liability company,
partnership, association, organization, trust, individual, government or any
agency or political subdivision thereof, or other entity.
"Preferred Shares" means the shares of Series A cumulative
convertible preferred shares of beneficial interest, $.01 par value per share
of Prime Group Realty Trust.
"Sale" means any Transfer by the Other Holders or by Primestone
Investment Partners, L.P. of Common Shares, directly or indirectly, to one or
more Persons who are not Affiliates controlled by the Other Holders if, after
giving effect to such Transfer and all prior Transfers of Common Shares
during the preceding 12 months, the Other Holders and Primestone Investment
Partners, L.P. will have Transferred more than 15% of the number of Common
Shares beneficially owned by the Other Holders and Primestone Investment
Partners, L.P., in the aggregate, at the beginning of such 12-month period
(as adjusted for stock splits or stock dividends, or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization); provided, however, that the term "Sale" shall not apply to
Transfers by Primestone Investment Partners, L.P., the proceeds of which are
used either (a) to repay margin loan indebtedness of Primestone Investment
Partners, L.P. or (b) to fund distributions to affiliates of The Blackstone
Group.
"Sale Notice" shall have the meaning ascribed to such term in
Section 2(a) of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Terms Notice" shall have the meaning ascribed to such term in
Section 2(b) of
2
<PAGE>
this Agreement.
"Tag-Along Rights" shall have the meaning ascribed to such term in
Section 2 of this Agreement.
"Transfer" means any direct or indirect sale, transfer, distribution,
assignment, bequest, pledge, hypothecation, encumbrance, grant of a security
interest in, or grant, issuance, sale or conveyance of an option, warrant or
right to acquire, or other disposition of, one or more Common Shares;
provided, however, that a Transfer shall not include (i) sales or
dispositions made pursuant to a broadly distributed, underwritten public
offering pursuant to an effective registration statement under the Securities
Act, (ii) any pledge (including any foreclosure or seizure resulting from
such pledge) to a bona fide financial institution or other business
organization with a net worth in excess of $25 million for the purpose of
securing bona fide indebtedness (including any guarantee or other obligation
related thereto) of the Other Holders or (iii) sales or dispositions pursuant
to an Extraordinary Transaction.
"Transferee" means the recipient, directly or indirectly, of one or more
Common Shares or any interest therein pursuant to a Transfer.
2. Sale of Common Shares. The Other Holders agree, that in the event that
the Other Holders wish to engage in a Sale, to offer to SCPG the right to
participate in such sale in the manner and on the terms set forth in this
Section 2 (the rights of SCPG to participate in a Sale of Common Shares
hereunder are referred to herein as the "Tag-Along Rights").
(a) Offer. At least three business days prior to any Sale, the Other
Holders shall deliver a written notice (the "Sale Notice") to SCPG which
shall include:
(i) A description of the proposed Sale, specifying in reasonable
detail the proposed terms and conditions of the proposed Sale, including the
number of Common Shares proposed to be transferred as a result of such Sale,
the purchase price (or liquidation value) of such Shares, the name and
address of the proposed transferee(s), and the closing date of the proposed
Sale.
(ii) An offer by the Other Holders to include in the proposed Sale
to the proposed transferee, at the option of SCPG, on the same terms and
conditions as the proposed Sale, up to one Common Share for each two Common
Shares to be sold by the Other Holders in the proposed Sale.
(b) Notice of Proposed Sale. The Other Holders shall notify SCPG in
writing (the "Terms Notice") of the terms of the Sale as soon as practicable
after such terms are determined, but in any event at least one business day
prior to the Sale.
(c) Time and Manner of Exercise. If SCPG desires to accept the offer
contained in
3
<PAGE>
the Sale Notice, it shall notify the Other Holders in writing before 5:00
p.m. Chicago time on the business day following the date of receipt of the
Terms Notice, which notice shall specify the number of Common Shares for
which such offer has been accepted. If SCPG has not so accepted such offer
in writing it shall be deemed to have waived all of its Tag-Along Rights with
respect to the proposed Sale, and the Other Holders shall be free, for a
period of 90 days from and after the date of receipt by SCPG of the Terms
Notice, to transfer the Common Shares specified in the Sale Notice but only
on terms no more favorable to the Other Holders than the terms described in
the Sale Notice and the Terms Notice, and any sale in violation of this
provision shall be invalid.
(d) Other Agreements.
(i) The Other Holders shall use their best efforts to obtain the
agreement of the prospective transferees) to the participation of SCPG in any
contemplated Sale, and the Other Holders shall not transfer any of their
Common Shares to the prospective transferee(s) if the prospective
transferees) declines to allow the participation of SCPG as contemplated by
this Section 2, and any sale in violation of this provision shall be invalid.
If SCPG elects to exercise its Tag-Along Rights hereunder, SCPG shall take
such actions and execute such documents and instruments as may be requested
by the Other Holders and as shall be reasonably necessary in order to
consummate the proposed Sale on the same terms as the Other Holders. Each of
the Other Holders and SCPG shall bear their or its own costs and expenses
incurred in connection with any proposed Sale.
(ii) Prime Group Realty Trust agrees that, if requested by SCPG in
writing, it will accelerate, pursuant to Section 3 of the Declaration
creating the Preferred Shares, the date on which the Preferred Shares are
convertible so as to permit SCPG to sell such number of Common Shares that it
has elected to sell pursuant to Section 2 of this Agreement.
(iii) PG/Primestone, L.L.C., as managing general partner of
Primestone Investment Partners, L.P., shall not vote for or consent to (and
none of the Other Holders shall vote or cause any of their Affiliates to vote
for or consent to) any sale of Common Shares by Primestone Investment
Partners, L.P. (except with respect to Transfers described in the proviso to
the definition of "Sale" in Section I hereof) unless in connection with such
Transfer, SCPG is granted Tag-Along Rights in accordance with Section 2
hereof.
(e) Abandonment of Sale. The Other Holders shall have the right, in
their sole discretion, at all times prior to consummation of the proposed
Sale to abandon, rescind annul, withdraw or otherwise terminate such Sale,
and the Other Holders shall not have any liability or obligation to SCPG with
respect thereto by virtue of such abandonment, rescission, annulment,
withdrawal or termination.
3. Form of Agreement Satisfactory to SCPG. Any agreement which SCPG may be
requested or required to execute in connection with Section 2 hereof must be
in form and substance reasonably satisfactory to SCPG. No provision in this
Agreement, including, without
4
<PAGE>
limitation, Section 2 hereof, shall require SCPG to make any representation
(other than as to title, due authorization and enforceability relating solely
to SCPG) or provide any indemnification in any such agreement (other than
indemnification for breaches of the representations set forth in the
preceding clause) and no right or obligation of SCPG shall be conditioned
upon the making of such representation or the provision of such
indemnification.
4. Miscellaneous.
(a) Notices. Notices and other communications provided for in this
Agreement shall be in writing and shall be either delivered by reputable
courier service (charges prepaid), sent by confirmed facsimile transmission
or sent by certified mail (postage prepaid and return receipt requested)
addressed to the party or parties sought to be charged with notice of the
same at the respective addresses set forth below, subject to written notice
of change of address given by any party to the other parties:
IF TO THE OTHER
HOLDERS: The Prime Group, Inc.
77 West Wacker, Suite 3900
Chicago, Illinois 60601
Attention: Michael W. Reschke
Robert J. Rudnik
Fax: (312) 917-1511
with a copy to: Wayne D. Boberg
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Fax: (312) 558-5700
IF TO SCPG: Security Capital Preferred Growth Incorporated
11 South LaSalle Street
Chicago, Illinois 60603
Attention: Daniel F. Miranda
David E. Rosenbaum
Joshua D. Goldman
Fax: (312) 345-5888
with a copy to: Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Philip J. Niehoff, Esq.
Fax: (312) 701-7711
5
<PAGE>
Notice shall be effective and deemed to have been received (i) when
delivered in person, (ii) when sent by fax with receipt acknowledged, (iii)
five (5) days after having been mailed by certified or registered United
States mail, postage prepaid, return receipt requested, or (iv) the next
business day after having been sent by a nationally recognized overnight mail
or courier service, receipt requested.
(b) Changes and Modifications; Termination, Actions under this
Agreement. This Agreement may be terminated, changed, modified or extended,
and consents hereunder may be granted, only by an agreement in writing signed
by SCPG and the owners of a majority of the Common Shares owned by the Other
Holders.
(c) Complete Agreement. This Agreement embodies the complete agreement
and understanding among the parties and supersedes and preempts any prior
understandings, agreements, or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns (including,
without limitation, successor holders of Shares); provided, however, that
SCPG may not assign or transfer its rights or obligations hereunder without
the prior written consent of the owners of a majority of the Common Shares
held by the Other Holders, except to one or more Persons of the types
specified in Section 8.2 of the Purchase Agreement.
(d) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one instrument.
(e) Severability. If in any judicial proceeding a court shall refuse
to enforce any provision of this Agreement, then such unenforceable provision
shall be deemed eliminated from this Agreement for the purpose of such
proceeding to the extent necessary to permit the remaining provisions to be
enforced.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of Maryland without giving effect to the conflict of laws rules of any
jurisdiction.
(g) Remedies. The parties hereto shall have all remedies for breach of
this Agreement available to them provided by law or equity. Without limiting
the generality of the foregoing, the parties agree that in addition to all
other rights and remedies available at law or in equity, the parties shall be
entitled to obtain specific performance of the obligations of each party to
this Agreement and immediate injunctive relief, and that in the event any
action or proceeding is brought in defense, that there is an inadequate
remedy at law.
(h) Transfers. It shall be a condition to any Transfer of Common
Shares to Affiliates of Michael W. Reschke that the Transferee agree in
writing to be bound by the obligations of the Other Holders pursuant to, and
as provided in, this Agreement, whereupon such Transferee shall be deemed to
be a successor in interest of the Other Holders for all purposes of this
Agreement
6
<PAGE>
(but which subsequent agreement shall not relieve the Other Holders of their
obligations hereunder). Any Transfer in violation of this provision shall be
void.
(i) Termination. This Agreement shall terminate on the date on which
SCPG shall cease to own Common Shares issued or issuable upon conversion or
exchange of the Preferred Shares representing at least five percent of the
then outstanding Common Shares (on a fully diluted basis).
[Signature Page Follows]
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
------------------------------------------
Michael W. Reschke
PRIME GROUP REALTY TRUST
By: --------------------------------------
Its: -------------------------------------
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust, its
managing general partner
By: --------------------------------------
Its: -------------------------------------
PRIME GROUP II, L.P., PRIME GROUP III,
L.P., PRIME GROUP IV, L.P., PRIME GROUP
V, L.P.
By: PGLP, Inc., its sole General
Partner
By: --------------------------------------
Its: -------------------------------------
PRIME GROUP LIMITED PARTNERSHIP
------------------------------------------
By: Michael W. Reschke, its Managing
General Partner
<PAGE>
PRIME FINANCING, L.P.
By: Prime Financing, Inc., its sole
General Partner
By: --------------------------------------
Its: -------------------------------------
THE PRIME GROUP, INC.
By: --------------------------------------
Its: -------------------------------------
PG/PRIMESTONE, L.L.C.
By: --------------------------------------
Its: -------------------------------------
SECURITY CAPITAL PREFERRED GROWTH
INCORPORATED
By: --------------------------------------
Its: -------------------------------------
<PAGE>
ACCEPTED AND AGREED TO
WITH RESPECT TO SECTION 2(d)(ii):
Prime Group Realty, L.P.
By: Prime Group Realty Trust, its
managing general partner
By: -----------------------------------
Name: ---------------------------------
Its: ----------------------------------
PRIME GROUP REALTY TRUST
By: -----------------------------------
Name: ---------------------------------
Its: ----------------------------------
<PAGE>
EXHIBIT D
November , 1997
Security Capital Markets Group Incorporated
399 Park Avenue
New York, New York 10022
Attention: Mr. Garret C. House, Vice President
Re: Prime Group Realty Trust
Gentlemen:
This letter confirms the appointment of Security Capital Markets Group
Incorporated ("SCMG") by Prime Group Realty Trust (the "Company") and Prime
Group Realty, L.P. (the "Operating Partnership") as a Placement Agent in
connection with that certain Series A Preferred Securities Purchase Agreement
(the "Purchase Agreement") by and among the Company, the Operating
Partnership and Security Capital Preferred Growth Incorporated ("SCPG"),
pursuant to which SCPG is purchasing 2 million shares of the Company's Series
A Cumulative Convertible Preferred Shares of Beneficial Interest (the
"Securities"). Nothing herein shall constitute an undertaking by SCMG to
underwrite or otherwise purchase the Securities.
For these services, the Company and the Operating Partnership jointly
agree that SCMG's compensation hereunder will consist of a fee (the "Fee")
equal to 1% of the Aggregate Purchase Price (as defined in the Purchase
Agreement) of all Securities purchased by SCPG pursuant to the Purchase
Agreement. Such fee shall be payable at or prior to the Closing Date (as
defined in the Purchase Agreement). The Company and the Operating
Partnership agree and acknowledge that no fee payable to any other finder,
broker, broker-dealer or other party shall reduce the Fee payable hereunder.
Each of SCMG, the Company and the Operating Partnership agrees that (i)
in connection with the sale of the Securities, neither it nor any person
acting on its behalf has offered or sold or will offer or sell the Securities
by any form of general solicitation or general advertising, including but not
limited to the following: (A) any advertisement, article, notice or other
communication published in any newspaper or broadcast over television or
radio or (B) any seminar or meeting whose attendees were invited by any
general solicitation or general advertising; and (ii) it has solicited and
will solicit offers for Securities only from and will offer Securities only
to, investors that it has a reasonable basis to believe are "accredited
investors" within the meaning of Rule 501 (a) under the Securities Act of
1933, as amended.
<PAGE>
In consideration for SCMG agreeing to provide the services referred to
herein, the Company and the Operating Partnership jointly agree to indemnify
and hold harmless SCMG, its affiliates and each other entity or person, if
any, controlling SCMG or any of its affiliates within the meaning of the
federal securities laws, and their respective directors, officers and
employees (SCMG and each such entity or person being referred to as an
"Indemnified Person"), from and against any claim by any third party for any
losses, claims, damages or liabilities (or actions in respect thereof)
relating to or arising out of the services performed pursuant to this
agreement, the purchase contemplated hereby or SCMG's role in connection
therewith, and to reimburse any Indemnified Person for all expenses
(including, without limitation, reasonable fees and disbursements of counsel)
incurred in connection with any action, suit or proceeding in relation
thereto or in connection therewith, other than any such losses, claims,
damages, liabilities or expenses of any Indemnified Person that are
determined by final judgment of a court of competent jurisdiction to have
resulted primarily from actions taken or omitted to be taken by such
Indemnified Person in bad faith or from such Indemnified Person's gross
negligence or SCMG's intentional and material breach of this agreement. The
Company shall not be liable for any settlement of any proceeding effected
without its prior written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to indemnify
the Indemnified Person from and against any loss or liability by reason of
such settlement or judgment subject to the rights of the Company in this
paragraph to claim exemption from its indemnity obligations. The Company
shall not, without the prior written consent of any Indemnified Person,
effect any settlement of any proceeding in respect of which such Indemnified
Person is a party and indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement includes an unconditional release
of such Indemnified Person from all liability on claims that are the subject
matter of such proceeding.
This agreement shall be governed by the internal laws of the state of
Illinois. This agreement may be terminated at any time by the Company or
SCMG upon written notice to the other party; provided that the
representations and indemnity obligations of the Company hereunder and the
obligation of the Company to pay SCMG the Fee shall survive any termination
of SCMG's engagement hereunder and any sale of such Securities.
<PAGE>
Please indicate your agreement with this understanding by signing the
letter below and returning it to the undersigned.
Sincerely,
PRIME GROUP REALTY TRUST
By: ------------------------------------------
Name: ----------------------------------------
Its: -----------------------------------------
Prime Group Realty, L.P.
By: Prime Group Realty Trust, its general
partner
By: ------------------------------------------
Name: ----------------------------------------
Its: -----------------------------------------
Accepted and Agreed to as of the date set forth above:
SECURITY CAPITAL MARKETS GROUP INCORPORATED
By: --------------------------------------
Name: ------------------------------------
Its: -------------------------------------
<PAGE>
EXHIBIT 10.31
TAG-ALONG AGREEMENT
THIS TAG-ALONG AGREEMENT (the "Agreement") dated as of November 17, 1997 is
among Prime Financing, L.P., Prime Group Limited Partnership, Prime Group II,
L.P., Prime Group III, L.P., Prime Group IV., L.P., Prime Group V, L.P., The
Prime Group, Inc., PG/Primestone, L.L.C., a Delaware limited liability company
(together with their respective controlled Affiliates and their successors in
interest pursuant to SECTION 4 hereof, the "Other Holders"), and Security
Capital Preferred Growth Incorporated, a Maryland corporation (together with its
successors in interest pursuant to SECTION 4 hereof, "SCPG").
PRELIMINARY STATEMENT
WHEREAS the Other Holders own Common Units, which interests, subject to
certain conditions, are exchangeable for Common Shares.
WHEREAS SCPG owns the Preferred Shares, which shares, subject to certain
conditions, are convertible into Common Shares.
WHEREAS the Other Holders and SCPG desire to enter into this Agreement to
set forth certain agreements with respect to certain transfers by the Other
Holders of their Common Shares; and
WHEREAS the execution and delivery of this Agreement by the parties hereto
is a condition to the closing of the Series A Preferred Securities Purchase
Agreement, dated as of November 11, 1997, by and among Prime Group Realty Trust,
Prime Group Realty, L.P. and SCPG.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following term shall have
the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with the first Person and shall include any Person who is an officer, director
or beneficial holder of at least 10% of the then outstanding capital stock (or
other shares of beneficial interest or partnership interest) of the first Person
entitled ordinarily to vote for the first Person's directors (or, for persons
that are not corporations, for those Persons exercising functions similar to
directors of a corporation) and immediate family members of any such officer,
director or holder.
<PAGE>
"COMMON SHARES" means the common shares of beneficial interest, $.01 par
value per share, of Prime Group Realty Trust and Common Share Equivalents.
"COMMON SHARE EQUIVALENTS" means any security that is convertible into or
exchangeable for Common Shares or upon the exercise of which Prime Group Realty
Trust is required to issue Common Shares, whether or not such securities are
then convertible, exchangeable or exercisable.
"COMMON UNITS" means the common units of limited partner interest of Prime
Group Realty, L.P.
"EXTRAORDINARY TRANSACTION" means (a) any merger, consolidation,
recapitalization, other business combination or other similar action for which
approval of the holders of Common Shares is required and has been obtained, or
(b) any other Transfer (whether, pursuant to an exchange or tender offer or
otherwise) involving the sale or disposition of 80% or more of the then
outstanding Common Shares.
"PERSON" means any corporation, limited liability company, partnership,
association, organization, trust, individual, government or any agency or
political subdivision thereof, or other entity.
"PREFERRED SHARES" means the shares of Series A cumulative convertible
preferred shares of beneficial interest, $.01 par value per share of Prime Group
Realty Trust.
"SALE" means any Transfer by the Other Holders or by Primestone Investment
Partners, L.P. of Common Shares, directly or indirectly, to one or more Persons
who are not Affiliates controlled by the Other Holders if, after giving effect
to such Transfer and all prior Transfers of Common Shares during the preceding
12 months, the Other Holders and Primestone Investment Partners, L.P. will have
Transferred more than 15% of the number of Common shares beneficially owned by
the Other Holders and Primestone Investment Partners, L.P., in the aggregate, at
the beginning of such 12-month period (as adjusted for stock splits or stock
dividends, or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization); provided, however, that the term
"Sale" shall not apply to Transfers by Primestone Investment Partners, L.P., the
proceeds of which are used either (a) to repay margin loan indebtedness of
Primestone Investment Partners, L.P. or (b) to fund distributions to affiliates
of The Blackstone Group.
"SALE NOTICE" shall have the meaning ascribed to such items in SECTION 2(a)
of this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.
"TERMS NOTICE" shall have the meaning ascribed to such term in SECTION 2(b)
of this Agreement.
-2-
<PAGE>
"TAG-ALONG RIGHTS" shall have the meaning ascribed to such term in SECTION
2 of this Agreement.
"TRANSFER" means any direct or indirect sale, transfer, distribution,
assignment, bequest, pledge, hypothecation, encumbrance, grant of a security
interest in, or grant, issuance, sale or conveyance of an option, warrant or
right to acquire, or other disposition of, one or more Common Shares; provided,
however, that a Transfer shall not include (i) sales or dispositions made
pursuant to a broadly distributed, underwritten public offering pursuant to an
effective registration statement under the Securities Act, (ii) any pledge
(including any foreclosure or seizure resulting from such pledge) to a bona fide
financial institution or other business organization with a net worth in excess
of $25 million for the purpose of securing bona fide indebtedness (including any
guarantee or other obligation related thereto) of the Other Holders or (iii)
sales or dispositions pursuant to an Extraordinary Transaction.
"TRANSFEREE" means the recipient, directly or indirectly, of one or more
Common Shares or any interest therein pursuant to a Transfer.
2. SALE OF COMMON SHARES. The Other Holders agree, that in the event
that the Other Holders wish to engage in a Sale, to offer to SCPG the right to
participate in such sale in the manner and on the terms set forth in this
SECTION 2 (the rights of SCPG to participate in a Sale of Common Shares
hereunder are referred to herein as the "TAG-ALONG RIGHTS").
(a) OFFER. At least three business days prior to any Sale, the Other
Holders shall deliver a written notice (the "SALE NOTICE") to SCPG which shall
include:
(i) A description of the proposed Sale, specifying in reasonable
detail the proposed terms and conditions of the proposed Sale, including the
number of Common shares proposed to be transferred as a result of such Sale, the
purchase price (or liquidation value) of such Shares, the name and address of
the proposed transferee(s), and the closing date of the proposed Sale.
(ii) An offer by the Other Holders to include in the proposed Sale to
the proposed transferee, at the option of SCPG, on the same terms and conditions
as the proposed Sale, up to one Common Share for each two Common Shares to be
sold by the Other Holders in the proposed Sale.
(b) NOTICE OF PROPOSED SALE. The Other Holders shall notify SCPG in
writing (the "TERMS NOTICE") of the terms of the Sale as soon as practicable
after such terms are determined, but in any event at least one business day
prior to the Sale.
(c) TIME AND MANNER OF EXERCISE. If SCPG desires to accept the offer
contained in the Sale Notice, it shall notify the Other Holders in writing
before 5:00 p.m. Chicago time on the business day following the date of receipt
of the Terms Notice, which notice shall specify the number of Common Shares for
which such offer has been accepted. If SCPG has not so accepted such offer
-3-
<PAGE>
in writing it shall be deemed to have waived all of its Tag-Along Rights with
respect to the proposed Sale, and the Other Holders shall be free, for a period
of 90 days from and after the date of receipt by SCPG of the Terms Notice, to
transfer the Common Shares specified in the Sale Notice but only on terms no
more favorable to the Other Holders than the terms described in the Sale Notice
and the Terms Notice, and any sale in violation of this provision shall be
invalid.
(d) OTHER AGREEMENTS.
(i) The Other Holders shall use their best efforts to obtain the
agreement of the prospective transferee(s) to the participation of SCPG in any
contemplated Sale, and the Other Holders shall not transfer any of their Common
Shares to the prospective transferee(s) if the prospective transferee(s)
declines to allow the participation of SCPG as contemplated by this Section 2,
and any sale in violation of this provision shall be invalid. If SCPG elects to
exercise its Tag-Along Rights hereunder, SCPG shall take such actions and
execute such documents and instruments as may be requested by the Other Holders
and as shall be reasonably necessary in order to consummate the proposed Sale on
the same terms as the Other Holders. Each of the Other Holders and SCPG shall
bear their or its own costs and expenses incurred in connection with any
proposed Sale.
(ii) Prime Group Realty Trust agrees that, if requested by SCPG in
writing, it will accelerate, pursuant to Section 3 of the Declaration creating
the Preferred Shares, the date on which the Preferred Shares are convertible so
as to permit SCPG to sell such number of Common Shares that it has elected to
sell pursuant to SECTION 2 of this Agreement.
(iii) PG/Primestone, L.L.C., as managing general partner of
Primestone Investment Partners, L.P., shall not vote for or consent to (and none
of the Other Holders shall vote or cause any of their Affiliates to vote for or
consent to) any sale of Common Shares by Primestone Investment Partners, L.P.
(except with respect to Transfers described in the Proviso to the definition of
"Sale" in Section 1 hereof) unless in connection with such Transfer, SCPG is
granted Tag-Along Rights in accordance with Section 2 hereof.
(e) ABANDONMENT OF SALE. The Other Holders shall have the right,
in their sole discretion, at all times prior to consummation of the proposed
Sale to abandon, rescind, annul, withdraw or otherwise terminate such Sale, and
the Other Holders shall not have any liability or obligation to SCPG with
respect thereto by virtue of such abandonment, rescission, annulment, withdrawal
or termination.
3. FORM OF AGREEMENT SATISFACTORY TO SCPG. Any agreement which
SCPG may be requested or required to execute in connection with SECTION 2
hereof, must be in form and substance reasonably satisfactory to SCPG. No
provision in this Agreement, including, without limitation, SECTION 2 hereof,
shall require SCPG to make any representation (other than as to title, due
authorization and enforceability relating solely to SCPG) or provide any
indemnification in any such agreement (other than indemnification for breaches
of the representations set forth in the preceding clause) and no right or
obligation of SCPG shall be conditioned upon the making of such
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<PAGE>
representation or the provision of such indemnification.
4. MISCELLANEOUS.
(a) NOTICES. Notices and other communications provided for in
this Agreement shall be in writing and shall be either delivered by reputable
courier service (charges prepaid), sent by confirmed facsimile transmission or
sent by certified mail (postage prepaid and return receipt requested) addressed
to the party or parties sought to be charged with notice of the same at the
respective addresses set forth below, subject to written notice of change of
address given by any party to the other parties:
IF TO THE OTHER
HOLDERS: The Prime Group, Inc.
77 West Wacker, Suite 3900
Chicago, Illinois 60601
Attention: Michael W. Reschke
Robert J. Rudnik
Fax: (312) 917-1511
with a copy to: Wayne D. Boberg
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Fax: (312) 558-5700
IF TO SCPG: Security Capital Preferred Growth Incorporated
11 South LaSalle Street
Chicago, Illinois 60603
Attention: Daniel F. Miranda
David E. Rosenbaum
Joshua D. Goldman
Fax: (312) 345-5888
with a copy to: Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Philip J. Niehoff, Esq.
Fax: (312) 701-7711
Notice shall be effective and deemed to have been received (i) when
delivered in person, (ii) when sent by fax with receipt acknowledged, (iii) five
(5) days after having been mailed by certified or registered United States mail,
postage prepaid, return receipt requested, or (iv) the next business day after
having been sent by a nationally recognized overnight mail or courier service,
receipt
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<PAGE>
requested.
(b) CHANGES AND MODIFICATIONS; TERMINATION; ACTION UNDER THIS
AGREEMENT. This Agreement may be terminated, changed, modified or extended, and
consents hereunder may be granted, only by an agreement in writing signed by
SCPG and the owners of a majority of the Common Shares owned by the Other
Holders.
(c) COMPLETE AGREEMENT. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements, or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns (including,
without limitation, successor holders of Shares); PROVIDED, HOWEVER, that
SCPG may not assign or transfer its rights or obligations hereunder without
the prior written consent of the owners of a majority of the Common Shares
held by the Other Holders, except to one or more Persons of the types
specified in Section 8.2 of the Purchase Agreement.
(d) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one instrument.
(e) SEVERABILITY. If in any judicial proceeding a court shall refuse
to enforce any provision of this Agreement, then such unenforceable provision
shall be deemed eliminated from this Agreement for the purpose of such
proceeding to the extent necessary to permit the remaining provisions to be
enforced.
(f) GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Maryland without giving effect to the conflict of laws rules of any
jurisdiction.
(g) REMEDIES. The parties hereto shall have all remedies for breach
of this Agreement available to them provided by law or equity. Without limiting
the generality of the foregoing, the parties agree that in addition to all other
rights and remedies available at law or in equity, the parties shall be entitled
to obtain specific performance of the obligations of each party to this
Agreement and immediate injunctive relief, and that in the event any action or
proceeding is brought in defense, that there is an inadequate remedy at law.
(h) TRANSFERS. It shall be a condition to any Transfer of Common
Shares to Affiliates of Michael W. Reschke that the Transferee agree in writing
to be bound by the obligations of the Other Holders pursuant to, and as provided
in, this Agreement, whereupon such Transferee shall be deemed to be a successor
in interest of the Other Holders for all purposes of this Agreement (but which
subsequent agreement shall not relieve the Other Holders of their obligations
hereunder). Any Transfer in violation of this provision shall be void.
(i) TERMINATION. This Agreement shall terminate on the date on which
SCPG shall
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<PAGE>
cease to own Common Shares issued or issuable upon conversion or exchange of the
Preferred Shares representing at least five percent of the then outstanding
Common Shares (on a fully diluted basis).
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
/s/ Michael W. Reschke
----------------------------------
Michael W. Reschke
PRIME GROUP REALTY TRUST
By: /s/ W. Michael Karnes
---------------------------------------
Its: EXECUTIVE VP AND CHIEF FINANCIAL OFFICER
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust, its
managing general partner
By: /s/ W. Michael Karnes
----------------------------------------
Its: Executive VP And Chief Financial Officer
----------------------------------------
PRIME GROUP II, L.P., PRIME GROUP
III, L.P., PRIME GROUP IV, L.P.,
PRIME GROUP V, L.P.
By: PGLP, Inc., its sole General
Partner
By: /s/ Robert J. Rudnik
----------------------------------------
Its: Vice President
----------------------------------------
PRIME GROUP LIMITED PARTNERSHIP
/S/ Michael W. Reschke
----------------------------------------
By: Michael W. Reschke, its
Managing General Partner
PRIME FINANCING, L.P.
-8-
<PAGE>
By: Prime Financing, Inc., its sole
General Partner
THE PRIME GROUP, INC.
By: /s/ Robert J. Rudnik
----------------------------------------
Its: Vice President
PG/PRIMESTONE, L.L.C.
By: The Prime Group, Inc.,
its Administrative Member
By: /s/Robert J. Rudnik
----------------------------------------
Its: Vice President
SECURITY CAPITAL PREFERRED
GROWTH INCORPORATED
By: /s/ David Rosenbaum
----------------------------------------
Its: Vice President
ACCEPTED AND AGREED TO
WITH RESPECT TO SECTION 2(d)(ii):
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust, its
managing general partner
By: /s/ W. Michael Karnes
-----------------------------------------
Name: W. Michael Karnes
-----------------------------------------
Its: Executive VP and Chief Financial Officer
-----------------------------------------
PRIME GROUP REALTY TRUST
By: /s/ W. Michael Karnes
-----------------------------------------
Name: W. Michael Karnes
-----------------------------------------
Its: Executive VP and Chief Financial Officer
-----------------------------------------
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<PAGE>
EXHIBIT 10.32
PLACEMENT FEE LETTER
November 17, 1997
Security Capital Markets Group Incorporated
399 Park Avenue
New York, New York 10022
Attention: Mr. Garret C. House, Vice President
Re: Prime Group Realty Trust
Gentlemen:
This letter confirms the appointment of Security Capital Markets Group
Incorporated ("SCMG") by Prime Group Realty Trust (the "Company") and Prime
Group Realty, L.P. (the "Operating Partnership") as a Placement Agent in
connection with that certain Series A Preferred Securities Purchase Agreement
(the "Purchase Agreement") by and among the Company, the Operating Partnership
and Security Capital Preferred Growth Incorporated ("SCPG"), pursuant to which
SCPG is purchasing 2 million shares of the Company's Series A Cumulative
Convertible Preferred Shares of Beneficial Interest (the "Securities"). Nothing
herein shall constitute an undertaking by SCMG to underwrite or otherwise
purchase the Securities.
For these services, the Company and the Operating Partnership jointly agree
that SCMG's compensation hereunder will consist of a fee (the "Fee") equal to 1%
of the Aggregate Purchase Price (as defined in the Purchase Agreement) of all
Securities purchased by SCPG pursuant to the Purchase Agreement. Such fee shall
be payable at or prior to the Closing Date (as defined in the Purchase
Agreement). The Company and the Operating Partnership agree and acknowledge
that no fee payable to any other finder, broker, broker-dealer or other party
shall reduce the Fee Payable hereunder.
Each of SCMG, the Company and the Operating Partnership agrees that (i) in
connection with the sale of the Securities, neither it nor any person acting on
its behalf has offered or sold or will offer or sell the Securities by any form
of general solicitation or general advertising, including but not limited to the
following: (A) any advertisement, article, notice or other communication
published in any newspaper or broadcast over television or radio or (B) any
seminar or meeting whose attendees were invited by any general solicitation or
general advertising; and (ii) it has solicited and will solicit offers for
Securities only from and will offer Securities only to, investors that it has a
reasonable basis to believe are "accredited investors" within the meaning of
Rule 501(a) under the Securities Act of 1933, as amended.
<PAGE>
In consideration for SCMG agreeing to provide the services referred to
herein, the Company and the Operating Partnership jointly agree to indemnify and
hold harmless SCMG, its affiliates and each other entity or person, if any,
controlling SCMG or any of its affiliates within the meaning of the federal
securities laws, and their respective directors, officers and employees (SCMG
and each such entity or person being referred to as an "Indemnified Person"),
from and against any claim by any third party for any losses, claims, damages or
liabilities (or actions in respect thereof) relating to or arising out of the
services performed pursuant to this agreement, the purchase contemplated hereby
or SCMG's role in connection therewith, and to reimburse any Indemnified Person
for all expenses (including, without limitation, reasonable fees and
disbursements of counsel) incurred in connection with any action, suit or
proceeding in relation thereto or in connection therewith, other than any such
losses, claims, damages, liabilities or expenses of any Indemnified Person that
are determined by final judgment of a court of competent jurisdiction to have
resulted primarily from actions taken or omitted to be taken by such Indemnified
Person in bad faith or from such Indemnified Person's gross negligence or SCMG's
intentional and material breach of this agreement. The Company shall not be
liable for any settlement of any proceeding effected without its prior written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Company agrees to indemnify the Indemnified Person from and
against any loss or liability by reason of such settlement or judgment subject
to the rights of the Company in this paragraph to claim exemption from its
indemnity obligations. The Company shall not, without the prior written consent
of any Indemnified Person, effect any settlement of any proceeding in respect of
which such Indemnified Person is a party and indemnity could have been sought
hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of such proceeding.
This agreement shall be governed by the internal laws of the state of
Illinois. This agreement may be terminated at any time by the Company or SCMG
upon written notice to the other party; provided that the representations and
indemnity obligations of the Company hereunder and the obligation of the Company
to pay SCMG the Fee shall survive any termination of SCMG's engagement hereunder
and any sale of such Securities.
<PAGE>
Please indicate your agreement with this understanding by signing the
letter below and returning it to the undersigned.
Sincerely,
PRIME GROUP REALTY TRUST
By:/s/ W. Michael Karnes
--------------------------------
Name W. Michael Karnes
-------------------------------
Its Executive Vice President and
--------------------------------
Chief Financial Officer
-------------------------------
PRIME GROUP REALTY, L.P.
By: Prime Group Realty Trust, its
general partner
By: /s/ W. Michael Karnes
------------------------------
Name W. Michael Karnes
------------------------------
Its Executive Vice President and
------------------------------
Chief Financial Officer
------------------------------
Accepted and Agreed to as of the date set forth above:
SECURITY CAPITAL MARKETS GROUP INCORPORATED
By: /s/ Garret C. House
--------------------
Name Garret C. House
--------------------
Its Vice President
---------------------
<PAGE>
EXHIBIT 10.33
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of November 17, 1997
between PRIME GROUP REALTY, L.P., a Delaware limited partnership ("UpREIT"), and
THE PRIME GROUP, INC., an Illinois corporation ("Prime").
WHEREAS, the UpREIT has entered into that certain Tax Indemnification
Agreement, dated as of November 17, 1997 (the "Nardi Tax Indemnity Agreement")
with Stephen J. Nardi, an individual, Narco Enterprises, Inc., an Illinois
corporation, and Nardi Group Limited, a Delaware corporation (collectively, the
"Nardi Indemnitees");
WHEREAS, the UpREIT has entered into that certain Tax Indemnification
Agreement, dated as of November 17, 1997 (the "Hadesman Tax Indemnity
Agreement") with Ed Hadesman, an individual, Edward S. Hadesman Trust Dated May
22, 1992, Edward S. Hadesman, Trustee; Grandville/Northwestern Management
Corporation, an Illinois corporation; Carolyn B. Hadesman Trust Dated May 21,
1992, Carolyn B. Hadesman, Trustee; Lisa Hadesman 1991 Trust, Edward S.
Hadesman, Trustee; Cynthia Hadesman 1991 Trust, Edward S. Hadesman, Trustee;
Tucker B. Magid, an individual; Frances S. Shubert, an individual; Grandville
Road Property, Inc., an Illinois corporation; and Sky Harbor Associates, an
Illinois limited partnership (collectively, the "Hadesman Indemnitees");
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 either of the Hadesman Tax
Indemnity Agreement or the Nardi Tax Indemnity Agreement (collectively, the "Tax
Indemnity Agreements"); provided however for purposes of this Agreement the term
"After-tax Basis" shall take into account all federal, applicable state and
applicable local and municipal income taxes. 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.
Section 2. INDEMNIFICATION. Prime shall indemnify and hold harmless,
on an After Tax Basis, UpREIT against any amount due and payable to a Nardi
Indemnitee or a Hadesman Indemnitee pursuant to the Tax Indemnity Agreements
("Indemnity Payment"), determined after taking into account all deductions,
credits, or other federal and applicable state income tax benefits then realized
by UpREIT and resulting from (a) such Indemnity Payment, or (b) the receipt of
any indemnity payment made under this Agreement.
<PAGE>
Section 3. NOTIFICATION/PAYMENT.
(a) UpREIT shall notify Prime orally and in writing of as soon as possible
of its receipt of any oral or written notification or written certificate
described in Section 4 of each of the Hadesman Tax Indemnity Agreement or the
Nardi Tax Indemnity Agreement.
(b) UpREIT 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 Prime hereunder and to maximize the amount of its tax savings;
PROVIDED, HOWEVER, that UpREIT shall not be required to take any action which,
in its good faith judgment, would have any material adverse business
consequences to it or to Prime Group Realty Trust. Prime shall have the right to
timely and comprehensively review any computation of any Indemnity Payment
received or prepared by UpREIT or the independent accounting firm described in
Section 4 of each Tax Indemnity Agreement.
(c) Any payment due to UpREIT pursuant to this Section 2 shall be paid
upon the time an Indemnity Payment is due under the respective Tax Indemnity
Agreement.
Section 4. EXCLUSIONS.
Notwithstanding the foregoing, Prime shall not have any liability for
indemnification under this Agreement to the extent the amount otherwise
indemnifiable is payable by UpREIT as a result of one or more of the following:
(a) The failure of UpREIT (or any of its Affiliates, other than
Prime) to use its best efforts to avoid liability to a Hadesman Indemnitee or
Nardi Indemnitee under the Tax Indemnity Agreements (including, without
limitation, the failure to pursue a like kind exchange under Code Section 1031
in respect of the transaction that gave rise to the Indemnity Payment);
(b) The gross negligence or the willful misconduct of UpREIT (or any
of its Affiliates, other than Prime);
(c) The breach by UpREIT (or any of its Affiliates, other than Prime)
of any of its representations, warranties or covenants under this Agreement or
any Tax Indemnity Agreement.
Section 5. CONTESTS.
(a) To the extent that UpREIT is permitted or has any discretion
under the relevant Tax Indemnity Agreement to contest an issue that may result
in Prime owing UpREIT an Indemnity Payment, or otherwise to make decisions or
give its consent in respect of such contest or any other matter within such Tax
Indemnity Agreement that could affect Prime's obligation to indemnity UpREIT
under this Agreement, UpREIT (i) shall take direction from Prime (which shall be
given on a timely basis) in respect of all such decisions, discretion or
consents relating to such
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<PAGE>
contest or matters, and (ii) shall permit Prime to have access to all
information and to participate in all proceedings, as it deems necessary in its
sole reasonable discretion, in order to give the direction to Prime described in
clause (i).
(b) Notwithstanding the foregoing, UpREIT will have no obligation to
take direction from Prime in respect of a contest which could result in Prime
owing UpREIT indemnification under this Agreement (i) without Prime 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 penalties) for which
refund is claimed, or (ii) to the extent UpREIT waives in writing Prime's
obligation to indemnify UpREIT for such items, in which case all third-party
costs and out-of-pocket expenses described in clause (i) thereafter incurred and
all taxes would be paid by UpREIT.
Section 6. TAX SAVINGS.
(a) In the event that Prime makes an indemnity payment pursuant to
Section 3, if UpREIT shall realize with respect to any year, any federal,
applicable state or applicable local or municipality income tax savings that
would not have been realized but for either UpREIT's receipt of such payment or
the related Indemnity Payment (which tax savings were not taken into account in
calculating Prime's indemnity payment to UpREIT), UpREIT shall pay to Prime, on
an After-Tax Basis, an amount equal to the actual net reduction in federal and
applicable state income tax actually realized by UpREIT; provided, however, that
in no event shall UpREIT be required to pay Prime more, on an aggregate basis,
than the aggregate Indemnity Payments it receives from Prime.
(b) In the event that UpREIT receives a payment from a Nardi
Indemnitee in respect of a tax savings under Section 7 of the Nardi Tax
Indemnity Agreement, UpREIT shall pay to Prime such an amount.
(c) Any payment due to Prime pursuant to this Section 6 shall be paid
within ten business days after UpREIT has received the corresponding payment
from a Nardi Indemnitee or Hadesman Indemnitee; PROVIDED, HOWEVER, that (i)
obligations of Prime and UpREIT under this Agreement will first be set off
against each other, and (ii) any loss of such tax savings by UPREIT subsequent
to the year of realization shall be indemnifiable pursuant to the provisions of
this Agreement.
Section 7. STATE TAX. For purposes of this Agreement, each of UpREIT
and Prime will be treated as recognizing any taxable income, 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 tax
purposes at the same time, in the same amount and in the same manner, as such
person does for federal income tax purposes.
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<PAGE>
Section 8. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
Section 9. 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 14.1 of the Partnership Agreement.
Section 10. SUCCESSORS AND ASSIGNS. The terms of this Tax
Indemnification Agreement may not be assigned without the written consent of the
non-assigning party.
Section 11. 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.
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<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.
PRIME GROUP REALTY, L.P.
By: PRIME GROUP REALTY TRUST
Its: Managing General Partner
By: /s/ Richard S. Curto
---------------------------
Name: Richard S. Curto
Title: President and CEO
THE PRIME GROUP, INC.
By: /s/ Michael W. Reshcke
---------------------------------
Name: Michael W. Reschke
Title: Chairman of the Board
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